What should the income inequality of the USA be?
Back in the Guilded Age of no regulations, often flat taxes, and pure laissez-faire capitalism (including the casino capitalism brand on Wall Street), income and wealth inequity kept rising till, in 1928, the top 1% of Americans owned 40% of the nation’s financial wealth. We all know what happened when Casino Capitalism collapsed Wall Street in 1929. As Herman Cain would have us believe, 25% of all Americans suddenly became lazy bums and decided they would rather be homeless and starve than work. Clearly, in his mind, Obama used a time machine to transport himself back to 2007 and cause the recession. Who knows? Perhaps the Great Depression was his fault too.
Oh well, regardless of who crashed the economy, it was wrecked in 2007 and although it’s been patched up to the point it’s drivable again, we have yet to come anywhere close to knocking out all the dents and giving it a shinny new coat of paint. What else happened in 2007? Income and wealth disparity again hit a high. The top 1% held 42% of the nation’s economic wealth, up from 33% in 1979.
Interestingly, the Great Depression and high marginal tax rates used to finance WWII and the Marshall Plan reduced the income and wealth gap to an all-time low in the 1950s and 1960s. Government accomplished this flattening of inequality through a highly progressive tax system. For instance, during Eisenhower’s administration, the rate was 90% on income above $400,000 per year. Of course, $400,000 was a boatload of income in those pre-inflation days. The 1950s and 60s were also America’s greatest period of growth, and both millionaires and the poor moved upwards on about the same slope. Inequality stayed flat, in other words. We built the world’s greatest middle class in the years after WWII and up to 1980. and created a crop of millionaires and billionaires as well.
In 1980, Ronald Reagan launched us on the conservative revolution. He advocated a far flatter tax system. He cut the top rate from 70% to 28%. This did stimulate a sluggish economy at the time, but it also reversed the curve of the national debt. We’d been steadily reducing debt as a percent of GDP from the end of the war till Reagan’s “trickle-down economics” came along. Reagan tripled the national debt! in his 2 terms in office. If you don’t click any other link here, click this one and watch the video.
Now we face a clear choice. The CNBC Republican debate last night made it crystal clear that everyone on that stage, with the possible exception of Jon Huntsman, are supply siders. Their plan to fix the economy is to shift more tax burden to the poor and middle class, and drastically cut taxes for the top 1% who they call the “job creators.” Democrats want to do the opposite, shifting more of the tax load to the 1%. Republicans think 42% of America’s wealth isn’t enough for the top 1%. Democrats think it’s too much. What do you think? What is a healthy level of wealth inequality, where there is ample incentive to innovate and reward for entrepreneurship, but those who carry out the rich man’s trash and keep his sewers free from human sludge can earn a living wage too?