What Ails America? Giving 20% of Our Money to the Rich

Many people object to any 'redistribution' of income through taxes, because that, in their view, is socialist. It penalizes hard work and success, and it stifles the spirit of innovation.

But a great redistribution of wealth has already occurred, in the other direction. From 1980 to 2006 the richest 1% of America nearly tripled their after-tax percentage of our nation's income, while the bottom 90% has seen their share drop over 20%.


Either one and a half million rich people started working 3 times harder or we've experienced a redistribution of wealth not seen since the Great Depression.

Here's another way to look at it. Since 1980 our country's productivity has steadily risen, with total income doubling approximately every 10 years. If the bottom 90% of America had shared in this prosperity at a level consistent with 1980 incomes, they would be making $45,000 a year instead of $35,000.

Yet remarkably, local initiatives to balance the budget generally target middle-income earners. Regressive state income taxes, the sales tax, new property taxes, gas taxes, cigarette taxes, utility costs, license fees, parking meter rates. If this isn't enough, there might be a cutback on after-school programs in low-income areas, or a cutback on park services, even if it means some of the parks won't open as a result.

We rarely hear serious proposals to return income tax rates to the levels that helped to build a strong middle class a half-century ago. Instead we hear arguments based on emotion rather than facts. Like the rich paying almost all the taxes. It's true that the top 1% pays 40% of all federal income taxes. But federal taxes are a small part of the tax burden on lower- and middle-income people. Based on recent data from the Institute on Taxation and Economic Policy, the total of all state and local taxes, social security taxes, and excise taxes (gasoline, alcohol, tobacco) consumes 21% of the annual incomes of the poorest half of America. For the richest 1% of Americans, the same taxes consume 7% of their incomes.

Internal Revenue Service figures show that almost half of our country's income goes to the richest 10% of Americans (those making at least $283,000 a year). The distribution of wealth is even more skewed, with the richest 1% of Americans owning more than the poorest 90%.

Innovative, industrious business leaders certainly deserve to be well-compensated for their efforts. But even Adam Smith, the father of capitalism, realized that the wealthy benefit most from a strong economy, which we've had for most of the past 25 years. He recognized that reasonable limits must be in place to curb abuses. A progressive income tax is the best way to do this, no matter how much yelling we hear from the top.

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