Grace Ross: A Possible Solution to Our Money Problems

Wednesday, May 23, 2012

Grace Ross, GoLocalWorcester MINDSETTER™

Grace Ross, GoLocalWorcester MINDSETTER™

Our airwaves these days are full of the budget debates: city, state, and even federal. And all we hear over and over again is “there’s no money, there’s no money, there’s no money.”

The striking thing is that the last I checked, I live in the third wealthiest state in one of the wealthiest countries in the world. It’s not that literally money has disappeared or that people are having bon fires burning up money. The fact is that the money is still out there somewhere.

I end up reflecting back on the 1950s, 60s, and 70s, arguably when the U.S. economy was thriving the best. Regular people were seeing overall increase in their standard of living regardless of their income bracket. Corporate profits were consistent and high - higher than they usually have been in the last several decades.

I think to myself ‘so where is the political leadership? The folks at the top are still minting money; the rest of us are not making or barely making ends meet at all’.

That was exactly the situation going into the Great Depression that had to be turned around then. What if I proposed something like folks in the top federal tax bracket...

Wait, a brief explanation of federal tax brackets: all of us pay taxes at the rate of the first layer of federal tax brackets – on the first $9,000 roughly we make. Then the money you make above that ends up being taxed at a different rate in the second tax bracket (up to about $33,000) and then all the way up the tax layers until the top part of the money that the very wealthiest folks make gets taxed at the rate at the top tax bracket.

So what if we proposed something like those who bring enough hundreds of thousands for some of that to be taxed in the top tax bracket should pay 70 or 80 cents out of every dollar in that top tax bracket? Only about .7% of the US population has enough income for part of it to be covered by the top tax bracket.

That was exactly the situation going into the Great Depression that had to be turned around then. So what if we proposed something like those who bring enough hundreds of thousands for some of that to be taxed in the top tax bracket should pay 70 or 80 cents out of every dollar in that top tax bracket?

Someone out there is going to scream “…oh, wait, these people are the ‘job creators’ and if they don’t have money, they’re not going to create jobs…” but, of course, what we know is that the folks at the very top already have more money now than they even had going into the Great Depression and guess what? We don’t have more jobs, we have less. The evidence is in on that political rhetoric. Our economy consistently created jobs in the ‘50s, ‘60s thru the mid-‘70s when much more of the money in our economy was in and out of the hands of regular people.

A bunch of readers are reacting: this is a radical policy – and disagreeing with me in principle, right? So lets say we do what one of the most conservative presidents we ever had did: Eisenhower (breathing easier?). He raised the rate on the top tax bracket to 91¢ for every dollar. And he oversaw one of the strongest economic periods in the last 150 years of our nation’s history – solidifying the trajectory out of the Great Depression.

A key component of that, he did by taxing the clearly surplus wealth of the very wealthiest at a very high rate. Why? Because it turns out that that’s what drives jobs, that’s what builds our economy. If the chunk of the money that our government is taking from us is mostly coming back into the lives of regular people and we constitute 70% of the economy, it turns out that drives the economy.

Our state tax system is very different but like the federal tax choices of the last decades, our state’s elected officials shifted the tax burden off of the wealthiest – making you and me pay more and more of the taxes for our civic life. Tax cuts have not been equal cuts for all by any means – the way taxes have been cut have overwhelmingly meant bigger cuts the richer you are. So hats off to the leadership of the city of Worcester who voted an advisory vote to our legislature that when they get the opportunity we should reverse the trend of shifting the tax burden onto regular people and off of the very wealthiest and ask the wealthy instead to start stepping up to the plate and paying at least at the rate that we do.

Given that the very wealthy at this point rarely receive their income in salaries, they’re paid by stocks and bonds. Nationally, after decades of cutting the top tax rate, the ‘Bush tax cuts’ cut the federal rate for stocks and bonds to 15%. That percentage is less than the tax rate of the average taxpayer! There have been those who have yelled at me that this cannot be true- but feel free to check this out yourself.

Our society has essentially said to the very wealthy “you can sit on your money and you can drain money from our communities a million different ways from foreclosures to exorbitant increases in health insurance rates, etc. as much as you want, but we’re not going to demand that you contribute back to our society even at the same rate that the rest of us do.”

It’s not only a stupid position economically and an immoral position, it’s also one guaranteed to continue to crash our economy. I hate to say it, but look at the stock market fluctuating all over the place again. If we’re not headed into a second downturn, well let’s hope I’m wrong on that prediction.