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Look to the middle class

October 20, 2012
Cape Coral Daily Breeze

To the editor:

The fundamental issue today is our economy and its sustainable growth. Some, in error, argue that we should at first have an across-the-board tax rate cut to increase jobs and grow our economy. They fail to realize that there first must be a consumer demand to have job creation. That requisite demand is not enhanced by increasing the inequality that has been growing in the redistribution of income since 1981. It is the 95 percent that create demand, not the top 5 percent.

A report from the International Monetary Fund (INF) reviewed our two major economic crises of the past century. The great depression of 1929 and the great recession of 2007. In both, two factors preceded each occurrence. There was a great increase in income inequality and an increase in the ration of household debt to income. The poor and the middle class being increasingly hard pressed borrowed to maintain their life style. The wealthy got richer and looked for more investment bidding up investments that eventually blew up. In both 1929 and 2007 lack of financial regulation and monetary policy were factors in creating the bubble. Inequality was not just an incident of those collapses, but a source of it.

Our national debt today is almost 24 percent of our gross domestic product (GDP). At the end of WWII our debt was a higher percentage of our GDP but our top income tax rate was then 90 percent. Generally, our middle class has been growing from the end of WWII until 1981. The progressive increase in inequality followed the 1981 Reagan tax cuts. The total sum of money at any given time is an amount fixed by the Federal Reserve System. How that money is distributed influences demand for consumption. Our middle class having its home equity wiped out by the 2007 recession must be the beneficiary of our tax policy and not a tax policy that will distribute more to the top. The redistribution of income to the top the past 30 years must stop.

Arnold E. Kempe

Cape Coral



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