Reduced taxes on the rich leave them with ever more money to buy politicians. This wins them further tax reductions, which give them still more money to put to political use. Then, when the loss of tax revenue from the rich worsens already strained government budgets, the rich and powerful press politicians to cut public services and government jobs and not even debate a return to the higher taxes the rich used to pay.

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Everywhere you look, from the federal government to the states, to your hometown, "budget crises" abound.   Services are being slashed.   Politicians and pundits from both parties tell us that the good times are over, that we've got to start living within our means.

But more than anything else the budgetary problems we face are the result of  tax-avoidance scams by the very rich that have been going on for nearly 50 years.

As Ted Rall points out in a new article, there are two states that best illustrate the problems we're up against:  

• California, where new/old governor Jerry Brown is trying to close a $25 billion shortfall with a combination of draconian cuts in public services and a series of regressive tax increases, and
• Wisconsin, where right-winger Scott Walker says getting rid of unions would eliminate the state's $137 million deficit.

 

Never mind the economists, most of whom say an economic death spiral (such as we are currently in) is the worst possible time for governments to cut spending.  Pro-austerity propaganda has, at least temporarily, won the day with most of the American public.   In fact a new Rasmussen poll finds that 58% of likely voters would approve of a shutdown "until Democrats and Republicans can agree on what spending to cut."

But the budget "crisis" is a scam.   It's the product of the rightwingnut "starve the beast" (i.e. starve the government) effort that they've been engaged in for 30 years or more.   There's actually plenty of money out there--but the pols just don't want to take it from the rich.   Why not?   Because the rich are their bread and butter.   The rich are their primary campaign fund contributors!   And as far as the Repugs are concerned, it's much better to break the unions, for they are still a significant source of Democratic fund raising, and may (if not put to death now) come roaring back at some point, much to the disadvantage of Republican candidates all over the country.

Consider this:   If we could tax the rich at the same rate they are taxed in northern Europe, there would be no need to lay off a single teacher, close a single library for an extra hour, or raise a single fee by one red cent.   Every government could then not only balance its budget, but wind up with a surplus.

And why shouldn't their taxes be increased?!   Over the last 50 years, tax rates for the bottom 80% of wage earners have remained almost static.   Meanwhile, over that same period of time, the rich have received tax cut after tax cut after tax cut!   For example, the tax rate paid by the top 0.01% -- these are people who each currently receive at least $6.5 million a year in income! -- fell by half (from 70 to 35%) in that period.

Times are tough.   Someone has to pay.   So why not start with those who can most afford it because of all the very generous tax cuts they and they alone have received over the past half century, at the expense of everyone else?!

Europe has the world's best food, its best healthcare system and vastly more generous vacation and sick-leave policies than does the US.   It also has one of the fairest ways to generate revenue for government:   a wealth tax.   In Norway, for example, you pay 1% of your net worth in addition to income tax.

So what if we imposed a Norwegian-style wealth tax on the top 1% of US households?   And by the way, who are these people, economically?   We're not talking upper middle class here.   We're talking way above that:   the "poorest' among them is worth a $8.3 million.   This top 1% own 38% of all assets in the United States.   (The top 10% own 71% of all US assets.)

"Such a wealth tax on just the top 1% would raise $191 billion each year, a significant attack on the deficit," Leon Friedman writes in The Nation.   "If we extended this 1% wealth tax to the top 5% of income receivers, we could raise $338.5 billion a year."

But that's just the beginning:   Wealthy individuals are nothing compared to America's money-sucking corporations.

Business shills whine that America's corporate tax rate--35%--is one of the world's highest.   But that's pure BS.   Our real corporate rate--the rate companies actually pay, after taking advantage of loopholes and deductions--is among the world's lowest!   According to The New York Times, Boeing paid a total tax rate of 4.5% over the last five years.   (This includes federal, state, local and foreign taxes.)   Yahoo paid 7%.   GE paid 14.3%.   Southwest Airlines paid 6.3%.   "GE is so good at avoiding taxes that some people consider its tax department to be the best in the world, even better than any law firm's," reports the Times" David Leonhardt.   "One common strategy is maximizing the amount of profit that is officially earned in countries with low tax rates."

America's low effective corporate tax rates have left big business swimming in cash while the rest of the country goes bust.  

As of March 2010, non-financial corporations in the US had $26.2 trillion in assets.   Seven percent of that -- something like $2 trillion -- was in the form of cash.   Where did they get a good deal of this loot?   Answer:   Mostly from middle-income American taxpayers who, with congressional help, they, the rich, have been chiseling away at for the past 50 years.

The national debt is $14.1 trillion, which is as high as it is because of fifty years of progressively larger tax cuts for corporations and the rich.   Over the last half century, the richest Americans have, by this political means, shifted the burden of the federal individual income tax off themselves and onto everybody else.   From the end of WWII into the early 1960s, the highest income earners paid a tax rate of more than 90% on all income that was in excess of $3 million a year (as measured in today's dollars).   Today, the top earners, by contrast, pay a rate of only 35% on that same "marginal" upper income.

If the highest income earners today were required to pay at the same rate that they paid for many years after 1945, the federal government would have to borrow far less in order to nurse our sick economy through its current illness.   Something else to keep in mind:   those tax-the-rich years after 1945 saw far lower unemployment and far more economic growth than we've had in recent years.

Historical tax rates for the highest and lowest income earners

The lower taxes that the (politically influential) rich hustled for themselves are one reason why they have become so much richer over the last half century.   Just as their tax rates started to come down from their 1960s heights, so their share of the total national income began their rise.   As a result, we have now returned to the extreme inequality of income that characterized the US a century ago, and that led to the Great Depression.

From 1979 to 2005, (adjusted for inflation) the bottom fifth of our citizen income earners saw their incomes barely rise at all.   The middle fifth of income-earning households saw their after-tax household income rise by less than 25% -- and that was primarily because so many housewives joined the salaried work force, to provide additional family income.   Meanwhile, the top 1 % of households saw their after-tax household incomes rise by 175%.

To say it in the simplest terms,

• the richest Americans have far and away done the best over the last 30 years,
• they are more able to pay taxes today than they have been in many decades, and
• they are more able to pay than other Americans, and by a far wider margin than ever before.  

 

Therefore, in a time of national economic crisis, they can and should contribute far more in taxes than they are now contributing.   No more hiding their billions offshore, in Cayman Island tax havens or wherever.

Instead of tax fairness, however, a rather vicious cycle has been at work for years:   Reduced taxes on the rich leave them with ever more money to influence politicians and politics.   This influence wins them further tax reductions, which gives them still more money to put to political use.   Then, when the loss of tax revenue from the rich worsens already strained government budgets, the rich and powerful press politicians to cut public services and government jobs and not even debate a return to the higher taxes the rich used to pay.   In other words, in their unlimited greed, the rich have begun to strangle the rest of society in their perverse efforts to further multiply their wealth holdings and income.   

Share of national income taken by top tranches of earners

How do the rich justify and excuse this plunder?   They claim that they can invest the plundered money that they gather from tax cuts and tax dodges, and thereby create jobs.   But create jobs where?   In China, Brazil and Mexico?   In fact, cutting rich people's taxes is often very bad for the rest us -- worse even beyond the growing inequality and hobbled government it produces.

Several examples demonstrate this.  

First, a good part of the money the rich save from taxes is then lent by them to our government (by way of their purchasing US Treasury securities for their personal investment portfolios).   It would obviously be better for the government to tax the rich to maintain its expenditures (rather then borrow the money from them by means of selling them treasury bonds), and thereby avoid deficits and growing indebtedness.   Then the government would not need to tax the rest of us quite so heavily, to pay interest on those ever larger debts to the rich.

When the richest Americans take the money they save from taxes and invest big parts of it in China, India and elsewhere, that often produces more jobs over there, fewer jobs here, and more imports of goods produced abroad.   US dollars flow out to pay for those imports and so accumulate in the hands of foreign banks and foreign governments.   They, in turn, lend from their sovereign wealth funds to the US government.   The rich appreciate that lending because it means lower taxes for them.   But as a result, the rest of us get taxed more, to pay for the interest Washington has to pay those foreign banks and governments.   And guess what:   The largest single recipient of such interest payments today is the People's Republic of China.

Secondly, the richest Americans take the rest of the money they don't pay in taxes and invest it in hedge funds and with stockbrokers to make very profitable investments.   These days, that often means speculating in oil and food -- which of course drives up those prices, undermines economic recovery for the mass of Americans, and produces acute suffering, sometimes even starvation, around the globe.   In turn, the hedge funds and brokers likewise use part of the money that rich people save from taxes.  They use it to speculate in the US stock market, which drives stock prices higher;   hence, the stock market's ability to recover from any setback.   And that mostly helps -- you guessed it -- the richest Americans, who own most of the stock!

Greatly varied increases in net household incomes of Americans from 1979 to 2005

The one kind of significant wealth that average Americans own, if they own any, is their individual home.   And home values remain deeply depressed -- so no recovery there.

Bottom line:   Cutting the taxes on the rich in no way guarantees societal benefits from what they may choose to do with their additional money.   Indeed, their choices (like investing in American companies that build factories and research facilities in China) can worsen economic conditions for the great majority of Americans, if US factories keep moving overseas.   And these days, that is exactly what the rich are doing with much of their windfall income, which has essentially been taken from the rest of us (i.e. the taxpayers who of course must make up the difference between what the rich used to pay, in taxes, and what they pay today).

For supporting graphs and verification of the foregoing statistics, see this article by economist Richard Wolff.

Authors Bio:

Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've always been more interested in political economics and what's going on behind the scenes in politics, than in mechanical engineering, and because of that I've rarely worked more than 8 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.