United States – Banana Republic?
In a recent New York Times column, Nick Kristof discusses the increasing income inequality in the United States. It’s quite sobering. He asks, what is in my opinion, the absolute right question:
So we face a choice. Is our economic priority the jobless, or is it zillionaires?
We live in such strange times – we keep discussing tax cuts for the rich like it is absolutely true if they’re not extended we’ll plunge into a recession. I would argue that the tax cuts are a big part of the reason we’re in this mess to begin with.
In my reporting, I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie.
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The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.
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Robert H. Frank of Cornell University, Adam Seth Levine of Vanderbilt University, and Oege Dijk of the European University Institute recently wrote a fascinating paper suggesting that inequality leads to more financial distress. They looked at census data for the 50 states and the 100 most populous counties in America, and found that places where inequality increased the most also endured the greatest surges in bankruptcies.
Here’s their explanation: When inequality rises, the richest rake in their winnings and buy even bigger mansions and fancier cars. Those a notch below then try to catch up, and end up depleting their savings or taking on more debt, making a financial crisis more likely.
The U.S. became the strongest country in the world because of the rise of the middle class. We began educating people and good high-paying jobs for many people led to economic prosperity. I don’t know why we’re trying to go back to the time when America was a developing country. It feels like we’re going backwards doesn’t it – we’re letting our infrastructure crumble but there seems to be plenty of money to make war on other countries. Now we’re in the strange spiral where we’re trying to roll back our social insurance programs – for what? For more tax cuts for the rich, which we hope (cross our fingers) means they’ll decide to give someone a job.
Tags: Inequality, New York Times, Nick Kristoff
The worst part is that we actually voted for this path. We had a way to avoid it, and we chose not to. America might end up earning a group Darwin award.
For more tax cuts for the rich, which we hope (cross our fingers) means they’ll decide to give someone a job.
That is not hope, that is delusion.
I would argue that the tax cuts are a big part of the reason we’re in this mess to begin with.
I wish more Democrats and even more bloggers had been talking about this last spring. We had the opportunity to put decoupled tax cuts on the floor of the House, and we failed. Pelosi failed, and the base failed to make an issue of it at the time. Now is too late. But isn’t that the Democrat way.
A vote on decoupled tax cuts would have put Republicans on the defensive and most likely would have tamped down the wave election.
I always wondered how you could pull off a “per-employee” tax cut.. or of that exists. The ceos only respond to being given more money they didnt really earn.
I don’t care too much whether the top marginal rate is 36% or 39%. Both are in the ballpark for a balance between revenue and incentive.
But the 15% rate on capital gains and dividends is killing jobs by discouraging long term business investment. That is the biggest single tax cut for the rich. That is what our Democrats are proposing to extend. Shame on them for even thinking about it.
Extending tax cuts for the rich is a tacit endorsement of trickle-down. That is a historic abandonment of Democratic values.
The automatic expiration of all the tax cuts is a winning hand. Democrats have misplayed it so far. The last way left to play the winning hand is a veto threat on any bill that includes the tax cuts for the rich in any form, permanent or not.
Let’s not forget that “Candidate Obama” already compromised on expiring tax cuts for the rich. The campaign promise was to raise dividends only to 20%, not to their previous rate. Under the Clinton administration, dividends were taxed as as regular income at the top marginal rate of 39%. That is what dividends will revert to if the tax cuts expire.
The full veto is a mighty club to use in negotiations with Republicans. I think the rich would give in to just about anything in order to limit their dividend rate to 20% instead of 39%.
A full veto, plus a resounding call for shared sacrifice, is not a bad Plan B.
I always wondered how you could pull off a “per-employee” tax cut.. or of that exists.
I think Obama proposed that but the corporations were less than thrilled about it, so it was dropped.
The thing is, the only way these dolts know how to make profits is by firing employees. So they aren’t interested in any tax cut that requires them to actually hire people.
Which is incidentally why they don’t want the capital gains and dividend taxes raised. Because then they would have to avoid the tax by actually investing the money back into their company and employees, and figure out how to make money through work instead of parasitic financial manipulations. Makes brain hurt.
“But the 15% rate on capital gains and dividends is killing jobs by discouraging long term business investment.”
I think that has to be wrong. The 15% rate was enacted when W was President. Before that the rate was higher, as in the Clinton years, and hiring was not an issue then.
Dana you are correct but I think you missed my point.
During most of the 1990s the capital gains rate was 25% and dividends were treated as regular income (top rate 39%).
Clinton signed a capital gains cut in 1997(8?) to 20% but left dividends alone.
GWB cut both capital gains and dividends to 15%. My contention is that those rates are so low they encourage company officers to pump stock price for quick gain at the expense of long term investment. Low dividend taxes are the most pernicious because unlike the 5-year restriction on LT capital gains, dividends are paid the same year. That is why it is a good idea to tax dividends at a higher rate than capital gains, to encourage business investment (hiring) and discourage short-term pump and dump plays (layoffs).
whenIf the Bush tax cuts expire, capital gains goes back to 20%, and dividends to regular income rates (top 39%), which are the rates that prevailed during the Clinton boom and balanced the budget.But Obama’s original campaign promise already had a compromise on expiring dividend cuts. Instead of letting dividends expire to 39% top rate, Obama’s plan
iswas to cut them to 20%, same as capital gains. I think this is too low for dividends.Also don’t forget the HCR has a 3% tax on capital gains and dividends to fund health care subsidies. Which is probably the real reason Republicans are vowing to repeal it.