U.S. Government Redistributes Wealth… to the Rich

By Matt Bewig | AllGov | December 24, 2012

For about thirty years now, the federal government has been implementing policies that take tax dollars from middle class Americans and give them to the rich, supposedly as a way to spur economic growth. Although Americans actually want greater economic equality, the net effect has been to redistribute wealth to the rich and create the most unequal developed society on earth.

According to a series of reports by Reuters, since 1989 inequality has risen all across the U.S. to levels not seen since before the Great Depression:

• Inequality has increased in every state except Mississippi, which is the poorest state in the Union;

• The poverty rate increased in 43 states;

• In 28 states inequality and poverty rose while median income fell;

• In every state, the richest 20% of households far outpaced the income gains of any other quintile;

• Income for the median household fell in 28 states.

Three specific aspects of federal policy—low taxes for the rich, outsourcing government functions to private companies, and the financial clout of Washington lobbyists—have been the major drivers of growing inequality.

Low taxes for the rich

Tax cuts enacted during the administrations of Presidents Ronald Reagan and George W. Bush cut taxes sharply on the wealthy, redistributing nearly $2 trillion to high income families—just in the past ten years. In 2011, the nonpartisan Congressional Budget Office and Congressional Research Service each studied income inequality and concluded that the cuts made the tax system less progressive and were the second biggest contributor to growing inequality.

Outsourcing

Starting under President Bill Clinton’s “reinventing government” initiative, the federal government has directed trillions of tax dollars to private-sector contractors by outsourcing government operations that would previously have been performed by government employees. Federal money flowing to business rose 7% during Clinton’s second term and 72% percent under Bush, before leveling off in 2010. This has contributed to inequality because private employers typically offer lower skilled workers less job security, lower wages and fewer benefits than the federal government does.

Lobbying

Nearly 13,000 registered lobbyists reported $3.3 billion in fees last year. There are 22% more lobbyists than in 1998, and their inflation-adjusted revenue is 37% higher than in 1998. Because re-election to Congress is so expensive, the campaign contributions that lobbyists influence or control are critical to political survival on Capitol Hill. But lobbyists work overwhelmingly for groups representing social elites. According to a study led by Prof. Kay Schlozman, the majority of lobbying groups exist to advance the interests of business, while groups advocating for union workers and the poor came in last and second to last on the list.

Study: CEO pay now 200 times more than a worker

Press TV – May 3, 2012

Compensation for chief executives at American companies grew 15 percent in 2011 after a 28 percent rise in 2010, part of a larger trend that has seen CEO pay skyrocket over the last three decades. Workers, on the other hand, have been left behind.

Since 1978, CEO pay at American firms has risen 725 percent, more than 127 times faster than worker pay over the same time period, according to new data from the Economic Policy Institute:

From 1978 to 2011, CEO compensation increased more than 725 percent, a rise substantially greater than stock market growth and the painfully slow 5.7 percent growth in worker compensation over the same period.

In 1978, CEOs took home 26.5 times more than the average worker. They now make roughly 206 times more than workers, EPI found. The pay isn’t always tied to the performance of their businesses – as ThinkProgress has noted, CEOs at companies like Bank of America often pocket huge pay increases even as the company’s stock price plummets and jobs are cut.

As a result, American income inequality has skyrocketed, growing worse than it is in countries like Pakistan and Ivory Coast. Wealth inequality is worse than it was even in Ancient Rome. And, as pay skyrockets and tax rates fall for the richest Americans, the rising inequality has left the bottom 95 percent of Americans saddled with more debt than ever before. – thinkprogress.org

Workers’ wages aren’t tied to productivity either. Despite substantial gains in productivity since the 1970s, worker pay has remained flat. According to Labor Department data cited by the Huffington Post, inflation-adjusted wages fell 2 percent in 2011. – thinkprogress.org

Working and middle-class Americans have seen their debt balloon since the 1980s. Today, Americans owe some $704 billion in credit card debt, and more than that in both auto loans and student borrowing. CNN

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Maxing Out

Toward a Maximum Wage

By JOHNNY E. WILLIAMS | CounterPunch | April 10, 2012

Tackling income inequality through the minimum wage alone is an inadequate way to counter the economy’s anti-egalitarian tendencies. The minimum wage exists because the federal government recognizes the economy undervalues the average worker’s contribution and fails to provide a fair livable wage. Conversely, the economy’s overvaluing a few people’s contribution is also in need of governmental oversight. Since the government believes the economy is not a reliable gauge for determining how little is too little, it cannot assume the “market” is capable of determining how much is too much. Given this it is incumbent on the federal government to implement an income ceiling to eliminate the extreme income disparity between top and average wage earners.

Before dismissing the maximum wage idea outright, consider President Franklin Delano Roosevelt’s call for 1942 maximum wage of $25,000 a year (in 2012 dollars $364,000) as a means to fuel economic growth and reduce income inequality. In a recent Le Monde Diplomatique article Sam Pizzigati of the Institute for Policy Studies revealed that two short years after President Roosevelt’s proposal, Congress increased the top tax rate to 94% for individual incomes over $200,000 (in 2012 dollars $2.6 million) The 94¢ tax on every dollar over the $200,000 limit helped initiate the longest period of economic growth for the middle class in U.S. history. This tax rate remained in place until President Lyndon Johnson dropped it to under 70% in the late 1960s. About two decades later President Reagan reduced the rate to 50% and then to 28% in 1988 before it settled at today’s 35% rate. But this tax rate overstates the rich’s tax burden given that most of their income [tax payment] comes from the 15% capital gains tax on profits acquired from buying and selling stocks, bonds and assets. This tax rate is about the same as that for working Americans earning between $50,000 and $75,000 before itemized deductions and exemptions.

Opponents of the maximum wage assert that cutting the top tax rates rather than increasing them will spark revenue and job growth. Their “trickle down” rationale assumes that making the rich richer will create good paying jobs, making working people more prosperous. But the trickle down approach and other piecemeal provisions like the minimum wage, earned income tax credit, and other minimalist economic programs and policies have proven ineffective in reversing the growth in income inequality over the last four decades. The ineffectiveness of such programs and policies is apparent in Emmanuel Saez’s recently released study showing that during the current recession one-percenters captured 93 percent of the income growth in both 2009 and 2010. In real dollar terms this means that the bottom 90% income on average declined $127 while the top 1% income increased $106,000.

One the best and most proficient ways to restart job growth and alleviate poverty and inequality, the imposition of a maximum allowable wage tied to minimum wage and enforced through a progressive income tax. The maximum is set at a specific multiple (maybe twenty five times) of the minimum wage, so that all income over the multiple limit is subject to a 95% to 100% tax. Limiting and linking average and top wage earners in this way will help Americans clearly see that poverty and suffering is necessary for an individual to accumulate wealth.

The fact is that income and wealth inequality impedes economic recovery, and efficiency and stability because it weakens demand for goods and services. By implementing a maximum wage the government could generate billions in revenue that can be invested in health, education, technology and infrastructure maintenance in ways that ensure the economy is sustainable, productive and efficient.

Europeans, especially those dealing with economic austerity measures, are already debating how to enact a maximum wage policy to ameliorate economic calamity. The idea of the maximum wage is also starting to resonate in the United States with a public that is increasingly aware of the destructive and anti-democratic consequences of lopsided disparities in income and wealth. This emerging awareness encourages people to question and challenge the legitimacy of economic values and a political system that, as Martin Luther King, Jr. put it: “permit necessities to be taken from the many to give luxuries to the few.”

Johnny E. Williams is an Associate Professor in the Department of Sociology at Trinity College.    

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