The Huffington Post
By: Robert Creamer
December 1, 2010
You hear a lot these days about how there has to be "shared sacrifice" to revive the economy and get the federal deficit under control.
The fact is that for the last two decades the middle class in America has already done plenty of sacrificing. Now it's time for the gang who had the big economic party -- and who caused the economic calamity -- to pay the bill.
The middle class and the poor should not be asked for "more sacrifice" to close the budget deficit. It can be closed without making the middle class and poor pick up the tab.
And it's time the wealthy Americans begin once again to pay their proportionate share of taxes. At least they ought to pay the pre-Bush-tax-cut rates of the 1990s -- which, we should remember, was the most prosperous period in human history.
Next time you hear some Wall Street type -- or someone from an elite right wing think tank -- spout off about the need to cut Social Security or Medicare, for instance, here are some facts that will make your blood boil:
- The average income of senior citizens on Social Security -- from all sources -- is $18,000. The average Social Security benefit is about $14,000 per year; less for women. Not a princely sum - but critical to give many older Americans a decent, dignified life in retirement. Doesn't it even occur to one of the crew from Wall Street who makes millions in bonuses, that it might be a little unseemly for him to recommend that people who make $18,000 a year - who have paid into Social Security for decades -- should be asked to tighten their belts in order to reassure the "markets" that America has begun to get its "entitlement problem" under control.
When we talk about "tough" decisions, let's be sure to ask the question: "tough for whom?"
- For a decade virtually all of the economic growth in America has gone to the top two percent of the population.
In fact, according to a study from the respected Center on Budget Priorities:
Two-thirds of the nation's total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any other time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez..
During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.
In fact, in 2006 dollars, the income of the top 1% increased from $337,100 in 1979 to $1.2 million in 2006. That trend has continued since.
In fact, according to the Center on Budget, "During the last economic recovery, from 2001 to 2007, poverty actually increased and the median income of working-age households declined, even as income at the top of the income scale continued to rise."
Middle class real incomes declined five percent during the Bush years.
- There is general agreement that the recklessness of the wealthiest of the wealthy -- big Wall Street CEO's and traders -- caused the economic collapse in the fall of 2008 and cost eight million Americans their jobs. But did their recklessness leave them destitute? Certainly not. By the spring of 2009, many of precisely the same people who caused the economic cataclysm were back at the bonus trough on Wall Street taking home tens of millions from firms that had actually been rescued by funds from the taxpayers. And remember that the rescue of the financial sector was made possible by the Government that this same gang loves to hate when it comes time to hold them accountable or pay taxes -- but adores when it's time to come with a vault-sized tin cup to Washington.
- This same crowd made a fortune on deals that helped outsource American jobs to cheap labor markets around the world -- jobs that used to pay millions of middle class Americans their middle class incomes.
- The Wall Street gang also made a fortune by pumping up the credit bubble -- making loans and issuing credit cards to middle class families whose incomes were shrinking but who were trying to stay afloat by borrowing more and more. Of course since the real buying power of most middle class Americans was stagnant, all of that credit was necessary if big corporations were going to increase their domestic sales. That's the problem with increasing income inequality. When each rich person siphons off a bigger and bigger share of the total national economic pie for himself, there is no growth left to increase the buying power of those upon whom they depend to be customers. They kill the goose that lays the golden egg.
Credit bubbles work to ameliorate this problem for a while, but at some point the cards come tumbling down.
- After the onset of the Great Recession, the assets and incomes of the rich certainly took a hit, but now -- just two years later -- they're back.
The stock market has rebounded. And recall that 81.2% of all stocks and bonds are owned by the top 10% of the population -- and a whopping 38.3% by the top 1%. That leaves only 18.8% of stocks and bond ownership to the bottom 90% of the population, so it should come as no surprise that the rise in the stock market has been welcome news among the very rich.
The New York Times reported last spring that: "Despite calls for restraint from Washington and a chafed public, resurgent banks are preparing to pay out bonuses that rival those of the boom years," it continued. "The haul, in cash and stock, will run into many billions of dollars."
"Industry executives acknowledge that the numbers being tossed around -- six-, seven- and even eight-figure sums for some chief executives and top producers -- will stun the many Americans still hurting from the financial collapse and ensuing Great Recession."
"During the first nine months of 2009," the Times reported, "five of the largest banks that received federal aid -- Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley -- together set aside about $90 billion for compensation."
- Wall Street bonuses for this year are expected to go up.
- Now the CEO of the average company in the Standard and Poor's Index makes $10.9 million. That means that before lunch, on the first workday of the year, he (sometimes she) has made more than the minimum wage workers in his company will make all year. That translates to $5,240 per hour -- or about 344 times the pay of the typical American worker.
- Most people would consider a salary of $100,000 per year reasonably good pay. But the average CEO makes that much in the first 20 hours of the work year.
- And that's nothing compared to some of the Kings of Wall Street. At the time the market crashed, many market experts questioned whether the industry could continue to charge such hefty fees. But according to the New York Times: "...top hedge fund managers rode the 2009 stock market rally to record gains, with the highest-paid 25 earning a collective $25.3 billion.... Beating the old 2007 high by a wide margin.... The minimum individual payout on the list was $350 million in 2009, a sign of how richly compensated hedge fund managers have remained despite public outrage over the pay packages at big banks and brokerage firms."
And by the way, the hedge fund managers paid a tax rate on their incomes of only 15% -- far lower than the tax rate paid by their secretaries.
About 70% of all capital gains go to 3.5% of the population.
When you think about it, it's indefensible that "ordinary income" - the income generated when you work for a living - is taxed at up to 35%, and "capital gains" - income generated when your stocks, bonds, or derivatives appreciate - is taxed at 15%.
It makes no sense at all that the marginal income of a middle manager who makes $50,000 a year is taxed at 25%, while the income of a wealthy person who spends his time on the French Riviera "day trading" on the stock market is taxed at 15%.
- According to last Wednesday's New York Post: "Shares of Tiffany hit an all-time high yesterday after the upscale jeweler reported a better-than-expected quarterly profit and gave an upbeat holiday outlook. ... Demand has been strongest among Tiffany's wealthiest customers, who drove "double-digit" percentage gains in sales of items priced above $500, the company said."
So next time someone tells you about how the middle class needs to tighten its belt to close the budget deficit, remind them of the CEO who just spent $4,000 for a blouse on Rodeo Drive in Beverly Hills.
Or you might mention Steve Schwarzman, the tycoon who spent $5 million on his 60th birthday party.
Ask him to empathize with the difficulties of the Wall Street trader who takes his family on a weekend ski vacation in his Gulfstream V jet that runs him $5,200 per hour to operate - or just $20,400 for a quick round trip to Aspen. Hope he doesn't forget to pick up a $1,830 pair of Berluti shoes when he takes a shopping break.
And of course there are John and Cindy McCain, whose eight homes became an issue in his ill-fated Presidential race.
What do you think? Is it fairer to provide another $700 billion in tax cuts for the rich -- or should we eliminate unemployment compensation, as the Republicans propose?
From the economic point of view the case is clear. According to the Department of Labor, extending unemployment insurance creates spending of about $5 billion per month and boosts the GDP almost twice that, by almost $10 billion a month. And if unemployment insurance disappears, we will lose 900,000 more jobs. According to Marc Zandi, John McCain's economic adviser during the last Presidential campaign, the money spent on the tax cuts will return to the economy only about twenty nine cents on every dollar spent.
But economics isn't the only reason why we should extend unemployment and drop more tax breaks for the rich. The main reason is simple: more tax cuts for the rich while ending unemployment insurance is just plain wrong.
Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com.