Class Warfare Blog

October 25, 2013

Why All the Wealth and Income Disparity?

Emmanuel Saez and Thomas Piketty of The Guardian have just written a piece “Why the 1% should pay tax at 80%” (which you can read here (

I encourage you to read the whole article but I share a few quotes below to make a point.

“In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today. A similar pattern is true of other English-speaking countries. Contrary to the widely-held view, however, globalisation and new technologies are not to blame. Other OECD countries, such as those in continental Europe, or Japan have seen far less concentration of income among the mega rich. (Italics mine.)

In other words, if the “usual suspects” for the great wealth accumulation were “globalization and technology” should not other economies show the same effect? Many do not, so that is evidence the those are not as powerful factors as we have been lead to believe (lead to believe by the economic shills for the rich).

“There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares, for the period from 1975-79 to 2004-08, across 18 OECD countries for which top income share information is available. For example, the United States experienced a 35 percentage-point reduction in its top income tax rate and a very large ten percentage-point increase in its top 1% pre-tax income share. By contrast, France or Germany saw very little change in their top tax rates and their top 1% income shares during the same period.”

Our rich got huge tax cuts, France’s did not. Germany’s did not. Our rich got hugely more wealthy, France’s did not. Germany’s did not. These are just two comparisons but there are many more that show that tax cuts, maybe more than all of the other factors, have lead to the income and wealth disparities (and the resulting political distortions, etc. we have suffered due to floods of money being injected; e.g. currently there are small floods of money from out of state sources flowing into school board elections because the privatization of education means “profits!”). The authors then go on to address three scenarios of what might happen were we to actually increase our rates on the highest earnings.

“To tell these various scenarios apart, we need to analyse to what extent top tax rate cuts lead to higher economic growth. Again, data show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark. (Italics mine.)

“What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top (that is, scenario three), rather than increased productive effort.”

Basically they are saying that “Trickle Down” is more of a “Flood Up.” The additional wealth created by the tax cuts has not been channeled into job making activities but rather into investments that increase their wealth without producing much. (Can you remember “novel financial instruments,” boys and girls?)

One very needed correction is that rich people would have less money to invest which means that the stock market would shrink. Investors think this is a bad idea but I think it is good. The swollen amounts of cash used for “investment” purposes instead become used for much more speculative efforts resulting in things like the price of gasoline going up because investors feel that there may be uncertainty in the Middle East causing prices to go up later, so they drive up prices now.

Reducing the amount of money available for such speculations, will result in more conservative investors and more conservative investments. Currently these idiots are investing like they are using Monopoly money.

My argument is that the rich have gotten their chance to prove the “trickle down theory” and they have proven that it does not work. Contrary to the claim that the “rich know better what to do with their money than the government” they have proven that they are not to be trusted with so much money (as money is power in the U.S.).

Oh, and do realize that we all pay the same tax rates! The same tables apply to all of us. We are talking here about creating new, higher tax rates on money earned over a million dollars per year. So, your taxes are unaffected.

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