Tuesday, November 25, 2014

Tax Uncle Jim as a Sugar Daddy, not a Job Creator

Those Rich Uncles

VOX did a study and found that high marginal tax rates on the top 1% of earners can make society as a whole, much better off. (Follow the conversation here at Mark Thoma's blog in the comments section).

Not knowing whether they would ever make it into the top 1%, but understanding it is very unlikely, most households (especially at younger ages) would happily accept a life that is somewhat better most of the time and significantly worse in the rare event they rise to the top 1%.

Conclusions from their study also found that increasing tax rates at the very top of the income distribution, and thereby reducing tax burdens for the rest of the population, is a suitable measure to increase social welfare. As a side effect, it reduced both income and wealth inequality within the US population.

First, taxing the top 1% more heavily will most certainly not work if these people can engage in heavy tax avoidance, make use of extensive tax loopholes, or just leave the country in response to a tax increase at the top.

Second, the results of the study rely on a notion of how the top 1% became such high earners. In their model, "earnings superstars" are made from luck, coupled with labor effort.

Last, but not least, their analysis focused solely on the taxation of large labor earnings, rather than the capital income (capital gains) of the top 0.01%. We already have progressive marginal tax brackets. And nobody is going to deliberately earn less because their tax rate increases in the higher brackets — although, they might engage in more tax avoidance (e.g. tax attorneys, offshore banks, etc.)

The top marginal tax rate for a single filer on regular income (hourly wages and salaries) is 39.6% over $406,750 a year; but less than 1% of all wage earners make more than $406,750 a year. That's why capital gains should be taxed at the same rate (according to one's adjusted gross income) as regular wages, not 23.8% as capital gains are taxed. And why not tax capital gains for Social Security taxes as well? (Capital gains are exempt from Social Security taxes, and for some people, capital gains is their ONLY source income.)

Also — a $100 million painting, an ultra-expensive wine collection, an 18-acre beachfront mansion, precious stones, gold bars, coin collections, etc. (also known as SWAG investments) should also be taxed at the same rate as labor. Why should a higher value be placed on investments over labor? After all, it's usually labor that creates value and capital.

Deferred interest is another tax scam. David Cay Johnston writes: "Several dozen Americans, disclosure documents show, earn annual incomes of $1 billion or more. But they do not show up in the top 400 reports because Congress does not require them to report their full incomes or pay taxes immediately. For cash to live on these people typically borrow against their assets, paying interest rates of 2 percent or less."

Inheritances also perpetuates rising inequality: Why is an outsourcer such as Mitt Romney allowed leave his sons $5 million tax-free, but a minimum-wage employee like a single mom at a local diner is taxed on all her meager tips?

Because income growth in recent decades has been so heavily concentrated at the very top, luxury markets have become the biggest drivers of economic activity around the world. This latest World Ultra Wealth Report notes that the very rich spends $1.1 million a year on luxury goods and services and owns 2.7 homes.

America’s youngest developer of luxury high rise residential real estate may soon be America’s richest developer of luxury high rise. Gil Dezer is teaming with Austria’s Porsche Design on a new 60-story ultra-luxury tower that's now being built in South Florida. After the new tower is completed in 2016, it will host 132 residents — with two to four cars per household all parked in “sky garages” right outside the condo's living rooms. Dezer has already racked up $600 million in sales for his new “Porsche Design Tower” and the future occupants (so far) include 22 billionaires. As he told the Miami Herald: “You don’t spend $5 million on a condo if you only have $15 million.” The tower’s four-story penthouse will run $32.5 million.

Cadillac’s CEO is predicting that by 2029 his GM auto division will become a proud purveyor of ultra-luxury. “It is too early today for a $250,000 Cadillac,” de Nysschen opined last Wednesday in an interview at the annual Los Angeles auto show. “Fifteen years from now, it won’t be.” The current most expensive Cadillac retails at about $70,000, a pittance compared to automakers like Rolls Royce and Bentley, who are asking for a half a million or more for their cars. Cadillac sees this ultra-luxury market growing — and it wants in.

And things are really hopping for the luxury jeweler Fabergé. The company’s sales jumped 50 percent in 2014’s third quarter over the previous year. Fabergé’s top sellers are their rings in the company’s “Emotion Collection". Each $38,000 bauble sports a bedazzling array of 300 emeralds, sapphires, rubies, and diamonds.

More evidence that the super rich are leaving the merely very rich behind: A City private bank report noted that sales of smaller private jets dropped 17 percent last year. But sales of king-sized private jets rose 18 percent. Wealth watcher Robert Frank observes: “For decades, a rising tide lifted all yachts. Now, it is mainly lifting mega-yachts.” (The middle-class boats have already sank.)

Taxing the ultra-rich a little more is the only way to help level the playing field. But some people still illogically and unreasonably believe that one day (in Nevereverland) they might also have a good chance of being ultra-rich; or think that by taxing their wealthy bosses more, they might be paid less than they already have been for the past 30 years.

You'll always hear the job creators complain that they'll have to lay off workers, hire less people, cut their employees' hours or charge customers more for their goods and services if they raise their employees' wages. But you'll never hear them admit that they'd have to buy one less private jet, sports car or 20-bedroom mansion. The money the ultra-rich save on low wages and low taxes is spent on conspicuous consumption (Veblen-goods) — and /or their extra cash is hoarded to be left to their trust-fund babies (who also perpetuates conspicuous consumption, while sometimes making silly "reality" TV shows).

Uncle Jim is not just an ultra-rich "job creator", but he's also a pleasure-seeking sugar daddy — and that's another reason why we should tax his capital gains as ordinary wages. Call it a "sin tax" for avarice, greed, sloth, lust, envy, and gluttony. When Uncle Jim is allowed to avoid paying his fair share of taxes, he's also fleecing Uncle Sam.

But the Republicans, especially with their new Congress, may attempt to tax the top 0.01% even less. And with less tax revenues, the GOP will have more excuses to make additional budget cuts — especially for programs targeted for 95% of the working-class and the very poor.

Sunday, November 23, 2014

New GOP Congress has Sights on Social Security

GOP vs. Social Security

Before the 2014 mid-term elections, Republicans were changing their rhetoric on Social Security benefits. But now with the new GOP Congress, further cuts to Social Security are expected and service could get worse. Witold Skwierczynski, president of AFGE’s Social Security Council, warned of a “coming tide of budget cuts.”

Tuesday, November 18, 2014

Robert Reich: Follow the Money

Robert Reich (November 17, 2014)

The richest Americans hold more of the nation’s wealth than they have in almost a century. What do they spend it on? As you might expect, personal jets, giant yachts, works of art, and luxury penthouses. And also on politics.

Monday, November 17, 2014

Obama's Amnesty Program

(* Below is a short clip at YouTube from Saturday Night Live where Mitch McConnell warns President Obama about his planned executive action on immigration. But when Obama asks whether the GOP has a plan, McConnell insists that the Republicans will pass immigration reform.)

Can the GOP pass a better and more suitable immigration bill? They're talking about building bigger and better high-tech fences (but only along the southern border). How will this be paid for? By cutting food stamps for the poor?

Time Line when Income Inequality began to Rise

Annual U.S. Income Share of the Top 1 Percent

Time Line When Income Inequality began to Rise

  • In 1969 NASA put the first man on the Moon (maybe one of the government's last greatest accomplishments)
  • Lewis Franklin Powell Jr. wrote his famous "manifesto" in 1971
  • In 1977 the maximum estate and gift tax was 70% with an exemption of only $120,000
  • In 1978 the capital gains tax rate was near 40% and the corporate tax was 48%
  • Both manufacturing and union membership peaked in 1979
  • In 1988 the corporate tax was lowered to 34%
  • Kodak began offshoring jobs in 1989
  • Bill Clinton signed NAFTA into law in 1993
  • Bill Clinton lowered the capital gains tax rate from 28% to 20%
  • Bill Clinton deregulated the banks in 1999
  • The China PNTR trade agreement was signed by Bill Clinton in 2000 (the labor force began declining)
  • George W. Bush lowered the capital gains tax from 20% to 15% in 2003 (aka "The Bush Tax Cuts")
  • The housing and stock market crash happened in 2008 (the deregulated banks were bailed out by taxpayers)
  • In 2010 the maximum estate and gift tax was only 35% with a whopping exemption of $5,000,000.00
  • There were multiple record all-time highs in the stock markets beginning in 2013 to the present (no banker ever went to jail, they only got richer)
  • In the 2014 mid-term election the GOP took control of Congress and now wants to lower the corporate tax rate and eliminate the capital gains tax and the estate tax.
  • Ted Cruz, the architect of the government shutdown of 2013, will likely assume chairmanship of the Senate’s Space and Science subcommittee, which sets policy and funding caps for NASA via regular authorization bills (so expect more cuts to NASA, or cuts to food stamps to pay for NASA).

About inheritances --- From Mark Thoma's blog --- Excerpts from Irving Fisher's presidential address to the American Economic Association in 1919:

Sunday, November 16, 2014

Over-Educated or Lacking Skills?

(* Excerpts from VOX with notes.)

A sizeable fraction of workers hold occupations that don't require as much schooling as they have ... Around 38% of college graduates have higher education than the typical worker in their profession. Even if workers manage to transit to better jobs, they experience wage penalties similar to those after unemployment.

Americans had accumulated more than 1 trillion dollars in student loan debt as of 31 December, 2013 ... Young college graduates earned 62.5% more on average than high school graduates in 2013. However, researchers have started paying more attention to the fact that the huge average ‘college wage premium’ masks large differences in post-college earnings. In particular, a sizeable fraction of workers hold occupations that do not require as much schooling as they have acquired. Think, for example, of college-educated secretaries or school teachers with a PhD.

Saturday, November 15, 2014

On Labor, Trade, Skills, College, Taxes and Unemployment

(* Recent tid-bits I found today.)

OECD Secretary-General Angel Gurría: "As recent revelations have demonstrated, the frayed international tax system has long allowed multinationals to plan their way around paying corporate taxes. And bank secrecy has let individuals stash money undetected, and untaxed, in hidden corners of the world. Such practices erode the integrity of our tax systems, damage the capabilities of our governments, diminish economic growth and corrode the trust of our citizens who are the vast majority of taxpayers. The way tax is levied and spent is one of the most important levers to address social inequalities, create jobs, pay for education, infrastructure and other public services and encourage investment in innovation." (More)

Friday, November 14, 2014

Tea Party Seniors just Screwed Themselves

It wasn't just white working-class Americans who recently voted against their own best economic interests in the 2014 mid-term elections, but seniors did as well. According to ABC News, seniors had voted Republican by 56-43 percent, and there are many more of them than young voters. This group has grown by 7 percent, making seniors 24 percent of the electorate, up from 17 percent in 2012.

Climate Change Now? Or Jobs and Lower Electric Rates?

Obama outlined his anti-carbon policy to The San Francisco Chronicle in 2008: “Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.”

The State of Florida was predicted to lose 19 inches of coastline by the year 2050 (using data from the U.S. Geological Survey, one group mapped all areas along the continental U.S. coastline containing homes that lie within one to 10 feet from the water level at high tide).