Economic Inequality in America: Transfer of Wealth- Part 2
Taxes on income in the United States were first implemented in 1861 to help pay for the Civil War. Taxes increase during wars or in times where the country requires large amounts of money. In 1913, President Woodrow Wilson and Congress made income tax a permanent fixture in the United States with the 16th Amendment, in order to pay for World War 1. Over the years and through presidents with different ideologies and priorities, taxes are cut or increased to boost the economy and stimulate growth or prevent widespread market failure.
The United States uses a progressive tax system, which means that people with higher incomes pay higher federal taxes on earnings over a specific amount set in the American tax code. The purpose of a progressive tax system is to lower the economic burden imposed upon the poorest Americans. But due to the corrupting influence of corporations on the federal government, the tax system impacts the lowest income earners at a higher rate than higher income earners and corporations.
The tax code comprises thousands of complex and confusing pages, bogged down with political jargon that the authors, members of Congress, use as a tool to cause confusion and bureaucratic corruption that slows down the progress of society. Politicians rely on this complex tax code; a flat, simple tax system does not benefit Congress. Politicians use this confusing piece of legislation to solicit donations from corporations that ask for favors and changes to the tax code that directly benefit their business, such as tax breaks, credits, taxpayer-funded subsidies, write-offs or specific exemptions that excuses them from paying for particular items that only they benefit from.
These tax exemptions for corporations are not permanent; after a certain amount of time, their tax write-offs will expire, which requires that the corporation ask Congress for an extension. When this occurs, members of Congress will ask the corporation with temporary exemptions in the tax code for donations if they would like to extend their exemptions. This generates a cycle of bribery and dependency by corporations on Congress that encourages a corrupt and parasitic relationship between the two. If a flat, simple tax was implemented corporations would be less likely to rely on Congress, which means less likely to throw bribes to their political campaigns.
If the government cuts taxes, but the federal budget remains the same or increases, then the national debt increases; when the national debt increases American taxpayers in the future must pay larger shares of their income to pay off the interest on this debt, which sits at $21 trillion. That’s just the amount reported by the federal government; the actual number is likely much higher. As the federal debt increases, cuts to social programs-public education, Social Security, Medicare, Medicaid- programs that primarily benefit the poor and middle classes- are depleted to correct the government’s mistake.
Income inequality in the United States is comparable to other developed nations before taxes, but is among the worst after taxes, which means that the American tax system disproportionately affects poor and middle class income earners. The process of income inequality is drawn out and meticulously built through complex policies and political corruption that favors the health and safety of corporations over that of the general public.
Over the years, as corporations gather greater resources, wealth, connections, influence, and control, they develop a dominance hierarchy over the federal government, which finds ways to benefit from the growth of corporations in order to prolong their existence and control over American citizens. When corporations benefit, politicians and the government increase their size and grow in power; their symbiotic relationship develops a fundamental dependency on the political and economic system of corruption that exacerbates inequality and contributes to the private, corporate ownership of the federal government, taken away from the will of American voters.
The Tax Cuts of 2017
The 2017 tax plan cut the corporate tax rate from 35 percent to 21 percent, while the top individual tax rate drops to 37 percent from 39.6 percent. The plan cuts overall income tax rates, doubles the standard deduction (the portion of income exempt from taxes), eliminates the personal exemption (tax deduction). Corporate tax cuts are permanent while individual changes expire at the end of 2025. The boost to the Gross Domestic Product (GDP), produced by 2017 tax cuts will not be enough to pay for the tax cuts to corporations themselves, which means that the federal deficit will increase, leaving the poor and middle class subsidizing the tax cuts of corporations. By 2027, those in the lowest 20 percent income level will pay more of their income in taxes.
The 2017 tax bill -marketed as an economic gain for poor and middle-class Americans- turns out to be a massive transfer of wealth from poor paychecks into corporate profits; accentuates the myth of trickle-down economics; perpetuates American poverty and inequality; and ensures that the United States remains the most financially unequal advanced society in the developed western world.
I believe there are more instances of the abridgment of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations.James Madison
Income Tax Owed For Single Filers
- 10%- $0 to $9,525- 10% of taxable income
- 12%- $9,526 to $38,700- $952.50 + 12% of the amount over $9,525
- 22%- $38,701 to $82,500- $4,453.50 + 22% of amount over $38,700
- 24%- $82,501 to $157,500- $14,089.50 + 24% of amount over $82,500
- 32%- $157,501 to $200,000- $32,089.50 + 32% of amount over $157,500
- 35%- $200,001 to $500,000- $45,689.50 + 35% of amount over $200,000
- 37%- $500,001 and up- $150,689.50 + 37% of amount over $500,000
- (Must earn at least $400,000 to be in the top 1 percent of U.S. households).
Where our Tax Dollars went in 2018:
- U.S. Treasury Department divides spending into three groups: Mandatory, Discretionary, and Interests on Debt.
- Discretionary: Determined by Congress every year. Comes from military, child education programs, grants to college students, WIC.
- Mandatory spending: Social Security/Medicare, SNAP, transportation.
Budget $4.09 trillion; $3.5 trillion in tax revenue. Meaning that there is a $560 billion dollar deficit. Adding to the $21 trillion national debt.
- Social Security: 24%- $988 billion.
- Medicare: 17%- $711 billion.
- National Defense: 15%- $634 billion.
- Medicaid: 10%- $410 billion.
- Income Security Programs for Poor- Unemployment, SNAP, Earned Income Tax Credits: 7%- $292 billion.
- Retirement for Civilians and Military: 4%- $160 billion.
- Veterans Health: 2%- $101 billion.
- Agriculture Subsidies/Mortgage Lenders: 1.7%- $84 billion.
Where our Tax Dollars went in 2016
Federal government spent $3.9 trillion.
- Social Security: 24% of the budget, or $916 billion to 41 million retired/disabled/families of deceased workers. Average of $1360 per person per month
- Medicare, Medicaid, Children’s Health Insurance Program (CHIP), Affordable Care Act: 26% of the budget, or $1 trillion.
- Military, Defense, National Security: 16%, or $605 billion.
- Social Safety Net Programs: 9%, or $366 billion. Earned income tax credit, child tax credit, which assists low income/working families, SNAP/WIC, housing assistance, school meals. These programs help keep 36 million people out of poverty.
- Payments on national debt: 6%- $240 billion.
- Rest of tax spending goes to medical benefits for veterans- 8%; transportation and infrastructure- 2%; education-2%; science and medical research-2%; other 4%.
Capital gains are the profits earned from the sale of an asset, securities (a tradable financial asset with monetary value: stocks and bonds), real estate, a piece of land, a business, money earned on investments. The income earned by the owners of capital is called interest, which is where taxes are imposed. Taxes on capital gains depend on how long an individual holds a particular stock or asset; either short-term capital gains tax, for assets held for one year or less, which are taxed at the rate of your regular income tax bracket; or long-term capital gains tax, for assets held for more than one year, which are taxed at zero, 15 percent, or 20 percent depending on the sale price of the asset.
Taxpayers in the 10 and 15 percent income tax brackets pay no tax on long-term capital gains on most assets; taxpayers in the 25, 28, 33, or 35 percent income tax brackets face a 15 percent rate on long-term capital gains, while those in the top 39.6 percent tax bracket for ordinary income, face a 20 percent capital gains tax. Capital assets sold from $0 to $38,600 requires zero-interest payment; capital assets sold from $38,601 to $425,800 requires a 15 percent tax; and assets sold for $425,801 or more requires a 20 percent tax. Taxes on capital gains are only imposed on assets that are sold over that year; if an asset does not change hands and remains in the possession of the original owner, then that individual is not required to pay taxes on that asset.
Losing money on an asset is known as a capital loss, which occurs when the asset is sold for less than the original price at the time of purchase. Capital losses may be offset by capital gains (tax-deductible) and carried over into subsequent tax years, so that the owner of capital may regain what they lost on their original capital loss. Those that earn a majority of their income from capital, typically the wealthy and corporations with investments in the stock market, also owners of land or real estate, may pay lower taxes than some middle-class Americans that earn a majority of their income from wages, which are taxed at higher rates than some capital gains.
A hedge fund manager that earns $4 million a year and makes 100 percent of their income from company stock options (capital gains) pays a top tax rate of 21 percent on those gains, while a single individual that earns 100 percent of their income in wages and makes $38,701 a year, pays a 22 percent tax on that income. This generates a favorable economic market for owners of capital and incentivizes corporations to pay their executives in stock options as opposed to paying them with regular wages.
Economic inequality increases during presidencies that cut capital gains and corporate taxes (most presidencies cut capital gains and corporate taxes) as this is a favored ideological starting point for those that perpetuate the myth of trickle-down economics, the belief that the wealth and prosperity of those with the most money finds its way to the poorest Americans, a fallacy of illusion and delusion that does not account for the basic concept that corporations may wish to increase their wealth with stocks and investments rather than spend their money to boost the economy and the wellbeing of American citizens. Those that earn a majority of their wealth through capital, and invest that money further to earn more capital, but never contribute to health and improvement of the regular economy, are known as Rentiers, who gather great sums of wealth but rarely spend it in the consumer American economy.
President Jimmy Carter cut capital gains taxes from 49 percent to 28 percent in 1978; three years later, President Ronald Reagan cut the capital gains tax to just 20 percent to boost the economy, (Reagan also tripled the federal deficit and increased the size of government by spending nearly $2 trillion in eight years; while still managing to increase inequality dramatically); President George W. Bush reduced the capital gains tax to just 15 percent, less than half the top marginal income tax rate of 35 percent.
Corporate Tax Cuts
The corporate tax rate on business profits fell from 35 percent to 21 percent in 2017, as part of the plan to create jobs and boost the economy; but a 2014 study by New York University found that tax cuts on corporations make little impact on job creation unless cuts occur during a recession. During a recession, corporations use tax cuts to hire new employees to make up lost financial ground. But even during a recession corporations may choose to invest rather than spend on labor by hiring new employees.
Chances are that the corporation will liquidate its assets and cut back on labor spending by cutting back on new workers and removing old ones. When the government cuts taxes on corporations during times of business growth and prosperity, companies invest that money in their own stock to increase their overall profits, as a healthy economy signifies for many, fallaciously, that profits and economic growth will continue to increase indefinitely. That’s the greed and short-sightedness of impulsive corporations driven by the desire to expand their power and increase their resources.
A 2018 investigation by the Institute for Policy Studies looked into 92 publicly held corporations who paid less than the 35 percent corporate tax rate (before tax rate dropped to 21 percent in 2017), either through taxpayer-funded government subsidies, tax breaks, deductions, handouts. The study found that between 2008-2015, during the recession, the 92 corporations cut back on jobs while the economy increased the number of jobs by six percent. Rather than increase the size of their companies by hiring new workers, instead, the corporations in the study decided to invest in their own stock and pay their executive officers at higher rates than the average pay for executives in the S&P 500, which consists of America’s 500 largest companies.
Corporations buy back their own stock in order to boost the price of the company’s shares and elevate their overall profits. The ten biggest job cutters out of the 92 companies in the study spent $45 billion on stock buy-backs from 2008-2015 while boosting CEO pay by an average of 18 percent.
A study by the Wall Street Journal in 2010 found that top corporate executives made 62 times more than the average employee in bonuses alone, without factoring in their regular salary; that is the income of 62 potential new employees to improve the companies profits, given, instead, towards boosting corporate executives incomes.
Cuts to company payroll tax represent a more effective approach to job creation. Lower payroll tax decreases the cost of labor and allows corporations to reduce prices on products, which increases demand and incentivizes the company to hire more workers to meet the new demand requirements; or pay their current employees higher wages, who then spend that newly earned money to boost the overall economy and improve the livelihood and wellbeing of greater numbers of the population, including small business owners. Rather than corporations hoarding that money for their own private profit, poor and middle-class Americans benefit financially from this increased purchasing power.
Corporations and conservative politicians believe in a zero-sum game when it comes to employee wages: Either pay workers high wages and face the threat of going out of business from slow profit growth, or outsource jobs to low-skilled countries overseas and make a big profit on cheap labor.
The United States of America requires taxes from its citizens and businesses in order to continue progressing forward as a functioning economy and as a safe and stable society. Taxes protect and provide the foundation for citizens to live in a free democracy, without the common politically destructive and socially ignorant behavior from our past that impeded safety and progress. Taxes help pay for the roads that we drive on; for the police and fire departments that protect us; provides medical and financial assistance to the young, the elderly and the disabled through Social Security, Medicare, Medicaid; nutrition programs, grants to college students and funding to public schools; including many other programs that benefit the whole of society.
While many Americans despise paying taxes to the corrupt and secretive government that use our income to expand its bureaucratic and totalitarian reach into people lives, providing for our fellow American citizens represents an important part of what it means to be a human being, which is to help those in need so that we receive the same treatment in return when our fortunes turn. Yet many of America’s billion-dollar corporations do not feel that taxes are their responsibility; they play by different rules, yet the government treats corporations as people, as the Citizens United Decision confirms. So corporations find devious and subtle ways to escape paying taxes by hoarding their profits in off-shore tax havens, in countries with zero percent interest rates; through the counsel of expensive lawyers that find loopholes in the tax code to subvert its authority; or through the manipulation of the economic and political system with the help of politicians that receive bribes in return for changes to the tax code and economic system.
When corporations dodge taxes, poor and middle-class Americans pay more of the tax burden with tax increases to compensate for the corporate tax dodgers; these socioeconomic classes suffer more from cuts to social spending; and are threatened with a general dissolution of democratic society, as less money goes towards building infrastructure, towards improving public education, towards healthcare, airports, and hospitals, which are always the first cuts the government makes when compensating for the corporate socialism that American citizens subsidize. When the government allows corporations to dodge taxes, regular citizens suffer most.
An analysis conducted by the Institute on Taxation and Economic Policy, of 258 of America’s Fortune 500 hundred companies, with a combined profit of $3.8 trillion, found that between 2008-2015, during the recession, these corporations enjoyed $528 billion in tax breaks and subsidies, with $286 billion going to just 25 of the biggest tax dodgers. The study found that, in at least one of the years from 2008-2015, 100 companies paid no taxes at all; 58 corporations enjoyed multiple no tax payment years; 18 corporations in the study paid zero taxes in any year from 2008-2015, but received a tax refund from the federal government. In the years where the 100 corporations paid no taxes, they received $336 billion in profits. Instead of paying $118 billion in taxes on those profits (35 percent corporate tax), profits made in America by American corporations, these companies received a combined tax refund from the government (taxpayers money) of $32.1 billion.
55 percent of American taxpayer-funded corporate subsidies went to just four industries: Finance, Utilities, Telecommunication, Oil, and Pipeline. The average tax rate for the 258 corporations in the study was 21.2 percent, well below the 35 percent corporate tax rate in the U.S. during this period (corporate tax rate dropped to 21 percent after 2017 tax cuts). The average tax rate for companies in the electricity/utility sector between 2008-2015 was just 3 percent; while telecommunications companies paid an average tax rate of 11.5 percent, lower than the 12 percent tax rate that a single American making $9,526 pays.
Oil, gas, and pipeline companies in the study paid an average of 11.2 percent tax rate, lower than most Americans; when factoring in the tax dodgers that pay no taxes, a majority of them come from the energy sector. Oil, gas, and pipeline companies are the Earth’s biggest polluters and climate destroyers. Their destructive actions are directly attributed to climate change, air and water pollution, poisoning and polluting of the oceans and deforestation. Yet their financial influence over the federal government allows their behavior to continue without severe punishment, while American taxpayers pick up their bill with fossil fuel subsidies and higher taxes to repair the damage left after increasingly destructive storms, fires, blizzards, and other volatile weather patterns.
There exists a two-tiered taxation and penal system in the United States: One exists for the average poor and middle-class American, where missing or evading the tax payment may lead to punishment, fines, jail-time; the other tier exists for corporations, where evading taxes comes with rewards and subsidies paid for by American citizens. Corporate tax dodgers harm small business and entrepreneurship in the United States, who must confront political and financial barriers to prevent them from entering the capitalist economy that major corporations do not face. Consider this as a pre-existing tax on entrepreneurship written by major corporations and handed to the federal government as a means to prevent competition from entering the market and threatening the market share and dominance of large corporations.
18 Corporations paid no taxes at all on profits from 2008-2015:
- General Electric
- American Electric Power
- Wisconsin Energy
- First Energy
- Duke Energy
- Xcel Energy
- CMS Energy
- Sempra Energy
- Eversource Energy
- NextEra Energy
- Pepco Holdings Energy
- PG&E (Pacific Gas and Electric)
- Insource Energy
- International Paper
- Ryder System (Transport company)
- Ameren Energy
- Amos Energy
Companies with Biggest Tax Subsidies from 2008-2015:
- AT&T- $38 billion
- Wells Fargo- $31 billion
- JPMorgan Chase- $22 billion
- Verizon-$21 billion
- IBM- $18 billion
- GE-$15 billion
- ExxonMobil-$13 billion
- Boeing-$12 billion
- Proctor and Gamble- $8.5 billion
- 21st Century Fox- $7.6 billion
- Time Warner-$6.7 billion
- Goldman Sachs-$5.5 billion.
Success in the stock market does not mean success for the regular economy, or financial growth for poor and middle class families, as many right-wing conservatives and the mainstream media would have you believe. In 2010, 81 percent of stocks were owned by the top 10 percent of income earners, with 69 percent of those stocks owned by the top 5 percent of the population. Only one-third of American households own more than $7,000 worth of stocks (mostly from retirement plans). While many of America’s wealthiest derive their wealth from capital, the poor and middle class derive their wealth from wages from labor, which may be taxed at a higher rate than capital gains in the stock market.
When taxes are lowered on capital gains and not on regular income, income inequality may increase, as poor and middle-class families will take on a greater share of the tax burden to offset the lost tax revenue from lowering capital gains taxes. Corporations issue stock options to their executives as a form of income, which limits the amount of their compensation taxed at a higher rate as regular income from labor, and increases the amount taxed at a lower rate as capital. An individual paid in stock options carries a vested interest in the health of the stock market, their wealth depends on a booming market; while an individual that does not own stocks does not share in that wealth. Part 3