Raise top tax rate back up to 70%

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The Albany Times Union published my letter to the editor on August 8, 2012 (here). You can’t say a lot in 250 words, but this is the gist of my theory of “the economics of inequality.”  Estimating and tracing wealth transfers involves some assumptions, with the data we’re working with, but I have tried to make them conservatively. The information both reflects and supports Keynesian macroeconomics and discredits trickle-down  Reaganomics.  I’ve added a P.S. with a brief description of my analysis. You’ll be hearing more from on this; meanwhile, here’s the text of my letter:

 To the editor:

Since the top income tax rate started coming down under President Ronald Reagan, there has been a massive transfer of wealth to the top 1 percent and the loss of wealth for the bottom 99 percent, reaching into the trillions.

And the siphoning up of wealth continues. Forget about business cycles and “equilibrium” theory: Growth has plummeted over the last 30 years, and the top 1 percent is now taking in 93 percent of all new income. The situation is unstable and cannot improve without reinstating economically stable tax policies.

There is only one immediate solution, and it’s urgent: Raise the top tax rate back up to 70 percent, and stop the wealth transfers of virtually tax-free (15 percent) capital gains. Then spend the revenues wisely.

Americans are in economic La-La Land. Republicans want to reduce the top rate from 35 percent to 25 percent and decimate what’s left of America’s safety net. Voters, who are misinformed and manipulated, get suckered by sound-bites. But we’re well beyond the point where even the most muddle-headed Republican economist, politician or presidential candidate could fail to understand what they’re doing.

We’re in a depression, and the Great Depression II will likely settle in before the end of Mitt Romney’s first term.

J. Michael Harrison,  Delmar

P.S. — Here is an explanation of how I reach these conclusions:  We can trace wealth transfers over the years two ways, and estimate what would have happened under alternative tax policies.  (The alternative would have meant higher growth, and more wealth for everyone, so the mutatatis mutandis cost to the bottom 99% is actually somewhat understated.)

(1) In 1980 the top 1% was earning 10% of all U.S. income and possessed over 30% of national wealth (net worth)  By 2010 it was taking in 93% of all income, and over the previous 30 years had accumulated about $11.8 trillion (in 2010 dollars) of new net worth, assuming a constant share of all new net worth going to the top 1%;

(2) Cumulative transfers received (but not entirely saved to cumulative net worth) through tax breaks through 2010 (in 2010 dollars) totaled about $15.7 trillion, which represents the amount of loss to the bottom 99%.  Conservatively (using the $11.8 trillion estimate), the bottom 99% lost to the top 1% about one-third of the wealth it would have had under the top rate of 70%.

Hence, we’re in a depression, and the bottom 99% can’t generate the demand needed to pull the economy out of it.  This is a developing line of inquiry, so comments are more than welcome.

JMH – 8/12/12

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