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Why Inequality Matters
by Workers Action
Email: sanfrancisco (nospam) wokrerscompass.org
01 Jan 2011
The U.S. social and economic landscape is rapidly changing. Inequalities in wealth, which began an upward ascent back in the 1980s, accelerated in the 1990s. Now they are flying off the charts, thanks first to the tax cuts ushered in by Bush II and second to Obama’s recent continuation of those tax cuts, plus more, which have the effect of taking from the working class and poor in order to give to the rich.
Nicholas Kristof of The New York Times provides these grim statistics: “C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.” (November 6, 2010).
Obama’s continuation of Bush’s tax cuts amount to an additional massive transfer of wealth from working people to the rich. For example, at least one-quarter of the benefits of these tax cuts go to the wealthiest 1 percent of the population, thereby increasing the inequalities in wealth. Most working people will only see a slight drop in their taxes, but the stunning provision is that families that make less than $40,000 will actually suffer a tax increase. If they could only lobby the politicians like the bankers do, they wouldn’t be in this predicament.
Changes in the estate tax will greatly benefit the rich. Instead of being taxed at the pre-Bush rate of 55 percent, the estate taxes will remain at a mere 35 percent. And estates exempt from paying any taxes, instead of being only those under $1 million, will be set at $5 million, another windfall for the rich. The wealthiest Americans will also be able to maintain their super low 15 percent tax bracket on capital gains and dividend income, well below what most working people pay on their income. And the hedge fund managers and private equity investors, who often make millions of dollars a year, get to keep their obscenely low tax rate of 15 percent.
The raw figures themselves are bad enough. But lurking behind them is a poison pill. For example, working people will see a drop in the amount they pay into Social Security. But this decrease will then serve to usher Social Security faster into insolvency, which will then be used as an excuse to cut the benefits of this tremendously popular program. And this revenue reduction is in addition to a long-standing one: the rich enjoy a special break because they are not required to pay Social Security taxes on any of their income over $106,000, meaning that they pay into Social Security at a lower rate than ordinary working people.
But aside from Social Security, virtually all social programs, including public education, are facing mounting threats. Because the Obama tax cuts will further increase the deficit, as they did under Bush, the surging deficit will provide the semblance of a rationale for the claim that the government is overspending and must cut back on Medicare, Medicaid, and public education. And these programs for the most part are vital to working people and the poor, not the very rich. In other words, the appearance that working people will benefit from some tax relief is deceptive; much more will be taken from them than given to them in this transaction.
And all the bad medicine contained in the extension of the tax cuts will be compounded if the recommendations of the co-chairmen of the Deficit Reduction Commission are implemented. They too have launched an attack on Social Security. In particular, they want to cut benefits by raising the retirement age to 69, which will amount to torture for many who do physical labor. But as if that wasn’t enough, in a moment of breathtaking arrogance, they are recommending even further tax cuts for the rich while increasing taxes on working people. Paul Krugman of The New York Times has observed that their proposals amount to “a major transfer of income upward, from the middle class to a small minority of wealthy Americans.” (November 11, 2010).
All of this is to say that the main engine fueling the rising inequalities in wealth lies not in any claims about the superior intelligence, industriousness, or good luck of the rich. Rather, the playing field has been tilted in their direction. Bob Herbert, again from The New York Times, reported that a recent study concluded that
…the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the very rich. Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits. (November 1, 2010).
What is crucial to realize is that deep inequalities in wealth undermine the well-being of society on almost every front.
These inequalities cripple the economy. In the U.S., 70 percent of economic activity is dependent on consumption. When the vast majority of people suffer a drop in income, they are not in a position to engage in the kind of spending that keeps the demand for goods high and production humming. So the economy continues to stagnate, even though corporations are sitting on billions in cash revenue. They are unwilling to hire, knowing that the demand for their products has dropped in tandem with the income of working people.
Public education, which is vital to the economy, deteriorates when wealth is monopolized by a few. Because of the low tax rates on the rich, governments lack the resources to properly fund education so more students are turned away or attend overcrowded classes with overworked teachers.
Vast inequalities in wealth undermine democracy. When the rich monopolize most of the wealth, they use some of their money to lobby government officials and influence government policy, as the Bob Herbert quote above testifies. The banks spend the most money on lobbying, and so there should be little surprise that most legislation goes in their favor, despite the fact that it is often contrary to the good of society as a whole. And this practice unleashes a vicious cycle: the rich get more money by lobbying politicians; then they use some of that money to mount an even more expansive lobbying campaign.
The New York Times recently mentioned in an editorial that “Representative Spencer Bachus of Alabama, the next chairman of the House Financial Services Committee told the Birmingham News that ‘Washington and the regulators are there to serve the banks’” (December 27, 2010). Bachus did not come to this conclusion on his own. This is exactly what the bankers have been telling him and the other politicians. And they have succeeded in imposing this vision on Washington. In a rare moment of frankness, Senator Dick Durbin blurted out: “And the banks – hard to believe in a time when we’re facing a banking crisis that many of the banks created – are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
In countries with the highest rates of inequality – usually third world countries – corruption becomes endemic. In order to augment their low salary, police demand bribes before responding to citizens’ pleas for help. Doctors demand bribes before administering care. The drug trade intensifies, as those who are shut out of the formal economy scramble to get a buck. The U.S. is moving closer to these countries.
Finally, large inequalities in wealth shred the social and moral fabric of society. When people’s experiences have virtually nothing in common because of the economic chasm that separates their lives, they experience little sympathy for one another. Extending a helping hand to those in need is a good deed that is relegated to a lunatic fringe. The concept of what is good for society as a whole is reduced to an empty idealism while naked self-interest and greed become the only reality that is recognized.
What can be done? The tension resulting from these growing inequalities is rapidly approaching an explosive climax. But organized labor officials, who are in a position to mobilize massive numbers of working people to put up a fight, are giving the impression that they are suffering from a state of complete paralysis. Of course, every two years they come to life and furiously expend huge amounts of money and energy to elect Democrats to office, only to see the Democrats fail to throw anything their way except a few crumbs. And in another two years, all the broken promises are pushed under the rug, and this self-defeating ritual repeats itself.
But self-defeating rituals have their limits. By clinging to the Democrats, the labor officials are widening the disconnect between themselves and their membership. Ordinary working people are angry. They watch the bankers bestow even more generous bonuses on themselves while the rest of us are still losing our jobs, or suffering pay cuts, with the risk of home foreclosures on the horizon. Working people have watched the inequalities in wealth soar, whether Democrats or Republicans were at the helm. And a growing number of working people are becoming permanently disaffected with the Democrats. They want something to be done, and they have no faith in the politicians, be they Democrats or Republicans.
The only alternative available to working people that offers real prospects for success are mass mobilizations in the streets and strikes – the kind of militant struggles that scored so many gains in the 1930s. Either the labor officials will have to take the initiative and organize huge demonstrations and defy the Democratic Party, which scorns mass movements led by ordinary working people since it can’t control them; or eventually rank and file anger will explode and the officials will be pushed to the sidelines as people take matters into their own hands. It is time the labor movement united and put up a fight.
This work is in the public domain