The Wealth of Families

If you take cues from the very rich, one thing is very clear: taxes are paid by suckers. The news about the leak of the Appleby documents show how the famous rich (think Bono, Madonna, Queen Elizabeth) and the not-so-famous rich (Hedge fund manager James H. Simons, investment banker Warren A. Stephens, and Microsoft co-founder Paul G. Allen) go to great lengths to hide their money from the big bad of taxes. Why? Well, this key ‘graph from a New York Times article makes it clear:

The richest 1 percent of the world’s population now owns more than half of global wealth, and the top 10 percent owns about 90 percent.

Most wealthy families have no intention of “spreading the wealth” via taxation. So they hire companies like Appleby to keep their money hidden, safe, and primed to be transferred to their heirs without incurring any fees they don’t want to pay (i.e., taxes). In Washington D.C. the great tax reduction plan for the wealthy is being touted as “Jobs! Jobs! Jobs!” for the middle class. Another round of trickle-down or supply-side economic policy designed to further erode the tax base for things like infrastructure, education, healthcare, and other benefits we used to think was important for all citizens.

While this isn’t law yet, the GOP tax con benefiting the wealthy has some provisions in it that wouldn’t help the middle class or poor families when it comes to education, but it’s super great for rich families. And once again, The New York Times shines the light on who benefits from this plan:

Buried in Section 1202 of the tax bill are a number of proposals to consolidate and simplify various tax breaks for education savings. Part of the section in effect would neuter something called a Coverdell account, which families have used for years to save for both private school and college.

But then comes the big change: Elementary and high school expenses of up to $10,000 per year would become “qualified” expenses for 529 plans. Translation? You could pull $10,000 each year out of your 529 account for private school and avoid paying taxes on any previous growth. There are no income limits on who can use 529 plans, and you would be able to keep right on saving for college as well.

The Joint Committee on Taxation estimates that this will reduce federal revenue by $600 million between 2018 and 2027.

And then how ’bout this: The GOP and the current President want to lower the corporate tax rate from 35% (which most corporations don’t pay) to 20%. This is supposed to “bring back” trillions of dollars “parked overseas” (i.e., tax havens like the ones Appleby provides for their clients) and make it easier for companies to invest in the U.S. economy. The last time a kind of tax amnesty was done in Congress, the companies that repatriated the money didn’t use it to invest in “Jobs! Jobs! Jobs!” Rather, they used to enrich their shareholders (35% who buy stock in the American stock markets are citizens of other countries). Moreover, you have the issue of a lower corporate tax rate of say 20-25% trying to compete with other countries where the rate is 0-5%. How do you compete with a rate of zero? The answer is you don’t.

When you have such a large-scale concentration of global wealth in the hands of a minority of people, you’re going to see more volatility in the political realm. The reason is simple: since the rich don’t want to pay taxes, it’s going to erode what’s left of those pillars that created middle-class wealth after WWII and into the mid to late ’70s. We’re already seeing what this does in the U.S. Unemployment may be at 4.1%, but the real issue isn’t so much work, it’s wealth. Those who are working can’t make enough to achieve a sense of financial security like the rich — who use a combination of money, power, and influence to pressure governments for lower taxes on their wealth (i.e. “ABOLISH THE DEATH TAX!!!”) and policies designed to benefit them (i.e., socialism for the rich).

When you increase the gap between the classes, you see some unsavory things pop up in the culture at large. According to economists Paul Krugman, Joesph Stiglitz, and Thomas Piketty — who all sat down for a chat in 2015 — as wealth gap widens, so to does lower life expectancy rates between the classes, stress levels increase as people feel stuck in a rat race, sectors of high unemployment pop up as whole groups are rendered unemployable due to education levels, age, race, and gender. You also see more and more people retreating into identity politics and politicians and investors committing affinity fraud for power and money.

So, what can be done to reverse the trend? The answer gets back to the New Deal from the FDR era. While imperfect, and probably wouldn’t have worked as well if it wasn’t for New Deal policies applied to WWII (i.e., FDR was called “Dr. Win The War” after the massive military spending by the federal government). Spending by the government not only in the military but in infrastructure and education did increase the wealth levels for the middle class for about 30 years. Since Ronald Reagan, wealth levels for the middle class have decreased steadily (with a few blips where they did increase for a few years), and Krugman, Stiglitz, and Piketty (all of whom see the benefits of New Deal type policies) say roughly the same thing to reverse that trend:

1. Better progressive taxation
2. Increase the minimum wage to a livable wage
3. Massive investments in education (this creates conditions where more people have access to job opportunities)
4. Growth in union jobs (blue and white-collar)
5. Get rid of CEO bonuses and stock options and give shareholders a say in the pay of the CEO
6. Universal healthcare
7. Infrastructure spending
8. R&D spending in industries that lead to more jobs and less automation

There are, of course, more items to this list, but these ideas were addressed during a Q & A with the host of the interview, Alex Wagner, so I’m sure if pressed to come up with a more substantial list, they would and could.

So, a lot of this comes down to messaging. Democrats used to be the party of the working and middle class. They haven’t entirely left them, but the party’s (and individual candidates) need for money to run campaigns means they have to do business with Wall Street investors and heads of corporations. When that happens, and the money flows, Big Money gets priority seating at the table where deals are made. To change the priorities of the political class, it means people have to “show up” and be involved in the process. You saw what happened when the GOP tried to repeal with ACA, right? These so-called “Town Hall” meetings were suddenly packed with people who opposed the repeal plan. It’s that kind of action (plus money) that’ll get the ear of politicians. But that takes commitment on the part of everyday people — and that can be hard to do. The bastards will always try and grind you down, but that’s because they are bastards who know how to wield power. The thing, however, about our democratic republic, is that one person, one vote, is still the law of the land. Use it, and you’ll see change. Don’t, and you’ll see more of the same.