Answering Kennedy’s Call
Why did our record income inequality begin to worsen in 1980, as can be seen from the above graph? The Arab-OPEC oil embargo of 1973 was the first indication that Big Business under the newly created Business Roundtable of corporate executives wanted more of the national income pie.
No one liked the long gas station lines and fears America could run out of oil, so it was relatively easy for fear mongers to push through economic changes that lessened the incomes of working folk and increased the incomes of Big Business.
The fossil fuel industry needed more money to find new oil sources, and create new technologies such as fracking, so they wanted a larger income share of the national income, which was achieved by suppressing wages and cutting taxes without cutting spending. and it became a national security priority with the ongoing cold war and arms race that followed.
The Reagan administration ran up the first $400 billion federal budget deficit during his eight years in part because tax rates for the wealthiest were slashed. The highest personal income tax rate was first reduced from 70 to 50 percent in 1981, then down to a 28 percent maximum personal tax rate in 1986 when he was re-elected.
Because most of the income gain went to the top 10 percent, the Reagan tax cuts became known as ‘trickle-down” economics. It could also be called “stealth economics,” because Wikipedia cites at the time, “people weren't substantially informed about the tax cuts, as an ABC News Poll in September 1986 showed that 63% of Americans didn't know enough about the Tax Reform Act of 1986 to say if it was good or bad.”
Republicans sold it to the public with an unproven theory. A Doctoral student named Arthur Laffer in the 1970s had convinced conservative Republicans with a diagram on a napkin (the so-called Laffer Curve) that lower taxes gave people the incentive to work harder and earn more, whereas higher taxes discouraged work.
It's hard to believe such a theory today because the federal budget deficit only grew under the Republicans’ trickle-down theory. GW Bush created the first $1 trillion deficit, and Donald Trump’s added another $5 trillion to the federal budget deficit with his tax cuts. That’s as good proof as any that lower taxation rates didn’t increase tax revenues enough to pay down the extra debt as promised.
Perhaps the most shameful result of the redistribution of Americans’ wealth, the richest country in the world, was we now had the worst income inequality of developed countries, as measured by the CIA’s authoritative World Factbook.
It measures the income inequality of countries with what is called the Gini Index coefficient of families that calculated the percentage of wealth held by a country’s different socio-economic brackets. A higher percentage means a larger share of a nation’s income is held by the wealthier segment of its population.
“The more nearly equal a country's income distribution, the lower its Gini index, e.g., a Scandinavian country with an index of 25,” says the World Factbook. “The more unequal a country's income distribution, the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality the index would be zero; if income were distributed with perfect inequality, the index would be 100.”
The latest US Gini index Coefficient of family income was 39.8 percent, which is even higher than Russia’s, and close to that of African and South American Third World countries, whereas the European Union averaged 30.8 percent in its most up-to-date report.
That is why two out of three Americans are dissatisfied with the way income and wealth are currently distributed in the U.S. This includes three-fourths of Democrats and 54 percent of Republicans, according to a Gallup poll, I said last week.
It is also why much of that inequality is in the Midwestern rust belt states that lost blue-collar manufacturing jobs during the globalization and multi-nationalization of US corporations that President Trump promised to bring back again.
It is also why an election-denier even won one term as President and can endanger our Democracy with a Supreme Court majority now giving him a helping hand.
The most efficient way to right the inequality is to bring back tax rates that prevailed during Americans’ most prosperous times, the 1950s to 1970s when the maximum personal tax rate was 70 percent, or even higher.
The maximum tax rate was 92 percent during President Eisenhower’s administration because we were building the nation’s post-WWII infrastructure and modern technologies, as well as going to the moon.
President Eisenhower was reputed to have said, “Because high corporate tax rates create incentives for big business to spend on things like new locations, new hires, new equipment and product research and development which are deducted from taxable earnings, in other words, it’s better to spend a majority of earnings on expansion than to horde it and pay Uncle Sam 90% of it.”
No one likes higher taxes, of course. And much of the middle class bought into Reagan’s myth of trickle-down economics that brought on its demise and poverty levels we have today. But if Americans won’t pay the bill for modernizing the US economy, rather than put off payment with more borrowing, America’s record income inequality will not improve.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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