Pro & Con: Congress has the power to narrow the gap

October 6, 2013 

Zaf Iqbal

JOE JOHNSTON — The Tribune

The topic: Should the federal government do more to address the growing gap between the 'haves' and have-nots' in the U.S.?

Click here to read a conservatives's perspective »

Income inequality in the United States has been increasing during the last three decades. The following information, from a September article by Paul Wiseman of the Associated Press, is for 2012: The top 1 percent earned 19 percent of the country’s income. The top 10 percent received 48.2 percent of total earnings and 90 percent shared the remaining 51.8 percent. Income of top 1 percent increased approximately 20 percent; income of the remaining 99 percent rose by 1 percent.

The top 1 percent have captured 95 percent of the income gains since the recession officially ended in June 2009; almost one-third of 95 percent went to the top 0.01 percent. The richest 10 percent own approximately 90 percent of the stock market.

Approximately half of the minimum wage workers last year were older than 25. The median age of fast-food workers is presently 29. The number of Americans in poverty is at a record 46.5 million, 15 percent of the population. These numbers would be worse if 10.1 million adults ages 25 to 34 did not live with parents or others who are not spouses.

If these trends continue, eventually the U.S. will have a small class of superrich, an ever-shrinking middle class and a vast majority of the population extremely poor.

The U.S. Congress makes budgetary decisions and can reverse these trends through legislation. The House of Representatives is controlled by a small group of Tea Party extremists, which makes prospects for any positive policy changes in the foreseeable future nil.

Implementation of the following ideas can result in narrowing the income disparity:

1. Tax disincentives for outsourcing.

2. Tax disincentives for manufacturing abroad.

3. Oversight over military spendings to eliminate waste and fraud.

4. Closing unnecessary overseas military bases. The cost of maintaining bases and troops abroad is estimated at $250 billion annually.

5. Discontinue hundreds of billions of dollars of tax subsidies to industries.

6. Vigorous efforts to prosecute tax evaders; tax evasion amounts to $100 billion annually.

7. Taxing capital gains and dividends as ordinary income. An estimate of these tax breaks, mostly benefiting the wealthy, is $161 billion for 2013.

8. Lobbying expenses should be nondeductible.

9. Setting CEO-to-average-worker pay ratio. The amount in excess of the ratio should be nondeductible. Peter Drucker, father of modern management, wrote to the SEC in 2011, “I have often advised managers that a 20-to-1 salary ratio is the limit beyond which they cannot go if they don’t want resentment and falling morale to hit their companies.” The ratio of CEO pay to average worker was 20:1 in 1965; it was 273:1 in 2012.

10. Corporations keeping funds in offshore tax havens to avoid taxes should be aggressively pursued and heavily fined.

11. Revise personal marginal tax rates. Under President Dwight Eisenhower, the highest personal tax rate was 91 percent. Currently it is 39.6 percent. The rates should be adjusted upward for the wealthy and downward for low-income taxpayers.

Additional revenue and cost savings generated from the above could be invested in educating and training the workforce, improving infrastructure, rebuilding the country’s manufacturing base, educating the future generation and social welfare programs to help lift the economically disadvantaged out of poverty.

Two myths need to be debunked. First, whenever there is an attempt to regulate or tax business, conservatives immediately label it as a “job killer.” Corporate profits have been at record highs in recent years without any corresponding hiring increase.

The second myth is that the wealthy earned their riches by hard work and meritocracy. Most wealthy people are rich because our economic system is dysfunctional.

The Institute of Policy Studies’ report “Executive Excess 2013” concludes that 40 percent of the highest paid CEOs either received taxpayer bailouts, or were fired for poor performance, or paid fraud-related fines or settlements since 2008. Lehman Brothers’ CEO earned $69.5 million in 2007; the firm filed for bankruptcy in 2008. After less than 18 months on the job, Ron Johnson was fired as J.C. Penney’s CEO in 2012. He was paid $53.3 million. When Merrill Lynch fired Stanley O’Neal in 2007, he received $161.5 million.

F. Scott Fitzgerald summed it up in “The Rich Boy”: “Let me tell you about the very rich. They are different from you and me.”

Zaf Iqbal is past associate dean and professor emeritus of accounting at Cal Poly's Orfalea College of Business. He volunteers with local nonprofits, including Wilshire Hospice and Caring Callers. He is past president of San Luis Obispo Democratic Club.

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