(Photo: Michael Fleshman / Flickr)The looming sequester isn’t just about Republicans trying to crash our economy, and it isn’t just about them trying to lay off unionized public sector – aka “government” workers.
The looming sequester is also about one of the most destructive and significant problems facing our nation today: wealth inequality.
Thomas Hungerford of the non-partisan Congressional Research Service has released a new study on wealth and income inequality in America. He looked at a recent 15 year period in the country and found that, “by far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends.”
As Hungerford puts it, “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”
America’s millionaires and billionaires make most of their income from investments, like stocks, bonds, and real estate holdings. As such, these investments are taxed differently from ordinary income. In fact, they’re taxed at much lower rates than ordinary income.
Right now in America, the average teacher or public sector employee pays an average tax rate of 25% to 35%, and a surgeon or family with two college-educated incomes can pay up to 39%.
But then there are this nation’s wealthy elite, the Mitt Romneys of the world, who currently pay a maximum capital gains tax rate of only 20%, and often much less than that because the capital gains and carried interest tax is both progressive and subject to being reduced by thousands of loopholes and deductions.
America’s richest 400 billionaires own more wealth than the bottom 150 million Americans, thanks in large part to the incredibly low capital gains tax rates that they pay.
In fact, the capital gains tax rate hasn’t been this low since the late 1920’s, and we all know what happened then: The Great Depression.
That’s because when wealth accumulates in the hands of a few, as it did in the 1920’s, and as it has now, the entire economy suffers, and spirals into a recession, and sometimes even a depression.
So, history – and the experience of other nations around the world – tells us that nations with low levels of income inequality do better than nations with a few super-super-rich and a lot of working poor. And, given that, rather than letting the rich get richer and running the risk of crashing the economy again, shouldn’t we be doing everything we can to decrease levels of income inequality? Shouldn’t we ask ALL Americans, and not just the middle class, to pay the same income tax rate that’s currently at 39%?
Even Ronald Reagan knew that a low capital gains tax rate, combined with other tax loopholes that let billionaires pay less than bus drivers, were bad for America.
In a 1985 speech at Northside High School in Atlanta, Reagan told a crowd that, “We’re going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying ten percent of his salary, and that’s crazy. […] Do you think the millionaire ought to pay more in taxes than the bus driver or less?”
The largely Republican crowd shouted that yes, the millionaire should pay more than the bus driver. But that was then, and this is now.
Today’s Republicans don’t agree with “The Gipper”. They see nothing wrong with Mitt Romney’s secretary paying almost twice as much in federal income taxes – and massively more in payroll taxes, than the Mittster himself.
That’s why, in the debate over the sequester, John Boehner and company are defending tax loopholes like the capital gains tax rate, and pay for Romney’s loophole with deep spending cuts that will hurt poor and middle class Americans, and further the epidemic of income inequality in our nation.
In fact, Republicans are more enthusiastic about cutting into our military than they are to take one extra penny from the billionaires who own them.
On the other hand, President Obama and Democrats understand just how devastating deep spending cuts will be to the economy and to Americans, and are in favor of closing the tax loopholes that let the wealthy elite make huge profits at the expense of everyone else.
The bottom-line is that millionaires and billionaires should be taxed the same as the rest of it. It would help us avert the sequester, and prevent further damage to our economy.
And, most importantly, eliminating the capital gains tax loophole is an opportunity to do something about wealth inequality.
As researchers Richard Wilkinson and Kate Pickett at the Equality Trust UK have demonstrated beyond any reasonable doubt, wealth inequality underlies virtually all of our social problems, from drug addiction to mental illness to mass school shootings.
It’s time to close the tax loopholes and make America’s billionaire class pay its fair share of taxes like the rest of us do.