Read My Lips: We Need Taxes!

It feels like we've been having this conversation for a long time. Politicians love to tell their constituents that they will lower their taxes. It makes for good politics. But when the cold, hard truth comes out - We need taxes to make the country run - for some reason, this seems to come out of left field for the country. Pity President George H.W. Bush for his punishment for failing to deliver on his promise of "Read My Lips: No New Taxes." But the fact of the matter was that in the aftermath of the crash of 1987 and the negative reverberation in the markets in 1989, he didn't have any choice but to make up for the losses in the markets (and incomes) by raising taxes.

And the truth hasn't changed. We need taxes to run the country. Today we have trillion dollar wars ongoing (happily, one of them being ramped down), we have a country in the midst of its worst recession since the 1930s, and an increasingly stratified country in terms of the "haves" and the "have-nots." We have a ballooning deficit and an unemployment rate that is making most of us uncomfortable, if not shaking some long held beliefs about our economy and the American dream.

Here's a concept - the richest people in the country should pay more taxes than the people that make very little money. The rich folks would have you think this makes no sense at all (in a related story see "Why Wall Street is Deserting Obama") - but from my perspective, it is the only way we can run this country of ours. The people who make very little money spend it - they have to. They need to pay for housing and food and clothes. The people who make too much to spend it all, save it. They don't need to worry about food and housing and clothes. I know from tracking my own expenses - food only makes up about 2% of what I spend each month. We can tax the spenders, but that leaves them little to spend. And they don't have much in the first place.

The widening disparity between the socio-economic classes is well documented. A recent study found that the gap between the rich and the poor is now at the same level it was just before the crash in 1929. In a recently published book by David Schweikart ("After Capitalism"), the author describes the disparity:

If we divided the income of the US into thirds, we find that the top ten percent of the population gets a third, the next thirty percent gets another third, and the bottom sixty percent get the last third. If we divide the wealth of the US into thirds, we find that the top one percent own a third, the next nine percent own another third, and the bottom ninety percent claim the rest. (Actually, these percentages, true a decade ago, are now out of date. The top one percent are now estimated to own between forty and fifty percent of the nation's wealth, more than the combined wealth of the bottom 95%.)

As blogger David Chandler shows on his website, www.lcurve.org, the L curve - not a bell curve - illustrates the income distribution in the US:

The bottom 99% of the population measure their incomes in inches. The top 1% measure their incomes as stacks of $100 bills feet or even miles high! The total wealth of the few people in the vertical spike equals the total wealth of the rest of the population combined. [Chandler shows this as a graph looking like a football field; most people are on the field, the top 1% are on the endline - the vertical spikes off the page.]

What does that income disparity result in? Most of the country trying to get by - going to work, raising their kids, going to movies, paying mortgages and watching TV and Netflix. But as for the other 1%:

People on the vertical spike can use their influence single-mindedly and very effectively. A single billionaire can get the undivided attention of any politician he wants, any time he wants. If he doesn't get what he wants he can, in fact, "fight city hall," the statehouse, and even the federal government. People on the horizontal spike must pool their limited individual power and organize to have any effect at all. This is a very difficult thing to manage, in practice.

This widely skewed allocation (can't even call it distributed) of wealth and income is repeated in many different studies (see http://sociology.ucsc.edu/whorulesamerica/power/wealth.html, http://www.businesspundit.com/wealth-distribution-in-the-united-states/, http://www.levyinstitute.org/pubs/wp_502.pdf). It's a fact of life in the US today.

So is it not better to tax the savers, since they have alot of money? OK, even I find this argument a little difficult - I save money (and don't spend it) because I make enough to do so. Why should I let the government take that money from me?

Here's why.

The government should tax my savings because I don't need all of it. And there's a good to come out of it. Admittedly, I am biased, because I worked for the government once, for four years, and had a salary because of the taxes collected from my fellow Americans. But I also know that as a result of my taxes I have roads and bridges, schools and libraries, art museums and repertory theaters, national parks and golf courses, an armed militia and a sizable government that takes care of things like courts for overseeing litigation, making sure that our environment is protected, monitoring consumer products and providing services for our returning veterans. I think all that stuff is pretty darn good. And I'm willing to pay for it.