Dramatic Gains in Wealth By the Rich Are Underwritten By Everyone Else

rich 2The American tax code today is based on the assumption that income earned through wages has less value and thus should be subject to more taxes than income earned through investment – also known as wealth.

The underlying assumption, originated by the robber barons and the one percent and codified by Congress (the majority of whom are members of the one percent) into law, is that income through investment has more value than income through labor (wages), because investment is the engine for economic growth that allegedly benefits everyone. The idea is that the less you tax rich people, the more likely are they to use that extra, untaxed income to invest back into the economy  – which, in turn , allegedly leads to growth and prosperity for everyone by creating more jobs, for example.

TrickleDownThis is also known as Reagan’s bullshit trickle-down economics, which is one of the biggest lies ever perpetuated by the wealthy to cover up their greed while simultaneously coaxing and manipulating the masses on whose back they have become wealthy, into aiding them, willingly, so that they can become even more wealthy.

Subsiding the Privileged

Contrary to popular myths in both political parties, the dramatic gains in wealth by the super rich are underwritten by everyone else as a result of skewed values embedded in the U.S. tax code. This means that the top 1 percent of America’s wealthiest households—97 percent of whom are white—are subsidized by the rest of the tax base.

Taxing wealth from investment at a lower rate than wealth from wages, has created a  “reverse subsidy” which, in turn, is then paid for by the rest of us through a rollback in government spending on economic opportunity programs  – including a social safety net, as well as lack of meaningful labor laws –  and by loading up on debt charged to the national credit card for mostly programs that   – ironically enough – have been perpetuated by and benefit the one percent, such as funding of the military industrial complex, subsidies for oil companies and a host of other corporate welfare programs.

These dramatic changes in the tax code have been increasingly shifting the economic burden of society away from the wealthy – who, among other things, by virtue of paying no taxes, can accumulate wealth easily and rapidly –  and onto the working poor and middle class wage earners.

This “reverse subsidy”  – or wealth transfer from bottom to top – which began to truly gain momentum under Reagan and reached its crescendo under George W. Bush – has been proudly continued by the Obama Administration; make no mistake about it.

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The wealthy, of course, have not invested the extra wealth they got to accumulate by not paying taxes into society; on the contrary, all evidence supports the fact that they have gotten richer over the past three to four decades because of this very law, while the middle class has been shrinking and the wealth gap has been increasing.

In other words, trickle-down economics did not and does not work. Letting rich people get richer at the expense of everyone else – while a time-honored tradition just wrapped in modern economic jargon to obfuscate – coupled with a host of middle class busting laws – does not result in more prosperity for all, it only results in more money for the very wealthy at the expense of everyone else.

No Taxes From the Wealthy = Lost Revenue

Everytime the government grants a corporation or a wealthy person a tax exemption – for whatever transaction some crook in Congress has decided at one point is of value to society and thus should not be subject to taxes – it creates a hole in the budget that needs to be filled.

Since the government just decided that it cannot tax rich people and needs to furnish them with a host of loopholes they can utilize to not pay their fair share – someone else has to pick up their slack. And that someone else is the working middle class stiff.

Case Study

When company Zoodle (names and numbers made up for illustration purposes) gets a $10,000 tax break for every green bus it operates because of a tax code that alleges that being green is good for the overall well being of society and thus not subject to a tax (hence the exemption), and Zoodle operates fifty such buses, then that is a $500,000 tax that the government is not collecting from Zoodle. Note that the tax break Zoodle is getting for every bus does not translate into a dollar amount, so the void is still there.

Now if the government does the same thing with one hundred other companies, then that is $50 million that the government is not collecting, leading to a loss in revenue for the government.

That government, however, still needs that money. The need for it has not been eliminated because it gave companies and the wealthy tax breaks left and right. Guess who will have to pick up their slack: the working middle class stiff (who then ends up being blamed for his situation and accused of merely not putting in the effort).

richThis legacy of inequity is key to understanding the reverse subsidy’s role in the current fiscal debate.

As the wealth piles up for the rich, less revenue flows into government coffers. In order to make ends meet, the U.S. Treasury borrows huge sums of money. These annual deficits, up to the tune of $1 trillion a year, formed into an enormous debt.

Since giving rich people and corporations tax breaks does not minimize annual deficits, the government does not only massively taxing the middle class but it has also squeezed parts of the budget focused on education, housing transportation and a host of other middle-class benefiting programs, The strain these areas have come under has created additional barriers to economic opportunity for people and make it that much harder for the average household to make it.

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Given the increase in the reverse subsidy over the past decade—and its corresponding impact on economic fairness—it’s no surprise that the U.S. has astoundingly low economic mobility. According to Nobel Prize-winning economist Joseph Stiglitz, the chance of moving from being poor to rich is less in the United States than in any other advanced economy on the planet. One out of three blacks and one out of four Latinos is poor.

Even though the benefits of tax cuts overwhelmingly flowed to America’s economic elite and helped boost their wealth to stratospheric levels, the debt to which they contributed is held collectively by everyone. Therefore, as a matter of right and wrong the “reverse subsidy” is a pure and simple economic injustice. It is income redistribution, but not from the rich to the poor, as Conservatives claim, but from everyone else to the top 1%.

The 1 percent’s aggressive agenda coupled with their outsized political influence has created a situation where working Americans actually underwrite their success, yet have nothing to show for it but a paycheck or two from destitution as a result of 40 years of falling wages and little growth.

This, in a nutshell, is the problem we face in this country and it is a very fundamental problem.

Unless the tax code in this country is changed (close loopholes) and thus rewritten fundamentally so as to not just favor the wealthy at the expense of everyone else, our problems of debt and mass deficit, income gap and a diminishing middle class are not going to be solved. Cutting food-stamps and Medicaid are not going to get us out of this; they just put more strain on the already strained and burdened middle-class and vulnerable populations. The money has to come from the one percent.

if the tax code is not rewritten, the government will continue fucking over the middle class who not only pay through their noses but who also see cuts to a host of middle-class protecting policies and programs – to make up for the deficit created by the agenda of the 1% and their exemption from carrying the economic burden.

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Effectively this leads to a society in which we all become indentured servants working for the 1% while actively underwriting their wealth without much protection for us in the forms of regulation (because regulation means accountability, which in turn cuts into profits).

A strong, wealthy, prosperous middle class is the litmus test for a strong, healthy economy and ultimately society. Poverty and destitution are destabilizing, leading to political and civil unrest.

Giving the wealthy tax breaks has not trickled down on the masses. The wealthy just hold on to their wealth which they use to exert more political power, which they then use to get our corrupt lawmakers to enact even more policies in their favor. It is a vicious cycle and a massive trap.

These are the kind of systemic issues (I cannot emphasis this enough) that individuals cannot overcome by sheer will-power or “by virtue of their efforts” as the President put it in his State of the Union Address.

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