Eye on the Market, an investor newsletter from J.P. Morgan, reported in mid-July that profit margins for Standard and Poor 500 companies rose about 1.3 percent between 2000 and 2007. Those margins, said the publication, had reached levels “not seen in decades.”
How did it happen? “There are a lot of moving parts in the margin equation,” the report noted, “but… reductions in wages and benefits explain the majority of the net improvement in margins.”
“U.S. labor compensation,” the report added, “is now at a 50-year low relative to both company sales and U.S. GDP.”
Two weeks ago, we recapped some figures on the history of the taxation of the wealthiest in our country: 91 percent from World War II until Kennedy lowered their taxes to 70 percent; 70 percent until Reagan lowered them to 50 percent; 39.6 percent under Clinton; 35 percent, the current figure, under Bush 2. The numbers were offered in support of the argument that rolling back the Bush tax cuts for the very wealthy to the Clinton-era level would help reduce the country’s deficit. One reader who disagreed said the deficit would not be much reduced by recouping “the ‘cost’ of letting the rich to keep their own money.” Of course, he isn’t the only one who sees the wealth of the wealthy as their own.
But is it all their own? What was the historic rationale for high tax rates for the rich? Long after World War II, the very wealthiest were still being taxed at extremely high rates because the nation acknowledged that many great fortunes had been made, not just because of opportunities people had created for themselves by building better mousetraps, but because of an act of the government—the decision to go to war. If some had given their lives and left their families without breadwinners, said our leaders, others weren’t going to rake in enormous untaxed (or lightly taxed) profits, making the war a cash cow for them while other Americans suffered.
Is it just hard work and skill that make the wealthy wealthy? Last week we pointed out that the government spends billions—in 2006, $92 billion, one-sixth of the value of Social Security benefits paid out that year—on corporate welfare, meaning taxpayer-funded work done by government agencies like the State Department on behalf of corporations, and taxpayer-funded subsidies paid to them. And year after year the press continues to report on tailor-made loopholes for wealthy families and federal legislation written by corporate lobbyists for the benefit of their clients.
Now we have confirmation not from labor unions, not from community organizers, but from J.P. Morgan’s investor bulletin, that money is moving upward and away from the workers whose productivity is helping earn it. Yet a tax increase of only 4.6 percent for the very wealthiest becomes a sticking point to which the entire economy is held hostage on the grounds that it’s “their own money.” The question that arises is whether our public policy will favor the future of the United States as a casino for the making of huge fortunes, or as a country in which everyone has an equal shot at a decent living.
