ataxingmatter

Everybody's Talkin' 'Bout Taxes--especially Wealth Taxes and Mark-to-Market of Capital Gains

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:

• it's a powerful tool for solving our climate crisis
• it's an economic winner for America through increased public investments
• it will make Americans healthier, addressing the difference in longevity (15 years) between the richest and the poorest Americans
• It's fair -- "[t]axing extraordinary wealth should be a greater priority than taxing hard work."
• It strengthens American freedom and democracy, since high levels of economic inequality lead to political power and pluotocracy and higher levels of distrust in democratic institutions
• It is patriotic -- 'The richest 1/10 of the richest 1% should be proud to pay a bit more of our fortune forward to America's future."

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) :

• curbs the accumulation of power that comes with the accumulation of wealth--and, I will add, this is power to get laws and regulations written in your favor, including tax laws, as well as power that allows pollution, rent-seeking, on-demand schedules for workers and other 'evils' that come with plutocracy
• ensures that the wealth pay their fair share of taxes
• finances new initiatives (child care, student debt relieve, climate change policies, housing initiatives)
• provides better data for research on wealth inequality

Those not supportive (or, as JH puts it, "less optimistic") suggest that (slides 5, 7)

• even with a wealth tax, the rich remain the richest and the most powerful
• incremental changes to current tax system would be more easily implemented
• wealth taxes would have a negative impact on savings, investment, entrepreneurship
• wealth taxes won't raise as much revenue as claimed
• OECD countries with wealth taxes haven't been all that successful (in 1990 12 had them, in 2018 only 3 still retained wealth taxes: Norway, Switzerland, and Spain)

There are lots of issues with wealth taxes: (slides 8-20)

• on what assets
• at what rate (tax burden will depend partly on rate of returns on investments
• using what exemption threshold (liquidity constraints at lower thresholds; taxing  middle income instead of wealthy)
• using what means to prevent tax avoidance (dependents' wealth with parents? include assets in family-run foundations? restrictive limits for trusts? exit taxes?)
• and tax evasion (enhance IRS enforcement, enhance penalties, enhance IRS access to third party data--but the wealthy have resources to battle IRS claims)
• assuming what actual amounts of tax revenues could be raised ("street fights over revenue estimates...among top public finance economists") (Slide 15)
  • how much wealth is there?  JH notes several 2016 estimates between 86.9 trillion and 101.2 trillion (slides 16-17) {Zucman  says just under $115 trillion]
    
    • Fed Reserve Survey of Consumer Finance ( 3 year intervals; leaves out Forbes 400 and some pension wealth)
    • estate tax data (adjusted for mortality probabilities and population)
    • income tax data (capitalized using assumed rates of returns)
  • how is that wealth distributed between the top 0.1% and the rest?  Bricker 2016 study estimates range from about 15% to 22%  (Slide 18)
  • how much wealth is hidden by "tax net misreporting rates"?  IRS 2016 misreporting: farms 71%; nonfarm proprietors 64%; CGs 27%; PS/SCorps/Estates/Trusts 16%  (slide 19)
  • how much tax revenues?  between 815 billion and  1.098 trillion between 2021-2030 (slide 22, Urban-Brookings TPC Microsimulation Model [ with lower thresholds and rates than those proposed by Warren]
  • who pays?  40,000 tax units in the top 1% minus the top 0.1%; 127,000 tax units in the top 0.1%,with those in the top 0.1% paying between 97% and 100% on the different options considered

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:

• To protect lower and middle income taxpayers from the tax, there could be a lifetime gain  exemption threshold ($0.5 million, say) that has to be reached before the rules apply or an asset value threshold ($2 million; $10 million, etc.).  Under the latter, taxpayers would fall into and out of the MTM regime as assets fluctuate.  (The asset approach is suggested by Wyden.)
• The revenue raised is significant though it depends on the particular model.  Leiserson suggests MTM combined with elimination of the preferential rate on capital gains "could easily raise $1 trillion over the next decade--and potentially much more."  He notes that just eliminating the preferential CG rate gives a much lower estimate--that's because of "the ease of tax avoidance under current law such as the ready opportunity to defer tax by not selling assets and potentially avoid tax entirely through step up in basis--all while simply borrowing against these same assets to finance any spending."
• "The wealthiest 1 percent of families holds 31 percent of all wealth, and the wealthiest 10 percent holds 70 percent of all wealth."  "The highest-income 1 percent of families receives 75 percent of the benefit of the preferential rates for capital gains and dividends under current law." The wealthiest 10% would bear the burden of MTM reforms.

 

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. 

 

Trump celebrates his (very expensive) tax cuts for himself and his rich golfing buddies

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

• Social Security (they want to privatize it so the rich can get rich off of passing risk onto the vulnerable elderly but this is less likely since they can't do it by reconciliation with just GOP votes) and
• Medicare (they want to decimate it- and can do that with reconciliation-GOP apparently doesn't want us to have the kind of universal and cheaper health care that the rest of the developed world enjoys because there's no money in that for them) and
• Medicaid (GOP can't make money off it and they don't care about the poor kids and families and old people that depend on that anyway).

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.

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What is the GOP goal? A return to the "gilded age" (or worse)

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.

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The GOP Tax Bill Disses the Working Class

Here's something about the GOP House and the GOP Senate:  they each passed tax bills (supposed to come out in a "conference" agreement sometime today) that diss the United States' working class taxpayers.  White or black, Christian or Jew or other, citizen by birth or naturalized citizen--workers are treated as an inferior "taker" class and owners are treated as a superior "maker" class--the same old GOP class warfare that has been evidenced in Republican-driven tax legislation for decades.  That shows in the provisions that have been discussed quite a bit already, even though there is no official distributional analysis and even though the Treasury Department put out a one-pager claiming to provide an analysis showing huge economic growth would eliminate any deficits (based on both the tax "reform" legislation and promised cost-cutting "reforms" to Medicare and Social Security):

• the  significant reduction in impact of the estate tax,
• the huge reduction in the statutory corporate tax rate of most benefit to officers/shareholders (it was 35%, it will be 21% under the conference agreement, apparently, even though the "effective" corporate tax rate ranged from negative to around 24-25%--essentially more favorable than many of our fellow advanced economies' corporate tax rates);
• the territoriality of the corporate tax (generally, zero tax on foreign earnings of U.S. companies);
• immediate expensing of company investments (a five year provision that allows companies huge tax benefits for those five years);
• the elimination of the corporate alternative minimum tax (AMT), at a cost of about $250 billion in revenues.
• the reduction in the top rate for wealthy individuals (from 39.6% to 37%),
• the substantial reduction in the  State and Local Tax Deduction for workers (thus changing entirely the economics of paying for a house already purchased, while allowing sole proprietors, partnerships and other "owners" of equity in businesses the ability to deduct such State and Local Taxes in full);
• a larger standard deduction but the elimination of personal exemptions;
• a larger child tax credit that only becomes refundable over time (limiting how much it helps the poor) but is available to wealthy households (starting to phase out at half-a-million of income!);
• the only slight reduction in the ability of wealthy individuals to take advantage of the mortgage interest deduction (reducing the debt limit to $750,000 instead of $1,100,000)
• the elimination of the corporate AMT (which cuts taxes for wealthy shareholders/owners/managers) but the retention of the individual AMT (which primarily affects the upper middle class and not the wealthiest taxpayers under the current rate bracket system);
• the elimination of the Affordable Care Act mandate and penalty (which reduces the amount of Medicaid and insurance subsidy funds for poor and middle-income taxpayers, as well as guaranteeing the deconstruction of the health care system for 13 million or more Americans by 2027 and  increasing insurance premiums for upper-middle-class taxpayers); and
• the opening of the Arctic National Wildlife Refuge to rape by fossil fuel oligarchies (a piddling amount of revenue, but sufficient to buy off the principle-less Sen. Lisa Murkowski from Alaska );
• making the corporate tax changes permanent (and effective without any transition period) while making the individual tax cuts other than benefits for the wealthy like the estate tax changes temporary.
• (just to name a few).

When the health care mandate removal is combined with the other provisions,  "On net, the poor would actually lose out in all years once this effect is taken into account."  Dylan Matthews, The Republican tax bill that could actually become law, explained, Vox.com (Dec. 14, 2017).  The following Tax Policy Center graph from the Vox article (using the Urban-Brookings Microsimulation Model) shows that by 2027 the top 0.1% end up doing much better (average tax cut for the top 0.1 percent is $221,550 a year).  The bottom 20% do worse while the middle--the second and third quintiles--have a very insignificant plus (average tax cut of the third quintile is $490).   Within the third or middle quintile, more than 62% of taxpayers that earn between $54,700 and $93,200 would see their taxes go up, "[b]ut only about 0.1% of the very richest one-thousandth of Americans would see a tax hike."  Id.  Early gains--though small, intended perhaps to benefit the GOP in earlier votes--don't last because the individual cuts aren't permanent.  A change to chained CPI for indexing brackets amounts to a tax increase on individuals, while the permanent corporate tax cuts mean rich and very rich do well while middle and upper-middle lose out. 

 

Maybe the most damnable characteristic of these House and Senate provisions, other than the sheer favoritism for the already wealthy, is the favorable treatment in determining the rate at which income is taxed for "owners" compared to the disfavored treatment for taxation of workers' wages.  As the Tax Policy Center notes, the Senate version of the tax bill "would reduce taxes on business owners, on average, about three times as much as it would reduce taxes on those whose primary source of income is wages or salaries."  Paul Krugman, Republicans Despise the Working Class, NY Times (Dec. 15, 2017), at A27.  And this dissing of the working class goes along with treating partners in real-estate partnerships (like the Trump family and many other real estate developers) with kid gloves:  "a partner in a real estate development firm might get a far bigger tax cut than a surgeon employed by a hospital, even though their income is the same." Krugman, Republicans Despise the Working Class, NY Times (Dec. 15, 2017) (quoting Howard Gleckman at the Tax Policy Center). 

The Vox article describes the pass-through provision as part of its "here's who would be better off" section:

Pass-through companies, like the Trump Organization, which get a new deduction reducing their tax burden. The House-Senate compromise bill allows people with pass-through income to deduct a portion of that income from their taxes; the deduction is reportedly for 20 percent of pass-through income, less than the 23 percent under the Senate-passed bill.  Dylan Matthews, The Republican tax bill that could actually become law, explained, Vox.com (Dec. 14, 2017).

Note that this is an off-the-top reduction of what would otherwise be personal taxable income taxed at the taxpayer's individual tax rate.  Workers who are paid wages get no such break. And wealthy people will use good lawyering and tax planning to organize their businesses so that their income is counted as pass-through income rather than wages. This is just a continuation of a trend of favoring passive ownership of capital in this country.  See, e.g., the Berkeley Blog, Wealthy investors to win bigly with Republican tax plan ( Nov. 9, 2017).

Imagine a company where two siblings as owners and a third sibling is the principal employee.  They all receive about the same income from the company--for the worker bee, as wages and for the other two, as a profit share.  The worker bee does all the creative thinking and working.  So the two owners pay tax under this provision on 20% less income than the worker bee.  And this is true in an economy in which economists are generally agreed that pass-throughs are currently taxed favorably, taking everything into consideration, and "don't need another break".    Dylan Matthews, The Republican tax bill that could actually become law, explained, Vox.com (Dec. 14, 2017).  This pass-through provision is as clear a snubbed nose to all those who work hard to earn a decent living as one can imagine.  Fact is, the "owners" are often the takers, and the "workers" are the makers.

 

PS. The Vox article suggests that the corporate tax break is justifiable, based on the GOP "economic theory" that claims that a lower corporate tax rate will "spark so much additional investment in the United States that it would bid up wages and leave the middle class better off through its indirect effects."  Id.  This is just another way to state the "supply-side" "trickle-down" theory that has been relied on  for decades by right-wingers but has never been shown to be justified empirically.  In 2004, the GOP made the same claim for its "repatriation tax holiday" for multinational corporations, claiming that the low tax would allow those corporations to invest and expand, leading to job creation.  It didn't.  It led, instead, to share buybacks and more money for the shareholders.  In fact, a large number of repatriating corporations that did share buybacks with the money also laid off thousands of workers.

PSS.  The Vox article also suggests that the limitation of the state and local tax deduction for individual taxpayers (but not for businesses) has a "reasonable case" supporting it.  Sure, the benefit of the state and local tax deduction is regressive, in that higher income taxpayers in larger houses with larger property taxes and larger incomes get more of a deduction.  And yes, it tends to benefit those states with higher state income taxes that are used to develop infrastructure and education.  But that misses several points in response.  First, for people at the upper-middle income bracket, the Alternative Minimum Tax generally limits the availability of the state and local tax deduction.  Second, people who currently own homes and are paying taxes on those homes and living in states with higher taxes likely took the availability of a property tax deduction into account in determining what they could pay for their home: the bill does nothing to provide a reasonable transition for these folks that takes their expectations into account.  Third, when the GOP is trying to counter a Democratic president, it always makes the argument that it makes more sense to support states in allowing them to experiment with different ways of raising revenues and supporting their economics.  That's what the "blue" states have done:  they have recognized that having higher taxes allows development of infrastructure, support for education, funding for research and other priorities, and these expenditures have created a more sustainable economy and better standard of living in those states--exactly what the "state experimentation" is supposed to do.  Yet the GOP provision on state and local taxes is now justified as a way to undo the benefit for "rich" states without doing anything to help the "poor" states.  (In fact, Ryan and McConnell have made it clear that their goal is to harm the poor states by reducing funding for Medicaid, Medicare and Social Security on which those states in particular depend.)

 

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The Republicans in the House and Senate continue on their downhill rush to pass their so-called "tax reform" plan before the holiday break.  It's a mad rush to nowhere, a corrupt process of "please the oligarch" that will cause a huge deficit increase (on the scale of $1 to $1.5 TRILLION over ten years) and be used by the Ryan, McConnell and Trump cadre of liars to justify a domino effect of Medicare, Medicaid, and Social Security cuts.  It is class warfare of the one percent against everyone else.  And it is being sold to the American people with a litany of falsehoods.

Almost all the provisions in the bill are designed to be generous to the ultra wealthy and stingy to the middle class and poor. 

Corporations and their owners and managers--among the wealthiest people in the country--get the only permanent tax breaks.  It's done in the name of competitiveness, but that's bunk.  It essentially encourages corporations to continue to move profits out of the US because foreign profits are taxed at zero while US profits are taxed at 20%.  It pretends that the multiple tax breaks for big corporations are necessary (under disproven trickle-down and supply-side theories) to lead to more investment in business in the US and to more jobs and higher pay for workers.  But in fact corporations are enjoying record profits under current law and they aren't using those record profits to pay their workers more or to create more jobs or even necessarily to invest in the US.  Mostly they are just doing share buybacks for shareholders (ie, owners/managers and other shareholders) that include the  wealthiest people who own the most corporate stock.  That's because it is demand, not capital, that determines what business expansion is needed and results in labor shortages that give workers leverage to demand more pay.  Tax cuts for corporations just add to the already existing capital glut.

The estate tax cut (elimination in the House bill; doubling the exemption to levels that only the very few multi-billionaires will pay any at all in the Senate) ensures that the wealthy will pay almost no tax at all.  They borrow against their wealth while alive.  Their estates pay no tax on the accumulated wealth when they die.  Their children inherit with a "step up" in basis so they get a huge windfall.  And their children can pay off the parents' debt by selling a few items (because of the basis step-up, with no taxes either) and live on their windfall without ever lifting a finger to do any real work.

Individual workers really lose out in these bills.  Under the House bill, the rate on the lowest wage earners is INCREASED 20%--from 10% to 12%.  And all of the 'tax cuts' for ordinary taxpayers sunset after a few years, while the corporate cuts are permanent.  Shows where the GOP loyalties lie--not to the worker base that put them in office, but to the wealthy oligarchs like the Koch Brothers who donate to the GOP political campaign chests.

The pass-through provisions (a 23% "deduction" from income before tax is one version)--along with the ability of businesses but not individuals to deduct state and local taxes--are a great boon for wealthy owners of real estate partnership interests, like the Trump family.  But they make no sense at all.  The more different kinds of income categories that are created with different rates, the more you empower the wealthy to gamesmanship with the tax system.  That's what this legislation does in spades.

And after the American people spoke up in Town Hall after Town Hall that they wanted the Affordable Care Act health insurance system protected, the Senate's version of the so-called "tax reform" bill (developed in utter secrecy by Republicans bargaining with Republicans as though nobody else counts) eliminates the individual health insurance mandate (and accompanying penalty).  Without that, the entire idea of affordable insurance through government-operated exchanges fails, because the only people on those exchanges will be those who are sick enough or old enough or vulnerable enough to realize that they will need health insurance soon.  Insurance works by diversification of risk--that's why the Republican insurance plan in Massachusetts, the model for Obamacare, called for an individual mandate and penalty.  Without that core feature, the exchanges can't work because the risk isn't sufficiently diversified.  The Republicans who are trying to gut Obamacare know that, and apparently they don't care that this particular "tax cut" will in fact cost more than 8 million Americans the possibility of having affordable health care, likely leading to early deaths for a large number of that group.  They don't care, I guess, because "those people" are less likely to be wealthy and less likely to vote Republican.  If you are so blinded by partisan fealty that you no longer care about legislating for the good of the nation, you descend to the garbage dump level of this Republican tax bill.

Of course, the elimination of the individual tax cuts, the expansion of the real-estate-industry favorable tax cuts, the inclusion of what can only be called a 'mock' provision to deal with carried interest (it doesn't), the elimination of the medical expense deduction (in the House bill) that will leave the disabled, the injured, and the elderly in dire straits, the decimation of the casualty loss provision that helps ordinary people recover from natural disasters, the huge cutback to the state and local tax deduction for individuals (while continuing to allow it for all businesses)--all these provisions prove that Republicans don't care a fig about ordinary people.  We won't be spending money on basic scientific research (needed to be competitive in a global marketplace and needed to save lives from cancer and other diseases).  We won't be spending money on infrastructure (needed to have safe roads, trains, airports. etc).  We won't be spending money on  education (other than Betsy DeVos's favored religious charter schools that teach falsehoods on a daily basis).  We won't be creating a sustainable economy that serves all of our citizens.

Oh, but we will be decimating the environment, as Trump's lineup of industry trolls continues to reduce wilderness areas, as Lisa Murkowski sells her tax and healthcare vote to get to open pristine and irreplaceable Arctic wildlife refuge to the oil and gas fossils that have grown obese off 200 years of government subsidies (see The tax bill is bringing drilling in the Arctic National Wildlife Refuge closer than ever, Vox.com (Nov. 28, 2017)), as Zinke reduces FOR THE FIRST TIME EVER national monuments set aside by other presidents so that those obese coal and oil and gas guys can get even wealthier (see Zinke backs shrinking more national monuments and shifting management of 10, Washington Post (Dec. 5, 2017)), as Pruitt ensures that nobody at the EPA does anything to protect the air, water and land from industry pollution, see Goodby science, hello industry, LA Times editorial board (Nov. 6, 2017). .....

The passage of a tax bill that will create an additional one-to one-point-five trillion-dollar deficit is proof that the Republicans don't care if they destroy this country in their effort to return to the Gilded Age of the past (or, in Roy Moore's definition of the time that America was great, the slavery era when (white) families stayed together and were able to sell black babies away from their black mothers (or half white babies away from their raped black mothers)).

What is the Republican response to the deficit and mal-distribution problems created by such a huge tax cut for the already wealthy?

1) The tax cut will pay for itself.  This is trickle-down gobbledy-gook.  The vast majority of economists and tax experts are quite clear that this is simply not a supportable claim.  It's pie-in-the-sky ideology with no basis in fact when there have been a number of attempts to find such a basis.  It wasn't true for Reagan, back in an economy for which tax cuts held much more promise of economic stimulus than they do for our current situation.  The Kansas experiment shows this trickle-down reasoning is without foundation. Russell Berman, You Better Learn Our Lesson: Kansas Republicans say they are worried that Congress and the Trump administration will repeat the mistake they made in enacting budget-busting tax cuts, The Atlantic (Oct. 11, 2017).  But Treasury has now put out a one-page analysis--compared to the careful, extensive, fact-based analyses usually prepared to support well-researched tax proposals--saying that the GOP plan would produce record growth and that growth would pay for the tax cuts.  See Alan Rappeport and Jim Tankersley, Treasury Defends Tax Plan Cost with One-Page Analysis (Dec. 11, 2017).  Event the speculative Treasury 'defense' assumes away half of the deficit with legislative cuts that aren't even on paper yet.  It's pure fiction.

2) Medicare, Social Security, Medicaid (the "entitlement" programs) will have to be cut to make up for any deficits.  That, of course, is the underlying plan. See Jeff Stein, Ryan says Republicans to target welfare, Medicare, Medicaid spending in 2018, New York Times (Dec. 5, 2017).  Create a deficit and use it to 'starve the government' to justify cutting any programs that don't serve the oligarchs.  Most of that minority of people who voted Trump into the presidency (assuming there wasn't a good bit of ballot falsification, which I think went on in Detroit to not count everyone's ballot) will suffer from this--they depend on Social Security when they retire and on Medicaid when they become incapacitated in their old age and need nursing home or assisted living care.  Under the Republicans, we'll return to the "good old days" of the Great Depression when old folks became homeless and the government didn't have to bother with caring about the vulnerable.

We all should be hitting the phones and telling every GOP member of Congress that they are not there to protect their wealthy donors: they are there to protect us and ensure that the economy is sustainable and viable for all of us.  This tax legislation stinks. Tell Congress to ditch it in the sewers where it belongs.

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The Long Game of Republican Economics

Social Security Meets Real Needs

Sometimes when you look at the hype on Social Security from the right, you wonder what in the world is going on in the heads of the hypers.  Here's the way it tends to go:

1) Social Security is meant to be an insurance program that pays for itself.

2) Down the road in 20 or 30 years it is predicted by Social Security trustees (using prudently conservative estimates based on present valuing for infinity the obligations of the trust fund) that Social Security will be {pick your term: insolvent, bankrupt} and as a result , the program will, at that future date, be able  to pay only about 75% of the benefits promised to retirees (which will, nonetheless, exceed the benefits that are currently being paid to retirees).

3) So therefore we should "save" Social Security by "reforming" it now : the way to do that reform is not by lifting the cap (so the rich pay into the program the same way everybody else does) but by cutting benefits so that the program starts paying less benefits today to retirees.

When you write it out in stark terms like that, it becomes strikingly clear how idiotic these "reforms" are and how unprincipled the purported "reformers" are.  As Paul Krugman noted in an earlier New York Times opinion piece, Krugman, The Geezers Are All Right, New York Times, Opinion (June 2, 2013), they are proposing preemptively decimating benefits today because the program might reach a situation decades off where benefits would be partially reduced of necessity if nothing at all is done. 

 [I]t does look as if there will eventually be a shortfall, and the usual suspects insist that we must move right now to reduce scheduled benefits. But I’ve never understood the logic of this demand. The risk is that we might, at some point in the future, have to cut benefits; to avoid this risk of future benefit cuts, we are supposed to act pre-emptively by...cutting future benefits. What problem, exactly, are we solving here? Id.

This is not unlike policies of voluntary war--we'll suffer a great harm now (going to war, with the huge cost now in weaponry and lives and the huge cost in terms of long-term care of injured vets later) because we might have to suffer it in the future.  As we found in Afghanistan and Iraq, that speculative concern is a very poor excuse for going to war: the result of overthrowing a dictator may be extraordinary costs to the overthrower and the overthrown people and the result may breed more enemies than it kills them.  Preemptive war mostly aides warmongers in the military-industrial complex and the private companies (mercenaries and arms dealers) that make money off of war. 

Similarly, preemptive reduction of benefits in a program that does not yet require it to "save" us from having to make reductions in the future (since they've already been made and caused even more suffering in the here and now) is absurd.  It smacks of no reason other than:

(i) the real possibility of so fooling so many of the people so much of the time,

(ii) being able to gain "kudos" with the government-and tax-haters, and (likely the real purpose, these earlier just being gravy to the doing of it)

(iii) protecting the real clients who are the corporatist wealthy campaign donors who want to see these social welfare (they like to call them "entitlement") programs ended so that their own true "entitlement" programs --preferential capital gains rates; preferential "carried interest" taxation of compensation for service to private equity funds; preferential retirement programs; and preferential taxation of offshoring and Big Oil, Big Pharma, Big IP and similar industries--can continue unabated.

Remember that Social Security serves real needs.  To arrive at a decision to cut benefits, just because it seems to be the politically expedient thing to do given the anti-tax furor stirred up by the likes of the Koch brothers and Grover Norquist and the Tea Party groups, is penny-wise and pound foolish--and smacks of class warfare.  Do we really want to return to the pre-Social Security situation of a large population of seniors with too little to eat and nowhere to live?  Continuing to reduce benefits when wages have been declining for most ordinary Americans (while the tiny number at the very top of the wage pyramid see their wages mushroom) would be disastrous.  Just look at the story in the New York Times today about the near-crisis situation for most retirees, even with Social Security.  Jeff Sommer, For Retirees, A Million-Dollar Illusion, New York Times (June 9, 2013), at BU-1. 

"We're facing a crisis now, and it's going to get worse," said Alicia Munnell, director of the Center for Retirement Research at Boston College.  "Most people haven't saved nearly enough, not even people who have put away $1 million."

***

And if you're not close to being a millionaire--if you're starting, say, with $10,000 in financial assets--you've got very little flexibility indeed.  Yet $10,890 is the median financial net worth of an American household today . . ..

***

Social Security is going to be a major, and maybe primary, source of income for people, even for some of those close to the top." [quoting Edward N. Wolff, economics professor at NYU]

 

The "cut benefits" rhetoric is made even worse when "protecting future generations" is added as to the mix as a "principle" that is claimed to underlie Social Security, as in the following

4) And we should do this in the name of caring about future generations, who should not "on principle" be "paying more" to support their parents' or grandparents' generations. 

See, e.g., Robert Shiller's op-ed, Want to Fix Social Security? Use the Right Wrench,ⁿ New York Times (June 9, 2013), at BU 4 (claiming to be supporting a fundamental "principle" of Social Security that "one generation shouln't be more burdened than another").   The problem with claiming this principle as an underlying principle of Social Security is that  the original legislation provided benefits to a slew of seniors who hadn't paid into it anywhere near what they would be getting out of it (even with the then-likely life expectancies) which was made possible, of course, by demographics that led to increasing numbers in the workplace. 

And it isn't clear that there is any reason to consider it essential as an underlying principle now.  If we have an economy in which there is sufficient resources to support increased benefits for an aging baby boomer population--even if that means that current workers should be more highly taxed than workers were 20 years ago--why not do so? 

We know that we could increase the amount available by simply removing the payment amount cap on wages taxed, while continuing a payout cap based on a reasonable index --ideally, a more generous one than currently used.  That just requires the really rich to participate in the insurance system in a way similar to everybody else.  We could also make the system more intentionally redistributive, with significantly higher payments in the "bottom bracket" of paid-in amounts (to everybody) and rapidly descreasing payments in additional brackets of paid-in amounts.  After all, most insurance is redistributive according to the degree of loss, with higher payments to those that suffer great losses made possible by the more or less consistent premiums paid by everybody, including those who suffer few losses.

 

ⁿ The footnote

I've put a footnote indicator at the Shiller article because there is a lot more about this Shiller op-ed worth pointing out.  Shiller is a Yale economist--a profession that too often seems to be at the center of all discussion of tax policies but that tends to spend too much time trying to sound scientific (by reducing everything to equations) and thus missing the mark on truly understanding economies. 

• Shiller's op-ed starts out talking about the "mere 20 years" when Social Security is predicted to run out of reserves and noting the proposals for addressing that problem. 
• His second sentence states as near fact that "the public [is] apparently opposed both to tax increases and benefit cuts" to address the problem.

That raises red flags for me.  I'm not convinced of the truth of the statement on increasing taxes.  I consider it quite plausible that a survey in which the public was asked, in a reasonable framework, about increasing taxes to support Social Security benefits would yield a majority that favor removing the cap on wages to which the Social Security tax applies.  If you gave people enough information, it might even be likely that a majority would support removing the preferential rates for capital gains and applying the Social Security tax to all income. 

• He gets something right:  "[t]he purpose of Social security is to help families."

This is something that many on the right tend to ignore when talking about Social Security--it's all treated as a matter of "personal responsibility" (the dislike for so-called "entitlements"--even though these entitlements are earned benefit programs and the push for privatization--as though that would automatically make people able to save enough to take care of themselves no matter their actual financial condition) and fiscal sanity (the tendency to emphasize the potential future shortfalls in benefit payouts as a justification for reducing benefits today, and the implication that otherwise we will face an unimaginably steep deficit, etc.).  Very little is about the importance of a social safety net to ensure that our seniors (and children) are not left in dire circumstances, poverty-stricken in a rich country.

• He spends the first third of the article seemingly moving towards providing a solution to "the problem"--that if nothing is done, "the Trust Fund runs out in 2033" and the system would only be able to pay about 75% of promised benefits.  He discusses the current indexing system, Obama's proposal (which would reduce benefits, stupidly), and then his "alternative" proposal--to index benefits to GDP, leading to increases in growth periods and potentially cutbacks in recessions.
• Then he admits that his "alternative" (offered as an alternative to suggestions for changing the index to address the problem of insolvency, since tax raises and benefit cuts are disliked by everyone) doesn't  address "the identified problem" of potential future insolvency
• But he claims the change should be adopted because it would instead "support the principle that one generation shouldn't be more burdened than another." 

This is said as though this "principle" is something everyone recognizes.  But let's be clear--there is no per se reason that one generation should be less burdened than another.  It depends on need and ability to pay. 

As we came out of the Depression and WWII, the younger generation was quite clearly the one burdened with paying for the older generations who had contributed very little for the benefits they were receiving, appropriately so.  Even if we end up with fewer workers supporting more baby boomers during the baby boomers retirement years, that's okay--especially if we are wise enough to remove the cap (as suggested above).  There is no inherent injustice in that.  The injustice would only come into play if the sacrifice asked of a later generation was so great that it outranked the offsetting sacrifice that would be asked of the earlier generation in cutting benefits.  That is hard to measure, for sure, and not obviously true merely if later workers pay slightly more in taxes to support earlier workers.

Now, there may be some good reasons for changing the index to a dirrect correlation to GDP, as Shiller suggests.  But the op-ed left me wishing he had just addressed that.  All his cloaking of his proposal in language that would get the attention of those on the right--talk of insolvency, talk about tax increases not being on the table, talk about the current proposed solutions to the "problem" and his "alternative", which turns out not to be an alternative solution but an alternative indexing proposal that is being proposed for different reasons than the ones that underlie the proposals his is an alternative to--distracts from the meat of his article.

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As everybody knows, a constant refrain of the far-right GOP establishment is a desire to cut taxes for the wealthy while cutting benefits for the poor. 

The ideological right talks about benefits for the poor as "welfare" but never talks about the tax expenditures for the wealthy--which amount to much more of an income redistribution, from middle class to wealthy--as "welfare".  They should, because that's what it is.  The tax preference for capital gains, a "privileged" tax rate, favors the very wealthy who own most of the financial assets, who itemize and who have much of their income in the form of capital gains (now, after the Democrats' weak-handed agreement to extend almost all of the absurd Bush tax cuts, also used for corporate dividends), just as the overly generous estate tax exemption levels and rates favor the very wealthy, who are the only ones EVER subject to the estate tax at all. 

(For some interesting stats on the very wealthy around the world, you might find the charts and information here interesting.)

The ideological right also talks about benefits for the elderly--which they have paid for throughout their working lives under earned benefit provisions in place since FDR--as "entitlements", a generally derogatory term meant to engender hostility from middle class hardworking folk (based on the "those welfare bums are not like me" idea).  What the right fails to point out is how important Social Security earned benefits are as the very underpinnings of a decent standard of living at later stages of life, paid for as much as possible by hardworking folk.  It is in fact a decent standard of living when you are older and less able to take care of yourself, when you depend more on community and on what you have managed to put aside during your prime, that is at stake. 

Of course, much of the right's ideological tirade against Social Security "entitlements" is misleading and downright wrong.  For instance, you've undoubtedly heard the argument for cutting Social Security benefits that goes something like this: 

Seniors do fine in America today, and can live long after they retire.  We think social Security was just intended to cover the little time between retirement and death that faced Americans a half century ago.  So we should up the retirement age or at least cut benefits, because with fewer workers supporting the big baby boom of retirees the Social Security fund is going bankrupt and we're now sacrificing our children's futures, by  contributing to the deficit with a "bankrupt" Social Security system, just to provide a cushy retirement to seniors that don't need it.

This argument is wrong in so many ways it is hard to count them.  Social Security is one of the most effective programs we have.  It is not bankrupt.   We've used the Social Security surplus for years to mask deficit spending--especially the wasteful deficit spending of the Bush years, to fund his wars of choice rather than pay for them with taxes that has been our preferred means of paying for wars in the past.  To reneg on the promise of benefits now would make millions of seniors, many of whom have fought for this country in Korea, Vietnam, Iraq and Afghanistan or by keeping the mom-and-pop store going and the home fires burning, pay for Bush's wars instead of the wealthy Gun, Oil and other corporate interests that support the neo-liberal/neo-conservative militarization campaign.  There is no need for benefits to be cut--we are a wealthy country and could actually increase benefits by taxing the wealthy on all of their earned income (or better still, eliminating the distinction throughout the Code between earned and "capital" income) and extrapolating the progressive nature of the benefit schedule for those increased income levels as well. 

But the biggest issue is the one that gets overlooked--many of our seniors are not doing so well, and without Social Security would be doing horribly.  Even with Social Security, the medical expenses near life's end are all-absorbing for many seniors, a situation that we should be remedying rather than worsening.  And this is particularly bad for those poorest seniors who worked at grueling labor jobs during their prime--they tended to make less money and receive less in benefits than others, yet have more potential job-related health issues and be less able to work into their seventies as others can do.

For information on the poverty of American seniors, taking into account not just their direct incomes but their benefits from transfer systems and their real costs, see Dylan Matthews, Senior Poverty is Much Worse Than You Think, Washington Post WonkBlog (May 20, 2013). The graphs are particularly helpful in seeing the way poverty and near-poverty take a heavy toll on the senior population.

We should not cut benefits.  We should in fact move to a single-payer Medicare-for-all system that would continue the health care savings that we've begun, and we should move to at least full wage coverage for Social Security taxes, with a corresponding extension of the progressive benefits scale.

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Kevin Brady's misleading Wall St. Journal op-ed

Today's Wall Street Journal features an op-ed by Kevin Brady, right-wing Texas Republican who chairs the notorious "Joint Economic Committee" that has been a notorious producer of anti-tax propaganda-driven studies over the years of Republican hegemony in the House.  See "Tax Reform Needs Accurate Tax Tables", Wall Street Journal (May 6, 2013), at A15.

The op-ed spends a lot of time denouncing information about tax rates.  It suggests that the entire US tax system is far too progressive in nature, because "one of the most salient characteristics of the U.S. tax code [is] the decreasing share of taxes paid by the bottom 50% of taxapyers and the increasing share of taxes paid by the upper 1%."  Of course, Brady mentions nothing about the accelerated growth of inequality of income in that same period, resulting in the upper 1% controlling so much more of the U.S.'s wealth and income compared to that bottom 50%.  In fact, the upper group pays less than it should given the enormously increased bite of wealth and income, a fact that Brady conveniently overlooks.

The op-ed also talks only about the income tax rates, thus appearing to suggest that the income tax is the only relevant portion of the U.S. tax system and that rates, rather than base, are the most significant factor.  In fact, there are a range of taxes--income, estate, payroll, excise/sales taxes.  Regrettably, the income, estate and payroll taxes are much too lenient on the highest paid groups.  

The shrinking of the income tax rate structure (from many different rate levels in the 1970s to our minimal group of rate brackets today) is highly favorable to the highest income group.  The rate levels off at less than half a million, while the highest paid CEOs are making 20-30 or 40 million a year.  As a result, those in the top 1%--and especially those in the top part of that 1%--are taxed at the same rates as people who make a "mere" $400,000 a year.  Further, the base on which that rate is applied to determine tax liability is notoriously laden with tax expenditures that primarily benefit that same group at the top, beginning with the charitable deduction for non-taxed appreciation and continuing through Roth IRAs/ IRAs /generous pension plans to too-high mortgage interest deductions and others.  Only those in the top 30% even bother with itemizing deductions.  And among those, it is those at the top who garner the enormous benefits of deductions from those tax expenditure provisions.

The estate tax is similarly designed to provide special benefits to the wealthy--from the lack of a progressive rate structure that ensures that the wealthiest tycoons who've amassed fortunes from loopholes like the carried interest provision will pay peanuts on an estate hardly taxed during their lifetimes,  to the various gimmicks for evading and deferring estate taxes-- including various kinds of trusts,"family" partnerships  and irrational "discounts. 

On the other hand, the sales tax is a mere gnat for the wealthy while its expansion cuts into essential living expenses for the growing legions of the poor and nearly poor.  The payroll taxes for the working poor and the middle class take a significant bite out of their labor's rewards, while the wealthy CEOs and directors pay Social Security only on a miniscule portion of their wage income. 

But Brady's most misleading statements are those that repeat the tax-cutting mantra that the GOP has pushed for well-nigh four decades now, beginnning before Reagan but put into overdrive during the George W. Bush administration--the idea that tax cuts stimulate economic growth, and especially that tax cuts on the capital income of the wealthy will stimulate growth, create jobs, and increase wages for the majority of Americans who are not wealthy.  Here's what Brady says (notice how the statement presupposes the truth of his claim):

The most important defect of tax-distribution tables is that they cannot help one to assess how proposed tax changes will affect economic growth.

Suppose Congress eliminated the double taxation of capital income by doing away with taxes on capital gains and dividends at the individual level.  Current tax distribution tables would depict this change as a reduction in progressivity due to the large share of capital gains and dividends attributable to the top income quintile.

But doing away with taxes on capital gains and dividends would significantly lower the after-tax cost of capital for new business investment in buildings equipment and software.  New business investment increases the demand for and productivity of labor, driving real wages higher. 

For households in the bottom 50% of the income distribution, the benefits are significant but indirect--more jobs at higher real wages.  Id.

The fact is, we have been following this agenda of reducing taxes on capital income for decades.  The result has been an unprecedented growth in inequality and the continuing decline of wages for the vast majority of Americans who work for their income.  The right's "philosophy" of low taxes on capital and high taxes on labor doesn't work and never will.  Brady doesn't appear to much care --his arguments seem designed to justify the right's continuing push for policies that create an oligarchic elite served by an increasingly indebted worker class with few employment rights as the courts favor Big Business over the people this country was founded to protect.  Brady's op-ed, in other words, is just another volley in the right's class warfare against American workers.

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Obama caves yet again: offering Social Security cuts to appease the right...

Obama's budget isn't even released yet and he's already caving to the "let's make the rich richer and forget the rest" crowd.  That crowd that claims that we need a capital gains preference so the rich can gather all that extra money to purportedly create jobs.  The crowd, that is, that fails to acknowledge that the rich tend to take all that extra money to Singapore, the Bahamas, or the Cayman Islands or hide it away in some Swiss bank, none of which does any good for our economy compared to what the government investing that money in infrastructure projects would do. See, e.g., David Leigh, Leaks reveal secrets of the rich who hide cash offshore, The Guardian (Apr. 3, 2013);  The corporatist crowd that refuses to admit the empirical evidence that says government investment is as important as private investment in creating jobs.  It is the government that makes the market go round.  And government money--our money--spent for schools, bridges, safer communities provides jobs and improves lives.  Without that government investment, there is no market, just barter.

President Obama seems to have forgotten that he was elected. as a Democrat, over the Republican candidate.  Obama has no business proposing cuts to Social Security benefits as part of a purported deficit reduction package.  Social Security is not a deficit driver: it is a social insurance program earned by those who receive it by payments over lifetimes of hard work.  It is the only stable retirement income most have.  The average Social Security beneficiary receives just short of $14,000 a year from Social Security--that's just 125% of the poverty line, which of course is defined so low as to guarantee that anyone living at or below that line is indeed in abject poverty and unable to move out of it.

The Republican Party has argued for cuts to Social Security benefits for decades, using whatever crisis of the momen they can engender to argue that we can't afford the system in place.  They've invented the perjorative term "entitlement" to imply that those who rely on social insurance because of disabilities or old age are just 'freeloaders' who are mooching off others.   Not so, since Social Security is an earned benefit program like insurance: workers pay premiums throughout their working life, and then once they reach retirement age they may draw benefits. 

There are a number of reasons for the amount of debt that the US government has--most of them related to the four-decade-long drive by the Republican Party to protect the wealthy and the corporations they own from much of a tax burden and to allow the accumulation of immense wealth by a few at the top of the income distribution.  Outsize military expenditures driven by Bush's preemptive wars undertaken at the same time that the Bush Administration pushed through tax cuts that favored the rich are of course a big problem.  The Bush tax cuts threw us from surplus to deficit and we haven't gotten beyond them yet.  The almost complete capture of the financial regulatory agencies by Wall Street, and the resulting financial crisis driven by casino capitalism spiked with the heady bubbles of derivative inflation is of course another part of the problem, and we haven't gotten beyond that yet, as Big Banks still exercise far too much power over their own regulation, proven by the LIBOR scandal that demonstrated their ability to manipulate the purportedly objective market rate to suit their profit machines.

But Social Security is not one of those drivers of the debt.  And the debt is not so outsize that it merits sacrificing the most vulnerable amongst us to mollify the wealthy who merely want to avoid paying their fair share of the revenues needed to get rail service up to snuff, bridges safe, and public schools owned by the public again.

 The average Social Security benefit is just under $14,000: the use of chained CPI will result in a loss to the average recipient of "$4,631 in Social Security benefits by age 75, $13,910 by age 85; and $28,004 by age 95" (from release by Social Security Works, based on “Inflation Indexation in Major Federal Benefit Programs: Impact of the Chained CPI,” Alison Shelton, AARP Public Policy Institute, March 2013.).

Obama has no business facilitating the gluttony of the rich.  He should drop the proposal to use “chained CPI” that will  result in a cut benefits for Social Security recipients.

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