What follows is inspired by two recent articles that everybody who’s not in the 1% – and I do mean, everybody – should read. One these two must-read articles (“For the Highest Paid CEOs, the Party Goes On”) appeared in a wide-circulation U.S. newspaper right-wing conservatives routinely lampoon for having a liberal bias. The other one (“The great distortion”) appeared in a major British news journal with a steadfast commitment to so-called free-market principles. Considered separately they amount to a damning case against corporate self-policing in the one case and publicly-subsidized borrowing in the other. Taken together, they point to a glaring fact even many severe critics of growing economic inequality in U.S. society fail to see, namely that extreme income inequality is actually financed by millions of middle-class taxpayers.
That’s right, folks, taxpayers are footing the bill for the obscene amounts of lucre the CEOs see fit to pay themselves every year. In today’s rigged economy, the superrich do not get where they are because of market forces but, instead, because of deliberate government action to fund massive corporate welfare programs masked by a Byzantine tax code only corporate lawyers and lobbyists understand. Here’s how it works. To quote The Economist:
…almost all countries allow firms to write off payments on their borrowing against taxable earnings.
In 2007, before the financial crisis led to the slashing of interest rates, the annual value of the forgone tax revenues in Europe was around 3% of GDP—or $510 billion—and in America almost 5% of GDP—or $725 billion…governments on both sides of the Atlantic were spending more on cheapening the cost of debt than on defence. Even today, with interest rates close to zero, America’s debt subsidies cost the federal government over 2% of GDP—as much as it spends on all its policies to help the poor…
The tax benefits are largely reaped by the rich, worsening inequality. Corporate financial decisions are motivated by maximising the tax relief on debt instead of the needs of the underlying business.
To repeat the key points: In half the world’s rich countries, governments “allow firms to write off payments…against taxable earning ” on money they borrow. These corporate write-offs amount to hundreds of billions of dollars a year. So the money comes from the 113 million of citizens who filed tax returns in 2014, got it? And where does all that money go, you ask? A lot of it goes directly into the outstretched hands – then pockets – of…you guessed it…a few thousand other citizens. A sampling:
It pays to work for John C. Malone.
The billionaire who built a cable and communications empire is 74, and no longer a chief executive himself. But Mr. Malone still exerts sway from various boardrooms, and the C.E.O.s at the companies he oversees are routinely among the best compensated managers on the planet. Last year, the largess was particularly notable.
Take Discovery Communications, the cable group behind Shark Week and shows like “Cake Boss.” Mr. Malone spun Discovery out of his media group and still sits on the board. His choice for chief executive, David M. Zaslav, received total compensation worth $156 million last year, making him the highest-paid chief of an American public company, according to the Equilar 200 Highest-Paid CEO Rankings, conducted for The New York Times.
Michael T. Fries of Liberty Global, who also has the good fortune to run a company Malone presides over as chairman, found $112 million in his pay packet last year. Gregory B. Maffei, described in the article as “one of Mr. Malone’s closest lieutenants,” took home $74 million. Another member of Malone’s exclusive 350 Club, Thomas Rutledge, got a mere $16 million. I named it the “350 Club” because that’s the combined total compensation these four rich, white, male CEOs received in 2014.
Three-hundred and fifty million dollars.
The shameless spear-carriers for the superrich on Fox News like to talk about “class warfare” as though it’s being waged by the poor and minorities. There’s not a scintilla of truth in the accusation. The theory behind the “class warfare” argument is simple enough. Small lies are relatively easy to spot and expose, so if you’re going to tell a lie make it a big one; a lie so big, so audacious that ordinary people can’t believe anybody could or would make it up.
Here’s the truth about class warfare. Big Business in America has never been bigger, never been more concentrated in the hands of a few oligarchs like John C. Malone and the Koch brothers who control multibillion dollar holding companies that profit immensely from cozy relationships and private contracts with the federal government. At the same time, these entities and the national associations that represent them in Washington maintain armies of lobbyists in the nation’s capital. A primary objective of these wealthy individuals and pressure groups is to insert special provisions in the federal tax code, provisions that excuse corporations and the superrich from paying hundreds of billions of dollars in taxes every year.
The lost revenue from these massive tax giveaways results in chronic federal deficits, huge debt service costs, and higher taxes on the middle class. In short, the working middle-class who constitute the taxpaying majority are forced to cover the cost of extravagant tax subsidies to companies whose corrupt corporate managers pocket much of the money for private use (mansions, yachts, private jets) rather than using it to create wealth for society.
So the next time you hear somebody use the word “welfare” in the same sentence as “poor and lazy” tell them the problem is much worse than they think. Tell them Robin Hood has no place in this story: Most of the money Fox News says Obama is giving to the poor is actually going to the richest 1%.
Fairness is not a partisan issue. Our tax system is not fair. One purpose of fiscal policy is to redistribute income that can easily become too highly concentrated to spur or sustain a growing economy. Taxing capital gains at a dramatically lower rate than earned income, for example, redistributes wealth in the wrong direction. The rich pay proportionately less in taxes, get more in subsidies, and obviously don’t need government assistance. The middle class pay more and get less. The poor aren’t all lazy and the lazy aren’t all poor.
Bottom line: We need major tax reform in this country. It’s not what either of the presidents Roosevelt had in mind. One was a Republican, the other a Democrat. Both would be appalled at the craven behavior of leaders in both parties. Forget ideology. Forget party loyalty. What we need now is a middle-class tax revolt.