Tax Increases On The Top Ten Percent

The news media does a great job of covering economic conditions of the top ten percent of our economy. When tax increases for the ten percenters is discussed, many rush to defend these people.

It has been reported many times that the top ten percent do somewhere around 40% of the consumer consumption in the economy, “not too surprising given that the top 10 percent was raking in half of total earnings,” before the economic collapse says Robert ReichRobert Reich, former Secretary of Labor and a Professor at Berkley, on his blog.

Unemployment for the top ten percenters is about 5%, as compared to almost 10% for the average household. At the same time while the average workers’ wage growth have all but stalled, wages for the top ten are still steadily climbing.

The top 10%, in time of prosperity, earns some 90% of the income generated by the prosperity. The decade and a half of prosperity that just ended with this recession was mainly prosperous for the top ten percent. Everyone else just had credit cards that they were racking up.

Reich says, “I keep hearing that the economic meltdown has taken a huge toll on the stock portfolios of the rich. That's true. But the rich haven't lost nearly as much of their assets, proportionately, as everyone else. According to a report from the Bank of America Merrill Lynch ("The Myth of the Overleveraged Consumer"), analyzing data from the Federal Reserve, the bottom 90 percent of Americans hold 50 percent of more of their assets in residential real estate, which has taken a far bigger beating than stocks and bonds. The top 10 percent of Americans have only a quarter of their assets in housing; most of their assets are in stocks and bonds. And although the stock market is still a bit tipsy, it has rallied considerably since it hit bottom earlier this year. Home values, on the other hand, are down by an average of a third across the country, and are still falling.”

This means that the rest of us, the lower 90%, were counting on our home values to rise, most of our prosperity was dependent on it, and if you own a home right now, more likely than not you owe more on your home than its worth.

The same Merrill Lynch report then goes on to warn against raising taxes on the top ten percent, counting on their consumption to get the economy rolling.

Reich concludes by writing, “This logic is morally and economically indefensible. If we've learned anything from the Great Recession-Mini Depression of the last 18 months, it's that the skewing of income and wealth to the top has made our economy far less stable. When the majority of middle-class and poor Americans are either losing their jobs or feel threatened by job loss, and when those who still have jobs are experiencing flat or declining wages, there's simply no way to get the economy back on track. The track we were on -- featuring stagnant median wages, widening inequality, and job insecurity -- got us into this mess in the first place.”

This protection of the top in hopes for the trickle down effect is the kind of thing that brought our economy into this “mini depression”. Money is not rain water that is guaranteed to trickle down.

The thinking goes, if the gagillionaire makes his money, he will eventually spend it on things. That way the money will work its way down to the common man. At first this may make sense, but thing don’t work like this.

The common man does not own the corporations and companies. The common man merely works there. The place where the gagillionaire shop are owned by billionaires and other gagillionaires, who keep most of the profit and give the common man a nominal salary or wage. The money circulates among the rich for the most part. The bottom 90 percenter sees almost nothing of this money. Possibly a penny for every thousand dollars.

Now imagine if 700 billion dollars made its way to the common man. He goes to the mall or a local store, restaurant, grocery store, mechanic etc. Maybe he pays off a few credit cards or a little bit extra on his mortgage or car loan. This will stimulate an economy far better.

In trying to make an economy work better, the trickle down thinking does not work. Our economy is set up in a way where the money will eventually end up in the pockets of the top ten percent. After all they own and/or operate most of the businesses the bottom 90% frequent. But in making its way up to the top, the turnover of that money would be much higher than the turnover in a trickle down system, therefore making the economy much stronger, especially for the middle class.

Implement programs with trickle down in mind and maybe some of the money gets to be had by the bottom 90%. If you use trickle up as a theory, the money goes through a much larger demographic, at the same time maintaining a strong middle class and offering a chance to the lower class and those in poverty to move up.