As Congress votes on its tax bill [now passed], I’m republishing this article to again focus on the issue of inequality, because this tax bill is not the “incredible Christmas gift for hardworking Americans” that President Trump promised. According to the Economic Policy Institute, 60% of the nation will pay more taxes as health insurance rates spike, 13 million Americans lose all health insurance, and the top 1% gets over 80% of the benefit. This sure seems more like a massive tax scam than tax relief for the middle class, and it will exacerbate the growing wealth gap. (See bill analysis below).
The chart below shows how “trickle down” economics has worked over the last 40 years. The U.S. now has one of the highest levels of income inequality in the world. But to really understand wealth inequality, read the stats and watch the videos in this article.
Wealth Inequality in America
The problem with rising inequality of income and wealth is that it leads to inequality of political influence and opportunity, and that threatens our democracy. After a Washington Post article concluded that People have no idea what inequality actually looks like, I revised and republished this article, which I’m revising again now. It features a great video infographic and some disturbing videos that help us understand the corrupting influence of big money in politics, and the direct relationships between:
- Special Interest Lobbying and policies that widen the income & wealth gaps,
- between the widening gaps and Poverty,
- between poverty and Obesity,
- between obesity and Diabetes and other Chronic Illness,
- between chronic illness and Rising Healthcare Costs, and
- between rising healthcare costs and our Economic Problems.
Highlights (from this 2012 video)
- Our Perception of wealth distribution is far from our Ideal but not even close to Actual distribution.
- The top 1% has more of the nation’s wealth than 90% of us think the top 20% should have.
- The top 1% has 40% of all of the nation’s wealth and takes home almost 25% of the annual income.
- UPDATE (Nov.2017): The three richest Americans ― Bill Gates, Jeff Bezos and Warren Buffett ― now have the wealth of the bottom half of the U.S. population, or 160 million Americans.
- The top 1% own half the country’s stocks, bonds and mutual funds.
- UPDATE (Jan.2018): The top 1% grabbed 82% of all wealth created in 2017 (CNN Money)
- The bottom 50% live hand-to-mouth, don’t invest, and own just 0.5% of stocks.
- CEOs make about 380 times more than the average worker (not lowest, but average), but do they really do 380 times more work or contribute 380 times more?
- UPDATE (Nov.2015): CEOs now make almost 1,000 times more. While the 2012 video compares wealth of the top 1%, we should now be looking at the top 0.1% & 0.01%. And we should craft tax policies accordingly, but Congress instead want to give a huge tax cut to the wealthy.
- The Average worker needs to work more than a Month (now >2 months) to make what the CEO makes in just one Hour.
Saving Capitalism (November 2017)
BREAKING: House Republicans just voted (Nov.2016) to hand tax breaks to billionaires at the expense of healthcare and the middle class. The move would make the wealth gap even wider and threaten democracy as we know it, so I’m happy to republish this article again and highlight a new documentary just released by Netflix and Robert Reich. “Saving Capitalism“ is about widening economic inequality, growing distrust of our political system, and the rise of Donald Trump. It’s streaming now on Netflix for free, and below is the 2-minute trailer and my notes from watching it. I highly recommend it no matter your party affiliation.
- “Saving Capitalism” is a short (1hr, 12 min) documentary. I urge you to watch and learn about the corporate welfare subsidies that already exist before voting for politicians who would give even more tax breaks to the rich, further widening the wealth gap.
- Robert Reich — He has been in public service for 50 years and is a Former Labor Secretary, serving under three presidential administrations — Ford (R), Carter (D) and Clinton (D). I find him eminently qualified to speak on labor issues, including inequality and taxation.
- Free Market Capitalism — There’s no such thing without rules governing Property, Monopoly, Contracts, and Bankruptcy. But who makes the rules?
- Rigged System — Because of wide disparity of wealth, influence and opportunity, the systems become rigged against all but the wealthy who buy influence.
- Do You Trust Government? — According to recent surveys, our trust in government has plummeted from 77% in 1964 to 20% today (2017).
- Lost Voice — Our own influence has been drowned out by wealthy special interests that can now spend unlimited amounts on campaign contributions, thanks to the Roberts Supreme Court and its Citizens United decision.
- Lobbying — $3.15 Billion was spent on lobbying last year (2016). That amounts to a whopping $5.9 Million per member of Congress. That buys a whole lot of influence.
- The preference of average Americans appears to have only a minuscule, near zero, statistically non-significant impact on public policy. Crony capitalism now has significantly more impact than your calls, emails, letters, and personal visits to elected officials. That’s because money buys TV, print and online advertising that gets unaware people to vote against their own best interest. (from research over a 20-year period from 1982-2002 by Northwestern and Princeton Universities)
- Party Affiliation — Rather than labeling people as liberal or conservative, and putting them in blue tribes or red, Reich went around the country asking people what they thought about Politics, the Economy, and Values. He found that they had shared concerns with crony capitalism and the wealth “establishment.”
- Fear — People of both parties are frightened, anxious and feel insecure about their future, but no one in a nation as rich as ours should be made to feel like that.
- Populism — Many of the people interviewed liked both Donald Trump and Bernie Sanders, because they both had a populist, anti-establishment message. But populism can go in two different directions. It can either go toward an authoritarian form of government (Trump), or fundamental democratic reform (Sanders).
- Counter-balance — For fundamental reform to succeed, it needs institutions that counter the wealthy special interests and conservative Think Tanks. We’ve seen examples of that already as people have gotten organized into movements such as Occupy Wall Street, The Women’s March, Indivisible, Black Lives Matter, and $15/hour minimum wage.
- Millenials — Reich concluded by saying the task of saving capitalism is now up to the next generation. They’re already stepping up — to protest, or run for office themselves. We saw examples of that in Virginia, with a new wave of women and minority candidates running for office and winning, turning 15 red seats blue.
- Activism — To be a citizen activist, Reich says people should: (1) be patient and persistent, (2) talk to people who disagree with you, and (3) have some fun.
As I watched Saving Capitalism and took notes, I captured these additional thoughts.
- I wondered about the impact that fear, anxiety, insecurity, and record levels of distrust of government might have on rising rates of suicide and mass murder. They seem related.
- I also worried about the FCC’s announced plan to repeal Net Neutrality protections, along with its previous decision to allow media companies to gain monopoly control of the news by combining TV, radio and print in any city. Without Net Neutrality, network operators will be able to filter the truth and determine what news we see, as well as how much impact our voice has. That’s a direct threat to free speech. My interest in this is because of the important role that Internet access and broadband competition has on telemedicine and the future of healthcare.
Inequality for All is another documentary featuring Robert Reich. Filmed in 2013, it also offers expert insights. The film is described as “a game-changer” in our national discussion of income inequality, but only if people watch it.
After watching the trailer, I encourage you to watch the full version using the link and password provided by Bernie Sanders. Even consider hosting a Watch Party, inviting your friends and discussing the issues raised. It’s a great way to better understand the impact that inequality has had on the nation’s poor and middle-class, and the economy in general, or healthcare in particular.
Reich starts with a discussion of just how wide the wealth gap has become and how the top 1% can’t even spend what they earn, even with lavish lifestyles. They can’t buy that many homes, cars, pillows, jeans, or haircuts. Because of the difficulty in spending it, such extreme wealth doesn’t really contribute much to the economy or jobs. He then describes some of the causes, including:
- The accelerating pace of tech innovation, and
- The growing influence of big money in politics.
His recommendations are hard for some people to swallow, a bitter pill if you will, including:
- Get big money out of politics,
- Fix the tax system,
- Invest in education,
- Raise the minimum wage,
- Strengthen worker’s voices, and
- Reform Wall Street.
Inequality for All — Full-length Version (1.5 hr)
Now you can watch his full-length version online for free with the password “bernie2016”. Please learn, comment, and share.
Bill Moyers interview
RELATED DEBATE: Are The Rich Already Taxed Enough?
This 1.5 hr video shows both sides of the tax reform debate, considering three factors discussed include: Fairness, Sufficiency, and Efficiency. In the end, 30% of the audience agreed that the rich are taxed enough, while 63% were convinced that the rich are NOT taxed enough compared to the rest of society.
SOLUTIONS: Tax Reform and Raising the Minimum Wage
As the Republican Congress considers tax cuts for the wealthiest individuals and corporations, the rest of us worry about automation (income from capital) replacing jobs (income from labor).
It’s important to understand what’s behind the current and trending wealth & income inequality. While one benefit of our capitalist form of government is to encourage risk-taking, investment and innovation among those with capital to do so, that same system also causes the capitalists to seek profit by almost any means. That includes either replacing workers or augmenting their performance with skills training, automation, AI, robots, and outsourcing. Over time, those capital investments, and the accelerating pace of tech innovation, has helped to dramatically increase worker productivity; but the benefits have gone primarily to the owners, not the hired workers.
New skills developed by workers to keep up with technology doesn’t necessarily result in higher wages. There’s an economic supply & demand reason for that. When demand for workers with a needed skill is high but supply is low, wages rise. But when supply is high and demand is low, wages fall or stagnate. That means training grape-pickers to become app developers both lowers the wages of app developers and raises that of pickers. That’s a simplistic way of looking at things, and I prefer to step back with a wider perspective that considers both economic growth and improved lifestyles.
It’s my view that government can encourage economic growth by helping to develop a healthy, skilled, and productive workforce through public education, lifelong learning programs, and universal healthcare. But government also has a role in providing a safety net and a hand up for those impacted by illness, injury, or just being born into the wrong family – again with the objective of improving the productivity of our nation, and our GDP and global competitiveness.
To do these things requires strategic investments in education, research, infrastructure, healthcare, and wellness & social programs, among others. But who pays for that? It makes no sense to put a heavy tax burden on workers when they don’t actually profit from the productivity increases extending from those public investments. No, most of the burden should come from those who profit the most, and that’s why I support raising the minimum wage and adding new tax brackets.
MINIMUM WAGE — The video infographic at the top of this article shows that the bottom 50% of the population live hand-to-mouth and don’t invest. They own just 0.5% of stocks, and because they spend almost all of what they earn on living expenses, any extra money they get goes directly into the economy, creating increased market demand for goods and services that mostly benefit those at the top.
Henry Ford apparently understood that, because he shocked the country by announcing plans to pay employees $5.00 a day. That was over twice the average wage for automakers back then. He also reduced the work day from 9 hours to 8 hours, and that was a significant drop from the 60-hour industry average.
Why did Ford do that? He obviously saw employees as his company’s best asset, and his best customers if only they could afford to be. He famously said the higher wages improved productivity and helped retain the good workers. It just made good business sense then, and I argue that it still does.
An alternative to raising the mandatory minimum wage could be incentives for doing that by lowering the tax burden of companies who keep a low ratio between the highest incomes and lowest. That ratio should include executive wages, stock options, and other forms of compensation to make it more difficult to “game” the system. I also recommend giving shareholders greater say in determining executive compensation, because with “interlocking directorates,” CEOs today tend to sit on multiple boards of directors and vote for each other’s compensation.
TAX REFORM — Today’s top tax rate is 39.6% for income above $415,050, with just one tax bracket that includes both small businessmen and billionaires. So without raising taxes on 99% of Americans, we could generate considerably more revenue by adding more tax brackets for the top 1%, 0.1%, and 0.01%.
Given the widening income & wealth gaps, progressive tax reform should also tax income from capital the same as income from labor, or more. Income above $2M/year could be taxed at 50% without hurting 99% of the nation. Income above $20M could be taxed at 65%. And income above $200M could be taxed at 85%. Note that a billionaire would only be taxed at the highest rate on the portion of his income that was over $200M, so don’t look at the higher rates a disincentive to work hard or invest, because it’s not. Also, raise or remove the cap on Social Security tax, close tax loopholes, and tax capital gains the same as ordinary income.
I’m careful to not position these progressive tax reform suggestions as a form of punishment for the wealthy. It’s just that they improve tax fairness, sufficiency and efficiency. But the Republican proposal would shrink the number of brackets, instead of adding more to accommodate widening wealth gaps; and although it’s touted as a middle-class win, it directly benefits the wealthy, and President Trump himself. It’s reported that Trump’s family would gain over $1.1 Billion from the GOP tax bill because it would reduce or eliminate the estate tax.
Growth Doesn’t Trickle Down, It Rises Up
Nick Hanauer is a billionaire, unrepentant venture capitalist, and member of the 0.001%; and he has something to say to fellow plutocrats in this Ted Talk: Wake up! Growth doesn’t trickle down; it rises up.
His message is similar to that of Robert Reich. The only way to grow the economy is by investing in the education, health care and infrastructure that average Americans need to be more productive. These more productive workers command higher wages, and with higher wages, they purchase more goods and services. These purchases motivate companies to expand and invest, and to create more and better jobs. The Trump-Republican tax overhaul would take us in the opposite direction. It cuts health care and raises taxes on the middle class, which would reduce their purchasing power and dampen growth.
As one of the first advocates of a $15 minimum wage, Hanauer often speaks to other executives about the importance of a sustainable and healthy middle class, public education, gun violence protection, and the future of work in a 21st century economy. Given his extreme wealth, one might think he’d be a conservative Republican, but Hanauer is actually one of the most passionate and articulate economic communicators in the progressive sphere.
BILL ANALYSIS – The Historic Republican Tax Bill
Here’s what Trump’s tax plan means for people at every income level from $20,000 to $269,000 a year is a grossly misleading article by Aine Cain at BUSINESS INSIDER. It’s misleading for many reasons, including:
1. This tax bill is not the “incredible Christmas gift for hardworking Americans” that President Trump promised, and the Senate’s version gave 62% of the benefits to the top 1% even though Trump said earlier that the bill would cost him “a fortune.” Public knowledge of that lie is why this bill is so historic –the most unpopular piece of legislation in over 30 years, according to Rachael Maddow.
2. The bill got much worse during the two weeks that the Conference Committee took to resolve House & Senate differences, because complicated provisions were added for pass-through companies in the real estate industry. It now gives 83% of the benefits to the top 1%, and the Trump family itself will save more than $1 billion.
3. While corporate tax cuts are permanent, the cuts shown are temporary, and so are the standard deduction increases. Congress cannot be trusted to keep the new rates in 10 years when they are set to expire, and by then the bottom 60% of the nation will pay MORE taxes under this plan.
4. The standard deduction is doubled, but gone are deductions for medical expenses, state taxes, property tax (impacts home buying & school funding), mortgage interest, student loans, and losses from fire & earthquake.
5. Health insurance premiums will spike by an estimated 10% or more because repeal of the insurance mandate will change the makeup of the insurance pool. With average U.S. healthcare costs already about $10K/year/person, that means you’ll spend about $1,000 more, offsetting any tax savings you expect.
6. An estimated 13M will lose all health insurance over the next 10 years, but that number could go up as high deficits trigger automatic costs to Medicare and Medicaid and cause more people to drop insurance, forcing them to wait until health conditions worsen and then rely on the ER. Social Security is not safe from cuts either under these conditions, and Republicans have already signaled that that’s their aim.
7. Corporate tax savings are supposed to trickle-down and increase hiring and wages, but that’s a pipe dream because wages have remained stagnant for 30 years. Corporations flush with cash from record profits have instead increased CEO compensation, bought back shares, acquired competitors, and stashed the rest in offshore accounts.
8. Changes in depreciation schedules, which allow investments to be written off 100% in the first year, will encourage more job-killing automation. Companies will be able to write-off the cost of robots and artificial intelligence, but not people; and after the first year, those assets are essentially free. Your salary and benefits aren’t.
9. Income from capital investments, including the stock market, are taxed at much lower rates than income from physical & mental “labor;” and that trend is accelerating. So to fund government as jobs disappear, maybe we should tax the robots, and all forms of income, equally, or make the tax code more progressive, but that’s the opposite of what Republicans are doing.
10. Wide income gaps preceded the Great Depression in the 1930s and Great Recession before Obama took office. This regressive tax bill will make the income and wealth gaps much wider and exacerbate the inequality problem described in this article.