Tuesday, July 24, 2007

Income Inequality

Updated below
An article in The Guardian on Sunday illustrated the division between rich and not-rich in the United States,

In a speech last month Buffett - the third richest man in the world - pointed out that his tax rate was 17.7 per cent of his income while his secretary was taxed at 30 per cent. 'Many of the new super-rich are looking long term at the world and they see a collapsing US education system and health-care system and the disappearance of the middle class and they realize: this is bad for everybody,' said Frank. (Wall Street Journal reporter Robert Frank)

Defenders of low tax for the very rich point to the theory of trickledown economics - the spending power of the rich benefiting the poor. But while the super-rich have boomed, the earning power of the average and poor citizen has not nearly matched the performance of the elite. In 2005 the top one per cent of earners in the US gained 14 per cent in income in real terms, while the rest of the country gained less than one per cent. The situation is especially bad for the severely poor - those living at half the poverty level - whose numbers are at a 32-year high. (Emphasis added.)

We certainly need to be sure the inheritance tax goes away, don’t we? And make sure that the tax cuts for the wealthy don’t get eliminated in 2010?

But there are deeper forces at work here than taxes.

Circuit City, not long ago, laid off all of its senior workers merely because they were senior and because their wages were higher than the wages of workers who had been there less time. They even brazenly offered to hire those same people back as “new hires” at a beginner’s wage. All of this to improve their profit. They were not losing money at the time, they just wanted to make a higher profit. I don’t know the amounts of their management staff salaries at the time, but no mention was made of those salaries being reduced or positions cut.

The corporate role of making a decent return for the stockholder investment while being a responsible citizen of the community is no longer viable for today’s financial market. The “dot com” craze was, I suspect, the culprit, but something turned Corporate America on to obscene profits and outrageous value gains and now nothing less will do.

So instead of increased productivity being shared between financier and worker in the form of greater profit and higher wages, the worker’s wages are actually reduced and the financier is rewarded with the doubled profitability of higher productivity and workers' reduced income.

The corporation needs government’s help today to be sure that it is not overtaxed, that it does not have to overpay its workers, that it is able to maximize the selling prices of its products, that it is able to obtain raw materials from public lands without paying royalties, and that it does not have to waste money in protecting the environment in which it functions. And it gets that help in abundance.

And things get worse.

The biggest incomes today are made by people who spend their time selling financial instruments. That’s right. The way to become immensely wealthy is to make your living selling money to people who have lots of money. And people who have lots of money don’t make more money by manufacturing anything, building anything, or selling any tangible product; they increase their wealth by manipulating money.

All of the manufacturing, building and tangible product work is done by the semi-rich who hope to become rich enough that they can divorce themselves from the mundane manufacturing, building and tangible product work and engage full time in “finance.” The manufacturing, building and tangible product work is increasingly being done by people overseas who do not have the “ambition” that wealthy Americans have.

Bear in mind that if your income derives from manufacturing, building or providing a tangible product or service it is taxed as income at 30% or more. If it is derived from manipulating money for people with filthy amounts of money it is “capital gains” and is taxed at 15% to help you become one of those people with filthy amounts of money.

Although this is really more of a societal problem than a political one, are any of the presidential candidates talking about ways to address this?

Update: 7/25/07

See JRB at The Democratic Strategist of July 21st. Yes, Obama and Edwards both are, but of course the media isn't covering it. Note also that both of them seem to be addressing the issue of core poverty, but not the growth of the extreme upper class at the expense of the middle class.

My post, Grocery Workers, reflects a step in the right direction though.

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