“Growing Inequality”: A Rich Man, Poor Man Election
Three new reports on taxes, inequality and economic mobility add up to one conclusion: The 2012 presidential election should be about one thing, and one thing only: class warfare.
Let’s start with a report from the Pew Charitable Trusts, “Pursuing the American Dream: Economic Mobility Across Generations.”
The Pew Economic Mobility Project has been tracking the economic status of thousands of families since 1968 — the data covered in the current report is through 2009. And there is some good news: Absolute income has increased for Americans of all economic classes, from the poorest to the richest. The richest Americans have seen much larger relative gains, and, naturally, are far more immune to skyrocketing healthcare and education costs than are the poor, but at least part of the American dream is still intact: Children are still earning higher incomes than their parents.
But then comes the bad news: When one measures wealth — the total assets held by families — instead of income, the picture is substantially different. As Catherine Rampell summarized in the New York Times:
The median person in the poorest quintile has a family net worth that is 63 percent less than that of his counterpart a generation ago: $2,748, versus $7,439 …
The median family in the top socioeconomic class today (i.e., the family at the 90th percentile) is worth $629,853, compared to $495,510 in the last generation. That’s a 27 percent increase in the size of the median fortune in the top income stratum.
If you’re scoring at home: Rich: richer; Poor: poorer.
Now let’s move to “Inequality and Redistribution During the Great Recession,” a research paper produced by the Minneapolis Fed.
In 2010, the bottom 20 percent of the U.S. earnings distribution was doing much worse, relative to the median, than in the entire postwar period. This is because their earnings (including wages, salaries, and business and farm income) fell by about 30 percent relative to the median over the course of the recession. This lowest quintile also did poorly in terms of wealth, which declined about 40 percent …
However, even as earnings plunged, disposable income and consumption managed to hold even, relatively speaking, for the poorest Americans as compared to other classes. This is a bit of a mystery, noted the authors, who believe it can be explained by aggressive government redistribution and tax cuts.
Our main substantive conclusion is that government redistribution in the Great Recession was at historical highs and partially shielded households from experiencing large declines in disposable income and consumption expenditures. The same households, though, have experienced losses in net wealth, and this might make them more vulnerable to further or more persistent earnings declines in the future.
If you’re still keeping score: While the rich were getting richer and the poor poorer, the Great Recession absolutely hammered the worst-off Americans, but substantial government support — unemployment benefits, food stamps, Medicaid, tax cuts — saved the most vulnerable Americans from utter disaster.
And that brings us to our third report, the Congressional Budget Office’s latest numbers on federal taxes: “The Distribution of Household Income and Federal Taxes: 2008-2009.”
The bottom line: In 2009, as a result of tax cuts included in the stimulus, Americans ended up paying the lowest percentage of their income in federal taxes since 1979.
The observations included in these reports mutually reinforce each other. For example, one reason why the wealthiest Americans have done so much better than everyone else is directly related to substantial cuts in the capital gains tax rate over the past several decades. High unemployment and the collapse in home prices as a result of the Great Recession, on the other hand, have a disproportionately greater effect on poorer Americans, whose net wealth has been declining over past decades.
The numbers also beg to be put in political context. Over the long term, the rich have been getting richer and the poor poorer. In the short term, the poor took the brunt of the impact of the Great Recession, and were only kept afloat through government assistance. However, as tax rates have fallen to historic lows, it has become more and more difficult for the federal government to find the resources necessary to ameliorate widening inequality.
Now consider the fact that the Republican candidate for president wants to cut taxes even further, while eviscerating the social welfare safety net that is the only thing staving off complete economic disaster for poorer Americans. It’s class warfare all right, but one side seems to have already won.
By: Andrew Leonard, Salon, July 11, 2012
“Ich Bin Ein Small Business”: Small Is So Beautiful To Mitt Romney
Our subject for today is the care and feeding of small businesses.
“I love you guys,” Mitt Romney told a teleconference hosted by the National Federation of Independent Business. “I love the fact that you’re working hard to follow your dreams and to build businesses. I — I love you guys. I love the fact that you’re — that you’re working hard to — to follow your dreams and to — and to build businesses.”
To summarize: We love you, guys.
And they’re everywhere! The Small Business Administration defines a small business as one with fewer than 500 workers, and that’s 99.7 percent of everything out there. “There are 5.7 million firms with employees in this country, and about 5.7 million have fewer than 500 employees — rounding slightly,” said Robert McIntyre, the director of Citizens for Tax Justice.
It’s sort of metaphysical, when you get right down to it. I am you as you are me and we are one and we are all small businesses. Ich bin ein small business. No wonder politicians want to get on their good side.
All of this takes us to President Obama’s call for Congress to extend the Bush tax cuts for families with incomes below $250,000 a year. Most people, the president said, believe it is wrong to “raise taxes on middle-class families.” It was certainly a triumphant moment for the administration’s economic policies. In 2008, who among us could have hoped that four years in the future, middle-class Americans would be making $250,000 a year?
But Romney called the idea “a massive tax increase on job creators and on small business.” He also denounced it as “another kick in the gut to the middle class in America,” thus signaling his determination to broaden the American middle even further, as well as to call everything the president does a “kick in the gut” for the rest of this campaign season.
How do we feel about this argument, people? We are not talking about business taxes, in the normal sense of the word. If we were, it would quickly become so incredibly confusing that you would be begging me to go back to the matter of the dog Romney once tied to the roof of his car.
The typical American business owner does not pay corporate taxes. He or she subtracts expenses from revenues and declares the bottom line as income. There are many, many advantages to this approach. You can avoid corporate tax rates, and it’s a lot easier to deduct things. If you’re a baker of gourmet cupcakes, you can subtract the entire cost of your new $50,000 ovens from your income, right up front, as well as lunch with your best friend who is also an occasional cupcake purchaser.
“There are rules, of course, but both the rules and the implementation of the rules are fuzzy,” said William Gale, the co-director of the Tax Policy Center.
And everybody can get into the game! Including partners in hedge funds and law firms and investment banks. “Here’s the beauty — each of the hedge fund principals themselves is a small business,” said Gene Sperling, director of the National Economic Council. Sperling is a small business himself because he gets occasional royalty payments for co-writing a few episodes of “The West Wing.”
This flight to small is so popular that the Congressional Research Service concluded that if taxes on high incomes went up, it would actually create more small businesses because more rich people would want to “seek self-employment because the opportunities for tax evasion and avoidance are greater.”
Small business growth. It’s what makes America great.
When the Republicans claimed that capping the Bush tax cuts at $250,000 would hurt small businesses, the Obama administration quickly retorted that only about 3 percent of the small business owners have incomes above $250,000.
Yeah, said the Republicans, but that little slice still represents more than 900,000 people, and half of all the nation’s business income.
Yeah, said the Democrats, but that’s because of the hedge fund managers and law partners and movie stars with rental property.
Yeah, said the Republicans, but the high-end sort-of-small businesses will still cut back on jobs or investment if their taxes go up. Taxes rise, bad things happen. It’s an article of faith. The Hartford Financial Group said it did a survey that showed just that, although as Robb Mandelbaum pointed out in The Times, only 2 percent of the small businesses surveyed actually cited taxes as their prime concern.
We do know these things: Republicans do not like income taxes, even for very wealthy people. Possibly particularly for very wealthy people. Barack Obama, who also has royalty income, is a small business. Possibly the only small business the Republicans do not love.
By: Gail Collins, Op-Ed Columnist, The New York Times, July 11, 2012
“Trickle Up Economics”: Americans Favor Extending Tax Cuts For Those Making Under $250,000
I would hardly characterize President Barack Obama’s proposal as a “gambit.” The proposal has been a consistent theme with this administration, which recognizes that Americans want the president to focus on the issues that affect them most—how to create jobs, provide opportunities to advance, and secure a better future for their children.
On Monday, President Obama laid out a vision for the fiscal policies he will pursue to ensure for a better tomorrow—offering additional middle-class tax cuts while asking some to pay a little more. Some might call it risky or foolish to ask to raise taxes during an election, but I believe the American people are often ahead of politicians in understanding what is fair, what works, and want to be offered a choice. For the eight years of “Bushonomics,” those in the middle class got a clear picture of what didn’t work as they lost their jobs, their incomes shrunk, and their homes were devalued or lost while corporate profits rose and executive pay increased.
In the latest National Journal/United Technologies poll, 60 percent favored extending tax cuts for those making $250,000 and below. They understand that economic growth will not come from more failed trickle-down economic theories, but instead by responsibly balancing the need to cut spending, increase revenue, and make sound investments in our future, especially in areas like education, new market development, and infrastructure.
In contrast, Mitt Romney continues to offer ideas that advance little meaningful change and instead, a return to the failed policies from the past of cutting taxes for those who can most afford them, while exploding the deficit, increasing our future debt obligations, and leaving no means to invest in growth.
The president’s proposal, along with an offer to discuss real tax reform after the election, put Republicans back on the defensive and elevated the debate to a referendum for the American voter in November—49 percent of independents in a recent Washington Post poll said the president’s vision for the future is more important to them than what he did in his first term. By proactively controlling the debate and focusing the attention on the “do-nothing” Congress and Romney’s policies of the past, the president will continue to look like the true leader and that is a winning formula. Focusing on America’s future is Obama’s strength and greatest political weapon.
By: Penny Lee, Washington Whispers, U. S. News and World Report, July 11, 2012
“An Act Of Human Decency”: The Real Winners Of The Affordable Care Act Are Ordinary Americans
So the Supreme Court — defying many expectations — upheld the Affordable Care Act, a k a Obamacare. There will, no doubt, be many headlines declaring this a big victory for President Obama, which it is. But the real winners are ordinary Americans — people like you.
How many people are we talking about? You might say 30 million, the number of additional people the Congressional Budget Office says will have health insurance thanks to Obamacare. But that vastly understates the true number of winners because millions of other Americans — including many who oppose the act — would have been at risk of being one of those 30 million.
So add in every American who currently works for a company that offers good health insurance but is at risk of losing that job (and who isn’t in this world of outsourcing and private equity buyouts?); every American who would have found health insurance unaffordable but will now receive crucial financial help; every American with a pre-existing condition who would have been flatly denied coverage in many states.
In short, unless you belong to that tiny class of wealthy Americans who are insulated and isolated from the realities of most people’s lives, the winners from that Supreme Court decision are your friends, your relatives, the people you work with — and, very likely, you. For almost all of us stand to benefit from making America a kinder and more decent society.
But what about the cost? Put it this way: the budget office’s estimate of the cost over the next decade of Obamacare’s “coverage provisions” — basically, the subsidies needed to make insurance affordable for all — is about only a third of the cost of the tax cuts, overwhelmingly favoring the wealthy, that Mitt Romney is proposing over the same period. True, Mr. Romney says that he would offset that cost, but he has failed to provide any plausible explanation of how he’d do that. The Affordable Care Act, by contrast, is fully paid for, with an explicit combination of tax increases and spending cuts elsewhere.
So the law that the Supreme Court upheld is an act of human decency that is also fiscally responsible. It’s not perfect, by a long shot — it is, after all, originally a Republican plan, devised long ago as a way to forestall the obvious alternative of extending Medicare to cover everyone. As a result, it’s an awkward hybrid of public and private insurance that isn’t the way anyone would have designed a system from scratch. And there will be a long struggle to make it better, just as there was for Social Security. (Bring back the public option!) But it’s still a big step toward a better — and by that I mean morally better — society.
Which brings us to the nature of the people who tried to kill health reform — and who will, of course, continue their efforts despite this unexpected defeat.
At one level, the most striking thing about the campaign against reform was its dishonesty. Remember “death panels”? Remember how reform’s opponents would, in the same breath, accuse Mr. Obama of promoting big government and denounce him for cutting Medicare? Politics ain’t beanbag, but, even in these partisan times, the unscrupulous nature of the campaign against reform was exceptional. And, rest assured, all the old lies and probably a bunch of new ones will be rolled out again in the wake of the Supreme Court’s decision. Let’s hope the Democrats are ready.
But what was and is really striking about the anti-reformers is their cruelty. It would be one thing if, at any point, they had offered any hint of an alternative proposal to help Americans with pre-existing conditions, Americans who simply can’t afford expensive individual insurance, Americans who lose coverage along with their jobs. But it has long been obvious that the opposition’s goal is simply to kill reform, never mind the human consequences. We should all be thankful that, for the moment at least, that effort has failed.
Let me add a final word on the Supreme Court.
Before the arguments began, the overwhelming consensus among legal experts who aren’t hard-core conservatives — and even among some who are — was that Obamacare was clearly constitutional. And, in the end, thanks to Chief Justice John Roberts Jr., the court upheld that view. But four justices dissented, and did so in extreme terms, proclaiming not just the much-disputed individual mandate but the whole act unconstitutional. Given prevailing legal opinion, it’s hard to see that position as anything but naked partisanship.
The point is that this isn’t over — not on health care, not on the broader shape of American society. The cruelty and ruthlessness that made this court decision such a nail-biter aren’t going away.
But, for now, let’s celebrate. This was a big day, a victory for due process, decency and the American people.
By: Paul Krugman, Op-Ed Columnist, The New York Times, June 28, 2012
“Warped Moral Universe”: Why The GOP Want’s To Raise Taxes On The Poor
Citing the widely-repeated meme on the right that 47 percent of Americans pay no federal income tax (not to be confused with taxes in general), James Kwak has two theories:
The first is that the modern Republican Party is funded by the very rich… The result is that the parties’ platforms now reflect the wishes of their major funders, not their median voters. This is why Republican presidential candidates spent the primary season competing to offer the most generous tax breaks to the rich—while Paul Ryan’s budget slashes Medicare, a program supported by the Tea Party rank and file. For the rich people who call the shots, it’s simply in their interest to lower taxes on the rich and raise them on the poor. End of story…
The other, even-more-disturbing explanation, is that Republicans see the rich as worthy members of society (the “producers”) and the poor as a drain on society (the “takers”). In this warped moral universe, it isn’t enough that someone with a gross income of $10 million takes home $8.1 million while someone with a gross income of $20,000 takes home $19,000.* That’s called “punishing success,” so we should really increase taxes on the poor person so we can “reward success” by letting the rich person take home even more. This is why today’s conservatives have gone beyond the typical libertarian and supply-side arguments for lower taxes on the rich, and the campaign to transfer wealth from the poor to the rich has taken on such self-righteous tones.
The most trafficked post ever on my own site continues to be this Graph of Doom look at the Newt Gingrich’s tax plan back when he was still running. It was stunning then and now how much the Republican primary candidates were tripping over each other to demonstrate how much they would give back to the ultra-rich. (See here for a full comparison of all the candidates.)
But, as Kwak says, they really seem to be invested in this Randian stuff. It should also be a reminder how badly Republicans are likely to govern. There on the ups now not because of any actual argument, but because of 1) the continuing unemployment crisis and 2) their skill at organizing. Their actual policy ideas would be laughable if they didn’t have an actual chance of becoming law.
There’s a halfway plausible argument that Romney would prefer to go big on Keynesian stimulus, like Nixon did, but when it comes to domestic policy, a determined Congress holds the whip hand. Be warned.
By: Ryan Cooper, Washington Monthly Political Animal, June 6, 2012
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