Economic Injustice for most
MORRIS, CHARLES R.
ECONOMIC INJUSTICE FOR MOST From the New Deal to the Raw Deal Charles R. Morris merica has always had an ambivalent attitude toward equality. In contrast to the social democratic regimes of...
...but if they're enacted now, they can be relatively mild...
...Change in Share of Total Income: 1980-2001, By Quintile and Top 5 percent—2001 dollars 42% 40% 1 I0% o% 'Lowest{ 1 2nd 3rd E a r 8% -30% At the household level, total incomes barely kept pace with inflation in the lower quintiles...
...By all reports tax evasion has soared, as evidenced by the aggressive marketing of illegal tax shelters by some of our most august financial institutions...
...On a lifetime basis, the effect of Social Security taxes and benefits is still mildly progressive for most people...
...Wealth accumulations occur over ex-tended periods, so it can take a number of years for even highly skewed income patterns to be fully reflected in wealth distributions...
...The trends The recent trends in income concentration have been even more pronounced than those in wealth...
...That such unseemly looting has become socially acceptable, not to say praiseworthy, is an inquiry for social psychology, not economics...
...This is unusual and especially worrisome...
...But there are many problems with developing a class of super-rich...
...So why is the administration shouting crisis...
...The current patterns of income concentration SCHWADRON Commonweal 12 August 13, 2004 are violently out of whack with historical experience, and may indeed be without precedent...
...Taken together, the Bush program will beam the very rich out to new galaxies of wealth far, far, away from the rest of us...
...Although the administration originally sold the tax cuts as a temporary expedient to restore growth, it is now pressing to make them permanent...
...The children of the poor now disproportionately stay poor, to an extent far beyond any explication based on lower intelligence or race, while the children of the rich disproportionately stay rich, again to an extent that can't be explained by their talent or IQs...
...At that point, the trust funds will begin to cash in their bonds...
...In contrast to the social democratic regimes of Europe, the only officially endorsed equality Americans have historically embraced is the narrow sense of equality of opportunity—as opposed to outcome...
...The fees Greenspan and the administration would like to take from the trust funds for their friends on Wall Street are just an-other bonus...
...upper-income people are consequently assessed a lower share of their paychecks than average workers are...
...That leaves only two expedients—just print lots of new money, and inflate away the value of the benefits...
...Taxable Real Income Gains: 1970—2000 By Rank of Earners—2000 dollars i00% 4th 5th Top 5% -10% -20% -Commonweal 14 August 13, 2004 capital gains, of course, accrue almost entirely to the wealthy...
...In fact, the most recent data on average estates at death show that for people in the 99-99.5th percentile of income, the average estate was only about $2.1 million...
...More than a third of beneficiaries are disabled, or are the children and spouses of disabled or retired workers...
...The justification for policies that mildly even out wealth accumulation is much like those for regulating business competition...
...That was actually happening at a rapid clip during the second Clinton administration...
...It falls on the first dollar of income up to a ceiling (now about $88,000...
...As far as possible, all income was to be treated alike—there was to be no difference in the taxation of capital gains and ordinary income, no difference between the rentier and the ordinary wage earner...
...At some point, in about fifteen years or so, payroll taxes will no longer cover annual retirement payments...
...Between 1970 and 2000, the average American worker's pay-check improved by about $2 a week each year, mostly resulting from gains made by women...
...The truth is that the amazing spurt in top-drawer incomes is so sudden, so striking, so out of keeping with experience, that it will take economists years to reach a consensus on the details of what happened, if they ever do...
...In short, twenty years of the high payroll taxes Greenspan recommended to finance Social Security have been blown away by a binge of upper-class tax cuts, which Greenspan also advocated...
...These are not just theoretical problems...
...The single-mindedness with which the administration has focused on benefits for the narrow band of the super-rich is astonishing...
...That data was reconstructed by historians, but widespread awareness of a growing, and possibly unbridgeable, chasm between the Haves and the Have-Nots fueled the Populist movement in the last years of the nineteenth century, the Progressive politics and trust-busting initiatives early in the twentieth, and Franklin Roosevelt's Charles R. Morris is the author of many books, including American Catholic (Times) and Money, Greed, and Risk (Crown...
...There was a very sharp increase in payroll taxes for Social Security and Medicare, the age for full retirement was pushed up on a phased basis, and certain benefits were subject to taxation...
...The 1986 Tax Reform Act was a signal nonpartisan accomplishment, worked out between the Reagan administration and a substantially Democratic tax-reform wing of the Congress, led notably by Senator Bill Bradley...
...An obvious ex-ample of how pandering to the very wealthiest is destructive of the interests of everyone else is the administration's insistence on outlawing Medicare from negotiating better pharmaceutical prices for its enrollees...
...In 1983, on the recommendations of a commission chaired by Alan Greenspan, who was then not in government, Congress passed a thorough overhaul of the system's financing...
...So much for fairy tales about rising tides...
...There are only two ways—it can raise taxes or borrow...
...Over the thirty years from 1970 to 2000, the bottom 90 percent of earners as a group actually lost ground...
...The administration responds with ritual denunciations of "death taxes" on "small businesses" and "family farmers...
...Virtually all those gains have been dissipated over the past twenty-five years or so...
...There is only one word for it—it is a crime...
...Some combination of a 1-percent or so payroll-tax increase together with a modest slow-down in the rate of benefit increases, or a variety of similar measures, would about do the trick...
...After all, that's what friends are for...
...The Bush administration has been loudly proclaiming that Social Security is in terminal crisis...
...About 45 million people receive benefits from the program...
...Although administration flacks blame the deficits on slow growth, the nonpartisan Congressional Budget Office identifies the tax cuts as the largest single factor...
...in,.^',l (,I 11 Irrr, ,n iii A\rh ~ih ~~I I In^ C ,.'nlun- I (,LM(i...
...Instead of controlling a quarter of the nation's wealth, as in the Gilded Age, the richest 1 percent of the population now owns about a third, and the top 5 percent about 58 percent, of all wealth...
...ill?n, p,irli,ul,uln Nor mAIt llr~ lr4 unficn "1:c: lif\ ( Iu , H_,n Ilif I \ni r rity administration—now owns a bond, and another level of the same government has the obligation to pay it off when it falls due...
...The original idea behind the payroll tax surpluses was that they would help the government pay down its accumulated debt, so it would have plenty of borrowing power when the boomer bills start to fall due...
...Although there were modest increases in the top rates under the first President Bush and President Bill Clinton, actual tax rates paid by top-tier earners stayed flat or fell, even as their incomes steadily rose...
...At the same time, CEO pay improved $26,000 a week each year—every year for thirty years...
...Some will get wealthy...
...The real income of full-time year-round male workers has been essentially unchanged in thirty years...
...The big winners from the Bush program are our 13,400 friends in the top .01 percent whose average estate was about $87 million...
...Finally, it is worth noting that virtually all these data are from the period before the recent Bush administration tax cuts on capital gains, stock dividends, and estate taxes...
...Where will the government get the cash to pay them off...
...Even more important is the current attack on Social Security...
...Why will deficits do so much damage...
...A 1-percent management fee on a trillion dollars is $10 billion a year, so we're not talking about chump change...
...Because they want to "privatize" the system—that is, take the accumulated trillions of dollars in the trust funds and give them to their friends on Wall Street to manage (yes, the same folks who brought us the dot.com fiasco...
...A suspicion of government interference in economic matters is an attitude that dates from the early days of the republic...
...Congressional Democrats, for example, have proposed raising the ceiling on the estate tax to $4 million, or a similarly high figure, rather than totally eliminating it...
...second factor was a devastating campaign of vilification against the Internal Revenue Service by the Newt Gingrich wing of the Republican Party...
...The problem is not that some people are getting rich...
...But there are some obvious factors at work...
...Predictably, the poorest quintile took the biggest hit, with the blow softening as one moves up the income ladder...
...Follow what happens to those payroll tax surpluses...
...That is why he issued a statement earlier this year calling for major cuts in benefits...
...And note too that these are household incomes...
...If you read the financial news, you know that the period from 1980 through 2001 marked one of the greatest of American economic booms—when we recovered our competitive position in the world, and created entirely new high-technology industries...
...Bill restored the conviction that the ladder Americans had to climb to attain real wealth evidenced the scale of the opportunity rather than the height of the barriers...
...This is a tax platfoint that would make Louis XIV proud...
...The payroll tax increase was much larger than needA Commonweal 16 August 13, 2004 ed to support current Social Security outlays...
...Well it gets worse (see graph, bottom of next column...
...Additional tweaks will be required to ensure solvency beyond that...
...The payroll tax itself is unusually regressive...
...For most middle-class and poorer families, the payroll tax is the largest tax they pay, and substantially reduces the overall progressivity of federal taxes...
...By 1890, at the height of the Gilded Age, just 1 percent of the population owned slightly more than a quarter of all the nation's wealth...
...ut the Bush tax and fiscal policies will be even more devastating for Social Security than privatization would be...
...Shocking...
...By the time the capital gains tax preference was finally restored, in complicated horse-trading with an embattled Clinton ad-ministration in 1998, most of the other shelters that benefit the very rich had wormed their way back into the code also...
...The graph in this column tells the story...
...Sadly, almost as soon as it was passed, tax advocates for the wealthy began lobbying for a restoration of special tax breaks, especially in the treatment of capital gains...
...Average real wages for all production workers actually dropped about half a percent a year over this period, so most households were able to stay even only by putting more of their members to work...
...The rich were still very rich, but programs like the G.I...
...Those numbers represent the densest concentration of wealth since the peak of American wealth inequality, which was in 1929, a not entirely reassuring precedent...
...Lincoln made much the same point: "[It is] best to leave each man free to acquire property as fast as he can...
...Americans are in favor of free competition and applaud the winners, but we also believe that it is right to step in to level the playing field when competition ends in monopoly...
...Lincoln was right that the fluidity and mobility of America make up a great part of its attraction...
...After World War II, and through the 1950s and 1960s, there was substantial leveling of wealth and income...
...Why should we care...
...The government takes in the cash and spends it for general government purposes like the war in Iraq, subsidies for sugar beet farmers, and Medicare...
...The consequence will be very large federal deficits, of a scale not seen since the worst deficits of the Reagan years...
...Full-time, year-round female workers have seen a strong earnings rise, though from a much lower base...
...Then there is the problem of corruption, as illustrated by the naked bias of the current administration toward its friends among the very wealthy...
...For more than two-thirds of retirees, Social Security is more than half their income...
...Although the act was sometimes blamed for the era's large deficits, an IRS analysis showed that tax receipts actually increased the year after its passage...
...The truth, according to the best current projections, is that assets of the Social Security trust funds will be sufficient to cover benefits for the next thirty-eight years...
...After the strike was broken with much violence, Carnegie salved his conscience and burnished his image by giving the borough of Homestead a library...
...It's a complex story but worth tracing in some detail...
...But if the government just keeps adding to its debt by running massive budget deficits, it won't have any extra borrowing power to manage Social Security payments, and there will also be many more claims on potential tax increases...
...The extra payments were designed to build an interest-earning surplus in the Social Security trust funds to provide a cushion against the day, now almost upon us, when the baby boomers begin to retire in large numbers...
...The Bush tax cuts are aimed at virtually eliminating taxes on investment income—especially capital gains, corporate dividends, and accumulated estates—all of which will serve to increase the yawning gap between the very rich and everyone else...
...I don't believe in a law to prevent a man from getting rich [but]...we do wish to allow the humblest man an equal chance to get rich with everyone else...
...Federal Reserve Chairman Alan Greenspan understands the conflict between the Bush deficits and the promises of Social Security...
...The core principle of the reform was to trade a greatly simplified tax code, eliminating almost all special privileges and shelters, for an extraordinary, across-the-board reduction in tax rates and the number of brackets...
...By the standards of other developed countries, Social Security is modest enough, yet it is still the most important American antipoverty program...
...It is also the same Alan Greenspan who favors turning over the trust funds to Wall Street investment bankers—so they can get even more amazingly rich than normal people...
...There was also an extraordinary outbreak of greed on the part of Wall Street executives and business leaders...
...When de Toqueville lauded the rough equality of Americans in the 1830s, he made it clear that it is the fluidity of the society that impressed him: "I do not mean that there is any lack of wealthy individuals in the United States....But wealth circulates with inconceivable rapidity, and experience shows that it is rare to find two succeeding generations in the full enjoyment of it...
...Notice that even in the top quintile, the gains were highly concentrated in the top 5 percent...
...If we divide wage earners into five quintiles—from the bottom fifth through the top fifth—one can see that over the period from 1980 through 2001, every quintile but the top one saw its share of the national income pie shrink—that is, not just the poor and the lower-middle classes, but the middle classes and the upper-middle classes also...
...A thoroughly cowed agency drastically reduced its auditing activities to the point where the working poor—who can receive a maximum $4,120 benefit under the Earned Income Tax Credit—were more likely to be audited than substantial small businesses, and three times more likely than individuals earning more than $100,000...
...The almost inconceivable leap in executive income has naturally stimulated a free-for-all rush for even more tax privileges and shelters—special treatment for stock options, offshore hedge funds, companies paying for personal expenses, tax benefits for owning corporate jets, and many, many more...
...You trusted the government with your payroll tax surplus, and were proved a sucker...
...So now your benefits will have to be cut to make up the difference...
...New York Times reporter David Cay Johnston, in his fine recent book, Perfectly Legal (Portfolio/Penguin), has documented case after case where the administration or its congressional friends have engineered egregious giveaways to tiny coteries of the very wealthiest people in America...
...B Commonweal 17 August 13, 2004...
...For one thing, as the tiering of American wealth distribution stretches further and further upward, it reduces mobility...
...Yes, this is the same Alan Greenspan who has consistently supported the Bush tax cuts, and who also strongly supports making them permanent, thus locking in the deficits...
...Well, guess who reaped all the gains from that hard work...
...The annual improvement was about half a percent a year in the lowest quintile, a bit more than eight-tenths of a percent a year for the middle class, and just about 1 percent a year for the upper-middle class...
...Then the government issues an interest-bearing bond in the same amount and deposits it in the Social Security trust funds...
...The current tax exclusion for capital gains on the sale of a home—$500,000 for a couple—effectively eliminates taxes on the vast majority of home sales, while the stocks and bonds owned by ordinary people are mostly in pension funds and 401(k) plans, which are already tax-protected...
...Yet the vast accretions of personal fortunes and corporate power that accompanied the rough-and-tumble era of free-booting capitalism in the decades after the Civil War—when men like John D. Rockefeller, Andrew Carnegie, and Jay Gould were building their empires—cast doubt on the reality of the American mythos of equal opportunity...
...In fact, for complicated reasons, privatization will actually make the system's financing much worse, but the administration simply ignores that...
...And yes, this is the same Alan Greenspan who designed the current Social Security financing system in the first place...
...There is also substantial evidence that a number of other developed countries—including Germany, Canada, Sweden, and Finland—now have more social mobility than America does...
...or renege on Social Security's promises...
...As the table shows, almost all the benefits flowed to the very rich...
...Carnegie loved to pose as the friend of the workingman, basking in the attendant public applause, until the searing events of the 1892 Homestead strike exposed the savage working conditions at his plants—twelve-hour days, seven-day weeks, a single scheduled day off a year, squalid little company towns, contaminated water, near-starvation wages...
...What happened...
...It would be hard to imagine a more naked case of aggression by the wealthiest on the interests of the rest of the citizenry...
...By 1999, the average pay of the 100 top CEOs was $37 million...
...The poor, the lower-middle class, the middle class, even the upper-middle class, got almost nothing at all...
...One level of government—the Social Secuu .ul~liYi~In IA) (11(' t' I ) it C.~~ It tlir ~~n h~u~ nip nhttni.l(l in IllH,1rlitir,IIHcn(.1 I, ,l ~~~~illhnl m.it~r il...
...All the top 10 percent did well, but only the top 1 percent did extremely well, and even within the top 1 percent gainswere disproportionately concentrated within the top hundredth of 1 percent, a mere 13,400 households...
Vol. 131 • August 2004 • No. 14
