WORD VIRUS: The Bush tax legacy lives!

January 7, 2013

THIS WEEK

A picture, the old saw goes, can be worth a thousand words. Pictures these days, of course, can be worth a great deal more than any word number. Last spring, for instance, a version of Edvard Munch's iconic 1895 painting, The Scream, sold at auction for $119.9 million, an all-time art auction record.

But images don’t have to be playthings for the awesomely affluent. Images can become visual fusillades against inequality, eye-openers to the realities of the unequal world all around us. In this week’s issue of Too Much, the first of the new year, we’re starting a new regular feature that highlights these sorts of images.

We’re also spotlighting this week a new organizing project that revolves around collecting — and sharing — images of inequality. Would a similar effort help open eyes in your neck of the woods? You be the judge.

And how about that “fiscal cliff” that so dominated America’s first week of 2013? How will the outcome of this taxing battle affect inequality in the United States? We have some thoughts — and stats — below.

GREED AT A GLANCE

Back in 2010, the Dodd–Frank Wall Street Reform became law, and activists working to rein in CEO pay had a reason to cheer. America's top corporations, under Dodd-Frank, have to disclose for the first time ever the ratio between what they pay their chiefs and what they pay their median — most typical — worker. But no corporation has yet actually had to meet this mandate. The reason? A massive corporate lobbying blitz has stalled the writing of the federal regulations needed to enforce Dodd-Frank's pay ratio provision. Even so, the Dodd-Frank mandate does seem to be making an impact — in India. Late last month, India’s minister of corporate affairs announced that his nation's companies will now have to report both their top executive pay and their median employee salaries . . .

The U.S. Senate opened a new legislative year last week without its most fervent shill for grand fortune, South Carolina Republican Jim DeMint. The arch-conservative DeMint resigned his Senate seat last month to become the new president of the Heritage Foundation, the nation’s most lavishly funded right-wing “think tank.” DeMint is calling his switcheroo a “big promotion,” and with that promotion comes a big raise. DeMint was making $174,000 a year as a senator. In 2010, his predecessor at Heritage took home $1,025,922. DeMint is following a well-worn precedent. Right-wing lawmakers have been cashing in big-time at right-wing nonprofits for years. The biggest windfall? Former House GOP majority leader Dick Armey has just walked away from a Tea Party group. FreedomWorks, with an $8 million buyout . . .

The world’s top tax rate on high income will not be going into effect this month after all. France’s highest court, the Constitutional Council, late last month declared unconstitutional the 75 percent tax rate on income over 1 million euros, about $1.3 million, set to go into effect January 1. French conservatives had challenged the new 75 percent tax rate as “confiscatory.” France's high court didn't buy this “confiscatory” claim. The court instead ruled that the tax, as structured, treated wealthy households unequally, since the 75 percent levy only kicked in for households where one member makes over 1 million euros and would have exempted households where two members take home 900,000 euros each. The government of French president Francois Hollande has already announced plans to rewrite the 75 percent tax law to meet the court's objection.

Quote of the Week

“It is hard for me to understand how the new definition for ‘middle class’ has become $400k of income a year. This agreement locks in a tax structure that helps the wealthy more than the middle class and only gives temporary relief to everyone else.”
Representative Jim McDermott (D-Washington State), January 1, 2013, explaining his vote against the “fiscal cliff” deal

PETULANT PLUTOCRAT OF THE WEEK

The New Year hasn’t quite worked out how Mike Ilitch, the billionaire owner of hockey’s Detroit Red Wings, had hoped. On January 1, the Red Wings were supposed to be hosting the annual pro hockey “winter classic,” a contest expected to draw a record 111,000 fans. But the classic had to be axed after owners declared a lockout last fall and hockey players still refused to accept owner demands for massive salary cuts. Detroit officials, meanwhile, are reporting that Ilitch owes the city over $1.5 million in unpaid taxes. Ilitch denies he owes anything. The only good news for Ilitch: Michigan state lawmakers don't care what he owes. Meeting last month in lame-duck session, they voted to hand Ilitch $12.8 million a year in tax subsidies to help finance his new Detroit arena complex. Forbes puts the Ilitch private fortune at $2.7 billion.

IMAGES OF INEQUALITY

Only the wealthy and powerful, photographer Larry Chait started realizing a little while back, can afford to buy space on the billboards that bombard us daily. But what if those billboards, he wondered, started carrying messages that could inform and inspire ongoing efforts to create a less unequal America? The images that Chait has created for the Billboard Project take us a step in that direction. We’ll be showcasing these images in this and future 2013 issues of Too Much.

Web Gem

The Unequal State of America: See Inequality Grow / The best mainstream media coverage of inequality in 2012 may have come right at year’s end: a three-part Reuters series on America’s widening income gap. The series features a riveting interactive graphic that showcases, state by state, how U.S. inequality has steadily increased over recent years.

PROGRESS AND PROMISE

How can advocates for greater equality help our societies better grasp the extent of the inequality all around us? In the UK, egalitarian activists are taking to the highways, cameras in hand. Visualizing Inequality, a project of the London-based Equality Trust, is bringing together volunteers all along a British highway, the A41, that starts in London’s plush Park Lane and stops many miles later along the river Mersey, in one of Britain’s poorest areas. The volunteers, led by professional photographer Colin McPherson, are shooting photos that illustrate Britain's “increasing income gap.” Exhibitions of the photos will start touring communities along the A41 next month.

Take Action
on Inequality

In just a month, Tax the Rich the animation has racked up over 333,000 views and become one of the top egalitarian videos online ever. Haven’t seen Tax the Rich yet? Check it out — and then share!

inequality by the numbers

Stat of the Week

The benefit from tax breaks for stock dividends in the new fiscal cliff deal will go overwhelmingly to America’s rich. In 2010, notes New York University economist Edward Wolff, households making over $250,000 a year made up only 3.6 percent of all households but owned 50.3 percent of all stock, either directly or indirectly through mutual funds and retirement plans.

IN FOCUS

The Tax Legacy of George W. Bush: It Lives!

The Bush years gave America's rich new and unprecedented preferential treatment at tax time. The fiscal cliff deal enacted in the early moments of 2013 leaves that preferential treatment in place.

Who won the New Year’s eve standoff over the “fiscal cliff”?

In one sense, everyone “won.” The deal that Congress blessed last week includes scores of provisions. Most Americans can point to at least one specific provision that works to their financial favor.

But the biggest winners from last week’s deal really don’t come into focus until we step back from those scores of specific provisions and take in the big picture.

President Obama, back two months ago in the early stages of this latest federal budget debate, insisted on a solution that would raise $1.6 trillion in new revenues over the next decade, with most all of those revenues coming out of the pockets of Americans making over $250,000 a year.

The final deal raises a bit over $600 billion in new revenue. In other words, the final deal essentially saves America’s most affluent nearly $1 trillion over what the White House initially sought.

That $1 trillion in tax savings, all by itself, would be enough to make America’s wealthiest the heftiest winners in the fiscal cliff showdown. But the magnitude of the victory for America’s wealthy runs even greater than that $1 trillion.

Consider this: Even if Congress had given the President every tax increase on the rich he initially sought, U.S. taxpayers in the nation’s top tax bracket would still be paying federal taxes at less than one half the rate that top-bracket Americans faced in the 1950s, under Republican President Dwight Eisenhower.

In other words, America's wealthy won this latest battle over who bears the federal tax burden even before the battling began. But they also did mighty well after that battling started.

Take the matter of dividend income. Until 2003, income from corporate dividends enjoyed no particular tax preference. Dividend income faced the same graduated federal income tax rates as income from wages and salaries.

The George W. Bush years changed all that and slashed the tax rate on dividends — income that flows overwhelmingly to America’s wealthy — all the way down to 15 percent.

Wealthy Americans expected this preferential treatment for dividend income to end on December 31, 2012, the last day before the expiration of the Bush tax cuts. America’s top corporate executives, anticipating that expiration, had the corporations they run rush to post dividends before the year-end deadline.

Overall, in 2012’s final quarter, over 100 major U.S. corporations announced more than $22 billion in dividend payouts, more than triple the dividend payout these same corporations distributed in the last quarter of 2011. Among the beneficiaries: Larry Ellison, the CEO of business software giant Oracle. Ellison personally pocketed $198.9 million of Oracle’s $800 million dividend surge.

The early payout, Ellison no doubt figured, would save him over $50 million in federal income taxes, the difference between the Bush 15 percent preferential tax rate on dividends and the tax rate he would face once the Bush dividend preference expired on January 1.

But the Bush preferential tax rate on dividends didn’t expire. The “fiscal cliff” deal that Congress passed last week keeps the preference in place. Ellison and his fellow billionaires will pay only a 20 percent federal income tax on their dividends, not the 39.9 percent the deal applies to other income over $450,000.

The same dynamic played out with the fiscal cliff deal’s treatment of the Bush-era estate tax cuts. In fact, under the deal, America’s wealthy will be paying even less in estate taxes than they paid in any year of the George W. presidency.

In 2013, a wealthy couple will be able to totally exempt $10.4 million from any estate tax liability and face only a 40 percent rate on any estate value subject to tax, after deductions.

In 2001, the year before George W. Bush entered the White House, a couple could only exempt $2 million from the then 55 percent basic estate tax rate.

The fiscal cliff deal, in short, makes permanent the most notorious Bush-era tax breaks for the wealthy. Meanwhile, notes Robert Greenstein of the Center for Budget and Policy Priorities, the deal extends the tax credits for working families first enacted in 2009 only for five years.

“In essence, this agreement locks in a tax structure that is grossly unfair to middle class Americans, one which provides permanent tax assistance to wealthy Americans, and only temporary relief to everyone else,” senator Tom Harkin from Iowa, a Democrat who voted against the deal, noted on New Year’s Day.

“Every dollar that wealthy taxpayers do not pay under this deal,” added Harkin, “we will eventually ask Americans of modest means to forgo in Social Security, Medicare, or Medicaid benefits.”

New Wisdom
on Wealth

Scott Klinger, Fix the debt? How about fixing private pensions first, Baltimore Sun, December 26, 2012. The retirement plans of 54 CEOs leading the “Fix the Debt” drive to cut Social Security will deliver the execs an average $65,000 per month after age 65.

Sam Pizzigati, The fiscal cliff . . . of ’32, Los Angeles Times, December 26, 2012. Eighty years ago, America’s wealthy were pushing a national sales tax. The American people had a different idea: tax the rich.

Scott Klinger, The Dropped Ball, OtherWords, January 2, 2012. A cogent analysis of the fiscal cliff deal.

Harold Meyerson, All Hail Wall Street, American Prospect, January 3, 2013. Wage and benefit cuts explain about 75 percent of recent corporate profit increases. Taxing wages at a higher rate than income from investments only ups American inequality.

new and notable

Long Overdue: A Dialogue on Tax Evasion

Michael Pickhardt and Aloys Prinz, editors, Tax Evasion and the Shadow Economy. Edward Elgar, 2012. 200 pp.

America’s “fiscal cliff” debate has revolved around the question of how high a tax rate should the rich pay on the income they report to the IRS. But another key question has gone unasked: Are the rich reporting to the IRS all their income? The answer from the IRS: Hundreds of billions are going unreported every year. This new scholarly volume explores the “shadow economy,” that home sweet home for tax evaders the world over. Government tax officials do know, these pages show, how to make life miserable for tax evaders. Every 10 percent boost in audit rates, for instance, can boost reported income up to 2 percent. Governments don’t lack the tools to fight tax evasion. They lack the political will.