Thursday, March 3, 2011

How the Rich Are Taking Us All for a Ride

It is amazing to me how the wealthiest 1% in this country have attained so much power. So vastly much (mainly via tax cuts since Shrub, aka Dumbya was shoehorned into office in 2000) that they can now leverage our entire economy - sending oil prices through the roof, even as food prices are also spiking owing to their speculation in commodities. Oh yes, most of the financial press (even The Economist, and The Financial Times) still deny this, but the evidence is there and it doesn't take an Einstein to unearth it.

First, we must thank the Über-rich for planting the "Horatio Alger" myth into a culture already replete with pie-eyed optimists . It is arguable that as many bozos suck up this baloney hook, line and sinker as suck up the religious baloney that a Divinity was born as a human 2,000 years ago in one backward country (Palestine) on a remote planet, two thirds out to the rim of a nondescript galaxy in a universe of trillions and voila....saved all humans via "expiation". Bull shit doesn't get much deeper than than, but as the late comedian George Carlin once put it: "Americans like their bull shit deep, smelly, brown and all encompassing".

In the Horatio Alger myth, every average bumpkin buys into the belief that one day he can become a millionaire simply by working. The cold, hard fact, as author Michael Parenti has noted (The Dirty Truth) is that 94% of all wealth comes by way of inheritance not paid work. So, people who buy into the upward mobility myth via work are fooling themselves.

Some evidence from several years back (before the recession) confirms it's hard to move beyond this myth. A survey conducted by The Economic Policy Institute asked generally where people thought they were in the economic spectrum: upper 1%, upper 5% or where.

A full 19% in this random survey claimed they were in the privileged class of the top 1%. A virtual statistical impossibility in any random study. In fact, internal survey cross-check questions on income category showed many of these working at a little above minimum wage, and even the highest at barely $44,000/yr. Nowhere near the 1% threshold (> $320,000/yr).

Other commentators on this study (e.g. Froma Harrop, Ellen Goodman) pointed to this ignorance as a basis for supporting such crap as the Bush tax cuts. Thus:

A) They didn't know where they themselves fit, and indeed inflated their wealth and positions and

B) they actually believed they'd be millionaires one fine day and be able to partake of the tax cuts. (Or 'death tax' benefits).

So, because of this constellation of morons, all of us have suffered (as well as our entire country) by having to survive on a reduced tax base. The fallout of this can be seen everywhere, especially in our crumbling infrastructure (collapsing bridges, rupturing water and sewer lines, etc.) and is a national disgrace. While idiots cheer the DOW and it's approach to 12,000 they ignore the pipes, roads and systems that support the buildings and structures that enable a DOW to exist in the first place!

People have to have it drummed into their craniums that they're facing future destitution, not wealth and security. Particularly as ever more good jobs are outsourced, and 'Wal-Martization' proceeds apace. Only when they realize this will they cease voting against their own economic interests. A better, more civil society, must start with supporting tax increases: for public education, universal health care, and Social Security support and strengthening our support systems on which transport and living quality depend. To this end, the richest ought to have been taxed MUCH MORE over the past ten years, NOT less!

Which brings up the question of how badly we've all been taken because of this escape from higher taxes. For those born after 1970, let me establish your historical compass that in the Fifties and Sixties we enjoyed one of the best standards of living on Earth, and the marginal tax rates were at 91% and 65%, respectively. (JFK lowered the rates in the 60s for the middle classes mainly, in the hope the legislature would later pass his Civil Rights bill). The nation survived and prospered as a national highway system was constructed and the path set to launch a Moon landing mission.

Compare that to the situation now, with the highest tax rate at barely 36% (now extended for two more years thanks to the Faustian deal made last December) and we are retrenching from space (with the current Shuttle mission the last) even as our road system falls into disrepair along with our bridges, sewers and water mains.

Meanwhile, if you've any remote doubt that the U.S. is being run by louts, parasites and hypocrites, you need to get hold of the book: Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich and Cheat Everyone Else . In it, David Cay Johnston, a Pulitzer Prize-winning reporter for The New York Times, makes a powerful case that since 1980, Congress and successive Presidents - politicians (of every stripe) have deliberately undermined the fairness of the tax system. It is biased to favor big companies and a few superrich individuals, Johnston claims.

A more recent analysis in the UK Guardian bears this out. Over the last 30 odd years, the richest Americans have shifted the burden of the federal individual income tax off themselves and onto everybody else. The three convenient and accurate Wikipedia graphs below show the details. The first graph compares the official tax rates paid by the top and bottom income earners. Note especially that from the end of the second world war into the early 1960s, the highest income earners paid a tax rate over 90% for many years. Today, the top earners pay a rate of only 36%. Note also how the gap between the rates paid by the richest and the poorest has narrowed. If we take into account the many loopholes the rich can and do use far more than the poor, the gap narrows even more.

One conclusion is clear and obvious: the richest Americans have dramatically lowered their income tax burden both absolutely and relative to the tax burdens of the middle income groups and the poor. These lower taxes the rich got for themselves are one reason why they've become so much richer than 90% of the country. And yet, those 90% largely support the rich tax cuts!

In contrast, the bottom fifth of poorest citizens saw their income barely rise at all. The middle fifth of income earners saw their after-tax household income rise by less than 25%. Meanwhile, the top 1 % of households saw their after-tax household incomes rise by 175%.

The other nasty aspect of this, as Charles Reich notes in his book Opposing the System, is that it destroys the basis for common cause and commonality. It undermines the concept that we (as a people) are all in this together while diluting consideration for the collective welfare. This is because everyone is essentially forced into competition with everyone else in a diminishing pool of economic resources. Diminishing because the pooled tax commons is being cut and minimized so it ceases to "promote the general welfare" (as enunciated in the Preamble to the Constitution).

As Reich put it in his book:

"A free market produces results that favor the health of society as a whole, because an essential balance is maintained. But in a coercive market, the balance is destroyed, the earning power of work and the standard of living of workers declines, and society as a whole is devastated while those with economic power gain an ever more unbalanced share of the nation's economic wealth."

This is exactly what we're experiencing now: a perversion in which the earning power of work and the standard of living of workers declines, even as Fascist Republican Gubernators seek to destroy the last vestiges of public unions. They do this by rescinding collective bargaining rights (as recently in Ohio, and Indiana) to make the public workers little better than serfs and coolies while driving the private sector workers even more forcefully into slavery. (Hundreds of companies are still secretly taking out "dead peasants' insurance" on their workers lives, in case they croak on the job from overwork - so they can collect the proceeds and apply it to their profit margins)

Meanwhile, many of the best jobs continue to be dispatched overseas, for the cheapest wage standard and no benefits - while an enormous low wage pool for scut-slave work is created in the U.S. (Janitors, maids, service workers of all stripes, from busboys to orderlies). People who, once their unions are destroyed, will be lucky to earn the same as a migrant worker and will certainly have no time to pursue politics and may not even be granted the time to vote.

Worse, a vicious cycle has been at work for years. Reduced taxes on the rich leave them with more money to influence politicians and politics. Their influence then wins them further tax reductions, which gives them still more money to put to political use and compromise the rest of us. When the loss of tax revenue from the rich worsens already strained government budgets, the Über-wealthy then shamelessly push politicians to cut public services and government jobs. Off the table: any remote debate a return to the higher taxes the rich used to pay.

This despite the fact, a Financial Times Analysis (9/15, p. 24) of the effects of extending the Bush tax cuts showed:

The 2000s- that is the period immediately following the Bush tax cuts – were the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures. Rather the slowdown accelerated to a full decline

Contrast this with the hike in taxes immediately after Bill Clinton took office, leading to the accumulation of more than $600 billion in surpluses by the time he left office, and the creation of 20 million jobs.

Any math halfwit, who's taken only elementary arithmetic, can see the only serious way to make "ends meet" in this country is to repeal the Bush tax cuts. Indeed, with budget deficits now exploding and ever more demands on national resources it is incumbent on any responsible legislature to repeal them when the next chance arises: next year. No more ifs, ands or buts....or invoking specious economic reasons (i.e. jobs) to extend them!

Probably the biggest boost ever conferred on trickle down bull shit was compliments of Arthur Laffer and his "Supply Side Theory". This was invented by Laffer, in 1974, when he drew a curve on a paper napkin at a restaurant for an inquisitive reporter. And announced he'd "found a new theory that generates wealth" while it cuts income (tax). (See, e.g. James Medoff and Andrew Harless, The Indebted Society, 1995, p. 84, 'Let Them Eat Cake').

The curve, as Medoff and Harless notes, purports to show the relation between tax rates and revenues. A tax rate of zero naturally produces no revenue. As taxes rise from zero, revenues rise in tandem. But as the rates rise, they discourage the activities being taxed. So at some point, discouragement predominates in the curve. Laffer showed this with a splash of catsup over the top of his curve, on the napkin.

In fact, when Medoff and Harless removed the catsup stain from the graph, and looked at actual data, they found (p. 87) that "high tax rates are associated with higher productivity growth" There is a consistent and strong relationship. By contrast, for the years when supply side dogma held, productivity retreated by more than 30% and debt exploded- exactly the opposite of what we've been sold.

Clearly, a fiscal policy initiative can only properly be described as expansionary if it ends up increasing total spending in the economy. Tax cuts by themselves can't do that. In spite of this fact, nearly every introductory economics textbook in America today mentions tax cuts as one of the federal government's expansionary fiscal policy tools and fails to mention that tax increases are far more effective than tax cuts in stimulating the economy when the money that is collected in taxes would have otherwise been saved. An unfortunate consequence of this educational defect is that we've had politicians in charge of America's federal government who have cut taxes repeatedly over the past few years in the mistaken belief that they would stimulate the economy.

The Financial Times own analysis shows this is crappola, as much so as believing in supernatural realms.

According to Johnston( "Perfectly Legal,") an incisive study of the U.S. tax code, the top one-10 th of 1 percent of income earners, or the top one-thousandth, saw their average incomes rise 250 percent between 1980 and 2002. Their share of the nation's total income, he writes, "has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell."

This sort of tax aberration is designed toward a fiscal collapse. No one, not a family or nation, can continually survive if it spends more than it takes in.

How do the rich justify their sorry and selfish record? They claim that they can invest the money they save from taxes and thereby "create jobs", etc. But do they? In fact, cutting rich people's taxes is often very bad for the rest of us (beyond the worsening inequality and hobbled government it produces).

As Medoff and Harless note, in a tax cut environment, the wealthy don't create jobs- they plow more and more money into speculative ventures to enhance their own personal portfolios, such as hedge funds. They then use the leverage afforded by these hedge funds (see today's Financial Times for the ones that this past year earned $28 billion for their clients) speculating in oil and food, thereby driving up their prices, undermining economic recovery for the mass of Americans, as well as producing acute suffering around the globe. Those hedge funds and brokers likewise use part of the money saved by the Über-rich from taxes to speculate in the US stock markets. That has recently driven stock prices higher: hence, the stock market "recovery".

I use scare quotes here because this "Bull market" (Bull shit) recovery is bogus through and through. There simply aren't the jobs numbers or wage levels to support genuine purchasing ability needed by the mass of people to drive company profits (and hence actual share prices) higher. If they were, most of those companies wouldn't still be sitting on over $1 trillion in cash. Virtually NO American company is predicting growth gains of better than 1% this next year, which means any share price expansion of more than 1% is bubble territory.

These filthy rich pigs also take the money saved from taxes and invest big parts of it in China, India and elsewhere. That produces more jobs in cheap labor-low benefit nations, fewer jobs here, and more imports of goods produced abroad. US dollars flow out to pay for those imports and so accumulate in the hands of foreign banks and foreign governments. No wonder China owns a trade deficit imbalance vis-a-vis the U.S.

The forecast for the future? IF the rich get yet another round of tax cuts and public unions are demolished, as per the Fascist Gubernators, then look for a literal nation of peons to emerge within 10 years, if not less. NO working rights, not even to go get some water or use the damned toilet! People will be told point blank by their corporate overseers to wear adult diapers to work and change them afterwards. The apotheosis of the scumball capitalist crony corporate system, and leaving the epitaph for the nation: "A proud and free people once lived here, but they forgot about the general welfare over time".

As for any religious believers that would support such a greedy and rapacious system, including conferring their blessings on wealthy tax cuts - they make me sick. They also disclose they are total fucking hypocrites when they bellyache about "tight fistedness" yet turn a blind eye to how the wealthy have converted the U.S. of A. into their own personal slave colony!

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