What Happened to the American Dream?

The problem with Mitt Romney's taxes isn't Mitt Romney. He shouldn't be considered a bad person because he works to make a profit, is successful, and pays the legal tax rate on his earnings.

The problem is that if elected, he is not likely to change that particular tax rate structure and improve America's economy.

American capitalism was once based on what was known globally as "the American Dream". It was based on the founding fathers' meritocratic ideals: incentives were built into the system such that people would want to work hard; then society would reap the benefits of the hard work of its citizens.

Those meritocratic incentives had two pillars to them: equal opportunity at the starting gate, and then a competitive environment that would reward merit (a combination of talent and hard work). The human instinct for the pursuit of happiness would take care of the rest.

Equal opportunity means all citizens should have access to the basic tools needed to compete, things like freedom, protection from violence, an education.

Then, a competitive environment with rewards is needed. Soviet communism didn't work because without rewards people don't have a reason to work, to bring forth new ideas, to build. The measure of whether a society has a functional reward system is social mobility; the more people are changing their level of wealth (for better or for worse), the more the society has incentives in place that reward merit. Societies with high levels of social mobility tend to also have high levels of economic growth, such as China today.

Back to Mitt Romney's 15% tax rate. Studies are showing that social mobility has slipped in America. It is harder than it used to be to improve one's status. The 1% are hoarding the wealth, hanging onto it and making it grow for them by lobbying, powerfully, to pay lower tax rates than the middle class (with notable exceptions like Warren Buffett). The rich-poor gap is increasing. The education divide is increasing. Equal opportunity has gotten lost, and the reward system (falsified lately by easy credit, leading to broken dreams) is distorted and dysfunctional.

Tax rates really need to be fair, and need to be structured precisely around a study of how progressive they can be to provide both equal opportunity and rewards for hard work. The American Dream needs to be brought back, and then the economy will work again too.