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Mitt Romney speaks to the delegation at the 2012 Republican National Convention

Mitt Romney's 47% problem just won't go away. A week after Mother Jones magazine released a spy-cam video of the GOP contender writing off the 47% of the population that doesn't pay federal income tax, the politicos are still buzzing about it.

Romney's comments were incendiary. He lamented that nearly half of Americans are "dependent upon government" and "believe that they are victims" and that "they are entitled to health care, to food, to housing, to you-name-it." He added that there was nothing he could do to "convince them they should take personal responsibility and care for their lives."

Coming from a guy who could moonlight as petrified wood and is routinely criticized for lack of conviction -- and for not releasing much of his own tax data -- it was a rare glimpse of honest opinion. But it also touched raw nerves among members of both ideological extremes.

On the left, it played into their fears that Romney wants to cut benefits and raise taxes on seniors, the poor and the middle class. On the right, it echoed worries that a tyranny of the majority wants to increase government largesse at the expense of a narrowing base of wealthy taxpayers.

Both sides' fears are valid, to some extent. And Romney's comment about the 47% ignores important details, such as the fact that the working families who make up a large portion of those not paying federal income taxes do pay payroll, state and local taxes.

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Anthony Mirhaydari

Here's the thing: This election isn't about tax cheats and welfare queens, who are just a tiny part of the 47%.

In fact, Romney's poor choice of words, and the political fallout that followed, highlight the real problems that have so many Americans on aid. A lack of economic growth, increasing inequality, a narrowing tax base and the resulting growth in benefit spending have pitted American against American. Here's a look at what's at stake.

More are receiving aid

Both sides make some valid points.

Research from Sen. Jeff Sessions, R-Ala., ranking member of the Senate Budget Committee, shows that more than 107 million Americans are getting some form of government welfare. Add the seniors on Medicare and the 22 million government employees (at federal, state and local levels), and you suddenly get a very big number: More than 165 million Americans are at least partially dependent upon federal benefits, a clear majority of the 308 million Americans counted in the 2010 Census.

Consider the increase in people who have received federal disability support since the economy tanked in 2007. As of January, 8.5 million individuals (plus 2 million spouses and children) were receiving these payments. As a share of the population aged 25 to 64, the total has increased to 5.3%, from 4.5% when the recession started, at a total cost of around $200 billion a year -- more than the budgets of the departments of Commerce, Energy, Homeland Security, Interior, Justice and State combined.

This is puzzling. More-advanced health care and an increasingly service-based economy should result in fewer debilitating injuries. Moreover, a weaker economy means fewer people are working, which should mean fewer on-the-job injuries. Research by David Autor and Mark Duggan (.pdf file) suggests that disability benefits "appear in practice to function like a nonemployability insurance program . . . rather than (primarily) as an insurance program for medical impairment."

There are other problems on the spending side, too, especially out-of-control inflation of health care costs and underfunding of Medicare and Medicaid. In fact, an official from the People's Bank of China commented recently that if U.S. debt measures included entitlement liabilities -- or the promises that haven't been funded with payroll taxes -- our ratio of debt to gross domestic product would be roughly twice as large as it is now, at around $31 trillion.

Not enough to go around

On the other hand, it's also true that the benefits of our economy are increasingly accruing to the upper crust while the rest struggle with stagnant wages, lower home values and higher costs of living. Many middle-income Americans are also missing out on the rebounding stock market, a rare bright spot in the current economy, since many investors have been pulling money out of equities and putting it into bonds throughout the recovery. The market has recovered, but a lot of nest eggs have not.

You can see the growing wealth disparity in the income distribution numbers shown in the chart below. Since 1979, low- and middle-class incomes have basically stagnated in inflation-adjusted terms.

In 2009 dollars, the middle 20% of households has seen income rise from $53,100 in 1979 to $64,300 in 2009. For the top 20%, it has jumped from $136,200 to $223,500.

As a percentage of total income, the middle 20%'s share has fallen from 16% to 15%. For the top 20%, it has grown from 45% to 51%. Similar measures of wealth tell the same story.

Share of pre-tax income

This helps explain why the rich are bearing a greater and greater share of the federal tax burden, despite policy changes like the Bush tax cuts. According to the Congressional Budget Office, in 2009 the middle 20% paid 9.4% of all federal taxes. The top 20% paid nearly 68%. In 1979, these burdens were 14% and 55%, respectively.

Share of total federal tax liabilities

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Because of the progressivity of the income tax code, the upper-income household share of taxes exceeds its share of income. And in fact, because of growing inequality and the higher average tax rates paid by wealthy U.S. households, the Organisation for Economic Co-Operation and Development says the United States still has the most progressive tax system in the world.

The real answer

When Bill Clinton embarked on welfare reform and when George W. Bush talked up the "ownership society" and tax cuts, the national psyche was OK with them because the economy was on track. Incomes were growing, and higher home values made everyone feel wealthier.

Now, the pie isn't growing for most, so everyone is bitterly focused on dividing what's left. This year, it's the 47% vs. the 53%; last year, it was the 99% vs. the 1%.

We should be focused on creating more wealth, rather than worrying about how to redistribute it. A big part of the problem is that our economic policies over the past 30 years have been very focused on consumption over investment and borrowing over saving. We were willing to open the borders and let cheap imports and loans flow in from China. Buying power was bolstered by higher asset prices, driven by inflation, cheap loans and a weaker dollar.

Households were happy -- for a time. Yet the big winners have been corporations and shareholders still enjoying record profitability, thanks to the ability to manufacture cheaply overseas while demanding top dollar here at home. Apple's (AAPL) iPhone 5 is a perfect example of this dynamic. Apple may be considered "cool," but it's also a big contributor to our overall trade deficit.

But it can't go on this way. Despite the Federal Reserve's efforts, inflating the price of assets like homes and stocks won't help the economy, because younger generations can no longer keep up.

The OECD also warns that relying on "taxing more and spending more as a response to inequality can only be a temporary measure." So "soak the rich" isn't really an option, since it will further discourage the kind of capital spending and investment we desperately need, as I discussed in "Why CEOs need our love, too."

That's also the reason it makes sense to keep the capital gains tax rate applied to investment income low. In a report for the American Council for Capital Formation, economist Allen Sinai estimates that raising the capital gains rate to 28% from 15% now would cut U.S. employment by up to 602,000 jobs a year, accompanied by slower gross domestic product growth, a weaker stock market and a higher federal deficit.

The only way out, according to the OECD, is to do something about the growing gap between wages, as well as the swiftly rising income from capital, which goes mostly to the wealthiest Americans.

This requires "that people are capable of being in employment and earning wages that keep them and their families out of poverty." We should hope for more than poverty, of course, but the point is right: We need to find a way to make work pay again.

The only way to do that is to increase the demand for U.S. labor and/or reduce its supply. Labor market reforms, stiffer penalties for currency manipulators like China, government investment incentives and similar measures should be the focus, not debating whether the 47% are any less worthy than the 53%.

Is there a fix ahead?

The stakes couldn't be higher.

Unless something is done -- if the current path continues and families grow increasingly reliant upon government benefits funded by a narrowing base of taxpayers -- our union will suffer and innovation will be stifled. Ayn Rand's Atlas would shrug. The bonds of society would fray.

These are not new concerns. Plato warned in ancient Athens, birthplace of democracy, that majority rule risked devolving into a mob mentality if people started voting for leaders who deliver benefits and favors from the public purse and reacted angrily to anyone who jeopardizes the system.

Our founders worried about it, too. President James Madison wrote in Federalist No. 10 that, because of the nature of democracies, "measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority."

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He feared that the majority would "have a common motive to invade the rights of other citizens."

Unless the economy starts working for working families again, a very interested and overbearing majority will have the most powerful motive of them all: providing basic food, clothing, housing and medical care for their families. And Romney, with his aloofness and offshore tax shelters, personifies their eventual target.

Be sure to check out Anthony's new money management service, Mirhaydari Capital Management, and his investment newsletter, the Edge. A free, two-week trial subscription to the newsletter has been extended to MSN Money readers. Click here to sign up. Mirhaydari can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.