The Great Tax Con Job

taxes-1-imagesRepublicans are using the T-word - taxes - to attack the Obama healthcare program. It's a strategy based in a lie.

A very small niche of America's uber-wealthy have pulled off what may well be the biggest con job in the history of our republic, and they did it in a startlingly brief 30 or so years. True, they spent over three billion dollars to make it happen, but the reward to them was in the hundreds of billions - and will continue to be.

As my friend and colleague Cenk Uygur of The Young Turks pointed out in a Daily Kosblog recently, billionaire Rupert Murdoch loses $50 million a year on the NY Post, billionaire Richard Mellon Scaife loses $2 to $3 million a year on the Pittsburgh Tribune-Review, billionaire Philip Anschutz loses around $5 million a year on The Weekly Standard, and billionaire Sun Myung Moon has lost $2 to $3 billion on The Washington Times.

Why are these guys willing to lose so much money funding "conservative" media? Why do they bulk-buy every right-wing book that comes out to throw it to the top of the NY Times Bestseller list and then give away the copies to "subscribers" to their websites and publications? Why do they fund to the tune of hundreds of millions of dollars a year money-hole "think tanks" like Heritage and Cato?

The answer is pretty straightforward. They do it because it buys them respectability, and gets their con job out there. Even though William Kristol's publication is a money-losing joke (with only 85,000 subscribers!), his association with the Standard was enough to get him on TV talk shows whenever he wants, and a column with The New York Times. The Washington Times catapulted Tony Blankley to stardom.

"Fellowships" and other forms of indirect sponsorship of right-wing talk show hosts have made otherwise-marginal shows and their hosts ubiquitous, and such sponsorships of groups like Norquist's anti-tax "Americans for Tax Reform" regularly get people like him front-and-center in any debate on taxation in the United States.

All so they could run a tax con on the American people, thus keeping Moon and Murdoch and Scaife and Anschutz (and others) richer than you or I could ever even imagine.

All of this money was spent - invested, really, since it's been more than saved back in low income tax rates on millionaires and billionaires - to convince Americans that up is down and black is white when it comes to income taxes. Here's how it works:

Rich Person's Tax Effect

If a person earns so much money that he doesn't or can't spend it all each year, then when his taxes go down your income after taxes goes up. This is largely because there's little to no relationship between what he "needs to live on" and what he's "earning."

Somebody living on a million dollars a year but earning five million after taxes, can sock away four million in a Swiss bank. If his taxes go up enough to drop his after-tax income to only three million a year, he's still living on a million a year, and only socks away two million in the Swiss bank. His "disposable" income goes down when his taxes go up, and vice-versa. (Technically, the word is "discretionary" income for after-tax, after-living-expenses income, but "disposable" income has become so widely used as a phrase to describe discretionary income I'll use it here.)

The Rich Person's Tax Effect is the one that virtually all Americans understand - and, oddly, most working class people think applies to them, too (this is the truly amazing part of the con job referred to earlier).

But it doesn't.

Working Person's Tax Effect - version one

Most working people spend pretty much all of what they earn - their "disposable/discretionary" income is close to zero. Savings rates in the US among working people typically are small - one to five percent - and during the last few years of the W. Bush administration actually went negative. So the take-home pay that people have after taxes - regardless of what the taxes may be - is pretty much what they live on.

As economist David Ricardo pointed out in 1817 in the "On Wages" chapter of his book "On the Principles of Political Economy and Taxation," take home pay is also generally "what a person will work for." Employers know this: Ricardo's "Iron Law of Wages" is rooted in the notion that there is a "market" for labor, driven in part by supply and demand. So if a worker is earning, for example, a gross salary of $75,000, his 2008 federal income tax would be about $15,000 ($802.50 on first $8,025 of income;$3,687.75 on income from $8,025 to $32,550; $10,612.50 on income from $32,550 to $75,000), leaving him a take-home pay of $60,000.

Both he and his employer know that he'll do the job he's doing for around $60,000 a year in take-home pay.

So what happens if his taxes go up, cutting his take-home pay to $55,000 a year (even though his gross is still $75,000)? Over time (typically one to three years) his wages will rise enough to compensate for the lost income.

Alan Greenspan used to be hysterical about this effect - he called it "wage inflation" - and The Wall Street Journal and other publications would often reference it, although the average working person has no idea that if his taxes go up, his wages will eventually go up. Similarly, when working-class people's taxes go down, their gross wages will, over time, go down so their inflation-adjusted take-home pay remains the same. We've seen both happen over the past eighty years, over and over again.

When I was in Denmark last year doing my radio show from the Danish Radio offices for a week and interviewing many of that nation's leading politicians, economists, energy experts, and newspaper publishers, one of my guests made a comment that dropped the scales from my own eyes.

We'd been discussing taxes on the air, what the Danes get for their average 52% tax rate (free college education, free health care, 4 weeks of vacation, being the world's "happiest" country according to research reported on CBS's "60 Minutes" TV show, etc.). I asked him why people didn't revolt at such high tax rates, and he smiled and just pointed out to me that the average Dane is very well paid with a minimum wage that equals about $18 US (depending on the exchange rate from day to day).

Off the air, he made the comment to me that was so enlightening. "You Americans are such suckers," he said, as I recall. "You think that the rules for taxes that apply to rich people also apply to working people. But they don't. When working peoples' taxes go up, their pay goes up. When their taxes go down, their pay goes down. It may take a year or two or three to all even out, but it always works this way - look at any country in Europe. And it's the opposite of how it works for rich people!"

Working Person's Tax Effect - Version Two

The other point about taxes - which Obama leveraged with his "no tax increases on people earning under $250,000 a year" pledge - has to do with the fact that our tax structure in the US is progressive.

Here's how it breaks out for a single person from the 2008 federal tax tables:

10% on income between $0 and $8,025

15% on the income between $8,025 and $32,550;

25% on the income between $32,550 and $78,850;

28% on the income between $78,850 and $164,550;

33% on the income between $164,550 and $357,700;

35% on the income over $357,700.

Note that our $75,000/year worker has two full tax brackets above him, which, if they go up, will not affect him at all. (This is also true, of course, for the median-wage and average-wage American workers who earn in the low to mid-$40,000/year range.)

The top tax rate that a person pays is referred to as their "marginal tax rate" (in our worker's case 28%). So what happens if the top marginal tax rate on people making over $357,700 goes up from its current 35% to, for example, the Eisenhower-era 91%?

For over 120 million American workers who don't earn over $357,700/year, it won't mean a thing. But for the tiny handful of millionaires and billionaires who have promoted The Great Tax Con, it will bite hard. And that's why they spend millions to make average working people freak out about increases in the top tax rates.

Income taxes as the "Great Stabilizer"

Beyond fairness and holding back the Landed Gentry the Founders worried about (America had no billionaires in today's money until after the Civil War, with John D. Rockefeller being our first), there's an important reason to increase to top marginal tax rate, and to do so now.

Novelist Larry Beinhart was the first to bring this to my attention. He looked over the history of tax cuts and economic bubbles, and found a clear relationship between the two. High top marginal tax rates (generally well above 60%) on rich people actually stabilize the economy, prevent economic bubbles from forming, prevent economic crashes, and lead to steady and sustained economic growth (and steady and sustained wage growth for working people).

On the other hand, when top marginal rates drop below 50 percent, the opposite happens. As Beinhart noted in a November 17, 2008 post on the Huffington Post, the massive Republican tax cuts of the 1920s (from 73% to 25%) led directly to the Roaring '20s stock market bubble, temporary boom, and then the crash and Republican Great Depression of 1929.

Rates on the very rich went back up into the 70-90% range from the 1930s to the 1980s. As a result, the economy grew steadily; for the first time in the history of our nation we went 50 years without a crash or major bank failure; and working people's wages increased enough to produce the strongest middle class this nation has ever seen.

Then came Reaganomics.

Reagan cut top marginal rates on millionaires and billionaires from 74% down to 38% and there was an immediate surge in the markets - followed by the worst crash since the Great Depression and the failure of virtually the entire nation's savings and loan banking system.

Bush I cut taxes, and the nation fell into a severe recession while debt soared and wages for working people fell.

Things stabilized somewhat when Clinton slightly raised taxes on the very rich, but W. Bush dropped them again - including taking taxes on unearned income (interest and dividends - the "income" that people like W. born with a trust fund "earn" as they sit around the pool waiting for the dividend check to arrive in the mail) down to a top rate of 15%. (That's right - trust fund babies like Bush and Scaife pay a MAXIMUM 15% federal income tax on their dividend and interest income, thanks to the second Bush tax cut.) The result of this surge in easy money for the wealthy, combined with deregulation in the financial markets, was the "froth" Greenspan worried about and led us straight into the Second Republican Great Depression, ongoing today.

The math is really pretty simple. When the uber-rich are heavily taxed, economies prosper and wages for working people steadily rise. When taxes are cut for the rich, working people suffer and economies turn into casinos.

Roll Back The Reagan Tax Cuts

While there's much discussion about letting the Bush tax cuts expire, if we really want our country to recover its financial footing we must do something altogether different. We need to roll back the Reagan tax cuts that took the top marginal rate from above 70% down into the 30% range.

First, though, we have to help Americans realize that "no new taxes" is a mantra that is meaningful to the very rich, but largely irrelevant to average working people.

Only when the current generation re-learns the economic and tax lessons well known by the generation (now dying off) that came of age in the 30s through the 60s, will this become politically possible. Americans need to learn what Europeans know about taxes - they only matter to the rich.

Thus today the uber-rich are spending hundreds of millions to make sure words like "burden" are always associated with the word "tax," and to convince average working people that they should throw out of office any politicians who are willing to raise taxes on the rich.

We have a lot of education to do...and as long as the Right Wing Machine of the uber-rich continues to "lose" (e.g. "invest") millions of dollars a year in their ongoing disinformation campaign, it's going to require all of us reciting the mantra, "Roll back the Reagan tax cuts!"


matta (not verified) 13 years 11 weeks ago

It seems there is a problem with this:
Rich Person’s Tax Effect
If a person earns so much money that he doesn’t or can’t spend it all each year, then when his taxes go down your...
Shouldn't it be:
...then when his taxes go down *his* income after taxes goes up.

Lori (not verified) 13 years 11 weeks ago

It's all in how you frame it. In any change in tax policy (or any other kind of policy) there will be winners and losers. It's necessary to talk in terms of 'changes in tax policy' rather than let one's opponents frame the issue as 'tax increases' or 'new taxes.'

Re. apparently money-losing investments in media. Suggests the fungibility of what Michels termed 'moral authority.'

Lee in Duvall, WA (not verified) 13 years 11 weeks ago

Although this is true: "Why are these guys willing to lose so much money funding “conservative” media? Why do they bulk-buy every right-wing book that comes out to throw it to the top of the NY Times Bestseller list and then give away the copies to “subscribers” to their websites and publications? Why do they fund to the tune of hundreds of millions of dollars a year money-hole “think tanks” like Heritage and Cato?

The answer is pretty straightforward. They do it because it buys them respectability, and gets their con job out there."

People who only care about money and power know that spending a lot of money to control the media is similar to spending a lot of money to buy venal politicians.

Thom, I'd like to see you have Douglas Rushkoff on your show, he was on Colbert last week talking about his book: Life Inc. It's not only about corporate control, but how Americans have been lead to actually think like corporations, for instance to think of finite natural resources as commodities. Typical Colbert banter, but Rushkoff convinced me to buy the book.

Shalom P. Hamou (not verified) 13 years 11 weeks ago

The article: Ben "Systemic Risk" Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem.

It shows that it was the only cause of the "Depression".

And that he probably engineered it on purpose!

If you want to sleep tonight, Don't Read It!

You can read also: Preparing for the Crash, The Age of Turbulence Update: 22/07/09.|

Plea for a New World Economic Order.

jimw (not verified) 13 years 11 weeks ago

"The man who dies rich dies disgraced" - Andrew Carnegie

Carnegie was responsible for building 2500 libraries and most still exist today.
He understood the responsibility that we have to those that have helped us succeed in life.

"Carnegie believed in giving to the "industrious and ambitious; not those who need everything done for them, but those who, being most anxious and able to help themselves, deserve and will be benefited by help from others.""--Wiki

Andrew Carnegie, "The Best Fields for Philanthropy," The North American Review, Volume 149, Issue 397, December, 1889

David Zent (not verified) 13 years 11 weeks ago

Republicans aren't even real humans any more, but are now corporations. It doesn't surprise that in everything they do, they strive to externalize costs and internalize profits. The pathetic thing is they feel good inside when they can get one over on their fellow man.

I see this firsthand in my strongly Republican town in the San Joaquin Valley in California, and I walk around shocked and disgusted most of the time. I'll be moving up your way when I can, Thom. I've had it with the heartlessness.

Making Progress (not verified) 13 years 11 weeks ago

Bill Maher articulates "The Commons" in a funny and easy to understand article:

How about this for a New Rule: Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Some things we just didn't do for money. The United States always defined capitalism, but it didn't used to define us. But now it's becoming all that we are.

Did you know, for example, that there was a time when being called a "war profiteer" was a bad thing? But now our war zones are dominated by private contractors and mercenaries who work for corporations. There are more private contractors in Iraq than American troops, and we pay them generous salaries to do jobs the troops used to do for themselves ­-- like laundry. War is not supposed to turn a profit, but our wars have become boondoggles for weapons manufacturers and connected civilian contractors.

Prisons used to be a non-profit business, too. And for good reason --­ who the hell wants to own a prison? By definition you're going to have trouble with the tenants. But now prisons are big business. A company called the Corrections Corporation of America is on the New York Stock Exchange, which is convenient since that's where all the real crime is happening anyway. The CCA and similar corporations actually lobby Congress for stiffer sentencing laws so they can lock more people up and make more money. That's why America has the world;s largest prison population ­-- because actually rehabilitating people would have a negative impact on the bottom line.

Television news is another area that used to be roped off from the profit motive. When Walter Cronkite died last week, it was odd to see news anchor after news anchor talking about how much better the news coverage was back in Cronkite's day. I thought, "Gee, if only you were in a position to do something about it."

But maybe they aren't. Because unlike in Cronkite's day, today's news has to make a profit like all the other divisions in a media conglomerate. That's why it wasn't surprising to see the CBS Evening News broadcast live from the Staples Center for two nights this month, just in case Michael Jackson came back to life and sold Iran nuclear weapons. In Uncle Walter's time, the news division was a loss leader. Making money was the job of The Beverly Hillbillies. And now that we have reporters moving to Alaska to hang out with the Palin family, the news is The Beverly Hillbillies.

And finally, there's health care. It wasn't that long ago that when a kid broke his leg playing stickball, his parents took him to the local Catholic hospital, the nun put a thermometer in his mouth, the doctor slapped some plaster on his ankle and you were done. The bill was $1.50, plus you got to keep the thermometer.

But like everything else that's good and noble in life, some Wall Street wizard decided that hospitals could be big business, so now they're run by some bean counters in a corporate plaza in Charlotte. In the U.S. today, three giant for-profit conglomerates own close to 600 hospitals and other health care facilities. They're not hospitals anymore; they're Jiffy Lubes with bedpans. America's largest hospital chain, HCA, was founded by the family of Bill Frist, who perfectly represents the Republican attitude toward health care: it's not a right, it's a racket. The more people who get sick and need medicine, the higher their profit margins. Which is why they're always pushing the Jell-O.

Because medicine is now for-profit we have things like "recision," where insurance companies hire people to figure out ways to deny you coverage when you get sick, even though you've been paying into your plan for years.

When did the profit motive become the only reason to do anything? When did that become the new patriotism? Ask not what you could do for your country, ask what's in it for Blue Cross/Blue Shield.

If conservatives get to call universal health care "socialized medicine," I get to call private health care "soulless vampires making money off human pain." The problem with President Obama's health care plan isn't socialism, it's capitalism.

And if medicine is for profit, and war, and the news, and the penal system, my question is: what's wrong with firemen? Why don't they charge? They must be commies. Oh my God! That explains the red trucks!

PlacitasRoy (not verified) 13 years 10 weeks ago

Regarding there is this parenthetical note: "(That’s right - trust fund babies like Bush and Scaife pay a MAXIMUM 15% federal income tax on their dividend and interest income, thanks to the second Bush tax cut.)" I recently referenced that quote and was challenged on its accuracy. I have been unable to find any support for it.

Did Thom make a mistake? If it is accurate, anyone have a source?

PlacitasRoy (not verified) 13 years 10 weeks ago

This was my reply to the Reich-winger who challenged Thom's parenthetical comment::

"There is a possibility that in the parenthetical note Hartmann was engaging in hyperbola, assuming tax-free bond interest, or was at worst inadvertently factually inaccurate.

However, Warren Buffet made $46 million and was taxed at 17.7% while his receptionist's tax rate was 30%. Forbes 400 member $1 million (proceeds to charity) that the average federal tax rate (income and payroll) paid by The Forbes 400 is less than the average rate of their secretaries and receptionists. Buffet told Forbes, "So far only three close friends, all 400 members, have made the calculation for me," "They all came up with results similar to mine but have no interest in being identified." So Hartmann's assertion there is tremendous tax inequity ("taxing the way the ultra-wealthy make money" versus "taxing the way that everybody else makes money.")and he is 100% accurate on that point.

And of course you have to engage in your juvenile and inane ad hominem puppycr@p both toward me and your non-existent fictional 'leeches.'

atlas's picture
atlas 11 years 41 weeks ago

I had to post just to add something to your insightful and seemingly obvious argument.

Jobs - the right loves to make the argument that raising taxes on the rich, who comprise 100% of my clients, by the way, will lead to job losses. The fallacy of course is that American business owners hire employees based on demand from consumers, not extra cash on hand. Conservative pundits seem to believe that if employers had an extra $55,000 in tax savings that they would hire an additional employee, when of course that employer will only hire that extra employee when they can earn a return above and beyond that $55,000 cost by adding staff and taking that investment risk. Without that investment in new a employee being profitable, that $55,000 will merely fall to the bottom line and end up in one of my investment accounts per your argument.

Mike2010's picture
Mike2010 11 years 41 weeks ago

Hartmann correlates tax brackets to the economy in such simple terms that it almost seems as his argument is accurate. Of course it is sheer idiocy to state that tax cuts in the 20’s directly led to the Great Depression without factoring in any other economic conditions of that time. Broad generalizations such as these serve to sway and confuse the reader, as statistics can prove to be useful as well as detrimental. if you wish to understand the actual effect of increasing tax brackets on the upper tax brackets you need to ignore misleading statistics and get down to the heart of the matter.

These articles always place the emphasis on billionaires of whom there are less than 500 in North America, and a poor representative of the actual number of US citizens who make up the bulk of the upper income tax brackets. These people include large to small business owners, who although make a higher profit they also face higher losses, and these losses directly affect job growth within the US. The current tax-bracket is already grossly unfair. Why should employers who typically work 2-10x as much and as hard as their employees have to pay more in taxes when those same profits can be used to put more money into the company and thereby create more jobs?

And as for those billionaires, Ive heard the redundant liberal hogwash about the billionaires holding on to their money, which simply isn't true. Look at Bill Gates, Warren Buffet, Zuckerberg, etc.. donating Billions to charitable causes worldwide: I know for a fact that most of their additional income taxes (tax income percentage deducted from the average tax income percentage) are not being spent by the federal government anywhere nearly as wisely. What we actually need is the same income tax percentage across the board, only then can we begin calling things “fair and equal”.

Why should billionaires, millionaires and the rest of the hard working Americans fall victim to careless government overspending and be punished with higher taxes through no fault of their own? The sad truth is that the entire public sector feeds off of the private sector and the silly arguments brought forth in this article serve nothing more than to overfeed the severely obese public sector.

Thom's Blog Is On the Move

Hello All

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