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Truth or Consequences
January 25th, 2012 James L Bradley
Last evening the 44th President of the United States of American, Barack Hussein Obama II at age 50 years and 6 months gave his State of the Union address to a more polarized union than experienced by the 16th President of the United States of American, Abraham Lincoln at age 55 when he gave his State of the Union address in 1865, and he was in a Civil War. If you happen to pay attention to the news lately and if you are of the mind to spend a few minutes peering behind the headlines you’ll notice that the United States primary political parties, Democrats and Republicans are not only polarized but have gone overboard in their rhetoric, whereas the Democrats have moved to distant left and the Republican an equal distance to the right – translation “liberal” or “conservative”. Two descriptions that are thrown about like frozen snowballs on a winter’s day, in the worst political winter we’ve ever seen. The 44th Democratic President in his opening statements announced that, “I intend to fight obstruction with action,” thereby setting the stage for what is seen as a tough political debate for the upcoming 45th President of the USA. His remarks seem to mimic the strategy that GWB used in 2004, who made fast work of using “polarizing issues” to increase the turnout of his supporters whereby few if any were made to the “floundering center”. Today with the skeptical attitude of the American citizenship of its government, this could turn out to be a risky move for the President. Whereas his presidency is being pounded by the right as “too much government”, and “too many regulations”, evidence this by the reception of the TSA and its travel restrictions that were more than welcome after 911, and the now proposed mandate to assist those whose homes are in risk of foreclosure by offering them loans in line with the true value of the roofs over their heads. It was just months ago that it appeared that many voters had written off re-electing the President, although recently a minor shift brought on by the slightly improving economy, smaller numbers in unemployment, a tick upwards in consumer confidence coupled with a tick downward in household debt has increased his chances of being re-elected to somewhere around 44%, which if you look at it the above coupled with the Republican primaries being focused on the 1% with relatively low tax rates, and their defense of the 1% tax breaks, swings the votes for the 44th President almost inside the 50% region.

During his delivery President Obama called for “economic fairness” which was jumped on by the guys on the other side of the aisle as his attempt to further divide the nation, where in the GOP response Indian Governor Mitch Daniels said, “No feature of the Obama presidency has been sadder than its constant efforts to divide, to curry favor with some Americans by castigating others. We do not accept that ours will ever be a nation of ‘haves’ and ‘have-nots’; we must always be a nation of ‘haves’ and ‘soon to be haves.’ Governor Daniels, who gave a shot at a presidential bid last year, went on to remark that Obama’s economic policies as a “grand experiment in trickle-down government” where Obama’s “pro-poverty” strategies had hampered the economy. He went on to say, “So 2012 is a year of true opportunity, MAYBE OUR LAST, to restore an America of hope and upward mobility, and greater equality.” “Haves” and “Have Nots” – over 25 years and 3-months ago President Ronald Regan endorsed the Tax Reform Act of 1986 which set tax rates on “capital gains” at the same level as the rates on “ordinary income” (salaries and wages) with both topping out at 28%, under President George H.W. Bush the rate stayed the same, but the value of the taxable “capital gains” was raised from $30,950 to $86,500 which translated into less people having to account for their “capital gains”, under President William Clinton the “capital gains” tax decreased to 21.9%, under President George W Bush the “capital gains” tax decreased to its present rate of 15%. Ordinary income (salaries and wages) now sits at 1) 2) 3) 4) 5) 6) 10% on taxable income from $0 to $8,500 15% on taxable income from $8,500 to #34,500 25% on taxable income from $34,500 to $83,600 28% on taxable income from $83,600 to $174,400 33% on taxable income from $174,400 to $379,150 35% on taxable income over $379,150

The top rate payers (35%) see their “capital gains” being taxed 42.87% less than what they pay on their ordinary taxable income – I always get a kick out of the political arena when they shoot rhetoric at each other citing either the rich are getting ripped off or that the average wage earner is paying more than the rich at 35% - if only any of this was true. In 2010 the average wage in the USA in 2010 (2011 isn’t in noted yet) was $41,673.83, this compiled from numbers at Social Security – which is taxable at 25%, without deductions – in this we see the “capital gains” tax 10% less albeit the “capital gains” tax is 13% less than the Tax Reform Act of 1986 – so is the average “ordinary income” taxable income. GOP candidate Willard Mitt Romney and his wife of almost 43 years Ann Lois Davies (Romney) paid an “effective” tax rate of 13.9% in 2010, and estimate for 2011 at a rate of 15.4%

The tax records show Romney and his wife, Ann, paid an effective tax rate of 13.9% on their adjusted gross income in 2010. The estimate is 15.4% for 2011. The 2010 tax return was 500 pages long – talk about deductions. Keep in mind that his income comes mostly from capital gains, dividends, and interest, and as you know they are taxed at a lower rate. Now I have that out-of-the-narrative, what about all those other assertions flying through the media. Social Security reported that 50% of workers made less than $26,364, which averages out in a normal working year of 2,080 hours at $12.68 per hour which is just 42.8% over the Federal Minimum Wage of $7.25 – it should be noted that most states have laws that layout a different minimum wage, such as Washington which is at $9.04 ($18,903), Alaska at $7.75 ($16,120), Oregon at $8.80 ($18.304), California at $8.00 ($16,640), just as there are some like Georgia that have a minimum wage of $5.15 ($10,712). With the average income at $41,673.83 and with 50% of the nations workforce making $15,310 less than the nations average of 101.5 million full-time wage and salary workers, that 50% are a little behind the 8-ball. Recent figures released by the Bureau of Labor Statistics (1-24-2012) showed that the “median weekly” earning of all 101.5 million was $764 or $3,311 per month with a total yearly income of $39,728 (before deductions). This figure as compared to last year demonstrates a 1.6% increase more than this time last year. Note that 400 of the richest earn the same or more than the bottom 50%, take 50% of 101.5 million. Another issue (in my opinion sorely neglected) is our nations infrastructure (I don’t mean financial buildings) where it was recently reported that China spent last year 9.5% of their GDP, while the US spend 2.5%1 - in real numbers this translates into the USA spending $363 billion and China spending $694 billion almost 50% more – naturally one could argue that China is pushing to come from behind, whereas the USA has a fairly good infrastructure in place. In other words we spend almost 1 trillion big ones on TARP, which mostly went to financial houses that sent their executives off to exotic places to celebrate the gullible American taxpayer stepping in and saving their high-incomes – go figure. I guess their infrastructure was falling down around them, not to worry the $26,364 per year salaried workers were doing their civic duty. Now the ticklish part, where is all the wealth that America boast about sitting on, you sitting down, according to the latest factual study done by Norton & Ariely-2010 shows that the Occupy Movement isn’t occupying for exercise. But first what is “wealth”, in general is the value of everything a person or family owns, minus any debts - how-some-ever most economists define wealth in terms of “marketable assets”, you know real estate, stocks and bonds, kicking aside such things as cars and household items. Once

the value of all “marketable assets” is determined, than all debts (mortgages and credit cards) are subtracted which then will give you a person’s or household’s networth. Now factor into this another term “financial wealth” usually referred to as “non-home wealth”, which is defined as “net worth” minus “net equity” in owner-occupied housing. Keep in mind that “financial wealth” is a more “liquid” concept than “marketable wealth”, since one’s home is difficult to convert into cash in the short term (especially in today’s economic climate). So “financial wealth” reflects the resources that may be “immediately” available for consumption or various forms of investments. Both factors have decreased over the past few years. There is a need to also distinguish “wealth” from “income” (salaries and wages), whereas income can also be gained from dividends, interest, and any rents or royalties that are paid to them on properties they own. You know that 1% in the news, in 2008 only 19% of those 13,480 individuals who made over $10million came from wages or salaries. In reality the wealth of the 1% is actually concentrated in the top 0.1% of the 1% gang – in other words the super-rich.

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present

further details drawn from the careful work of economist Edward N. Wolff at New York University (2010).

In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America. Wealth accumulation is nothing new in America just as its distribution tips toward the top percentage of those individuals who step off the main path and go for the gold, so-to-speak. Color it what you may, the top 1% in the 19 th Century controlled the port cities in Boston, New York, and Charleston – this situation, more or less stable, ran out into the early part of the 20 th Century until the late 20s and early 30s when the stock market came down around everyone’s ears. In the aftermath of the New Deal and WWII, where a good many had pretty good paying jobs and could stuff a bit here and there it flatten out a bit more – equality is what they call it I guess. This equality was helped by the fact that the Income Tax Rates were progressive, in other words you made more your slice (%) of what you made was larger than the guy next door whose pot of gold in the backyard wasn’t as big. It flattened about a bit more in the 1970s, this due in a big part again the fall in stock prices, in other word the top percentage lost a little of their wealth – although by the 1980s the inequality came roaring back with a vengeance matching the concentration of wealth the nation experienced pre-1929, when the top 1% had 44.2% of all wealth. The gap has continued to widen marginally

since that time, with a slight decline in 1998 and 2001 before the economy crashed in the late 2000s – and the bottom is now being pushed about again.

Share of wealth held by the Bottom 99% and Top 1% in the United States, 1922-2007.

Until the “dirty word coming up”, the occupy protestors took to the streets in New York City last year, and now in financial centers spread across the globe, the phrase “inequality” was pretty much a low-key issue. We all knew it lurked in the background, with some people full of wisdom wondering and shaking in their boots dreading the day it reared it ugly head. Inequality was the primary reason that communism failed, whereas in its beginning it preached equality of the masses and in the end failed miserably with the top leaders living in their dacha’s in the country and shouting that the masses hadn’t got a clue, in other words “eat your potatoes, consume your homemade vodka and shut your mouth.” Before President Obama spoke it out loud last evening the phrase was running rampant, as we watch the political climate rising in a big chunk here and there (not just in the USA), all this reminds me of a lecture that I got during one visit to Washington DC in the Mid-90s, where a wise elderly man who had spent 95% of his working life in our nations capital told me, “Jim, listen as long as we can keep the bottom semi-happy by never letting the wealth ratio go beyond 10% to 90% capitalism our way of life will continue, once it decreases we’re in deep shit.”

In October the US Congressional Budget Office (“CBO”), slipped under the door of our congressional leaders and the boys across the street at the White House the sad tale that a very large slice of income gains since the late 1970s had made their way into the pockets of the top 1% of households…their figures showed that over the last 28 years US incomes had increased overall by 62% allowing for tax and inflation, the kicker being the lowest 20% of Americans had only seen their incomes increase by 18%. While the top 1% had an increase of 275%.

In Britain research by a professor of human geography at Sheffield University, Danny Dorling charted a bit further back to 1918, whereas after falling for more than half a century, the share of Britain’s richest 1% started rising sharply (1987/1992) and has now returned to the base inequality it had in 1918. His classification includes in the top 1% people $150,000 a year, granted a small group that is far behind the very top, albeit most of them got a 20% increase in salaries last reporting period, and a 25% increase year previous. The top banana’s got an average increase of 49%, this compared to a 3% increase from their employees – whereas of the top 100 companies in Britain the Chief Executive pay per year is around $6.57 million – around 146X the average pay of their employees and 163X the British average wage. In America we see that CEOs of the largest American companies earned an average of 42X as much as the average worker in 1980, in 2001 531X, stealing an old say, “get a grip on that!” At this years “World Economic Forum”, SEVERE INCOME INEQUALITY was voted as the biggest global risk, this followed by CHRONIC GOVERNMENT DEBT, number three was the DARK SIDE OF CONNECTIVITY (cyber-attacks), GLOBAL WARMING has sort of fallen by the wayside being overshadowed by the worries about Inequality and government debt. In simple words a serious breakdown in social and economic trends. Say and think what you must – the world is watching the mess trickling to the front page on the United States of America’s upcoming Presidential Election – vote your knowledge and not the rhetoric.