Deferred Liability

Indeed, the last four graduating classes have entered the worst job market in a generation. And, unlike back then, when tuition even at Ivy League schools was still reasonable and scholarships were generous, today's students are likely to graduate with tens of thousands in debt of their own, in addition to the government debt we have bequeathed them. The job market has not improved substantially and even when companies start creating jobs again, it will probably take several years to absorb all the new entrants into the labor force.

When progressive taxation was first introduced, one justification for imposing higher income tax rates on households with higher incomes was as follows: people don't earn money in a vacuum but in a particular socioeconomic system; while personal qualities such as energy, ability, education, ambition and desire to success are important, they only work in a system that rewards them. The same qualities that could make you a billionaire in America would have been useless in a feudal society, and could have landed you in jail in Communist Russia or China.

Asking higher income individuals to contribute more in taxes seemed fair. Since they are earning more than the rest of us, they should give back a larger portion of what they have earned. They have a greater stake in the system and interest in preserving it.

This simple logic has been lost in America in recent decades. We have come to regard our system — and the government that ensures its survival — as an impediment to making money, not the partner of business it has always been. Since 1982, there have been more and more rich people, indicating the system is working well. Yet, the government has been consistently starved of income, leading to a deterioration of the quality and level of services from education to transport infrastructure to space exploration.

On the other hand, it has been a splendid time to be rich in America. Tax rates have gone down, falling to 35 percent for the highest bracket after a series of George W. Bush's tax cuts in the early 2000s. Over the past decade and a half, the wealthiest 25 percent of households have enjoyed some 90 percent of the nationwide increase in net worth.

Gated Community

While not paying much for public services, the rich also have tended to avoid using them. Living in wealthy suburbs, often gated communities, sending their kids to private schools, hiring private security guards and trash collectors and traveling first class, they have increasingly shielded themselves from the deterioration of public services. The nation has been careful to preserve the defense budget, since external enemies threaten rich and poor alike.

The looming national bankruptcy is similar to an external enemy. It is not the kind of thing from which a gated community can offer protection. It is like a plane crash, in which sitting in first class is no safer than in the cheapest seat.

In the final analysis, the rich need the power of the U.S. to protect their wealth as well as the financial and economic system. This includes the dollar, financial markets, the banking system, the system of commerce and the regulatory environment. It also includes a strong international presence by the U.S. and consistent and rational foreign policy in an increasingly globalized world.

The rich will need a stable and strong U.S. because no other country can perform the role of a global leader as successfully as the U.S. has done over the past 65 years. Consider: there is hardly an individual anywhere in the world whose net worth exceeds $1 million who doesn't hold at least some assets in U.S. dollars, shares of U.S. companies or dollar-denominated bonds, most likely U.S. Treasuries. Most of the world's billionaires — and probably all billionaires in Latin America — have homes and residency permits in the U.S. It is their insurance policy against the loss of wealth and threat of physical harm.

A bankrupt U.S. will be weak and unstable. Since ultimately that will hurt this country's rich, the current debt situation will fall into their lap. They have gotten away with paying relatively little in taxes over the past decade, compared to averages since World War II, but as their accountants might say, it has merely been a deferred tax liability.