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Economy needs spending of the bottom 90 percent

target black friday shopper
REUTERS/Jessica Rinaldi
We all heard about the results of Black Friday shopping and how the spending will drive the nation’s economy. Now think who were the shoppers spending their money on Black Friday.

The past year's elections, the fiscal-cliff debate, and plans to raise taxes on the wealthiest have the rich crying class warfare and government redistribution of wealth. The actual wealth redistribution, however, has been from the poor and middle class to the wealthy.

Jim Weygand
Jim Weygand

Between 1989 and 2010 the top 1 percent saw their share of the nation’s wealth increased from 30.1 percent to 34.5 percent while the bottom 50 percent’s share dropped from 3 percent to 1.1 percent and the income group from 50 to 90 percent went from 29.9 percent to 24.3 percent.*

I know there are a lot of numbers here. In simple terms, they show the rich are getting richer while the poor and middle class, especially the poor, are getting poorer.

The political right will say that the rich getting richer is just rewarding success. From the political left we would hear that the poor and the middle class are being cheated of their fair share of the nation’s wealth. Ignoring this debate, I will say that the shrinking share of the lower 90 percent is hurting our nation and its economy.

Who shopped on Black Friday?

We all heard about the results of Black Friday shopping and how the spending will drive the nation’s economy. Now think who were the shoppers spending their money on Black Friday. Was it the top 1 or 2 percent or was it the bottom 90 percent of the population?

It is time that we understand in our economy, the bottom 90 percent of the population are the major drivers. There is much talk about how the top 2 percent are the job creators, but they only create jobs when business starts to pick up. Business is not going to pick up until we decide to stop the economic assault on the bottom 90 percent, the engine of our economy.

So why is the top couple of percent of the population accumulating so much wealth? There are multiple reasons: the decline of unions, the growing income chasm, but the one I want to address now is the taxes.

The lowest rates

In Minnesota the income-tax cuts early in the last decade have resulted in the rich paying the lowest tax rates when looking at the total of state and local taxes. At the federal level since 1980 the marginal tax rate has dropped significantly. In addition, the rate for long-term capital gains has fallen from 28 percent to 15.35 percent. This is why Warren Buffet pays less federal income tax than his secretary, and Mitt Romney’s federal tax rate was less than 15 percent, below that of most in the middle class.

We can argue about fair and unfair on taxes, but when tax policy increases the wealth of the richest at the expense of the bottom 90 percent, that is unfair. It is not only unfair, but also stupid when it has an overall negative impact on our nation’s economy.

Data from "Distribution of Wealth Across Households, 1989-2010" by Linda Levine from Congressional Research Service, July 17, 2012.

Jim Weygand is a Hindsight Community Fellow at Minnesota 2020, a progressive, nonpartisan think tank based in St. Paul. He is retired from the semiconductor industry and is a former mayor of Carver, Minn. This article first appeared on Minnesota 2020's website.

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Comments (2)

Another factor to consider is

Another factor to consider is the geography of wealth. There are only so many one-percenters (by definition of course ! ) The areas in which they move and spend their money are relatively circumscribed. It's rare that they would venture to Frostbite Falls and spend money there. As they represent more and more of the purchasing power, the people who actually frequent Frostbite Falls have less and less money to spend. And the fortune of Frostbite Falls declines further. It's a not-so-virtuous cycle.

This was the world, pre WW2. Vast areas of the country with general poverty. Many areas of the country with deep and appalling poverty. The taxation and social welfare programs instituted in the Roosevelt era and on acted as a giant mixer of money, distributing wealth and reducing poverty. It economically invigorated much of the country. And the country, as a whole, benefited. Economic activity begat more economic activity.

The re-concentration of wealth withdraws the money mixer from the scene, once again moving toward economic dead zones.

Fly-over land, indeed.

So

If the income tax rates go back up to the thirty-years-ago rate and we go back to higher rates on capital gains and dividends how much will the top 2% drop back to the pack? More importantly, how would this increase the share of wealth possessed by the poor and middle class? I suppose that percentagewise the lower income folks would have a slight increase, but the amount of money that they actually have would remain the same.