Original Post
September 26, 2011
Opinion by Dennis Maley
Talking points can be a dangerous thing. When politicians, candidates and political pundits can dominate the dialog without engaging in intellectual debate, phrases and slogans start to make their way into the mouths of average Americans who, unlike the think tanks and policy groups that invent them, aren't aware that they are less than factual and often outright propaganda.
The most recent example is the 24-hour-media fodder regarding the millions of American freeloaders that we are being told are the “real problem” in our nation's fiscal woes. Why? Well, it started when serious economists began focusing on issues such as the impact that drastic wealth inequality can have on a consumer-driven, free-market system, once too little spending power exists below the very top.
They point out that while the nation has generated tremendous wealth since 1980, almost none of it has been shared by 95 percent of Americans, and skewed tax policy has made it easier for gains to accumulate at the very top, leaving tax revenues as a percentage of GDP, at its lowest point in 60 years, while suggesting that the dynamic will only continue exponentially unless corrected by policy reforms. From an economic position, it would seem clear that the only solution would be tax policy that was not so clearly designed to favor the very few, at the expense of the many – and the domestic economy as a whole.
However, the mere suggestion that taxes on the richest Americans being at their lowest in many decades might be contributing to the deficit and our lack of overall consumption, and thus contributing to the super-high unemployment that is sapping our economy on the whole, is instantly treated as a treasonous assault of the upper, upper class – or Class Warfare as the slogan makers like to deem it.
Ironically, the response has been a brutal campaign of reverse-class warfare that laughably suggests that the real problem driving the poverty epidemic is that the poor are not giving enough! For the past two weeks, the GOP-approved talking point on the tax situation and wealth inequality has been that we need to “broaden the base” and make sure everyone has “skin in the game.”
Republican presidential candidates and conservative pundits have been showering us with the claim that half of Americans “pay no taxes at all” and that this is what must change. Let's get past the talking points and cut to the facts. It is true that around 46 percent of Americans do not pay federal income tax, mostly because they are far too poor to be able to, once they pay all of the other taxes that eat up the bulk of their less-than living wage income – often at a very disproportionate rate compared to the well off, as we'll see later.
In fact, it's not even that they are excused from federal income taxes. In reality, there are several anti-poverty policies like the Earned Income Tax Credit that were designed to put more money in the hands of the consumers that drive our economy, that happen to be administered through the tax code for the sake of efficiency. So instead of the government sending a check or issuing a rebate, such policies are applied to what the person owes in federal income taxes. For the poorest Americans, they can be as much or even more than they owe, though they'll still have to pay things like payroll taxes, local taxes, state taxes, property taxes, service taxes and sales taxes.
Then there's also the fact that more and more Americans are living in abject poverty. That certainly hurts the tax base. The nature of our federal income tax is that it allows standard deductions for income up to a basic-needs level. A family of four earning less than $26,400 will get their $11,600 standard deduction and four exemptions of $3,700 each. Because there is no income above this basic subsistence level, they pay no federal income tax. They are so poor that their taxable income after their standard deductions (that the rich get too) is zero. Despite this “perk” for low earners with kids, more than a fifth of all American children still live in poverty and the number is growing!
Ironically, many of these policies, including the EITC, were implemented by Republicans and heralded as tax cut victories at the time. The EITC was passed by Nixon and expanded by Reagan, who championed removing as many Americans as possible from the federal income tax rolls. Nobody is talking about getting rid of it, but to broaden the base and get skin in the game, the way they are saying, you'd have to. I'm not sure they understand that, but again, the people who craft the message do. It's a typical empty retort to realities that do not coincide with the narrative they'd like to market.
Another factor is retirees. Social Security income is exempted from federal income tax. More than a fifth of the 46 percent who don't pay any are owed to this policy. Is someone arguing to start taxing the meager benefit of SSI in order to get some wrinkled skin in the game? True, some wealthy retirees have investment income and they won't pay income tax on that either, just capital gains. But Republicans are advocating eliminating that tax altogether, so that will only narrow the base.
Then there's also hedge fund managers. They had a down year in 2010, taking home 13 percent less than the year before. Still, the top 25 alone pulled down more than $22 Billion (yes, with a b) in total compensation. They don't pay income tax either. However, the same people advocating “skin in the game” blocked attempts to close this loophole over the last couple of years. So again, where is this money coming from, if not the small minority where it's so disproportionately accumulated over the past four decades as we've cut taxes on the super rich? I'm not sure, because the skin in the game guys never offer specifics.
In reality, there are more people living in poverty right now in the United States than in the history of such records being kept and 2010 census data revealed that there would be 3 million more young Americans living in poverty, had they not returned home to live with their parents because they are unemployed, marginally employed or earning too little to survive on their own. The number of impoverished Americans has risen for the 4th consecutive year and keep in mind, a family of four making $22,500 is technically above the poverty line, even though they'll bring home less than $400 per week, even in a state like Florida that has no state income tax. For the love of God, what on Earth can we take from them to get more skin in the game – beyond their actual skin itself!
Tax policy is complicated and I'm all for simplifying the tax code, but let's still be honest about the realities of the system we have. There are breaks at both the top and bottom. Those making over $106,800 stop paying Social Security and Medicare taxes on income over that amount, so they end up paying such payroll taxes at a much lower rate than upper middle-class and even the poorest Americans. Looking at “income tax” in a vacuum is deliberately misleading because it focuses on where the majority of well-off people's tax burden lies. But looking at actual total taxes as a percent of total income gives you a much clearer picture. Look at the graph below from a report by Citizens for Tax Justice and you can see that it's pretty consistent with income distribution (click to read full report).
Over the last 30 years, taxes have fallen sharply for the top 1 percent of Americans and stand at historic lows. Common sense would tell us that shouldn't be the case considering deficits are at historic highs. But the super rich, and especially those in the top .01 percent who benefit the most, have certain advantages when it comes to framing the debate. They own things like cable news networks, newspaper conglomerates, publishing houses and the corporations that support them with ad revenue, and of course, think tanks.
They also employ six and seven figure media personalities and management employees who decide how issues will be presented to the masses. Do an Internet search on the term “soak the rich.” You'll find dozens of mainstream media op/eds warning of the catastrophic consequences of developing a tax policy that is more realistic in terms of cutting the deficit and rebuilding the consumer class that our economy depends on, almost all of which intentionally misrepresent the data I've just deconstructed, while leaving out the parts I've included that don't fit the narrative. There's a lot less out there on the fact that Exxon Mobil or G.E. paid zilch in U.S. corporate taxes in recent years, but a lot of those people own Exxon stock, which it should be noted, is through the roof. Is it any surprise which issue they seek to focus the attention of American viewers on?
The result of all this whitewashing is the seemingly impossible scenario in which middle-class and even somewhat poor Americans advocate policies that do not benefit them at all, while compounding the problem at large. At some point, the wealthiest among us will have to realize that they have milked the udders dry, that the American Dream for anyone not born into that class is dead, and that they've got to move on to the next host country in order to feed off the life-blood of the masses.
That'll be no problem. They'll have the cash, the gold, the personal jets and foreign assets to do so. But for the tens of millions of suckers who were conned into buying a nonsensical myth that the only way to earn their own share is to give it all away to those who already have too much? Well, the joke will be on them. We'll just be too busy fighting each other for scraps of rotten meat to hear their distant laughter.