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Sep 20, 2011


A Guest Post by Dr. Harold Goldmeier

The bellwether issue for growing industrialized economies is finding enough income to sustain functioning social, education, and public health government programs, while reducing the debt of nations. The political and philosophical battle dividing the nation centers on taxing income from investments or from payrolls. Taxes on income from investments are lower than income from pay checks. The divide is ominously portentous for the nation’s sense of cohesiveness. Euphemistically we call it political gridlock.

Warren Buffet puts it in real terms when he claims he is in the eighteen percent tax bracket on his income largely from investments. The tax rate on his secretary’s salary is in the thirty-six percent bracket.
This is reflective of the tax codes in most industrialized societies. More than ninety-percent of citizens earn their income from working. The wealthiest people earn half or more from their returns on investments, yet pay far less in taxes than the working poor, blue collar and middle classes.
Workers with good jobs after World War II invested in houses and life insurance; they spent little of their income on health care, and their children’s education. Anything leftover went into their passbook savings accounts. Over the years and with passing generations, having college educated, doctors, lawyers, and other professional children was more valued than construction workers or tool and die makers. The value of saving money shifted to conspicuous consumption, as America and passbooks gave way to speculative stock investing where taxes were lower on profits and losses could be written off income taxes. Eventually, Savings and Loans disappeared from the financial map all together.

This system works pretty well in an expanding industrialized society, but it becomes an Achilles’ heel in the shift to a service economy and during extended periods of high unemployment. Less and less is being produced with fewer people needed to work in the new society; in 2011, there are only 1.75 full time private sector workers for every Social Security recipient. Eventually the system will financially crash, but not before retirees are pitted against the young, and the rich against those who do not want to pay more taxes to support for those whose primary source of support is from Social Security.

The working classes no longer share the value and status homophily with those who make their living by investing. Reality shows are popular not out of envy, but because the working class vicariously enjoys the problems of the rich and famous…their parent-child dilemmas, unhappy marriages, broken friendships. The domestic balance of power in many Western nations like England, France, Greece, Israel, and America, is shifting from peace because of prosperity to anger and violence as the rich are less willing to share the wealth. Long forgotten is Nelson Rockefeller’s heeder to always leave a dollar on the table for the other guy.
When I grew up in Chicago in the 1950’s, life seemed a lot simpler and cheaper. Principally simpler because as a kid,

I only had to worry about getting my homework done, beating my friends at in-the-street baseball, and not disturbing my father too much at night after his long day working in his fledgling paint store. There was no health care; you went to the doctor and the visit was cheap. The cost to my folks for the two babies my Mom delivered made a minimal impact on our family budget; she even quit her job. Even when I cut off my hand, the bill from the doctor and Illinois Masonic Hospital did not cost so much that it hurtful our already meager lifestyle.
Meat was a treat usually hot dogs. Or servalot ( a type of German salami) from the kosher German butcher. Chicken and cheese were plentiful. Rent was minimal for our three room apartment with a refrigerator kept cool by the block of ice the delivery man slid through the opening in the outside wall. My Dad’s new 1954, blue and white Pontiac with automatic shift was affordable with easy payments; and our in-the-house pay phone cost us maybe a nickel or dime per call. I cannot remember my parents talking about how expensive everything was, but we never ate out at a restaurant either. They talked about how good they were doing with their friends at their jobs or in their own businesses. I was a kid, so maybe it was all an Aesopian experience.

My children but especially my grandchildren are not blessed to live in those earlier delightfully amiable times. Our dinner table talk is about college loans putting their friends and cousins in deep debt. Today my son asked me for $600 for college textbooks. I don’t think my college semester tuition cost my Dad that much. We talk about the disastrous economy with our friends, because everyone is worried about their jobs if they have a job. 400,000 people each week for years on end lose their jobs and apply for unemployment benefits. That doesn’t include the millions of men and women in the armed services fighting wars in the Middle East or keeping the peace in Asia and Europe. Think what the unemployment rate would be if they came home…with guns.
My father spent little of his income on gasoline for that guzzling Pontiac. Property taxes now account for almost 20% of our monthly mortgage payment. Food prices from Israel to America to Africa are up 30% in the last few years; in Israel they just had a cottage cheese revolt capped by a nationwide boycott, in order to bring down the price. Milk in America is nearly three times as expensive as it was a few years ago, and eggs have doubled. There have been three price increases in household paint in a little more than twelve months. These are staples not electives to most families. Let’s not even bother to talk about the cost of dental care and medicine, doctor care, and hospitalization, and their impacts on wage earnings, savings, the financial and social stress, personal bankruptcy, homelessness, and family dissolutions. As the disparity increases and the gap widens, so will suicides, social unrest, anger at the politicians and media, and violence within families.

On top of all this, we have a labor force falling behind in the education and skill development needed to handle evolving modern economies. American school days are shorter and fewer than in competitive Western countries. Our children are far behind in engineering, math and science except for the outstanding students and stand-out schools that are the exceptions while we wait for Superman to come their rescue.
The only person I ever met who could do more with less was my mother. A nation cannot expect its working people to save their money and invest when it is taking it away from them at every turn; the only resolution is to bridge the gap between labor and investment by taxing investments at a higher rate more equal to income from labor; that money must be invested in better education and the social safety net. The composer and performer Jimmy Buffet has a lesson for us in his music: “Rainy days seem to wind up sunny as long as you got a little spending money…(but it can be) the root of all evil or the sum of your blessings.”

Dr. Harold Goldmeier is a writer and consultant on political/social matters to small businesses and government agencies.


  1. blah
    ...when I cut off my hand...

    Thank you for sharing.

  2. I guess Benjamin wasn't one of the social protesters who filled the streets of Tel Aviv and was probably scarfing down his cottage cheese out front of the supermarkets in the face of the picketers. His Dad's check must have arrived on time.

  3. The Liberal World

    After the war, US share of world GDP was about 50%. Yes, that means that 5% of the worlds population had fully half of the worlds output. And that was pretty easy after a war that destroyed the industrial base of most other advanced countries. Not to mention the loss of so many men of prime working age.

    Today the US share of world GDP is about 22%. And it may begin shrinking again with the rapid ascendance of China and India as world economic powers.

    So back then, during the "golden age" of the 50's and early 60's, things were great for the USA. They couldn't help being great because everyone else was slowly rebuilding and repopulating. Today that is not so, today we have competition, and in some areas the competition is beating us.

    The liberal idea of striving for equality is occurring right before our eyes. The world is mostly (aside from dysfunctional Africa and dysfunctional parts of the Middle East) on a trajectory of leveling out. No more can a small sliver, our 5% of the worlds population command 50%, or even 25%, or perhaps even 15% of the worlds output.

  4. Your absolutely right in your analysis; our manufacturing base was enormous creating great factory jobs with very good pay, stability, longevity, and benefits. The change to a service society ate away at all that. I'm not suggesting we seek equality as you put it just parity in the tax rates between income from dividends and capital gains and income from salaries in America, Israel,etc. The Chinese people are beginning to make such demands of their government too.

  5. sorry for misspelling you're

  6. I'm not sure how this article addresses "Life In Israel", to quote the title of this blog. College loans are not a concern for us here- college is much more reasonably priced here than in America, even without the plethora of army and government grants available.

    Our economy escaped the monstrous results of hedge fund speculator escapades, thanks to our stringent, old fashioned banking rules.

    Workers with good jobs after WWII? Everyone here in Israel after WWII was lucky to get enough bread to eat for supper.

    We are facing serious problems in our economy here in Israel (huge gap between rich and poor, huge swaths of the population that don't work, boycotts and other trade issues), but I don't see how this article really addresses or even attempts to understand them. And the comment to Benjamin betrays a serious lack of understanding of these problems. (Or maybe you were trying to make a joke and I didn't understand it?)

  7. quick point - institutionalized charity (welfare etc) has resulted in generation after generation of free loaders....that's what happened to America.

    FACT: registered Republicans, conservative Christians etc...who tend to identify in the top percent of incomes, also dole out the most charity....VOLUNTARILY


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