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Extreme wealth is threatening our economy, and our democracy

A chunk of our taxes will be bailing out Wall Street and paying to revive Main Street this year. However, there are other ways our taxes could strengthen our sick economy, and they won’t cost most of us a cent. Here’s how Congress can make our economy safer, fairer, and more solvent.

In the 1950s, federal taxes were highly progressive: rich people paid more of their income than the rest of us. Of every dollar they made over $200,000 a year, they paid 90 cents to Washington. The government used that money to fund the GI bill, build our road system, and support a prosperous economy.

Now wealthy people are paying 35 cents on the dollar. Their tax rates nose-dived while the rate for middle-income people went up. The richest people in the country are keeping more of their money while everyone else keeps less.

It gets worse. Capital gains – profits that investors get when they sell stocks, bonds, and other financial assets – are now taxed at a 15 percent rate rather than the top 35 percent rate for personal income. The managers who turned Wall Street into a high-risk casino were rewarded with huge bonuses that were taxed at the 15 percent rate. They paid taxes at lower rates than the people who answered their phones.

The biggest gamblers – the top 50 hedge fund and private equity firm managers – took home an average of $588 million each in 2007. They put the entire economy at risk to create “returns that [were] high enough to justify their outrageous fees,” as one former hedge fund employee commented. Meanwhile, their wealthiest customers realized yearly returns of 20 percent by borrowing huge sums against their own money. Now that the bubble has collapsed, we are all paying for the risks they took.

We can lessen that kind of dangerous behavior in the future by:

• Taxing capital gains the same as ordinary income.

• Creating a new top tax bracket of 50% for very high incomes.

• Eliminating corporate tax subsidies for excessive executive pay.

• Taxing financial transactions to discourage the rapid “flipping” of financial assets for speculation.

These long-overdue changes will do more than discourage future financial crashes. They will raise about a third of a trillion dollars to help pay for the bailout and the stimulus package. They will make the people who profited from the bubble and caused the crash pay more of the costs. And it will leave them less money to buy politicians and change the rules in their favor.

Extreme wealth is threatening our economy and our democracy. A recent report entitled “Sold Out: How Wall Street and Washington Betrayed America” says: “The financial sector invested more than $5.1 billion in political influence purchasing over the last decade.” This stunning figure explains why the financial industry was deregulated. It shows what happens when excessive wealth concentrates at the top of the economy.

Smart taxes can bring the distribution of wealth down to reasonable levels and create an economy that works for everyone. By restoring progressivity to our tax system – making it fairer – Congress can make it safer too.

Dorchester resident Mike Prokosch is the lead author of “Safe, Fair, and Solvent,” a forthcoming report on taxes from United for a Fair Economy (faireconomy.org).

Comments

    Mr. Prokosch seems to have made it his life's "work" to make others feel bad about their lives. Are you a male? Bad!! Are you white? Bad!! Are you religious? Bad!! And please don't be a conservative American member of the military. For that he would be the first to say you should be run out of the state. This is not a man I would ever want on my or my family's side if faced with physical harm...actually, with us being white, Christian conservatives, he'd more than likely encourage violence against us.

to all my conservative friends out there who think the number one issue out there is TAXES - you guys need to wake up! you are brainwashed by your rich patrons (massive corporations and their paid for help known as lobbyists, think thanks, the media, politicians) - you accept the corporate propaganda that is peddled to you.

no one wants the idle to live off the state....what we want is SOLUTIONS TO OUR PROBLEMS!! what a novel idea? how do you propose we provide health care to all of our citizens? any solution to that? I didn't think so?

what about college affordability- should kids go into debt because we cant provide quality, affordable college education?? any solution?

you anti tax crap does not provide any solution, because it was not designed to.

just lower taxes and all our problems will be solved?

just lower our taxes and we become a THIRD WOLRD COUNTRY. we will have a tiny, wealthy elite and NO MIDDLE CLASS. just millionaires and billionares and the rest of us wage slaves. does that sound good to you? how do you think the super rich are taxed in Guatemala? or El Salvador? or the Congo? or Indonesia? go move there buddy....those are your low tax havens.

do you think the creation of a middle class just happens by itself?

no one likes to pay taxes! but if you want a decent, equitable society, the people that can afford to pay- that means the SUPER RICH - pay the most taxes.

and by the way how do you think most rich people get that way....through INHERITANCE!

we all work hard, however some of us have more common sense than you do.

BTW...I bet my house (yes, I own it here in DOT) I have more "common sense" in my little finger than you have in you and your past 3 generation's entire being. (1)Go get an extra large bottle of Prep-H (2)lather it on. (3)When you shrivel up you'll be so much less annoying!

...and in my short time on this tiny blue, God made, orb I've seen that most of those who inherit their wealth are very left leaning dung-heaps like the Kennedy's. Hope that VAT tax idea doesn't hurt them too much...oops, it wont affect them at all. It will only hurt the one's they claim to champion, the middle class and below