Tuesday, March 18, 2014

Uncle Sam Likes Them Better

Photo: When so few have so much, and so many have so little, our democracy and economy are under fierce assault.  This is not what America is supposed to be about.  This must change.            Photo: The typical CEO of America's largest companies and banks is now earning more than 475 times what America's average worker is paid. Fifty years ago, it was 40 times. This meteoric rise isn’t because CEO’s are “worth” it but because their boards want to give them more than the CEOs they compete with, giving the firm bragging rights on the Street and ensuring that the CEO will stay put. But this has resulting in an escalating arm’s race. And because CEO pay is fully deductible from corporate taxes, taxpayers are subsidizing this arm’s race -- even as median household income drops. In the table below you can see the ratio of CEO pay to average workers in the U.S. compared to other countries. 

Republican David Camp, chair of the House Ways and Means Committee, recently proposed a way to stop this arm’s race: by not allowing corporations to deduct from their taxes CEO pay in excess of $1 million. That’s a good start. But how about going a step further and imposing an “excessive pay” surtax on corporations whose CEO pay exceeds 100 times that the average American worker?

When I worked as a real estate salesperson and, like an idiot, figured my own taxes, I totally screwed up on the self-employment portion. Eventually, I was audited and told by the IRS that I owed over $7,000. That included the original under-payments plus penalties and interest for three years. Up to that point, I'd never made as much as $30,000 in any year of my life so of course, I didn't have a quick $7,000 to pay them. They put a lien on my house. Not only on my house but on my ex-in-law's house as well. (My husband and I had owned the original land and had given them a life estate on the acre where their home was located, which meant my name was on the deed). My in-laws were of that generation of by-the-book Americans who believed in working hard, buying only what you could afford to buy for cash, paying your bills promptly, obeying even the most minor laws. They were, to put it mildly, horrified and humiliated to be notified that there was an IRS lien on their house. This was made worse by the fact that they'd always lived in this small rural county and knew almost everyone here, including the people at the Courthouse who would know of their shame and gossip about it behind their backs! They felt as if they had been branded with a red D (for deadbeats) on their foreheads.

So I was being hounded by the Internal Revenue Service on one side and by my ex-in-laws on the other and I honestly don't know which was worse.

Eventually, the IRS garnished my wages and as soon as I was able, I sold the house to get out from under my crushing debt.

Here is the point of this blog though - I had contacted a couple of tax attorneys during this terrible time to see if anything could be done to ease the situation. (I primarily wanted to know whether, if I could somehow pay half, would they release the lien on my in-law's home. Answer: no. It was all or nothing.) But, it turned out that if you owed the IRS big money, there was lots of room for negotiation. Sometimes, they'd settle for as little as 10 cents on the dollar. I knew a restaurant owner who owed $80,000 but his attorneys got him out from under the IRS by paying $8,000.

The tax attorneys shrugged me off. They could do nothing for me. If you owed under five figures, the IRS wanted a dollar for a dollar. End of story. In other words, the guy who owed them $80,000 paid $1,000 more than I had to pay for owing $7,000.

If that isn't favoring the rich over the poor, I don't know what you'd call class warfare.

Another case in point - student loan debt. This is probably the harshest kind of debt you can owe and it impacts the poor the most....and most newly graduated students probably are poor. The government/banks are oh-so-generous about letting students pile up debt while they are getting their education but unless you are able to go out and get a high-paying job right away, it becomes a giant millstone around your neck, often for decades. And there is no way out, ever. You can't go bankrupt on it. It just sits there, piling up interest. It will still be with you when you're at the nursing home.

The government can take any tax refunds you get to pay toward your student loans. It can garnish your wages. It can attach federal benefits, like social security (which is judgment proof for most debts) but it has to leave you $9,000 to live on! Big whoop, huh? There is no time limit on when you can be sued for student loan default (even the IRS has time limits on how far back it can go on income taxes). There is no statute of limitations (again, there are conditions under which back tax debt fall under the statute of limitations.)

And then there is the tax code itself, of course. If you're single and earn between $36,900 and $89,300, your federal tax rate is 25 percent. The rates go up from there, depending on your income, topping out at 39.6 percent, although you'll only pay 20 percent on your dividend and capital gains income, which for many wealthy people is the bulk of their earnings.

Of course, I'm not a tax expert so I'm not going to delve to deeply into all the various breaks and loopholes and deductions that are available but it is a lot, and the richer you are, the more apply to you. It is these that would have allowed Mitt Romney to pay an effective nine percent tax rate on his extremely high income. (He neglected to take some of the charitable deductions he qualified for so it wouldn't look so bad when he ran for president but what do you want to bet, he amended his tax forms after he lost?)

Who originally came up with the idea that some income is more worthy than other income? Who decided that millionaires should pay less on their favored dividends and capital gains than the poor schlump who works in the factory pays on his hourly wage? Well, I expect it was the very ones who'd end up benefiting the most, don't you? And, of course, they also happen to be the ones with the money to hire lobbyists to "persuade" politicians to pass their desired legislation.

The saying, "the rich get richer and the poor get poorer" has been around forever but it is certainly true today, especially in America, where the rich are getting richer at a whirlwind pace while the poor and middle-class are sliding downward like Alice through the rabbit hole.

And yet it is us at the bottom who are accused of stoking class warfare if we happen to notice how we're getting fucked over by our betters. We are admonished that we are showing unappealing "class envy" if we say it isn't fair.

And what amazes me most of all is how many of us agree with them! We'll fight to save poor Mitt Romney from having to pay more taxes. We'll go to the mat for Exxon's right to pollute our water. We'll go for broke to help get the Keystone Pipeline approved and worry about the damage it might do to our land and water later, like those resources are renewable and unlimited. We'll turn on our own and talk against a minimum wage increase or an expansion of unemployment benefits or equal pay for equal work. We'll excoriate the same unions that made a middle class possible in the first place (and you can do research to see how membership in the middle class is going down in correlation with union membership.) Mitt Romney can say right to our faces (well, he didn't know he was saying it to our faces, which makes it even worse) that he thinks half the country consists of lazy moochers but I guess many of us can believe, "oh, he isn't talking about me." But yes, he is. He's talking about you. You may consider yourself his peer but I can assure you, he doesn't.  

On the list of Forbes 400 richest Americans, 35 percent were born in lower or lower-middle class circumstances. The rest all inherited various degrees of wealth or had substantial help in starting up their businesses. It's nice to know that one/third of America's richest started from scratch so it is still possible to go from rags to riches, and we all hope that will be us, but who is surprised to discover that the other two-thirds began with a significant head start.

And that will continue all along their way as they coast down their glide path to ever-greater wealth because of the rules, laws, regulations and legislation that ensure it.