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Wealth Inequality has Always Been Un-American

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by Brian T. Lynch, MSW

In an Intelligencer article entitled, “AOC Thinks Concentrated Wealth Is Incompatible with Democracy. So Did Our Founders,” Eric Levitz writes, “ [Alexandria] Ocasio-Cortez’s second argument against the existence of billionaires — that concentrated wealth is incompatible with genuine democracy — was something close to conventional wisdom among the founders. Levitz goes on to write:

“The notion that political freedom has a material basis did not originate with Karl Marx and the creed of Communism; it was a core idea of the 17th-century British political theorist James Harrington, and his formulation of classical republicanism. A man who does not own the means of his own reproduction can never exercise political freedom, Harrington argued, because “the man that cannot live upon his own must be servant.” Likewise, the man of immense wealth — whose fortune consigns great masses of men to servitude — is inevitably a kind of tyrant. After all, ‘where there is inequality of estates, there must be inequality of power, and where there is inequality of power, there can be no commonwealth.’”

Having seen the ravages of extreme property-based wealth inequality in England, Thomas Jefferson was concerned that measures needed to be taken to prevent such inequality in America. Among his ideas, he wrote:

“Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”

The vast concentrations of private wealth we see today is incomparable with a democratic society – and our founding fathers knew it. Regardless of if they were for or against democracy as a form of government, there was agreement that this nation needed to guard against the extreme accumulation of property in the hands of a few.

While Jefferson and the founding fathers understood this, they nevertheless adopted a Constitution which only permitted a flat tax (Art. 1, Sec. 9, 4th paragraph). It wasn’t until the Sixteenth Amendment was adopted in 1913 that the idea of a progressive income tax became possible.

The progressive income tax of 1913, as it was originally designed, did exactly what Thomas Jefferson had suggested. It was not intended that wage earners would be taxed at all. The bottom tax bracket began with incomes over $100,000 in today’s inflation-adjusted dollars and many higher marginal tax brackets climbed upwards from there. The one reason most wage earners ended up paying income taxes is that the 1913 law was not indexed to inflation. Just like the alternative minimum tax today, the progressive income tax crept down the income scale over time as wages were adjusted upward for inflation and productivity growth.

Up until World War II the top marginal income tax rate was over 90%. It was set that high to help prevent the unchecked accumulation of private wealth for the sake of maintaining a functioning democracy. President John Kennedy scaled back the top tax bracket to 70%, but it was Ronald Reagan who destroyed the whole purpose of the progressive taxes by cutting the top rate to less than it is now. At the same time, he adjusted the bottom rate to increase income taxes paid by lowest-paid workers. These changes, along with a law to tax capital gains at 1/2 the rate of wage income, set-in-motion one of the main conditions that would result in the creation of today’s billionaire class.

The other changes that allowed for the current unchecked accumulation of vast amounts of private wealth were the rise in the mid-1970s of organized capital in the form of political associations and PACS, (Political Action Committees) bent on killing unions and electing pro-business politicians. To this end the practice of sharing growth in the hourly gross domestic product (GDP) with workers in the form of productivity wages ended. Since then the US economy has nearly tripled but nearly all of that new wealth has gone to the wealthiest owners of capital. Wage growth, adjusted for inflation, has been nearly flat since 1975.

The irony here is that if productivity wages had been allowed to keep pace with America’s growing wealth (hourly GDP), the average family of four today would be making over $100,000 per year, the point beyond which they might have had to start paying income taxes if the original 1913 progressive tax law had been indexed to inflation.


8 Comments

  1. ragnarsbhut says:

    Brian, this is debatable.

    • Brian says:

      So, what are your views? I see one of the main thrusts of the American Revolution as a rejection of the enormous inequality of wealth and power between the colonists and their land-owning aristocracy. The founders did not want there to ever be such a large inequality here so they created a democratic republic. Every initial sale of property in the settlements involved payment to the royal aristocracy who literally owned everything in the new world. And unlike the wealthy landowners within the English system, colonists who managed to purchase large land holdings here had no voice within their own Parliment in London. Today we tend to forget that the wealthy landholders in the colonies were clearly not considered wealthy or powerful within their own country, England.

  2. Brian says:

    As you said originally, your point about wealth inequality and morality is debatable (see Mark 10:25 for an example), but that would be a complete change of topic that we need not go into here. The question here is whether or not extremes of private wealth is incompatible with a democratic form of government, and the answer to that question is yes, they are incompatible. Imagine how radical it would be if corporate governance adopted a system of one vote per shareholder rather than one vote per share to reflect an ownership stake in the company. This is sort of the situation we are faced with today. The latter method of corporate governance is a democracy, the former (and actual) method would be a plutocracy if it was applied to nations. That is what we very much want to avoid. The wealthiest individual in this country should have no more influence over government decisions, theoretically, than one citizen vote. We are already very far from that democratic ideal.

  3. Brian says:

    I meant to say the former method of corporate governance, the one vote per shareholder, is a democracy. Sorry for the confusion.

  4. ragnarsbhut says:

    Brian, why should wealth be taken from people who created it and redistributed to people who have done nothing to deserve any right to it?

  5. Brian says:

    I have seen commentary similar to yours in response to a discussion of wealth inequality. It is a bit of a conservative talking point, and not a very good one. It is more of a dodge using a dog-whistle reference to the higher taxes on high-income earners, pitting them against the “undeserving” poor who don’t materially contribute to our GDP. But we aren’t discussing the redistribution of income here, nor are we discussing the fair distribution of income generally. We are discussing wealth inequality and extreme accumulations of private wealth. When we are talking about the wealth gap, we aren’t talking about you or me, but about a thousand or so of the wealthiest elites who own nearly all the equity in this country.

    There are two primary methods to redistribute wealth and neither one benefits the poor. In fact, the poor, the working class and almost have of the middle-class have no wealth at all, so it isn’t being redistributed to them.

    The first wealth redistribution scheme is property tax. Owners of personal property are taxed on the estimated sales value of their property. But even here homeowners are not taxed on their equity stake in their homes, but on the value of their houses as if they owned them free and clear. It is really a tax on their future equity if they can hold on to it for 30 years. This is a very regressive wealth tax and a steep price to pay for new membership into the property-ownership club.

    The second method of wealth redistribution is estate taxes paid once in a lifetime after you die. The vast majority of citizens will never pay a penny in estate taxes because, again, because they have no wealth. The estates that have at least a few million dollars and more may pay some small percentage in taxes, but most of that wealth ends up in the hands of the children and named beneficiaries of the deceased. Most of this wealth wasn’t earned by the beneficiaries and is therefore underserved in the exact same sense as your meaning of that word in your comments above. It is the direct transfer of wealth and power by right of succession.

    So, the short answer to your question is that there is almost no redistribution of wealth from those who (may have) earn it to the “undeserving” poor.

  6. ragnarsbhut says:

    Brian, no person has any right to the wealth that another person has created.

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