Both parties missing economy's bigger picture

The gap between rich and poor is growing sharply in America. Whoever is elected president must take steps to address the issue.

By Jonathan Berr Oct 12, 2012 7:24PM
Image: Man holding empty wallet -- CharlesSturge.com, Image Source, Getty ImagesVice President Joe Biden and Rep. Paul Ryan (R-Wis.) traded barbs about the economy during Thursday's debate that voters have heard many times before. Both Democrats and Republicans, though, are missing the bigger picture.

Republican Mitt Romney got into hot water recently for telling a closed-door fundraiser that 47% of Americans believe they are victims and entitled to government assistance. Though the former Massachusetts governor subsequently said he cares about 100% of Americans and that his comment was poorly articulated, his views are not of the conservative mainstream.  Conservatives often argue that taxes are not too high, given that 40% of all income taxes come from the top 1% of taxpayers. Liberals counter that the tax code is too easy on the rich given its enormous numbers of loopholes. An interesting report released Friday by The Economist argues that both sides are wrong.

"Because America relies mainly on (progressive) income taxes, whereas other rich countries raise a bigger share of their revenue from (regressive) consumption taxes, its tax system is, in fact, one of the most progressive in the rich world," the magazine says. "But it is riddled with deductions and loopholes, most of which favor the wealthy, so it is both less progressive and much less efficient than it could be."

According to the
Organisation for Economic Cooperation and Development, income inequality is at its highest levels in 50 years. The richest 10% of the population has about nine times the income of the poorest 10%. This issue is worrisome in places such as China where workers are demanding higher wages as they try to achieve living standards seen in the West. Policymakers in the U.S., where income inequality is growing sharply, must approach it in a thoughtful manner.

Any overhaul of the tax system should be geared toward solving the economy's No. 1 problem, which is jobs. Both President Barack Obama and Romney back lowering the corporate tax rate, which The Economist argues needs to be coupled with reforms that narrow the gap between individuals' tax rates on capital and labor income. Perhaps, the rules allowing investment income to be taxed at lower rates than ordinary income should be revised. The inheritance tax, which detractors have labeled the "death tax," could be improved so that it affects individuals and not the whole estate.

Income inequality in OECD's 34 member countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.
 
Income inequality is on the rise in the U.S., fueled by an increase in single-parent families, among other issues. Not only are the rich getting richer but the ultra-wealthy are becoming even more secure financially. The consequence of this trend will be felt for years, if not decades. That's why it's imperative for whomever is elected president to make the issue one of his top priorities.

--Follow Jonathan Berr on Twitter @jdberr

 
42Comments
Oct 13, 2012 7:47PM
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Job creation happens for one reason and one reason only, ability to make enough of a profit to cover all fixed and variable costs with enough left over to compete for continuing sources of capital, whether publically or privately owned.

Unions, regulations, taxes, local, state , federal and state, that exist at a level to push costs beyond competitors prices will not sustain any enterprise over the longer term, especially in a global economy.

When obstacles exist at a local level that threten a business, they move to another county or town, at the state level they move to another state and at the federal level, they move to another country.

It isnt just taxes, fees, permits, work and labor rules all play a part.

A CEO of one of the worlds largest tech companies doubts his company will ever be able to build another plant in   the U. S. Not only does a plant cost at least $1 billion more if built in the U. S, it takes 3 times as long due to burdensome permitting processes, then the lack of employable or trainable workers is a problem. People are coming out of school without basic math and communication skills to prep them for training.

Republican or democrat, president or congressman, if this country doesnt get their priorities straight the only significant , if at all, job creation wikk be low paying semi skilled and service jobs. India, China and mainly the Far East will continue to grow their economies at our expense.

In the meantime lets figure out what to do with Big Bird.

Oct 13, 2012 9:48PM
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I re read your article- a lot of good perspective. Once we tackkle tax reform, if we ever do, it has to rely heavily on disallowing so many deductions among all earners, wealthy or otherwise. At the same time we must incentivise savings. Decades of depending on economic growth thru spending , most of which was borrowed and stimulated by loose credit requirements was bound to have a day of reckoning.

Capital only flows from saving, not financial tricks p[layed by the fed and Wall Street Capital is the seed of growth and prosperity, not counterfeiting and borrowing.

Simply put, capital is the amount you produce above what you consume. We as a country are financing a lifestyle at over 40% of what we are making. Do the math and figure out how long each of us can survive at that rate.

 

Oct 13, 2012 9:04PM
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I heard excerpts of a politition's speech played on radio last week. He explained how tax policy had become overbearing on business. He considered supporting goverment action for short term relief but felt it was most wise as better long range solution to reduce the tax rate across the board, for business and individuals in order to establish a climate for long term growth & stimulate economic activity. Had I not recognized the voice, I would have pegged this politician as a current Romney / Ryan supporter on the campaign stumping on their behalf , but it was not.

It was from a democrat; John F. Kennedy in a speech in 1962, when the economy had slowed after the 1950's. It opened my eyes how far Radical the current Democrats are from what the Party once represented. The current Solutions offered by the Republican ticket mirror that of JFK in 1962 ! JFK- one of the most revered Democrats ever!

Oct 15, 2012 7:30PM
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since when do polititians of any stripe ever see the big picture? they are polititians not seers. and so we go from crisis to crisis, the blind leading the blind. here we go round the mullberry bush, the mullberry bush, so early in the morning.
Oct 15, 2012 12:04PM
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the private sector in a free market system creates jobs. Massive tax cuts aimed at the top created a fair amount of spending on goods but has failed to effect job growth. it's hard to believe people who want to limit government and have government step in and take over job creation. When has unballenced cuts been successful in creating jobs or pulling the levers for job creation? When has the executive branch been able to be focused on just creating jobs? Doesn't a narrow focus by the executive branch open the doors for problems in other areas. Does the dynamic of a global economy change economic recovery from previous recessions?

Oct 14, 2012 9:52AM
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LOL Where are the jobs he created The MITT WITT ? I have yet to see one . Its like the Bush tax cut ? The so called 1% and wall street was to create jobs with their tax cut? LMFAO Americas still looking for the so called great job creators to make jobs ? After a decade of tax cuts to the rich we should have 2% unemploymernt by now ? LOL BTW Obama does not create jobs , the private sector does... So can you name one single job the MITT WITT made ? Just one ? LOL ...<< Anyone ??
Oct 16, 2012 1:53AM
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Come on now, do you really think Romney and Republicans will make this inequality one of their top priorities? Over the past three decades they've CREATED this inequality with their whole economic ideology which has favored and further elevated only the wealthy. It's the playbook of third-world nations! The inequality matter has already been a top a TOP priority of Obama and Democrats. Sadly, they've had to battle constant Republican obstructionism from a Republican-controlled Congress, or far more economic progress would have been made by now. This is a no-brainer! It boggles the mind the polls are even close, why would so many people want to REWARD Republicans and put them back in the driver's seat for the economic crap THEY caused, and then obstructed Obama like a giant monkey wrench in the gears of economic progress and recovery. Has America really become the land of gullible, dim bulbs? Hopefully there are enough enlightened people out there that the results November 6th will provide us with the only true way out of this national decline. I used to respect the Republican party. For almost thirty years, from the age of 12 and up, I was a Republican. This is a different bunch. The seeds of it started with Reagan's naive but probably well-meaning experimentations, but even he wouldn't have gone this extreme. It's been a cancer out of control, aided and abetted by the right-wing media propaganda mindscrewers & hatemongers in bed with the special interests and "corrupted wealthy", and getting nice kickbacks from them! The system is corrupted but the only cure ultimately will be the collective wisdom of the people.  
Oct 13, 2012 9:52AM
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I Saved and retired early.  A good portion of my income is dividend income.  What do I do for this income, well, I let money sit in a companies stock and they feed me a trickle of their profits.  I basically don't do much.  It makes no sense to me to give dividend income and capital gains at lower rates than income tax.  I know the arguments for doing this (poor poor pensioners) and I categorically reject them.,  America was not built on a rentier class collecting dividends.  We should tax passive income more than income produce by doing something useful.  If we want to encourage productivity the last thing we should be doing is allowing the affluent to make more doing nothing than staying active in the workplace.  Both dems and repubs are economic dimwits.
Oct 15, 2012 7:31PM
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even the ancient mayans knew when to cut bait. but we keep fishing.
Oct 15, 2012 12:49PM
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Taxes on wages are the greatest evil of our American Republic. When government is free to steal from you, there are no limits to waste and abuse in government. If a person chooses to work extra hours or two jobs in order to better provide for themselves or their family, they should not be penalized, but that is what happens. The more you make by working harder and longer, the more money is stolen from you, and given to those who spend their lives living off the hard work of others.

The revenue the government needs to provide legitimate constitutional services should be obtained primarily from a national sales tax instead of a tax on wages. All would pay based on consumption, the more you spend the more you pay. The more luxury you surround yourself with, the more you pay. Your choice. A national sales tax system would capture money spent by criminals and by illegal aliens who currently pay near zero in taxes. There would of course need to be exemptions: Cars (already have a federal excise tax) Primary Residence/Rental Properties (vacation homes would be subject to tax/rental profit would be taxed) Fresh Food (Preprocessed foods and prepared meals would be taxed – only fresh/fresh frozen/canned goods would be exempt) Insurance Premiums, Health Care & Certified Education.

Adding another layer of tax to a business would not be fair. Businesses would need to be compensated by keeping a portion of the tax to cover the expense of collection and reporting. A percentage of .20 to .05 would be fair.

Oct 17, 2012 8:16PM
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Tax consumption not earnings.  Remove all opportunities to avoid consumption tax.  Either that or remove all deductions and move toward a flat tax on earnings.  The tax code is overwhelming to the point the IRS doesn't have the ability to interpret it.  They rely on tax lawyers and accountants who actually work for taxpayers to explain it.  Then they huddle up and decide if they agree.  Government needs to be restrained and simplified.
Oct 16, 2012 4:14PM
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Did I see a different Presidential debate?  I would have sworn Romney said he wanted to reduce the loopholes in the tax code for the rich.  Wouldn't that be a best of both worlds described in this article?
Oct 15, 2012 11:38PM
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Status Quo, not for me. How about government cutting out all the duplicated entitlement programs and focusing on one that works well? Watch our federal fiscal cliff turn into a revenue surge. Yes, and we also know how to stop one of the five leading causes of premature death: AIDS. Modify behavior so we can be an AIDS-free nation, then watch our medicaid and medicare healthcare costs drop. Another idea! And by the way, let's stop shedding inocent blood of the unborn so we Americans can live with a clear conscience. Ah, brilliant idea! And, how about national energy independence rather than soaking the middle eastern Shieks with our American dollars? Add energy jobs for our umemployed right here in America. How about making fuel effecient low polluting cars that can run on natural gas and regular gas. It will be great to be alive in the greatest nation on earth, again. It is all possible with new leadership! Yes, brilliant idea!
Oct 15, 2012 8:16PM
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A flat tax on income would simplify a lot of things.
Oct 18, 2012 10:39AM
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Equality

The communist and socialist are brainwashing the feeble minded American public. You want what the rich have then work for it. Equality is not a hand out. It's getting off your ****, learning and working. The only equality government should guarantee is the opportunity to succeed. It's there, get off your **** and get it.

Oct 21, 2012 3:41AM
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Well Ben Stein said it all on FOX News what i have been saying all along ! Tax cuts do not create jobs and we cannot balance the budget with just tax cuts alone!!!! And Wayne Rogers of Fox said what i have been saying all along !!! The US Congress are the ones that must act.. And they are still on VACATION America.... DUH.....
Oct 18, 2012 5:13PM
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The bill of goods Americans have been sold is that investing consists of buying and selling stocks on the open market.  Unless the company gets the money from the sale of shares, you are gambling that the economy, management, and government will align and the share price will go up.  Please explain why this activity should have preferential treatment in the tax code.

 

True investing means that the company gets the money from the sale of stock.  When the proceeds of share sales are used update equipment, build new factories, pay down debt, expand production, hire new workers, etc.,  there should be a preferential tax treatment of capital gains and dividends.

 

Perhaps buying shares, holding them for three years, and selling them at a profit should mean no tax on any capital gain, dividends on these shares should be deductible as business expenses at the corporate level and taxed at 15% on individual tax returns.

 

All of the above would apply only to business activities conducted in the United States, by companies headquartered in the United States, and whose world-wide corporate profits are brought home and taxed in the United States.  American subsidiaries of foreign companies would qualify if their profits are taxed in the United States.  Budweiser would be an example.  Its parent company is owned by a Belgian entity.

 

 

Oct 18, 2012 9:39AM
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Spreading the wealth always always ends up  spreading the poverty. That way we all lose. 
Oct 14, 2012 8:50AM
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The rich are made richer when undeserving banks gambling with the publics money bet/speculate on derivatives, which Warren Buffet describes as financial weapons of mass destruction.

If the derivatives go up, fat paychecks and bonuses for the bankers. If they lose, the taxpayer bails out the banks, and these bailouts are corporate welfare for the Too Big To Fail (or Jail) banks.

While Ben "Lightyear" Bernanke is not printing money to bail out the banks, he is printing money to fund the massive United States deficit. ("QE to infinity and beyond!"). While much of this money goes to fund entitlement programs for the poor and middle class, the effect is trickle up for the wealthy.

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