Tuesday, June 28, 2011

America's Rich: Taking Their Ball And Going Home

In the 1980’s, Ronald Reagan led the conservative charge in reducing government infrastructure and welfare spending, reducing the tax burden on America’s wealthy, and reducing government regulation of private enterprise. One of the major effects these policies had was to increase the United States’ GDP drastically: the other was to severely reduce the share of the GDP that the average American enjoyed.

The process went something like this: without regulation or taxation, U.S. corporations (owned by a select few Americans, usually older white males) have the freedom to export jobs for cheaper production, reduce wages and reduce overhead by curbing safety and environmental standards. This excess wealth (the increase in GDP mentioned earlier) is concentrated into the hands of the owners, who increase their pay and compensation exponentially.

The gains made by Unions and organized labor at the beginning of the 20th century were wiped out as the jobs were exported to other countries: the average American’s share of national income drastically declined after Reagan was elected while the share by the already wealthy increased further. CEO compensation has increased 425% since 1981, but the national average of income has only increased 26%.

Obviously exporting labor is unsustainable: at some point we can’t ship any more jobs overseas. Unfortunately, because of the disparity of the last three decades the U.S. economy is entirely controlled by these economic elite, so that even when a company’s stock plummets, they’ll still raise executive compensation and tell Union workers that their compensation is the reason that the company’s overhead is high.

With the lack of funding in education, social services and infrastructure building in the last three decades, our work force is unable to keep up with the rising cost of education (leading to decrease in both income and productivity in American workers, mostly due to government policy), our populace is in increasing levels of poverty and our infrastructure is crumbling. As the effects of the decline are felt, more and more people support raising taxes on the wealthy, as a direct response to the disproportionate income, wealth and influence in the government.

The response by the extremely wealthy has been extraordinarily childish: rather than engage in their civic responsibility to build their communities, corporations and wealthy Americans all over the nation are threatening to pack up and move somewhere cheaper. Caterpillar, Jimmy Johns and the Chicago Mercantile Exchange all threatened to leave Illinois because of an increase in income taxes, Twitter threatened to leave San Francisco because of local tax rates, and Standard & Poor’s threatened to move to New Jersey if they didn’t get “special tax breaks”.

The recent trend of threatening to leave might be relatively new, but the concept (the wealthy vacating a community to abdicate social responsibility) is a time-honored tradition. Moving your business to a tax haven (a country with a much lower taxation rate) in order to avoid your tax burden has become so common since the 1970’s that Nicholas Shaxson calls it “the heart of the global economy”. In fact, a single building in the Cayman Islands is home to more than 18,800 firms, including Coca-Cola, Oracle and Intel.

So what can we do about it? Passing laws to restrict the freedom of movement sets a dangerous precedent and reeks of tyranny, but you don’t need to restrict movement to restrict tax shelters (any more than you need to actually move to the Cayman Islands to get the tax break). The people can demand a closure of these tax holes by their Congressional representatives, but what about the moving itself? What can be done when the wealthy take their money and flee to other countries?

The truth is that the wealthy already consume products made in foreign countries and do very little to contribute to the standard of living of the American people. While the GDP would decrease from a mass exodus of the upper echelon of society, it would focus our economy more on providing for the citizens that are left: the American middle class. When the rich next threaten to take their ball and leave, I urge Americans everywhere to call their bluff and speak plainly: we’re better off without them.

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