The Gulf Between Us

There was a link today on the social network Facebook.  Obviously a friend posted it or I wouldn’t have seen it.  It was a video by Robert Reich explaining the cause for our weak economy in only two minutes and 15 seconds.

The Truth About The Economy In 2 Minutes
His points were:

•     The economy has doubled in size since 1980, but real growth in average income has grown only slightly when adjusted for inflation
•    All the gains in the economy have gone to the super rich
•    The super rich have gained political power they have used to secure tax breaks and are now only taxed at 15% versus the 75% they used to be
•    Because they aren’t taxed, they are causing huge budget deficits, which leads to a break down in the social services and infrastructure we have become used to
•    This is driving a wedge between members of the middle class and because of that wedge the middle class spending is anemic and causing a slowed recovery

His focus is clearly aimed at the current Democratic taking point intended to drive a wedge between the haves and the have-nots, made popular these past six months. Is this really the in-depth economic analysis that passes as sound reasoning today?  Is there no option other than extreme partisan rhetoric that makes it to the light of day or show the multitudes of problems we face come from an equal multitude of sources?  Can we only expect two positions?  The first would be what I call the Robin Hood solution put forth by the socialists – if we take all the money from the rich and give it to the poor than everything will be okay.  The second is the Robber Baron solution put forth by the capitalists – if we give all the money to the rich they will create jobs and everything will be okay.  Is it really true we are still in the same class warfare we were in during the last century and what do the political parties gain by fostering this? 

I would like to take Reich’s points one for one.

In 1980 the Gross Domestic Product, the measure of our economy, was $2,788.1 billion dollars, or $2.78 trillion if you like that number better and inflation was at 13.8%.  In 2010 the GDP is $14,508 billion  ($14.5 trillion) with a 1.6% inflation rate.  Since 1980 the  inflation rate averaged 3.55%.  Just accounting for inflation since 1980 would mean, if our economy stayed stationary, the GDP would be over $30,000 billion so as a matter of fact Mr. Reich’s assertion the economy has doubled is false.  It has markedly shrunk when inflation is considered.

Funding for welfare in 1980 was $100 billion, in 2010 it is estimated at $727.3 billion.  A seven hundred percent increase.  It doesn’t match the inflation curve but it is a whole lot closer than we’ve done with the economy.  So I am not sure it is correct to say all the gains, if in fact there have been any, have gone to the super rich.

How about Tax Rates?  Mr. Reich was partially correct in his assertion the tax rate for the top income group in 1980 was 70% and it has gone down markedly since then.  But he plays fast and loose with the facts when he asserts the “nominal” tax rate is 10% now.  Actually the top rate is 35% but there are still allowances and deductions that will afford wealth holders shelters for their income.  Many were there in 1980 as well, in fact there were many other shelters that have been taken away.  He implies the super rich have used their power to somehow steal money away from the government.  I have a very hard time accepting the notion that all the Democrats who controlled Congress from 1980 until 1994 and 2004 to 2010 are the corrupt politicians he implies they are.  Surely a few corrupt Republicans can’t be held solely to blame, or can they?  I think clearly Mr. Reich believes they are.  Oh by the way, there was no mention of corporate taxes, which would amount to an even larger portion of the pie if he hadn’t been so hard over on nailing the evil super rich.  He also doesn’t bother to mention that an ever increasing portion of America’s low income families pay no taxes and receive subsidies in the form of earned income tax credits if they file at all.  His position also is based on the socialist or communist principle that all wealth belongs to the state.  Last I checked we as a nation really didn't support that did we?

Let’s tackle the budget deficits.  Are they really caused by wealthy tax cheats as Mr. Reich alleges or from uncontrolled government spending and borrowing?  In 1980 the governments took in $885.6 billion and spent $940 billion creating a deficit of $54 billion.  In 2010 the deficit was closer to $1,597 billion.  Does Mr. Reich really believe we can suck a trillion dollars out of the super rich by just returning to the 70% tax rate?  There is a great video that talks to this.

So, we have one group that believes it’s the fault of the super rich we have problems with our economy and if we only could tax them sufficiently we in the middle class would be happy and the poor would be better off.  At the same time we still have those who believe we should eliminate taxes and everything would be okay.  Too bad we can’t find the middle ground where everyone pays the exact same tax, no shelters, no exemptions, no excuses.  How about, oh I don’t know, lets say 10% to the Federal and 5% to the state and 1% to the local government.  That way we pay 16% in taxes.  If you make $10,000.00 a year you pay $1,600, if you make $10,000,000.00 you pay $1,600,000.00 how could that be viewed as unfair?  How would that work for me?  I come out ahead of what I have to pay today.


Clearly both the link in the front and the video at the end have critical errors to make their points, but they reflect the gulf between those who want the government to make their lives a utopia and those who are concerned about the ability of the government to survive.