Relevant and even prescient commentary on news, politics and the economy.

It’s not how rich we are, it’s how equal we are.

This is a 16 minute * lecture by Richard Wilkinson. It is posted at TED. I am posting it here, as I can not believe this information has not received more attention now that the US is awakening from the decades long delusion of prosperity which did not and as shown in the lecture could not lead to greater justice (which implies equality) via the model of economics we have been using.
The model known by many aliases (Chicago School, Friedman, etc) has resulted in the thought that people are drowning in debt and that we have privatized the profits but socialized the losses. These are inaccurate metaphors. They are the results of the language of the delusion we have been living for 3 decades and thus by definition can not capture the truth of our condition. As the science presented in the lecture shows, if our all encompassing concern should be equality, then people are not drowning, they are dehydrating.
The dehydration is the results of privatizing security in life and socializing the risks in life. We are not “drowning” in risk or losses. We of the 99% are lacking in the substance that reduces risk. One can certainly drown from too much water, but the natural risk in life is not having too much water, it is having too little. Thus is the realization of the delusional statement “drowning in debt” and “socialized the losses”.

The lack of reduction of life’s risks is the inequality, the social injustice…the diversion from the purpose expressed in the preamble to our Constitution. “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
The following concluding statement from a different lecture by Professor Wilkinson summarizes the TED lecture. As you watch the lecture keep in mind the 4 goals I highlighted of the preamble and consider that they were put into a document that created an government 223 years ago this year (based on ratification). I have a greater respect for the intellect and their insight into the human experience of those who wrote and ratified our Constitution.

“For thousands of years the best way of improving the quality of human life has been to raise material living standards. We are the first generation to have got to the end of that process. No longer does economic growth improve health, happiness, or wellbeing. If we are to improve the real quality of life further, we have to direct our attention to the social environment and the quality of social relations. But rather than continuing to tackle each problem separately, by spending more on medical care, more on police, social workers and drug rehabilitation units, we now know that it is possible to improve the psychosocial wellbeing and social functioning of whole societies. The quality of social relations is built on material foundations – on the scale of the material inequalities between us.”

With information such as this research and that of the 2005 World Bank paper on what produces wealth , considering our Constitution’s preamble, we should not be struggling looking for guidance as to what direction, what path, what solution we need for our self (our self as in We the People).
*I tried to embbed the video, but for some reason all that happened was all the code being published and not the video.
(Dan here, h/t to rjs for the embed…

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Robert Reich’s After Shock and Corey Robin’s Freedom Arguments

by Linda Beale

In earlier posts on ataxingmatter (here and here), I reviewed Robert Reich’s 2010 book, After Shock, and wrote about his suggested cures for the problems made most visible in the 2007 crash and the Great Depression that followed.

The gist of the book is summed up in the following quote:

“[L]eft to its own devices, the market concentrates wealth and income–which is
disastrous to an economy as well as to a society.” at 59

Corey Robin writes in the Nation about the same problem, Reclaiming the Politics of Freedom, The Nation, Apr. 26, 2011. But he notes that harping on the distributional inequality doesn’t resonate with voters. If the left wants to influence policies and capture the hearts of voters, he suggests, it needs to demonstrate that this distributional mayhem, which leaves everybody but the rich vulnerable, has even broader consequences that reach to the very fundamental creation myths of our society–the desire to be our own masters, to free ourselves from a tyrannical monarchy and colonial overlords who seemed to want to dictate how we could work, what we could drink, and where we could live. That is, to make what we are saying comprehensible at the “yeah, that’s what counts for me” level, we need to connect to America’s own Founding Moment. We need to “reclaim[] the politics of freedom.”

And I think he is correct. Because the problem we are facing today, with corporate lobbying and campaign contributions reinforcing the elite class’s wining and dining of politicians, is more than the dysfunction of the economy. Yes, there is too much money at the top where there is not enough ability to spend it. Yes, there is too little money at the bottom where there is no way to provide for basic needs. Yes, there is barely enough in the middle, resulting in stagnation in local businesses who don’t have enough customers to sell to and can’t afford to give credit to those who want to buy.

It is not just that banks, connected to power through their managers and shareholders, are able to speculate with other people’s money (our money!) in the international derivatives casino and then push their losses off on us. It is not just that corporate bosses rake in as much in a day as many of their workers make in an entire year of hard labor. It is not just that we can no longer talk to anybody local when there is a problem with our phone or our order from a company. It is not just that ordinary people are ignored, disregarded, almost shunned, because the elite really are only comfortable in the company of other elites. It is not just that we can’t get an appointment with a doctor unless we have (expensive) health insurance, or can’t get that crown we need on the broken tooth because it costs as much as some of us make in half a year.

No. These things are real, they affect us every day, they make us angry every day because we recognize our powerlessness to deal with the highly impersonal Big Business world that has been fostered by the four decades of reaganomics’ deregulation, privatization, tax cuts and militarization. But still, the problem goes much deeper than these things.

Our very freedom is threatened. When we are economically powerless, we are also powerless in our lives because we lose our freedom to make choices that are right for us.

  • we lose our rights to bargain with our employers (look at how Wisconsin and Ohio have treated their public employees or how WalMart treats its workers and anyone who talks unions),
  • we lose the power to improve ourselves by pulling ourselves up by the bootstraps through publicly funded education from grade school through university,
  • we are dominated in the marketplace by powerful businesses that use automated systems to turn us off, ignore our calls and letters seeking redress for a mischarge or a poorly done job,
  • we lose our jobs, are forced to accept paycuts or furloughs, when the company claims times are tought, yet we watch the same public companies to pay their CEOs millions more

Our freedom to improve ourselves, freedom to choose the kind of work we want to do, freedom to prepare for our retirement and then retire with some security about our future, freedom from worry about whether or not a catastrophic medical emergency will eat up all our savings and leave family without an adequate living–all these freedoms are being threatened today by the concentration of wealth in the hands of an elite few who thereby become emplowered to set the market terms as they choose.

The idea of the “free market” is a bill of goods sold to replace the real concepts of freedom we should be considering. Markets, of course, can only function well for the people where government constraints prevent the owners and managers from setting all the terms to suit themselves, leaving externalities of their profitmaking to be borne by the people. literally ripping them off. The sloganeers have persuaded ordinary Americans to think that the American Dream of freedom is encapsulated in that little bitty notion of a “free market” so that they will unknowingly throw away the big idea of freedom–the freedom to set one’s own course in life, in a cooperative society that works to provide those tools.

The reason we need a progressive tax policy–including at the least progressive tax rates with brackets that reach much higher into the stratosphers of the ultra rich (55% for those making $1 million or more annually) ; elimination of the capital gains preference (so that all income is taxed under the same rate structure); and an estate tax with bite (meaning a graduated rate that protects a reasonable nest egg for the next generation while serving as one method of limiting the concentration of wealth)– is to ensure the freedom of each and every one of us, from rich to poor, from newly arrived immigrant to elderly Native American.

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New Year’s Tax Resolutions

by Linda Beale

A quote from Amartya Sen, and my New Year’s Tax Resolutions (for Congress and the Obama Administration)

The time between December 30 and January 4 seems to be filled with lists. Along with the ever-present list of “to dos” that haven’t been done and still are hanging around waiting for our attention, there are everyone’s “10 best” lists (e.g., the ten best movies–regretably, I don’t think I saw ten new movies in 2009, so can only say I thought Slumdog was a decent showing) or their opposite (e.g., the ten worst celebrities of the year, every one of them with Tiger Woods and Gov. Sanford firmly placed near the top). And of course there are those New Year’s resolutions that we are supposed to deliberate over and then deliver on when the New Year rolls around–mine is to join my hubby in his morning walk and to give up doughnuts completely.

Not being one to gather quotes all year just for this final celebration, here’s one quote that I believe is worth thinking about as we head into the new year. Amartya Sen writes, in “The Idea of Justice” (Belknap Press 2009), at 32:

Being smarter may help the understanding not only of one’s self-interest, but also how the lives of others can be strongly affected by one’s own actions. Proponents of so-called ‘Rational Choice Theory’ (first proposed in economics and then enthusiastically adopted by a number of political and legal thinkers) have tried hard to make us accept the peculiar understanding that rational choice consists only in clever promotion of self-interest (which is how, oddly enough, ‘rational choice’ is defined by the proponents of brand-named ‘rational choice theory’). Nevertheless, our heads have not all been colonized by that remarkably alienating belief. There is considerable resistance to the idea that it must be patently irrational–and stupid–to try to do anything for others except to the extent that doing good to others would enhance one’s own well-being.”

In light of Sen’s helpful clarity about the ridiculousness of ‘rational choice theory’, I also offer the following as the resolutions that I wish Congress and the Obama administration (and/or various administrative agencies thereof) would make (and follow through on) for this new year of 2010.

1) The Treasury should resolve that it will no longer provide special dispensation to the financial institution powers that be, such as its invalid notice indicating that it would not enforce the law on loss corporations for too-big-to-fail banks, thus allowing too-big-to-fail banks to become even bigger by buying loss banks, and then allowing them to use those losses in direct contravention of the law and avoid paying income tax for years (or perhaps decades). A similar “notice” went out recently–Notice 2010-12–stating that Treasury will continue to fail to enforce the rules under section 956 regarding what constitutes an obligation and hence relieving US shareholders of controlled foreign corporations ( many of them possibly the same too-big-to-fail banks) of further US taxpaying obligations. (This notice continued the nonenforcement decision Treasury had made in 2008, in Notice 2008-91. Too bad decisions do not make a good decision.)

2) The Supreme Court should resolve to deal with the problem of financial institutions claiming patent protection for all kinds of financial software and financial engineering “solutions” and for others claiming patent protection for tax planning strategies by releasing a decision in the Bilski case that clarifies the “abstract idea” exception. The Court should say that no patent can be granted for innovations that merely utilize the positive laws to assert that a transaction carried out in a particular way will have a particular legal result, or for other methods of conducting transactions or of organizing human activity that do not involve the technological arts, as understood under European patent law.

3) Congress should resolve to end the preferential treatment of those few Americans who own most of the financial assets of the country by ending the capital gains preference.

4) Congress should resolve to eliminate the preferential tax treatment of the earned income of hedge fund and equity fund managers (the so-called “carried interest”), and any other “partners” that manage partnerships and earn a share of the partnership’s gains as their compensation (such as real estate partnerships).

5) In order to restore some sort of balance between worker and employer, Congress should eliminate the business deduction for any compensation in excess of 20 times the average salary (about $1 million). The cap on compensation deduction to apply to compensation in any form (stock, assets, cash), whether or not “performance related”.

6) In order to treat the gifts of ordinary Americans to charities of their choice the same as the gifts of multi-millionaires to charities of their choice, Congress should repeal the special rule that permits a charitable contribution deduction for the value of stocks rather than the investment basis in the stocks. Will that limit contributions that are made? Perhaps, though it is clear that contributors do so for many reasons and not merely for the contribution deduction.

7) Congress should resolve to resolve the estate tax situation once and for all, before some do-nothing heir-to-be decides that 2010 is the right time for the wealthy person in his life to go. Congress should enact a modest exemption of $2 million but should make the estate tax rates progressive (beginning at2009s 45%, but moving up to at least 65% for the largest estates).

8) Congress should resolve to revisit the tax brackets. We have an economy in which the average income is around $50,000, but there are individuals who make more than $500 million a year. That spread is so large that it cannot be adequately addressed by brackets that focuse on the first $350,000 or so. Those who make $200 million a year have incredibly more freedom of choice, and the few dollars they pay in taxes are merely peanuts compared to the precious funds from an average family. We need to make the income tax more progressive by adding additional rate brackets–perhaps as many as 3 or 4 more. That would still be a far cry from the income tax system before Reagan took office, when we had top rates more than double today’s top rates. But it would address the dire fiscal need of the country in a way that is doable without creating undue suffering.

9) Congress and Treasury should resolve to clean up the partnership tax rules so that they do not offer such extraordinary flexibility to partners to arrange their affairs to avoid taxation–for example, by eliminating the electivity permitted to partners in many places in the rules (make the remedial method the only method allowed for taking into account book-tax disparities in contributed property) and by changing the way that partners take account of partnership debt (such as being able to get distributions of nonrecourse debt that monetize partnership property appreciation).

10) Congress should re-visit the rules on mergers and acquisitions, so that a tax-free merger becomes an unusual event. Part of the problem we are facing today is that multinational corporations have grown so big that they wield enormous power globally and can sometimes appear to be able to order laws to suit them. Witness the fact that we are well beyond the beginnings of the financial system crisis, and no single piece of legislation imposing new and better regulations on the banks have been enacted. The size of corporations ensures that they will become as focused on raising rents for their managers as they will on making profits for shareholders, and that they will care not one whit for the ordinary American who is their customer, or their low-wage employee, or the resident of a town that they leave derelict when they move to sunnier shores. We say that the rationale for tax-free reorganization provisions is to encourage efficient organization of corporations. But efficiency is not God, and in fact focus on efficiency may leave democracy and fairness far behind. We should give tax-free treatment only to shareholders who get no boot for any of their stock, and only in transactions where a high percentage of the consideration is stock (perhaps 80% or more).

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Wyden’s Proposal for taxing oil and gas speculators

Ron Wyden, Democratic Senator from Oregon who serves on the Senate Finance Committee and the Energy Committee, is generally considered a liberal, though with a mixed bag of positions that hardly qualify on all grounds. He is against the estate tax and favors lowering rates of capital gains taxes, neither of which makes sense, from my perspective, in an economy already tilted to favor capital (and hence those in the upper distributions) and in need of revenue. His positions on the environment have been fairly consistently progressive. Back in 2004, for example, he worked on legislation to “get tougher” on responses to oil spills and get kinder in expediting loans to people impacted by those spills. See this press release. He has supported the US addressing CO2 emissions even if the big economies of China and India don’t (S. Con. Res. 70, May 15, 2008).

So what happens when you put tax policy (where I’m not terribly impressed with many of his positions) together with environmental policy (where he seems to have a fairly decent record)?

Today, Wyden introduced a bill (S. 1588) that deals with both of these issues. It would end a tax break currently enjoyed by speculators who trade in oil and gas. They’d have to pay tax at the ordinary income rates, rather than getting the preferential capital gains rates (o% for the first two income brackets, then 15%). This would be achieved by treating the gains as short-term capital gains (or losses) even if they would be treated as long-term under other provisions. Gains in trading by tax-exempt investors–e.g., Harvard’s endowment and similar funds– would be taxed as unrelated business income.

What’s the rationale? “To amend the Internal Revenue Code of 1986 to provide the same tax treatment for both commercial and non-commercial investors in oil and natural gas and related commodities, and for other purposes.” The first section has a short title that perhaps reveals more–it is the “Stop Tax-breaks for Oil Profiteering Act” (STOP Act). The bill also calls for a study of commodities exchanges and the effect of tax policy on the demand and price of commodities, and particularly of oil and gas.

I’m no expert in this area, but this sounds at first impression like a good idea. Wyden’s point is that those who use such fuels in their businesses have to purchase those commodities and treat any profits on related trading as ordinary. But speculators pay lower capital gains rates on trading profits, which may well mean that their trading distorts the market and raises prices.

Of course, I’ve long argued for eliminating the capital gains preference altogether, either through repeal of the provision in the regular tax or adding it as an adjustment in the alternative minimum tax. While I’d rather there be a wholesale change–to remove all the characterization games that taxpayers play and to help move the tax system towards a fairer one that does not give such inordinate preference to owners of capital over workers, these commodities trades may be an appropriate target, especially given their likely impact on pricing in an era when we can expect increasing oil and gas scarcity.

Any thoughts?

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