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Who’s getting too good a deal? Hint: It’s not the bottom 99 percent of us

Date Published: 02/24/2011

Author: Dane Smith, President

ST. PAUL LEGAL LEDGER CAPITOL REPORT

As state and federal budget debates heat up this month, the taxophobes are bombarding us with propaganda claiming that too many groups are getting too good a deal.

Who are these groups getting deals that are just too good?

In fact, almost everybody, under this “starve the beast” case for hacking away at our governments and cutting taxes even further, is getting too good a deal.

The purveyors of these attacks never acknowledge the enormous and growing economic advantage of wealthy individuals and CEOs or corporate stockholders, who generally are portrayed as doing just a heroic job running our economy and “creating jobs.” Moreover, the cuts-only budget extremists at the federal and state levels would have us believe that it’s those successful people at the very top who are the most persecuted – Atlases carrying the rest of us on their shoulders – and thus can’t sacrifice a penny more in federal or state income or inheritance taxes.

This narrative is not just off-base – it’s upside down, downside up.

On the very bottom-line economic measurement of who’s getting how much, households in that most successful top 1 percent income bracket actually are leaving the rest of us in the dust.

These top income earners are now relatively better off than at any time since the Depression. And the rest of us in the remaining 99 percent – which includes almost all government workers and most elderly folks – are in worse shape in terms of our share of the economic pie than at any time since Herbert Hoover was president. And this might explain why the 99 percent can no longer afford to buy as much of the stuff that the Atlases are selling, even as they pay fewer of us less for our labor.

Former U.S. Labor Secretary Robert Reich is perhaps the best known apostle of the scary truth about inequality, and he frequently points out that in 2007 the top 1 percent of households reaped a record 23 percent of national annual income (and an even greater share of wealth).

That’s almost three times the share of income they captured as late as the 1970s, when economic inequality in the United States was at its lowest point in the 20th century.

A mountain of statistical evidence has piled up in recent years, especially since the Great Recession, telling a story of stagnating wages, lower income taxes for the rich, declining purchasing power for the middle-incomes and a growing poverty rate. It all adds up to an economic inequality crisis that’s building in the United States and Minnesota.

Most of us have respect for those in the top 1 percent (in Minnesota, that means those making more than $447,889 a year, in the state’s latest Tax Incidence Study), and we know many of them deserve much of their success. I personally know some very fine Minnesotans in those brackets. But as much as I like and admire them, I just don’t quite buy that as a group they are three times as worthy or deserving as the top 1 percenters of the 1970s. Nor can I accept that the 99 percent of us have become that much less worthy.

Fortunately, the ranks of the deniers about inequality are diminishing.

President George W. Bush, in a rare moment in an even more rarely cited 2007 speech on Wall Street, declared that “income inequality is real – it’s been rising for more than 25 years.” Wikipedia’s latest take on the subject: “The majority of social scientists believe that income inequality currently poses a problem for American society, with Alan Greenspan stating it to be a ‘very disturbing trend.’” Greenspan, of course, is the former Federal Reserve chairman and one of the most influential forces for free markets and limited government in modern history.

Let’s acknowledge that we might actually have an entitlement problem, too, and a careful redesign of those economic security systems may be overdue. Contributions to Social Security from top-income folks need to be increased and retirement ages might need to be adjusted.

Soaring health care costs, for which the private sector bears large responsibility, need to be brought under control. Public employee benefits and pension plans need to be examined.

But our greatness and our progress as a state and a nation – from the time the founders decided that the power to tax for the common good was essential for our federal and state governments – has depended every bit as much on effective and amply financed government as on private enterprise.

Over the last century, every industrialized democracy in the world and most of the more successful states have found that providing more economic security and equality – investing generously in universal education, and addressing socioeconomic needs – is good for business in the long run.

Equalizing opportunity, improving human capital through education, public funding of research and investing in first-rate physical infrastructure are a surefire ticket to success.

Undemocratic, communistic nations and attempts at perfect utopian equality failed miserably. But governments that do little but protect the property and advantage of their economic elites – the model in much of the Middle East and Third World nations – also turn out to be poor, unstable and miserable.

Government has grown and overall tax rates in the United States and Minnesota are significantly higher than they were in the 1920s (although income taxes are lower than they were in 1980). It’s instructive to observe, however, that there are no rich or powerful nations with the kinds of rock-bottom effective tax rates that existed before 1930 – rates to which some libertarian conservatives seem to aspire.

Seeking balance between private gain and public good is at the heart of our democratic process, and it’s what a clear majority of citizens want our democratic governments to do. We need to respect both the private sector and the public sector.

We should be optimistic about resolving our budget crises and urging our elected leaders toward a compromise that asks the most successful among us to support a commonwealth that has been very good to them. And in solving this very solvable issue we really must confront the irrational fear of taxes, which are, in the immortal words of the great jurist Oliver Wendell Holmes, the price we pay for a civilized society.

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A version of this column originally appeared in the St. Paul Legal Ledger Capitol Report on Monday, February 24, 2011.

Dane Smith is the president of Growth & Justice, a progressive public policy organization that promotes statewide economic growth for Minnesota through smarter public investments in human capital and infrastructure.


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