Archive for April, 2015
Tax day has come and gone. And there is indeed a lot to complain about: our corporations and the wealthy have successfully minimized their own tax responsibilities, leaving us to support a powerful and profitable military-national-security-industrial complex at the expense of needed public services and social programs.
Let’s start with who pays taxes. Individuals and corporations pay income taxes to the federal government. However, as the chart below shows, corporations have been able to take advantage of increasingly lenient income tax laws and a corporate friendly globalization process to significantly lower their tax obligations. If we add payroll taxes which are paid to support specific programs like Social Security and Medicare, the overall individual contribution is approximately 80% and the corporate share about 11%.
Lower corporate taxes were supposed to unleash the power of the market and make us all better off. Unfortunately, but not surprisingly, all they have done is boost corporate profits at the public expense.
Of course, income tax burdens are not equally divided among individuals. In fact, our federal income tax code has become increasingly favorable to higher income earners. As the next chart shows, the top marginal income tax rate has been dramatically reduced. The top marginal tax rate was 50 percent in the mid-1980s and even higher in the 1950s. Currently, the top rate is 39.6 percent; it is paid by individuals making more than $406,750 and couples making more than $457,600. And then there are tax breaks that disproportionately benefit top income earners.
The combination of more income going to top earners, lower top marginal tax rates, and specially crafted tax breaks cannot help but reduce federal tax revenues and drive up our federal deficits.
The payment of income taxes is one thing—how the federal government uses the money it receives is another. As we see next, military related activities absorb a heavy share of federal spending.
Direct spending on the military accounts for 27 cents of every federal tax dollar spent. Including spending for veterans benefits and approximately two-thirds of the interest on the federal debt adds another 16.05 cents, which brings the overall military total to 43.05 cents out of every dollar spent. This is a conservative estimate because it does not include spending on activities that fall under the broader heading of national security such as homeland security and certain “foreign aid” expenditures. No wonder our infrastructure and social programs are starved for funds.
Federal spending can be divided into non-discretionary and discretionary items. In the case of the former, spending is mandated by law, such as payment of the national debt. In the case of the latter, the federal government has discretion in how it spends our tax money. Looking just at discretionary spending reveals even more clearly the dominant position of the military in our budget priorities.
Moreover, political pressure keeps working to push the military share higher. Both House and Senate budget proposals call for spending some $530 billion on defense in Fiscal Year (FY) 2016. That is the most that can be spent without triggering automatic spending cuts due to sequestration. But – happily for the military – there is an exception to the sequestration process.
This exception allows Congress to authorize unlimited spending for current military operations or what is officially known as Overseas Contingency Operations. House and Senate proposals include more than $90 billion under this heading. Significantly, there is no similar exception when it comes to spending on non-military, discretionary items. Apparently our non-military needs don’t rise to the same level of urgency as our military ones.
A few key changes in the tax code and federal spending priorities and a better 2016 tax day is not hard to imagine.
The dominance of the 1% is now widely accepted. What is often missed is the fact that their dominance was built on a major transformation of the U.S. economy beginning in the early 1980s and that U.S. policy, which helped to usher in that transformation, has largely been committed to reinforcing it. An NPR Planet Money post includes two charts that vividly highlight this transformation.
The chart below shows trends in the average inflation-adjusted pre-tax income for both the bottom 90% and the top 1% of the U.S. population. From the early 1940s to the early 1970s, the bottom 90%—the great majority of the population—enjoyed a steady growth in their average real income while the top 1% saw little growth (to their already substantial total).
However, beginning in the early 1980s, thanks to the intensification of globalization, privatization, deregulation, and attacks on unions and social programs, things dramatically changed. Now it was the top 1% that saw all the income gains. In fact, as the chart makes clear, the real average income of the bottom 90% has actually been in decline.
The following chart offers an even more dramatic way to see this change in relative “fortunes.” Each data point represents the average real pre-tax income of the bottom 90% and the top 1% for the given year. The vertical greenish line illustrates the fact that between the early 1930s and 1970s only the bottom 90% saw income gains. The horizontal red line illustrates how beginning in the early 1980s all the income growth went to the top 1%.
One take away: no change in policy, no change in income distribution.
Business has failed to create the jobs we need and our public policies are failing to protect those who are unemployed.
As an Economic Policy Institute report explains:
The drop in the official unemployment rate overstates the overall improvements made in the underlying labor market. The United States lost 7.8 million jobs between December 2007 and October 2010 but the working-age population continued to grow over that period. As a result, even with steady job growth in recent years, the current labor market is still short 5.6 million jobs needed to keep up with the growth in potential labor force (see Figure A).
And, as of December 2014, only 23.1 percent of unemployed workers received any state unemployment benefits (see Figure B). One reason is the nature of many of the recently created jobs: they are short term and low paying; this leaves workers without the work record or earnings necessary to draw benefits. Another reason:
since 2011 nine states have cut the maximum available number of weeks of regular UI benefit duration [to below the long-accepted norm of 26 weeks] : Arkansas, Florida, Georgia, Illinois, Kansas, Michigan, Missouri, North Carolina, and South Carolina. Except Illinois, all these states made other legislative changes to their programs which may have reduced benefit recipiency.
Times are not easy even for those lucky enough to receive the benefits they earned: As the Economic Policy Institute report notes:
Many states pay low benefits. There were 11 states with maximum weekly benefit levels of $350 or less in 2014, meaning that workers earning more than $700 a week (well below the median weekly earnings) do not get half their pre-layoff wages replaced by UI benefits. Average benefits overall were only $315 a week in 2014 with average weekly benefits below poverty levels in the poorly performing states.
My latest article, on capitalist globalization, appears in the current issue of the journal Critical Asian Studies. For a limited time the journal is making it freely available. Here is the abstract and below it a link to the article itself.
From the Claw to the Lion
A Critical Look at Capitalist Globalization
This article argues that capitalist globalization is largely responsible for creating or intensifying many of our most serious economic and social problems. It first describes the forces that drove core country transnational corporations to create a complex system of cross-border production networks. It then maps the resulting new international division of labor, in which Asian countries, especially China, import primary commodities from Latin American and sub-Saharan African countries to produce exports for core countries, especially the United States. In core countries, globalization has led to the destruction of higher paying jobs, financialization of economic activity, and stagnation. While the new international division of labor has boosted third world rates of growth, especially in Asia, it has also left the third world with unbalanced and inequitable economies. Moreover, contradictions in the globalization process point to the spread of core country stagnation to the third world. Capitalist globalization has increased third world dependence on core country consumption while simultaneously undermining core country purchasing power. The article ends by discussing a process and program of transformation that highlights the feasibility of an alternative to global capitalism as well as the organizational capacities and institutional arrangements that must be developed if we are to realize it.
The article can be read or downloaded for free here.