'Democracy,' American Style
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We keep hearing about the relentless march away from democracy in Russia and Venezuela. It frightens us. The feeling is that democracy is essential for the betterment of the world, and that we Americans are living in a society that serves as the ultimate democratic model, where any citizen can gain the education and skills to rise to a position of wealth and leadership.
The income gap in the United States is greater than anywhere else in the developed world. Conservative analysts attempt to justify the disparities as a necessary step to economic growth, arguing that the rich are being rewarded for innovation and risk-taking, while the poor experience smaller but meaningful gains. Everyone benefits in the long run.
But according to numerous recent studies, income and net worth have actually been DROPPING for all but the top 10 percent of American households. Because of escalating home mortgage expenses, healthcare, and childcare costs, the average two-income family today has less disposable income than one-income families had 30 years ago. The expected "trickle-down" effect has not occurred. According to the U.S. Census Bureau, the Gini coefficient (a measure of inequality) has grown steadily over 35 years, from .394 in 1970 to .469 in 2005. Low-wage earners find it increasingly difficult to escape the burdens of poverty. The Economic Policy Institute found "significant income correlations between parents and their children," to the degree that "it would take a poor family of four with two children approximately nine to 10 generations -- over 200 years -- to achieve the income of the typical middle-income four-person family."
Some oil company and military defense executives made almost $100 million in 2006. A number of hedge fund managers made over a BILLION dollars. A laborer who worked for fifty years, making $50,000 a year, would realize total LIFETIME earnings approximately equal to one day's work for a hedge fund manager. Is this democracy, where a few hours work for one individual is equivalent to a lifetime of labor for another? Where an elite group of corporate financial wizards find creative ways to direct billions of dollars into their own pockets while millions of wage earners do the nation's work?
The suggestion of impropriety seems to offend many prosperous Americans, for we want to believe that we live in a fair society and that our wealth has been deservedly earned as it will be for any American who is willing to work hard. But the realities block out the illusion.
Regressive taxes are being used to pay America's bills. When social security taxes, sales taxes, transportation fees and utility costs are included, the typical wage earner pays about a 40 percent overall tax, about the same percentage as an American with a million-dollar income. They even pay an extra dollar or so for every piece of clothing imported from developing countries such as Bangladesh and India, because of archaic tariff laws. The rich pay the extra dollar too, if they're willing to shop at local discount chains.
Many wealthy Americans pay much less than 40 percent, because the greater portion of their income is not considered income. It is in the form of capital gains, derived from financial assets, such as property and stocks, which are subject to only a 15 percent tax. The capital gains windfall has been enhanced by a stock market that has grown seven times faster than America's GDP since 1981. The working poor have little opportunity to benefit from these tax advantages. Two-thirds of the country's stocks are owned by the wealthiest 1 percent of Americans. Earnings on productive work is taxed at over two times the rate of income on paper assets. Yet, insultingly, the working poor are audited by the IRS at a higher rate than people making over $100,000 a year.
The tax cuts for the rich put even more of the burden on the shoulders of the poor. Every U.S. taxpayer contributes about $600 a year to pay for the tax cuts that return tens of thousands of dollars each year to the wealthiest 5 percent of Americans.
Corporate tax breaks complete the assault on individual workers. Corporate tax as a percentage of federal revenue is about one-third of what it was in the 1950s. Many American companies take tax write-offs on previous-year purchases or losses, or they produce goods overseas to avoid declaring income in the United States. Many corporations have managed to avoid taxes for several years in a row.
Some analysts insist that corporations already have a 35 percent income tax rate, and that a further tax could be harmful to small businesses. But big revenue firms are some of the worst offenders:
- General Electric, with annual revenue of $168 billion, has a five-year average tax rate of less than 10 percent -- Boeing, with annual revenue of $61 billion, has a five-year average tax rate of less than 1 percent.
- Raytheon, with annual revenue of $23 billion, has a five-year average tax rate of less than 8 percent.
- Time Warner, with annual revenue of $44 billion, has a five-year average tax rate of less than 10 percent.
- DirecTV, with annual revenue of $14 billion, has a five-year average tax rate of less than 3 percent.
Is this democracy, where the average wage earner is not receiving a fair share of America's productive economy? Where the concept of a fair wage for a day's work is mocked by someone making 20,000 times more than the average worker for an activity that produces nothing of substance? The argument against changing the system is that it will slow down the economy. But those who fear damaging the economy by regulating big business need to look at how it damages the people who do most of the work.
Paul Buchheit is a professor with the Chicago City Colleges, co-founder of Global Initiative Chicago (GIChicago.org) and the founder of fightingpoverty.org. He is the editor and main contributor to the forthcoming book American Wars: Illusions and Realities (Clarity Press).