If you, the reader, are uncertain whether to support Trump or whoever the Democratic candidate turns out to be, I urge you to consider the devastating reduction in protections for clean air, clean water, and clean land (thus also clean air/water and food) under the Trump administration's 'hate anything Obama' approach that has put industry blowhards in charge of the Environmental Protection Administration, an agency created on December 2, 1970 to ensure federal research, monitoring, standard-setting and enforcement of environmental protection.
(Image of Trump at West Virginia campaign rally in August 2017, from CNBC article on Trump rollbacks of regulation, cited below)
Under Trump, we have instead a complete disregard for the environment, a view that harks back to the times when rich owners of factories, mines, or corporate farms exploited and polluted land, waters, and people in their greed for profits. For example, in July 15, 2019, the New York Times reported that the Government Accountability Office found that the administration "did not consistently ensure" that its appointees to EPA panels satisfied federal requirements. This was during 2017, when the Trump administration dismissed academic scientists from EPA advisory boards in order to replace them with industry-connected appointees. Panels that had in the past included a very high percentage (more than 80%) of academic scientists were reduced precipitously under Scott Pruitt, Trump's first EPA head. Pruitt, of course, resigned in scandal (as so many in the Trump adminsitration have done) in 2018 after loading EPA advisory panels with industry hacks . See, e.g., E.P.A. Broke Rules in Shake-Up of Science Panels, Federal Watchdog Says, NY Times, July 15, 2019; Removing Academic Scientists from Science Advisory Panels, Harvard Environmental & Energy Law Program, Feb. 26, 2018 (noting replacement of scientists with industry insiders and consultants, including a climate change skeptic, following Scott Pruitt's October 31, 2017 directive). Scientists removed from the panels refused often to be silent. For example, some formed their own air pollution panel after Andrew Wheeler, Trump's next EPA administrator, disbanded the Particulate Matter Review Panel in October 2018. It had "some of the nation's top scientists, who were tasked with reviewing how soot and other microscopic air pollutants impact human health." Rebecca Beitsch, Scientists booted from EPA panel form their own group, The Hill (Sept 26, 2019).
The Trump Administration labels environmentalists with the same type of derogatory terms that Trump uses for all of his "enemies"--i.e., almost everybody in the country that isn't loyal to the bully-in chief because they recognize his shallow, egotistical, narcissistic lack of knowledge and caring about the well-being of the country or its citizens--even while he claims with his typical bravado and fluff that his administration makes "the very cleanest air and cleanest water on the planet" a top priority. Meanwhile, Trump is busy rolling back as many environmental protections as possible. See, e.g., Emma Newburger, Trump is rolling back over 80 environmental regulations. Here are five big changes you might have missed in 2019, CNBC (Dec 24, 2019) (rollbacks including fewer protections for endangered species). Trump and other people of wealth think they can live in a cocoon of luxury that doesn't suffer damage when the earth's species die out from pesticides and pollution, when the earth's climate changes to create fires and storms hostile to life, when the earth's waters are no longer clear and drinkable by plants, animals (and humans), when the earth's land is destroyed by overlumbering, fracking, the rapacious thirst of oil drillers, and the careless destruction of mountains of surface mining. They are wrong, but they may not recognize it until too late. Trump's stupidity is thinking that he who doesn't read, hasn't studied, and doesn't care about science or life generally is suited to make decisions about wilderness or any of the myriad environmental issues facing us. He leads rallies where people become mesmerized by being part of a raving crowd, with little recognition themselves of the way the ultra rich are taking advantage of them in their daily lives. He knows nothing, and cares even less about what he doesn't know. Yet his administration continues to move to change environmental policy to favor big corporate interests and disfavor local decisionmaking. He appoints industry hacks as Interior Secretary--there was Ryan Zinke, and then extraction industry lobbyist David Bernhardt. See, e.g., Michael Greshko et al,A running list of how Trump is changing environmental policy, National Geographic, May 3, 2019 (pipeline order, David Bernhardt as Interior Secretary, safety regulations rolled back, oil and gas access to Arctic National Wildlife Refuge, Keystone XL pipeline approval, etc.). Preservation of pristine natural areas such as the Arctic Wildlife Refuge or the Big Bear Monument are eroded with no concern, so long as corporate grandees are satisfied. Trump's final budget plan, released Feb. 10, 2020, is yet another example: steep cuts to the agencies and programs that protect our climate, air, water and wildlife. See, e.g., Trump's final budget enshrines climate denial, war and cruelty into conservative manifesto, Friends of the Earth, Feb. 10, 2020.
This Trump no-holds-barred war on the environment is devastating for most Americans. The Flint water crisis, where local and state administrators made stupid decisions about switching to cheaper water without protections against lead poisoning are just an early example of what awaits the entire country under this approach. It is, as Friends of the Earth policy analyst Lukas Ross notes, "an immense moral disgrace" that is hardest on "our society's most vulnerable". Id. Communities of color, unsurprisingly given the GOP's empty rhetoric about caring about equality and justice, are the most harmed by these policies. See, e.g., Amy Patronella & Saharra Griffin, Communities of Color Bear the Brunt of Trump's Anti-Environmental Agenda, Center for American Progress, Feb. 27, 2020. That piece notes that systemic racism and segregation (including redlining of residential districts) have resulted in low-income communities and people of color being "disproportionately vulnerable" to climage change impacts of greenhouse gas emissions. The column lists key examples of Trump administration anti-environmental actions, including the following:
As the article concludes:
In the midst of this systemic elimination of federal protections and willful inaction on climate, the science is resoundingly clear: We must move to a 100 percent clean energy future with equity at the forefront. The Equitable and Just National Climate Platform, co-authored by the Center for American Progress, 12 environmental justice groups, and seven national environmental organizations, recognizes the importance of justice and equity as “central components of our climate agenda.” Additionally, it calls for “healthy climate and air quality for all” as well as “[s]afe, healthy communities and infrastructure.” All communities, particularly communities of color, can no longer afford the Trump administration’s attacks on public health and the environment.
So what does this have to do with tax policy? My friends, our tax money is currently supporting the Trump administration industrial lobbyists in their efforts to undo environmental and natural area protections across the country. This is class warfare at its heart--the lobbyists and corporate managers of the most polluting firms colluding to ensure that they can freely pollute our world without facing any liability for doing so. Our tax revenues are making it possible for Trump to fly to his own resort in Florida for which the US government pays millions in secret service guest quarters so Trump can spend most of every weekend golfing. Instead, our tax revenues should be supporting good government programs that protect our land, water and air, as well as endangered species, so that our children can enjoy a healthy life and appreciate the natural beauty of this country. Ultimately, taxes and spending are intricately entwined. Bad government--like the corrupt Trump adminsitration--means both are working to the detriment of the American people.
Not surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of that group next week in Florida when a thousand tax lawyers (give or take a few) will be talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC. Yours truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday morning, to discuss how the tax system should respond to the wealth gap. Joining me on the dais will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making Sense. We'll talk about the income and wealth gap data, including the different perspectives of Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute. We'll also discuss Sen. Ron Wyden's proposal for a mark-to-market system of capital gains taxation (including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary partner) Edward Kleinbard's Dual Business Enterprise Income Tax proposal, and other means of making the regular tax system more progressive such as rates, removing the capital gains preference, and reinvigorating the estate tax that has been the object of a GOP murder squad for the last 20-30 years at least.
Meanwhile, today in Florida there was a Tax Policy Lecture at the University of Florida on Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at the Brookings Institution.
Last fall, the Tax Policy Center held a program on Taxing Wealth (webcast recording available at this link) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson, Victoria Perry, and Alan Viard. Sony Kassam from Bloomberg Tax served as moderator. The link has a series of power point presentations from that meeting as well, for your edification.
Ian Simmons, for example, includes the letter from billionaires dated June 24, 2019, asking that "[t]he next dollar of new tax revenue should come from the most financially fortunate, not from middle-income and lower-income Americans." Such a tax "enjoys the support of a majority of Americans--Republicans, Independents, and Democrats." It's not a new idea, since all those millions of middle-income Americans who own their home "already pay a wealth tax each year in the form of property taxes on their primary form of wealth--their home." The billionaires are asking "to pay a small wealth tax on the primary source of our wealth as well"--such as Elizabeth Warren's proposal, which would tax "only 75,000 of the wealthiest families in the country" (those with assets over $50 million) and would generate an estimated $3 trillion over ten years to "fund smart investments in our future, like clean energy innovation to mitigate climate change, universal child care, student loan debt relief, infrastructure modernization, tax credits for low-income families, public health solutions, and other vital needs." All this is necessary because of the wealth gap: "[t]he top 1/10 of 1% of households now have almost as much wealth as all Americans in the bottom 90%." The signatories support a wealth tax because:
Janet Holtzblatt discussed whether wealth should be taxed, with a set of powerful powerpoint charts. As she notes, there are a number of reasons to think taxing the wealthy is a good idea because it (slide 4) :
Those not supportive (or, as JH puts it, "less optimistic") suggest that (slides 5, 7)
There are lots of issues with wealth taxes: (slides 8-20)
Greg Leiserson discussed the idea of mark-to-market taxation (an idea that Ron Wyden has endorsed), in "Taxing wealth by taxing investment income: An introduction to mark-to-market taxation" (Sept 11, 2019). The key to MTM taxation is that a tax is assessed annually on investments, whether or not they are sold or otherwise disposed of ('through a transaction that results in "realization" for federal income tax purposes). The burden of such a tax falls predominantly on the wealthy, since those are the primary owners of bonds, stocks, real estate empires, and pass-through businesses that produce investment income, as well as the appreciation of those assets that is taxed currently as a capital gain on disposition. Leiserson provides a chart (below) showing the nominal investment income of US households and nonprofits including an offset for inflation.
As he notes, much of this income is taxed at preferential capital gains rates, and much of the income tax is deferred because capital gains and losses are generally taxed only when the asset is sold. Deferral amounts to a reduction in taxes paid under time-value-of-money principles. But yet another way in which owners of investment assets escape taxation is the estate tax: appreciation in property in the estate (such as unrealized capital gains from stock that has appreciated in value significantly over decades) is never taxed, since the heirs get a step up in basis to market value, so that if the asset were then immediately sold, there would be no gain remaining.
MTM taxation eliminates the deferral advantage. MTM taxation combined with elimination of the preferential rate for capital gains would eliminate the preferential treatment of capital gains that exists in current law. Leiserson notes the difficulties for a MTM system: which assets are covered, rate of tax applied, and whether there are special rules for volatility. Further, "[i]f a comprehensive system of mark-to-market taxation is enacted, then there would be no unrealized gains at death going forward, because gains will have been taxed on an annual basis, including in the year the person dies" so long as the system applies over some transition period to gains accrued prior to enactment. Otherwise, the system would have to tax gains at death (repealing step-up in basis rule) or at any other disposition, including gifts, to ensure fair and equal treatment. He suggests other measures--such as limiting the home sales capital gain exclusion or requiring mandatory distributions of pension account balances above a threshold, that would be reasonable in a MTM context.
One difficulty with MTM taxation is valuation of assets that are not regularly traded. Ron Wyden's proposal suggests a lookback charge--an additional tax payment for assets not subject to MTM taxation that is collected upon disposition to account for the deferral value while still relying on realization as a trigger for taxation. Wyden and Leiserson suggest different possible methods. One is to take the gain upon sale and allocate it ratably to each year between purchase and sale, compute the tax on each year's income at the rate applicable in that year, and then calculate interest on those unpaid taxes for the years til payment. Unrealized gains would be deemed realized on death or gift and taxed accordingly.
Three key ideas here:
Of course, while everybody is talking about taxes, some of that talk is the same old endless market fundamentalist myth (Reaganomics) about how tax cuts are what make the economy grow and will actually pay for themselves -- in spite of near 4 decades of evidence to the contrary, where highest growth rates have generally been in times of higher tax rates, with some consideration for stimulus impact of tax cuts after periods of recessions. See, e.g., NY Times editorial, There's No Such Thing as a Free Tax Cut (Jan 22, 2020). The op-ed notes that Treasury Secretary Steven Mnuchin "repeated the risible fantasy that the Trump administration's 2017 tax cuts will bolster economic growth sufficiently for the government to recoup the revenue it lost by lowering tax rates" [in the 2017 tax legislation] even though 2 years in, the "budget deficit has topped $1 trillion." This is because, as most of us who haven't drunk the Laffer-curve tax cut kool-aid know and the Times op-ed reiterates, "businesses responded to increased demand more than they did to the lower tax rates." Nonetheless, we should not be surprised that the Trump Administration is talking about two "big ideas" for taxes if the man gets reelected: 1) cutting Medicare and Social Security: see, e.g., Trump Opens Door to Cuts to Medicare and Other Entitlement Programs, NY Times (Jan 22, 2020) and 2) passing another tax cut bill: see Steven Mnuchin Confirms Trump's New Tax Plan is Imminent, USNews (Jan 23, 2020). Those two ideas go hand in hand.
Though Trump doesn't dare state what he is really doing to his base, who he has deceived with typical right-wing rhetoric into thinking that he is trying to rightsize the economy to serve them when he instead engages in class warfare to stuff his own pockets, he is hip to hip with Newt Gingrich's desire to "starve the government" to create a huge deficit (we are up to $1 trillion in our new "gilded age economy") that then provides cover for the wealthy to suck in even more of the country's wealth by downsizing Medicare and Social Security, programs essential for those who are not among the wealthy.
Dana Chasin at 2020 Vision does a good job of encapsulating key issues that surface in the Democratic debates.
Let's get this out first: most listeners will admit that the debates seem both too long and too short, as mentioned on Stephen Henderson's Detroit Today program this Wednesday 1/15 morning. They are too short, because candidates are interrupted at the 30-second time limit and not allowed to develop nuanced, considered answers to questions. They are too long, because they go on for 2 hours. I'd add that they are problematic, because the media pundits have their own views of what creates energetic dialogue that makes good 'copy' for programming, versus the kinds of in-depth discussions about issues like climate change, health care, education, the Supreme Court, congressional oversight/checks and balances, tax policy, wealth inequality and income inequality, plutocracy and oligarchy, etc. that people want to hear.
One important distinction that Chasin notes for thinking about socio-economic programs is the distinction between means testing and universality. A means-tested program is generally available to lower-income people and often phases out and is capped at some income level beyond which it is no available. A universally offered program is one that is available to all, rich and poor alike. So the Earned Income Tax Credit is a means-tested program that is capped (too low, in my view), and Social Security is a universally available program (though there is a graduated payout scale and the funding formula caps pay-ins to the program at a ridiculously low level that means the rich pay only a pittance into the program)
As Chasin notes also, the right tends to reject universally available programs as having unreasonably high costs and allowing for free-riders. The left tends to favor universally available programs for ease of administration and--not noted by Chasin--for the collegiality and collaborativeness they can build in having rich and poor in a program together, where it cannot be dismissed as 'mere' welfare for the poor (which, as we know, often gets translated in the hands of the ultra wealthy like Mitt Romney into "handouts for 'takers' from 'makers')
Two points here about the two most progressive candidates, Bernie Sanders and Elizabeth Warren:
Quote from Sanders at the debate: "My democratic socialism says healthcare is a human right."
Quote from Warren at the debate: "The lowliest millionaire that I would tax under this wealth tax would be paying about $19 million in the first year in taxes. If he wants to send his kid to public university, then I'm okay with that."
A week ago (Jan 8, 2020), the New York Times described Michael Bloomberg's plan1 for addressing the income and wealth inequality in the United States that has been a constant topic of discussion by Democratic candidates. Briefly, as with the robber barons of Teddy Roosevelt's age, the wealth of the global commerce titans and particularly the private equity fund buyers and sellers of companies (and layers off of employees) has exploded over the last four decades in the US, beginning in earnest with Ronald Reagan's presidency. Most of the benefits of productivity gains have gone to a very few people at the top, and the bottom 50% of the wealth distribution actually owns a smaller share of the nation's wealth than 40 years ago. The top 1% have gained enormously, and the top 0.5% have been even more enriched. We have ultra multibillionaires like Jeff Bezos who can pay $9 billion to his wife in a divorce settlement and still be the wealthiest man in the world with more than $130 billion in net worth. He earns about $78.5 billion a year (counting value of his Amazon shares) or more than $6.5 billion a month2 and thus exemplifies this new "gilded age" of ultrawealthy tycoons. This exists at the same time that the Trump administration proposes work requirements that will eliminate food stamp aid for 700,000 of hungry Americans and, with other initiatives, will take food stamps from 3.7 million beneficiaries who simply cannot get work that pays well enough to fund a sustainable lifestyle for themselves and their families.3 This will "save" the U.S. about $5.5 billion over five years--less than Bezos 'earns' in a month. This disparity--$5.5 billion to feed 3.5 million hungry Americans versus provide a month's additional wealth for a person already wallowing in wealth like Jeff Bezos--is why it is clear that the US needs to figure out how to respond to the inequality crisis in order to protect American democracy and ensure Americans have a decent standard of living.
Bloomberg's plan seems to be a moderate stance like Obama and Biden that attempts to focus on factors other than the wealth gap and the accompanying power gap that wealth provides. As the NY Times reports, he "frames the economic divide primarily in regional terms--and not along ... rich-versus-everyone-else class lines."1 The Times article notes that his plan is not unlike the charge Obama gave to Joe Biden for the Middle Class Task Force.1
Bloomberg's proposals for addressing the problem are similarly centered on things long discussed and tried that are difficult to do at a large enough scale to make any inroads into the inequality problem or the power gap problem. He is most definitely not proposing a wealth tax. His proposals include a focus on education and skills training, infrastructure projects, and entrepreneurial training centers. Although the GI Bill was a significant part of the post-WWII economic boom because it allowed vast numbers of returning veterans to get a college education, Bloomberg seems to be thinking more of apprenticeships and community colleges (training for a job) rather than university (training for a career and an approach to learning throughout life). The Times notes his interest in raising the minimum wage to $15 an hour, expanding the Earned Income Tax Credit, and encouraging unions while disallowing noncompetes for low- and middle-income jobs.
All those are minimal steps that any progressive candidate should take, but while they may have marginal impact on middle class mobility, they will not do much at all to ease the income and wealth gap that has been caused by technology, globalization, and financialization of the economy together that has measured success almost solely from stock market numbers and thus allowed corporate and private equity tycoons to garner the major gains in productivity over decades while paying their workers too little (or moving offshore to pay even less), combined with a tax system that privileges wealth, including, among a host of others, extremely favorable corporate tax provisions after the 2017 tax legislation, ridiculously low maximum rates on ordinary income, carried interest provision, section 1031 exchanges, section 1202 exclusion for gains on original issue small business stock, capital gains preference, and an absurdly low flat estate tax above a too-high exemption amount with a step-up in basis for heirs.
Bloomberg is a billionaire who is at least aware that the inequality in this country is problematic and needs to be addressed. But like most of the "have-so-much" class, he shows little interest in what is truly required--a shift in the direction of redistribution to balance the distorted seesaw of billionaires getting all the height and the rest sitting at the bottom. FDR's New Deal is said to have worked because the robber barons were scared that the proletariat would rise up in support of communism--the so-called 'red scare' behind the success of social security enactment. There may not be a red scare now (though the Trump campaigners try to paint democratic socialist programs as communism), but there is a real likelihood that the contrast--and possibly real class warfare-- between the squalor and despair of poor families who work hard but cannot fend for themselves and rich kids with silver spoons that only grow bigger and bigger may eventually threaten the global nation of the plutocrats.4
1 Jim Tankersley, Michael Bloomberg's Jobs Plan is Focused on Place over Class, New York Times (Jan 8, 2020).
2 Hillary Hoffower, We did the math to calculate how much money Jeff Bezos makes in a year, month, week, day, hour, minute, and second, BusinessInsider.com (Jan 9, 2020).
3 Phil McCausland, Trump administration proposals could cause millions to lose food stamps, NBC News (Nov. 30, 2019) (discussing proposed changes to SNAP program that would impose stricter work requirements, cap deductions for utility allowances and 'reform' the way states automatically enroll families when they receive other aid). See also
4. See, e.g., Chrystia Freeland, Plutocrats: The Rise of the New Global Super-Rich (2012) (described in The Guardian book review as "a necessary and at times depressing book about the staggeringly wealthy"). Freeland is neither Marxist nor socialist, and as I am reading the book, not evenappropriately skeptical of the amount of merit behind the plutocrats' self-claimed meritocracy.
For those of you who may not have the opportunity to tune into Stephen Henderson's radio program Detroit Today on NPR, it might be useful to have a short summary of the January 9 discussion of the "wealth gap" from that program.
Background
Tax lawyers have traditionally talked of the "tax gap"1 and frequently mentioned the growing "income gap" between the top 1% of the income distribution and the remaining 99%, but the "wealth gap"2 discussion among tax lawyers, tax policy thinkers, economic analysts and indeed progressive legislators about the relative net assets of different segments of the population has become increasingly important as people have recognized the trend of increasing wealth for the top 0.1% in the US and stagnating wealth for most of the US population. The wealth gap is even more significant when race/ethnicity is taken into account: the 400 wealthiest families in 2015 owned as much as the country's entire African-American population plus 1/3 of the Latino population.4 The median white household in 2011 had about $111 thousand in wealth, while the median black household had $7 thousand and the median Latino household had $8 thousand, with the impact of slavery and post-WWII homeownership policies being the underlying source of most of the disparities.3 See also How Ameria's Vast Racial Wealth Gap Grew: By Plunder, New York Times, Aug. 14, 2019. The generational wealth gap is also worrisome: older Americans' wealth grew between 1989 and 2013 but all other age groups had their wealth decline.3 The gender wealth gap underlies the power distinction that lies at the bottom of the MeToo movement: women earn less than men for the same work at the same level, and they save less and are more likely to live in poverty in old age.
That means that children in this country born to families in the top 10% of the wealth distribution have enormous advantages from birth: they are essentially guaranteed the best medical, educational, and institutional support imaginable, with every opportunity for learning and advancement laid before them. Their parents can afford to ensure they are able to get into top colleges (e.g., Harvard alumni preferences for their children), meet the "right" people for success in their preferred field (the "connections" that wealthy families build), take a preferred non-paying internship in another city with family funds supporting living expenses and more, all the way up the ladders of success. Children born into families in the bottom half of the wealth distribution face a struggle at every point along that ladder: schools that are inadequately funded after decades of Republican concentration on assessment and hurdles rather than support and educational opportunities; lack of exposure to different possibilities and the people who can open doors into those possibilities; lack of funding to make it possible to accept an opportunity when it presents itself.
These wealth disparities don't just impact these choices--they also affect aging parents who have inadequate retirement savings, young adults who have inadequate resources to deal with sudden medical emergencies, or aspiring students who get tangled in the payday loan vicious cycle of ever-escalating interest payments. And the wealth gap is compounded by at least three key components of the US federal tax system:
The wealth gap has in some sense always existed, but it is increasing5 and today begins to look like the Gilded Age before the Great Depression. While the tax system isn't solely responsible for the increasing wealth gap in this country, it has played a significant role in aggravating the problem and thus deserves focussed attention as a matter of tax policy.
Key Points from Dan Shaviro's Interview
Dan noted that the wealth gap had its beginning in the 19th century when the government didn't respond to increasing disparities. The progressive era under Roosevelt and Wilson, then the New Deal era under FDR did see some reduction in the wealth gap, much of which could be attributed to the reduction in wealth because of the stock market crash and the Great Depression.
As wealth increases, power increases. Even proposals that have huge public support are rejected by Congress--including the idea that corporations and the wealthy should be taxed more.
Finding policies to ameliorate this current situation is not easy. There are a variety of ideas--Warren and Sanders have proposed wealth taxes, though there are constitutionality concerns that might defeat such a tax given the current conservative Supreme Court. And a wealth tax won't solve all the problems of inequality. Other ideas include more progressive income taxes or a mark-to-market system of taxing appreciation of capital assets.
The reasons for attempting to address the wealth gap are many, and include the need for better transportation, health care, education, end of life and geriatric care, etc.
We live in a capitalist system, but markets don't work well for addressing all problems. In particular, they don't work well for the kinds of things that are so important like health care and education.
Any transition, of course, will be very difficult. The top 10% own 77% of the wealth while the bottom 50% own less than 2%. Those with financial wealth live very well indeed, since that wealth isn't taxed til it is used and may never be taxed.
Key Points from Timothy Smeeding's Interview
Understanding the wealth gap is critical, because wealth provides a "cushion for consequential life moments" such as when a parent covers a child's tuition or supports the child in their first apartment in a different city.
Deciding how to respond to the wealth gap is difficult, but various possibilities exist, including a wealth tax, a reinvigorated estate tax, elimination of the capital gains preferential rate compared to ordinary income, elimination of the carried interest provision that allows private equity managers to be compensated with capital gains at a 23.8% rate rather than a 38% plus 3.8% rate and avoid paying social security taxes, elimination of the one-time exclusion for capital gains on sales of residences, etc
There are many important institutional advantages that can better lives as well, especially providing access to health care and to university education.
Responding to a question about labor, Smeeding notes that unions will be important in areas such as the public sector, nursing, education. But in the corporate context, an important change might be to consider bringing a labor voice to corporations' Boards of Directors. Other possibilities are to reward corporations that reward their employees: a tax break that goes only to corporations that raise their employees' wages, for example.
1 Generally speaking, the tax gap is the difference between the tax burden owed and tax liabilities acknowledged and paid and thus provides some understandable standard for judging trends in compliance by taxpayers with their federal tax obligations. It is calculated periodically by the IRS and published on the website. See The Tax Gap; IR 2019-159 (Sept 26, 2019), The 2019 document provides estimates for tax years 2011 through 2013 and shows an estimated average gross tax gap of $441 billion per year which, after enforcement efforts and late payments, yields a fibure of $381 billion a year.
2 See, e.g., Lola Fadulu, Study Shows Income Gap between Rich and Poor Keeps Growing, With Deadly Effects, New York Times (Sept. 10, 2019) (summarizing research from the U.S. Government Accountability Office in August 2019 entitled Retirement Security: Income and Wealth Disparities Continue Through Old Age); St. Louis Federal Reserve Bank Open Vault Blog, What Wealth Inequality in America Looks Like: Key Facts and Figures (Aug 14, 2019) (showing income distribution from 1989 to 2016 (before the impact of the highly distortive 2017 tax legislation) skewed to favor the top 10% of income earners at the expense of the bottom 90%).
3 See, e.g., Amelta Josephson, What is the Wealth Gap? SmartAsset.com (Jul 23, 2019) (noting that the CBO's 2013 wealth data showed a figure of $67 trillion for total family wealth, with the top 10% of families holding 76% of that total wealth (and having incomes of $942,000 a year or more).
4 See, e.g., Institute for Policy Studies, 2015.
5 See, e.g., Pedro Nicolaci da Costa, America's Humongous Wealth Gap is Widening Further, Forbes (May 29, 2019). Noting that "distribution is everything" in response to proclamations that the economy is healthy because of stock market trends or eomployment numbers, the article states that "a steady economic expansion and historically low jobless rate can mask deep inequalities in income and wealth that leave American families in vastly different financial situations." It relies on a recent Federal Reserve Bank (Fed) report that shows that the poorest 50% are "getting crushed" by "rising inequalities." The increase in net worth since 1989 (growing almost 4X the prior figure) has accrued mostly to the top of the distribution, with the bottom 50% seeing essentially zero net gains in wealth over 30 years. Figure 2 from the article is duplicated below.
Remember how Trump sold the Republicans' $1.5 trillion-deficit-creating tax cut plan as a boon for the middle class that was going to create jobs and raise wages? That was in September, when he told congressional lawmakers at the White House that "The rich will not be gaining at all with this plan." See Washington Examiner (Sept. 13, 2017).
Let me repeat that: Trump said "The rich will not be gaining at all with this plan." (emphasis added)
No tax lawyer or professor believed that statement. Nobody that knew anything about the early drafts of the bill believed that statement. But quite a few Trump supporters have believed that statement.
It wasn't true. It was a bald-faced lie, and Trump knew it was a bald-faced lie. He has no trouble making such lies and does it multiple times a day. But this one was both manipulative and deceptive. Manipulative, because it helped to prevent any outcry from his core supporters that might have caused a Senate vote loss. Deceptive, because it was intended to mislead, as so much of what this man does in the office of the President.
Trump made absolutely clear what he really is proud of at his holiday golfing retreat at Mar-a-Lago, where memberships now cost $200,000 (were $100,000 before they counted as access to the Presidency) and members are part of the oligarchic ultra rich set that Trump so adores. Here's what he told them just before Christmas: "you all just got a lot richer" from the passage of the Republican tax cut legislation. See Bobic, Trump Told Friends 'You All Just Got a Lot Richer" From Tax Bill: Report, HuffPost (Dec. 24, 2017).
So September, Trump is claiming that the rich won't gain a thing from the tax cut but come December, Trump is boasting about how much richer the rich got from the tax cut.
Next up? The Republicans who didn't care if they created a $1.5 trillion deficit with their tax cuts for the rich now whine about the dreadful deficit (that they created) and the oh so shocking necessity, now, of cutting back on
See, e.g., Jeff Stein, Ryan says Republicans to target welfare, Medicare, Medicaid spending in 2018, Washington Post (Dec. 6, 2017) ("Republicans will aim next year to reduce spending on both federal health care and anti-poverty programs, citing the need to reduce America's deficit"); Republicans are headed for a collision in 2018, Business INsider (defunding Social Security or funding infrastructure).
And of course Trump is all in favor of cutting spending on ordinary Americans and the poor. As the article in WaPo notes, "Trump recently called on Congress to move to cut welfare spending after the tax bill." (emphasis added) Ryan says Republicans to target welfare, Medicare, Medicaid spending in 2018
That, my friends, is the kind of character we have in the White House--a man who doesn't give a damn about the ordinary people that put him in office, except when it comes to stirring up their hatred of "liberals" so that they will keep voting for him under his claimed (but false) "conservative" mantle, a man who cavorts with the ultra-elite and caters to their every need and doesn't give a damn whether they pollute our air, water, or land or destroy our public lands and oceans and wilderness areas and sacred places; a man who is as two-faced as they come--claiming no benefit from his tax cut bill and then boasting about how much richer the rich get from the bill.
And it is also the kind of so-called "leader" we have in Congress-. There's multi-millionaire Paul Ryan--p who wants to cut Medicare because it "has been my big thing for many, many years." His Ayn Rand callousness is coming to the fore. And there's (for now) multi-millionaire Orrin Hatch, who attacked programs for the poor as "wasting America's money." Id. Hatch may well be replaced by multi-millionaire Mitt Romney, who thinks anybody that isn't in the upper class economically is just a wasteful "taker" while it is the rich people that really count. (I've got news for Romney--without those hard workers at the bottom of the income scale, this country would NOT be great.) Romney's not really much different from Trump, just less crass about it when in public.
These rich Republicans are part of the new oligarchy pent on class warfare against the poor and middle class that they disdain while waving the flag and pretending they love their low-income voters. Nah, they just love the votes. They don't give a damn about anyone but themselves, and they are set on a course to destroy all the common decency that this country has established over the years, the core of moral fiber that is really what makes America great.
When right-wing Roy Moore said that the time when America was great was during slavery, he revealed something key to the current GOP members of Congress and state legislatures--their primary goal is to return to a time when owners of property held all the keys to the kingdom and workers were just serfs expected to do as told and whose lives didn't really matter much to the boss capitalists.
Historian Nancy MacLean suggests that this is the reason for the tax bill's largesse to corporatists and the wealthy, the reason the GOP wants to undo Medicaid, Medicare, Social Security and essentially all the progressive programs introduced in the twentieth century to form the basis for a thriving middle class and surging democratic union. See Cahuncey DeVega, Historian Nancy MacLean on the right's ultimate goal: rolling back the 20th century, Salon.com (Dec. 13, 2017).
Here are some key points from the article.
1) "[T]he Democratic Party is terrible at translating complex questions of public policy into simple narratives that evoke emotion and, in turn, action from the American people." Id.
Indeed, having an able, sympathetic messenger who can translate the issues that truly matter into terms that make sense to ordinary people is something the Democratic Party lacked in the last election. The tone deafness of Debbie Wasserman Schultz and, much of the time, Hillary Clinton, meant that ordinary people didn't understand that Trump is merely a blowhard capitalist who doesn't care if he cheats or lies or exploits other people so long as he gets notoriety and money, while the Democrats have been the party working for a decent sustainable economy, environmental protection and preservation, protection from pollution and diseases, and working wages for ordinary folk.
The GOP, on the other hand, has mastered the art of lying to the point that they can pat themselves on the back for fooling the majority of the people the majority of the time, while blaming anything that goes wrong on Democrats (even when it is--most of the time--entirely GOP policy that the 'wrong' occur). So a tax bill that enriches the oligarchs and ultimately raises taxes on the ordinary people is exactly what they have in mind, but they rush it through without any public hearings and discussion because they don't want people to realize it.
2) The GOP tax "reform" bill is intended to create a deficit that will justify "huge automatic cuts to Medicare, Social Security and Medicaid", to be followed by a "push for a constitutional convention, at which the No. 1 agenda item will be a balanced budget amendment" with the goal ultimately of privatizing Social Security.
MacLean calls this Ayn Rand-brand of hateful thinking followed by GOP House majority leader Paul Ryan "economic eugenics". Since the GOP right-wing libertarians believe that only people who are successful have any merit, they are comfortable "inflict[ing] harm on other people. At its most basic, this libertarian moral system says that it would be better for people to die than to get health care financed by government from taxes paid by others."
3)The GOP emphasis on voter fraud (and consequent efforts across the country to make it harder for people to register to vote or to actually vote) allows the oligarch-led anti-democratic movement to disregard the will of the people because they have "gamed the system to maintain power."
The majority of Americans opposed the tax bill that almost every single Republican representative and senator voted for (no Democrat voted in either house of Congress to support the GOP tax scam). But the GOP legislators think they can ignore what the voters want, because they have held discussions behind closed doors, and are "using the power of national government to prevent voters in more progressive lcoalities and states from being able to choose more progressive policies" by enacting a bill that penalizes voters living in high-tax, progressive states that actually already send more money to low-tax, economically suffering "red" states.
MacLean notes that George Mason University's Mercatus Center, funded by Charles Koch, has been leveraging universities for their political project of undoing progressiivism for decades. They think people will be "absorbed with Facebook and binge-watching Netflix" so will disregard the way that the GOP and their oligarchic allies are using the national government to return to the late 19th century when oligarchs with property had all the power. That's what is the "stealth nature of this tax bill." Returning to a world where "only the wealthy were doing well and everybody else was screwed", a world preferred by James Buchanana, who "devised the playbook that the Koch network is using."
This tax legislation is, indeed, class warfare. It represents a huge blow in favor of wealthy corporatists though creation of a gaping $1.5 trillion deficit hole that will be used by the GOP to decimate New Deal and Great Society programs on which most ordinary Americans depend --Medicaid to pay for nursing homes in the last years of life, Medicare to help afford needed medical care, Social Security to make up for the gap between the meager savings in retirement plans and the increasing costs of living after retirement. These wealthy people in Congress just don't give a damn for ordinary working Americans, whether black or white, rural or urban, "conservative" or "liberal". All they care about is making sure that people with property have even more property. It has nothing to do with creating or promoting a sustainable economy that will lift ordinary workers stagnated wages. It has everything to do with appeasing the top one percent.
The GOP's tax-complicating, deficit-increasing, wealthy-subsidizing, Arctic destroying, Health Care damaging, $1.5 trillion tax "reform" package is unpopular with most Americans, destructive to the government's ability to fund needed programs from disease prevention to FEMA to basic research to needed infrastructure improvements, and wildly popular with the wealthy GOP donors like the (oil-rich) Koch Brothers, the Mercers, the Wal-Mart heirs, etc.
So why did GOP representatives and senators vote for this bill that most of them hadn't read and didn't understand? Back in early November, one Republican in the House was surprisingly honest about his reason: his wealthy GOP donors told him to get the tax bill (that favors the wealthy) passed or don't ask for campaign assistance. See Bob Bryan, Top GOP Congressman: my donors told me to get the tax bill passed or 'don't ever call me again', Business Insider (Nov. 7, 2017).
The House passed the awful "tax complication bill of 2017" on Tuesday. The Senate had to make a few changes because it didn't comply with the Byrd rules, and then will presumably pass it today. It'll go back to the House where the HOuse will then take the final vote on the Senate changes and send it to Mr. Trump for signature.
The GOP will claim that they have singlehandedly put together a marvelous tax cut package for the middle class. That is a pack of lies.
The tax cut package redistributes upwards--it is a marvelous cut for the wealthy (the estate tax reductions costing about $200 billion over ten years, the corporate tax reductions (including increased incentives for offshoring while lowering the top corporate tax statutory rate (higher than most corporations ever paid) to 21% from 35%, the lowering of the top individual rate from 39.6% to 37%, and a 20% "deduction" from taxable income for "qualified business income" for owners of businesses (whereas workers with the same earned income don't get that nice little subsidy, based, it appears, on Mitt Romney's keen disregard for the large group of American workers and working poor that he labelled "takers" compared to the regard he had for the wealthy capitalists, who he labelled "makers", etc.). It is a piddling cut for most non-wealthy individual Americans, especially those who live in "blue" states and already contribute more tax money to the federal government that is transferred to "red" states. And the corporate tax cuts are permanent while the individual tax cuts go away at various times over the next decade.
What's more, it is rather doubtful that most of those voting for this bill in the House and Senate even know what is in it or how it will impact different types of families and workers. The Huffington Post reported that several GOP congressmen couldn't say what the bill's new tax brackets were hours before they voted to pass it. See Matt Fuller, Twitter Account (asked Kevin Brady to name them, said he could, but either wouldn't or couldn't, and 11 others couldn't). And mostly they disregarded the overwhelming majority of Americans who are against more tax breaks for the wealthy and big corporations.
This bill is being rammed through without hearings, without a proper Treasury analysis, without the kind of in-depth thinking that is necessary for the many wrinkles that can develop from hasty tax drafting, and with a complete disregard for anyone who has any reasonable objections. Republicans complained about the passage of the Obamacare bill, but they were in on all the committee meetings, they actually impacted the bill in many ways, there were hearings, there were texts of the bills for discussion, and it was just their decision to vote no en bloc. Democrats were closed out of all the meetings on this bill except for one "pro forma" public "hearing" that didn't allow for any real discussion. That is not the way a good democracy works--it is ideology not policy making.
What a shame. I assume that the Democratic "resistance" movement will continue to gain steam, as it did with Doug Jones' election and the surprise tied Virginia House of Delegates outcome. I wouldn't have bet that this bill would have any positive impact on corporate growth even if the result had been bipartisan. But I bet now that most corporations will be unlikely to treat the bill as "certain" tax law given the current anti-Trump climate in this country. The bill has even less of a chance of leading to economic growth at anywhere near the stellar rates that Steve Mnunchin and Paul Ryan have gambled on than it did earlier in its consideration.
The Republicans, after holding one sham "public hearing" on their conference bill (without any text released) have on late Friday released the text of their (Republicans only) agreed-upon final bill that will be put to a House and Senate vote as early as Tuesday, December 19, even though there is no score from the Congressional Budget Office or analysis from the Joint Committee on Taxation.
Here's the link to the 1097 pages of the tax bill:
http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf
Here's the link to the 570 pages of the Joint Conference explanation:
http://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf
(Hat tip to Ellen Aprill for sharing the links with tax professors as soon as they became available.)
As a Vox article announcing the release notes, "the bill is a far cry from the simplified tax code that Republicans have long been promising, but it is a substantial reshaping of the nation's tax base." Tara Golshan, Full Text: Republicans unveil their final tax bill (Dec. 15, 2017 6:05 pm EST).