I was recently reminded that during the 1950s, the marginal tax rate was over 90%. Yet the 1950s were a period of tremendous economic growth for the US. Clearly, high tax rates are not, in and of themselves, a growth killer, as many folks proclaim today. In addition, due to the growing strength of the union movement in the post-war period, median income was growing rapidly in this period, truly establishing a “middle class” in America
Today, the situation is far different. The benefits of economic growth are increasing being distributed to the upper income brackets, the CEOs, etc and median income, the income for the middle bracket of our population, is stagnant or falling.
Many economists have identified income inequality as one of the factors in the Great Depression of 1929. Basically, if more and more people have less and less to spend, the economy grinds to a halt.
The current income inequality has been masked by the prevalence of credit, via credit card debt or home equity loans. In recent years, the growing use of credit by Americans has propped up the economy, even as median income stagnates or falls.
What we need is a change in direction for our nation and the economy. We need a real economic stimulus plan that goes beyond rate cuts. We need to put more money into the hands of the average American and the average American family who will spend that money. If we give Bill Gates an extra million dollars, will it change his spending? Certainly, not. On the other hand, if middle income Americans get additional income, they are much more likely to spend that money, thus stimulating the economy.
In addition, we need longer term changes in public policy, such as the Employee Free Choice Act, which will work to make it easier for worekrs to form and join union, thereby increasing the bargaining leverage for working people, and thus, increasing their share of national income.
That way, Joe the Plumber doesn’t need to dream about being a small business owner, he can earn a living income through his work!