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American Workers: Laid Off On Labor Day

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Today we celebrate Labor Day but we don't celebrate labor. We're quickly dividing the country into rich and poor and shrinking the middle class. It's a formula for national disaster.

It used to be that a basic American value was a fair day's wages for a fair day's work. Over time this standard has been eroded. When I was growing up an individual with a high school degree could support a family, today it typically takes two adults to support a family and even then a missed paycheck or lost hours can lead to economic ruin.

In 2009 the typical household income was $50,303. That may sound like a lot but it's actually less than the $51,296 earned by a typical household in 1999, a decade earlier. Meanwhile, as household incomes have fallen, what's happened to the cost of medical care? College? Cars?

And do you think home prices can rise if incomes decline? How will people pay for the bigger mortgages required by growing home prices if income is stagnant or declining?

While the importance of labor has been devalued, the role of capital has become central. Just look at the way we tax labor and the way we tax capital. Improving shareholder value is the mantra of the day and if that means closing a plant within our borders to lower costs and opening one elsewhere that seems to be socially, morally and economically acceptable. And if an "American" company is actually located in a tax haven overseas to avoid US taxes, no one seems to care.

The Social Contract

We're destroying the middle class and with it the social contract, the idea that if you get an education and a job you'll have a fair shot at a good life. Not a guarantee of a life with yachts and private planes, but a decent life that will allow you to live better than your parents and their parents before them.

I've been to Flint and seen the closed plants and what used to be middle-class neighborhoods. I've been to Arizona and Florida and seen the economic destruction that has resulted from the foreclosure crisis. I hear from readers nationwide who face the terror and the tragedy of losing their homes.

We've recently seen major political rallies in Washington. Whatever your views, it's easy to understand that people are frightened by the new economics of fewer jobs, lower wages, homes that are worth less and retirement accounts that yield close to zero. It's also easy to understand that such fear is the ripe ground for extremism, a willingness to overturn the 1st and 14th Amendments, an effort to brand some of us as "real" Americans as opposed to individuals with different views who presumably are not "real" citizens.

Tax Rates

Most unfortunate is the willingness of people to argue against their best interests. From 1940 through 1963 the highest federal tax rate never fell below 80 percent. Today the maximum rate is 35 percent.

On one hand the federal government is collecting far less revenue than it needs because we have failed to tax fairly while on the other we're spending more than we should -- just consider the needless wars in Iraq and Afghanistan. During the Bush Administration, for example, the deficit increased by $4.35 trillion and the income needed in future years is now being denied through the passage of massive tax cuts for America's rich during the Bush presidency.

It should be obvious that if as a nation we have debt we will have more debt if not everyone pays their fair share of taxes. Or, we could tax less and shrink the government to the point where it's useless -- exactly the idea of those who believe there's "too much" government, no matter how little government we have.

We have many people who worry about the inheritance tax, fearing perhaps that their families will be hit with a huge bill. The facts, and the reality, are different. In 2004 -- the latest year for which we have statistics -- 42,212 estates paid federal taxes. That same year, 2,397,615 people died in the U.S. In other words, only 2 percent of all estates paid a tax.

In fact, among the very rich few pay much or any tax. As an example, Leonard Boasberg, writing in the Pittsburg Post Gazette, says "billionaire George Steinbrenner, the late owner of the New York Yankees, couldn't have timed his death more conveniently for his heirs. The inheritance tax this year is zero." (See: For the rich, it's a good time to die, September 2, 2010).

"Where have all the economic gains gone?" asks former Labor Secretary Robert Reich, writing in the New York Times. "Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income." (See: How to End the Great Recession, September 2, 2010)

Happily, it's possible to be both rich and sensible. Bill Gates and Warren Buffett have both said they favor higher inheritance taxes -- and they're the very people with the most to pay.

Less Government

Let's think through the logic of this: Who should pay taxes, you or someone who makes more than you? If someone else pays less guess who pays more? While "less government" sounds like an exciting concept, do we want the government to function or do we want to give up on roads, clean air, disaster assistance, food inspectors, decent schools, medical research, veteran's benefits, Social Security, Medicare, air traffic controllers, and bank regulations? Who would benefit in such circumstances -- and who wouldn't?

Homeownership is becoming a luxury and not a source of intergenerational wealth. Interest rates today are below 4.5% but it's tough to get such financing if you have a blemish on your credit report. Of course, the very same lenders who gleefully deny mortgage applications send out more than a billion credit card offers to attract borrowers, often at 29.9 percent -- plus fees. Lenders are getting some of the money they lend from the Federal Reserve at virtually no cost, almost zero interest since late 2008.

We can do better than this. We ought to do better. And we ought to worry about the consequences of losing the middle class and breaking the social contract.

For more by insights and ideas by Peter G. Miller, please visit the consumer real estate information site, where this column was originally posted.