My roommate Carl is a conservative. It’s not as bad as it sounds, he’s actually a great guy and has been there for me when I needed him and vice versa.
Carl watches the Glenn Beck show on Fox News almost every day. Well, last night, evidently Beck explained the craziness of taxing the rich.
“It makes total sense,” Carl said. “If you tax the rich, they’re going to hide their money in offshore bank accounts or whatever, and if they do pay more taxes they then won’t be able to invest and expand their businesses and create jobs.”
“Yeah but we’ve been slashing taxes since the 1980s when Reagan decided the rich were paying too much and now we’re in the worst economic downturn since the Great Depression,” I responded.
According to Carl, Beck’s theory is that low taxes and the limited government spending lead to the ‘roaring twenties.’ Evidently, that was a time when everyone was economically doing really well, according to Beck and Carl.
“But what about the Great Depression?”
“That had nothing to do with cutting taxes and reducing government spending,” Carl assured me.
“Well, what caused the depression then?”
Carl didn’t know, but he’s sure that it had nothing to do with cutting taxes.
I’m no expert on the Great Depression, but if I remember my history, it was caused by runaway greed among the wealthy. And I certainly remember the last few years and what caused the Great Recession – it was once again runaway greed.
What happened during the 1920s was the the rich got really rich, and the average white worker did OK. The clearest indicator of this was the alarming economic inequality.
In 1927, the wealthiest Americans controlled nearly 50 percent of all income (see chart below). So while the average worker’s wages did go up during the decade leading to the Depression, compared to the Henry Fords of the day, it was pennies. As a result, the economic system collapsed.
In 2007, the same thing happened. Once again, the wealthy controlled about 50 percent of all income, greed ran wild and the system collapsed.
During the 1940s, when the liberal agenda was in full-swing, the problem of income equality was largely solved. The wealthiest Americans controlled about 33 or 34 percent of total income because a progressive taxation system was put into place and the wealth was more evenly distributed across all of society’s classes. This of course lead to the decade many conservatives idolize – the 1950s. (See chart below)
What was great about the 1950s, at least from a liberal perspective, was that there were strong labor unions, good paying jobs, a fair tax system and a powerful and well-off middle class. What sucked about the 1950s was that women were still locked out of the job market and many blacks lived in the Jim Crow south, but that’s a story for another day.
And so for about 3 decades income inequality was effectively kept in check by the progressive tax system. It’s called progressive, not because people with progressive political ideologies support it, but because as income progresses upward, people pay more taxes. It’s the more you make the more they take system.
But then the 1980s rolled around and Ronald Reagan convinced enough people that the government is the enemy and taxes on the rich are too high. And for the next 20 plus years, various congresses and presidents have chiseled away at the tax burden on the wealthy.
This has lead to the rich paying less in taxes, income inequality reared its ugly head again and in 2007 the bottom fell out.
There are two main reasons for taxing people. One reason is to discourage a certain behavior, such as, smoking cigarettes or drinking alcohol. Another reason is to redistribute the wealth. Conservatives hate that because they represent the wealthiest of the wealthy – even if, like Carl, they aren’t wealthy. But without an effective progressive tax system, the middle and lower classes suffer economically – these people are the real backbone of the American economy.
As a result, the wealth in the nation rises to the richest and leaves the middle classes pinching pennies and unemployed. The whole notion of trickle-down economics is a load of horse-hockey. The wealthy just hoard their money. The real job creation comes from small businesses run by people who aren’t considered wealthy.
Our current regressive tax system is unfair, and unless we restore taxes to what they were in the 1950s, we’ll be left with a boom and bust economy and a deteriorating middle class.
Of course, Carl thinks that’s just pinko commie talk and many Americans agree with him. However, history shows that I am correct.
Here’s a report detailing the economic inequality from the 1920s to 2007 .

Income inequality