Income Inequality

Last year saw the growth of the Occupy Wall Street movement from New York City to other cities across the country from Washington, DC to Oakland, California. The movement resulted in small tent communities being erected in urban parks that housed protesters who used homemade signs that decried the income gap between the the top 1% of Americans and the other 99% supposedly represented by the Occupy campers.

Democrats generally praised these Occupy protesters since the Occupy message attacking income inequality in America seemed to line up with President Obama's oft repeated philosophy that the wealthy do not pay their "fair share" in taxes. The President pursued this philosophy during the end of the year debate with Congress regarding whether to extend the tax rates established during George W. Bush's term that reduced tax rates across all income ranges in 2001. Obama wanted to extend the rates only for those whose annual incomes were below $250,000. The final bill that passed on New Year's Eve just before the Bush tax rates expired, raised taxes on those making more than $450,000 per year.

Here's what President Obama said about the new tax law on New Year's Day after signing the bill: "T]oday’s agreement enshrines, I think, a principle into law that will remain in place as long as I am President: The deficit needs to be reduced in a way that's balanced. Everyone pays their fair share. Everyone does their part..." 

The problem, of course, is that it is questionable whether everyone contributes their fair share to the federal revenue stream. As Mitt Romney had the misfortune to accurately point out, 47% of American workers do not pay any federal income taxes. [They do, however, pay federal payroll taxes that are withheld from their wages if they are fortunate enough to have a job in the jobless recovery that has been ongoing for the past five years.]

The President's continuing emphasis throughout his term in office on raising taxes on high income earners (even though such tax increases do not come close to meaningful deficit reduction) has led many Republicans to suggest that Obama is pursuing a Socialist agenda to eliminate income inequality by redistributing wealth from high income earners to those in lower income categories. But significant wealth redistribution through taxation has already taken place, even before the recent boost in tax rates for those making over $450,000, as shown in the chart below.

With respect to income taxes: "The top 10 percent of taxpayers paid over 70% of the total amount collected in federal income taxes in 2010, the latest year figures are available, according to the Tax Foundation, .... That's up from 55% in 1986.The remaining 90% bore just under 30% of the tax burden." 

Our country has attracted immigrants from around the globe for over 200 years to pursue their fortunes in a nation that offers opportunity and free markets to anyone willing to work toward a better life. Many of those who have come to America, as well as their descendents, and have succeeded in becoming high income earners are now among the targets of the President's tax raising rhetoric.

Americans should be encouraged to pursue their goals of reaching the top 10% or 1% by innovation, education and/or personal drive to create a better society, a better product or a new business. 

Income inequality has existed throughout the ages from the Egyptian and Roman empires to modern day in every country, even Communist countries. Look at the elite wealthy lifestyles of the Chinese leaders. Hugo Chavez, the great hero to the poor of Venezuela, died with an estate worth over $2 billion; the Castro brothers in Cuba are worth billions while their countrymen live in poverty due to Socialist policies that restrict free enterprise. While income inequality in many of those other societies resulted from political corruption, graft and greed, our country allows anyone with enough education, skill and/or ingenuity the opportunity to reach the top 10% or even the top 1% if they seize the opportunities available to them. Throughout history, Americans, such as Thomas Edison, Bill Gates and Steve Jobs, have used their unique talents to revolutionize the world, not just the US, and have succeeded to build personal wealth as a byproduct.

Most successful members of the top 1, 5 or 10% also become philanthropists and give millions and billions to organizations that benefit the general public. Consider, for example, the good works of the Bill and Melinda Gates Foundation, the Rockefeller Foundation (including historic Williamsburg) and the Carnegie Libraries all across the US.

People in the lower income groups do not usually stay there throughout their lives; middle class people often move into higher income groups later in life. These groups are not static, at least in the US. We may need to improve educational systems in some areas to assure more opportunity to people to move through the ranks to greater success in life, but generating class envy or anger against the most successful among us, as President Obama seems to do often, is counter-productive with no redeeming value to helping those who are less fortunate. Sphere: Related Content

From the Edge of the Fiscal Cliff

On the first day of the new year when higher income tax rates were technically going into effect for all Americans, Congress passed a bill to limit the increase in tax rates to those who earn more than $400,000 individually or $450,000 per couple. The bill also increases spending by extending unemployment benefits, fixing the Medicare reimbursement rates for doctors and other health care providers, revising the Alternative Minimum Tax that could have increased taxes for middle income families if not revised and extending various tax credits. The spending cuts that were scheduled to automatically go into effect on January 2, 2013 were postponed until the end of February 2013. Consequently, the bill only addressed taxes and "kicked the can down the road" again on spending cuts; setting up another last minute fight between Democrats and Republicans on where to cut federal spending to resolve the deficit problem at the end of next month.

As it turned out, President Obama seemed to be absent from the final negotiations on the bill that passed. He met with Congressional leaders as the deadline approached within the past week and charged Senate Majority Leader Harry Reid to put a bill on the floor for a vote. This was basically the course of action I urged in my last blog post on December 22, 2012: "If the Democrats want to raise taxes on the wealthy, as Obama and the majority of the public who voted him in for a second term have indicated, why doesn't the Senate bring the House bill to the floor and amend it with a Bush tax rate extension limited to those who make less than $250,000 (or, as Obama seems to now accept, $400,000)..." Why did it take so long for the Senate to take up the bill that the House passed in May?

Unfortunately, Harry Reid again failed to accomplish anything, and Minority Leader Mitch McConnell had to call on his old Senate colleague, now Vice President, Joe Biden to negotiate a deal that could pass. So the Democratic Leader in the Senate and the Democratic Chief Executive of the country failed to take the necessary action to reach a bi-partisan solution for over six months (at least), and the Republican Leader of the Senate and the Vice President had to take charge to reach a last minute bill.

This was not incompetence by the President. Nevertheless, many TV pundits and opinion writers since late on New Year's Day have been describing the Obama's role in negotiating the final deal as a failure in leadership since it was his Vice President and the Republican Leader in Senate who reached the deal to avert the Fiscal Cliff. Many of those opinions are coming from news sources that endorsed Obama for a second term. I even heard a liberal commentator on CNN last night say that "negotiating deals" is clearly not Obama's strong suit. I haven't even seen what Fox News has said about this result yet.

My view is that this is the result Obama wanted. The bill only raises taxes on the wealthy and does not cut spending, which is critical to cutting the deficit. Even though Obama gives lip service to a "balanced approach" (with tax increases and spending cuts) to solving the debt problem, as I noted in my blog post on November 30, 2012, . "The President's continuous campaign for higher taxes on so-called "millionaires and billionaires", without any serious proposals to cut spending, is consistent with his long term political goal of reducing income inequality in America..."

Every public statement Obama made since the election about the looming fiscal cliff focused almost solely on raising taxes on the rich in order to avoid hitting the middle class with tax hikes. He even held an unusual Press briefing with hand-picked middle class people in the Eisenhower Executive Office Building on New Year's Eve afternoon to once again repeat his goal:

"The agreement being worked on right now would further reduce the deficit by asking the wealthiest 2 percent of Americans to pay higher taxes for the first time in two decades, so that would add additional hundreds of billions of dollars to deficit reduction. So that's progress, but we’re going to need to do more. Keep in mind that just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans.  Obviously, the agreement that's currently being discussed would raise those rates and raise them permanently."

 The problem is that raising taxes on the top earners is a small fraction of the gap that needs to be closed to cut the deficit, as I showed in my November 30 blog post. Spending cuts are necessary. Now there is another two months to address spending cuts, but Obama will find a way to add taxes to the mix and enrage the conservative "tea party" wing of the Republican Party even more than they are today with the New Year's Day deal.
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