Argh. Angst about the economy and the super rich.

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Last week I read an article written by Robert Reich, the author of Aftershock: The Next Economy and America’s Future.  (Which, by the way, is now available in paperback).

The gist of the article was that the super rich (which I refer to as the rich elite) no longer pay taxes.  Instead, they are now part of the bigwig machine that is actually lending money to the government.  They do this by purchasing treasuries and other other government backed issues – which, as you know, are basically loans to the government.

Cripes.  I had never thought about it but this takes double dipping to a new level:  not only do the rich elite make no tax payments but they also get an income derived from tax payments made on the backs of the working stiffs.   He says:

The great irony is if America’s super rich financed the U.S. government the way they used to – by paying taxes rather than lending the government money – that long-term budget deficit would be far lower.

I suppose I am preaching the choir here at Backdoor Survival but I got so fired up that I wrote to Mr. Reich and asked (and received) permission to repost his article here.  As you read through it (it is an easy read even for economics knuckle-heads like myself), try not to get too angry.  While the news is not good, being informed and aware gives you the power to adapt and to create a safe shelter for yourself from the insidiousness of the PTB.

The Great Switch by the Super Rich

By Robert Reich / www.RobertReich.org (blog)

Over the last four decades, tax rates on the very rich have plummeted while loopholes have gotten bigger.

Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. While foreigners own most of our national debt, over 40 percent is owned by Americans – mostly the very wealthy.

This great switch by the super rich – from paying the government taxes to lending the government money — has gone almost unnoticed. But it’s critical for understanding the budget predicament we’re now in. And for getting out of it.

Over that four decades, tax rates on the very rich have plummeted. Between the end of World War II and 1980, the top tax bracket remained over 70 percent — and even after deductions and credits was well over 50 percent. Now it’s 36 percent. As recently as the late 1980s, the capital gains rate was 35 percent. Now it’s 15 percent.

Not only are rates lower now, but loopholes are bigger. 18,000 households earning more than a half-million dollars last year paid no income taxes at all. In recent years, according to the IRS, the richest 400 Americans have paid only 18 percent of their total incomes in federal income taxes. Billionaire hedge-fund and private-equity managers are allowed to treat much of their incomes as capital gains (again, at 15 percent).

Meanwhile, more and more of the nation’s income and wealth have gone to the top. In the late 1970s, the top 1 percent took home 9 percent of total national income. Now the top 1 percent’s take is more than 20 percent. Over the same period, the top one-tenth of one percent has tripled its share.

Wealth is even more concentrated at the top — more concentrated than at any time since the Gilded Age of the late 19th century.

So what are America’s super rich doing with all this money? They’re investing it all over the world, wherever they can get the best return for any given level of risk. Treasury bills – essentially loans to the U.S. government — have proven good and safe investments, particularly during these last few tumultuous years.

You hear a lot of worries about foreigners dumping Treasuries if they lose confidence in the dollar because of our future budget deficits. What you hear less about are these super-rich Americans, who are just as likely to abandon Treasuries if spooked by future budget deficits.

The great irony is if America’s super rich financed the U.S. government the way they used to – by paying taxes rather than lending the government money – that long-term budget deficit would be far lower.

This is why a tax increase on the super rich must be part of any budget agreement. Otherwise the great switch by the super rich will make the income and wealth gap far wider.

Worse yet, average working Americans who can least afford it will either lose the services they depend on, or end up with a tax burden they cannot bear.

I have just started the Audiobook version of Aftershock and plan to continue to follow Mr. Reich at his blog.

Anniversary Dance

Today I will take a break from work in order to celebrate 36 wonderful married years with my husband Shelly.  We met on a blind date in 1974 and were engaged two days later.   Hand in hand, we are walking through life together.  And together we are one.

Enjoy your next adventure, wherever it takes you!

Gaye

From the Bargain Bin:  Amazon currently has this Kingston Digital 4GB DataTraveler for $8.99 with free shipping.  You can find better deals out there but I applaud Amazon for selling this item with what they call “frustration proof” packaging.  Worth a peek, plus, you can never have too many flash drives in my opinion.

Be prepared with emergency supplies from Emergency Essentials.  If you have the bucks and the space, I highly recommend a water barrel (or two!)




Comments

Argh. Angst about the economy and the super rich. — 6 Comments

  1. The super rich always find a way around the system. This is how they protect their money is to do things that are morally wrong, thats usually how they got that rich in the first way. The saddest part is that we sit around and do nothing to stop this kind of stuff. We allow this stuff to happen because we have become a huge flock of sheep, or have gone to sleep and wont wake up and do something about it. Pretty sad when 1% have 99% of the money. What does that say about us as citizens? We just let it happen and go about our daily lives and complain about not having enough money. Pretty sad I would say.

  2. I must agree, we must find a way to encourage the “rich elite” to invest in the private sector rather than the public. There are just too many loophole in the 85,000+ pages of our tax code (it’s called “code for a good reason, nobody can decipher it!). We need a “Flat tax” or the “Fair tax” (national sales tax). That way EVERYBODY PAYS.

    BTW: contests on y’alls 36 years! We will cross 35 this month. We meet 36 years ago and fell in “love at first sight” also.

    Tex.

  3. I’m no apologist for the rich,but the top 5% pays 60% (approximately) of all the tax revenue. Professor Reich expresses a socialist viewpoint toward wealth. I would bet Mr. Reich’s income levels are higher than most and he can certainly donate his income to the government.

  4. In this case, Reich has it very correct. We have at least “two” cloud economies hovering over the U.S. and actually disconnected from the interests of the U.S. The Rich/Super Rich is one such group/economy and the other are the Corporations. And many of the Corporations are finding it advantageous to up and leave. In a lot of respects, the U.S. is coming to look like Detroit. Those who can leave and what’s left behind is an empty hull of death and decay. And what’s worse is that the political class is scrambling to enrich iteself and thereby save itself as part of the “Rich”. Thus, one of the easiest ways to garner sufficient sums to escape the collapse that’s sure to come is to get elected to the House of Reps or the Senate which is, of course, why nothing is going to get “fixed”. Oddly enough I and some of my co-workers were discussing this very thing this morning round the coffee bar and it became quite obvious to me and all concerned that in addition to leaving the country by way of transfer out, many of our cohorts are opening offshore bank accounts, (which is perfectly legal, check HSBC), and/or travelling to South America to scout out retirement destinations.

    Frankly, there isn’t any political solution to this and Reich knows that. He’s just writing books to build up his stash of cash which is probalby parked in Switzerland.

    • From what I can tell, the newbie officials that were elected in to office last November are no better than those that they replaced. So much for change. One day in Washington DC – or in the various State legislatures – and they became part of the old establishment.

      — Gaye

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