The Predators win another one

I am old enough to remember when economists still made a huge distinction between "earned" and "unearned" income.  Not surprisingly, the "unearned income" folks made out like bandits in the latest so-called "fiscal cliff" negotiations.  What is less surprising is that almost no one even brings up this distinction anymore.  After all, this was a central concept of the Progressives and New Dealers that neoliberals have tried so hard to discredit.  So I was pleased to find someone who has analyzed this latest economic debacle in terms I understand and approve of.

The Real Winners Of The Fiscal Cliff Are Americans Who Make Money Without Working

Michael, Bankers Anonymous | Jan. 2, 2013

Happy Fiscal Gorge Day!

Guess who’s really happy from last night’s tax deal? Heirs, financiers, and people who live off their piles of money.

Guess who’s not saddened by the Fiscal Gorge tax deal? The top 2% of earners that Obama spent his campaign promising would pay a larger share of federal taxes if he won.

Let me explain what I mean.

All along this Fiscal Cliff discussion our leaders have focused our attention on top marginal tax rates and top income thresholds for taxing ordinary income, as if that was the most important way to raise revenue while simultaneously addressing growing societal inequality. The sticking point in discussions, at least in so far as most media followed it, appeared to be whether top income earners would pay the existing 35% income tax rate or Obama’s preferred 39.6% income tax rate, and where in the range between $250K and $1million in income that higher rate kicks in.

Why do wealthy folks celebrate the Fiscal Gorge? Just this: If you’re Sheldon Adelson you really couldn’t care less about ordinary income. What matters most are estate taxes, dividend taxes, and capital gains taxes. Adelson makes $1 million a year in ordinary income, now taxed at a higher rate. No big deal. He makes billions of dollars in dividends and capital gains, now permanently taxed at 15% and 20% respectively. Now that’s a big deal. Now that’s cool.

Did you notice what happened to those taxes?

Estate Tax: The estate tax exemption rises to $5 million, up from the $1 million it would have been without a Fiscal Cliff deal, and up from $675K when George W. Bush came into office. The tax rate on inheritance locks in at 40%, down from 55% at the beginning of the Bush Administration. Throughout the Bush administration the estate tax exemption stepped up each year or two, and the estate tax rate stepped down every year or two. Under the Obama administration, with the new Fiscal Gorge law passed, the W. Bush-era generous estate tax rates become permanent. Richie Rich is so happy.

Dividends Tax: If you were Sheldon Adelson – which you are not, but let’s pretend you were – right now you would be celebrating a Happy New Year because you just took a special dividend payout in December 2012 from Sands Casino of an estimated $1.2 Billion, based on your ownership of 431.5 million shares and a declared dividend of $2.75 per share. Adelson took the dividend in December fearing that his 15% dividend tax rate might rise to something like the 35% or 39.5% ordinary income tax rates, which would cost him close to $300 million in additional taxes in 2012. He needn’t have worried. The Fiscal Gorge law makes a 15% dividend tax rate permanent, a pillar of the Bush administration’s tax cuts.

Capital Gains Tax – This tax rises from 15% to 20% under the Fiscal Gorge law. Given that top earners and top wealth holders benefit substantially from capital gains, the permanence of this change represents another victory for Bush-era tax cuts.

My logical mind tells me that political leaders and the media underplay the importance of these taxes because, firstly, they only somewhat affect the highest earning 10% of American citizens, and secondly, these taxes only substantially affect the highest earning 1% and above. So the majority of the electorate and the majority of the media-consuming public doesn’t really know or care about these taxes. It’s only logical they would ignore those taxes that are irrelevant to the majority of people, right?

My more paranoid mind tells me that it’s convenient for political leaders on both sides of the aisle to ‘hide the ball’ when it comes to tax discussions because you can enact a devastatingly effective ‘win’ for Republicans while at the same time allowing Obama and the Democrats to point to higher marginal taxes on ordinary income as if they scored something important.

They didn’t. They got rolled, at least when it comes to tax policy.

When it comes to spending, of course, they delayed any cuts in government spending. Which I suppose makes Democrats feel smug as well. more