In the debate over the legitimacy of the “Occupy” movement and the frustration some Americans feel over the alleged 99 percent vs. 1 percent (poor vs. rich) ratio in the United States, it’s fair to pose the question: “What is the right ratio of rich to poor in the U.S. today?”
The answer may help us better define the American Dream and strive for an acceptable ratio of income inequality. It will also help us appreciate America’s time-tested market economy.
Since last summer, the “Occupy” movement has stirred debate over the arguments of Occupiers, Tea Party advocates, and others in the political sphere, over the proper role of government and the nature of modern American society.
Here at Harvard University’s Institute of Politics (IOP), where I’m a teaching fellow for the spring 2012 semester, debate and discussions abound on this topic. Former Ohio Governor Ted Strickland is leading a study group on the topic, “Class Warfare.” Of the dozens of seminars, speeches and intellectual events scheduled at Harvard each day, income inequality and poverty are frequent topics.
Former Wal-Mart Foundation director and Lesley College President Margaret McKenna is leading an interesting study group on the politics of education, citing that while the U.S ranks low on education scores internationally, if we subtract the 20 percent of low-income kids from the overall achievement scores, the U.S. ranks very high in educational achievement. The only problem with that is that we can’t ignore those children when calculating the quality of American education.
At the heart of most of society’s problems today, the lingering income inequality issue, followed by tax fairness, is front-and-center. On the other hand, America has always had income inequality.
The Founding Fathers were men of wealth, education and position. The Declaration of Independence had the 56 signers pledging to each other “our Lives, our Fortunes and our Sacred Honor.” Of the 44 U.S. Presidents, some 35 were millionaires. Many U.S. congressional representatives and senators are wealthy, and they represent both political parties. Senator John Kerry’s wealth approaches $1 billion.
The U.S. boasts of billionaires Bill Gates, Warren Buffett, the late Steve Jobs, Steve Forbes and Facebook’s Mark Zuckerberg. President Obama excoriates for political purposes the “millionaires and billionaires” he targets for more tax revenue, ignoring how the wealthy help society enormously by donating millions to charity and the arts. Few of those who’ve achieved financial success did so without hard work, ingenuity, drive and determination, all hallmarks of our market-driven, achievement-oriented society. Achievement of anything in America today takes work and energy, and that’s the way it should be. A nanny state is a slothful state.
So for those who lament the state of income inequality in American life, the questions are: “What’s the right ratio you seek?” Should the United States seek a “wealth level” of 20 percent? Fifty percent? Less than one percent?
The U.S. has fought a war on poverty for over 50 years. The National Poverty Center at the University of Michigan in 2010 cited a poverty rate of 15.1 percent, based on the 2010 census, and calculated by counting those below income levels of $10,000 for a single person to just over $26,000 for a family of five. The poverty level was about 11 percent in 1993, a decades-old low from twice that number in the 1950s. Today, the poverty level is probably higher than it was in 2010.
No matter how hard we try to eradicate poverty, we likely never will. While trying to do so is laudable, we shouldn’t stifle the creativity that is a hallmark of American life. Creativity often leads to great wealth for those with ingenuity, drive, energy and free will. Ambition levels, like talent levels, will always be unequal for individuals in a free society, and those disparities will result in disparate income outcomes.
As poverty politics touch the Republican presidential contest this year, some candidates are making an issue of Mitt Romney’s wealth, an unwise, self-serving approach that has Republicans talking class warfare like President Obama.
While helping America’s poor is legitimate, worthwhile and an American tradition, an income equality goal doesn’t fit a market-oriented society. Capitalism and free enterprise, having produced the strongest economy and most advanced society in world history, should largely be left to reach natural levels, allowing those who seek, and achieve, financial reward to enjoy their good fortune, distribute it as they wish and pay a reasonable income-tax rate.
Hopefully, they’ll then support an America that gives opportunity to each of us to achieve our own level of success based on talent, energy and brain-power.
What all of this means is quite simple: taxes are at an historic low in the U.S. The portion of their income paid by the top 1% income bracket is historically low — and it is especially low when one considers that much of it is attributed to capital gains, which are taxed at 15.7%. The amount that the federal government takes from the nation’s annual wealth production is historically low, and the actual amount of federal revenues is low.
Amidst this pattern, the distribution of wealth in the U.S. has dramatically favored those at the top. Between 1979 and 2007, average after tax household income for those in the top 1% grew 275%. For the next 20%, income during this period grew 65%. And for the next lower 60%, income grew by less than 40%. For the lowest 20%, income grew at a mere 18%. Put another way, the portion of national wealth controlled by the top 1% was greater in 2007 than it had been in 1979. Moreover, the share held by the remainder of society actually declined. Between 2005 and 2007, the share of national income that went to the top 20% exceeded the total amount that went to the entire lower 80%. Meanwhile, the national poverty rate has increased from 12.5% in 2007 to 15.1% in 2010.
It is a specious argument to note that the top income brackets pay the largest share of the federal income tax, for these brackets have by large the vast majority of the nation’s wealth. Even more to the point, such tax-payers actually pay a far lower portion of their wealth today than they have in decades. On the other hand, even the lowest wage earners pay federal payroll taxes in addition to state and local taxes.
None of this is about "income inequality" or the "right ratio" in some abstract sense. Rather, it has to do with how the ratio has come to be in the first place. Class warfare is, in fact, a modern reality — easily seen when one examines the details of how this redistribution of wealth has occurred. Once this is done, what one will find is that the growing advantage of those at the top has not been acquired "in the old fashioned way." Money counts, especially in modern politics. And it is routinely used by those who have it to influence public policy to make it easier for them to have more of it. For confirmation, look no further than the tax system here in the state of Washington.
Mar 08, 2012 | Reply to this comment
The Occupy movement has its origins in chapter 23 of Howard Zinn’s A People’s History of the United States. Here Zinn names the 99 percent and describes the conditions for an effective movement. He points out that the 1 percent who horde the world’s wealth must turn the 99 percent against each other. Enter think tanks like the Washington Policy Center (www.washingtonpolicy.org), where Mr. Nethercutt is a board member. They use surveys and focus groups to pinpoint the most divisive language. In their word games they find that quotation marks around “Occupy” might make you doubt the alleged 99 percent’s legitimacy. They coin self-serving terms like “job creators” and “tax fairness”. They remind us that wealth is attracted to talent, ambition, energy, drive, brain-power, ingenuity, and more energy. If the 1 percent get the language just right and repeat it frequently enough, then the slothful 99 percent will realize that our own moral failings have prevented our material success. A penitent 99 won’t bother to question the revolving door which spits Congressman Nethercutt into a firm that prostitutes the US Congress to multinational corporations. A shameful 99 won’t wonder how much BlueWater pays former Congressman Nethercutt or what – if anything – he has to do for that money.
John Perkins reveals in Economic Hit Man how he was kept on at his firm, MAIN, for lots of hush money and very little responsibility. Chances are that Mr. Nethercutt does not have to trade any services with BlueWater Strategies in exchange for his six or seven figure salary. In all likelihood, Mr. Nethercutt did not even write “The Right Ratio.” This and other pieces that land in the Inlander bearing Mr. Nethercutt’s name and headshot are probably written by staff at the Washington Policy Institute. I would further speculate that these articles are tested on an audience and revised before they are submitted for publication. The ideas, just like the Tiger Woods teeth and luxurious tan, are then presented as Mr. Nethercutt’s.
As Zinn predicted, George Nethercutt and his cronies have mastered the language of patriotism. They pose as our biggest cheerleaders so that we’d never suspect they’re the ones selling our future down a polluted river. They misrepresent the nature of wealth accumulation and make accusations that are designed with scientific precision to keep the 99 percent arguing with each other over who’s working hard enough and who loves the nation more. But some of us are wide awake already. I’m a high school educated trucker and I see through the wordplay. Before long, there’ll be enough of us to put a stop to the 1 percent’s boundless plundering. Then a porcelain smile and crafty turn of phrase won’t be enough to stem the tide of the 99. Mar 12, 2012 | Reply to this comment