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Robbie Gennet

Robbie Gennet

Posted: October 26, 2010 01:35 AM

Whenever the term "Redistribution of Wealth" is used these days, it's usually at a Tea Party rally decrying some form of Socialism where the rich are fleeced to support the poor. The truth is, there has been a massive redistribution of wealth in the opposite direction that hasn't been seen since the time preceding the Great Depression of the 20th century. The great sucking sound of wealth moving upward has heralded one of the most unequal financial imbalances in our nations history. Though it ramped up under Reagan, the foundation for this was dug deep during the Bush years and has wreaked havoc on our entire economy. Our social services are overburdened and underfunded, though they wouldn't be so if the middle class were doing well enough not to need the help. That is one of the ironies of the current fiscal situation: if there was a greater economic balance between rich and poor, people on all points of the spectrum would be much better off and we wouldn't need to spend so much on social services such as welfare, food stamps and unemployment checks.

So when people talk about Obama and redistribution of wealth as some Socialist plot (like Michele Bachmann slamming the BP escrow fund as a "redistribution of wealth fund") Democrats should jump at the chance to talk about how the true redistribution of wealth has been upwards rather than outwards. They can discuss how creating some balance between Wall Street and Main Street is a good thing for our entire economy (even for capitalists and other business-friendly people) aside from a handful of billionaires who have grown used to their rising wealth redistribution. Socialism is not the opposite of Capitalism, nor is bankrupting the middle class to enrich the top 1 percent the true meaning of Democracy. In fact, Democracy is the process by which a Republic finds its soul. There is room for capitalism and a pro-growth business environment amidst a fair economic playing field. People are consumers and if they are doing well, they will consume more. Business will be up accordingly and that should be a good thing. Tax revenues will increase dramatically and some semblance of balance will be restored. But if you were to listen to the Tea Party Republicans, any attempt to halt this massive imbalance of wealth from flowing towards the top falls under some Communazi agenda to give the poor (read: immigrants) all your hard earned tax dollars. Wrong and misleading as it is, many from the Right have taken this thread and spun gold from it.

At any time in history when we've had such income disparity, the economy and society itself virtually unraveled. We haven't seen an imbalance such as this since 1928 and well, you know what happened then. And we know what is happening now, though there are many who choose not to heed the lessons of history, as if the results will somehow be different. When you look back, it was really during the Reagan era that we started to drastically offset the balance of income. Robert Reich recently noted that in the 1970s, the top 1 percent received 8 to 9 percent of total income, but thereafter income concentrated so rapidly that by 2007 the top received 23.5 percent of the total. Here's another gem from Reich:

During almost three decades spanning 1951 to 1980, when America's top marginal tax rate was between 70 and 92 percent, the nation's average annual growth was 3.7 percent. But between 1983 and start of the Great Recession, when the top rate was far lower -- ranging between 35 and 39 percent -- the economy grew an average of just 3 percent per year. Supply-siders are fond of claiming that Ronald Reagan's 1981 cuts caused the 1980s economic boom. In fact, that boom followed Reagan's 1982 tax increase. The 1990s boom likewise was not the result of a tax cut; it came in the wake of Bill Clinton's 1993 tax increase.

Recently, Bernie Sanders wrote a great piece that listed some cold, hard facts about the past decade. Here are a few that illuminate the situation:

  • During the Bush years alone, from 2000-2008, median family income dropped by nearly $2,200 and millions lost their health insurance.
  • The 400 richest families in America, who saw their wealth increase by some400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last 15 years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record.
  • Last year, the top 25 hedge fund managers made a combined $25 billion but because of tax policy their lobbyists helped write, they pay a lower effective tax rate than many teachers, nurses, and police officers. Warren Buffett, one of the richest people on earth, has often commented that he pays a lower effective tax rate than his secretary.
  • As a result of tax havens in the Cayman Islands, Bermuda and elsewhere, the wealthy and large corporations are evading some 100 billion a year in U.S. taxes.
  • In 2009, Exxon Mobil, the most profitable corporation in history made $19 billion in profits and not only paid no federal income tax -- they actually received a $156 million refund from the government. In 2005, one out of every four large corporations in the United States paid no federal income taxes while earning $1.1 trillion in revenue.

So we have massive unemployment, depleted savings accounts, people literally so broke they don't know how to survive and yet, it doesn't have to be this way. Think for a moment of the history of America over the past hundred years and try to recall a time when the middle class and working class were doing well, at least as well as can be expected at the lower half of our economic universe. Was it after the New Deal? After World War II? During Clinton's tenure in the '90s? While we can discuss the peaks of economic balance, we can also identify the worst disparities in economic strata: the Great Depression and the Bush years and their respective aftermaths. It would be difficult to find a positive trend during any Republican administration in recent times but the period under George W. Bush surely qualifies as one of the worst ever. The Republicans only success has been convincing Tea Partiers and Grizzly Mama's that everything we are suffering through is Obama's fault. The unfortunate thing is many of them will actually be voting for the same people who helped create this disaster. A recent study has even shown how income equality makes the poor more conservative, a fact that can't be lost on the Republicans who have worked as hard as they can making the lower 99 percent as poor as possible.

Find me a President that has done a better job than Bush on creating monumental debt out of a positive economy and budget surplus. Not paying for two massive tax cuts for the wealthiest Americans, two major foreign wars and a Medicare Prescription Drug bill has left us in a hole so deep it threatens the global economy and our social fabric. President Obama has no easy choices to get us out of this hole, and unfortunately, no help from the other side of the aisle. The same Republicans who helped Bush pass all these budgetary nightmares have been blocking every single one of Obama's efforts to try and solve the problem they caused. They shriek that we can't spend our way out of this, not acknowledging it was GWB and the GOP that maxed out the national credit card. It will take a rebalancing of fiscal policy and taxation to right the good ship America so everyone can stay above water, even on the lowest decks. To those living on the top decks and enjoying the view (along with all those unpaid-for Bush tax cuts) don't forget that the highest berths on the Titanic couldn't save the lives of John Jacob Astor IV and Benjamin Guggenheim, two of the then-richest Americans. When the good ship sinks, we all go down together.

PS -- Be sure to check out these articles on the subject:

TImothy Noah's excellent series "The Great Divergence" on Slate.

Mitchell Bard's great piece on income redistribution.

Robert Reich's "Notes from a Class Worrier."

"New Figures Detail Depth Of Unemployment Misery, Lower Earnings For All But Super Wealthy"