The Three-and-a-Half Class Society (October 22, 2012)
The top 20% are supporting the entire Status Quo. This is an unstable arrangement.
The U.S. has a three-and-a-half class society. According to demographer Joel Kotkin, California has become a two-and-a-half-class society, with a thin slice of "entrenched incumbents" on top (the "half class"), a dwindling middle class of public employees and private-sector professionals/technocrats, and an expanding permanent welfare class: about 40% of Californians don't pay any income tax and a quarter are on the Federal Medicaid program.
I would break it down somewhat differently, into a three-and-a-half class society: the "entrenched incumbents" on top (the "half class"), the high-earners who pay most of the taxes (the first class), the working poor who pay Social Security payroll taxes and sales taxes (the second class), and State dependents who pay nothing (the third class).
This class structure has political ramifications. In effect, those paying most of the tax are in a pressure cooker: the lid is sealed by the "entrenched incumbents" on top, and the fire beneath is the Central State's insatiable need for more tax revenues to support the entrenched incumbents and its growing army of dependents.
Let's start our analysis of the three-and-a-half-class society by noting that the top 25% pay most of the Federal income tax, and within that "middle class" the top 10% pay the lion's share of all taxes.
The top 25% of taxpayers--34 million workers out of a workforce of 160 million and 140 million wage earners--pay almost 90% of all Federal income taxes. Where Do You Rank as a Taxpayer?
An adjusted gross income (AGI) of $66,193 or more puts you in the top 25% of earners. The top-earning 25% of taxpayers reported 65.81% of all AGI and paid 87.30% of total federal income taxes ( $755.9 billion).
The second class is made up of the working poor: 38 Million Workers Made Less Than $10,000 in 2010-- Equal to California's Population (The Atlantic magazine)
Only 104 million tax returns actually pay any Federal tax: Many Unhappy Returns? (America's aggregate 1040, from IRS tax data).
In 2009, the IRS reported 140.5 Million personal income tax returns were filed. From this starting point, 36.3 Million returns (or, one quarter of the total) are lost to the tax base because of losses, exclusions or deductions. By line 43, taxable income, only 104.2 Million returns survive. In aggregate dollar amounts, total income from all sources falls from $7.7 Trillion to $5.1 Trillion — a decline of more than one-third. This latter amount is what truly constitutes the tax base, since it is the income ultimately subjected to tax.
According to the Census figures, the median annual income for a male full-time, year-round worker in 2010 — $47,715 — was virtually unchanged, in 2010 dollars, from its level in 1973, when it was $49,065.
After including earned-income tax credits, the bottom 60% of households paid less than 1% of all Federal income taxes, and the households between 60% and 80% paid 13%.
The top 20% paid 68.7% of all Federal taxes: Income taxes, Social Security and Medicare, excise and corporate taxes. The top 10% of households paid fully 72.7% of all Federal income tax, the top 5% paid 60.7%, and the top 1% paid 38.8%.
Here are the source documents:
A number of commentators have noted that the incomes of the super-wealthy (which I define as the top 1% who own most of the productive assets of the nation) have risen even more than their taxes. They also note that the Social Security tax of 7.65% (employee and employer each pay 7.65%) is regressive, as those making $500,000 a year only pay tax on the first $108,000 of income: 47% Of American Families Pay No Income Tax! Really?
My conclusion is this: by heavily taxing earned income, the system extracts the highest taxes from the most productive citizens, leaving the less-productive with essentially no income taxes and the super-wealthy with the huge tax break offered to capital gains and other unearned income.
In essence, this is a vote-buying scheme by the Status Quo: the top 1% control the policies of the State in alliance with the State's own Elites, and together they buy the complicity of the bottom 60% to passively accept their dominance.
In other words, the bottom 60% pay relatively modest taxes or are recipients of Central State aid and the top 1% who "own" the political process limit their taxes by favoring unearned income (what they collect from sales of securities, stock options, rents, etc.). Thus the productive quintile (top wage earners) pay the highest tax rates and most of the taxes.
It's a partnership of "Tyranny of the Majority" and "entrenched incumbents Elites." If the political Status Quo alienates the majority by making them pay more taxes, they risk losing power in the next election. If they alienate the top .5% who fund their multi-million-dollar campaigns, then they will also lose power. So they heap the tax burden on what remains of the middle class.
When that 20% rebels, falters or opts out, the system collapses for want of
tax revenues. Not coincidentally, that happens to fit the Pareto Distribution: the 20%
"vital few" exert outsized influence on the 80%--once the pressure cooker blows.
Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)
We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.
If this recession strikes you as different from previous downturns, you might
be interested in my book
An Unconventional Guide to Investing in Troubled Times (print edition)
Kindle ebook format. You can read the ebook on any
computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One.
The solution in one word: Localism.
Of Two Minds Kindle edition: Of Two Minds blog-Kindle
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
NOTE: gifts/contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Or send him coins, stamps or quatloos via mail--please request P.O. Box address.
Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings.
At readers' request, there is also a $10/month option.
What subscribers are saying about the Musings (Musings samples here):
The "unsubscribe" link is for when you find the usual drivel here insufferable.
All content, HTML coding, format design, design elements and images copyright © 2012 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.
I would be honored if you linked this essay to your site, or printed a copy for your own use.
Terms of Service:
|Survival+||blog fiction/novels articles my hidden history books/films what's for dinner||home email me|