Ike Understood: Concentrated Wealth Brings Instability

[dtotire]

Ike Understood: Concentrated Wealth Brings Instability

By CHUCK COLLINS and SAM PIZZIGATI
November 9, 2008

Nearly 50 years ago, a famous American gave a speech that advocated spreading the wealth.

In some countries, this notable stated, "a few families are fabulously wealthy, contribute far less than they should in taxes, and are indifferent to the poverty of the great masses of the people."

"A country in this situation," he went on, "is fraught with continual instability." Just who made this spread-the-wealth declaration against the dangers societies invite when they let wealth concentrate? The then-president of the United States, Dwight D. Eisenhower.

Ike's words back in 1960 created no controversy. Americans overwhelmingly shared his spread-the-wealth convictions. Societies that discourage vast accumulations of private wealth, they believed, simply work better.

The U.S. tax code, back then, reflected this consensus. Income more than $400,000 a year — that's a bit more than today's $3 million, after adjusting for inflation — faced a 91 percent tax rate.

The rich of Ike's day, of course, exploited tax loopholes, just like today's rich. But even after exploiting loopholes, the wealthy of the Eisenhower years still paid a hefty share of their income in taxes.

In 1955, for instance, America's 400 highest-income taxpayers averaged about $12 million in income, in today's dollars. They paid, after loopholes, 51.2 percent of that in tax.

Let's put these numbers in contemporary perspective. In 2005, our 400 richest taxpayers averaged $214 million and paid federal taxes on that princely sum, after exploiting loopholes, at a mere 18.5 percent rate.

In other words, today's rich are taking home much more in income than Ike's rich and paying taxes at a much lower rate.

Eisenhower, a Republican himself, would be aghast. Ike would see in our current financial meltdown proof positive that wealth, if left to concentrate, will bring on an "instability" that can endanger an entire nation.

Ike, were he around today, might even chide President-elect Barack Obama for taking too timid a tax-the-rich stance. Obama wants to raise the tax rate on America's highest income bracket from 35 to 39.6 percent.

In the generation before Ronald Reagan's 1980 election, Ike might point out, America's top tax rate on the rich never dropped below 70 percent. The rich grumbled, but they survived.

Average Americans, in the meantime, didn't just survive those tax-the-rich years. They prospered. In the quarter-century right after World War II, America's typical family income more than doubled, and that's after taking inflation into account.

Over the past quarter-century, by contrast, average Americans have progressed nowhere fast. Wages today, after inflation, are actually running less than wages in the early 1970s.

What's the big difference between the years right after World War II and the last quarter-century? In the first era, we encouraged the spreading of wealth. In the second, we've let wealth concentrate.

Ike wouldn't be happy. We shouldn't be, either.

• Chuck Collins directs the Program on Inequality and the Common Good at the Washington-based Institute for Policy Studies. Sam Pizzigati, an Institute associate fellow, edits "Too Much," an online weekly on excess




http://www.courant.com/news/opinion/editorials/hc-collins1109.artnov09,0,4554509.story

[jwirr]

1. This is an excellent article, however I would like to ask someone

who is capable of it to somehow place the small business person into this setting. They consistently vote for the pugs and their stores, etc. are closing because of this divide in the wealth - where do they set in this picture and why do they not see it?

[ngant17]

2. a sign of instability

in nature and the physical world, there are a few things which tend to show instability.

When the average strength of concrete is increased, the variance of its strength also increases. Instability!

When the average temperature of a hot surface is increasing, as measured by a pyrometer, the variance of its measurements also increases. Instability!

I would also speculate that when the DJIA (Dow Jones Industrial Average) increases, the variance of income of the general population also increases. Rich getting richer, poor getting poorer. This can probably be better understood by comparing the DJIA with the Gini coefficient for the respective time periods. I haven't done this, but I suspect it's true.

[applegrove]

3. The USA ranks with Mexico and Russia in terms of the equality index.

These are countries that have thug murders & kidnappings because of the inequality. Hopefully that will change with Obama. The USA used to be the country to emulate in the mid 20th Century. I hope it will be so again.