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Joseph Stiglitz blasts America’s wealthy-coddling tax system

Naked Capitalism | April 16, 2013

It’s a sign of how well relentless propagandizing works that Joe Stiglitz has to devote a lengthy op-ed in the New York Times to debunking the idea that our income tax system, whose salient characteristic is low tax burdens for the rich, is good for anyone other than the rich. Economists have increasingly taken note of the fact that the U.S. experiment in lowering taxes produced the opposite of the outcomes that were claimed for it, namely, spurring growth and increasing incomes in all cohorts (the barmy “trickle down” theory). Cross-country comparisons show that advanced economies with higher growth rates, like Germany, typically tax their wealthy more, showing that high taxes on the rich are not a negative for growth. Instead, giving tax breaks to the rich has turbo-charged rentier capitalism:

Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.

Stiglitz provides a compelling summary of how the rich get favored treatment:

The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes – far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners – almost a third – paid less than 15 percent of their income in taxes….

With such low effective tax rates – and, importantly, the low tax rate of 20 percent on income from capital gains – it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.

Stiglitz points out that not only are our tax rates on top earners strikingly low by OECD standards, but the income level at which they kick in are also higher than in most other advanced economies. And that is before you factor in that the rich for the most part don’t make their money through income but capital gains, which are taxed at lower rates. That preferable treatment has been exploited flagrantly by the hedge fund and private equity industries, which have been able to structure their funds so that the overwhelming majority of the income they get from managing the funds, which is labor income, is taxed at capital gains rates. And the worst is that the Masters of the Universe act as if that is perfectly reasonable. Stiglitz objects:

Some Wall Street financiers are able to pay taxes at lower capital gains tax rates on income that comes from managing assets for private equity funds or hedge funds. But why should managing financial assets be treated any differently from managing people, or making discoveries? Of course, those in finance say they are essential. But so are doctors, lawyers, teachers and everyone else who contributes to making our complex society work. They say they are necessary for job creation. But in fact, many of the private equity firms that have excelled in exploiting the carried interest loophole are actually job destroyers; they excel in restructuring firms to “save” on labor costs, often by moving jobs abroad.

And then the good professor turns to corporate tax breaks, citing poster child GE, which has paid on average less than 2% of its income in taxes since 2002. The picture is likely even worse than these figures suggest since corporations and wealthy individuals can hide income tax havens. … Full article

April 16, 2013 Posted by | Economics, Timeless or most popular | , , , | 2 Comments

The Costs of War

By Ron Paul | April 30, 2012

This month Veterans Affairs Secretary Eric K. Shinseki announced the addition of some 1,900 mental health nurses, psychiatrists, psychologists, and social workers to its existing workforce of 20,590 mental health staff in attempt to get a handle on the epidemic of suicides among combat veterans. Unfortunately, when presidents misuse our military on an unprecedented scale – and Congress lets them get away with it – the resulting stress causes military suicides to increase dramatically, both among active duty and retired service members. In fact, military deaths from suicide far outnumber combat deaths. According to an article in the Air Force Times this month, suicides among airmen are up 40 percent over last year.

Considering the multiple deployments service members are forced to endure as the war in Afghanistan stretches into its second decade, these figures are sadly unsurprising.

Ironically, the same VA Secretary Eric Shinseki was forced to retire from the Army by President Bush for daring to suggest that an invasion and occupation of Iraq would not be the cakewalk that neoconservatives promised. Then Deputy Secretary of Defense Paul Wolfowitz, who is not a military veteran, claimed that General Shinseki was “wildly off the mark” for suggesting that several hundred thousand soldiers would be required to secure post-invasion Iraq. Now we see who was right on the costs of war.

In addition to the hidden human costs of our seemingly endless wars are the economic costs. In 2008, Nobel Prize winning economist Joseph Stiglitz wrote “The Three Trillion Dollar War: The True Cost of the Iraq Conflict.” Stiglitz illustrates that taking into account the total costs of the war, including replacing military equipment and caring for thousands of wounded veterans for the rest of their lives, the Iraq war will cost us orders of magnitude greater than the 50 billion dollars promised by the White House before the invasion. Add all the costs of Afghanistan into the mix, wrote Stiglitz, and the bill tops $7 trillion.

Is it any wonder why our infrastructure at home crumbles, healthcare is more expensive and harder to come by, and unemployment together with inflation continue their steady rise? Imagine the productive power of that seven trillion dollars in our private sector. What could it have done were it in private hands; what may have been discovered, what diseases might have been cured, what might have been built, how many productive jobs created?

With the bills coming due for our decade of reckless military action, the cuts rarely come from the well-connected military industrial complex with their lobbyists and powerful political allies. In President Obama’s 2013 budget, troop strength is to be cut significantly while enormously expensive and largely superfluous weapons systems emerge essentially unscathed. As defense analyst Winslow Wheeler wrote this month, costs of the “next generation” fighter, the F-35, will increase by another $289 million. This despite the fact that the fighter is badly designed and already outdated, a “virtual flying piano” writes Wheeler.

The military contractors building monstrosities like the F-35 are politically connected and thus protected. Unfortunately, returning military veterans are less so. In the same 2013 budget, the White House proposes to increase medical and pharmaceutical costs paid by veterans while reducing their cost of living increases. And how many years of increasingly alarming mental illness and suicide statistics has it taken for the modest increase in resources to be made available?

Those who predicted the real costs of our decade of global military conquest were ridiculed, scoffed at, and fired. History has now shown us that much of what they warned was correct. America is clearly less secure after a decade of unnecessary wars. It is more vulnerable and closer to economic collapse. Its military is nearly broken from years of abuse. Will we come back to our senses?

May 1, 2012 Posted by | Economics, Militarism | , , , , | Leave a comment