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Death of the American Dream

In 1986, a young Irishman named John Darmody came to America with the dream of
economic prosperity. He knew if he worked hard for years he could achieve at least some level
of livable existence. For every one of the millions of immigrants who came to the United States
they were driven by the same ideals of equality and the hope for a better life. But this dream has
withered and died. These ideals have fallen by the wayside under the pressure of corporate
deregulation. The American dream is dead because banking deregulation that has allowed for
elites to take a large proportion of the wealth and allowed companies to avoid paying any
corporate tax rates at all leading to the imminent death of the middle class as the US knows it.
Historical Precedence
The disparity of income, according to many experts is the major financial problem
effecting Americans today. According to the New York Times, If there is any doubt, the speed
at which companies are adapting to the new consumer landscape serves as very convincing
evidence. Within top consulting firms and among Wall Street analysts, the shift is being
described with a frankness more often associated with left-wing academics and business
experts, (Schwartz, 1). The quote proves that the American Dream is a dying ideal because of
the disparity of the extremely wealthy and the rest of the population. In 1992, the top five percent
of earners made twenty seven percent of the national income while in 2012 the number was up
around forty percent. This quote is extremely potent because it proves that markets are
attempting to adjust to the changes to offer benefits to elites while leaving the rest of the
American public behind. But what had led to this systemic failure?

Historically though America was the global trailblazer in equal economic opportunity
because of the generally corporate friendly regulations. Income distribution within America was
at a high point in 1928 when the government adopted an aggressive income redistribution policy.
According to the Pew Research Center, In 1928, the top 1% of families received 23.9% of all
pretax income, while the bottom 90% received 50.7%. But the Depression and World War II
dramatically reshaped the nations income distribution: By 1944 the top 1%s share was down to
11.3%, while the bottom 90% were receiving 67.5%, levels that would remain more or less
constant for the next three decades, (Pew, 4). The quote exemplifies the idea that during
economic expansion income distribution is cut by a large proportion due to the expansion in jobs
and aggressive monetary policy. When an economy is booming and the government is strong and
consumers feel as if the economic state allows for more spending, the opportunities increase for
the middle class. But during a contractionary period when consumer confidence is low and many
middle-class, white collar jobs have been lost, the government used to attempt to redistribute the
income by raising tax revenue. The example proves the point because during the beginning of the
Great Depression the top 1% received 23.7% of the income while during the expansionary period
of WWII the same population only had 11.1% of pre-tax income. The contrast describes the fact
that employers are more apt to cut middle management because they dont directly make any
manufacturing decisions and arent the one creating the physical product. This middle ground for
decades has been the backbone of the middle class but has dissipated over the years due to the
high corporate tax rate when compared to other western and central European countries.
When the economy bottomed out in the middle of 2008 the government failed to react
quickly enough as their supply-side stimulus failed to generate the number of jobs they had
hoped for. As America has progressively dropped the corporate tax rate since the presidency of
Nixon, the bankers have been able to take larger handouts. Although Nixon intended for a trickle
down economic policy, the reverse happened. Large banks began to payout massive bonuses to
top executives rather than hiring more employees or reinvesting in capital because the economic
loopholes in the system that favored corporations over independent, medium firms. Despite the
fact that the rate dropped, these companies began to look to foreign lands with exponentially
lower rates which led to outsourced jobs and a decrease in tax revenue which crippled the
economy. When the rate was first established America was looking for a simple way to capitalize
way on the unbelievable amount of new companies rising up during the growth period under the
Nixon administration. This situation favored the top corporations because they were able to
avoid paying back taxes that stronghold mid-level companies. The neglect led to a rate that was
held a higher point than ideal because the missing revenue, which led to one of the highest rates
in the western world at 35%.


The corporate tax rate has been a controversial issue for years because the government is
losing up to 8% of revenue because of loopholes. Because of the relatively high rate in America,
for years large corporations that generate about 66% of the national GDP revenue have
outsourced to avoid millions upon millions dollars in back taxes. According to a 60 Minutes
piece on the same topic, Because of the numerous tax loopholes, there is no real tax rate in the
U.S. To let the right-wing economists and a corporate CEO whine that they are burdened by a 35
percent rate that no one pays, without dissenting voices, is to thoroughly distort reality, (60
minutes). The fact is that the 35% is just a cover-up for the public to believe that most companies
pay their fair share when in fact this isnt true at all. As the diagram above depicts, with the
steady decrease in the rate from 1962 onward, the total revenue has continued to drop. This
anomaly proves that America must lower their corporate tax rate and fix the loopholes to stay
competitive in a global market. But despite the governments best efforts, western and central
European countries maintain ridiculously rates that give their fledgling economies some sort of
lifeline because the US hasnt been able to fix the domestic system. And without the United
States cannot logically to compete with these countries, we must first fix the domestic problems
with our tax system. Making the rate constant for everyone it will provide a massive economic
boost to the middle and lower classes. These taxes could be used to fund job creation programs,
but instead the money left in the pocket of some obscure central European leader.
What has happened to the market?
But how far have has the prosperity of the middle class truly fallen?
With the middle class within America slowly dwindling, the market has adjusted to
support the wealth disparity. According to the New York Times, As politicians and pundits in
Washington continue to spar over whether economic inequality is in fact deepening, in corporate
America there really is no debate at all. The post-recession reality is that the customer base for
businesses that appeal to the middle class is shrinking as top tier pulls even further away,
(Schwartz, 1). The article exemplifies the fear of many economists that consumer expectations
about the economic disparity will just worsen the problem that lies before the American people.
Within economics consumer expectations are an important factor that can exponentially worsen
even the slightest economic plight. The reason this occurs is because people will choose to save
money rather than spend it which creates less money in circulation. This is the current situation
as the middle class of American people dont seem readily apt to spend, despite the overall
recovery of the economy. The lack of trust has created a situation in which struggling businesses
have to adapt to the market that exists in its current state. For example, General Electric has
increased the supply of high-end dishwashers and refrigerators and the revenue of elite chains
such as the Capital Grille are booming. These two potent examples prove that the market has
adjusted to the changing demand of the consumers. Although most times free market, economic
policy is the way to go the government in this situation must begin to course correct. Some form
of action must be taken to provide opportunities for middle class companies as well as raising
revenue to the government can provide cheaper goods to those who are struggling in the formal
middle class.
Where do we go from here?
The most simple and bipartisan supported solution is to close the corporate tax
loopholes. This solution, which is currently being debated by the Senate, would provide a boost
in federal revenue and force American companies to operate on American soil. The most
apparent problem is that sources that manufacture and develop products on national soil pay the
exorbitantly low rates of western and central European countries. The two main contributors are
Switzerland and Ireland who have rates as low as 12.5%. By placing their supposed
headquarters in these foreign locations, these companies are able to destroy their competition
and the executives take extreme profits. So its urgent that Obama and co. quickly create
legislation because this simple step would increase tax revenue, job creation, and improve his
approval ratings. Simple across-the-isle legislature that fixes an easy problem is just what the
government needs in a time where the public has lost all hope in compromise. This step to
correct the legislative mistakes of the 2002 Bush tax cuts is a simple fix that would create a more
even economic playing field for all companies by forcing companies that make above a certain
threshold each year to pay one flat rate. The info graphic below is one potent example of how the
growth rate of private companies over the last six years is nearly double that of the overall US
GDP. Although this is a common statistic because GDP does not count international trade, the
extent of the difference is frightening. In 2012, the wealth disparity was as large as this country
had ever seen as private companies grew at a high rate of 8% while the US economy was
scraping by at 1.9%. The problem can only get more lopsided from here unless these loopholes
are fixed immediately.


The second facet of my solution would be to drop the overall corporate tax rate
around 15-20%. By closing the loopholes and lowering the rate the overall revenue would
increase because America again would become a hub for innovation and business. Foreign
markets have proved this as, "The U.S. Treasury in effect is subsidizing investment in Ireland,"
Sullivan added. According to the 60 Minutes report, 600 American companies have moved parts
of their businesses to Ireland and those companies employ 100,000 workers there, (60 minutes).
The example of Ireland, although on a much smaller scale, proves that when the rate drops it
increases domestic investment and creates jobs. By adopting this two-step plan it would create
one flat tax that applies to all relatively large firms. This implementation of a more equal playing
field will diffuse corporations and increase market competition while raising corporate revenue.
The legislation should create bipartisan support because it will raise federal revenue, an idea
supported by both sides, and will actually lower taxes which is essential to any GOP support.
When my father first came to this country he knew that economic equality wasnt a
pipe dream but rather a realistic opportunity. But what are we supposed to tell those who still
view the American dream with idealism? The United States is now at a dangerous precipice in
which all the power could truly remain with the 1%. And the market has adjusted to this elitist
attitude. But by fixing the loopholes and dropping the overall rate the government can increase
overall revenue and competition. This could be the first step on a long road to recovery to regain
the golden reputation of innovation and opportunity that we once held dear.

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