Thursday, August 20, 2009

The L Curve

Throughout the nineties, incomes of most people grouped by education achievement went up. After the Bush Tax Cuts, everyone's median income began to go down (except perhaps those with Associate's Degrees.) This shows the continuing race to the bottom and the shipping of jobs overseas. During this time, the number of millionaires didn't increase much, but the amount of wealth accumulated by those millionaires increased dramatically.

While Americans are continually told that our country is the most wealthy, it is in fact not per capita. The truth is, each citizen of Switzerland on average makes more than what each American does by the equivalent of about $10,000.

But what is even more surprising is not the top 10% or even the top 1%, it's the top 0.000267%.
View this.
This is known as an L curve. You've heard of linear curves, parabolic curves, and exponential curves, but this is even better. Think of an L lain on its side. The side of the L sticking up is the income of the ultra rich. Yes, I know, L's aren't curved, but just stick with me. The best example of this is a demonstration of incomes as dollar bills stacked on a football field created by David Chandler.

"Chandler visualized the yearly income of each American as a stack of one hundred dollar bills (10 cm. = $100,000) and then arranged the stacks, slimmest to fattest, in a line that spanned the length of a football field. On his imaginary field, the stack of bills at the 50-yard line is 1.6 inches high ($39,000). At the 95-yard line, the pile reaches 4 inches ($132,000). It is not until the 99th yard line that the first millionaire appears (40 inches high). Then, just before the goal line, a line spikes up vertically to a height of thirty miles – over 4 times the elevation of Mt. Everest. This line represents the top 0.3% of Americans with incomes up to $50 billion dollars."

Please check out for a sweet graphical depiction of this.

I know most of you didn't grow up poor (but some did and you'll understand this better.) When you're rich, they give you money just for having money (this is called interest.) When you're poor, they take money from you that you don't even have just because you don't have it (this is known as insufficient funds.) And somehow the rich (read Limbaugh, Hannity, Beck, Bush, Cheney, Reagan, and every other politician you know) have convinced the more gullible of you that tax cuts for the rich actually bring in more money and stimulate the economy. And that raising taxes on the rich kills the economy and redistributes wealth. In fact, when the lower classes are more free from an oppressive burden of taxes, and not tied like indentured servants to their employers, they innovate and move up into the middle class where the real purchasing power is. And yes, it does redistribute wealth because instead of rewarding the rich for being rich by lowering their taxes, it removes the punishment for being poor by removing their oppressive tax burden. It gives the poor the freedom to move up on the social ladder because they can look up and see that the rungs aren't missing.

One last thing, Americans obviously don't know the first thing about progressive taxes. Let me explain it as simply as I can. If the tax rate on $40,000 to $49,999 is 10% (for example) and the tax rate on $50,000 is 20%, then if you make more than $50k here is how it works. If you make $49,999, you pay 10%. If you make 50k, then you pay 10% on $49,999 and 20% on $1. The rate doesn't go up the whole way if you make a dollar more. Thus people misunderstand Obama's tax plan. If you make less than $250k taxes don't go up, but if you make more than $250k, taxes only go up on what is above $250k. That $250k stays the same. Let me put it this way, if you make $20k, and you pay 5% taxes on that, you're paying $1000 which hurts real bad. But if you make $1,000,000 and you pay 40% taxes, then you still have $600k and you are not hurting at all. I'd much rather earn one million and pay 90% taxes than earn $20k and pay no taxes at all. This is the reality of the income disparity.

This is the reality that you need to think about when you choose a tax policy politician like I did when I voted for President.

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