Who Are the 1%– An Update– and Why Don’t They Pay More Taxes?

A few figures, from an article already three years old: the global “gross domestic product” is $60 trillion per year, a large figure indeed.  However, a total of $200 trillion in debt (bonds and notes and the like) is outstanding, the interest on which is more than $10 trillion a year, even with interest rates “artificially suppressed.”

These figures are not numbers that will change greatly from year to year, though some remarkable changes are likely to occur.  The point of the indebtedness to GDP ratios is just that the debt is expensive, and to some people, unsustainable.

Another point is that the top 1% hold most of that debt and are receiving payments year by year on it, literally living off their investments.  Much of the money they receive is in excess of what they can spend and automatically rolls over into more debt/savings.  This top group is not that which earns the highest income year to year but what group already has the most money stashed away in their net worth, that is the most wealthy.  They hold the investments that result in this debt and are paid the “rent.”

The article to which I originally referred in 2011 pressed the point of view that the global debt is unsustainable and should be treated by a global bankruptcy or “bank holiday.”  His argument is just that the payments on this debt are dragging down the economic activity of the debtor nations.  I don’t know how urgent his arguments are because the emergency situation he describes has persisted for several years without a resolution.

A more reasonable issue is that the economic strength to be obtained for government through taxation must rely on those most able to afford being taxed.  This implies a progressive tax system, that is, one in which taxes increase as a percentage of income in relation to increased incomes.  To some extent, current federal income taxes are progressive, but there are many current taxes which are not progressive in which the burden falls most on those with the smallest incomes.  The fact that certain types of income are taxed at a much lower rate than ordinary income would not be retrogressive except that virtually all those who earn that certain type of income (that on long term investments) are already rich.

Therefore, the current tax system favors the rich, even though they still wind up paying the majority of taxes because income inequality is so dramatic.  This system would seem to not make sense since it disfavors such a large percentage of the electorate: wouldn’t it be voted down if it were so unfavorable to such a large majority?  The only explanation that makes sense is that the people don’t realize how much they are being disfavored (or to use another equally appropriate word, exploited)…

If ballooning wealth inequality continues, then it is likely that social systems will be so strained that some aspects of society will break down.  Civil war could occur.  If civil unrest is extensive, it may result in destruction of much wealth and reduction in the inequality that currently obtains.  Some economists argue that this occurred in World War II since so much wealth was destroyed (blown up or burned up) in the course of the war; in addition, governments demanded large contributions from their wealthy citizens to run their wars.  Do we need another WW II to reduce wealth inequality now?.