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April 9, 2017


I took a crash course in tax law and served a two year stint as Deputy Attorney General in the early 1970s for the Territory of Guam, which adopted the internal revenue code as its code as a result of judicial application of the Organic Act of Guam of 1950. It was an interesting assignment as I represented the Territory in both civil and criminal cases and had some experience with both Japanese and Taiwanese companies who were investing in beach hotels, real estate, jewelry shops and the like. I found that our foreign investors are much like our American investors; they don’t like to pay taxes.

The internal revenue code has been a subject for massage by the rich and corporate class since it was instituted in 1913, a massage that is rarely in the public interest. Since Reagan’s massive tax cuts in 1986 and Bush’s unprecedented tax cuts while at war with Iraq, both of which favored the rich and corporate class under the guise of trickledown economics, and since all sorts of new  so-called “tax reform” tactics by Harvard and Wharton whiz kids employed by Wall Street moneychangers and banks have been enacted to re-describe ordinary income as capital gains, carried interest etc., all of which call for a lesser rate of taxation, income on capital has enjoyed a great tax advantage over income derived from labor.

This has led to all sorts of trickery as the code was amended to allow CEOs, for instance, to be paid for their services via stock options and therefore enjoy a much lesser tax rate than that of laboring people, who must pay at ordinary income rates for their services rendered in the “real economy.”  The code has also been amended at the behest of the superrich to allow a re-designation of ordinary income called “carried interest,” which is a great giveaway to those who traffic in capital gains, and especially to vulture corporations who feast off the bones of bankrupt corporations, among other such beneficiaries. I have often blogged of how Mitt Romney’s tax return for 2010 relied heavily on such a “carried interest” definition when his admitted income for the tax year was 21.7 million dollars on which he paid at a rate of only 13.7%, a lesser rate than that paid by those who trim the vines on his estates.

The idea in 1913 and since restated ad nauseam in Tax Court and appellate court decisions is that the income tax is a progressive tax; that roughly stated, the more you make the more you pay. That is not the case today and it is time to end the pretense that it is. There is no progressivity in a code where special interests drastically redefine its terms to favor the rich and corporate class over the rest of us via politicians who are rewarded in turn with enormous “campaign contributions” in order to keep the corporate welfare trough full and running while the rest of us pick up the tab where labor income is taxed at ordinary income rates and investment income is taxed at a much smaller rate. This is one of the “trickeries” found in the code and along with the definitional change in CEO compensation should by any reasonable interpretation be taxed as ordinary income and not capital gains. The solution, of course, is to tax capital gains income at the same level as labor income, but don’t hold our breath for this solution to be advanced in a Congress essentially financed by those who are the beneficiaries of the present system (see Kochs, Mercers et al.).

The foregoing thumbnail description of these continuing travesties and their spillover into the bankruptcy code (see Chapter 11) is one of the reasons why I have been agitating for reform of both the tax and bankruptcy codes since, as currently written, both codes institutionalize making the rich richer and the poor poorer. So is our current version of the tax code progressive? Don’t make me laugh! It is anything but, and our failure to make those who are rich pay their fair share of the tax load is one of the major causes of our massive debt, one which, unbelievably, the rich and corporate class complain about, and this from a class where (as we have seen) increased government debt goes into their pockets (and out of ours)! Thus hypocrisy is added to larceny in their arsenal of propaganda, one that would make Doctor Goebbels proud.

Fortunately, Trump says he will be submitting a tax reform plan to the Congress which will address inequities found in the code to give tax relief to (you guessed it!) the impoverished rich and corporate class, which along with his promise of “regulatory reform” for those poor overregulated folks almost immediately sent the Dow up by some ten percent (while wages continued at near stagnation status). So what’s in it for the rest of us who are paying taxes at an ordinary income rate? We get to pay the additional taxes (or become liable to pay them through an increase in the national debt) that the rich and corporate class will not be paying under Trump’s plan to further not progressivity of the code but rather an increase in the apparent decision by Republicans to make the rich even richer and poor even poorer.

I think such a plan is in keeping with his admitted Leninist adviser Bannon’s plan “to deconstruct the administrative state,” (aka destroying the America we know) and that both plans may well work in our current atmosphere of political chaos, political lackeys and leadership by whim. The losers? The rest of us and even ultimately the rich and corporate class as our teetering democracy goes down the drain and the international predators move in to pick over the remains.  What to do? Resist all such attempts as though our lives depend upon it – because they do.      GERALD      E






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