Yes, as the president said, the bonuses taken by Wall Street bankers are shameful. But, there is an even larger shame happening in the country: the plundering of America by the richest Americans and our unwillingness to call for significantly higher taxes on the elite.
Buried in the business section of The New York Times, and virtually ignored in the public flogging of the Wall Street bonuses, we learn that the richest 400 people in the country socked away even more money:
The income of the 400 wealthiest Americans swelled in 2006, soaring nearly 23 percent from the previous year, to an average of $263 million, according to data released Thursday by the Internal Revenue Service. Since 1996, this group has nearly doubled its share of all income earned in the United States.
The top 400 paid just more than $18 billion in federal income taxes in 2006, or an average of $45 million, on a record $105 billion in total income -- the lowest effective tax rate in the 15 years since the agency began releasing such data.
That compares with nearly $1 trillion paid by all other individual taxpayers in 2006. [emphasis added]
Let me repeat: the richest American are paying THE LOWEST EFFECTIVE TAX RATE since the IRS began giving out that data.
Respectfully, we can rage, correctly, about the spectacle of bonuses on Wall Street but the real crime is this: while a fiscal crisis mushrooms, the richest Americans are let off the hook. They are not stepping forward and our elected government is declining to demand that the elite pay their fair share.
The economy is continuing to contract--the Gross Domestic Product shrank by 3.8 percent in the fourth quarter of 2008. The need to try to put a floor under a cratering economy means we have to print a lot of new money--which could lead to higher long-term interest rates or inflation down the road.
And, yet, we have not asked for the elite to step to the plate. Respectfully, not even the proposal--now postponed--by the incoming Administration to raise the top rate back to the Clinton Administration level (39.5 percent) is enough. It's absurd.
I have suggested before that, by asking the rich to pay more, with very little trouble, we could have hundreds of billions per year to fulfill society's needs---and that money would not come from 95 percent of the people. It would come from the top 5 percent of income owners, and, mostly, from the top one percent.
With the help of Citizens for Tax Justice, the premier non-partisan organization focusing exclusively on tax issues, I concocted an alternative tax structure: raise the top income tax rates to 40 percent and 45 percent (the top rate is now 35 percent for married taxable income above $351,000), add a top rate of 50 percent for those people with taxable income higher than $1 million and--this is crucial--tax investment income as ordinary income (the proposal also assumes that Congress will fix the Alternative Minimum Tax, which costs the Treasury money, as it has in the current stimulus package).
From this plan, we would realize an additional $211 billion in net revenues, with 91 percent of those revenues coming from the richest one percent of Americans (and, the above model should be adjusted to eliminate tax reductions for the higher income earners).
Though the "free marketeers" (yes, the bankrupt philosophy that got us here in the first place) will argue that taxing the rich now is bad for the economy, in my opinion, there are zero--zero--serious arguments to back that up at the levels I'm suggesting. Frankly, the above chart is a relatively modest proposal, given as a taste of reality. We could--and should--easily raise the two new suggested top rates higher, with the top rate for the richest 1 percent set at least at 50 percent. From 1951-1964, the post-war era, which America's leaders and pundits like to point to as the beginning of a great boom and growth in the country, the top rate was 91% for married couples making $200,000 and up.
Throw in a tiny transactions tax on Wall Street (0.25 percent on every transaction), which could raise another $150 billion, and you start to make some progress towards a more shared responsibility towards the future of our country (see more on the transaction tax here)
So, yes, rage about the Wall Street bonuses. But, use that rage to focus on the bigger picture: the looting of America is systemic but we have the power to alter that system--if only our elected government will do so.