Wednesday, December 20, 2017

COTW: Return to Aristocracy

Father Christmas
More: The UK's Guardian reports that six members of Trump's gang in the White House will save millions in federal taxes as a result of his Christmas gift to the wealthy. Trump will personally save $11-15 million a year according to the Center for American Progress' research. His heirs will save $4.5 million due to favorable changes in the estate tax. Wilbur Ross, the commerce secretary; Linda McMahon, administrator of the Small Business Administration; Betsy DeVos, the Education Secretary; Steven Mnuchin, the Treasury Secretary; and Rex Tillerson, the Secretary of State, will benefit to the tune of $4.5m from changes to the estate tax. The overwhelming majority of businesses use "pass through taxation" in which the business entity is not taxed directly as corporations, but its owners are taxed at ordinary income rates. The rates for pass through businesses such as S corporations, and limited liability partnerships were reduced by ten percentage points. At the last minute a special exception was pushed through Congress to benefit real estate companies with too few employees to qualify for ordinary pass-through treatment. Jared Kushner, Trump's senior adviser and real estate mogul, will rake in $5 to $12 due to the changes. Think of it as icing on the cake. The rest of US will get coal in our stockings for Christmas!

Update: The compromise bill passed in the dead of night further exacerbates the income inequality in the US by reducing the top marginal rate from 39.6% to 37%, lower than both the House and Senate versions. Through lowering the corporate tax rate from 35% to 21%, it is possible the reform will increase corporate investment, though most economists believe it will do little good because corporate profits are already historically high. That possibility was further belied by Wells Fargo's CEO who told an interviewer that his company's extra cash will be used to bolster the stock market through stock buy backs and higher dividends to stockholders. The US already has a relatively low top rate compared to other developed countries. It boggles the mind to think that in the late 1960s, when 'Merica was presumably still great, the top rate was near 70%!

{20.12.17} French economist Thomas Pickety in his classic work, Capital in the 21st Century, shows how income inequality has increased drastically in America in the last few decades. In the decades between 1950 and 1980, income maldistribution reached its ebb in which the top decile of income earners claimed 30 to 35% of US national income That figure is now 45-50% and increasing. Consequently, inheritance of accumulated wealth will play a greater role in society in the future--a return to aristocracy--not seen since the Gilded Age. This is just one fact Trump's tax gift to the wealthy is intended to protect. By increasing the estate tax exemption to an exorbitant $22 million, most estates except for the very largest will pay any estate tax. Even the very largest will employ a legion of tax avoidance techniques to pay relatively very little tax in comparison to the wealth pasted on to subsequent generations. This chart is reveals the "scam" at the heart of the Repugnant 'tax reform'. The purple line will continue to go down under Trump:

This fact makes the so-called progressive taxation of income even more regressive when the impact of all taxes--income, estate, and gift at all levels of government--are considered. Very wealthy people do no have incomes like the 99%.  Their incomes are primarily made up of returns on investments and business profits. They take a relatively modest share to meet sometimes extravagant living expenses, while the rest of their capital is left untouched--more often offshore and beyond the jurisdiction of taxing authorities--to accumulate at compound rates.  These untouched returns are not taxed as ordinary income, and therein lies the venality.