Oh, yes.   We can’t raise taxes, that’s what they say.  We will be taxing the folks that hire- and they will take their toys away and not hire anyone.  REALLY?

A few facts.  As I’ve reported before,  our corporations- the ones that aren’t hiring- are sitting on a treasure trove of trillions of dollars.  Overseas.  And, they want to bring those funds to America- tax-free.  Why?  Because they can’t spend that money effectively anywhere but in America.  (Their words, not mine.)  So, exactly where will these folks take their toys, again?  And,  you should read my proposal about bringing these funds back to our shores. 

Oh, let’s not forget that these same companies are paying their executives record salaries- an average of 50 to 200 times their average corporate payscales.  Obviously, the executives are not very interested in sharing these trillions with their employees.  Hedge fund managements gets to define their compensation not as salary- but as deferred capital gains- to be taxed at only 15%.

And, Obama’s proposal to remove the TEMPORARY tax cuts to those making more than $250,000 of TAXABLE income (you know, these cuts were justified over 15 years, because after 7 to 9 years, they would expire and our economy would have been strong enough to have the government have no net loss of income over 15 years.  (Obviously not true if we don’t collect those taxes after they expire AND the world economy is in the tank.)  Let’s consider this threshold.  {Yes, I know, now that this is being published some two weeks later, the proposal was adjusted to tax only those making $1 million or more.)

How much money would one have to gross to have $ 250K in taxable income.  Let’s consider an average family of 4 people.  Who live in a house.  And, I won’t be extravagant (I know, this is kind of oxymoronic.)  They won’t have a mortgage like I do;  instead, we’ll use a lower number of $ 500,000, in principal.  And, because they are very creditworthy, we’ll assume their interest rate is only 4%.   Or, a total deductible mortgage interest of $20,000.  And, we’ll assume they are relatively stingy (most aren’t, but I want to keep the numbers to a low level), only giving $ 1,000 in charity a year. And, they live in a relatively low tax state like Virginia, so they only have had $ 15,000 in state taxes withheld.  And, given their mortgage, their real estate taxes are $ 4,000 (again, a very low number).   None of these are even close to what those in this income level average, but we are deliberately estimating low numbers.  So, we now see they have itemized deductions of $40,000 and exemptions of about $ 15,000- which means their gross income is already $305K.  And, that assumes that they are not receiving interest from tax-free sources (like municipal bonds), which is unlikely.  And, realistically, this family’s gross is much higher- closer to $ 325K.  Not quite the numbers one hears bandied by our screaming politicians.

Let us not forget that the top 5% of all Americans account for 37% of every consumer dollar spent (Moody Analytics).  That’s right- every one of these richer folks outspend the 95% of the rest by a factor of 10.   (That’s a whole different way of looking at that analytic, isn’t it?)

It means that no matter what one thinks, the middle class in America is no longer capable of maintaining the American economy.  Which has been the mainstay of our economy for more than a century.  It’s also why Mayor Bloomberg is worried that the middle class is going to be demonstrating (or rioting) in the streets of New York pretty soon.  (Note:  Occupy Wall Street is now doing so; this was written before those demonstrations began.)

It also means that our economy is doomed to be a period of great booms or busts.  Because it must rely on very few spending (or not spending) very much.  When the rich feel secure, they spend and speculate.  When they feel somewhat threatened (like when PIGSI nations- Portugal, Ireland, Greece, Spain, and Italy- are near default), they don’t.  Which sets off a larger downward spiral.

During our period of Great Prosperity, our nation grew faster and median wages surged.  That 30 year period extended from 1947 to 1977 (the years of the Baby Boom and Gen X).  The rapidly expanding middle class consumed more and more goods, more and more services- creating more and more jobs, which led to more job creation.

During the Depression and Great Recession (1918-1933 and the last years[ongoing?]), the rich grew richer.  Growth slowed, median wages dropped or were stagnant.  Oh, and the peak years of 1928 and 2007- when the rich amassed their largest shares of total income- preceded the biggest downturns by 2 years.

And, our country and our citizens both paid no attention to major changes.  Oh, yes, productivity was soaring.  But that was because technology was enabling them to do more work with fewer hours worked.  As we stopped spending money on research (both government and corporations- not the new tissue boxes, but real new product and process design), it was inevitable that productivity would stop rising.  And, we stopped spending money on our infrastructure (you know, those crumbling bridges, roads, and aviation systems) and our houses (since they were mortgaged to the hilt- and beyond).  States stopped funding higher education, raising tuition for those attending.

Oh- those tax revolts people claim as evidence.  We now know that they were due to the middle class complaining that there wages were stagnating but taxes upon them were going up- while the rich’s compensation and their tax rates were going down (the aforementioned capital gains  15% tax, where most rich accrue their wealth, among other tax breaks).

Germany is often cited as the one country doing well right now.  (It is probably going to have to bail out the PIGSI’s, the same way the middle class bailed out the hedge funds and banks in America.) It’s average hourly wages has risen by 30% over the past 25 years (ours by 6%), but the top 1% of their citizens only accrue 11% of the country’s wealth (the same as it was before this current economic period began)- and it has a tax rate of about TWICE ours!

Folks, to quote Robert Reich- just as the rising tide lifts all boats, the ebbing tide is now threatening to beach many of the yachts.  The question is whether the yacht owners are now turning on one another- hoping that their compatriots will be on the Titanic while they remain safe.