Propaganda Attempt to Divert Attention from Class Warfare

Arguably the main problem with American Social Security is that the payroll tax is capped at about $128,000. This means that someone who makes millions of dollars per year pays the same amount into Social Security as someone who makes about $128,000. That means that the maximum cap is a regressive part of the tax code, similar to how the carried interest loophole allows hedge fund managers to treat income as capital gains rather than regular income, which reduces their tax contributions. But significantly raising the cap on the payroll tax would solve the problem of Social Security lacking adequate funds, and then outlets such as The Atlantic would hopefully focus on more important issues.

With the Republicans having just passed a $1.5 trillion tax cut, the bulk of which goes to the richest one percent, it was inevitable that the generational warriors would come out of the woodwork and resume the attack on Social Security and Medicare. Generational warriors try to divert attention away from how our economy has redistributed income upwards over the last four decades, and convince a large portion of today’s workers that their real problems stem from their parents’ and grandparents’ overly generous retirement benefits.

The opening shot in this new round of generational warfare showed up earlier this month in The Atlantic Magazine. It told the classic story about how seniors are getting too much money back from Social Security and Medicare, the same thing we’ve been seeing for decades. (There is little expectation of originality if you’re in the business of promoting generational warfare.)

In fact, middle-income seniors will get somewhat less back from Social Security than they paid into the system. The cost of Medicare benefits does exceed their taxes, but this is because Americans pay twice as much for our doctors, drugs, medical equipment and other health care items than people in other wealthy countries.

The real problem is high-income people in the health care sector making too much money, not the country being too generous to its seniors. But, the folks promoting generational warfare aren’t interested in clamping down on the rich doctors and drug companies; they want us to go after retired school teachers and retail clerks.

Even if Social Security and Medicare were more generous, it would still say almost nothing about generational equity. While the generational warriors would like to have everyone focus on the cost of programs that primarily serve the elderly, paying for these programs has a trivial impact on the well-being of the working population. Policies that affect the distribution of income within generations are vastly more important.

To make this point as simple as possible, suppose that we had a huge increase in payroll taxes to cover projected shortfalls in Social Security and Medicare. Imagine a combined increase of 4.0 percentage points, which would be more than sufficient to leave both programs fully funded throughout their 75-year planning horizon.

This would undoubtedly be a big hit to working people who have to pay this tax. But, let’s compare this to the upward redistribution of income over the last four decades. This has primarily been an upward redistribution within the wage distribution, from ordinary workers to CEOs, Wall Street trader-types, and highly paid professionals like doctors and dentists. In the last decade there has also been a substantial redistribution from wages to profits.

The result of this upward redistribution has carved a large gap between productivity growth and wage growth. The hourly pay of a typical worker has risen by roughly 6.0 percent from 1979 to 2017. Even if we take a broader measure of compensation that includes health care and other benefits, the increase would be less than 20 percent.

By comparison, productivity has risen by more than 60 percent, even after making adjustments for technical factors like differences in deflators and net versus gross measures of output. This means that the upward redistribution over this period has reduced wage growth by more than 40 percentage points. In short, our children are 40 percent poorer than they would otherwise be because of the money going to people like Bill Gates and Mark Zuckerberg rather than ordinary workers.

So by very conservative estimates, a typical person in their twenties or thirties has seen their income reduced by more than 40 percent because of all the money redistributed to those at the top. However, the generational warriors want young people to be upset about the possibility that a bit more than one-tenth of this amount could be used to pay for their parents’ and their own Social Security and Medicare. (This upward redistribution is also responsible for about half of the projected shortfall in Social Security, as more income going to profits and high-income workers escapes the Social Security tax.)

[…]

We spent over $450 billion on prescription drugs in 2017. Without government-granted patent monopolies we would probably have spent less than $80 billion. The difference of $370 billion is equal to an increase of a 5.0 percentage point increase in the Social Security payroll tax. But the generational warriors don’t want anyone talking about how much money our children to pay drug companies with government-granted patent monopolies.

In fact, the generational warriors have directly cost our children more than 10 percent of their paychecks with their harebrained fiscal policies. They insisted on a smaller stimulus and austerity following the collapse of the housing bubble in 2007 to 2009. This slowed the recovery, reducing both employment and investment, leaving the economy permanently poorer.

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Worst U.S. Economic Legislation in Decades Set to Pass

The Republican tax scam will go down in history as an utter atrocity. The interests of the general public are betrayed in favor of giant corporations and the super rich. Since the scam only has to pass the Senate now, U.S. citizens should call their senators at (202) 224-3121 and tell them to vote no.

The analysis by American for Tax Fairness (ATF)—a coalition of more than 425 groups that advocate for progressive tax reform—found that the Republicans’ plan would give more than 80 percent of tax cuts to the nation’s richest one percent while also—among other things—raising taxes on 92 million middle-class families; increasing healthcare premiums; encourage outsourcing of U.S.-based jobs; and limiting deductions for state and local taxes.

ATF’s analysis warns that the GOP’s proposed legislation:

  1. Gives 83% of the tax cuts to the richest 1% by 2027. The richest 1% of taxpayers will get one-fifth (21%) of the tax cuts in 2018, but that grows to 83% by 2027. Their tax cut will average $51,000 in 2018; the bottom 60% of taxpayers will get about a dollar day. [Tax Policy Center (TPC)]
  2. Raises taxes on 92 million middle-class families by 2027 to pay for tax breaks for the wealthy and corporations. That is more than one-half (57%) of all households making less than $200,000 a year. 69 million households making less than $100,000 a year would also pay more in taxes after the temporary tax cuts for individuals expire. [TPC]
  3. Mandates automatic Medicare cuts of at least $25 billion in 2018 and $400 billion over 10 yearsIn effect, seniors will pay for tax breaks for corporations and the wealthy as automatic spending cuts are triggered because the tax cuts add $1.5 trillion to the national debt. Automatic cuts altogether will total $136 billion in 2018 and include reductions in agriculture subsidies, student loans, military retirement and more. [Congressional Budget Office (CBO)]
  4. Increases health care premiums and leaves 13 million families without health coverage, to raise revenue for tax breaks that mostly benefit the wealthy and corporations.
  • The plan repeals a key part of the Affordable Care Act: the requirement for individuals to have health coverage if they can afford it. That makes $314 billionavailable for tax cuts. [Joint Committee on Taxation (JCT)]
  • This will lead to 13 million more people being uninsured and cause a 10% increase in health insurance premiums for people getting insured on the individual market. [CBO]
  1. Provides a corporate tax rate cut of $1.4 trillion and makes those cuts permanent, but makes tax cuts for individuals and families temporary. [JCT]
  • The corporate tax rate is slashed from 35% to 21%, and the corporate Alternative Minimum Tax (AMT) is eliminated.
  • The $1.4 trillion corporate-tax-rate cut is nearly equal to the $1.5 trillion by which the whole tax plan increases the national debt, and to the $1.5 trillion cut the Republican budget makes to Medicare ($473 billion) and Medicaid ($1 trillion). [Center on Budget and Policy Priorities (CBPP)]
  • Tax cuts that benefit working families will expire after 2025. However, one individual tax cut made permanent changes the way tax brackets are adjusted for inflation, resulting in growing tax increases over time. [CBPP]
  1. Adds $1.5 to $2.2 trillion to the national debt, jeopardizing critical services. The plan includes at least $1.5 trillion in tax cuts that are not paid for, such as by closing loopholes used by the wealthy and corporations. [JCT] Because the bill contains several budget gimmicks that obscure the true cost of the tax cuts, the cost could be as much as $2.2 trillion. [CBPP] This will balloon the national debt and further endanger funding for Social Security, Medicare, Medicaid, public education and more.
  2. Prioritizes the wealthiest taxpayers over working families with children. The plan lowers the top individual tax rate from 39.6% to 37%, giving more tax cuts to the richest 518,000 households. The GOP chose not to fully adjust changes in the Child Tax Credit so that some 24 million children in working families could fully benefit. Both of these changes would cost roughly the same amount, about $80 billion over 10 years. [Institute on Taxation and Economic Policy (ITEP), CBPP]
  3. Prioritizes wealthy business owners and real estate developers like Donald Trump. They get a net $265 billion tax cut from a new 20% deduction for “pass-through” business income combined with a tightening of rules on losses. Applied to the new 37% top individual tax rate, this 20% deduction on business income will drop the top pass-through business tax rate from 39.6% to 29.6%. More than 80% of this tax cut will go to the top 5% in 2019. Trump owns more than 500 pass-throughs. Pass-through owners—which include sole proprietorships, partnerships, LLC’s and S corporations—pay taxes due on their business income on their personal returns at individual rates. [JCT, ITEP]
  4. Kills American jobs by encouraging outsourcing and profit shifting. The plan creates a territorial tax system, which exempts foreign profits from U.S. taxes. While the plan will tax some of those offshore profits, the effective tax rate will be far below the U.S. rate. U.S. multinationals will have even more tax incentives to outsource more jobs and shift more profits offshore.
  5. Hands a $400 billion tax cut to offshore tax dodgers. American corporations have $2.6 trillion in profits stashed offshore on which they owe $750 billion in U.S. taxes. Rather than make them pay what they owe, like all the rest of us do, the tax plan will charge them only $339 billion—over a $400 billion discount. Apple will save $44 billion and Microsoft $25 billion, based on their Securities and Exchange Commission tax filings. [ITEP]
  6. Limits the federal deduction for state and local taxes (SALT), hurting the middle class. The bill caps at $10,000 the amount of state and local property and income or sales taxes that can be deducted from federal taxable income. This is one of the reasons that nearly 8 million families will see tax increases in 2018. The impact of this change will be felt especially in the 20 states that claim an average SALT deduction of more than $10,000. Limiting SALT will put pressure on state and local budgets, likely forcing cuts to education, health care, and infrastructure. [TPC, CBPP]
  7. Lets many wealthy heirs avoid paying the estate tax. The estate tax is substantially weakened, losing $83 billion and allowing very rich families to inherit wealth tax-free. Under current law, the tax only applies to estates worth over $5.5 million per person or $11 million per couple—about 5,500 estates. Under the bill, only estates worth at least $11 million per person or $22 million per couple (about 1,800 estates) would pay the tax. [JCT, TPC, CBPP]
  8. Enriches President Trump and his family. In addition to cutting the top individual income tax rate and creating a tax break for income from pass-through business entities (of which Trump owns 500), the bill preserves the many existing tax loopholes for real estate investors and even creates a new one. The final bill exempts real estate owners from a provision meant to limit abuse of the new pass-through income deduction. [ITEP]