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A NEW LOOK AT AN OLD PROBLEM – WAGE INEQUALITY (PART VI)

May 19, 2014

A NEW LOOK AT AN OLD PROBLEM – WAGE INEQUALITY (PART VI)
One hundred one years ago, after overcoming Supreme Court holdings that income could not be taxed under the Constitution, America amended the Constitution to provide for such a tax. Administration of the tax code was assigned to the Department of the Treasury, and what was so gently begun has since turned into a labyrinth of exceptions and amendments of amendments in defining winners and losers under the internal revenue code. Income (whether from wages or capital) has been variously defined so as to tax such newly-defined income at more or lesser rates, depending upon the whim of Congress at any given time (and the campaign contributions made by parties in interest, of course). So how frequently is the internal revenue code amended? It is amended on an average of once a day! No other federal statute is amended at anywhere near that rate, which conclusively demonstrates that lobbyists and their clients are eternally (and successfully) seeking out amendment of the code favorable to reduction of rate and/or redefinition of its terms in order to put more money in the pockets of those seeking such amendments, oblivious to the further result that you and I have to make up the resulting shortfall of revenue to our treasury. In short, you and I are subsidizing further enrichment of the already rich with such daily chicanery. The rich get a tax break, we get the bill and our treasury bears the loss.
For instance, the idea that capital gains should be taxed at a lower rate than ordinary income demonstrates the bias of the Congress in favor of the rich over the poor and middle class recipients of wage income. Special categories of “business income” such as the “carried interest” redefinition have also very substantially reduced taxes due on such income from its recipients; the most notable example of which we are aware (since tax returns are typically unavailable for public scrutiny) being that of Mitt Romney, who paid income tax at a rate of only 13.9 percent on income of $21.7 million for the calendar tax year of 2010 due to congressional tinkering (aka amendment of the tax code), a rate less than that paid by gardeners on wage income who trimmed the hedges on his estates. Such esoteric redefinitions of income derived from capital with their lower tax rates are not to be found in income from wages.
Perhaps a worse result in 2010 than that disgusting demonstration of congressional largesse to Romney (at our expense) was the tax return of GE, a big defense contractor which now does the majority of its business overseas and which netted several hundred millions of dollars in profits for that taxable year. It is bad enough that our defense tax dollars were spent offshore, thus depriving Americans of jobs from which they would have paid wage income taxes back to our treasury; what may be yet worse is that (via creative accounting and delay in repatriating profits from offshore jurisdictions) GE received a THREE BILLION DOLLAR TAX REFUND from our treasury, a refund you and I have to make up while GE for the year pays dividends to its shareholders and bonuses to its executives.
How can such travesties happen? Why should you and I in effect be called upon to pay for GE’s dividend and bonus outlays to its shareholders and executives? How did we get into this act? Easy answer – the superrich via lobbyists, proxies and captive congress people effectively write the laws, rules and regulations while the poor and middle classes, with no money for such luxuries, pay the bills.
What to do? How to recapture the legalized theft of monies from our treasury that the superrich have managed over the years, much of which is resting in Swiss banks or the Caymans or in capital investment in Chinese factories and beyond our reach for investment in America? How do we even things up (as we did during what Piketty terms the “anomaly” of the war-torn and depression years from 1910 to 1980)?
Piketty correctly notes that income from human capital (wages) is taxable at progressive rates but that, depending upon the political regime, income from capital is insufficiently taxed when measured by the traditional split (which his research provides) in income between the two. He proposes a sliding and progressive scale of taxation on fortunes in order to contain the unlimited growth of global inequality of wealth which he terms “unsustainable,” further noting that he sees no genuine alternative to taxation of capital if we are to “alter” the march of global inequality into a loss of democracy – and that “if we are to regain control of capitalism, we must bet everything on democracy.” He writes that “the right solution” (to increasing global inequality) “is a progressive annual tax on capital.” He further states that only a progressive tax on capital can effectively impede a global dynamic of accumulation and distribution of wealth characterized by. . . uncontrolled inegalitarian spirals.
Unlike me, Piketty writes that it is useless to indulge in constructing a moral hierarchy of wealth – that such a debate is futile, and that such a practice often amounts to an exercise in Western ethnocentrism. I plead guilty to his criticism; I see immense moral issues in a situation where the rich (albeit legally) write laws that call for the poor and middle class to subsidize their ventures (providing them with tax loopholes to protect their incomes from taxation, bailouts for their bankers’ failures etc.) while refusing to share new wealth created by the economy with their benefactors (even to the point of opposition to increases in minimum wages).
Just how inegalitarian do capitalists want our society to become before social cohesion is lost and the possibility that the whole structure of capitalism crumbles? When will they realize that greed as policy must ultimately end – or be ended? More on Piketty’s brilliant insights in Part VII – stay tuned. GERALD E

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One Comment
  1. Dear Gerald,
    I am amazed that anyone can dismiss a moral and or ethical position upon the interactions of individuals or parties. How is that possible? Where, then, does morality or ethics enter into the discussion of human interaction and behaviors if not in how we treat one another in communities organized around very particular economic, political and social constructs??? To say morality has nothing to do with economics is, to me, very niave at best. In an economy about 2,000 years ago, Jesus presumably was standing with a few of his students/followers as he witnessed and then analyzed the actions of a poor widow who gave all she had (money) into the treasury of the Temple in Roman occupied Jerusalem. His description of “why” and “how” such a sad sight as this poor vulnerable woman could easily be a headline today! In essence, he goes on to tell his students that is is the rich and powerful who “devour” the homes and incomes of the vulnerable for their own greed and lifestyles. Moral analysis? Damn straight! And in my opinion, there must be some sense of “fairness,” of what is “right” and what is “wrong” in how communities are organized, how individuals and groups within those communities treat each other within the principles of community, state or empire. I wonder if Picketty thinks Gahndi or Martin Luther King Jr. were dillusional in combining their moral understanding with their social justice movements? Personally, I don’t see how they can be separated. But I am obviously biased toward understanding our human condition through the lens of ethics and morality. For me the underlining foundation, perhaps the unsaid core principle to Picketty’s entire work, is how these economies effect human beings and their dignity as human beings, not mere commodities within an economy! It should be clear (and obviously stated) that these economic issues matter precisely because they either adversely effect or not the human condition, a condition that matters BECAUSE ethics and morality matters. Thanks, as usual, Jerry, for your wonderful writings and opinions on what, I think, just below global climate change (which, of course, is connected with fossil fuel economies), is the most important issue facing, not only we as a nation among others, but as a global community and, I dare say, the survival of the human species. Peace- Brad

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