Wayne O'Leary

Divvying Up the Loot

For all the ink and earnest conversation expended over the last number of years on the subject of growing economic inequality in the US, remarkably little has transpired to reverse the sorry state of affairs. The trend line has, if anything, gotten worse.

Consider America’s existing socio-economic structure, as delineated by New York University economist Edward N. Wolff, long the statistical authority on the subject. In 2013, according to Wolff, the upper 1% of American households owned 37% of the nation’s wealth, and the next 19% (the professional-managerial class) owned 52%; the bottom 80% of households (everyone else) owned a mere 11%. Looked at another way, one-fifth of the population held 89% of the country’s net assets.

These astounding figures — no other industrialized nation comes close to such extreme divergences — are made more disturbing by virtue of their negative acceleration. Over the period 1983 to 2013, while the top one-fifth increased their share of the national wealth by eight percentage points, the bottom four-fifths dropped by the same amount. About half of the increase at the top went to the celebrated One Percent, America’s economic aristocracy, whose mean household income of $1.7 million was over eighty times that of the bottom 40% by 2013.

Lest anyone think things have turned around during the putative economic recovery, a series of reports from the Pew Research Center and the University of California (Berkeley), released to the press within the past several months, indicate that inequality has continued to grow apace. In particular, the American middle class has been hollowed out by an uninterrupted shift of income from the bottom half of earners to the top 1%, driven most recently by a boom in investment income — One Percenters own close to 40% of all stocks, middle-income Americans almost none — in combination with median weekly earnings that have hardly budged in 15 years.

A quote given to the New York Times in April by Rakesh Kochhar, associate director for research at Pew, succinctly summarized the slow-motion crisis revealed by the latest academic findings: “It’s a clear trend that the middle class in the US is shrinking and not keeping up financially with the upper-income group. There is an aura of redistribution of income from middle income to upper income.”

With that grim assessment in mind, you would think the purported White House populists who want to “make America great” would be focused laser-like on economic inequality, making its eradication their prime cause; you would be wrong. The Trump cabinet members, whose combined net worth is over $6 billion according to The Economist, have other priorities. Most of all, they want to cut taxes. And not just any taxes — not your taxes and my taxes, but their own.

Rarely, if ever, has a federal legislative proposal been as transparently self-interested as the one on taxes being formulated by the Trump administration in consultation with the leadership of the Republican House majority; it outlines the kind of revenue code the president probably dreamed about during his previous life as a real-estate mogul. The details follow.

First, the reductions: There will be three income-tax brackets instead of the present seven, and they will be dramatically lower at the top, with the maximum marginal rate reduced from 39.6 to 35 percent. The end result will be a modified flat tax marked by a solicitous regard for the One Percent. Additionally, there will be a cut in the capital-gains tax (applied to unearned income from the sale of appreciating stock investments) from 23.8 to 20 percent. And last, but certainly not least, there will be a radical reduction in the corporate income-tax rate (now extended to noncorporate businesses as well) from 35 to 15 percent, accompanied by a “tax holiday” allowing corporations to repatriate their untaxed profits held offshore at a generous 10% rate — both measures indirectly benefiting rich shareholders.

Next, the repeals: These include the 28% alternative minimum tax (paid by wealthy loophole users who would otherwise pay nothing at all); the graduated inheritance tax (paid by heirs of large estates valued at over $5.5 million); and the 3.8% Obamacare surtax on investment income (levied on affluent investors at the upper income level to help offset the cost of ACA health-care subsidies). Rescinding the last of these theoretically permits the aforementioned capital-gains reduction, 70% of which will benefit the One Percent, by making the numbers appear to add up. Call it the new math.

There are a few crumbs tossed in to mollify ordinary taxpayers in the form of a doubling of the standard deduction and the retaining of the mortgage-interest deduction. However, nearly two-thirds of the mortgage deduction actually goes to the upper 20%, who own multiple homes or expensive ones.

So there you have it: a tax plan made in heaven (or, more accurately, at the Koch Foundation) for One Percenters and those just below them on the income scale. This includes President Trump (said to be worth $3 billion to $4 billion) and his associates, who stand to gain (depending on final details) half to three-quarters of the benefits, based on the nonpartisan Tax Policy Center’s estimates, with annual tax cuts averaging as much as $275,000 for those in the top 1% and $1.3 million for those in the top 0.1% — at a cost to the Treasury variously pegged at $5 to $8 trillion over 10 years, leading to either massive budget cuts or a deficit on steroids.

On the plus side, the Donald won’t have to worry about the alternative minimum tax, which cost him $31 million in 2005, according to his leaked tax returns for that year. And the disappearance of the estate levy will mean the Trump kids can inherit dad’s secret stash tax-free when the time comes.

Then, there’s the pièce de résistance: Under tax “reform,” the prodigal president, should he return to the private sector as a real-estate developer, would henceforth be assessed at the new, reduced corporate rate rather than the individual income-tax rate currently applied to non-corporate or owner-operated businesses. This means the Donald, as the proprietor of a so-called pass-through entity (in his case a real-estate firm) would pay 15% instead of the 39.6% he’s liable for today.

Let the good times (for some) roll!

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, July 1-15, 2017


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