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“We’re No. 1!”: How Government Helps The 1 Percent

You may think that government takes a lot of money from the wealthy and gives it to poor people. You might also assume that the rich pay a lot to support government while the poor pay a pittance.

There is nothing wrong with you if you believe this. Our public discourse is dominated by these ideas, and you’d probably feel foolish challenging them. After Mitt Romney’s comments on the 47 percent blew up on him, conservatives have largely given up talking publicly about their “makers versus takers” distinction. But much of the right’s rhetoric and many of its policies are still based on such notions.

It is thus a public service that the Institute on Taxation and Economic Policy (ITEP) has issued a report showing that at the state and local level, government is, indeed, engaged in redistribution — but it’s redistribution from the poor and the middle class to the wealthy.

It’s entirely true that better-off people pay more in federal income taxes than the less well-to-do. But this leaves out not only Social Security taxes, but also what’s going on elsewhere.

The institute found that in 2015, the poorest fifth of Americans will pay, on average, 10.9 percent of their incomes in state and local taxes and the middle fifth will pay 9.4 percent. But the top 1 percent will pay states and localities only 5.4 percent of their incomes in taxes.

When you think about it, such figures should not come as a surprise. Most state and local governments rely on regressive taxes — particularly sales and excise levies. Poor and middle-class people pay more simply because they have to spend the bulk of their incomes just to cover their costs.

This gets to something else we don’t discuss much: Public policies in most other well-to-do countries push much harder against inequality than ours do. According to the Luxembourg Income Study (LIS), the United States ranks 10th in income inequality before taxes and government transfers. By this measure, Ireland and Britain, and even Sweden and Norway, are more unequal than we are. But after government transfers are taken into account, the good old USA soars to first in inequality. Norway drops to 6th place and Sweden to 13th.

It’s not a matter about which we should be proud to shout, “We’re No. 1!”

Actually, things may be a bit worse for us even on pre-transfer incomes, said LIS Director Janet Gornick, because people in the other rich countries tend to draw their pensions earlier.

The overall story is that we are not very aggressive, with apologies to Joe the Plumber, in spreading the wealth around. “Our inequality is already high because of the low minimum wage, the weakness of unions and very high levels of private-sector compensation at the top,” Gornick, a professor at the Graduate Center of the City University of New York, said in a telephone interview from Luxembourg. “But on top of that, we are redistributing less than other countries and also have lower taxes on the highest incomes, particularly income from capital.”

And at the state and local levels, our governments are exacerbating inequality. The ITEP study concludes that “every single state and local tax system is regressive and even the states that do better than others have much room for improvement.” The five states with the most regressive systems are Washington, Florida, Texas, South Dakota and Illinois.

On its face, the property tax would seem progressive, because big houses are taxed more. But the study finds that on average, “poor homeowners and renters pay more of their incomes in property taxes than do any other income group — and the wealthiest taxpayers pay the least.”

There is also an unanticipated consequence of growing economic disparities: Because states and localities tax the wealthy less, “rising income inequality can make it more difficult for state tax systems to pay for needed services over time. The more income that goes to the wealthy, the slower a state’s revenue grows.”

Political debates are typically driven by clichés , but at the very least, we can expect our clichés to be true. We need to stop claiming that we have a massively redistributive government. We need to stop pretending that poor people are “takers” when they in fact kick in a lot to the common pot. And we need to replace arguments about “big” and “small” government with a debate over what governments at all levels are doing to make our society more just — or less.

 

By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, January 15, 2015

January 16, 2015 Posted by | Economic Inequality, Redistribution, State and Local Governments | , , , , , , , | Leave a comment

“More Conservative Demonology”: Countering The Minimum Wage With More Help For “Lucky Duckies”

One of the key contributors and promoters of the “reform conservative” cause (and the new “manifesto” Room to Grow), Ramesh Ponnuru, has a Bloomberg View column making the fairly obvious suggestion about how Republicans might respond to the drive for a higher minimum wage:

One way to do so is to support expanding the earned income tax credit, an earnings subsidy that targets poor households much better than the minimum wage does and poses no threat of destroying jobs. That credit may not be as easily understood as the minimum wage, but it would give Republicans a way to show that they want to help the poor — and that their stated objections to raising the minimum wage are sincere.

He might have added that the EITC used to be a very popular initiative among conservatives, from Ronald Reagan to George W. Bush.

But not any more, as both Jonathan Chait and Ezra Klein quickly pointed out. Here’s Ezra’s brisk summary of the Republican revolt against the EITC:

The most recent Republican budget lets a stimulus-era boost in the EITC to expire and, on top of that, includes huge cuts to the part of the budget (the “income security budget function,” for wonks) that houses the EITC.

But it’s worse than that: the EITC has been largely responsible for eliminating federal income tax liability among low-income Americans. And that has become a deep source of grievance, and even of conspiracy theories, among conservatives at both the elite and grassroots level. The classic slam at the EITC was articulated by the Wall Street Journal editorial board, which got into the habit of referring to poor people who didn’t owe federal income tax as “lucky duckies.” This in turn became integral to the popular conservative theory that people who didn’t pay income taxes didn’t bear the cost of governing (an argument, of course, that ignored all the other kinds of taxes the poor pay, often at regressive rates), and thus represented looters who voted themselves more and more of other people’s money.

I personally became convinced this had become an important part of conservative demonology when watching Rick Perry make his statement of presidential candidacy in 2011, at a RedState gathering in South Carolina. In the midst of an extended tirade about the need for lower taxes, Perry suddenly blasted “the injustice that nearly half of all Americans don’t even pay any income tax.” The crowd responded with what I described at the time as a “feral roar.” So it wasn’t surprising a year or so later when Mitt Romney got caught buying into the same idea in his “47 percent” comments, about “people who pay no income tax” but nonetheless receive federal benefits.

Even if they didn’t rely on EITC cuts to pay for upper-end tax cuts in their budget schemes, Republicans seem to have developed a moral aversion to the EITC that’s more important to them than finding a sensible alternative to minimum wage increases. So Ponnuru is almost certainly barking up the wrong tree.

 

By: Ed Kilgore, Contributing Writer, Washington Monthly Political Animal, May 23, 2014

May 26, 2014 Posted by | Conservatives, Minimum Wage | , , , , , | Leave a comment

“Mitt Romney’s Entitlement Society”: Winning For Losing, Money That Flow’s To The Wealthy

Mitt Romney, who secured the number of delegates needed for the Republican nomination last week, said early on that this election is a choice between President Barack Obama’s “entitlement society” in which people are dependent on government benefits, and his “opportunity society” where business is free to flourish.

But if you take Romney’s own life as representing a governing philosophy, he has the dichotomy backward. Romney is the one who has taken advantage of government entitlements — the ones that flow to the wealthy. And his interest in opportunity lies with rich investors who exploit government rules, often to the detriment of Main Street. Romney’s use of the federal bankruptcy courts to extinguish debts owed to suppliers, shops and service providers is a perfect example — more on that later.

For starters, let’s tick off some of Romney’s favorite government entitlements:

• Special tax rules allow him to pay federal income taxes of just 15 percent on his millions in “carried interest” profits, capital gains and dividends. The rest of us pay a rate of up to 35 percent on income from work.

• Bain Capital, the private equity firm Romney founded and ran from 1984 to 1999, only succeeded due to a major tax loophole. Bain was able to deduct the interest on the massive loans taken out to finance the purchase of its takeover targets — loans secured with the companies’ own assets. In 2008, Germany put limits on this kind of tax shenanigans, but don’t expect anything that enlightened to happen here.

• Romney’s firm also enjoyed government largess in the form of job creation tax breaks. Just the year before Dade Behring, a Bain company, closed its operations in Puerto Rico in early 1998, with nearly 300 workers losing their jobs, the company received federal tax break of $3 million for promoting jobs there and a $4.1 million tax exemption from Puerto Rico.

But there is no big government entitlement as magical or beloved by Romney and Bain than the get-out-of-debt-free card bestowed by federal bankruptcy court.

Dade Behring went bankrupt, leaving Main Street creditors empty-handed, but not before Romney’s firm took $242 million out of it. In fact, of Bain’s 10 top business investments that made up 70 percent of the $2.5 billion Bain made for investors, four eventually went bankrupt, according to the Wall Street Journal.

That’s called winning for losing, a game perfected by top 1 percenters.

For a closer look at one destructive bankruptcy, read “Romney Economics: Cheat Main Street,” a column by Leo Gerard in the Huffington Post (http://tinyurl.com/dylorbl).

Gerard documents the way Bain left Main Street businesses licking their financial wounds as it legally absconded with millions in management fees, dividends and other distributions. His featured example is American Pad and Paper Co. (Ampad) that Bain bought from Mead Corp. in 1992. Bain remained the company’s largest single shareholder through 1999, and three Bain executives sat on its board. In 2000, the company filed for bankruptcy, leaving debts to suppliers of more than $180 million. Even so, Bain came out smelling like money. It had invested $5 million and took out more than $100 million.

Eleven years after Ampad filed for bankruptcy, as Gerard points out, the company’s nearly 1,300 unsecured creditors finally got a pittance of what was owed: Green Bay Packaging Inc. was owed $75,500 and received $137; Lakeway Container Inc. was owed $47,100 and received $89; American Coffee Break Service was owed $1,300 and was paid $2.56. The bankruptcy trustee’s final report lists page after page of Main Street businesses receiving less than a penny on the dollar. Had that $100 million flowed to Ampad’s suppliers rather than Romney and Bain investors, it would have covered more than half the debts.

Romney desperately wants to convince the public that Bain operated in the best interests of Main Street and that he didn’t get fabulously rich under government-rigged rules. But the man exemplifies the special tax breaks and legal shields from creditors that the wealthy see as their right.

That’s Romney’s “entitlement society.”

By: Robyn E. Blumner, Columnist, Tampa Bay Times, June 3, 2012

June 4, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“We Are The Whiners”: About Those ‘53 Percent’

Republicans have been preoccupied for much of the year with those Americans who don’t make enough money to qualify for a federal income tax burden. Some are working-class families who fall below the tax threshold; some are unemployed; some are students; and some are retired. These Americans still pay sales taxes, state taxes, local taxes, Social Security taxes, Medicare/Medicaid taxes, and in many instances, property taxes, but not federal income taxes.

This, apparently, annoys the right to no end. It’s why all kinds of Republican officials — including Mitt Romney and Rick Perry — want to “fix” what they see as a “problem,” even if it means raising taxes on those who can least afford it.

This argument is even manifesting itself in a new “movement” of sorts, intended to respond to progressive activists calling for economic justice.

Conservative activists have created a Tumblr called “We are the 53 percent” that’s meant to be a counterpunch to the viral “We are the 99 percent” site that’s become a prominent symbol for the Occupy Wall Street movement. The Tumblr is supposed to represent the 53 percent of Americans who pay federal income taxes, and its assumption is that the Wall Street protesters are part of the 46 percent of the country who don’t. “We are the 53 percent” was originally the brainchild of Erick Erickson, founder of RedState.org, who worked together with Josh Trevino, communications director for the right-leaning Texas Public Policy Foundation, and conservative filmmaker Mike Wilson to develop the concept, according to Trevino.

The overriding message is that the protesters have failed to take personal responsibility, blaming their economic troubles on others.

There are all kinds of problems with the right’s approach here, including the fact that they seem to want to increase working-class taxes and also seem entirely unaware of the fact that it was Republican tax cuts that pushed so many out of income-tax eligibility in the first place. There’s also the small matter of some of those claiming to be in “the 53 percent” aren’t actually shouldering a federal income tax burden at all, but are apparently unaware of that fact.

But putting that aside, take a look at Erick Erickson’s argument, presented in a hand-written message posted to the Tumblr blog: “I work three jobs. I have a house I can’t sell. My family insurance costs are outrageous. But I don’t blame Wall Street. Suck it up you whiners. I am the 53% subsidizing you so you can hang out on Wall Street and complain.”

Just for heck of it, let’s take this one at a time.

The very idea that Erickson works “three jobs” is rather foolish.

Blaming financial industry corruption and mismanagement for Erickson’s troubles selling his house is actually quite reasonable.

If Erickson’s reference to “family insurance costs” is in reference to health care premiums, he’ll be glad to know the Affordable Care Act passed, and includes all kinds of breaks for small businesses like his.

And the notion that victims of a global economic collapse, who are seeking some relief from a system stacked in favor of the wealthy, are “whiners” is so blisteringly stupid, it amazes me someone would present the argument in public.

If there are any actual “whiners” in this scenario, shouldn’t the label go to millionaires who shudder at the idea of paying Clinton-era tax rates?

By: Steve Benen, Contributing Writer, Washington Monthly-Political Animal, October 11, 2011

October 12, 2011 Posted by | Banks, Capitalism, Conservatives, Democracy, Democrats, Economic Recovery, Elections, GOP, Ideologues, Income Gap, Middle East, Right Wing, Tax Increases, Tax Loopholes, Teaparty, Uncategorized | , , , , , , , , | Leave a comment

   

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