I. Some Contours of Cutting Up the Economic Pie
1) The United States has become more of a “casino” economy, exemplified by the fact that financial companies account for about twice the proportion of the Gross Domestic Product than they did 30 years ago and they account for up to 40 percent of current corporate profits.
2) The average American family saw its net worth drop by 40 percent — from $126,400 to $77,300 — in the three years from 2007 to 2010.
3) The net worth of the wealthiest 10 percent of U.S. families rose from $1.17 million to $1.19 in the the same three years as in 2) above.
4) The Congressional Research Service (CRS) says “there is little evidence that over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth.” On the contrary, the CRS study found that higher tax rates for the wealthy are statistically associated with higher levels of growth. During this period, the average tax rate actually paid by the top 0.1 percent fell from 40 to 25 percent.
5) Contrary to the claim that businesses don’t expand facilities nor hire more workers due to government regulation and taxes, the Bureau of Labor Statistics survey of businesses found that 0.3 percent of those laid off in 2010 lost their jobs due to “government regulation/intervention,” while 25 percent were laid off due to a slowdown in business.
6) The six largest financial institutions in the country (JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Metlife) own assets equivalent to 2/3s of the Gross Domestic Product of the United States — more than $9 trillion in value. The six produce half the mortgages and 2/3s of the credit cards. Three of the top four are bigger now than they were when they were “too big to fail.”
II. Top Marginal Tax Rates and GDP Growth
The New Deal – 63 to 79 percent; Eisenhower – 91 percent; Nixon – 70 percent; Reagan – 50 percent; Bush I – 35 percent and Clinton 39.6 percent.
In measuring GDP growth and loss during the period beginning in 1979 and ending in 2007, the top one percent gained about 130 percent; the top 20 percent gained about 25 percent; the second 20 percent lost about 10 percent; the third 20 percent lost about 15 percent; the fourth 20 percent lost about 25 percent; and the bottom 20 percent lost about 30 percent. These measurements are from the Congressional Budget Office.
III. Corporate Welfare Queens
Energy companies lease about 40 million acres on onshore land and more than 40 million acres offshore. Farmers get almost $5 billion annually in direct payments and billions more in crop insurance and drought relief. (1)
Domestic manufacturers collectively get a tax break of about $20 billion a year and state and local governments give about $70 billion in tax breaks and subsidies. (2)
The biggest break is probably copyright and patent protection. Government is big in helping business and small in helping people. (3)
IV. Countering Some Common Beliefs About Small Business
1) Generally speaking, Republicans have expanded the definition of small businesses to include million-dollar operations, which allows them to exaggerate the impact of taxes on their operations. A more supportable definition would be $250,000 or less in taxable income.
2) Although small businesses produce most of the new jobs in the nation, they also destroy almost as many as they create. This is due to the immutable laws of capitalism. (4)
3) The numbers showing small enterprises as the growth drivers of the U.S. economy, include the business units of much larger companies.
4) Many CEOs focus on productivity gains through technology and lean labor forces to delay hiring more workers as long as they can.
(1) James Surowiecki, Corporate Welfare Queens,” The New Yorker, October 8, 2012.
(4) Michael Santoli, “Obama and Romney Agree on Small Businesses — and They’re Both Wrong,” The Daily Ticket, November 2, 2012.