Why do the rich get richer? Republicans and Stupid Americans.

President Obama has signed the tax compromise into law and Americans support the action. The problem is that Americans support the bill for all the wrong reasons. There are a number of myths at work here.

1. The tax compromise will create jobs.
This tax compromise should be viewed as the next stimulus, though not a very good stimulus. The biggest problem is that over a third of the tax cuts benefit the top 2% and the CBO recently released are report showing the the job creation of the tax cuts for the super rich is between 0.1% and 0.0%. Basically the super rich will create almost no jobs.

2. The rich create jobs.
We have tackled this issue here before but to rehash, the super rich don't create jobs. They are mainly employed by huge companies or self employed. If the super rich truly did create jobs then we should see a correlation between the unemployment rate of a country and the distribution of wealth in that country. Below is a graph showing the CEO pay ratio by country versus the unemployment rates for those countries.


The graph shows no correlation between the average CEO pay relative to average worker pay and unemployment.

3. The American Dream
There is a long standing belief that in America if you work hard you can become successful. Polls show that 51% of 18-29 year olds believe they will be rich someday. The super rich have sold the middle class on this idea of social mobility as a means of justifying their standing while fooling the working class into working harder. For the American worker, chasing this carrot would have better results in almost every other industrialized country other than Britain and Italy. You have a better chance at upward mobility in countries like Canada, France, Germany and Denmark.

Americans love to equate their personal finances with that of the government. Given this I would like Americans to consider this. In financial terms tax cuts by the government equate to spending less as a private citizen. Clearly this is a good idea in bad times. Conversely tax increases by the government are equivalent to saving by private citizens. This is where we have failed. If taxes had remained at the historicaly low Clinton rates under Bush, we could have had a rainy day fund for the economic collapse that we experienced. Instead the government acted like many Americans and spent beyond their means.

Support the tax compromise for what it does do but realize that failing to hold the super rich accountable for their portion means a higher burden for you. Educate a fellow American so the tax cuts for the super rich get eliminated in two years when the economy has improved.