It’s interesting what issues home-town papers latch
onto. The headline of today’s Palm Beach Post chose to focus on Trump’s
tax cut “plan. ” Write a blog such as this long enough and like a leitmotif in
a novel the same issues seem to recycle.
Here we go again, trickle-down economics in the form of tax cuts that
will benefit, mostly, the rich and the uber–rich.
I’ve touched upon economic inequality some two dozen
times, including the impact of removing the so called “death tax,” notwithstanding
Trump’s disingenuous “not good for me, believe me.” Removing this tax entirely encourages family dynasties,
which in this competitive world leaves those who have to begin their journey at
the starting line way behind. An
argument that is made for removing the tax is it is a disincentive for working
hard. Warren Buffett doesn’t think so
and neither do the entrepreneurs of the world, people whose creativity and
ideas drive their lives. Did Steve Jobs
do what he did with the hope there would be no estate tax? The other argument is that some farmers who
have vast land holdings upon death owe taxes on the appraised value. So, perhaps working farms should be exempt up
to a certain amount.
I explained my position in two articles in particular,
both written more than six years ago. We
are back to this prestidigitation again and as they are as valid as when they
were written, I reprint them here.
How rich is too
rich? Actually, I published a book by that title almost twenty years ago and
some of its ideas are as relevant today as it was then (How Rich Is Too Rich;
Income and Wealth in America by Herbert Inhaber and Sidney Carroll: Praeger,
1992). Two points from that book stuck with me. First, there is the very
descriptive opening chapter of looking at income distribution as an imaginary
"sixty minute grand parade," tax payers being the marchers, grouped
by their height which would be representative of their incomes, the first
marchers having the lowest income and the last the highest, with
"height" determined by the "average" taxable income being
equal to the "average" height of an individual American. The
"parade" in effect is an X/Y graph, the Y axis being the income
(height), and the X axis being the minutes of the "parade." The first
few minutes one sees no marchers even though we can hear some noise. These are
people with negative height, those who report the loss of money in that taxable
year. It isn't until about ten minutes into the parade that we see marchers between
10 and 24 inches in height and it isn't until 36 minutes we see the so called
"average height" taxpayer march by. With about only 20 minutes left,
heights begin to rise dramatically. With the last five minutes giants appear,
people whose heads are so high we can hardly make out their faces without
binoculars. The marchers in the very last minute of the parade are so tall we
can only see their feet. These are people of accumulated, sometimes inherited,
wealth and in the last few seconds the marchers are the size of sky scrapers.
In effect, the parade shows a slowly rising gradient until the far right of the
curve when it begins a parabolic rise and then shoots straight up off the
graph.
While the numbers
might have changed over the last twenty years, the concept has not. Probably,
if anything, the "parade" has become even more dramatic, more
parabolic, with a steeper rise at the end. And, those at the end of the parade
pay now less as a percentage of their income to the government than at any time
before.
To listen to the
Tea Partiers, a roll back of taxes of the very wealthiest to pre-Bush rates, is
an evil, evil thing. Just think of the trickle-down effect that would be lost
to the little folk who stand in line for the crumbs falling from the tables of
the fabulously wealthy. It is ironic that these dire warnings of the effects of
a tax increase on the wealthy are carried into battle on banners hoisted by
"Joe the Plumbers" -- it shows the power of the conservative media
and the most virulent impact of the Internet. It just makes no sense that the
people near the middle of the parade should become pawns for the people at the
very end.
Actually, I think
the converse is true: it is an evil thing for people who have benefitted from
being able to accumulate wealth in the greatest of all capitalist democracies,
not to give back more for that opportunity. The argument goes that asking these
people to pay more will remove the incentive for them to work, and maybe if
we're talking about 70 percent of one's income that might be true. But in 2000,
people reporting AGIs of more than $1 million paid 28% of their income as taxes
vs. 23% five years later. In 2005 there were 304,000 households reporting
income of more than $1 million, more than a trillion dollars of income or
$3.375 million per household. And mind you of those, there are a few at the
very end of the "parade" with incomes that have so many zeros they
would be hard to read. The latter are sports stars, entertainers, and, of
course, very, very successful entrepreneurs. Are they going to work "less
hard" by paying an additional five percent overall? That five percent
would mean another $50 billion going to the US Treasury, at least a beginning
to address the ongoing deficit. And, of course, if you look at the $250,000
level as the cut off as suggested by President Obama, there is much more to be
gleaned, but given the midterm elections, that level is probably going to be
raised if it is not eliminated altogether.
The alternatives
that are occasionally pushed by the Tea crowd, such as a flat tax, is, in
effect, a regressive tax, with the lower income people having to pay the same
taxes on necessities as the wealthy, which just further splits the great
economic divide in this country. A national sales tax does the same thing and
as we are now so dependent on consumer spending, that could be the death knell
for the economy. No, a progressive tax structure has been this country's basis
for supporting it's national programs and we have been able to grow in spite of
these supposed "disincentives" of higher taxes at a higher bracket.
No doubt the
current tax structure is hopelessly and needlessly complicated and THAT is
where the discussion should also be focused. There are so many loopholes, that
a revised graduated tax structure would not have much teeth without addressing
those as well. And then there is the issue of capital gains and dividends. We
certainly want to encourage taxpayers to reinvest in our equity markets.
The other point I
never forgot from that book was its commentary on the estate tax, arguing
against the estate tax altogether, provided there was an alternative system of
"estate dispersion." Rather than taxing one's estate at death, it
suggested a tax-free dispersement up to a certain level per recipient (rather
than per estate). For argument's sake, call that $1 million per recipient.
Amounts exceeding that would begin to be taxed on some kind of graduated basis.
Those would be life time totals, so if an individual receives money from
different inheritances, they would be accumulated and taxed on that scale.
"No longer would the estate tax system generate an American royalty --
those freed from the need ever to be economically productive. This alternative
system would generate for all the incentive that most of us have in the outcome
of our own economic lives. No longer would a large part of our national wealth
be beyond responsive use."
Now, the incredibly
wealthy could give a million dollars each to a thousand different people, all
tax free (if those recipients also received no other inheritances in their
lifetimes). The point is that those thousand people would put that capital to
work, rather than vesting a billion dollars in one's immediate family who might
decide to simply live off the income and pass it on to the next generation, and
the next. Or he/she could still leave more to the immediate family, but it
would be subject to taxation, perhaps substantial taxation on a graduated
basis.
"Wealth great
enough to entitle one to membership in the elite comes from two sources --
enormous earnings or inheritance. Prudent public policy should allow those,
who, through individual ingenuity, talent, or luck, gain a fortune to use and
enjoy it for life...but if these individuals have the power to transmit immense
wealth to others after death...they can write the rules controlling this
wealth, possibly many generations into the future. This breaks the chain of
personal effort that is tightly bound, for most of us, to personal reward.
Economic resources, controlled by rules set up by the dead, are denied to those
who might well be more productive."
If the Republicans
and Tea Partiers interpret their gains to mean they now have carte blanche to
keep the Bush tax cuts for the highest wealth tier -- people who would not be
hurt by some roll back to pre-Bush tax levels -- the result will only increase
the deficit further. There would seem to be no upside to such an action; in
effect it is a spending initiative something they claim to condemn. Failure to
make tax reforms that lead to a more graduated income tax and closing
loopholes, and not having a sensible inheritance tax also just further drives a
stake between the haves and the have-nots.
About a year ago I
likened the US income distribution to a "parade," the wealthiest
appearing only at the very end, demonstrating the parabolic nature of great
wealth at the very extreme of the income curve. I was wondering when, finally,
the middle class would wake up to this growing disparity and do something about
it. Finally, the "Occupation of Wall Street" movement takes up the
cause, hopefully all by non violent means.
At the time I said
"to listen to the Tea Partiers, a roll back of taxes of the very
wealthiest to pre-Bush rates, is an evil, evil thing. Just think of the
trickle-down effect that would be lost to the little folk who stand in line for
the crumbs falling from the tables of the fabulously wealthy. It is ironic that
these dire warnings of the effects of a tax increase on the wealthy are carried
into battle on banners hoisted by 'Joe the Plumbers' -- it shows the power of
the conservative media and the most virulent impact of the Internet. It just
makes no sense that the people near the middle of the parade should become
pawns for the people at the very end."
It is sad that
Steve Jobs should pass away at this time. I think of him not only as a
visionary technology and marketing genius, but as the greatest entrepreneur the
world has ever known. The grass root movements of today, such as Occupation of
Wall Street, would not be possible without the mobile devices he had a key part
in developing and popularizing. I feel a personal loss of his passing at such
an early age, and of the same terrible disease that took my father. And I
wonder, if we did have a fairer graduated tax structure, one that would have
rolled back the Bush tax cuts, would he have worked any less hard? The
"don't-tax-the-job-creator" crowd might so argue.
Steve Jobs worked
as he did because it was his passion. Entrepreneurs work with a creative
obsession that is not going to be railroaded by a higher incremental tax rate.
They are the job creators, not the legions of corporate and banking types,
raking it in, paying a lesser portion of their income in taxes than a dozen
years ago when the US actually had a balanced budget, CEOs now being paid
unspeakable multiples of the average income of workers in the same company. Are
higher incremental tax rates and the closing of loopholes the only solutions to
the deficit? No, but it's a beginning. And that, as well holding these people
accountable for any fiscal malfeasance, is what the growing Occupation movement
is all about, the middle class finally awakening to the issue of their being
used as puppets by political ideologists.
Do you hear the
people sing?
Singing a song of
angry men?
It is the music of
a people
Who will not be
slaves again!
...............Les
Misérables, the musical
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