Bailout: How Progressive Taxation Empowers the Rich

America's top 5% of wage earners are responsible for more than half of tax receipts, and the top 50% account for virtually all of them. I'll begrudgingly source an old Rush Limbaugh bit. Let's assume that we're all in agreement that the rich make the rules in America.

Why?

Well, the argument always goes - they get the best lawyers, they pay for the best friends in DC, they roll over their nest eggs through generations, and can afford better educations to manage them through the decades. The "born equal" game is rigged, so to speak. Progressive taxation, supposedly, redistributes some of this rigged-game-earned income to the lower-income folk that the rich lord over. It provides them with everything from roads to emergency health care to unemployment pay to retirement income in exchange for complicity in a Democratic system that doesn't favor their interests. A wealthy American pays a lot to the tax system and receives relatively little, a poor American pays a little to the tax system and receives relatively a lot, and both rich and poor agree on a concept of "America" without mansions on fire.

Now - look at the bailout of Wall Street. The rich, so to speak, have the most to gain. A lot of the rich work for those companies, or own chunks of them. A lot of the rich work with those companies to invest their assets, and would lose quite a bit in the event of a total failure of the banking system. Consider my post below about IRR, then incorporate the concept of our national mission of protecting the tax base with the concept of the top 5% being responsible for more than half of that tax base. That means our national mission, effectively, is also about protecting the hell out of the rich.

Thus, progressive taxes hit the rich, but they also empower them. Do you know what "too big to fail" means from a tax-base perspective? It means if the rich are actually called on to suffer at the hands of the so-called free market, the tax system collapses. If banking fails and a large number of the rich get wiped out, we turn a Federal debt crisis into an instantaneous, unavoidable implosion of every Federal spending program. The expense-reducing carnage would be incredible, and everything from defense to social security would be a shadow of itself. So it will never, ever happen as long as our comfortable plutocrat lawmakers draw breath.

THIS is why several wealthy folks like that guy in Texas are against the bailout, not some silly love of the "free market" meme/construct that keeps the middle-class semi-rich in line. They have their money elsewhere - offshore, in other currencies, in commodities. A banking collapse would result in the single largest reduction in the size and power of the Federal Government in its history, essentially giving it back to oligarchs, and it would stick it to the champagne-liberal rich that actually deigned to keep their money in domestic (non-tax-avoidey Cayman-style) accounts.

Sound fun? You need this bailout for your Liberal spending agendas, and the rich need it to stay rich. But the game remains the same unless we do away with Progressive taxation entirely and stop tiering sovereignty.