Finian CUNNINGHAM
The answer is simple, says author and researcher Sam Pizzigati who coedits inequality.org. The United States has such rock-bottom low tax rates and legal facilities for evasion that its super rich do not have to bother going to the trouble of using exotic shell companies in far-flung global corners. They can easily do so right at home, and all legally too. The U.S. tax system – once a progressive model in previous decades – is now rigged to enrich the already rich while making the majority of working people pay far more than their fair share of the national tax burden. This has been the case since the 1980s when successive U.S. administrations have one after another soaked the super rich with generous tax breaks.
However, the chronic problem of wealth inequality in the United States (and elsewhere) is having such a damaging impact on its society, economy and ultimately the very functioning of democracy that policymakers are being compelled to find radical solutions. There is ample historical precedent for the benefit of implementing a progressive taxation system. The 1930s New Deal era of FDR made the United States a stronger democracy and a world-leading economy precisely because of its policy of increasing taxes on corporations and those who could afford it. That era has been largely undone by decades of neoconservative and neoliberal capitalism. But polls show that most American citizens regardless of party affiliation support the imposition of higher taxes on wealth.
There are policy tools available to redress the imbalance such as linking the top tax rate to a minimum wage for low-income workers. This can apply to all nations, not just the United States.
Sam Pizzigati co-edits inequality.org which researches and highlights the growing wealth gap in the United States. The organization is widely respected as non-partisan, and has produced numerous papers and books on the subject which are used as critical resources by civic society and policymakers in the fight against economic inequality. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.
Interview
QUESTION: The recently publicized Pandora Papers on global wealth accumulation in tax havens featured very few U.S. billionaires or politicians. And yet, as you have extensively documented at inequality.org, the U.S. has far more billionaires than any other country. What explains the strange absence of America’s mega-rich in the Pandora Papers?
Sam Pizzigati: We can point to two factors. The first: The nearly 12 million financial documents that make up the Pandora Papers come from 14 financial firms that provide “administrative services” for the accountants and lawyers who help the wealthy hide their wealth. These 14 firms sit in “offshore” locales like Samoa, Cyprus, and Singapore. The U.S. super rich don’t have to go that far afield to get help. They have plenty of “one-stop” support for sidestepping taxes much closer to home.
The second reason so few U.S. billionaires appear in the Pandora Papers: America’s super rich have less of a need to go the illegal tax-evasion route. Our U.S. tax code offers the rich lots of perfectly legal mechanisms for avoiding taxes. And these mechanisms – these loopholes – come on top of a rate structure that demands precious little from extremely rich Americans.
The current top U.S. income tax rate sits at 37 percent. Right now, if you make over $628,000, you pay a 37 percent tax on whatever you make over that. If you make $6.28 million, you still pay at that same 37 percent rate. And if you have income that comes from capital gains – the profits you make wheeling and dealing – you pay taxes on that income at no more than 20 percent.
You put all this together – the low rates and the legal workarounds to these low rates – and you get a stunning result: America’s 25 richest individuals paid taxes at just a 3.4 percent overall rate between 2014 and 2018.
QUESTION: Some observers have concluded that the Pandora Papers have been politicized or are serving a political agenda to smear the Russian and Chinese governments by focusing on businessmen who are said to be “close to” Presidents Putin and Xi – without providing evidence of the alleged closeness. Would you agree that the Pandora Papers appear to have a dubious focus that suggests a politicized agenda?
Sam Pizzigati: Some leakers have noble motives. Some have crass ones. Good investigators – like the reporters the International Consortium of Investigative Journalists lined up for the Pandora Papers project – take that reality into account. They work hard at checking out what they’ve leaked.
I haven’t seen any evidence yet that challenges the accuracy of what the Pandora Papers reveal. Those embarrassed by leaked information will always try to shift attention to the leakers.
QUESTION: U.S. President Joe Biden talks about closing loopholes for tax evasion and making corporate America pay more of its fair share in taxes, but how credible are his stated goals when as a Senator for over 30 years he helped his home state of Delaware become a top tax haven within the United States?
Sam Pizzigati: Those goals have become credible because progressives in the United States have, over the past dozen years, built up a political presence strong enough to shove tax and social justice onto the nation’s political center stage.
Delaware does indeed rank as America’s most corporation-friendly state. It’s held that distinction for over a century now. Joe Biden matured in that milieu. But that milieu, on the national scene, has changed. Progressive grassroots organizing has changed it – by building up in Congress a core of lawmakers too big to ignore.
QUESTION: It seems inescapable to make the conclusion that wealth inequality is growing vastly in the U.S. and across the world. How does the trend compare with previous decades over the last century?
Sam Pizzigati: In the United States, over the last century, we’ve had essentially a little over one generation of growing equality, starting in the mid-1930s. Wealth started concentrating again in the 1970s, and that concentration picked up spectacular speed after Ronald Reagan’s 1980 election. Every decade since then has seen growing inequality.
Just to put some numbers on that: In the 1920s, America’s richest one-tenth of 1 percent held a quarter of the nation’s wealth. That share dropped down – at its lowest point – to near 6 percent before trending back up. And now? Our super rich have regained that quarter share.
QUESTION: With such distorted wealth comes distorted power, so it would seem nonsensical to talk about democracy functioning given the gross inequality?
Sam Pizzigati: You got that right! As the great progressive U.S. Supreme Court Louis Brandeis once put it back in the early 20th century: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
QUESTION: Given the detrimental, destructive impact of inequality on societies, it seems strange that the Western corporate media do not give much coverage to the subject. The recent flurry of coverage on the Pandora Papers is more an exception than the norm. Or maybe that is because such media are part of the problem?
Sam Pizzigati: Back in the 1960s, during the tumult around the Vietnam War, I read something the great social critic Noam Chomsky wrote that has always stuck with me. All the information needed to understand the horror of that war, Chomsky wrote, can be found in the pages of the mainstream corporate media. But you have to dig really deep to find that info.
We have the same situation today. You can find all the information you need to understand the horrible impact economic inequality is having on modern life right within the mainstream corporate media. But you have to dig deep to find it. For the casual media consumer, for people who don’t have the time to do all that digging, the horrors that inequality creates go largely unexamined.
But that situation is evolving. We have more and more alternative outlets to the standard corporate media. We need to keep growing them.
QUESTION: Is there a causal, empirical link between wealth inequality and a propensity for international conflict and war?
Sam Pizzigati: Just look around the world today. The nations that always seem to pop up on various peace-making fronts – the Scandinavian nations, for instance – all have significantly more equal distributions of income and wealth than the international norm.
After World War I, we in the United States had a brief intense focus on the notion of “merchants of death,” the idea that some people are getting rich off of preparing for and fighting wars that leave many people dead. And in the middle of the Cold War, in his farewell address, U.S. President – and former top general – Dwight Eisenhower warned Americans to beware the “military-industrial complex,” that vile combo with a vested economic interest in keeping lasting peace at bay.
Gross economic inequalities create tensions. A world of nations with only modest gaps between rich and poor would be a safer world.
QUESTION: What solutions are there to reverse and decrease inequality in the U.S. and elsewhere? Polls show that most Americans – both Democratic and Republican voters – support the idea of raising taxes on the super wealthy and corporations. Can any of the established U.S. political parties deliver such policies or, again, are they part of the problem?
Sam Pizzigati: Americans definitely do want higher taxes on the rich and the companies they run. Almost 80 percent of Americans, the prestigious Pew Research Center has found, feel that wealthy people aren’t paying their “fair share” of taxes.
During the New Deal years of the 1930-40s under the presidency of Franklin Delano Roosevelt, one of America’s major political parties – the Democrats – did deliver higher taxes on the rich. In 1942, President Roosevelt called for what amounted to a “maximum wage,” a 100 percent tax on income over $25,000 a year, about $400,000 in today’s dollars. FDR didn’t get that 100 percent top rate, but Congress did okay a 94 percent tax on income over $200,000, and the top U.S. tax rate would hover around 90 percent for the next two decades, years that would see the United States give birth to the first mass middle class in world history.
But those stiff tax rates on the rich didn’t survive, mainly, I think, because steeply progressive tax rates, as traditionally structured, have a built-in political asymmetry. The rich facing stiff top tax rates have an intense personal stake in doing everything possible to knock those rates down. But the benefits that average taxpayers see from high tax rates on the rich play out far more subtly.
Incentives matter. Traditionally structured progressive tax rates simply give the rich too much incentive to pound away against those rates politically until they pound them out of existence —and they have plenty of resources to do that pounding.
The alternative to the traditional progressive tax approach? Instead of keying the threshold for steep tax rates at a specific dollar figure at the top, we could link that threshold to incomes at the bottom. We could set a stiff tax rate – at 70 or 80 or even 100 percent – as a multiple of the minimum wage. Any annual income above, say, 50 or 100 times that minimum would trigger the steep rate.
With this tweak in place, a nation’s richest would suddenly have a vested personal interest in the well-being of their nation’s poorest. The higher the minimum wage, the higher their own after-tax income. And average earners would have a much more direct personal stake in the taxes rich people pay. The higher the minimum wage, the greater the economic pressure on employers to raise wages above the minimum.
Progressives in the United States are pushing right now to move things in this direction. One example: The AFL-CIO, America’s labor center, is now backing legislation introduced by Senators Bernie Sanders and Elizabeth Warren that would increase the corporate tax rate on companies that pay their top executives over 50 times what they pay their most typical workers. Last year, 58 U.S. corporations paid their top execs over 1,000 times what their typical workers were making.
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