Guess who Started the Class War?

It’s more than a bit disingenuous to start screaming class war now when the first shot was fired some years ago and the little guys are just finally waking up to the smell of $10 cappuccinos on $5 an hour wages. The data shows the income gap has been persistent and widening since the 1980s.  The only thing new under the sun is that the folks that started the entire thing are the ones screaming and shifting blame.

I’ve found some pretty fuzzy math that argues that Barack Obama–of ALL people–has just declared a class war some time this month by the preeminent defenders of the looting.  I thought I’d just share some of the intellectual shenanigans to inspire the pitch folk wielder in you.   This is one little whiny boy who complains the rich are just overtaxed today.  He even trots out some really really bad data to support the temper tantrum.

It’s official: America is at class war, and President Barack Obama proudly leads the charge against this country’s wealthy.

“If asking a millionaire to pay the same tax rate as a plumber makes me a class warrior ― a warrior for the working class ― I will accept that,” Obama shouted Tuesday at Denver’s Abraham Lincoln High School. “I will wear that charge as a badge of honor.”

“Middle-class families shouldn’t pay higher tax rates than millionaires and billionaires. A teacher or a nurse or a construction worker making $50,000 a year shouldn’t pay higher tax rates than somebody making $50 million.”

Obama’s assault on the affluent rests upon a sky-high stack of lies. Obama is too well staffed and too well informed not to know otherwise. So, maddeningly, he straight-out lies to the American people.

For days before Obama opened his mouth in Denver, multiple news accounts and opinion pieces annihilated the casus belli of his War on the Wealthy. Nonetheless, Obama keeps spouting falsehoods, perhaps hoping that his smooth voice will hypnotize Americans into believing his words.

“Fact check: The wealthy already pay more taxes,” read the headline above a September 20 Associated Press. “President Obama says he wants to make sure millionaires are taxed at higher rates than their secretaries,” Stephen Ohlemacher wrote. “The data say they already are.”

Nationwide, Ohlemacher and others dismantled Obama’s soak-the-rich thesis. The rich are soaked today.

Okay, the author of this stupid bit of faux economics is a “media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.”  He makes THE cardinal dumb mistake for the economic illiterate. He makes no distinction between real and nominal figures which basically means adjusting for changes in purchasing power to dollar figures over time but what do you expect from two ideological journalists.  The other idiot he quotes does the same thing.  You can’t do these kinds of figures in nominal terms and compare anything.  Here’s Paul Krugman explaining the difference between the value of a dollar today and a dollar around world war 2 which is what seems to really confuse these guys.

As background, it helps to know what has been happening to incomes over the past three decades. Detailed estimates from the Congressional Budget Office – which only go up to 2005, but the basic picture surely hasn’t changed – show that between 1979 and 2005 the inflation-adjusted income of families in the middle of the income distribution rose 21 percent. That’s growth, but it’s slow, especially compared with the 100 percent rise in median income over a generation after World War II.

Meanwhile, over the same period, the income of the very rich, the top 100th of 1 percent of the income distribution, rose by 480 percent. No, that isn’t a misprint. In 2005 dollars, the average annual income of that group rose from $4.2 million to $24.3 million.

So do the wealthy look to you like the victims of class warfare?

Paying more in dollars today doesn’t amount to the same thing as paying more in purchasing power and real income today and yesterday.  Additionally, the argument does not take into account the differences in taxes where the money really lies.  First, corporations have weaseled so many exceptions to the tax law, many pay next to nothing in taxes. Corporations are supposed to be people now remember?  Well, they dodge taxes in a big way. Second, most extremely wealthy people get the majority of their income from capital gains and not earned income.  It’s so easy to throw around numbers when you narrow your argument down to a place that ignores the big picture.  One of the biggest problems with this argument is that it ignores the other taxes collected by the federal government.  Social Security Taxes are the most regressive taxes in the country.  They apply only to 100% of the lowest levels of income.   The majority of rich people’s income avoids this tax.  The Social Security cap effectively puts most of the earned income of the wealthiest individuals off the table.  For some reason, Social Security always counts wrong against the federal deficit for these guys but gets ignored in the federal tax equations.

Krugman has argued against the use of fuzzy math a lot on his blog.  Here’s another good example on the Distribution Effect of Tax Cuts.   Again, focusing on one narrow tax and ignoring the rest is fuzzy math.  Also, ignoring the favoritism implied in all the latest tax cut laws is presumptuous.

Another, more subtle trick involves comparing percentage changes in taxes as opposed to tax changes as a percentage of income.

The starting point is that federal taxes are indeed progressive on average (although there are billionaires who pay a lower rate than their secretaries). And this in turn means that you have to be careful about the question when evaluating a change in taxes.

Suppose that it’s 1979, and individual A is a member of the working poor, paying 12 percent of his income in taxes — basically payroll tax and not much else. Meanwhile, individual B is very wealthy, and pays 40 percent of his income in taxes — as the very wealthy did on average 30 years ago.

Now suppose that 30 years of conservative governance lead to a fall of a quarter in both individuals’ average tax rates; A’s rate falls from 12 to 9, B’s from 40 to 30. Would it make sense to say that they have gained equally from tax cuts?

Clearly not. A’s after-tax income has risen from 88 to 91 percent of pretax income, a gain of 3.4 percent. B’s after-tax income has risen from 60 to 70 percent of pretax income, a gain of 16.7 percent. The distribution of after-tax income has become substantially less equal. And that’s the calculation I was doing here.

Now, right-wingers come back and say that this is what has to happen when you cut taxes. No, it doesn’t. And anyway, cutting taxes is itself a choice — and they’re a choice that then leads to demands that we cut programs for the poor and middle class to close the deficit those tax cuts created.

The point is that yes, tax policy these past 30 years has been very much tilted toward benefiting the rich.

Here’s another perspective on that from a letter to the editor in a small daily in Prescott Arizona.  I’m taking this as an example because it’s becoming clearer that more people get this and aren’t falling for the memes.

In this newly announced war, the rich are being cast as victims. Yet the top 1 percent of American taxpaying households has been able to use the power of its wealth to influence government to cut its tax rate by 100 percent in the past generation and a half. In actuality, this groups pays only 17 percent of its income in income taxes. In the past 30 years, the income of the top one percent has increased 256 percent and their percentage of our nation’s wealth has grown from 20 percent to 40 percent.

The story is not the same for middle-class Americans. Their income has moved upward a mere 11 percent in the same time period. The wealth of the middle class resides in its owner-occupied homes. Foreclosures and declining real estate values continue to erode the holdings of the middle class. Since most middle class Americans receive wages, there is little opportunity to reduce their taxes beyond the tax rate applicable to their income.

The number of Americans falling below the poverty line has continued to grow. According to the 2010, census more than 46 million Americans live below the poverty line; or one in six.

Class warfare is indeed a fact in our nation. However, it was not initiated by President Obama. It is a fact in long standing. If Paul Revere were sounding the alarm today, he’d be about 30 years too late.

One of the most disingenuous class war memes out there came one of the truly evil people in Congress these day.  That would be Eric Cantor who suggests that taxing the rich would shut down Soup Kitchens.  If you have ever done any analysis on the types of donations given by the rich compared to that given by the rest of us you’d see pretty clearly that the rich tend to skew their donations to art and culture nonprofits. Again, we have silly arguments that ignore the big picture.

Cantor complained about the president’s proposal to limit the value of the deduction for charitable deductions (and other deductions and some exclusions) to 28 percent. That would raise the cost of giving a dollar to 72 cents because the proposal would cut the tax savings to 28 cents. The higher price of giving would likely induce people to give less (at least in total—we don’t know whether they’d cut their donations to soup kitchens).

But that logic extends to other proposals to change tax rates. By Cantor’s own logic, tax policies that he supports could also harm soup kitchens by reducing donations. Cutting the top tax rate to 25 percent, for example, would raise the cost of giving to 75 cents per dollar, leading high-income donors to give less. (That reduction would be partly offset by what economists call the “income effect”—lower taxes raise after-tax incomes, so people give more because they have more to give. But the “price effect” from raising the cost typically outweighs the income effect.)

Another example: Allowing the 2001-03 tax cuts to expire for high-income taxpayers, which the president has repeatedly proposed and which Cantor opposes, could help charities. Boosting the top tax rate to 39.6 percent would lower the cost of giving and increase contributions. (Again, an income effect would offset at least some of the gain—higher taxes reduce after-tax income so people give less.)

In any case, it’s not soup kitchens that should worry about lower donations from the rich. More than 60 percent of donations in 2005 for basic needs came from people with income under $200,000, according to a 2007 study by the Center on Philanthropy at Indiana University. In contrast, more than 80 percent of contributions to health organizations and more than 90 percent of those for education and the arts were from people making more than $200,000. Those groups have a lot more to fear from reduced tax savings for donations.

Maybe it’s silly to complain that cutting tax rates would hurt charities by leading people to give less. But Cantor’s complaint that the president’s plan would go after soup kitchens in perilous economic times is equally silly. Both arguments are true, but both ignore larger points.

It’s truly odd that a man that wants to eliminate the safety net programs is concerned about shutting down a few Soup Kitchens. Again, the real problem is the rules that let folks like hedge fund managers avoid taxes like crazy when millionaire doctors and business owners have to search for deductions to bring down their tax bill. It wouldn’t exactly bring a windfall amount of revenues but it would at least make the tax system more reasonable.

The Top 400 tax filers  – the very richest Americans – do pay a lower rate of just 18.11 percent of their total income.  Why?  Many of them are hedge fund managers and people like Buffet — their income is pegged how much their investment fund grows.  For some reason, this income is counted as so-called “carried interest” (even though it is not interest at all; it’s more like a performance bonus) and is taxed at the lower 15 percent capital gains rate.

It’s a loophole for hedge managers, pure and simple.  But while it may be an outrage that these uber-rich hedge fund managers pay such a low rate compared to the rest of us, there are just not many of them out there.

But the top 400 tax filers represent a tiny sliver – just .00028 percent of all filers. The vast majority of those earning over $1 million a year pay at a higher rate, which is why the average tax rate for this group, according to the Tax Foundation, is 29.1 percent of taxable income.  And, yes, this number includes income taxes, payroll taxes and capital gains taxes.

So, most of the rich do contribute a good share of their income to taxes. The real conversation should be given the situation our country is in, given the level of taxes in the past, given that the wealthy actually benefit more from everything the country has to offer including its public goods, and given that these lower tax rates have really not produced any thing but bad results, why frame a return to more reasonable rates as “class warfare”?

I think this can be seen in terms of a bigger issue of the new right wing “populism” being driven by monied interests.  Many Fox newscasters and Tea Party types are actually very wealthy people who benefit from the demagoguery they promote.  It’s not so much “populism” as it is creating tension between classes of “have-nots”.  This class war far meme is just the latest in their attempt to get every one’s eye off the things that have really lowered US incomes and standards of living for 98% of the populace.  Cries of unfair taxation take every one’s attention from the real issues and problems.  As long as the political and power centers of the country are enclaves of rich, wealthy, sheltered elites, their media, their agendas, and their memes will be voiced in the corporate media and their interests will garner political attention.