My good friend, Dr. Jonathan Corey, recently had another Op-Ed piece printed in the Newport Daily News (RI). This time, the topic was taxation. Please read on and send more emails.

- Universal

It’s time to end taboo against raising taxes on rich

Newport Daily News Op-ed Wednesday, January 12, 2011. Page A7.

During an era of increased economic productivity, incomes for the middle and working classes have remained relatively flat, while income and wealth for the highest paid have grown almost exponentially. Why aren't economic growth and tax breaks for the wealthy resulting in more widespread prosperity?

It's time to speak the taboo. The rich pay too little in taxes.

A recent article "Roll Back the Reagan Tax Cuts" by Thom Hartmann, an excerpt from his new book "Rebooting the American Dream: 11 Ways to Rebuild Our Country," is helpful in understanding how wealth inequity in the U.S. has increased, why it is a problem, and how we can save the American middle class. The article can easily be found online via a Google search.

Hartmann's article reveals key understandings about taxation that we seldom hear about. One is that raising taxes affects the rich differently than the rest of us. The rich are defined by Hartmann as those making over about $400,000 per year (the top one percent of the population, worth about $19.1 trillion, averaging $8.3 million per household, controlling about 33 percent of the total wealth). They have such a surplus that even with a high income tax rate (above 50 percent) their spending stays about the same. With a low tax rate, as we see today, the surplus does not “trickle down” and is often sent to overseas banks or investments, not contributing to improvement of the domestic economy.

For the rest of us, historical data show that when taxes are cut, wages drop. When taxes are raised, increases in wages soon follow because of the interaction of supply and demand for labor and so the tax cost is eventually offset. Then the higher wages are spent here, stimulating demand, creating jobs, raising the general standard of living and so meeting the needs of the People, as we experienced in the 1950s to 1970s when taxes were much higher.

Additionally, when taxes are raised, individuals see a closer connection between the cost of government and their taxes and so government actually slows in growth or shrinks, such as during the Clinton Administration. Together, raising taxes and shrinking government helps to balance the Federal Budget. Compare that to the growth of government following the Reagan and Bush tax cuts, where government grew and then borrowed heavily to offset lost tax revenues, creating the multi-trillion-dollar national debt we face today.

There are more reasons to raise taxes on the wealthy. Wealth inequality is normal, but at some point, it becomes dysfunctional for any society or economy. For example, when a relatively small number of people control too much of the total wealth in an economy, their participation in markets skews them, and the principles that drive markets cease to function because too few people are making buying and selling decisions where many more people should be. This leads to speculation, market bubbles, collapse and economic instability. With excessive inequity the impoverished remainder of the population doesn't control enough of the income to spend on consumer goods to keep demand up and create jobs. It's the downward cycle we are experiencing now.

Current tax policy is re-creating a monied aristocracy that our Founding Fathers were wary of, for good reason. They pursue a self-serving agenda not conducive to the greater good. Today we’re seeing pressure to cut wages and pensions, cut spending on unemployment insurance, Medicare and Social Security, and to eliminate the mortgage interest deduction for average Americans, while it’s unseemly to even suggest that the wealthy also sacrifice by paying their share as they easily did in the past.

At some point, wealth inequality must be restrained for the greater good. To make an extreme example, imagine if Bill Gates had all the money in the economy and the rest of us were left to fight over the last dollar. In such a situation, we would likely agree that something should be done. So the question is, at what point between where we are now and further inequality do we as citizens in a society reasonably decide that too much wealth inequality exists and that it's time to reduce it to bring the economy back into a functional realm that meets the needs of the People?

We must progressively raise income taxes to a reasonable level to raise wages, reduce the counterproductive impact of wealth inequity, balance the Federal Budget, and restore funding for infrastructure, education and other necessary elements of widespread prosperity that good government fosters. This will get our economy functioning again for more than just the wealthy.

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Jonathan Corey has a doctoral degree in behavioral science from the University of Rhode Island. He is an instructor of sociology at Bristol Community College. His research interests include, among other topics, the Psychology of Peace and Conflict.