Saturday July 14, 2012

Besides making the United States resemble, more and more, an old-style Banana Republic with all the land and power in the hands of a tiny elite, the ultra-concentration of wealth in this country produces insidious ripple effects felt throughout our economy.

Some of those economic evils are suggested in a recent report in Atlantic magazine. "The article, "How the Richest 400 People in America Got So Rich," by Derek Thompson, provides a devastating snapshot of where the country is headed (hint, the Roman Empire and many other great nations followed this path to ruin).

The focus is on the types of income the top 400 wealthiest enjoy, and the statistics used no doubt apply to many more families near that stratospheric top group in terms of wealth and income. The short answer is that investment income is the key -- and that, in turn, is absolutely tied to capital gains tax rates and other investment-related laws and regulations set by the federal government.

Consider that while wealth has become concentrated heavily at the top, the "long-term capital gains tax rate has fallen from 28 percent in 1990 to 20 percent for the latter half of the 1990s to 15 percent under George W. Bush," according to the article.

This is the issue outlined in recent months by billionaire investor Warren Buffett and others -- and by President Obama -- who believe tax law changes are necessary to provide greater fairness and because this type of income is not good for the overall health of the economy.


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That is, investment income for those already in the upper income strata is not the stimulus for the economy touted by tax-cut promoters. Income and wealth derived from an entrepreneur or company creating and manufacturing something or developing a new service is what drives the economy. But in recent decades "paper profits" from investments were facilitated most by tax laws -- and approved by both Republicans and Democrats in Washington.

Consider that capital gains taxes were in the 12 percent range during the 1920s, just prior to the Great Depression, and they fell to nearly that level under President Bush, right before the Great Recession. Yet, who wouldn't trade those years for the economy of the 1960s and ‘70s, when the tax came close to 40 percent?

Consider, too, that Republican candidate Mitt Romney, who once headed the equity investment firm Bain Capital, just released a campaign donor list that was dominated by wealthy people in the financial industry. We would venture a guess that these people are hoping Mr. Romney will once again set them free of the bothersome regulations the president has attempted to institute, and full-bore investment and lending schemers can begin anew.

This situation is not good for the U.S. economy, or the strength of the nation, and frankly not good for the souls of super-wealthy investors. Earlier in the history of this country, the open greed we have seen in recent decades in the pursuit of political power and its use to enact legislation favoring the powerful would have been considered morally reprehensible.

These are some of the issues voters, rich and poor alike, should keep uppermost in mind when heading to the polls in November.