The Elephant in the Room

I remain rather incredulous how any serious deficit reduction plan doesn't include the obvious necessity of raising taxes on the wealthy. For a bunch of pachyderms, today's GOP is surely missing the elephant in the room.

If there is one truth teller in the country today, it certainly isn't Paul Ryan, it is Robert Reich, the former Labor Secretary during the Clinton Administration and currently a professor at the University of California at Berkeley. This past week, before Rep. Ryan unveiled yet another proposal to lower the top marginal rate on the supra-wealthy to just 25 percent, Robert Reich wrote in his blog on Truth Out:

Here’s the truth: The only way America can reduce the long-term budget deficit, maintain vital services, protect Social Security and Medicare, invest more in education and infrastructure, and not raise taxes on the working middle class is by raising taxes on the super rich.

Even if we got rid of corporate welfare subsidies for big oil, big agriculture, and big Pharma – even if we cut back on our bloated defense budget – it wouldn’t be nearly enough.

The vast majority of Americans can’t afford to pay more. Despite an economy that’s twice as large as it was thirty years ago, the bottom 90 percent are still stuck in the mud. If they’re employed they’re earning on average only about $280 more a year than thirty years ago, adjusted for inflation. That’s less than a 1 percent gain over more than a third of a century. (Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.)

Yet even as their share of the nation’s total income has withered, the tax burden on the middle has grown. Today’s working and middle-class taxpayers are shelling out a bigger chunk of income in payroll taxes, sales taxes, and property taxes than thirty years ago.

It’s just the opposite for super rich.

The top 1 percent’s share of national income has doubled over the past three decades (from 10 percent in 1981 to well over 20 percent now). The richest one-tenth of 1 percent’s share has tripled. And they’re doing better than ever. According to a new analysis by the Wall Street Journal, total compensation and benefits at publicly-traded Wall Street banks and securities firms hit a record in 2010 — $135 billion. That’s up 5.7 percent from 2009.

Yet, remarkably, taxes on the top have plummeted. From the 1940s until 1980, the top tax income tax rate on the highest earners in America was at least 70 percent. In the 1950s, it was 91 percent. Now it’s 35 percent. Even if you include deductions and credits, the rich are now paying a far lower share of their incomes in taxes than at any time since World War II.

Congressman Ryan calls his budget proposal the "Path to Prosperity"; a more apt title is the "Road to Ruin" or perhaps the "Path to Perdition." This is a budget that seeks to remedy our fiscal problems by increasing the tax burden on the dwindling middle class while callously and immorally destroying the last vestiges of our rather limited to begin with social safety net for the poor and elderly while granting the supra-wealthy yet another tax break. It's time to address the elephant in the room and return to a more equitable progressive tax scheme. 

The Mother of All Tax Breaks

The Washington Post is reporting that the Internal Revenue Service granted an exemption late last week allowing Citigroup, the nation's third largest bank, to preserve a $38 billion tax benefit that Citibank would have forfeited if it repaid the money it had borrowed via the Troubled Asset Relief Program (TARP) back to the US Treasury. The decision essentially waives a longstanding rule that disqualified certain tax breaks if a significant ownership stake changed hands in an effort to discourage outside investors from buying tax benefits.

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia.

"The government is consciously forfeiting future tax revenues. It's another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I've been doing taxes for almost 40 years, and I've never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts."

It's effectively a subsidy though perhaps unavoidable in order to unwind the Treasury Department's one-third ownership of Citigroup. The US Treasury Department plans to begin selling its shares that it received as part of the TARP loan along with the Citibank's planned $17 billion follow-on stock offering. Such an ownership change would have required a forfeiture of these tax breaks. While the value of US Treasury held shares are likely to appreciate, only 34 percent of that benefit accrues to the government. The rest will benefit Citibank shareholders. Still no matter which way you slice it, it is a $38 billion dollar hit to the Treasury Department.

There's more...

Taxing the Fat is Taxing the Poor

Over at the Huffington Post, John Ridley, a writer for Esquire and Time magazines, has written an article on the problem of obesity and the spiraling healthcare costs associated with obesity. He writes:

Obese people in America now outnumber the merely fat. The National Center for Health Statistics reported this year that more than 34 percent of Americans are obese, compared to 32.7 percent who are "just" overweight. Just under 6 percent are "extremely" obese. The bottom line is that we're a slovenly lot and getting more so by the year.

The financial hit on health care is pretty staggering. A study by the Center for Disease Control released at their first ever "Fat Summit" in July finds:

The prevalence of obesity rose 37% between 1998 and 2006, and medical costs climbed to about 9.1% of all U.S. medical costs.

Obese people spent 42% more than people of normal weight on medical costs in 2006.

With all the talk -- and screaming and gun-toting -- that's going on around the health care reform debate, maybe the answer as to how to pay for it is orbiting our ever-expanding guts.

A tax on the fat. If you're out of shape, you've got to carry your weight, so to speak.

He goes on to declare obesity a "lifestyle choice." Perhaps that's the case if poverty is a lifestyle choice for obesity in the United States (and elsewhere) is highly correlated with poverty. To tax the fat, as Mr. Ridley suggests, is to tax the poor. The suggestion is moronic and speaks to a profound detachment from if not ignorance of the plight of the poor and our widening social inequality.

While obesity rates are climbing among all ages, races and incomes, evidence compiled by the Center for Disease Control (CDC) shows that the poor are more likely to be overweight or obese than wealthier Americans.

In Seattle nearly 22 percent of adults living in households with incomes of less than $15,000 a year are obese, compared with almost 15 percent in homes pulling in $50,000 a year or more, according to an analysis by Public Health - Seattle & King County of survey data from the Centers for Disease Control and Prevention.

There's more...

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