Saturday, April 28, 2007

Outgilding the gilded age

Krugman never disappoints me. I'd been planning to write about income inequality, as I've read a number of articles/blogs lately tackling various aspects of the problem: the top 1% of Americans amassing an obscene percentage of the nation's wealth, the middle class going without healthcare (not to mention the poor), a tax system that audits the "little guy" and turns a blind eye to corporations and the rich cheating the system (both illegally and through loopholes that ought to be illegal), etc.

From 4&20 blackbirds (original has links to the statistics, stories):

Are you thinking what I’m thinking? Eighty-five percent? Almost one in five tax dollars remains uncollected? Sign me up! Right? I mean, that’s a lot of tax dollars going uncollected, they won’t miss little piddly contribution to Bush’s grandiose and delusional foreign policy schemes!

Not so fast. If you’re like me, a regular working joe with a five-digit income, you won’t be getting away with cheating. That’s right! The IRS has stepped up its scrutiny of middle-class taxpayers.

Admittedly the frequency of audits are much higher if you earn a million or more. But what about the super wealthy? The Bush administration has cut the IRS staff investigating the wealthiest Americans in half. Additionally, while IRS staff investigating the super-rich have gone down, the complexity of the tax laws has shot up, and it’s the super-rich with their paid accountants and tax specialists who have the tools and the resources to exploit those laws.

A study of Walmart’s earnings against its taxes shows how much it cheated state governments out of its rightful income. According to the report, Walmart and other multi-state corporations cook their books and shift income made in states with income taxes to states without.

And Ezra Klein:

From The American Prospect's poverty report:

In 2005, the top 20 percent of American households had 50.4 percent of the nation's income, while the bottom 20 percent had 3.4 percent -- the largest margin between top and bottom since this data series began, in 1967. The Center on Budget and Policy Priorities reports that between 2003 and 2004, the post-tax income of the bottom fifth rose by $200 a year, while that of the top fifth rose by $11,600, and post-tax income for the top 1 percent rose by $145,500. And the wealth gap is far more extreme, with the top 1 percent of households holding one-third of the nation's net worth, while the bottom 40 percent have less than one percent of the nation's net worth.

I'm always impressed by how remarkably stark the data is. "The top 1 percent of households holding one-third of the nation's net worth, while the bottom 40 percent have less than one percent of the nation's net worth." Utterly unreal. But, of course, we're all to believe that a hammerlock on the nation's wealth confers no advantages, and the children of the poor are exactly as likely to succeed as the children of the rich...

It *is* stark. It makes me wonder what capitalism's endgame will look like. But for now, why are we still cutting the rich's taxes, while shifting more burdens onto the middle class? [Note: I don't believe in Reaganomics. Some people don't believe in God, some people don't believe in evolution, I don't believe in trickle down.]

Anyways, so I had this post in mind. And then I read Krugman's editorial on income inequality hitting and surpassing gilded age levels (see how we just made it back to that first sentence?):

Consider a head-to-head comparison. We know what John D. Rockefeller, the richest man in Gilded Age America, made in 1894, because in 1895 he had to pay income taxes. (The next year, the Supreme Court declared the income tax unconstitutional.) His return declared an income of $1.25 million, almost 7,000 times the average per capita income in the United States at the time.

But that makes him a mere piker by modern standards. Last year, according to Institutional Investor’s Alpha magazine, James Simons, a hedge fund manager, took home $1.7 billion, more than 38,000 times the average income. Two other hedge fund managers also made more than $1 billion, and the top 25 combined made $14 billion.

How much is $14 billion? It’s more than it would cost to provide health care for a year to eight million children — the number of children in America who, unlike children in any other advanced country, don’t have health insurance.

The hedge fund billionaires are simply extreme examples of a much bigger phenomenon: every available measure of income concentration shows that we’ve gone back to levels of inequality not seen since the 1920s.


You might have thought that in the face of growing inequality, there would have been a move to reinforce these moderating institutions — to raise taxes on the rich and use the money to strengthen the safety net. That’s why comparing the incomes of hedge fund managers with the cost of children’s health care isn’t an idle exercise: there’s a real trade-off involved. But for the past three decades, such trade-offs have been consistently settled in favor of the haves and have-mores.

Taxation has become much less progressive: according to estimates by the economists Thomas Piketty and Emmanuel Saez, average tax rates on the richest 0.01 percent of Americans have been cut in half since 1970, while taxes on the middle class have risen. In particular, the unearned income of the wealthy — dividends and capital gains — is now taxed at a lower rate than the earned income of most middle-class families.

We're outgilding the gilded age. And it's obscene.

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