Balance the Budget on the Backs of Billionaires?

Historic income inequity creates a defining moment for the community economic development field.

August 8, 2011

I got an action alert titled, “Balance the Budget on the Backs of Billionaires.” That phrase kept running through my mind throughout the entire debt ceiling drama in Washington. It got me thinking … and Googling. Just how much of our nation’s wealth goes to the super-rich? And, should Washington tap into their bounty to put a dent in the national debt?

Historic income disparity

Income inequality in the U.S. is currently the worst since just before the Great Depression. The richest 400 Americans hold more wealth than the bottom 50 percent of Americans combined. The richest one percent of Americans take home 24 percent of income and the richest 10 percent of Americans control two-thirds of the country’s net worth.

Income disparity is far greater in the United States ranks than European or the United Kingdom, according to the CIA’s World Factbook. In their world rankings on inequality, the United States now falls just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica.

Executive compensation in the largest U.S. firms has roughly quadrupled in real terms since the 1970s. Pay for top executives skyrocketed to a median of $10.8 million in 2010 – up 23 percent from 2009. The CEO of Viacom topped the list, taking home $84.5 million. Cash bonuses, which often reward short-term gain, jumped by 38 percent. These rewards have not trickled down to the most workers. Pay for 90 percent of Americans has stagnated since the 1970s. The average American worker took home $752 a week in late 2010, up just 0.5 percent from a year earlier. When adjusted for inflation, average American workers were actually making less than the year before.

Out-of-balance tax code

The historically low 15 percent tax rate on long term capital gains favors the super-rich. The 400 highest-income Americans secured 13.1 percent of net capital gains reported to the IRS for 2008. The super-rich pay a lower effective federal income tax rate regular rich folks, who get more of their money from salary and other ordinary income, taxed at a top 35%. Warren Buffet famously complained that he pays a lower effective tax rate than his secretary.

And, a new Pew Research Center report finds that the median household wealth of white households is 20 times that of black households and 18 times that of Hispanic households. The bursting of the housing bubble and took a far greater toll on minorities than whites. As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149. The recession widened the gap significantly, with the spreads more than double what they were during the two decades leading up to the recession.

So why did the President shelve his proposal to increase taxes on the wealthiest Americans during negotiations on the debt ceiling? A Washington Post-ABC News poll showed that 72 percent of Americans, including a majority of Republicans, support raising taxes on families with incomes of $250,000 or more when the President made that proposal in April.

One reason is that as the rich become richer, their political clout becomes even stronger. Sophisticated lobbying and public relations successfully frame efforts to change the tax code as hurting small businesses and stifling initiative. And, they’ve tapped into the anger felt by people working harder than ever to get by at people who receive government assistance and at the government for spending money on assistance programs we cannot afford.

The current debt deal includes $1 trillion in spending cuts with absolutely no tax reform. It does not raise taxes on the super-rich by a single cent. It does nothing to close tax loopholes for the wealthy – or corporations for that matter. Where is the public outrage about that?

A defining moment for the Community Economic Development field

As the Congressional super committee works to identify another $1.2 trillion in deficit reductions by Thanksgiving, we in the community economic development field have our work cut out for us. We must help lawmakers and the public understand that community economic development is not a hand out. By creating opportunities for people to work, provide for their families, pay taxes, and invest in their communities, community economic development helps the economy.

Part of the secret to America’s economic success is the belief that anyone who is smart and works hard can succeed. Our current enormous wealth gap decreases access to capital and education among the vast majority of people, decreasing  for economic ingenuity for generations.

America’s wealth gap is at a historical high. The last time we had this sort of income inequity was just before the 1929 crash. When the Bush tax cuts took effect in 2010, taxes on those earning $1 million or more sank to their lowest rate since since the 1940s. This sort of income inequity is bad for the economy and bad for society. It’s time for the wealthiest Americans to pay their fair share of taxes and do their part to reduce the deficit.

NOTE: This blog is based on a lot of outstanding reporting on America's wealth gap. Click on the links to access supporting articles.

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