Most
of the losses that occurred in the stock market during the last year of the Bush
administration have recuperated...it's the "working" American's
economy that still suffers.
Stocks on the DOW JONES are up 64% since capital gains taxes were
reduced nine years ago in 2003, to one
of the lowest tax rates in U.S. history. As Mitt Romney said, he's not going
to worry about the rich, they've been doing very well.
But if the Bush tax cuts expire later this year, what would it mean for you?
According to the New York Times, someone earning $25,000 a year ($481
a week) could see $17 less in their paychecks every week by the end of the year
if the Bush tax cuts were allowed to expire. The Washington Postcalls
it “taxmageddon.”
The marriage penalty for joint filers will spring back to life, the value of
the child credit will drop from $1,000 to $500, and the rate everyone pays on
the first $8,700 of wages will jump from 10 percent to 15 percent - and the
Social Security payroll tax will pop back up to 6.2 percent from 4.2 percent. (New
York Times: The
Expiration of Bush Tax Cuts)
It's being touted as "one of the biggest tax increases in U.S.
history", but millionaires and billionaires weren't complaining a decade
ago when Bush lowered their capital gains taxes from 20% to 15% (as well as
their top marginal rates), making it one of the biggest tax decreases in
U.S. history.
For every million dollars CEOs, hedge fund mangers and bankers earned every
year for the past 10 years, they paid $50,000 a year less in taxes...a windfall.
But not if the Democrats just tax the super-rich; then most people (99% of
all working Americans) won't see their taxes go up.
White House officials say Obama will not sign another full extension of the
Bush tax cuts, as he did in December 2010 when the Republicans held unemployment
benefits hostage for the tax breaks for the rich. Obama is demanding a partial
extension that would preserve the cuts for middle-class taxpayers, but permit
rates to rise on household income over $250,000.
The Republicans say they doubt Obama would make good on his veto threat for
allowing all of the Bush tax cuts to expire because it would harm middle-class
taxpayers (another hostage situation?)
But there's broad support for the Democrats latest tax strategy, which
emphasizes higher taxes just for people earning a million dollars a year (not a
NET WORTH of a $1 million, but on those whose paychecks are that large every
year).
A recent Washington Post-ABC News poll found that 72% of Americans
support raising taxes on people with incomes over $1 million a year, in
line with Obama’s call for a “Buffett Rule” that would require those
people to pay an "effective" tax rate of at least 30%, which is
actually lower than the 35% "statutory" tax rate.
Currently, those earning over $1 million a year, usually do so with
loopholes such as capital gains and carried interest, and only pays a very low
15% tax rate.
Senator Charles E. Schumer (N.Y.), the #3 Senate Democrat and the man
who came up with the idea of raising the income threshold, agrees with most
Americans, and said, “Most Americans share our belief that, while the middle
class should not pay an increase in taxes, the wealthiest among us should.”
The rich have enjoyed a tax holiday for decades, ever since capital gains
were first taxed preferentially going back to 1921. The top 1% was not taxed as
earning ordinary wages.
Many Republicans maintain that they would never raise taxes on a group the
GOP views as small-business owners and “job creators.” But those people
rarely earn over $1 million a year, and like Mitt Romney, are not "job
creators". Hedge fund mangers make multiple millions every year, and might
only hire a secretary and a go-for guy. (The last I heard, Paris Hilton
only had seven "employees".)
If Obama is re-elected and the Democrats hold the Senate, it makes it much
more difficult for Republicans to press for a full extension of the Bush Tax
Cuts for the rich (so if you don't earn $1 million or more every year, it
would be wise to vote for all Democrats.)
Some Republicans would be willing to raise taxes, but only if cuts are
made to programs that the elderly, the sick, and the poor need. (Another hostage
situation?)
The Republicans created a massive deficit under Bush, and now expects the
poor and middle to "put more skin in the game". Social Security,
Medicaid and Medicare may come under the budget axe.. The vast corporate
military industrial complex may no longer be able to get whatever it wants.
Taxes may have to rise from their recent levels, which have been lower, as a
share of the economy, than at any point in the last 60 years
But with rising poverty and low-wage part-time jobs for millions of
Americans, the Republicans still insist that they "put more skin in the
game", rather than just claw back some the excessive wages and bonuses that
the CEOs, hedge fund mangers and bankers have been enjoying for the last ten
years.
No, after decades of low tax rates and loopholes for the rich and large
corporations, we won't pay down the national debt any time soon...but we can at
least start with Obama's tax plan for the time being. It took years to dig the
hole, and it will take time to fill it back in.
Mitt Romney likes Paul
Ryan’s plan, which would cut the top rate to 25%, from 35%. Romney would
cut the rate another 20%, while leaving his own capital gains tax rate the same,
at the astoundingly low 15%. (Is that the "shared sacrifice"?)
What’s missing from these tax plans is any detail on which any proposed tax
loopholes would be eliminated. Corporate lobbyists, like those at the Business
Roundtable, offer an especially
telling contrast: they urge the government to "reform" the tax
code, while continuing to push for loopholes that benefit them -- and generally
refuse to name the loopholes they would close. (Isn't that like signing a blank
check?)
If Mr. Obama wins re-election, he and his aides say, he will not extend all
the Bush tax cuts, as they agreed to do in 2010. Instead they plan to insist on
a deficit plan that combines spending cuts with higher taxes for the affluent,
who have received the largest tax cuts in recent decades.
The so-called Buffett Rule, a
focus of President Obama’s last week, is a model for such a tax system. It
does not specify which tax breaks would shrink for households with more than $1
million in income, but rather caps the total value of such tax breaks.
I would also suggest that we end the CAP on Social Security taxes that the
very rich are not obligated to pay on 100% of their income (like most of
us must), but they never mention this...why????
The baby boomers are retiring, and health care is getting more expensive. The
era of super-low taxes and corporate loopholes can't last forever, unless they
pay the young nothing for their labor, and then exterminate them when the become
elderly. (Soylent Green).
Going forward in 2012, many more Americans will lose their unemployment
benefits because of the deep cuts many states have made to their UI programs.
Had the top 5% not had the Bush tax cuts for the past 10 years, there may not
have been the current budget crisis today, and many of the unemployed might
still have jobs...and therefore, may not have even needed jobless benefits.
Also, according
to Authur Delaney, despite the two month extension for the payroll tax cuts,
the maximum of 99 weeks for unemployment benefits will gradually be reduced in
2012.
Happy New Year to the top 5%, and everybody else be damned.
Click photo to enlarge
What the Bush tax cuts costs to the U.S. Treasury
First decade of Bush tax cuts
$955 billion
With Obama extension 2011-2012
$229 billion
Proposed extension, 2013-2021*
$2.02 trillion
Total cost, 2001-2021
$3.2 trillion
Personal Income Tax Rates
Among the tax provisions enacted by President Bush and extended by President Obama
in 2010 were reductions in the top marginal income tax rates, from 36 and 39 percent, respectively, down to 33 and 35 percent. What is a “marginal tax rate?”
A marginal tax rate is the rate at which your last dollar of income is taxed. So, for example, if you’re single and you make $22,000 per year, then your first $8,500 of income is taxed at a rate of 10 percent, and the rest of your income is taxed at 15 percent. In that case, 15 percent is your “marginal” tax rate
(Click on chart below for all marginal tax rates and the income levels they apply to).
Source: Internal Revenue Service
The top marginal tax rates—now 33 and 35 percent—affect American families making at least $212,301 and individuals making at least $174,401.
According to the nonpartisan Congressional Research Service, when President Bush lowered those top rates, and when President Obama extended them, doing so was almost perfectly “regressive”—that is, the benefits went to the wealthiest Americans.
The 1% & the 99%
Number of Households
Average Income per Household
Average Tax Cut per Household
Share of all income in the U.S.
Richest 1%
1.4 million
$1,370,662
$66,384
19%
The 99%
140.8 million
$58,506
$1,463
81%
* The U.S. House of Representatives passed a budget for Fiscal Year 2012** that would lower the top marginal tax rate again, this time down
from 35% to 25%. That budget, introduced by House Budget Committee Chairman Paul Ryan
(R-WI), would reduce federal revenues by a total of $4.2 trillion over ten years, a loss that was
to be partially offset with $2.9 trillion in cuts to Medicare, Medicaid, Social Security and other earned benefits.
The tax rates discussed above apply to payroll wages, but there are two other types of income that mostly go to the wealthy and are taxed at lower rates than regular wages: "Capital gains," which are profits earned from selling assets like real estate, and "dividends" earned from stocks,
or the sale of stocks after they appreciate. Many times CEOs get stock-options in
lieu of cash salaries*, and therefore are not taxed according to the top
marginal rate.
Under President Bush’s tax cuts, and President Obama’s two year extension
(for 2011 and 2012), capital gains and dividends are taxed at a maximum rate of 15 percent. Effectively, this means taxpayers earning more than $34,500 per year in wages pay a higher marginal tax rate than millionaires and CEOs earning their income from investments and stock-options. In 2007, 80 percent of all capital gains went to Americans earning more than $200,000 per year.
The official top marginal tax rate for corporations is 35 percent. However, in 2010 corporations paid, on average, just 23 percent of their profits in taxes, after deductions, credits and loopholes.
“Loopholes" are parts of the tax code that exempt certain people, businesses, and activities from standard taxation, and thus cost the government money in the form of lost revenue. While the official marginal tax rate for U.S. corporations is one of the highest in the world, loopholes make effective tax rates much lower than those of peer nations. The Congressional Budget Office found that corporate taxes as a percentage of GDP are lower in the U.S. than in nearly every other developed nation.
In President Obama’s “Plan for Economic Growth and Deficit Reduction,” released in September 2010, proposed changes to corporate taxation would close some loopholes and increase federal revenues by a total of $133 billion over ten years. And yet, if all corporations actually paid 35 percent of their profits in taxes, the government would have brought in an additional $219 billion in 2010 alone.
Corporate taxes have shrunk as a share of total government revenue over time, and that's not because corporate profits have shrunk.. According to the
Commerce Department and the Center on Budget and Policy
Priorities, corporate profits have grown as a share of national income since 1934, while wages and salaries have declined.
The entrepreneurs would take home slightly less money from their companies, but they'd start them anyway. So cutting taxes for rich "job creators" would
only make the job creators richer.
In a lot of ways, multi-millionaire Nick Hanauer is just like many Americans. He lives in Seattle with his wife and two children, and he grew up working in the family business, manufacturing pillows and comforters.
He explains one of the things that is ailing our economy is that rich people actually
don't create the jobs. He says that what really creates jobs is a healthy economic
ecosystem. Specifically, a healthy ecosystem that starts with a company's customers.
Recently, Hanauer wrote an opinion piece for
Bloomberg News (which I re-posted for you further down in this article) that was a plea to the government:
"Please tax me more."
These days, Hanauer is a venture capitalist who was one of the first big investors in
Amazon. He's not quite a billionaire, but not that far off, either, and he insists his plea is all about self-interest.
"I reject the idea that I am advocating higher taxes for myself and other wealthy people because I'm a good person or because I love you," Hanauer tells
the host Guy Raz
on NPR's All Things Considered "Let me just be very clear: I do not love you. I value you as a potential customer, and we have rigged the economic system in a way to destroy my customer base."
The top income tax rate in America is 35 percent if you earn $380,000 or more a
year. Many taxpayers in this category do pay that rate, but many do not.
Hanauer says that the richest of us, billionaires, derive the bulk of their wealth from stock appreciation. Their income strategies often reap hundreds of millions of dollars from those valuable shares in ways the IRS doesn't always classify as taxable income.
No Income, No Income Tax - Bloomberg reporter Jesse Drucker recently found out that, for the most part, the richest people in America pay nothing close to 35 percent."Larry Paige or Sergey Brin at Google, these are men who are extremely
wealthy. They get salaries of one dollar a year."
That's because the wealthiest Americans make their money from money; from stocks and investments. And from a tax perspective there are huge advantages to that.
A wage is taxed automatically, but capital gains from stocks are only taxed when you cash them in. So Drucker found that many of the so-called super rich don't sell their investments at all. To buy cars and houses and groceries and clothes, they borrow money —
often at very low rates. (They earn more leaving their cash in investments,
which costs them less in interest to borrow).
Since 2003, the richest investors have been able to do even more, thanks to a rule change from the IRS. To avoid paying taxes,wealthy clients can make deals with investment banks for something called a
variable prepaid forward contract.
Drucker says. "It basically says: 'I agree to give you my stock at a certain point in the future in exchange for cash
now.'"
Drucker says the IRS doesn't necessarily consider that a sale of stocks, even though the bank may pay that investor hundreds of millions of dollars to temporarily own his shares. It allows the investor to avoid paying capital gains taxes, which right now are 15 percent.
So it's not exactly a bending of the rules, but more a bending of the spirit of the rules. In recent years, however, the IRS has been less likely to let people bend the spirit of its rules.
A couple of years ago, a billionaire investor named Billy Joe "Red" McCombs made one of these deals. It made him $259 million, but because it wasn't officially a sale, he didn't report that $259 million as income and it never showed up on a tax return, Drucker says.
"Very wealthy people are pretty regularly figuring out ways to cash out appreciated shares and appreciated real estate in ways that do not show up on tax returns," he says. "And the result of that is that the 17 percent rate that we hear often cited by Warren Buffett,
is probably much too high. In reality there are many folks paying effective tax rates that are much lower."
Venture capitalist Nick Hanauer, who makes about an eight-figure income annually, says his tax rate this year was about 11 percent. Most Americans think that the tax rate on the very wealthy is 35 percent, but Hanauer says this is absolutely not true.
"If you're a small business person earning $350,000 a year, your tax rate is 35 percent," he says, "but if you're a hedge fund guy or an incredibly rich person,
all of your income is from capital gains or dividends or tax-free municipal bonds – these things are taxed at much lower rates."
Paying A Fair Share - Hanauer invests in companies that hire people, so he is someone who might be called a
job creator. Some economists and most Republican lawmakers argue that if you increase taxes on these people the result would be devastating for the economy.
Nick Hanauer says he and other wealthy Americans should pay their fair share in order to give the middle class
tax relief.
But Hanauer says the economy is like an ecosystem and that its lifeblood is the spending power of the middle class, not people like him. He says business people spend their time fundamentally on two things: creating sales and cost containment. Or, as he puts it,"how to not create jobs."
"The fewer jobs you can create, for the revenue you create, the more profit you make," Hanauer says. "The only time that businesses create jobs is when middle-class consumers essentially put a gun to our heads, in the form of orders for products that we can't make ourselves, and then we hire people and create jobs."
His basic argument is to make the wealthiest Americans pay their fair share in order to give the middle class some tax relief.
Defining Income - Perhaps what matters most is how you define income. Your wage is easy, everything else is more complicated. And
Bloomberg's Drucker says that complication creates an inaccurate picture of income equality.
"The top 1 percent controls something like 34, 35 percent of the net worth or net wealth in this country, but topped out at about 20 percent of the income," he says. "So that shows you right there that the income inequality that we're talking
about is based on tax return data from the IRS which isn't really giving a full indication of the real level of inequality."
Hanauer, who's also co-authored a book about taxes and income distribution called
The Gardens Of
Democracy, says the system, as it is set up now, is actually bad for the economy.
"It's simply widening the gap between the richest and the middle class," he says.
"If Jeff Bezos and I had started Amazon in a poverty-stricken corner of Africa, there would have been no job creation, because there would be no people to buy the stuff from Amazon," he says. "The difference here is the American middle class, which is by every measure, the most extraordinary economic achievement in the history of the world — and there is only one of those."
It is that American middle class that Hanauer calls "incredibly precious," not just for the American economy, but for the world's economy.
Nick Hanauer on Fox News - Like many other Fox News commentators, Neil Cavuto (worth $23 Million) is also part of the 1%.
Almost half-way into this interview, wealthy investor Nick Hanauer admits that the truly rich only pay 15% in taxes because of
capital gains, but Neil Cavuto kept interrupting his guest and talking over him. It appears that Cavuto doesn't want his
capital gains taxed more and wanted to control the conversation, rather than honestly debate the issue with Nick Hanauer.
Neil used the same old ridiculous argument and told Nick, "If you want to pay more, then write a check right now." Neil Cavuto was very rude.
Nick replied, "Try using that argument at the next company meeting at Fox News. I've run a lot of companies and once in a while somebody will pop up with this
attitude. You know what we do with those people? We fire them. Both because they're
useless and because they're poison to the culture."
Neil Cavuto raised the issue that Clinton lowered capital gains, but I also heard Bill Clinton
say in a recent interview that he regretted doing that. (I regretted that Clinton also signed the
Gramm-Leach-Bliley Act
to de-regulate the banks in 1999.)
"Even if we imposed a millionaires’ surtax and rolled back the Bush-era tax cuts for those at the top, the taxes on the richest Americans would still be historically low, and their incomes would still be astronomically high. We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Middle-class consumers do." - Nick Hanauer
Raise Taxes on Rich to Reward True Job Creators by Nick Hanauer
December 2011 (Bloomberg) -- It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company
aQuantive Inc.,
which was acquired by Microsoft Corp. in 2007 for $6.4 billion. I was also the first non-family investor in
Amazon.com Inc.
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
Theory of Evolution - When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the
super-wealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough
super-rich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
It’s true that we do spend a lot more than the average family. Yet the one truly expensive line item in our budget is our airplane (which, by the way, was manufactured in France by
Dassault Aviation SA), and those annual costs are mostly for fuel (from the Middle East). It’s just crazy to believe that any of this is more beneficial to our economy than hiring more teachers or police officers or investing in our infrastructure.
More Shoppers Needed - I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.
Consider, for example, that a puny 3 percent surtax on incomes above $1 million would be enough to maintain and expand the current payroll tax cut beyond December, preventing a $1,000 increase on the average worker’s taxes at the worst possible time for the economy. With a few more pennies on the dollar, we could invest in rebuilding schools and infrastructure. And even if we imposed a millionaires’ surtax and rolled back the Bush- era tax cuts for those at the top, the taxes on the richest Americans would still be historically low, and their incomes would still be astronomically high.
We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Middle-class consumers do, and when they thrive, U.S. businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.
So let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business.
* Nick Hanauer is a founder of Second Avenue
Partners, a venture capital company in Seattle specializing in early state startups and emerging technology. He has helped launch more than 20 companies, including aQuantive
Inc and Amazon.com, and is the co-author of two books, “The True Patriot” and “The Gardens of Democracy.”
To contact the writer of the article ":Raise Taxes on Rich to Reward True Job Creators"
- Nick Hanauer at Nick@secondave.com.
To contact the editor responsible for the article "Raise Taxes on Rich to Reward True Job Creators"
- Max Berley at mberley@bloomberg.net
A speech delivered to a Joint Session of Congress by President Abraham Lincoln, exactly 150 years ago today.
"It is not needed, nor fitting here that a general argument should be made in favor of popular institutions; but there is one point, with its connections, not so hackneyed as most others, to which I ask a brief attention. It is the effect to place capital on an equal footing with, if not above, labor, in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their own consent, or buy them, and drive them to it without their consent. Having proceeded thus far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. And further, it is assumed that whoever is once a hired laborer is fixed in that condition for life. Now, there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless. Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights."
If America's largest banks and corporations would just loosen their death-grip on a chunk of the $3.6 trillion in cash they're hoarding, and move it into productive investments instead, the report estimates that about 19 million jobs would be created in the next three years, lowering the unemployment rate to under 5 percent.
"There is no reason that the U.S. needs to remain stuck in a long-term unemployment crisis," Robert Pollin, lead author of the report and co-director of the
Political Economy Research Institute, said in a statement accompanying the report's release Tuesday.
The Federal Reserve, ever since December 2008, has been lending banks loads
of money at zero or near-zero interest in an attempt to stimulate
lending. But far from lending all that cheap money to businesses that could
create jobs, the banks have used it to hugely inflate their cash reserves and
pay themselves huge low-taxed bonuses.
"Getting the banks and corporations to move their hoards into productive investments and job creation requires carrots and sticks -- policies such as a new round of government spending stimulus as well as taxes on the banks' excess reserves -- that can both strengthen overall market demand and unlock credit markets for small businesses," Pollin said.
Even as the nation continues to confront massive unemployment, the nation's biggest companies have been hoarding cash. Banks have been able to borrow the money essentially for free from the Federal Reserve, so why not? In fact,
according to the Federal Reserve (Table L.109, line 28), banks are sitting on $1.6 trillion in reserves -- about 80 times the $20 billion they held in 2007.
Add to that, Recently Bloombergjust
reported that documents obtained under the Freedom of Information Act
reveals the Federal Reserve acted on their own without even telling Congress of
almost $8 TRILLION in taxpayer guarantees to banks. (The Fed lashed out at
‘errors’ in reporting, but the New
York Times reports that the Bloomberg writer says, “We have met
with the Fed numerous times on this issue and not once has the Fed ever told us
our reporting on this issue is inaccurate. We stand by our reporting.”
Corporate fat cats are sitting on mounds of money rather than spending it or
investing it in ways that would create jobs. As the Washington
Post recently reported, executives at U.S. companies hoarding a record
$1.8 trillion in cash are finally dipping into those reserves -- but, amazingly
enough, only to buy back their own stock, a move intended to prop up their share
prices and pad their bonuses as "pay for performance".
CEOs only earn bonuses when their company “performs.” One measure of that
performance: “earnings per share,” or company income divided by outstanding
shares of stock. Execs have figured out that they don't have to actually boost
earnings to hit their per-share targets. They simply reduce the number of
company shares — by having their companies “buy back” shares of their own
stock off the open market. U.S. corporations overall have so far this year
authorized $445 billion worth of buybacks.
Frank Luntz, a Republican strategist, advised
attendees at the Republican Governors Associationwhat to say
if they give their employees a bonus. "If you give out a bonus at a
time of financial hardship, you're going to make people angry. Call it
pay for performance."
And the CEOs of the big banks and corporations are also paying historically
low capital gains taxes on their executive compensation packages that are
paid as stock options and "pay for performance". They are paying
less as a percentage of their personal income than most middle-class
taxpayers.
NOTE: The
middle-class with retirement accounts don't enjoy these tax breaks the way the wealthy do. The character
of any gains (including tax favored capital gains) are transformed into
"ordinary income" at the time the money is withdrawn from your ROTH
IRA or 401k, even though those gains were also made by stocks trades. Why not
also tax the
ultra-wealthy on their capital gains as "regular income"
(35% over $317,150) instead of the historically low 15% they now pay because of
the Bush tax cuts?
And remember when Goldman Sachs CEO Lloyd Blankfein had warned his
employees to avoid making big-ticket, high-profile purchases? Shhhhhhhhh!
And theNew
York Magazine piece asking if the company is "evil" ?
But Senator John Boehner says, "We don't have a revenue problem, we
have a spending problem."
Meanwhile, non-financial companies are keeping their profits liquid, rather than plowing them back into investments, to the tune of about $2 trillion.
Together, that amounts to almost a quarter of the U.S. gross domestic product. Robert Pollin
and his colleagues figured that even accounting for a massive safety cushion, at least $1.4 trillion of those reserves should be considered excess.
The report
also notes that small business are having a hard time getting anyone to lend them money.
The report concludes that investing the $1.4 trillion in private businesses would generate an enormous surge in employment. It recommends that the money in particular be channeled toward "small businesses that face larger than normal credit constraints; more labor intensive businesses; and businesses that generate large social as well as private benefits."
Move your checking and your credit card to a nonprofit
credit union. It's safe and the decisions they make there aren't based on
greed.
CAP's Director of Tax and Budget Policy Michael Linden found, “in the past 60 years, job growth has actually been greater in years when
the top income tax rate was much higher than it is now. In fact, if you ranked each year since 1950 by overall job growth, the top five years would all boast marginal tax rates at 70 percent or higher.”
Today the tax rates are actually at historical lows. The GOP, as Fred Upton displayed, simply has no explanation for these facts.
Since the days of the Bush breaks in 2001 and 2003, Republicans consistently
have said that tax reductions stimulate the economy and the lost revenue needn't
be offset. Jon Kyl (R-AZ), the #2 Senate Republican, asserted,
for example: "You should never have to offset the cost of a
deliberate decision to reduce tax rates on Americans.
He says "Americans". Not rich Americans, or the richest of
the richest Americans, or the top 1% of Americans. Just Americans, as though
we're all financially equal.
The GOP didn't pay for the Bush tax cuts, a decision that dramatically
increased the deficit, which Republicans now say the 99% must pay by suffering
slashed government services.
Rather than answering to the PEOPLE, the Republicans have loyally upheld
their solemn pledge to lobbyist Grover Norquist to never, ever raise
taxes. Last year, for example, they GOP refused to allow the Bush tax cuts to
expire, contending that would be a tax increase, not the end of tax rates
that were intended to be temporary.
Nick Hanauer, a venture capitalist writing an op-ed
piece for Bloomberg, says, "The conventional wisdom that the rich and
businesses are our nation’s 'job creators' is every bit false. I’ve never
been a 'job creator'. I can start a business based on a great idea, and
initially hire dozens or hundreds of people. But if no one can afford to buy
what I have to sell, my business will soon fail and all those jobs will
evaporate. When businesspeople take credit for creating jobs, it is like
squirrels taking credit for creating evolution. In fact, it’s the other way
around."
"Let’s give a break to the true job creators. Let’s tax the rich
like we once did and use that money to spur growth by putting purchasing power
back in the hands of the middle class. And let’s remember that capitalists
without customers are out of business."
And the REAL job creators in America are either poor, unemployed,
under-employed, part-time workers, or under-paid. And of those with jobs, 50%
of all American workers earned less than $27,000 a year when the
poverty line for a family of four was $22,314.
What have we all be saying for all these years? The Bush tax cuts just let people and
corporations hoard
money (over $2.2 trillion just in corporate off-shore banks accounts alone, not
including personal off-shore accounts to avoid taxes). Taxing them is the only way we can circulate the money supply.
Or, as the Republicans like to accuse us of, "redistributing the
wealth", rather than concentrating it all at the very top.
Last week, Republicans found themselves confronted with a choice between raising taxes on the
99% or on the 1%. So far, millionaires and billionairesthe
greedy gluttonsthe ultra-rich the humble "job
creators" have been spared.
When the rich rob from the poor, it's called "business". When
they fight back, it's called "class war". When the rich dodge taxes,
it's called a "loophole". When the poor dodge taxes it's called
"tax evasion."
Taxes. It's a boring subject, unless you're a tax attorney, economist,
mathematician, or a member of the top 1%.
Tax rates, deductions, exemptions, deferments, allowances, depreciations, and
all those numbers and percentages can be mind-numbing.
But because we have such a complicated tax code that's written in legalese,
most of us can't understand it, even though there's one thing we all know for
certain...and that's that we all want to pay less in taxes.
Most people don't feel they earn enough as it is. We know we need to pay
taxes, but we also want to pay as little as we can, and yet still get the
biggest bang for our buck. We realize, when we're rational, that we need taxes
to run government. We need highways, a power grid, a standing army, clean water,
and all those other things that we want to make us feel comfortable and safe.
And we certainly don't want to pay any more than we have to, and only want to
pay our fair share. But the average taxpayer, who only earns between $25,000 to
$35,000 a year, needs to at least have some basic understanding of how the tax
code works - - so they'll know if they're being fleeced by their elected
officials - - those who write and pass the tax laws.
The research and time I put into writing this post wasn't fun, but it was a
challenge, and I enjoy challenges. But the most difficult part wasn't
researching the tax code so that I might better understand it...but
to write a post so that average people like myself could understand. I know, a
near impossible task.
But look at the bright side is, this post is not 50 volumes thick and over
200,000 pages long., as is our current tax code. So I'll begin here...
Capital Gains Taxes: Hidden Entitlements
Unlike regular working people, the very affluent (the
ultra-wealthy) aren't paid a wage or salary, who is then obligated to pay
35% of their earnings in federal income taxes (the highest marginal rate). The
ultra-wealthy primarily earn their most of their money with stocks and bonds,
and then they pay a capital gains tax of only 15% - - the same
exact tax rate as someone who only earns $8,500 a year (which equates to
$4.09 an hour if they work 40 hours a week).
If a hedge-fund manger or a CEO of a large bank or corporation were
compensated with $8.5 million in stock options one year, they would pay the same
exact percentage of their total personal earnings in taxes as would a
16-year-old teenager working 20 hours a week for a whole year at Wal-Mart...15%.
If you earned $34,500 in profits from selling stocks in a railroad company
that you had held for one year, you'd pay just as much in taxes to the IRS as
someone else who earned $34,500 a year in wages ($16.58 a hour) who had actually
been going to work every day and building that railroad - - 15% in federal
income taxes, as opposed to 15% in capital gains taxes
One man had to get up and put on his shoes every morning for a whole year and
swing a pick-axe or shovel, the other man just had to call his stock broker and
say, "Sell."
Here's why the ultra-wealthy need tax attorneys and we don't. If everybody
paid the same "effective" tax rate on ALL the personal income
they earned every year (enter your ___% here), the U.S. tax code could be very
simple. You'd earn so much in wages (or profits), then you'd pay so much in
taxes. Simple.
But the tax rates are not simple at all (and are constantly changing) because
the ultra-wealthy have always felt entitled to pay LESS in taxes than
ordinary working Americans; so all throughout the history of the IRS they have
petitioned (lobbied) Congress for special
provisions in the tax code (deductions, exemptions, deferments, allowances,
depreciations, etc.) to have themselves pay less (as a percentage of their
personal income) in taxes than we do.
That's why this post deals primarily with just "capital gains",
because this is how, for the past 90 years, the rich (the top 1%) have
kept getting exponentially richer - - - while the rest of us (the 99%) have kept
getting poorer.
Our very complicated tax laws are
written by lawyers (and so probably, deliberately obtuse). But
generally speaking, most common folks don't understand the U.S.
tax code. It contains over 50 volumes and is over 200,000
pages long. Attempting to read just one page can give someone such
as myself a massive headache. Besides, most of us just use the
1040-EZ form or we'll go to H&R Block.
How Capital Gains Taxes are Entitlements for the Ultra-Wealthy
Capital gains taxes should really be called "loopholes for the rich
and famous".
Capital gains (excluding a one-time exclusion of your principal home) are
profits reflecting increased values of stocks, bonds, investment real estate,
and other "capital assets." Capital gains are treated much more
favorably than other types of income, especially for the very high income
people.
Capital gains are not taxed at all unless and until they are
"realized"--generally upon sale of an appreciated asset. And when
gains are realized, top-bracket individuals pay lower tax rates on
capital gains than on so-called "ordinary" income.
As a result, investment markets that primarily service the very well off are
often designed to maximize the share of profits that are in the form of capital
gains--both realized and unrealized. Indeed, on individual tax returns, total
realized capital
gains (such as the buying, holding, and selling of stocks) far exceeds
dividends earned on stocks (dividends,
being the quarterly income paid by a company who issues the stock) by 73%.
For the highest income people-- making more than $200,000 a
year--realized capital gains exceed the total amount of dividends and interest
combined. Almost two-thirds of total capital gains reported on individual tax
returns go to people whose incomes exceed $200,000.
Only 8% of the total capital gains are reported by the three-quarters of tax
filers with incomes of $50,000 or less (such as those who live in, then sell
their homes for a higher price). Thus, more than any other type of income,
capital gains are concentrated at the very top of the income scale.
Because the taxation of capital gains is more important to the rich and
politically powerful than the treatment of any other type of income, capital
gains taxation has been extremely controversial over the years. At the onset of
the income tax, "realized gains" were taxed at the same rates as other
income--up to 77% during the World War I period.
That's how hedge-fund managers, bankers, and CEOs keep getting exponentially
richer than the rest of us...they're paying less taxes! Read: Tax
breaks for billionaires: Loophole for hedge fund managers by the Economic
Policy Institute (a non-profit and non-partisan think tank).
Capital Gains Taxes are Historically Low in 2011
The top marginal tax rate in 1945 was 94% (on all income over $200,000). Top
marginal tax rates stayed near or above 90% until 1964 when the top marginal tax
rate was lowered to 70%. The top marginal tax rate was again lowered to 50% in
1982 -- and eventually to 28% in 1988.
However, in the intervening years Congress had subsequently increased the top
marginal tax rate to 35% (the rate it is today in 2011). But
with the bulk of earnings being made by hedge-fund mangers, bankers, and CEOs
coming from stock trades (capital gains that are taxed at 15%), the wealthiest
individuals in the U.S. are now paying historically low income taxes.
PolitFact:
The top income tax rates on ordinary income (e.g. hourly wages, salaries,
commissions) were lower between 1988 and 1992 than they are today, but
otherwise, they have been higher for the every other year since the 1950s. And
the "effective tax rates" for high-income earners were either
at their lowest since 1960 or very close to their lowest ever. Meanwhile, the
capital gains tax rates that are used to tax hedge-fund managers, bankers, and
CEOs have been at historical lows since 2003 with the Bush tax cuts. They also
pay much less as a percentage of their total personal earnings in Medicare and
Social Security taxes because of a "cap".
Now the question becomes, "how do we get our leaders in Congress
(especially the Republicans) to change the tax code so that capital gains are
taxed as ordinary income?" (Especially since half
the members in Congress are millionaires themselves AND they
use insider
trading to earn money with stocks.)
Income tax and capital gains tax rates from 1916 to 1993 -
Chart below prepared by Citizens for Tax Justice (click to enlarge).
How
the rich robbed the poor for the past century
A Short History of Capital Gains Taxes
From 1913 to 1921 capital gains were taxed as ordinary income until 8
years before the stock market crash of 1929 when the Revenue Act of 1921
was introduced during the Roaring Twenties. The new Secretary of the Treasury
Andrew Mellon (a Republican and also owner of Mellon Bank) argued that
significant tax reduction was necessary in order to spur economic expansion and
restore prosperity. It was the first Republican tax reduction in history, and
was enacted on November 23, 1921 under the Republican President Warren G.
Harding.
Mellon also obtained a repeal of the wartime excess profits tax. The top
marginal rate on individuals with ordinary income fell from 73% to 58% by
1922, and preferential treatment for capital gains was introduced at a rate of
12.5%. Secretary of the Treasury Andrew Mellon had hoped for more significant
tax reduction. Read my post: Mellon:
The Banker Who Rigged the U.S. Tax Code
Between 1921 and 1932 the maximum capital gains tax rate was 12.5% (half the
tax rate of 25% for ordinary income) from 1925 to 1931. The top tax rate
for ordinary income rose to 63% in 1932, but the 12.5% top capital gains
rate was retained. Example: If you earned $1 on a railroad stock, you'd pay half
as much in taxes to the IRS as someone else who earned $1 in wages who was
actually building the railroad.
The vast majority of a wealthy person's earnings is almost always accrued
through capital holdings - held and accumulated as "investments"
(stocks, bonds, real estate, etc). They are not paid a regular hourly or
salaried wage, so they pay the lower tax rate (capital gains taxes) and not the
higher tax rate in regular federal income taxes. (You've heard the saying,
"It takes money to make money.")
The onset of the Great Depression and public disillusionment with stock
speculation of the Roaring Twenties led to increased capital gains tax
rates in the 1930s. For a short period, realized gains were taxed under a
complicated schedule. This system was widely criticized as unwieldy and complex,
and in the early 1940s it was scrapped.
For the next 25 years taxpayers had the option of excluding half of their
capital gains or paying a maximum rate of 25% (useful to those whose regular tax
brackets exceeded 50%).
In the late 1960s, the special 25% maximum rate was repealed. In conjunction
with other tax changes, the top capital gains rate rose to about 39% by the
mid-1970s.
Tax Codes as they Pertain to Capital Gains Taxes (1969 to the Present)
The Tax
Reform Act of 1969 lowered the maximum tax rate on ordinary income
from 70% to 50%. The explanation of the tax act prepared by Congress's Staff of
the Joint Committee on Internal Revenue Taxation explains the Alternative
capital gains tax rate and the Alternative Minimum Tax.
From 1969 capital gains taxes went from 27% to 32% in 1970, to 39% in 1971,
to 45% in 1972, to 49% in 1976, then back
down a notch to 48% in 1978.
Then in 1978,
congressional Republicans joined by a substantial minority of Democrats
pushed through a major capital gains tax cut. Reluctantly signed by
President Carter, it lowered the top rate from 48% to 28%,
by excluding 60% of realized capital gains from tax.
President Ronald Reagan's 1981
cut in the top regular tax rate on unearned income reduced the maximum
capital gains rate even further, this time to only 24%, then 20%
in 1982- - its lowest level since President Hoover's administration.
Reagan’s signature policy was a cut of the top tax rate for ordinary
income from 50% to 28%.
In conjunction with sharply increased depreciation write-offs in 1981,
Carter's 1978 and Reagan's 1981 capital gains tax cuts caused a
proliferation of tax shelters (helping set the stage for the savings and
loan crisis later in the decade). The goal of most of the tax shelters was
not only to defer taxes, but to convert ordinary income into
lower-taxed capital gains.
In 1988 and 1989 the capital gains tax rate was 33%.
One of the greatest achievements of the 1986
Tax Reform Act (the second of Reagan's two tax cuts) was to tax "
realized capital gains" at the same tax rate as regular wages,
dividends or other income... as ordinary income. Previously,
realized capital gains had been preferentially treated as 60% tax-exempt.
But in 1990,
Congress reinstated the capital gains preference, by capping the capital
gains rate at 28% while setting the
top regular income tax rate at 31%.
In the 1993
budget bill, the capital gains preference was greatly expanded to provide what
amounts to a 30% capital gains exclusion for top-bracket taxpayers (the
difference between the new 39.6% top regular tax rate and the continuing 28%
maximum capital gains rate). The 1993 act provided an additional 50% capital
gains exclusion for profits from certain "risky" investments that are
considered likely to fail - - - 97% of the tax savings from the current
special maximum capital gains tax rate for individuals goes to the top 1%.
In 1999 Bill Clinton signed the Republican-sponsored Gramm-Leach-Bliley
Actwhich de-regulated the banks. Then four years later in 2003 we had the
infamous Bush tax cuts that lowered capital gains tax rate to the near historically
low* tax rate of 15% while the top
marginal federal income rate for people earning over $311,950 a year in wages
was 35%.
* The historically low capital gains tax was 14.5% in 1921 when it was first
initiated - - and top marginal federal income tax rate at that time was 73% on
the most wealthy before it was lowered to 58%.
Capital Gains Taxes AND Loopholes
Here's where most of us might need a tax attorney.
NOTE: Capital gains are not taxed until assets are actually sold. As a result,
investors can put off tax on their gains indefinitely. They can also avoid
paying taxes on "realized gains" by selective "realized
losses" on other investments in the same year. This deferral is
unavailable to other kinds of income such as savings account interest, or even
if the money is left in the bank.
EXAMPLE: Multi-billionaire Warren Buffett has structured his investment
company so that it hasn't paid a dividend since 1966. Instead, as the 2nd
richest man in the world, Warren
Buffett's $39 billion+ in accrued capital gains remains
"unrealized" and thus not taxed.
Capital gains tax breaks for gifts and inheritances: Currently, heirs can
sell inherited property and pay no tax on capital gains that accrued prior to
the time they inherit. In other words, capital gains taxes on inherited property
are completely forgiven.
In the case of gifts, the recipient takes over the giver's "basis" in
the donated property--generally the cost when the property was first acquired.
That carryover of basis--instead of taxing the gain--allows a continued deferral
of unrealized capital gains.
Special additional industry-specific capital gains tax breaks:
Historically, favorable capital gains treatment has normally been limited to
profits from the sale of investments (stocks, bonds, etc.). But several
industries have succeeded in getting part of their normal business profits
treated as capital gains. Special capital gains treatment is currently available
for sales of timber, coal, and iron ore and for certain agricultural income.
Other special capital gains loopholes include:
Indefinite tax deferral for so-called "like-kind exchanges"
of real estate. Normally, when someone sells appreciated property he or
she must pay tax on the capital gain. But someone who sells rental real
estate and purchases other rental property can put off paying capital gains
taxes on the sale indefinitely by pretending to have "exchanged"
the properties with another investor.
The refinancing loophole. Owners of investment assets that have
gone up in value can cash in their capital gains without tax by borrowing
against the appreciation. This is an enormous tax shelter for, among others,
wealthy real estate speculators (although it doesn't make the official tax
expenditure lists).
An exception from the normal $3,000 annual limit on capital loss
deductions, for losses on the sale of certain "small business corporate
stock." Except for a $3,000 a year de
minimis rule, realized capital losses can only be used to offset
realized capital gains. Otherwise, investors with a portfolio of winners and
losers could realize losses to wipe out taxes on their wages and other
income, even though their total capital gains position (realized and
unrealized) was positive. But for certain "small business corporate
stock" investments, up to $100,000 in losses can be deducted. This
subsidy is presumably designed to ease the pain of backing money-losing
operations, and thereby encourage wealthy investors to invest in businesses
that are unlikely to succeed.
Low Corporate Taxes = Excessive CEO Salaries
It doesn't matter what a corporation pays in taxes as compared to
GDP, or how it's compared to any other index of measure (to skew the
numbers), it's what they actually pay to the U.S. Treasury
after loopholes (aka "deductions") that matters most. And
for the last 25 years corporations have actually paid
historically low taxes.
While today some corporations may have paid the maximum rate of
35% (when it was over 50% in the 1950s), many others paid ZERO, with
the average being only 18%.
The same can be said for their CEOs and other high-income
earners. While although the top bracket is also almost historically
low (at 35%, when it was once over 90%), what they actually pay is
nearer to 15% because the majority
of their income is earned through capital gains.
And because corporations have been paying a
low effective corporate tax rate for decades, that didn't keep
them from outsourcing jobs overseas for cheap labor, but rather, it
did enable them to pay very excessive CEO salaries...who only mostly
pay 15% in federal income taxes on their capital gains.
Addition sources other than the hyperlinks within this post:
The
" Tax Code" has been " Tax Fraud" for the last 90 Years!
Forward
This is a comprehensive examination of the tax code, capital gains taxes, and
how the rich (by way of our "semi-elected" politicians through the electorate)
have been fleecing American taxpayers for almost a century. It should leave no
room for doubt as to why in 2011 we see such massive and inequitable disparity
in wealth between the rich and poor, and how it's been quickly escalating over
the last 10 years since the Bush tax cuts. There has been no "class
war" perpetuated on the rich. All along the ultra-wealthy have been paying historically
low taxes...and they damn well know it. But the country (we, our nation, the
government, the people) just can't afford it anymore.
Introduction
I could simply say that the Republicans only want lower taxes so that lower
income earners are forced to pay for defense spending, while at the same time
higher income earners would no longer have to help pay for Social Security and
Medicare. That really is their game plan. It's that simple.
I could elaborate by saying, "In 1921 Congress changed the tax code
so that capital gains were no longer taxed as regular income, and that's why
today we have a 'debt crisis'." But that would be too
simple, and it wouldn't explain everything.
I could just say that capital gains taxes was only an ingenious tax mechanism
that was put in place by a banker so that higher income earners (specifically
the very wealthy) could escape paying higher taxes in a progressive tax system,
but that would also be too easy.
If I only said that capital gains taxes was an unfair "redistribution of
the wealth", would you know why? I know our politicians and the
ultra-wealthy do. They've all known for a very long time. 90 years to be exact.
I could just Tweet,
"Capital gains taxes robs from the poor and gives to the rich",
but would you believe me? So allow me to explain...
Prologue
In 1921 near the end of the Gilded
Age, when America had its last greatest disparity in wealth between the rich
and poor (until today), Congress changed the tax code so that capital gains
were no longer taxed as regular income, but only taxed at 12.5%. This could be
from income derived from stocks, bonds, dividends, interest, annuities, trust
funds or from the sale of a mansion. "Regular" income (what working
people usually receive from employer-paid wages) over a million dollars a year
could be taxed as high as 73%. Today the highest bracket is 35%.
In 1969, when corporate taxes were at their highest tax rate ever, at 52.8%,
America sent two men to the moon on Apollo 11.
Before 1978, over the years since 1921, the capital gains tax rate had been
raised to 40%, but then congressional Republicans (joined by a substantial
minority of Democrats) pushed through a
major capital gains tax cut and lowered them to 28% in 1979 (during the Iranian revolution).
Read this very thorough examination: The
Hidden Entitlements: Capital gains.
Since then, after America's middle-class had just peaked, it has been
steadily in decline...until the present day (1979 marking the half-way point
between the end of World War II and today).
Over a quarter century ago, in 1984, the Washington, D.C. based Citizens
for Tax Justice released its first in-depth report on how much America’s
top profitable corporations were actually paying in taxes. The study found they
were only paying 14.1% of their profits in taxes, less than a third of the
corporate tax rate which had been 48%.
By current tax statutes, corporations are supposed to face a 35% tax on their
corporate profits. But over the last three years, a new study by the Citizens
for Tax Justicereports
that top U.S. corporations have actually been paying only 18.5% of their profits
to Uncle Sam. And the capital gains taxes paid by their CEOs were lowered to
only 15% with the Bush tax cuts (the same exact tax rate that a person earning
only $8,500 a year would pay).
For the past ten years, during two long wars, the U.S. Treasury has been
literally starved for much needed revenues as corporations were earning record profits
and CEOs were earning record salaries, all because of the rigged tax code. And
now we have a "debt crisis"? And now a "super committee"
wants cuts in Social Security and Medicare. (Can the American people say
"revolution"?)
How a Banker Rigged the U.S. Tax Code
All throughout the ages, since ancient
banking was first traced back to 2.000 B.C., it's been well known that money
lenders (bankers) have had the ultimate influence on nations around the globe,
no matter what the ideology of its people, or what kind of society or civilization
was established, or whatever principle form of government they used. "Usury"
does not discriminate when vacuuming the wealth from the masses.
For those of you who aren't familiar, see the video "The Money
Masters" - A three-and-a-half-hour historical documentary that traces the origins of the political power
structure. Watch it at YouTube.
But for the purpose of the current debate over the "debt crisis"
and imposing taxes on millionaires and billionaires, I've chosen to only go back
90 years in the United States' tax code.
The current tax "debate" is really a fraud that's been perpetrated on the American public
by their elected leaders in Congress for the past 90 years (by Republicans and
Democrats alike). They haven't changed the tax code to the betterment of
government because members of Congress personally benefit from the tax laws as
they are written. (Also read The
Sixteenth Amendment).
But just as importantly, if not more so, their major campaign donors and
their political backers usually benefit far greater. Lobbyists are paid huge
sums of money by the banks, hedge funds, and other corporate interests to
influence members of Congress to rig the tax code on their behalf. (Not so much
labor unions in this aspect). Read my post: Lobbyists
on K St. paid like CEOs on Wall St.
Members of Congress can also get an advantage (in their bid to get elected or
just to hold on to their
lucrative congressional jobs) with unlimited campaign donations that are
funded through secret corporate SuperPACs. This is what's called
"greasing the wheels", and yes, it's really that simple. That's why
lately we've been hearing so much about Citizens
United and getting
money out of politics - - and to start having publicly funded elections again
to help get corruption out of politics. Read my post: Insider
Trading by Congress.
In a capitalist economic system, any law, any legislation, any regulation,
any "over-sight", any amendment to any bill, and any and all tax
codes, will always be dominated by "capital" - - because after
all, capitalism is all about the money - - who gets it, how much, when, and how.
So it only stands to reason, if there's money involved, we have to follow the
money, and so therefore, it should come as no great surprise that the current
tax code (that primarily and mostly benefits the wealthiest individuals and the
largest corporations) was all initiated by a banker (and a Republican one at
that). Are you surprised?
And today these corporate entities (usually by proxy through their Republican
representatives in all levels of government) have tried using the argument of
"double taxation" as their reason for fending off higher taxes, which
is nothing more that a deliberate and deceptive myth that's been sold to the
American people.
How do you think the rich got to be, soooo rich? One reason is because
of low capital gains taxes, which are currently at an historically low tax rate,
almost since capital gains were first taxed in 1921 - - and this has been a
tremendous windfall for the rich and famous for the last ten years.
To better understand this, we have to go back 90 years in history.
The History of Capital Gains Taxes
From 1913 to 1921 capital
gains were taxed as ordinary income until 8 years before the stock market
crash of 1929 when the Revenue
Act of 1921 was introduced during the Roaring Twenties. It was the
first Republican tax reduction in history, and was enacted on November 23, 1921 under
the Republican President Warren G. Harding.
At
the end of the Gilded Age (when America had its last greatest disparity in
wealth between the rich and poor until today) after World War I a banker wanted
to raise incomes for the rich and famous, while depleting revenues for the U.S.
Treasury. Ironically, this was achieved by both the U.S. Treasury itself and
a rich Wall Street banker.
Then U.S. Secretary of the TreasuryAndrew
Mellon, the Republican banker of the Mellon Bank of New York, was
instrumental in pushing this bill through congress. He had argued that
significant tax reduction was necessary in order to spur economic expansion and
restore prosperity - - and this is the exact same argument that
Republicans still use today, even though we've witnessed 20 million lost jobs
and 40,000 lost factories over
the last 10 years with the Bush tax cuts.
The 1921 tax law also allowed tax write-offs for net losses in one year (such
as for any devaluation in property or stock) to be offset by net income in the
following year. This was supposed to encourage risk and capital investment.
Andrew Mellon also obtained a repeal of the wartime excess
profits tax (used to help fund the war), and the top marginal tax rate on
individuals was lowered from 73% to 58% (today in 2011 it's only 35% for "regular"
income, but only after a certain limit, and usually after many tax deductions
that the wealthy can mostly benefit from).
The 1921 tax act also allowed for the preferential treatment of capital gains,
which was also introduced at a rate of 12.5 percent for assets held for two
years (today in 2011 it's only for one year). And just like the Republicans of
today, Andrew Mellon had also hoped for more significant tax reductions.
But Andrew Mellon's advice as "an economist" was not necessarily
true as it pertains to the majority of the working-class, but his advice as
"a banker" worked out very well for his fellow bankers, wealthy industrialists,
robber barons, and oil tycoons (and any other corporate Trusts of the
day). Because 8 years later on October 29th we had the Crash
of 1929 and the Great Depression.
* Read the brief history of Andrew's Mellon bank below, or just skip
it and continue to the article further below.
The Bank that First Rigged our Tax Code - A
Short History of Mellon Bank
The Bank of New York was founded by Alexander
Hamilton (the first United States Secretary of the Treasury) on
June 9, 1784 in New York City. In 1792 when the New York Stock
Exchange was first opened, The Bank of New York was the first
company to be traded on the Exchange.
"T. Mellon & Son's Bank" (as Mellon Financial was
originally called) was established in 1869 by the retired Judge
Thomas Mellon and his sons Andrew W. Mellon and Richard B.
Mellon.
Alcoa, Westinghouse, and Bethlehem Steel amongst
other industrial firms, were a few of the companies T. Mellon &
Son's financed. The former oil company Gulf Oil was considered to be
one T. Mellon & Son's most successful financial investments. The
board of directors was a "who's who" of the
age.
The former Judge Thomas Mellon decided to retire
from the firm as President in 1886 to be succeeded by his son,
Andrew Mellon (In 1920 Andrew left his leadership post of the bank
to become the longest serving U.S. Treasury Secretary in history.)
The name changed to Mellon National Bank and Trust Company - - and
years later, after many mergers, changed its name to the Mellon
Financial Corporation.
On December 4, 2006, the old Bank of New York (founded by Alexander
Hamilton) and Mellon Financial Corporation announced that they would
merge, creating the world's largest securities servicing and asset
management firm. Bank of New York and Mellon entered into mutual
stock option agreements using outstanding common stock. The new
company became the Bank of New York Mellon Corporation.
Today it's located at the prestigious address of
1 Wall Street. Construction on the building began in 1929 and
was completed in 1931.
Today the Bank of New York Mellon Corporation has
over $20 trillion in assets under custody and ranks at #176 on the
Forbes Global 2000.
The
Bank of New York Mellon launched its new brand identity on
October 1, 2007. Chris Mellon, a 53-year-old descendant of Gulf Oil co-founder William Larimer Mellon, returned to southwestern Pennsylvania in that year after two decades of defense intelligence work in Washington, D.C.
During the Great Depression most all the major players of the day -
the tycoons, moguls, magnates and robber barons - survived and actually prospered
during this time when 12 million Americans had been suffering the hardships of
the day.
It's easy to visualize the bleak bread lines, the black storms of the Dust Bowl, the jaunty angle of FDR's
cigarette during the 1930s. Though the Great Depression and the New Deal
were the defining characteristics of the decade, they weren't the only characteristics. It was also a time of staggering technological innovation.
Air-conditioning, commercial television, airline travel and color film all date from the 1930s. New types of
businesses - - supermarkets, miniature golf courses, photo magazines - - were founded and flourished. Nor did all investments founder: Savvy speculators who poured money into steel, oil and sugar companies at the bottom of the market in 1933 made out like bandits.
While millions suffered, others like Howard Hughes, Gene Autry and Aristotle Onassis
laid the cornerstones during these years for vast fortunes. JFK's father, Joseph
Kennedy, fared very well too (using inside information and the public's lack of
knowledge it stock trades).
While although fortunes were made and fortunes were lost during
this time, "old
money people" (such as the Rockefellers, Du Ponts, Vanderbilts, and Astors)
and all the major bankers of the time, all came out on top...just as they did in
2008 (even if the bank itself had supposedly "failed").
Four years later George W. Bush and his fellow Republicans
lowered the capital gains taxes to historic lows in 2003.
Five years later after two un-funded wars we had several stock
market crashes in September and October of 2008 - - and then the long Great
Recession in the aftermath.
(Below)
Newspaper headlines on Tuesday, September 30, 2008 announced the previous day's
777 point drop of the Dow Jones Industrial Average, the biggest one
day point drop in Wall Street's entire history. (Click photo to
enlarge)
It's been argued that what happened in 1929 almost happened again under Bush,
if it had not been for the banks' bail outs. The Troubled
Asset Relief Program, known as TARP (or "the bank bailout'') was
hastily put in place in September 2008 as stock markets plunged, credit markets
around the globe seized up and the world seemed on the verge of a cataclysmic
financial meltdown.
Congress authorized the Treasury Department to use up to $700 billion to
stabilize financial markets through the TARP program - - a step that inspired
widespread public outrage, helping to fuel what became the Tea Party Movement,
and, in the mind of most economists, one that played a crucial role in pulling
the global economy back from the brink.
I personally don't believe in that "theory", as economists have
been wrong as many times as they've been correct - - which leads me to believe
it's all a guessing game, just based on past statistics.
The banks tightened their credit and squeezed small businesses, and they only
made a token gesture to help Americans modify their home mortgages, and they
used robo-signing to foreclosure on millions of homes.
Taxpayers gave billions of dollars to "bail out" the biggest of the
banks because they made and sold fraudulent securities, even though these very
same banks did
not pay their share of taxes for years.
Today as state attorney generals are ramping up their own investigations and
possible prosecutions, banks
are trying to negotiate an immunity clause for themselves. U.S. Attorney
General Eric Holder and the state attorney generals have been working with the
nation's five largest mortgage firms (Ally Financial, formerly GMAC, Bank
of America, Citigroup, JPMorgan Chase and Wells Fargo) with
pleas agreements for their crimes to settle disputes over their
illegal foreclosure practices, such as the robo-signing
of foreclosure documents.
Three years later not one banker has yet to be arrested or charged, let alone
have gone to prison or spent a single day in jail...it's absolutely amazing! The
most that we can expect is the banks will get slapped on the wrist with a fine,
which investors will have to pay for (not the bankers themselves, they'll
continue to draw their huge excessive salaries.)
Critics say bonuses never should have been so big in the first place, because
they were based on ephemeral earnings. These people contend that Wall Street’s
pay structure, in which bonuses are based on short-term profits, encouraged
employees to act like gamblers at a casino — and let them collect their
winnings while the roulette wheel was still spinning.
“Compensation was flawed top to bottom,” said Lucian A. Bebchuk, a
professor at Harvard Law School and an expert on compensation. “The whole
organization was responding to distorted incentives.”
To better understand this, we have to examine excessive executive pay and capital
gains taxes at work. Corporate CEOs (and other senior executives, whether
they work for a large manufacturing firm or are financial wizards in the
banking, insurance, and hedge fund industries) negotiate their pay in various
and nefarious ways (salary + stock + bonus + terms).
CEO Executive Payand Capital Gains Taxes
(If this subject matter is too "dry" for you, just skip this section and go
further down to "Hedge Funds Managers - The Biggest Winners")
Stock compensation packages are usually paid to CEOs and other senior board members from a bonus pool (maybe with preferred
Series A stock, post-funded and un-vested). If the company is ever acquired or liquidated, the preferred stock holders will get paid first.
A stock option is an option to purchase stock for some fixed price (the "strike price"). The strike price is driven by the Fair Market
Value (FMV) of the common stock, set by the Board of Directors, usually based on an external "409A"
evaluation of the company.
The common stock price is usually a fraction of the preferred price, at least in the early stages. To actually own the stock, corporate
executives exercise the option (as they vest), and write a check to the company for the total strike price.
For example, they may receive 100,000 shares in the form of an option, with a $0.10/share strike price and a 4 year vest. At one year,
they could write a check for $2,500 to purchase their vested 25,000 shares. At that point, they would be an official stock holder with
25,000 shares and 75,000 un-vested options.
Owning the stock has a potentially significant tax advantage: it starts the timer for long-term capital gains. Any capital asset held for
more than a year is taxed a low, long-term capital gains rate (currently 15% percent, maximum).
Continuing the above example, let's say the company is acquired after another year for $10/share. Their 25,000 shares are now worth
$250,000 and they only have to pay long-term capital gains tax of 15% when they sell.
To liquidate their remaining vested options (e.g. exercise and sell) will likely incur steep regular income or short-term cap gain tax
rates. Most common option holders exercise as soon as they vest to get the long-term timer going, but if they're: (a) bullish on the
company and (b) have the money. However, doing this has it's own tax issues (AMT); and consult a tax professional for advice.
In the old days, companies would sometimes set up a loan to the employee to cover the amount of the stock they were purchasing.
That loan could be repaid later (when the company was successful) or forgiven by the company. Those structures are rare today; even
though they can be perfectly legal, they attract the attention of regulators and auditors.
In recent years, companies may provide an early exercise clause to provide option recipients some tax advantages. This clause
allows them to exercise all of their stock (un-vested) up front, as long as they agree to let the company buy back the un-vested portion
if they should leave.
Another factor is the "cap table" (capitalization table). Companies allocate a pool of stock (usually called the Incentive Stock Option
pool, or ISO pool) to grant to employees. The pool size is set during the funding negotiations with the founders and investors. What's
really going on when a company is figuring out stock offers is not so much figuring out a percentage of the company, but a percentage
of the ISO pool.
Hedge Funds Managers - The Biggest Winners
Private investment companies, organized as hedge funds or private equity firms, have recently grown into major economic forces in
the U.S. economy. They mobilize capital, and often leverage it with borrowed funds, in order to accumulate a tremendous amount of
assets under their management.
Hedge funds are big players in the large corporate take-over activity that is in the trillions of dollars¸ and they are also responsible for a
significant share of trading volume on the major stock exchanges and in some over-the-counter derivatives markets.
These private pools of capital are unregulated, or exempt from Securities and Exchange Commission (SEC) regulation, under both the
Investment Advisors Act and the Investment Company Act.
In addition to being unregulated, these financial institutions also reap substantial benefits from special tax provisions. The professional
fund managers of these hedge funds and private equity firms are allowed to treat a substantial portion of their compensation as capital
gains, meaning they are most likely taxed at 15% rather than the 35% rate that applies to ordinary income such as wages and salary.
Example: A $100 million fund earning 20% would pay its fund manager $2 million for overhead and $4 million in carry (known as “two
and twenty”). The carry portion of their compensation is treated under the tax code as capital gains for the fund manager and is
taxable at the much lower capital gains tax rate of 15%.
Fund managers pay at pension funds, trusts, and endowments are all treated as ordinary income. Only hedge funds and private equity
firms are organized as limited liability partnerships and are already treated favorably for tax and liability purposes. The result is a
distortion in the compensation and after-tax income between these super rich hedge fund managers and millions of others in the
workforce.
Alpha Magazine reports the compensation for hedge fund managers each year. The top earner for 2006 received $1.7 billion, the
second highest received $1.4 billion, and the third $1.3 billion. That adds to $4.4 billion for three people. rather than paying $3.6 million
in taxes as regular income, they only paid $1.4 million in capital gains taxes.
Not only because of their high salaries do these rich individuals have no need of tax breaks, the hedge fund and private equity
industries have demonstrated time and again that they are not exemplary economic citizens who deserve privileged tax treatment.
While most fund managers are probably law-abiding investment advisors, there are innumerable examples of wrong doing. The major
types of failures and illegal activities include insider trading, IPO manipulation, embezzlement, and defrauding mutual fund investors.
Defending this tax break are highly paid lobbyists such as Douglas Lowenstein and
Grover Norquist who loudly and repeatedly make
the claim that taxing hedge fund managers like everyone else will harm the average working family. They claim that taxing hedge
funds like normal income will harm pension fund returns. This is wrong on two levels. First, the tax change would apply to hedge fund
managers and not investors (many pension funds invest in hedge funds). Second, pension funds do not pay taxes.
These lobbyists also claim that it would increase the cost of consumer goods and services because so many stores and chain
restaurants are owned by private equity firms and hedge funds. This, too, is preposterous because, again, the tax does not apply to
the investors or owners of those businesses but only the investment advisors who manage the funds of those investors.
HedgeFund.net estimates what is called “assets under advisement” to be $2.4 trillion for 2006. If investment managers received the
industry standard 20% (“two and twenty”) then their remuneration treated as “carry” was $63 billion for 2006 At the current 15%
capital gains tax rate, the taxable amount would result in $4.75 billion in tax payments; at the top rate (35%) on ordinary income, it
would sum to $11.05 billion. The loss to the U.S. Treasury, therefore, amounts to at least $6.3 billion a year.
Congress needs to update the nation’s tax laws dealing with private pools of capital. The current law is generating inefficiencies and
great inequality by granting tax breaks to individuals who do not need and do not deserve such favors. If the amount of tax revenue lost
to private equity firm managers is equivalent to that lost with hedge funds, then the combined amount would be $12.6 billion. This
forgone revenue stream could, for example, fully fund the five-year, $35 billion expansion of SCHIP, the public health insurance
program for low-income children.
And guess what? Today in 2011 the Republicans want to lower the capital
gains taxes to 0%
But Congress won't, because the tax "debate" is really a fraud
that's been perpetrated on the American public by their elected leaders in
Congress for the past 90 years. They won't change the tax code because they
personally benefit from the tax laws as they are written, as do their major
campaign donors and their political backers. It's corrupt, it's a scam, and it's
fraud...no matter how anyone else might perceive it to be, or attempt to explain
it away.
A Simple Example of this 90-Year-Old Tax Fraud
Low income earners getting paid $8,500 a year are taxed at 15%, the same rate as a CEO
would with $8.5 million in stock options, who would also pay 15% in capital gains taxes (as
opposed to the higher tax rate of 35% on regular payroll income, and
only after $379,000)
Also, that "working stiff" who's getting paid $8,500 a year
also pays Social Security and Medicare taxes on 100% of their total earnings. Whereas the CEO with the
$8.5 million Bonanza Payday only pays these taxes on 1.5% of their total
salary, because their Social Security and Medicare taxes are capped
at their first $106,000 in earnings.
Also, estate taxes (or inheritance taxes / generation
skipping transfer taxes) on the very wealthy was meant to
recycle the nation's money supply, to keep it from being hoarded and
strangling the economy. In the year 2010 it was temporarily lowered
from 45% to 0%, and why they said it was "a good year to
die".
And guess what? Today in 2011 the Republicans
want to lower the capital gains taxes to 0% and lower estate taxes
to 0% too. They would also lower corporate taxes to 0% also! How
could government ever pay for anything? It's as if the Republicans
only want lower income Americans to pay for defense spending, but
the Republicans also wants to eliminate Social Security and
Medicare. But yet they call people like ME radical!
But the three biggest contributing factors to the current
recession/depression are:
the Bush Tax Cuts in 2001 and 2003, depriving our treasury of much needed
revenue to run the county, causing
severe budget shortfalls and more layoffs. Corporations
and the
uber-wealthy have not been paying their fair share of taxes for
decades!
The
Bush Tax Cut Years - The video below uses the soundtrack of "Money" from the English progressive rock band Pink Floyd,
which is from their 1973 album The Dark Side of the Moon. Written by bassist Roger Waters.
All video editing was done by yours truly, Bud Meyers. (Click on the arrow below
to PLAY or watch it at YouTube)
I repeat: The current "tax debate" (and now,
the "debt crisis") was a deceptive fraud and hoax that's been perpetrated
on the American public (on both Democratic voters and Republican voters) by
their elected leaders in Congress ( by both Democratic leaders and Republican
leaders) for the past 90 years.
And the Bush tax cuts was also a fraud, meant only to benefit
the wealthiest individuals and the biggest corporations (which it did) - -
and with two wars, the tax cuts were at the greatest expense to the average
working Americans. The
two un-funded wars had only profited the defense industry and had enabled
their CEOs to walk away with multi-million-dollar salaries, but only paying a
15% capital gains tax.
And guess what? Today in 2011 the Republicans want to lower
the capital gains taxes to 0%
One Final Note
Isn't it odd that almost as soon as Obama took
office in January 2009 the Republicans started blaming him for a bad
economy - - - almost right away. The crash of 2008 was an
accumulated 30-year disaster (since 1979) in the making, and we're
only 3 years through a "recovery" today. If the
Republicans had instead dropped a pure-fission bomb with a 500
kiloton yield on the banks of New York City back in 2008, how long
would they permit Obama to rebuild the entire city before
they would expect him to take full responsibility for all the
carnage?
This is what the GOP did to our economy...
ALSO READ:
Executive Pay- Executive compensation at financial firms and other corporations began to soar in the 1990s. When the bottom dropped out of the economy in recent years, large pay packages became the focus of public fury — particularly when they were going to executives of companies receiving taxpayer funds.
On Wall Street Bonuses, Not Profits, Were Real
- A Bonus Bonanza for Wall Street as much of this decade represented a new Gilded Age. Salaries were merely play money — a pittance compared to bonuses.
Tackling Income Inequality
- The Occupy Wall Street protesters have focused attention on rising income inequality in the United States, and they are right to do so.
Tax breaks for
billionaires - Loopholes cost billions in tax revenue. This policy memo focuses on the privileged tax treatment given to hedge fund managers that results in a conservative estimate of over $6 billion in forgone tax revenue.
Tax
Rates during the Fabulous Fifties - Did Rupert Murdoch and his
commentators at Fox News think we were all a bunch of communists during
the 1950s when we used to tax the rich, the banks, and large corporations? Why
is it that now in 2011 they call this "punishing job creators for their
success"?
Historical Tax Rates on the Rich (1862 to 2011)
- Under Republican President George W. Bush was the very first time ever (in all
of U.S. history) did the United States ever engage in a major war without ever
raising taxes. Just the opposite was true...taxes were drastically reduced.
Low Corporate Taxes = Excessive CEO Salaries
It doesn't matter what a corporation pays in taxes as compared to
GDP, or how it's compared to any other index of measure (to skew the
numbers), it's what they actually pay to the U.S. Treasury
after loopholes (aka "deductions") that matters most. And
for the last 25 years corporations have actually paid
historically low taxes.
While today some corporations may have paid the maximum rate of
35% (when it was over 50% in the 1950s), many others paid ZERO, with
the average being only 18%.
The same can be said for their CEOs and other high-income
earners. While although the top bracket is also almost historically
low (at 35%, when it was once over 90%), what they actually pay is
nearer to 15% because the majority
of their income is earned through capital gains.
And because corporations have been paying a
low effective corporate tax rate for decades, that didn't keep
them from outsourcing jobs overseas for cheap labor, but rather, it
did enable them to pay very excessive CEO salaries...who only mostly
pay 15% in federal income taxes on their capital gains.
UPDATE to the UPDATE - Again, all my videos from 2021 were also deleted by another account I started at the same company in late December 2020, this time because I used the phrase "election fraud" in my video descriptions of a congressional hearing with the FBI director Chris Wray from March 2, 2021. All that hard work, gone, with the click of a mouse. "Do no evil". UPDATE All my videos prior to 2020 in this blog were deleted by Youtube because of a copyright claim by Herring Networks Inc — Robert and Charles Herring, owner of One America News Network.
In 2016 I transitioned from Bernie Sanders (who was running as a Democrat) to Donald Trump (who ran as a Republican), so many of my previous posts will contradict my opinions now. I've evolved as I've enlightened myself. I'm anti-Marxist and pro-America First.
In 2016 I transitioned from Bernie Sanders (who was running as a Democrat) to Donald Trump (who ran as a Republican), so many of my previous posts will contradict my opinions now. I've evolved as I've enlightened myself. I'm anti-Marxist and pro-America First.
