Wednesday, September 25, 2013

More on Wages, Taxes and Jobs

Simply put: Record-high corporate profits + low "effective" corporate rates + low capital gains tax rates + stagnant worker wages + tax avoidance loopholes + thirty years of offshoring domestic jobs = record-high CEO pay, record-high government debt, record-high trade deficit, record-high unemployment and record-high inequality.

From Naked Capitalism: (Excerpts) "Companies no longer share the benefits of productivity gains with workers. One big factor is indeed the decline of unions. Too many people chasing too few jobs gives companies the upper hand. Our trade deficits are tantamount to exporting US demand to support jobs overseas. The pet fad of the policy classes, that we have a STEM (science, technology, engineering, and math) crisis is simply not supported. Entire industries have been not just outsourced, but entirely offshored. Alan Blinder in 2007 estimated that a full 29% of US jobs were [still] offshorable."

So why are the unemployed being blamed for not finding jobs? And why are low-wage workers chastised and insulted for relying on food stamps? And why are the bottom 50% being called "freeloaders" for not paying enough taxes (when they only earn $27,000 a year or less)? Why are multi-billionaires paying a lower income tax rate (23.8 percent) than those in the middle tax brackets who earn regular wages and are paying 25 percent? Who gets the better deal: A neurosurgeon earning $200,000 a year; or a CEO with an annual base salary of $1 million (plus another $8 million in stock-options) while using the company jet?

2013 Tax Rates: The capital gains tax rate for investment income (unearned income) is inserted among the marginal tax rates for regular wages (earned income) below:

  • 10% on taxable income from $0 to $8,925, plus (includes those drawing an unemployment check.)
  • 15% on taxable income over $8,925 to $36,250, plus (includes Social Security and disability benefits if income is over $25,000)
  • 23.8% realized long-term capital gains paid on stock investments (pays no Social Security tax at all.)
  • 25% on taxable income over $36,250 to $87,850, plus (pays Social Security tax on 100% of their income. This might be considered a "middle-class" income).
  • 28% on taxable income over $87,850 to $183,250, plus (Social Security taxes are capped at $113,700. Congressional salaries are $174,000 a year, so they also enjoy the cap)
  • 33% on taxable income over $183,250 to $398,350, plus (what a small business owner or a neurosurgeon might average)
  • 35% on taxable income over $398,350 to $400,000, plus (Trial lawyers, Washington lobbyists and corporate tax attorneys?)
  • 39.6% on taxable income over $400,000 (Regular wages in this income category are usually base salaries for the CEOs of large corporations, and represents a lesser part of their total annual salaries. Their stock options are driven by higher stock prices, helped by low "effective" corporate tax rates (if they pay any corporate taxes at all.)

Forbes tells us how the top 1% has eleven ways to beat the capital gains tax:

"By running appreciated assets through your estate, your heirs get your assets with a step-up in basis, and no capital gains tax is due. Call it the big deferral. Wouldn’t you rather pay 0% than 23.8% capital gains tax? Luckily, there are ways to exploit the 0% rate while you’re still alive."

See a few more examples at Forbes here: Billionaire Poster Boys For Tax Reform:

"In 1937, while FDR was campaigning to close loopholes for the rich, Treasury Secretary Henry Morgenthau wrote an 11-page memo fingering wealthy folks who, based on a review of their tax returns, had used such tax reduction techniques as incorporating personal holding companies to hold yachts and country homes."

About 35 years ago, the capital gains tax rate was about twice what it is today, and corporate taxes were also higher as a percent of GDP. More here at the Economic Populist: Using the Tax Code as a Weapon

1 comment:

  1. When it comes to Wall Street bankers, it takes a lot to shock us --- but what AIG CEO Robert Benmosche said in a recent interview (published Monday Sept. 23rd in the Wall Street Journal) did that and more. In the interview he claimed that the criticism aimed at AIG (and other Wall Street firms) after they crashed the economy, and then were then rewarded with big bounuses and bailouts, was "intended to stir public anger, to get everybody out there with their pitch forks and their hangman nooses, and all that --- sort of like what we did in the Deep South [decades ago]."