Published on Monday, April 16, 2012 by Common Dreams

Five Reasons Why The Very Rich Have NOT Earned Their Money

The wealthiest Americans believe they've earned their money through hard work and innovation, and that they're the most productive members of society. For the most part they're wrong. As the facts below will show, they're not nearly as productive as middle-class workers. Yet they've taken almost all the new income over the past 30 years.(Image: Flickr by IronRodArt)

Any one of these five reasons should reinforce the belief that the rich should be paying a LOT more in taxes.

1. They've Taken All the Middle Class Wage Increases

In 1980 the richest 1% of America took one of every fifteen post-tax income dollars. Now, according to IRS figures, they take THREE of every fifteen (doc) post-tax income dollars. They've tripled their cut of America's income pie. That's a trillion extra dollars a year.

For every dollar the richest 1% earned in 1980, they've added three more dollars. The poorest 90% have added ONE CENT.

Yet the average American factory worker, according to Berkeley economist Enrico Moretti, produces $180,000 worth of goods a year, more than three times what he or she produced in 1978, in inflation-adjusted dollars.

So workers have TRIPLED their productivity over 30 years while the richest 1% have TRIPLED their share of income. Worker pay remained flat as the top 10% took almost all the productivity gains since 1980.

2. They've Mismanaged Key American Industries

We have the most expensive health care system in the world. Failing banks have survived because of taxpayer bailouts. Management-approved shortcuts have led to workplace deaths and chemical leak disasters. Companies lobby for cap and trade laws so their profits can pay for their pollution.

Over twenty percent of Americans are unemployed or underemployed as big companies hoard $2 trillion in cash. 93% of post-recession income (pdf) is going to the 1% "job-creators" with no appreciable increase in jobs.

Private tuition is skyrocketing, with student loans reaching the $1 trillion mark. Bonuses continue for executives at Ford and Bank of America and Sirius and other companies who have underperformed and/or laid off workers.

No, the captains of industry have not earned their money because of their top-notch management skills.

3. They've Benefited from 50 Years of Public Research

The very rich have made their fortunes in good part because of taxpayer-funded research at the Defense Advanced Research Projects Agency (the Internet), the National Institute of Health, the National Science Foundation, and numerous other government agencies.

Consider just a simple communications device. Computer chips and audio/video/voice technologies grew out of decades of funding at the Department of Defense, the Air Force, NASA, and public universities. The pieces of the device were put together by a procession of chemists, physicists, chip designers, programmers, engineers, production-line workers, market analysts, testers, troubleshooters, etc., etc. They, in turn, couldn't have succeeded without another layer of people providing sustenance and medical support and security and administrative assistance and transportation and office maintenance for the technologists. ALL of them contributed to the final product.

But over the years private businesses have received government contracts to produce and market the results, and "entrepreneurs" have rearranged the pieces into products that seem to appear out of the magical world of a single individual.

4. They've Increased Their Incomes By Not Paying Taxes

The richest 10% own 80% of the stock market, providing billions in "unearned income" that is taxed at less than half the rate of income earned through real work.

Hedge fund managers call their income "carried interest" instead of "income" to keep their tax rate at 15%. Even this small amount may not be paid. Hedge fund managers with incomes in the billions can pay ZERO income tax by deferring their profits through their companies indefinitely.

Real tax rates for the richest Americans have gone way down over the last 30 years, from 34% in 1980 to 23% in 2006. Yet the 1% claim they pay most of the taxes. They don't, if all taxes are considered. Based on recent data from the Center on Budget and Policy Priorities, the total of all state and local taxes, social security taxes, and excise taxes (gasoline, alcohol, tobacco) consumes 22% of the annual incomes of the poorest quintile. For the top 1% of Americans, the same taxes consume less than 10% of their incomes.

In addition, most inherited wealth goes untaxed, with estates valued up to $5 million exempt from federal taxes. The average tax rate on inheritance is less than 3 percent.

It's no different for corporations. U.S. Office of Management (OMB) figures show a gradual drop over the years in Corporate Income Tax as a Share of GDP, from 4% in the 1960s to 1.3% in 2010. That's ONE-THIRD of their previous share. From 2008 to 2010, the top 100 U.S. corporations paid only 12.2% of their income in taxes, and thirty of them paid nothing at all (pdf).

The lack of SEC regulation has also allowed corporate America to seek tax dodges beyond our borders. Citizens for Tax Justice reports that the 280 most profitable U.S. corporations sheltered half their profits from taxes - up to $337 billion a year (pdf) - between 2008 and 2010.

Most shocking is the long-term shift in the tax burden from corporations to middle-class workers. For every dollar of workers' payroll tax paid in the 1950s, corporations paid three dollars. Now it's 16 cents.

5. They've Contributed Little to Society

The richest individuals and corporations have shown little regard for the majority of Americans who depend on sound financial management for their economic security. According to sources such as the New York Times and ProPublica, Wall Street firms including JPMorgan, Citigroup, Bank of America, and Goldman Sachs have been repeatedly charged with fraud only to avoid punishment by paying a fraction of their profits in fines.

Financial insiders have figured out how to cheat other investors by timing the purchase of a stock option to precede good corporate news, timing the sale of a stock option to precede bad corporate news, and changing the purchase date (pdf) on a stock option to a time when the price was lower.

One hedge fund manager, John Paulson, made $4 billion by working with Goldman Sachs to create a financial product that would allow him to bet on the collapse of the housing market. Other financial masterminds packaged toxic derivatives for sale to unknowing pension funds, as ratings agencies were paid to ensure the worthless packages received AAA ratings.

Meanwhile, the banks were roughing up the homeowners. Bank of America foreclosed on tens of thousands of Americans by using unverified evidence called "robo-signing."

Disdain for average citizens goes way beyond fraud, and well outside our borders, into the areas of environmental and human rights abuses. Computer and phone makers like Apple save money by obtaining their coltan from the Congo, where children dig it out of the mines. The "blood coltan" goes to China, where teenagers stand for 12 hours a day performing repetitive tasks for a few dollars. Monsanto's herbicides and pesticides cause biological damage, promote the growth of 'superbugs' and 'superweeds,' and generally don't outperform organic methods of farming. Exxon is not only the biggest profitmaker and polluter, but the company has conducted a lengthy campaign (pdf) to deceive the public about global warming. Corporate Accountability International named Monsanto, Exxon, Koch Industries, Chevron, Blackwater, and Halliburton to its Corporate Hall of Shame.

And finally, how well is society served when valuable resources are spent on a yacht complete with golf course, submarine, beach, and helicopter, and which qualified for a second-home mortgage deduction? Or on a $250,000 playhouse for the kids?

Studies show that increased wealth is correlated with a lesser degree of empathy for others. Despite their dependency on society for everything else, the super-rich have apparently earned the right to live in their own privileged world.

Paul Buchheit

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

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