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Ignoring the Real Spending Problem

February 24, 2013

Perhaps the biggest spending problem present in our current budget predicament is the tax policy that has been increasing income and wealth inequality in this country for more than thirty years – beginning with the Reagan Administration. Taxing capital gains and dividend income at rates lower than that for other forms of income for most taxpayers has disproportionately benefitted the wealthy throughout this time period, especially as wages and salaries have stagnated for the vast majority of Americans. 

The main justification for this disparate treatment of capital gains and dividend income vs. traditional wage/salary income has been that it encourages capital accumulation to start and expand businesses, creating jobs and growing the economy as a whole. What has happened has not shown that this is how the accumulated funds have been spent at all. Many good paying manufacturing jobs have been relocated to countries with weaker labor laws earning lower wages. Replacement jobs here have either been non-existent or in sectors  of the economy that do not pay as well. Much of the accumulated wealth is taken out of our economy altogether, weakening demand.

While the economy has continued a weak recovery for most American workers, upper income levels have seen an ever-increasing share of the income and wealth available. Corporate CEOs and other executives have seen their incomes skyrocket while the rest of us have seen general wage stagnation. In fact, most of the population has done worse during the recovery, while the top 1% has seen great improvement in income and wealth. At the same time, corporate profits have also done very well, as can be seen by the rise in the stock markets.

The deal to put off the “fiscal cliff” at the beginning of 2013 did something to address some of the more grievous aspects of the Bush tax cuts by increasing taxes for those making over $450,000, and also raising the capital gains tax. However, the capital gains tax, which makes up an increasing percentage of income for those in the top bracket, is still below the income tax level for many Americans who do not make income via capital gains. An excellent example was provided by Warren Buffett last year when he said that he was probably paying a lower tax rate than his secretary for this very reason. Mitt Romney’s hemming and hawing over his taxes during the campaign was largely for the same reason. How many jobs have Romney and others like him provided in this country due to their lower taxes? I can’t say, but it seems the claims made by the tax cut/job provider proponents were greatly exaggerated, judging by the unemployment rate and general state of the economy.

Capital gains should be taxed at the same rate as other income, in my opinion. The benefits of lowering the rate under Reagan and Bush did not seem to improve the economy as their proponents claimed they would. Instead of creating new jobs and a healthy economy benefitting us all, we have seen increased inequality, with the rich getting richer and the rest of us accused of slacking (who will soon forget the 47% and givers and takers comments of Romney and Ryan?).. Programs designed to prevent or alleviate poverty among the elderly, sick and young have been targeted for years for cuts by those who feel they cost too much, while the resources that could be used to pay for them are called off-limits.

What costs too much, in societal terms, is continuing to give preferential treatment treatment in the tax code to those who do not need it. Some of the wealthy recognize this. Buffett himself made recommendations for fixing it. Others, including many of our Congressional representatives, continue to spout the Reagan-Bush trickle down nonsense they have been lavishing upon us since 1980. Government could put that money to better use for its citizens than the beneficiaries of these tax cuts have done for these past several decades.

There are more than enough resources available in our country to ensure that all its people are adequately fed, housed, clothed and medically taken care of. That the distribution of these resources is faulty is evident because this is not taking place. The government is here to serve all of us, not just those who have managed to secure for themselves and their families more than their fair share of the economic pie.

Individuals are not the only ones taking advantage of tax breaks. Some of the corporations which have been making enormous profits over recent years have also been the recipients of tax breaks. Some pay little or no taxes at all. Some even get refunds from the government. They bust unions and give huge bonuses to executives while refusing to share profits with the workers who make those profits possible. Corporate raiders and hedge fund managers are among those profiting the most. The example of Bain Capital during the last Presidential campaign comes to mind, but Bain and Romney are far from being alone in this regard.

Where is the private sector when it comes to repairing and replacing important infrastructure when the need arises? Does the money for roads and bridges come from capitalists and their corporations? Not much of it. Yet their success or failure often depends on the reliability of that infrastructure they expect us and the government to build and maintain. Should they not be called upon to pay their fair share in this endeavor? Should their employees not be entitled to a fairer distribution of the corporate wealth compared to the corporate executives than they are today? Is a CEO really worth $10 million dollars in a year and a golden parachute when the company needs a federal bailout and lower level workers are laid off with nothing to show for their work?

Equal opportunity as pertains to opportunity to succeed in our economy and society today is a myth in America. Anyone who thinks that the child of a single parent growing up in poverty has the same opportunity to advance in our society as the son of a Mitt Romney is deluding themselves. Education, health care and all other avenues of attaining success must be made more equally available and affordable to all. Under the New Deal and Great Society, we strove  as a nation to lessen and eliminate the barriers to the pursuit of happiness which existed for many of us. It seems to me that those who are calling for cuts to programs which do this sort of work are trying to turn back the clock and maintain the privileges of the few at the expense of the many. Elected representatives of the people who are acting in this manner are not adequately fulfilling their sworn duties.

More acts of this budget debate/sequester/debt ceiling/deficit spending talk which do nothing to address the causes of the fundamental inequalities perpetrated on the American people by their government are getting old and unacceptable to most of us. Not only are they not resolving the problems they continue to put off, but they are also ignoring many other pressing issues in their endless pursuit of recesses. Read the opinion polls. Congress cannot continue to ignore them and follow their current path much longer. Most of us are losing our patience.


Suggested further reading:

Income Inequality Data Show Reverse Robin Hood Recovery

New Study Shows Capital Gains Tax Cuts Biggest Contributor to Income Inequality


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  1. Not to mention the Bush tax cuts…


  2. I like the trickle up effect..let the poor have the money first..the rich will figure out how to get it in the end. In the meantime the same dollar passing through many hands does far more for the economy than the one that disappears straight to an off shore tax haven


  3. New Deal permalink

    A systemic problem requires a systemic response.

    As long as the failed Chicago School of Economics and Harvard School of Management beggar-thy-neighbour rumbles on philosophically unchallenged, we should expect more of the depressing and divisive symptoms you outline so well here.


  4. Good stuff.


  5. Great post, very-well written and as timely as ever!

    Closely related to this topic, a blog on officially revealed truth regarding the essence of current monetary system. It seems that Crisis, Austerity, Inequality, Poverty – as well as all macroeconomic malfunctions – are caused by an immense, ongoing money-counterfeiting scheme: the banking system itself.

    “Lords and Serfs: the truth is out, money is just an IOU and THAT is the fraud”


  6. Kirk Sheckler permalink

    The basic idea is public (government) investment in infrastructure and education are key for job creation and increasing demand for an over supply of product. Trickle down Reaganomics hasnt worked for 25+ years because as we’ve seen most top earners get their wealth from capital gains or stock options with the preference to tax rates. Bottom up wealth distribution has put $$ in hands of too few. Economics 101 folks. Republicans need to take that class.


  7. “Read the opinion polls. Congress cannot continue to ignore them and follow their current path much longer. Most of us are losing our patience.”<–this writer is clueless about how intentional economic segregation is among ordinary racist voters as a response to Civil Rights. Conservative voters are intentionally pursuing hereditary inequality. Who do you think elected Congress these last 50 years?


  8. Reblogged this on fixerguy's Blog.

    Liked by 1 person

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