42% Just Isn’t Enough

For that lovely “let’s not tax the job creators” mantra – a myth that has been disproven statistically so many times as a part of the failed attempts to improve the economy through the completely false “trickle down” theory of the 1980s – let’s find another way to allow the 1% percenters to retain more of their income! That same 1% that owns 42% of this nation’s wealth. Yup, let’s not tax these mega-rich at remotely the same rates as we tax folks who get paid wages and salaries for their livelihoods. They need to pay a lot less so they can buy a lot more of our asset-based wealth.

We already allow wealthy taxpayers with the ability to do a little corporate planning and keep money earned overseas away from the taxman as long as that money stays overseas. Not too many of us workers have our own corporations these days. Oh, this offshore money can be spent overseas without too much of an issue, so that little loophole gapes at us. And then there is the capital gains tax, less than half the max rate for individuals who work for a living, for those who buy and sell assets to generate their income. What’s even better, if you are a fund manager for these millionaire/billionaire clients and you choose to be paid for your labor through the appreciated value of the assets you manage for others (not having to invest anything yourself), you too can get those capital gains rates for your work too (the notorious “carried interest” rule that is near and dear to Tea Party hearts).

The multimillion-dollar exemption from estate taxes can help pass that richness to the next generation – who might not have earned it, but they sure like to spend it on luxuries (often made overseas) – to continue the tradition of not paying a proportionate share of the cost of living in the USA. And considering how many people have just left the job market, given up looking anymore, it’s pretty clear that these tax loopholes haven’t created the promised new jobs… yet again.

Not to mention that the wealthy now pick up the money generated by owning the robots that have replaced workers in most modern U.S. factories, and that way too many of the “new jobs” that have been created just don’t pay as much as the employment we have lost. Average American earning power continues its downward spiral that has fallen continuously since 2002.

Nope, there just aren’t enough loopholes for the wealthy! How is that 1% going to get to 50% of our total if they have to pay their fair share of taxes? Well, “treat the wealthy better than the rest” fans, there’s another loophole you might want to consider. One where you can get capital gains appreciation and where the law requires the statutorily-exempt investment entity to distribute at least 90% of its taxable income to its shareholders (a really nice dividend) so that it avoids corporate income tax without going overseas.

It’s called real estate investment trust (REIT) that was designed as an investment vehicle for folks who passively own real estate. The enabling statute wound its way through Congress in the Eisenhower era. “When they were created in 1960, [these REITs] were meant to be passive investment vehicles, like mutual funds, that buy up a broad portfolio of real estate — whether shopping malls, warehouses, hospitals or even timberland — and derive almost all of their income from those holdings.

“One of the bedrock principles — and the reason for the tax exemption — was that the trusts do not do any business other than owning real estate… But bit by bit, especially in recent years, that has changed as the I.R.S., in a number of low-profile decisions, has broadened the definition of real estate, and allowed companies to split off parts of their business that are unrelated to real estate.” New York Times, April 21^st.

Problem is that too many active businesses have been allowed to format as REITs, creating a rather significant avoidance of corporate income tax (35% rate) that would be paid if the REIT exemption were not available. They’re not generating rents but actively conducting for-profit businesses that just happen to have a real estate connection. Like the private prison systems that states have outsourced to in many circumstances.

Or this example: “In the legal world, the most controversial such effort is being undertaken by Penn National, the casino company. It won approval from the I.R.S. late last year to turn itself into a real estate holding company. In the process, it created a tax-paying subsidiary that holds the casino operations and pays rent to the parent company.” NY Times.

Smart and wealthy gives you cadres of lobbyists to create and maintain loopholes, lots of money to spend anonymously to promote your cause to voters (without disclosing who you are and why you really don’t want to pay taxes), to spread myths and keep the electorate from repealing your special treatment, and lots of major tax experts to restructure your life into minimal taxes and maximum wealth.

This profoundly unlevel playing field that benefits the few at the expense of the many is one more hallmark of a society that is unraveling, a country walking an unsustainable path. Sooner or later, a whole lot of people (well-armed I might add under their misinterpretation of the Second Amendment) are gonna be really pissed at a very few who seems to own most everything around them. And then….

I’m Peter Dekom wondering why wealthy folks down buy a little “survival insurance” and give up more of those special treatments, sure to enrage the masses… eventually.