Screw The Sequester: It's The Wealthy Inequality, Stupid!

The looming sequester isn’t just about Republicans trying to crash our economy, and it isn’t just about them trying to layoff unionized public sector workers in favor of protecting America’s wealthy elite.

The looming sequester is also about the most destructive and significant problem facing our economy today: wealth inequality.

Thomas Hungerford of the non-partisan Congressional Research Service has released a new study on wealth and income inequality in America. He looked at a recent 15 year period in the country and found that, “by far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends.”

As Hungerford puts it, “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”

America’s millionaires and billionaires make the majority of their income from long term investments, like stocks, bonds and real estate holdings.  As such, these investments are taxed differently from ordinary income.  In fact, they’re taxed at much lower rates than ordinary income. 

Right now in America, the average teacher or public sector employee pays an average tax rate of 25% to 35%. 

But then there are this nation’s wealthy elite, the Mitt Romneys of the world, who currently pay a capital gains tax rate of only 20%. And that’s the highest rate they’ve paid in the last 12 years. 

America’s 400 billionaires own more wealth than the bottom 150 million Americans all thanks to the incredibly low capital gains tax rates that they pay. 

In fact, the capital gains tax rate hasn’t been this lowsince the early 1930’s, and we all know what happened then: The Great Depression. 

That’s because when wealth accumulates in the hands of a few, as it did in the 1930’s, and as it has now, the entire economy suffers, and spirals into a recession. 

So rather than letting the rich get richer and trying to crash the economy, shouldn’t we be doing everything we can to decrease levels of income inequality, including spreading the burdens of taxes around to ALL Americans, and not just the middle class?

Even Ronald Reagan knew that a low capital gains tax rate, combined with other tax loopholes that let billionaires pay less than bus drivers, were bad things for America.

In a 1985 speech at Northside High School in Atlanta, Reagan told a crowd that, “We’re going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying ten percent of his salary, and that’s crazy. [...] Do you think the millionaire ought to pay more in taxes than the bus driver or less?”

Unfortunately today’s Republicans don’t agree with “The Gipper”.  They see nothing wrong with a teacher paying more in taxes than Mitt Romney.

That’s why, in the debate over the sequester, John Boehner and company are opposing closing tax loopholes like the capital gains tax rate, and are in favor of deep spending cuts that will hurt the majority of poor and middle class Americans, and further the income inequality epidemic in this nation. 

In fact, Republicans would be more willing to damage our military might, than they would be to take one extra penny from our nation’s billionaire class.

On the other hand, President Obama and Democrats understand just how devastating deep spending cuts will be to the economy and to Americans, and are in favor of closing the tax loopholes that let the wealthy elite make huge profits at the expense of everyone else. 

The bottom-line is that there’s a great deal of money out there in the hands of millionaires and billionaires that could be taxed as ordinary income, and which would help us avert the sequester, and prevent unprecedented damage to our economy. 

And more importantly, this is an opportunity to do something about wealth inequality. As researchers Richard Wilkinson and Kate Pickett at the Equality Trust UK have discovered, wealth inequality underlies all of our social problems, from drug addiction to mental illness to mass school shootings. 

It’s time to close the tax loopholes and make America’s billionaire class pay its fair share again.