Tax Fairness: Parsing the Propaganda of Plutocracy

As an exercise in media criticism, this website owes a debt of gratitude to the Leesburg Daily Commercial for continuing to publish the plutocratic propaganda of Russ Sloan, whose Sunday soapbox, The Bottom Line, provides a rich vein of cliches, distortions, loaded language, and various other manipulative techniques all cleverly designed to lead gullible readers in the “right” direction. The extent to which Sloan deserves credit for this cleverness is one of the abiding mysteries of the Daily Commercial, along with the paper’s reasons for foisting this dross upon a readership that includes very few billionaires. Sloan does a masterful job of presenting Republican Party talking points in what looks like his own way, but it would not be the least bit surprising if a home-spun manner of presentation was itself a bullet point in a list of commands from GOP advisers. Sloan’s passing swipe at “focus groups” this past Sunday is but a small part of his dishonesty, for his entire column is nothing more than a sequence of carefully chosen messages intended to sway an audience. The pot is calling the kettle black.

Returning to one of the plutocracy’s favorite themes – the notion that the richest Americans are already doing more than their “fair share” in the tax department – Russ Sloan explicitly invites a response:

Maybe someone can explain to me how the top 10 percent of American wage earners paying 70.47 percent of federal income tax is not meeting the [President's campaign] mantra of paying their “fair share.”

Actually, several letters to the editor of the Daily Commercial have already explained this in some detail. These explanations fell on deaf ears and are being crushed by the Daily Commercial’s relentless propaganda campaign. This website, however, will endure far longer than old newsprint dispatched to the recycling bin. So let us give Russ Sloan the explanation he is asking for.

1. Follow the Money

It is not possible to have an intelligent discussion about the tax burden without simultaneously addressing the distribution of wealth and income in the country. This was beautifully illustrated by a hypothetical scenario submitted to the Daily Commercial in a recent letter. I apologize to its author for failing to recall his name, and for modifying the figures he employed.

If we imagine that Steve Forbes’ dream of a flat tax has come true, the hated progressive income tax has been abolished, and everyone pays a set rate of income tax – say 15% – then those with the highest incomes will still pay the most tax. If we have ten people, one “earning” a million dollars a year and the others earning $20,000 a year, that one person will pay $150,000 in tax while the others will collectively pay $27,000. Of the $177,000 tax paid, the rich man will pay 85% of the total. That doesn’t sound like an acceptable situation for the average plutocrat, so perhaps even the flat tax is too progressive. They’ll have to solve that problem some other way, and indeed they do – a point to which we shall return later.

This example is not nearly as absurd or irrelevant as it might seem, for the distribution of wealth and income in the United States continues to concentrate more money in the hands of fewer people. While Sloan is happy to present statistics that seem to suggest the rich pay too much tax, he religiously eschews statistics that document the underlying reason for this; namely, that they have most of the money. Since the late 1970s, the distribution of income has undergone what economists call a Great Divergence, taking us away from the relative equality of the post-war era and back to the days of the Robber Barons prior to the Great Depression. The top 1% of Americans now receive (I deliberately do not use the word “earn,” for reasons that will be clarified later) approximately 24% of national income. This is almost three times the share they enjoyed in the late 1970s, and more than the income received by the bottom 50% of society. On the wealth front, the disparity is even more astonishing. As Nobel-winning economist Joseph Stiglitz has pointed out, the top 1% now owns 40% of the nation’s wealth. And even the Wall Street Journal had to concede that Michael Moore was correct when he told a crowd of protesters in Wisconsin that 400 super-rich Americans own as much as the bottom half of the country.

Looked at in this more complete context, the real question becomes whether the share of taxes paid by the rich is out of step with their share of wealth and income. Russ Sloan’s argument would be far more powerful if the rich only took home a small portion of the national pie. But of course he can’t make that claim because the reality is very different. His failure to address this issue is at best an indicator of intellectual sloth, and at worst a premeditated act of outright deception.

2. The Missing Pieces of the Puzzle

Keen observers of today’s plutocrats will note that the discussion of the tax burden always focuses on the federal income tax, with occasional forays into corporate income tax for good measure. This is, of course, designed to divert attention from other forms of taxation imposed upon the citizenry, many of which are extremely regressive in operation. Regressive taxes – those which fall disproportionately on those least able to pay them – are the kind of taxes plutocrats like.

Some of the other forms of taxation that Russ Sloan neglects to mention are the payroll tax (FICA and its equivalent for the self-employed, SECA); sales taxes at the state and local level; excise taxes on such commodities as gasoline; “sin taxes” on tobacco and alcohol; and license and user fees. By June, 2009, payroll taxes were bringing in almost as much revenue as the federal income tax. Payroll taxes apply only to wages and self-employment income up to $106,800 – chump change for the average CEO or Wall Street executive. And payroll taxes, by definition, do not apply to investment income. For these reasons, payroll taxes fall disproportionately on ordinary working Americans, not on the kind of people who finance GOP think-tanks and Super PACs. No wonder it was so difficult for House Republicans to countenance any drop in the payroll tax rate without finding some other way to “pay for it.”

Apart from this dishonesty, there are issues within the federal income tax itself that militate against the proposition that the rich are over-burdened. For one thing, the top marginal rate has declined dramatically since the late 1970s, and we now have a Mitt Romney at Bain Capital - Mr. 15%conveniently gridlocked federal government that finds even the Clinton-era rate of 39.6% unconscionable. Just as important, if not more so, is the way that different types of income are taxed today. While ordinary Americans receive very little income from capital, the richest – the people George Carlin used to refer to as “owners” – receive a significant share of their income from capital. Arguably the most crucial component of the Bush tax cuts, which were supposed to be temporary, was the drop in the long-term capital gains rate to only 15% (and the similar treatment of qualified dividends). For someone like Mitt Romney, or Warren Buffett, this results in a bizarrely regressive effective tax rate that is lower than that paid by many ordinary Americans. Buffett has complained about this inequity frequently, but Russ Sloan never mentions it. Indeed, Sloan’s deliberate, repeated use of the term “wage earners” is designed to distract attention from the considerable amount of unearned income flowing to the top of society. As Bruce Bartlett – an official in the Reagan and first Bush Administrations – recently explained, the top 1% only “earn” about 30% of their income, and the top 0.1% – the real plutocrats that Russ Sloan is defending – only earn 20% of theirs. Language matters just as much as numbers; on both scores, Russ Sloan is lying to us.

3. The Cult of Plutocracy

Realizing that its case is rather shaky, the modern right-wing deploys a variety of diversionary tactics that are chosen to appeal more to emotions and subjective judgments instead of relying solely on its highly selective facts. Thus, in order to ward off the threat of “redistribution” – a phenomenon to which the right has no objection when it works in its own favor, as it has been doing for the last 30 years – we are told that such ideas are un-American and socialistic. To this end, Russ Sloan concludes with a quote from Churchill deriding socialism, and presumably feels he has delivered the coup de grace. What Russ Sloan, like many Americans, may not realize, is that Churchill is perhaps not the best authority for this purpose. For one thing, Churchill was an ardent imperialist and monarchist – concepts which are supposed to be anathema to the American creed. More importantly, as any student of British history knows, Churchill’s second premiership in the 1950s continued the welfare state policies implemented by Attlee after WWII, cementing the Keynesian Consensus that controlled fiscal policy until Milton Friedman and his cohorts staged their revolt in the late 1970s. What Churchill meant by the term, “socialism” was quite different from the all-embracing slur bandied about by the cynical, intellectually bankrupt right-wing of modern America.

Another tactic used to make the masses accept our strange state of affairs is to appeal to the myth of rewarding superior ability and performance. Michael Jordan, we are told, deserved to be paid much more than his team mates because he was so much better than them and, by implication, contributed more to their success. The analogy, of course, is that the winners in today’s economy deserve their riches because they bring more to the table. As Joseph Stiglitz explains, this is utter tosh:

Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century—inequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called “marginal-productivity theory.” In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three years—whose contribution to our society, and to their own companies, has been massively negative—went on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards “performance bonuses” that they felt compelled to change the name to “retention bonuses” (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin.

It is interesting to note that the plutocrats’ deployment of this type of argument tacitly acknowledges that a fortunate few are being very highly rewarded by the current dispensation. Before the Great Recession exposed the utter depravity of Wall Street’s compensation structure, and before the Occupy Movement drew attention to the enormous disparity between executive and worker pay rates, some Americans no doubt fell for this ploy. Today, it is a toxic argument that insults our intelligence and affronts, rather than exploits, our sense of fairness. The plutocrats need a better pitch, but they are running out of places to look.

The ugly reality being hidden by the deliberate propaganda of the right in general, and the Leesburg Daily Commercial and Russ Sloan in particular, is that the “multitude of benefits of living in the United States,” as Sloan puts it, are steadily accumulating in the hands of the few. Sloan’s attack on the concept of “fair share” as meaning “[w]hat’s mine is mine, and what is yours is mine also” is shamelessly cynical against this unprecedented concentration of wealth and power. Indeed, those very words perfectly describe the ethos of the modern American oligarchy, which uses its power over the state to further amplify the impact of its global predatory capitalism. In a world of finite resources, we are witnessing a remarkable struggle for domination. The obvious winners could choose to remain in the shadows and refrain from attracting attention to themselves, but their greed has over-powered their better judgment. They, and their sycophants, will ultimately learn – as previous elites have learned in history’s other failed empires – that a top-heavy society can not endure. The great tragedy is that we, and the environment that sustains us, will go down with them.

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