In the Red
The New York Times (“All the news that fits …”) omits much of what’s pertinent nowadays – except for Paul Krugman. He gave us “Wealth Over Work” on March 23rd. Read it. It’s good.
“It seems safe to say that ‘Capital in the Twenty-First Century,’ the magnum opus of the French economist Thomas Piketty, will be the most important economics book of the year – and maybe of the decade. Mr. Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent.
“To be sure, Mr. Piketty concedes that we aren’t there yet. So far, the rise of America’s 1 percent has mainly been driven by executive salaries and bonuses rather than income from investments, let alone inherited wealth. But six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs, and the children of today’s economic elite start from a position of immense privilege. As Mr. Piketty notes, ‘the risk of a drift toward oligarchy is real and gives little reason for optimism.’
“Indeed. And if you want to feel even less optimistic, consider what many U.S. politicians are up to. America’s nascent oligarchy may not yet be fully formed – but one of our two main political parties already seems committed to defending the oligarchy’s interests.
“Despite the frantic efforts of some Republicans to pretend otherwise, most people realize that today’s G.O.P. favors the interests of the rich over those of ordinary families. I suspect, however, that fewer people realize the extent to which the party favors the returns on wealth over wages and salaries. And the dominance of income from capital, which can be inherited, over wages – the dominance of wealth over work – is what patrimonial capitalism is all about.
“To see what I’m talking about, start with actual policies and policy proposals. It’s generally understood that George W. Bush did all he could to cut taxes on the very affluent, that the muddle-class cuts he included were political loss leaders. It’s well less understood that the biggest breaks went not to people paid high salaries but to coupon-clippers and heirs to large estates. True, the top bracket on earned income fell from 39.6 to 35 percent. But the top rate on dividends fell from 39.6 percent (because they were taxed as ordinary income) to 15 percent – and the estate tax was completely eliminated.
“Some of these cuts were reversed under President Obama, but the point is that the great tax-cut push of the Bush years was mainly about reducing taxes on earned income. And when Republicans retook one House of Congress, they promptly came up with a plan – Representative Paul Ryan’s ‘road map’ – calling for the elimination of taxes on interest, dividends, capital gains and estates. Under his plan, someone living solely on inherited wealth would have owed no federal taxes at all.
“This tilt of policy toward the interests of wealth has been mirrored by a tilt in rhetoric; Republicans often seem so intent on exalting ‘job creators’ that they forget to mention American workers. In 2012 Representative Eric Cantor, the House majority leader, famously commemorated Labor Day with a Twitter post honoring business owners. More recently, Mr. Cantor reportedly reminded colleagues at a G.O.P. retreat that most Americans work for other people, which is at least one reason attempts to make a big issue out of Obama’s supposed denigration of businesspeople fell flat. (Another reason was that Mr. Obama did no such thing.)
“In fact, not only don’t most Americans own businesses, but business income, and income from capital in general, is increasingly concentrated in the hands of a few people. In 1979 the top 1 percent of households accounted for 17 percent of business income; by 2007 the same group was getting 43 percent of business income, and 75 percent of capital gains. Yet this small elite gets all of the G.O.P.’s love, and most of its policy attention.
“Why is this happening? Well, bear in mind that both Koch brothers are numbered among the top 10 wealthiest Americans, and so are four Walmart heirs. Great wealth buys great political influence – and not just through campaign contributions. Many conservatives live inside an intellectual bubble of think tanks and captive media that is ultimately financed by a handful of megadonors. Not surprisingly, those inside the bubble tend to assume, instinctively, that what is good for oligarchs is good for America.
“As I’ve already suggested, the results can sometimes seem comical. The important point to remember, however, is that the people inside the bubble have a lot of power, which they wield on behalf of their patrons. And the drift toward oligarchy continues.” –
Spot on, Mr. Krugman! Regarding the extreme concentration of wealth, your NYT (on Feb. 19, 2010) gave us the so-called “Prime Number” as 345, the average amount, in millions of dollars, earned by the 400 highest-earning households in the U.S. in 2007 – according to the IRS. That “Prime Number” was 263 in the previous year, 2006, an increase of 31 percent. The top 400 earned a total of $ 138 billion in 2007 (up from $ 105.3 billion in 2006), and after exploiting all available loopholes, each of those households paid an average tax rate of 16.6 percent.
So, the concentration of wealth is increasing. According to the Working Group on Extreme Inequality, the top 1% took in 23.5% of all of the country’s income in 2007. In 1989 they only took in 8.9%. Between 1979 and 2008, the top 5% of U.S. families saw their real incomes increase by 73%, while over the same period the lowest income fifth (20% of us) saw a decrease in real income of 4.1%. The other 75% of us remained stagnant, which is why so many of us had to borrow more and more, and fell further and further behind.
That “Prime Number” in 2007 – that $ 345,000,000 that each of the “400” earned that year – was the last “Prime Number” made available by the IRS, and it’s easy to see why. Back in 1955, the top 400 households collected an average (in 2007-adjusted dollars) of just $ 12.8 million each. They paid, “after exploiting all available loopholes,” more than 51 percent of that in taxes, however.
We’re being had.