CLICK HERE TO READ COMMENTARY "IT'S THE TAX CUTS, STUPID!
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Citations and footnotes available online at https://www.drdaviddemers.com/greed.html)
Commentary
Did Greed Create America’s Massive Wealth Gaps?
1,278 words
By David Demers*
When President Ronald Reagan peddled his 1981 tax cut bill to the American people, he wasn’t completely truthful.
“Our bill calls for a 5-percent reduction in the income tax rates by October 1st, a 10-percent reduction beginning July 1st, 1982, and another 10-percent cut a year later, a 25-percent total reduction over three years,” he said on July 27, 1981.
Those statistics represented the average cuts for all Americans.
What he failed to mention is that the earned income tax reduction for wealthy Americans was three times bigger. The top tax bracket rate was cut from 70 percent to 50 percent, a 29-percent reduction.
Five years later, in 1986, Reagan and Congress cut the top rate again, from 50 percent to 28 percent, which represented a whopping 60 percent reduction for the wealthy.
He and his administration asserted that all of these tax cuts would increase tax revenues, even though economists and the Congressional Budget Office told him the tax cuts would reduce, not increase, revenues. And fall they did, about $600 billion over the next four years.
The tax cuts had two major effects. They helped boost the national debt by $1.6 trillion and they created the largest wealth gaps in history at that time.
When Reagan introduced the 1981 tax bill, he promised that “the only special interest that we will serve is the interest of all the people.”
But were the tax cuts an act of selflessness or greed?
The Origins of Greed
Greed is an intense desire for something, especially wealth, power, sex, or status.
Greed is usually thought of as undesirable trait. Proverbs 15:27 says that “he who is greedy for gain troubles his own house, but he who hates bribes will live.”
Yet one could argue that greed (or self-interest) does not always produce undesirable outcomes.
When the fictional character Gordon Gekko (played by Michael Douglas in the 1987 movie “Wall Street”) declares to investors that “greed ... is good,” he’s actually providing moral support for eighteenth-century British economist Adam Smith’s theory of free-market capitalism. People and companies acting in their own (greedy) economic self-interest produce a common good, which is wealth and prosperity for all.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” Smith famously wrote, “but from their regard to their own interest.”
Greed is only undesirable when it hurts innocent people, like taxpayers, employees, stockholders, and family and friends. Every year, thousands of people are arrested and convicted for embezzlement, real estate fraud, identify theft, investment fraud, medical fraud, murder-for-hire, insurance fraud, money laundering, credit card fraud, political payoffs, and internet fraud, and political payoffs.
Greed is widespread, even though our teachers, parents, religious leaders, and movies constantly teach us that it is bad.
So why does greed persist?
Greed Feels Good
“When we succeed, we feel good,” says Andrew Lo, a Massachusetts Institute of Technology professor who studies neuroscience and economics. “When we gather resources, we feel good. And because we feel good, we want more.”
When people acquire resources, he adds, chemicals are released in the brain that are pleasurable. Greed is the addiction to that pleasure.
A study at Carnegie Mellon University found that greed is the main reason people accept bribes, not a willingness to return a favor. “Our results suggest that policy interventions that focus on increasing the moral costs ... and limit the scope for self-serving biases may provide a successful way to reduce the effectiveness of bribes,” said professor Silvia Saccardo, one of the study’s researchers.
Other factors that dampen the effects of greed are social norms and values. People who grow up in environments where teachers and parents instill in them law-abiding principles and morals are less likely to accept bribes.
“The more somebody thinks that his or her integrity is non-negotiable, the less likely this individual is to engage in bribery,” writes a group of European scholars. “By accepting the bribe, you violate your self-image of integrity and incorruptibility.”
Yet even principled people can jump on the greed bandwagon.
Research on Greed
In fact, an Earnst & Young survey of corporate executives around the world in 2012 found that 15 percent are willing to pay bribes in order to keep or win business. Another 4 percent would be willing to misstate financial performance records. Bribery is also an institutionalized form of business in many countries, including China, Zimbabwe, Kenya, Bolivia, and Bangladesh.
Money is usually the most-used incentive in bribery, which involves persuading someone to act in one’s favor, typically illegally or dishonestly. Other incentives include vacations, admiration, awards, and prestige.
Research shows that individuals are more likely to accept bribes when they believe that act is not immoral, when it’s justifiable, and when others around them engage in the corruption. When other people are accepting bribes, people tend to see bribery as normalized. Everyone else is doing it and getting rich, so why not me?
When people accept bribes, especially those who think of themselves as principled, they often feel guilt and shame. They experience what social psychologists call “cognitive dissonance.” Their behavior is at odds with some of their values and principles, and it’s difficult to resolve the internal discord. So many of them try to rationalize their behavior. “I had to do it because I would lose my job and my house.” “I didn’t do it for me, I did it for my family. They deserve to have a better life.”
Yet these excuses don’t always reduce or eliminate the guilt and shame. Lawbreakers often suffer from depression, and if they are caught, can be sent to prison. They not only lose power and respect from others, they can lose their families and way of life, from which it is often difficult to recover.
Economists often argue that people engage in corrupt behavior after a rational process of calculating the benefits and costs. But research on bribery and corruption shows that a person’s commitment to principles is more important. The stronger the principles, the less they are likely to break the law.
So Was Reagan Greedy?
Proving in a court of law that greed was the prime motivator behind the massive tax cuts proposed by Reagan and later by George W. Bush and Donald Trump would be difficult. After all, none of them or other proponents of the tax cuts has ever admitted that greed motivated them.
But the circumstantial evidence is stacked heavily against them. All three presidents benefited financially from their tax cut bills, through their tax filings and through the donations they received from well-heeled constituents.
All three presidents also said the tax cuts would generate more tax revenue even though the scientific research had showed that the tax cuts did not work and the benefits did not trickle down to working-class Americans. Today the wealthiest 10 percent of Americans have an average of $3.5 million in assets compared with $14,000 for the bottom 50 percent.
The $34 trillion national debt today largely stems from the tax cuts initiated in those three administrations. And government over-spending is not to blame. When controlling for inflation, federal expenditures have increased at an annualized rate of only 2.3 percent per year.
The bottom line is that national debt is funding the greatest transfer of wealth to the wealthy in history.
If the federal government fails to increase taxes on the wealthy, the national debt will double in 10 years, according to my estimates. At that time, the debt will be twice as high as the gross national product, which is the tipping point for financial disaster, according to the Wharton School at the University of Pennsylvania.
Greed is not always good.
*Dr. David Demers is author of Falling Behind: Why Wealth Gaps Are Preventing You and Half of America from Getting Ahead, which will be published in 2025. He has written two dozen books and worked as a professor of communication and sociology at Washington State University before retiring to spend more time writing books. He lives in Phoenix. Portions of the book are available online at https://www.DrDavidDemers.com He can be reached at [email protected] or [email protected]
Please forward to interested individuals (Public domain - free to republish)
Citations and footnotes available online at https://www.drdaviddemers.com/greed.html)
Commentary
Did Greed Create America’s Massive Wealth Gaps?
1,278 words
By David Demers*
When President Ronald Reagan peddled his 1981 tax cut bill to the American people, he wasn’t completely truthful.
“Our bill calls for a 5-percent reduction in the income tax rates by October 1st, a 10-percent reduction beginning July 1st, 1982, and another 10-percent cut a year later, a 25-percent total reduction over three years,” he said on July 27, 1981.
Those statistics represented the average cuts for all Americans.
What he failed to mention is that the earned income tax reduction for wealthy Americans was three times bigger. The top tax bracket rate was cut from 70 percent to 50 percent, a 29-percent reduction.
Five years later, in 1986, Reagan and Congress cut the top rate again, from 50 percent to 28 percent, which represented a whopping 60 percent reduction for the wealthy.
He and his administration asserted that all of these tax cuts would increase tax revenues, even though economists and the Congressional Budget Office told him the tax cuts would reduce, not increase, revenues. And fall they did, about $600 billion over the next four years.
The tax cuts had two major effects. They helped boost the national debt by $1.6 trillion and they created the largest wealth gaps in history at that time.
When Reagan introduced the 1981 tax bill, he promised that “the only special interest that we will serve is the interest of all the people.”
But were the tax cuts an act of selflessness or greed?
The Origins of Greed
Greed is an intense desire for something, especially wealth, power, sex, or status.
Greed is usually thought of as undesirable trait. Proverbs 15:27 says that “he who is greedy for gain troubles his own house, but he who hates bribes will live.”
Yet one could argue that greed (or self-interest) does not always produce undesirable outcomes.
When the fictional character Gordon Gekko (played by Michael Douglas in the 1987 movie “Wall Street”) declares to investors that “greed ... is good,” he’s actually providing moral support for eighteenth-century British economist Adam Smith’s theory of free-market capitalism. People and companies acting in their own (greedy) economic self-interest produce a common good, which is wealth and prosperity for all.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” Smith famously wrote, “but from their regard to their own interest.”
Greed is only undesirable when it hurts innocent people, like taxpayers, employees, stockholders, and family and friends. Every year, thousands of people are arrested and convicted for embezzlement, real estate fraud, identify theft, investment fraud, medical fraud, murder-for-hire, insurance fraud, money laundering, credit card fraud, political payoffs, and internet fraud, and political payoffs.
Greed is widespread, even though our teachers, parents, religious leaders, and movies constantly teach us that it is bad.
So why does greed persist?
Greed Feels Good
“When we succeed, we feel good,” says Andrew Lo, a Massachusetts Institute of Technology professor who studies neuroscience and economics. “When we gather resources, we feel good. And because we feel good, we want more.”
When people acquire resources, he adds, chemicals are released in the brain that are pleasurable. Greed is the addiction to that pleasure.
A study at Carnegie Mellon University found that greed is the main reason people accept bribes, not a willingness to return a favor. “Our results suggest that policy interventions that focus on increasing the moral costs ... and limit the scope for self-serving biases may provide a successful way to reduce the effectiveness of bribes,” said professor Silvia Saccardo, one of the study’s researchers.
Other factors that dampen the effects of greed are social norms and values. People who grow up in environments where teachers and parents instill in them law-abiding principles and morals are less likely to accept bribes.
“The more somebody thinks that his or her integrity is non-negotiable, the less likely this individual is to engage in bribery,” writes a group of European scholars. “By accepting the bribe, you violate your self-image of integrity and incorruptibility.”
Yet even principled people can jump on the greed bandwagon.
Research on Greed
In fact, an Earnst & Young survey of corporate executives around the world in 2012 found that 15 percent are willing to pay bribes in order to keep or win business. Another 4 percent would be willing to misstate financial performance records. Bribery is also an institutionalized form of business in many countries, including China, Zimbabwe, Kenya, Bolivia, and Bangladesh.
Money is usually the most-used incentive in bribery, which involves persuading someone to act in one’s favor, typically illegally or dishonestly. Other incentives include vacations, admiration, awards, and prestige.
Research shows that individuals are more likely to accept bribes when they believe that act is not immoral, when it’s justifiable, and when others around them engage in the corruption. When other people are accepting bribes, people tend to see bribery as normalized. Everyone else is doing it and getting rich, so why not me?
When people accept bribes, especially those who think of themselves as principled, they often feel guilt and shame. They experience what social psychologists call “cognitive dissonance.” Their behavior is at odds with some of their values and principles, and it’s difficult to resolve the internal discord. So many of them try to rationalize their behavior. “I had to do it because I would lose my job and my house.” “I didn’t do it for me, I did it for my family. They deserve to have a better life.”
Yet these excuses don’t always reduce or eliminate the guilt and shame. Lawbreakers often suffer from depression, and if they are caught, can be sent to prison. They not only lose power and respect from others, they can lose their families and way of life, from which it is often difficult to recover.
Economists often argue that people engage in corrupt behavior after a rational process of calculating the benefits and costs. But research on bribery and corruption shows that a person’s commitment to principles is more important. The stronger the principles, the less they are likely to break the law.
So Was Reagan Greedy?
Proving in a court of law that greed was the prime motivator behind the massive tax cuts proposed by Reagan and later by George W. Bush and Donald Trump would be difficult. After all, none of them or other proponents of the tax cuts has ever admitted that greed motivated them.
But the circumstantial evidence is stacked heavily against them. All three presidents benefited financially from their tax cut bills, through their tax filings and through the donations they received from well-heeled constituents.
All three presidents also said the tax cuts would generate more tax revenue even though the scientific research had showed that the tax cuts did not work and the benefits did not trickle down to working-class Americans. Today the wealthiest 10 percent of Americans have an average of $3.5 million in assets compared with $14,000 for the bottom 50 percent.
The $34 trillion national debt today largely stems from the tax cuts initiated in those three administrations. And government over-spending is not to blame. When controlling for inflation, federal expenditures have increased at an annualized rate of only 2.3 percent per year.
The bottom line is that national debt is funding the greatest transfer of wealth to the wealthy in history.
If the federal government fails to increase taxes on the wealthy, the national debt will double in 10 years, according to my estimates. At that time, the debt will be twice as high as the gross national product, which is the tipping point for financial disaster, according to the Wharton School at the University of Pennsylvania.
Greed is not always good.
*Dr. David Demers is author of Falling Behind: Why Wealth Gaps Are Preventing You and Half of America from Getting Ahead, which will be published in 2025. He has written two dozen books and worked as a professor of communication and sociology at Washington State University before retiring to spend more time writing books. He lives in Phoenix. Portions of the book are available online at https://www.DrDavidDemers.com He can be reached at [email protected] or [email protected]