NOTE: I started to write about entrepreneurship. And, I will. But, this introduction was a necessary component to the discussion about tax rates and purported incentives to business formation.
We are at a cross-roads. Really. We have forgotten that no one ever wins at everything in this world for long periods. Even if politicians gang up and help certain elements, either a revolution ensues or more rational political change is effected.
To some degree, this explains the “Arab Spring”. Mass protests have toppled governments once thought to be impregnable. Other regimes have decided to continue their murderous paths (Syria, Libya, Yemen are three easy picks). We all look and wonder why they can’t just change.
But, it’s true here, too. America has survived and thrived since the early 20th century, when we became an industrial power, because of its stability and opportunity. That really means its “Middle Class”. The middle class is generally a conservative force in politics that doesn’t want major change, so that they continue thriving.
But, now, our middle class is disappearing. Faster than the Mississippi Delta. Compliments of Ronald Reagan, Newt Gingrich, the Bushes, with the near TOTAL acquiescence of the bulk of the Democratic Party, the middle class is decimated.
Facts:
- The US currently possesses 37% of the world’s wealth (down, I might add).
- The US currently possesses less than 4% of the world’s population.
- 84% of the US wealth is possessed by the top 20% of the population. This means that 31% of the world’s wealth is possessed by no more than 0.8% of the world’s population.
Most Americans think wealth is distributed fairly evenly- that means they think the rich may be ¼ to 1/3 of the population, the middle class ¼ to 1/3, the lower class ¼ to 1/3, and the poor comprising the rest. Yet, the facts are that the rich comprise 2% of the US population and the top 1% comprise 35% of the wealth (if we remove homes from the equation, that number rises to 43%).
From 1980 to 2005, the recent years of plenty, 80% of the growth in income accrued to the top 1% of the population.
Come on, you remember the stirrings of this phenomenon. When corporate executives stopped making 10 to 20 times what the average worker was making- and started making 1000 times those wages. And, we hear various politicians railing about our high corporate and personal tax rates. But, get real. The biggest corporations get tax refunds or pay no income taxes (I am NOT including property taxes); it’s the little guys who pay the highest rates (they can’t afford the tax specialists, they think). The biggest income earners pay nowhere near the income tax rates you hear declaimed high and wide. Don’t believe me? Take a look at your own income. Assuming you filed a 1040 (not the short forms). Divide your real income (assuming you are not claiming high depreciation deductions) of line 22 by your taxes of line 55. What rate did you really pay? If you grossed 200K or so, I would venture to say you paid $20K to $40K in taxes- 10% to 20%. Not the tax rate declaimed, since that is the rate you MIGHT pay after deducting various items.
Now, imagine three families. One the $200K earner above. Another, making $75K, with the third making $30K. The income tax paid is likely to be (on the high end) $40K, $12K, and $ 1300. Or, 20%, 16%, and 4%. You think, that’s basically ok. (I don’t. I think the $200K family should pay a higher percentage than that.) But, let’s add one new variable, Social security and medicare taxes. Now, the total tax burden could be as high as (I am assuming all income is subject to these taxes, which is not very likely as one’s income increases- and I’m NOT using the 2011 social security rates, which are unusually low) $49.5K, $18K, and $3.6K; the federal tax rates are now 24.75%, 24%, and 12%. Now, what do you think about the equity in taxation rates?
Oh, by the way, those tax cuts everyone screams about? Where’s the effect on entrepreneurship?
I don’t have a problem with disparities in wealth, so long as they are justified. I believe “a rising tide lifts all boats,” and people like Bill Gates (who are, obviously, tremendously wealth) have actually made us ALL more wealthy. But as you mention, cruddy tax codes and corporate favoritism lead to unjustified disparities in wealth. That shouldn’t be tolerated. Unfortunately, governments don’t seem to know how to fix the problem that they’ve caused.
Steven recently posted..God Gave You A Mind – Speak It!
It’s not the disparities in wealth. It’s that the CEO of an organization that is making a reasonable profit pays its CEO 1000 times what it pays its employees to produce the products it sells. It’s the CEO of a bank making 1000 times what a full-time teller would make- if it employed full time tellers, with paid vacation, life insurance, pensions, and health insurance that it has stripped from its tellers.
Most importantly, it’s the decimation of the middle class which is the stable force in each country- and disappearing like sands on a barrier island from the US. And, as I will discuss in parts 2 and 3 of this piece, why friends and family investments to get the entrepreneurial venture off the ground are virtually impossible to develop… Hence the graph in today’s piece.
Thanks for dropping in and commenting.
It’s a pleasure meeting you!
Roy
Great post, Roy! You are telling a truth that needs to be told. I think that we are seeing the logical problems of the supply-side theory. Ultimately, it doesn’t work because once people start hoarding wealth just for the idea of having a lot of wealth, eventually billions of dollars is never enough, which means that people can’t afford to buy things that are made, which leads to stagnation. If we don’t start thinking about the common good, every one, even the super rich, will suffer.
Thanks for your additions, Steve. I just hate how everyone tries to invent facts- even when they stare them in the face.
Does it really matter that the “tax rate for corporations is 35%” if big corporations pay $0, most corporations pay 15 or 20%, and only personally held corporations (i.e., small companies) pay the 35% rate?
Roy
Great analysis, Roy. My view on disparity is much more simple than that…take a major sports star’s salary and compare it to the take home of essential services such as teachers, nurses, fire, police, military…add in the stupid choices of the overpaid (Tiger Woods, Michael Vick, etc.) and you’ve got don’t get me started. And I imagine your analysis of the concentration of wealth is reflected even on the playing field…where the playing field is anything but even. How many “non-stars” on teams provide the backbone, risk injury and yet receive a disproportionately small piece of the team salary pie? For the most part, I try to stay focused on my vision of creating the change I want to see in the world but sometimes it is good to take a wider view via someone who understands the wider implications…and the math…better than I.
Tambre Leighn/coaching by tambre recently posted..Four Books That Saved Me
Tambre:
I tend to focus on business so much, I forget that sports is a vast business enterprise. And, yes, the disparity (let’s avoid the new political discourse on this, for now) between what we pay a teacher and a policeman (all municipal or state employees) [and then decry they are paid too much— yeah, right!] and what a stock manipulator makes…
Thanks for bringing that into the discussion. I forgot to include at least a reference to that!
Roy
Aloha Roy,
Wow! I love your facts and your graph! Thank you so much for sharing.
I didn’t know of the disparity when I was an employee and really started to learn them after I became an entrepreneur. Our education system educates people towards being an employee and then there is no one left to create jobs. Our people rely on the government to solve the challenges instead of remembering what JFK said “Ask not what your country can do for you, ask what you can do for your country”.
Thank you for your vast knowledge and wisdom! I appreciate you sharing with the world.
Much aloha,
Kellie 🙂
Kellie Hosaka recently posted..“We Get Paid For Bringing Value To The Marketplace” – Jim Rohn
Kellie:
Thanks for your quote, your addition, and your passion. Your comment here is akin to what I wrote to someone about a different post- that in the 60s and 70s entrepreneurial activities were frowned upon. It was considered a rejection of Corporate America and social mores, where everyone was trying to get ahead in business.
Aloha to you…
Roy