By ballot or bullet: Will US wealth inequality bring reform or revolution?

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Of all economic systems, laissez-faire capitalism has been deemed, especially by its top beneficiaries, to be the best, whatever its flaws. However, a basic problem exists: how to determine the appropriate, indeed, just distribution of income between capital and labor.

Thomas Piketty, an internationally acclaimed French economist, in his definitive study, “Capital in the Twenty-First Century,” demonstrates that income and wealth inequality between the haves and have-nots in the U.S. and among the wealthiest nations has resulted in an ever-widening gap that has exploded since 1980. Piketty’s figures reveal that the top 10 percent own 75 percent to 90 percent of all the wealth in America. The bottom 50 percent own “practically nothing except their labor.”

One in three American adults owns mortgaged property threatened by foreclosure and little, if any, resources for retirement save Social Security.

Where does justice enter the picture?

In France, the have-nots lacking bread rose up and toppled the aristocratic system in the French Revolution of 1789. Expropriated fortunes helped narrow the gap, if only temporarily.

In the 20th century, when the 1 percent landlords in China had no intention of yielding to demands for relief and reform, the peasants picked up rifles to achieve economic change – an action termed “class warfare.”

During the Great Depression of the 1930s, the Bolshevik revolution in Russia gave credence to demands for radical economic change in America. In order to prevent – note “prevent” – “class warfare,” the U.S. expanded the progressive income tax and inheritance tax laws.

Top earners, benefiting from the system, have a moral obligation – as Warren Buffett contends – to contribute proportionately to the common good. The poorest 50 percent pay less – some not at all.

To determine what is a “fair,” “just,” “moral” tax obligation for upper income individuals, an examination of 20th century tax history is useful. Piketty reports that the top marginal tax rate under Roosevelt was 94 percent and from 1932 to 1980 averaged 81 percent. After 1980, top marginal rates began a continual decline, coupled with an ever-increasing number of tax havens and loopholes.

Today, it is widely regarded as “socialistic” to increase the top marginal tax rate to 38 percent – it’s “class warfare” and why punish the job-producers? Were there no jobs produced between 1930 and 1980?

Governmental income and budgets are obviously affected by lowered tax rates for the wealthy. Add to the mix reduced corporate taxes – 46 percent of federal income previously, now only 10 percent. Numerous large profitable corporations currently pay zero taxes. Sentiment exists for all corporations to pay no taxes.

Moreover, corporate tax “inversions” will reduce federal income by $19 billion over 10 years. Tax havens, trust funds, foundations and other loopholes compound the problem. Hiding wealth and income in the Cayman Islands – why is that allowed? Unlimited, undisclosed political contributions from obvious benefactors keep such policies legal. Obviously, there is no Cayman equivalent for laborers. The result is increased taxes shifted from the most able to pay to the least able.

Fewer taxes, less government and budget cutbacks will bring prosperity, it is alleged. Austerity budgets are therefore necessary. “We just don’t have the money.” Cutbacks have been approved for education, mental health, unemployment benefits, Medicare and social programs to bring a modicum of help for “the least of these.”

A suggested solution for solving the problem of the underserved – so long as not “undeserving” – is increased benevolent giving. Benevolence, while important, must be preceded by justice, which requires making equitable taxation decisions and moral budget decisions. More bombs or bread?

Wall Street and some legislative bodies have given no evidence of understanding social unrest. The “Occupy Wall Street” and the “Moral Monday” demands for justice are mystifying.

Piketty’s solution for ever-increasing inequality is not only to increase the top-level graduated income tax and continue the inheritance tax but also to institute an annual tax on wealth – all financial holdings – not just income and similar to the annual property tax. Almost impossible to achieve politically, he acknowledges, but the widening inequality gap presents greater risks. The CEO of Kinder Morgan earns $1 million daily – unusual but symptomatic.

Can an economic system that allows most CEOs to make more income in a day than a worker makes in a year – moving toward more in an hour – be morally justified? The number of billionaires has increased dramatically while 46 percent of Americans live in poverty. Is the conclusion that the poor are “lazy parasites,” unworthy of a place at the table of national resources defensible?

Piketty concludes: “It is hard to imagine an economy and society that can continue functioning indefinitely with such extreme divergence between social groups.” Will wealth inequality in America continue on the path that led to the French Revolution? Piketty’s facts demonstrate that we are increasingly headed in that direction. He states: “It is hard to imagine that those at the bottom will accept the situation permanently.” Ballot or bullet, economic reform or revolution? Difficult but necessary choices.

Bernard H. Cochran is emeritus professor in the Department of Religion and Philosophy at Meredith College.