The Great Wealth Transfer of the Last 40 Years
A couple weeks after my 17th birthday Ronald Reagan was inaugurated as the 40th President. The buzz phrase Trickle Down Economics was coined and became popular during the campaign. It was so simple! Give a tax cut to the people at the top and it will trickle down to everyone else! And with that, an era of neoconservative control of the GOP and massive wealth transfers out of the middle class began.
Reagan cut taxes in a way that almost totally benefited the top earners. One thing he did that was particularly indicative of what would come was to cut the capital gains tax top rate. Since the Great Depression, capital gains income had been regarded as a different, shadier kind of income. It was money made by speculators, the kind of people who brought about the stock market crash in 1929 that started the madness. It is the income of the wealthy, income based simply on the fact that you already have money. The more you have, the more you can make on capital gains.
It's helpful to think about the concept of Progressive Taxation. Progressive means that as income goes up, tax rates go up. The policy may seem unfair to high wage earners because everybody paying the same rate seems fair logically. But is it? The whole world has the red carpet out for affluent people. Their level of support for all the things government provides should be higher. Much higher. For example: To a normal average citizen having a functioning highway system is very useful. You need to get to and from work, maybe you want to drive to the mountains this weekend, maybe go see Aunt Betty next month. Super useful. But what if you are Federal Express, or more importantly a large shareholder in FedEx? What are those highways worth to you?
Back in the Golden Age of the US economy, post-war until roughly the oil embargo in 1973, top tax rates were very high. Throughout the 1950s the top rate was over 90% for income in excess of some amount. This was how the Great Depression was ended and the big war was won. The wealthy paid their share. And the economy was amazing. It floated all boats. It was a Middle Class world in America. And being Middle Class was not too damn bad. Unions were in control of the world, so your job was secure and your pay was fair. With a normal amount of work you could buy a house, a new car every couple years, send your kids to college and retire at 65. The Middle Class was big and that was what made America Great, to borrow a phrase.
One of the things progressive tax rates do is fundamentally limit how rich somebody can get. Once you get to 5 million per year or whatever, literally most of what you earn in excess of that goes to the IRS. Add to that inheritance tax (AKA The Death Tax) and you can possibly avoid allowing dynastic wealth to get rooted. When the Colonies started in the 1600s, the people were fleeing among other things monarchy. In old Europe there were noble families. Aristocracy. They owned the land and everything else, and the peasants that lived among them tilled the fields and did all the other hard work, but had no control over their lives. The colonists came to the New World to not be anybody's peasant. Dynastic wealth, meaning when families become so wealthy that all the offspring will be guaranteed life-long wealth and power is aristocracy's step brother. Thank goodness we avoided that!
Let's quit wandering around in deep history here and cut back to 1981 and see what happened since then. Reagan liked to call his rivals tax and spend liberals. I like to call guys like Ronnie borrow and spend conservatives. He wanted to get rid of Big Government. But somehow, even though a lot of departments and social safety net programs got smaller, the deficit went up into the stratosphere. There was a savings and loan crisis with of course a big bailout, a huge defense budget (remember the Cold War, any expense could be justified) and a simultaneous large tax revenue cut.
During this time neoconservatives had taken the game more seriously. They established think tanks to learn things like how to develop and distribute talking points. Call the things you don't like something people are afraid of like Death Tax. The shady things that you want to deceive people about, call them the opposite of what they are, like Citizens United. Meanwhile we had come into the era of cable TV. Now instead of NBC, CBS, ABC, and PBS we had 50 channels and nothing on. Fox News came along in 1996 to bring us a legit-looking modern propaganda engine. The neoconservatives talking points had their own news network. It has become what I call "the other channel" because people who use it as their news source see every issue through a neocon lens. And they don't even realize what's happening. Taxes rarely increased ever during my adult life. They certainly never got more progressive. Clinton inherited what was then considered a horrendous national debt and a recession. Debt is a taking from whoever is going to be paying the future taxes. Their money will be paying down a debt in addition to paying for the services they need. It's a wealth transfer. When all the borrowing was happening in the Reagan-Bush era, working people weren't getting anything special out of what they were paying in. But the top wage earners were paying a far lower rate than traditional, especially on capital gains. Effectively, the wealthy were able to reduce what they paid in, and the response was deficit spending. So we borrowed money to give to them a break. Wealth transfer.
During the 90's, after Newt Gingrich took the throne, a quiet wealth transfer happened. Back when I was drinking myself into a coma in college, universities didn't make their money from tuition. They made their real money from the spending by state and local government and private industry for research happening in the labs and libraries. Students often got to be part of that, and even earn a wage doing a job inside a government funded research project. Also the Pell Grants and Work Study programs made college at public universities affordable. But the neocons managed to change the system. They slowed the flow of research grant money to the schools. And that's when schools dramatically raised tuition. Simultaneously the Pell Grant funding was largely reduced. Enter the era of the student loan. That's not just a wealth transfer, that's a hope transfer.
Let me make an observation here. Many feel that the conservative presidents are good for business and liberals/moderates/democrats are not. In my observation, of all the presidents I've seen come and go at least as an adult, that's bullshit. Reagan-Bush left wreckage and debt behind (neocons). Clinton who is slightly right of center, but moderate, had the government operating at a surplus when he left. We were actually paying back some of the debt. During the Bush II era it was let's start two wars, create a whole new branch of government (DHS), and give out huge tax cuts that favored the wealthy. Drop some key regulations like the Glass-Steagall Act, which was enacted in response to banking practices that led to the Great Depression. It's absence was one of the key drivers of the banking crisis. By the end of W's two terms we had a huge crisis that led to a deep recession and huge bailouts. His policies and leadership caused it. Period. Bailing out those Wall Street firms and auto companies saved people who were already filthy rich lots and lots of money. Which is a wealth transfer of tax revenue and borrowed money to people who were already wealthy. Following Bush we had Obama who was a steady hand and a solid administrator in the highest office, and by the time his term ended he, like Clinton, handed his successor an awesome economy that had left the recession way in the past. There is no possible way to give credit to Bush II for the condition the economy was in when 45 came in.
During that housing and mortgage crisis a piece of collateral damage to the middle class was that a good percentage of the country's residential real estate became available through foreclosure and loss of income. Individuals were having a hard time qualifying for mortgages to buy them with the new (needed) stricter guidelines. But investment banks didn't need to borrow money. They had LOTS of money. The investment community bought up huge amounts of residential real estate and worked with rental management companies to turn all those properties into cash flows. The 2008 crisis made us a nation of renters, and oh boy what a challenge rent has become. It's become quite a thing. Just like college tuition has.
All of that real estate being seized and bought up by the same money that had benefited from bailouts. That's wealth transfer on a grand scale. All right, I'm getting to where this is as long as an Atlantic Monthly article. Sorry. But if you're still reading you must be interested in my perspective. So now it's conclusion time.
We are parked in front of a big damn hole. Going forward is going to be hard. But you know who it's going to be hardest for? The very same people who've been trying to get an honest break ever since the union system was dismantled when I was still a kid.
How has our government responded so far, in terms of the economic trouble? Bailouts. Cut big slabs for the companies that have been making record profits for a decade and whose taxes got cut TO THE BONE by 45's tax cuts. Throw some pennies to the peasants to keep them quiet for now. Taking an opportunity when ever there's a crisis to do what? Wealth transfer.
The way out of this, the real way out, is to re-create the working middle class that made this country great after the war. How do we do that? Well, job one is wealth transfer. Other direction this time. There are people here in the country who do not walk among us. Their staff acquire all they need. They have more than security systems, they have security staff wherever they live. Most of them have at least 10 residences in various paradises around the world. Private airplanes. Lawyers on retainer. And absolutely insane amounts of money. Guess how much risk that relatively small group of people have in this time of pandemic and panic?
If I was king of the world, this is what would happen: First, back to 1955 tax structure, very progressive, very high top rates, at least 45% for capital gains. Back to funding universities. Any US citizen who has more than 2 houses and more than 5 million dollars, pick one or two of your houses. Put 1 million dollars into a local bank account. If you truly are deserving of your vast wealth because you are brilliant or a hard worker or whatever, you'll be gaining immediately and back on top soon. If not, justice was done. The rest of your money, that is actually our money, transfers to a fund that will pay down the debt, acquire residential real estate to sell only to individuals and families at a subsidized rate, fund infrastructure projects and so on. Next, no more corporate subsidies. If your industry cannot survive without being on the public teat, fail and go away. That's what the invisible hand actually says. Things that are needed will magically be provided, things that are not will magically go away. If you believe in capitalism, that's what you believe. Lobbying would become illegal. Campaigns would be publicly funded. Term limits. Corporations no longer considered people and money not considered free speech. The supreme court would be re-balanced by removing some and adding others, decided by a by partisan group of adults. Meaning people who disagree but can still manage to have discourse.
Do those things and not only would we recover better, we would recover in a way that would be kind and fair. Really want to go back to a time when America was Great? Only one way I see.
Will all that happen? Almost certainly not. That's all from 'Ask a LibTard' today.
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