Billionaires, Taxes and Inequality

21

by Joseph O’Shaughnessy

F. Scott Fitzgerald supposedly said to Hemingway: “The Rich are very different from you and me.” And Hemingway is said to have replied: “Yes, they have more money.” They were both right.

Unlike the billionaire, you can’t take a trip to Europe on a private plane or fly your horse (if you could afford one) to Great Britain on a plane for a horse show or visit one of your nine homes to see how things are in that part of the country. You can’t go to sleep at night knowing that almost anything that can happen to you, any sickness, any accident, any misfortune at all…you can afford. Those are all important things and ways in which those with hundreds of millions of dollars vary more and more widely from those of us who live in the nether regions.

But what is rich in 2017? From a purely monetary standpoint, in the United States it probably means being in the income categories above half a million dollars annually in income. Each area of the country is different, but generally speaking this kind of annual income means that one will likely be able to amass wealth. Wealth, or net worth, the difference between what we own and what we owe, is a measure of how well we are able to hang on to income over time. In places like New York City Los Angeles and San Francisco, costs of living are high and pure wealth is more difficult to attain and requires a higher income.

Here’s what we know about income inequality from revenues and taxes. About one percent of taxpayers in the country have incomes of $1.25  million a year on average. It looks like they pay a little over $300,000 in taxes. Of the roughly $1.23 trillion in taxes paid in total by Americans in 2015, the top one percent paid about 23% of it. They should. They earned about 21% of all income. (About 3 million people)  Another 194 million people, or 63% of the population averaged somewhere between $20,000 and $40,000 per year and paid less than 6% of all taxes. They should. They made less than 40% of the income while representing nearly two-thirds of the population. But that’s not the whole story. 

The bottom 63% may be averaging less even than we know. Their percentage of total tax revenues are so low that one would expect incomes of only in the $15,000 per year or less category to result in revenues that low on average. Even with a lot of deductions–which doesn’t make sense–it would seem difficult for a family of four with income over $30,000 to average taxes that low. One or two might slip through an audit but not one or two million, let alone 194 million.

The upper middle class now, including some right in the middle, are shouldering a great deal of the tax burden, which, compared to the rest of the up-scale advanced global economy is not much of a burden. Still tax rates and paying taxes in the high twenties and thirties for incomes in the $75,000-to $150,000 income categories, with some expenses that come with middle class life, such as occasionally private schools and home and auto expenses, as well as property taxes puts pressure on many personal budgets. Over $250,000 outside of a handful of major metro areas, virtually everyone should be saving money while living a good life.

So where are the problems? First, while populations have grown, jobs and incomes have shrunk. Not been static but shrunk. The obvious facts are facts and should not be treated as he-said, she said. Labor unions have been reduced to 7% of the workforce and wages and benefits have declined while jobs have been sent abroad. Fewer good jobs contributed to that 63% of workers with lower pay and paying lower taxes. In the meantime, a major Recession (or lesser Depression) cut personal assets, home ownership, retirement plans and savings. We have recovered, but with fewer jobs and lower wages.

The financial sector of the economy, which was a minor part in earlier business generations, has, as a result of the diminishing manufacturing base, become a source of greater influence. Banking laws that were relaxed under President Clinton to expand American banks, supposedly into world markets, have resulted in an expanded banking system, pitting large departments in huge banks against the financial resources of investment banks. The resulting competition for the business of those who can afford large banks…big corporations, wealthy families, and large institutions…has expanded the financial sector and turned this once speculative (and still speculative) industry into one of our larger employers and users of capital.

This group has a grip on our political systems. People making literally billions of personal income each year spend millions lobbying to keep this money from being taxed. Other hugely wealthy individuals buy up legislators and create think tanks to create their own messages telling the public that taxes are too high, especially on those who pay the most in taxes. One tax lobbying group, founded originally by the owners of General Motors and Standard Oil 70 years ago has been taken over by the infamous Neo-Fascist Koch brothers and their 50-state lobbying organizations–the State Policy Network and ALEC, the American Legislative Exchange Council, which recommend and then literally write tax policy and other legislation at the state level.

Current tax and income inequalities, unless stopped, will not only reduce income for the poor and continue to grow that rapidly expanding segment of our people but will reach into those higher demographic areas. People said that things could never become as bad as they are now. So what is to say that they won’t expand to another ten million, twenty million people. And what about those Americans who are clearly suffering economically now so badly that they barely pay any taxes at all?

Here is the problem in a nutshell. Since Ronald Reagan we have cut taxes lower than we could afford. We have continued to cut taxes in the face of obstacles and clear signs, like enormously growing deficits, that we should not. And we have been served by some charlatans, who enriched themselves at the sacrifice not only of American lives in wars, but American lives at home by stealing money from the Treasury to pay for wars while not raising taxes to pay for them but instead cutting taxes during wartime!  Not only were these wars wasteful and devastating for families here and in Iraq but they raised our debt and borrowed from Social Security, hundreds of billions of dollars that have not yet been returned.

Let’s talk about the high-end, upper-income middle class, which in most urban areas means those with six figure incomes up to approximately the half million mark. What will happen to the  doctor and his wife or a couple of middle class attorneys when the power of the Billionaires shoots up again, reaches up and grabs the next rung, with higher taxes or more restrictions on health care savings or individual retirement accounts?

Simple logic tells us that people do not stop uncivil behavior on heir own. It always grows worse. Soon, the now upper-income middle class will face higher cost schools and neighborhoods and see upper limits on earnings. Sooner or later the excessive demands we already see on average workers will lead to more pressure on the lower middle classes. There will be someone in each family…often several more than one…sons, daughters, fathers aunts, nephews…who fall into poverty and can’t get out.  and more demands on the lower middle classes leading to more poor. Soon there will be someone or some few in each family with needs beyond what borrowing can provide or services with which only family members can deal.

In 2014, the last year for which the Tax Foundation has numbers, Americans had about $9.71 trillion in personal income and paid about $1.23 trillion in personal taxes. If you divide that to get the percentage, it comes to 14.1%. It takes only a minute to suddenly recall that 14% is far far below any realistic estimate of what income tax revenues are needed to balance the needs of a growing economy. We pay far and away the lowest taxes of any advanced country. Of course, we have almost none of the basica services provided by European countries for example. We pay about 36 or 37 percent, with Social Security. Most of them pay 38-45% but that includes health care and greater job security and longer vacations and better retirement benefits…and many other things like free schools up to and including many universities. They basically have cradle to grave security. I notice some people in the Republican Party ridiculing that and they are mostly those who work for the billionaires who don’t need any government services. Of course, some of those same Republicans will come looking for help when the Koch brothers and others are done using them.

The Koch brothers’ Tax Foundation says that 50% of the people pay 97% of the taxes  That may be true on paper, but in reality we see that the facts on the ground are different. For example, if you have only enough money to live on and you are half the population, ones that inadvertently have been discarded as technology changes, you are not in a position to pay for services for others. What you are trying to do is find ways to jettison those government services to which you have become attached. In the meantime, those in the 1% who say they are the job creators are trying to eliminate the services you need, using the extra money they get from lower taxes. They should be using that money to find you employment, with new businesses, to help reduce those costs they feel government has expanded unnecessarily.

If the top 50% of the people pay 97% of the taxes and one percent pay 40 %, then doesn’t it make sense that we should find ways to make the other 50 per cent pay more? We can only do that, under legal tax laws, by creating jobs that create income so that these millions of people can pay more taxes. But if the top 1% of the country make an average of $1,260,000 per year, and pay an average of, say, $345,000, that leaves about $914,760. Neither is an inconsiderable amount. That is, of course, if they are paying 27.5% which is what the top income people would pay in order to be covering 40% of the total tax bill.

On the other end, about 62.3% of income earners comprise those below $49,999 for tax purposes and if they are only paying less than 6 percent of total taxes, those, roughly 194 million people are making peanuts. Per capita, that is something like $24,000 or less. So we could discuss whether they should be paying 8 or 10 or 12 percent. But it seems to me we should be trying to bump them up to $50,000 a year and 25%. That is the way to raise money. Raise their incomes.

We have another problem and that is wealth. Especially inherited wealth. Donald Trump is the poster boy for inherited wealth gone wrong and what is can cost if a society is not careful. With the exception of the fact that both Koch brothers seem quiet bright (though seeming to be personally morally evil) they are another example of too much money and too little adult supervision. CEOs have a median income of $15 million a year. (Don’t ask me why they are worth  that much more than you or I or my family practitioner who, I would imagine, saves more lives in a year than these guys or gals do in a lifetime.) The average CEO of a major company is making 300 times what the average worker makes (who makes, by the way, only $50,000 a year) and he earns it whether his company makes money or not and he makes another big hunk even if they fire him! CEOs work for the owners of the company (the major stockholders…all very, very wealthy men in any large corporation) They work themselves out of the executive class and into what can be called the “rentier” class very quickly.

By “rentier” I refer to those who often inherited wealth, including large stock positions in corporations, or accumulated positions by forming small companies that grew into large companies that were absorbed, often making these owners of small companies very rich men. This group does not encompass all those who have become rich. In fact it is basically a classification of a segment of the rich by attitude. While John D. Rockefeller, Jr. would have been in the rentier class, he spent a great deal of his time acting with results that benefited all his fellow citizens. The term is somewhat pejorative, referring to those who accumulate wealth without returning any of the fruits of labor that inevitably go into creating that wealth, by others, back to the greater society in which they live or to the greater good in general.

Today, we have a whole new class of rich. They are not unlike some others who existed primarily before 1930 in the United States, but they are perhaps more aggressively iniquitous and are better defined by and for their rapacity than the Robber Barons. This generation has had the opportunity to see what good can be done and what economic achievements can be accomplished by allowing those at the bottom of the economic rung to climb as rapidly and as abundantly as possible.

With some very notable philanthropic and public spirited exceptions at both ends of the age scale, our current crop of billionaires seem unduly dedicated to one thing….greed. Included in this greed is the attitude that whatever makes you less, gives me more; whatever holds you down, builds me up; whatever deprives you of opportunity, expands my universe; and whatever oppresses you, provides more freedom for me.

In order to accomplish this, the Billionaires (and I will use this general term as a kind of shorthand for the rich) have decided that spending literally hundreds of millions of dollars to lower their taxes is a starting point. The rich do not want to pay for services that they feel are offered to many people unjustifiably…lazy or indigent or wasteful or…well…often just like them but with less money.

It began in 1981 when, despite government deficits, Ronald Reagan cut the top rate on taxes from 74% to 28%. So the rich, with other taxes and deductions began to keep basically 80% of every dollar, with only about 10% of every top-taxed dollar needed to live on, even in luxury. Wealth began to build. CEOs, as we pointed out, began to see the opportunity to raise themselves into the lower end of the Billionaire class (by the way, we have accumulated over 50,000 billionaires in this country by now.) And keeping enormous wealth somehow became a badge of distinction more than it ever had before.

Now we need to reverse the process. No need to do away with huge incomes. Even from financial trading, which often serves no purpose at all. We need to return taxes gradually to Ronald Reagan’s first tax cuts. We need to raise top rates from 39% to 50% and raise rates on everyone along the sliding scale. We need to eliminate tax breaks for global corporations, give them one chance to repatriate dollars from abroad at a 20% tax rate and then after that it will be 30%. Take it or leave it. Next we need to cut our corporate tax rate to 25% and eliminate all business tax deductions. The same with farmers. And finally, we need to tax all financial transactions at a penny per transaction, done on computer and with some minimums.

We need to offer the public option on Obamacare and otherwise leave it as it is. This means basically that if someone wants health care it can be purchased through Medicare, with the billing done by Medicare. Rates would be different but the billing procedures would be very similar.

These things would be one-time charges to corporations and rich taxpayers, after which life would go one better and faster and bigger and far more equitably. And the Billionaires could go back to simply making money.