In today’s mad world, underpaid workers are bailing out banks and corporations run by overpaid, undertaxed bosses who milked their companies and our country like cash cows.
While workers across America were losing jobs, homes and health insurance, Merrill Lynch paid nearly 700 employees more than $1 million each in bonuses last year, amounting to a $3.6 billion bonus bonanza while Merrill lost $27 billion.
Workers have been sacrificing for years. Average worker paychecks are worth less now than in 1973, but CEOs and other rich Americans not only make much more, they pay less in taxes.
Average full-time workers made $41,198 in 1973 and $37,606 in 2008, adjusted for inflation.
CEOs made 45 times as much as workers in 1973 and more than 300 times as much as workers now. The top tax rate was 70% in 1973 and just 35% now; taxpayers pay the top rate on the portion of taxable income that falls within the highest bracket and pay lower rates on income below that. The top rate for capital gains on the sale of stock and other assets was 36.5% in 1973 and 15% now.
Irrational pay and tax cuts have generated a massive redistribution of income and wealth from workers to CEOs, hedge fund managers and others in the richest 1%.
By 2006, the richest 1% had increased their share of the nation’s income to the second-highest level on record. The only year higher was 1928 — on the eve of the Great Depression.
According to the latest IRS data, excluding tax-exempt interest income from state and local government bonds, the richest 400 taxpayers had an average adjusted gross income of $263 million each on their federal income tax returns in 2006 — up from $221 million in 2005 and $67 million in 1992, adjusted for inflation.
Remember, that’s annual income, not accumulated wealth. $263 million comes to more than $5 million a week.
In 2006, the 400 ultrarich were taxed at an average rate of 17% — down from 26% in 1992. The ultrarich get most of their income from capital gains. The capital gains tax was cut from 28% in 1992 to 20% in 1997 and cut again to 15% in 2003.
To make matters worse, the rich cheat more on their taxes. Forbes recently reported on a study using IRS data showing that taxpayers with income between $500,000 and $1 million a year understated their adjusted gross incomes by 21% in 2001, compared to 8% for those earning $50,000 to $100,000, and lower rates for those earning less.
We should raise taxes at the top so the nation’s richest bosses no longer pay lower effective rates than workers and we can start reversing the obscene rise in inequality rather than reinforcing it. President Obama’s plan to cap CEO cash pay at $500,000 for senior executives at companies on the government dole sounds better than it is, affecting few firms and full of loopholes.
At the very least, President Obama should not delay restoring the top tax rate to the 39.6% rate that prevailed in 2000. The Bush tax cuts saved the top 1% nearly half a trillion dollars between 2001 and 2008, reports Citizens for Tax Justice.
The $79.5 billion in tax cuts for the top 1% in 2008 was more than the budgets of the Department of Education and Environmental Protection Agency combined. In 2008, it took an annual income greater than $462,000 just to get into the top 1 percent.
Even better, we should add a top rate of 50% on income above $1 million, as advocated by Netflix CEO Reed Hastings among others.
People for whom $1 million and above is an annual paycheck should pay more so people for whom $1 million is an unattainable lifetime fortune don’t have to.
If we don’t start taxing the wealthy more now, then you can be sure that the mountain of debt created by tax cuts and the bailout will be used to drive “entitlement reform.” Workers’ last forms of security — Social Security and Medicare — will be on the chopping block to pay for the wreck the truly entitled made of our economy.
