Wealth inequality hurts US as a whole

It’s finally happened. Mitt Romney released another round of tax returns. Now the partisan pouting can begin all over again.

Mitt Romney’s released “tax returns”:http://abcnews.go.com/blogs/politics/2012/09/mitt-romneys-2011-tax-returns from 2011 inform the American people of what he made, how he made it and how much of it he paid back to the United States. They tell us that he made upwards of $13 million and paid roughly 14 percent. They tell us that he donated $4 million to charity and claimed $2.25 million in deductions.

And that’s all fairly boring.

We should not care about what Mitt Romney paid in taxes. We should care about what his taxes and his tax rate tell us about the situation in the United States.

Let’s look at how taxes work currently. Federal income tax operates on a bracket system: the more you make, the more you are taxed on income that falls in that higher bracket. If, for example, you make $1.01 million dollars, you would pay a higher rate on that $0.01 million than on the million before it. Look at Romney’s most recent admission. The 2011 tax rate for wages ranges from 10 to 35 percent. Romney, who filed jointly with his wife, would, like all Americans, pay 10 percent on all wage income less than or equal to $16,700, and would pay 35 percent on all wage income over $372,950. Looking over the tax returns, the Romneys leave blank “Wages, salaries, tips, etc.” essentially nullifying this marginal tax rate.

Instead, the Romneys paid a rate of just below 15 percent.

This is all perfectly legal because most of Romney’s income comes from investment profits, dividends and interest, rather than a salary. This income, “capital gains,” is taxed at a lower rate.

And it’s this flat rate that contributes to the massive wealth inequality in the United States.

Today, the richest 300,000 Americans make almost as much as the bottom 150 million Americans.

In 2010, Professor Michael Norton of the Harvard Business School “told NPR”:http://www.npr.org/templates/story/story.php?storyId=130395070 that the top 20 percent of the nation held roughly 85 percent of its wealth while the bottom 40 percent of Americans had virtually zero wealth. Contributing to that is the fact that from 1980 to 2008, incomes of the bottom 90 percent of American rose only 1 percent (an average of about $303) — whereas the top 0.01 percent of Americans saw an increase of $21.9 million dollars, a 403 percent increase.

Even if we compare current wealth inequality to historical wealth inequality in the United States, it’s not an attractive comparison. Before the sharp global economic downturn in 2008, inequality levels were close to what they were before the stock market crash of 1929. The one that led to The Great Depression.

We talk about the “American Dream”, about the United States being the “Land of Opportunity” and about how it’s possible for any kid to become the president or a CEO or whatever else their dreams may be. With wealth inequality the way it is now, that is not the case. We are relegating those with unfortunate situations to remain stuck in those situations because we do not provide them the means to get out — regardless of how smart they are or how hard they work.

While there is no panacea for wealth inequality in the U.S. — it’s been building for years. It can’t be fixed in one law or motion from Congress — implementing a tax system that is actually progressive would make a good start. The marginal system in place now, although “progressive” in name, does not provide the benefits to the U.S. economy that a truly progressive tax would. Because the current system does not judge all forms of income uniformly, it makes a system that could help decrease the wealth gap to something essentially negligible.

The argument that billionaires and millionaires work harder for their money is absurd. Mitt Romney’s money is making money while he releases his tax returns. Bill Gates’ money is making money while he sits on his couch. The idea that they should pay a lower tax rate than the majority of Americans is absurd. And more than that, it hurts the United States as a whole. It limits social mobility, stifles economic growth and only makes the problem worse — and more difficult to fix — the longer it is allowed to continue.

_Sarah is a senior in LAS. She can be reached at [email protected]_