Tag Archives: 1%

How Stupid Do They Think We Are?

I really wasn’t going to write any more about the GOP tax plan, at least until we’ve seen whether it is likely to pass in anything like its current form. But I was on the treadmill yesterday morning and, as usual, was watching television to take my mind off the fact that I was exercising. I was absolutely astonished to see a political advertisement touting the tax plan’s benefits to “ordinary middle-class Americans,” who would see an “average” tax saving of over 1,100.

The voice-over went on to reassure listeners about the fairness of the measure, asserting that the tax brackets for the rich weren’t being lowered, and implying–without actually saying it– that the tax liability of the top 1% would not decrease.

The blatant dishonesty of this ad appalled me.

Let’s just examine that bit about the “average middle-class taxpayer.” (Ignore, for the moment, the fact that Congressional Republicans at one point defined an annual income of 450,000 as “middle class”–I don’t know whether the criticism that little item generated has caused them to back off that particular bit of nonsense.) Let’s just talk about averages.

What’s the average of a mouse and an elephant?

More to the point, if my income is “averaged” with the income of Bill Gates, the resulting number is going to be pretty misleading about both of us.

Every analysis I have seen–even those produced by right-leaning think tanks–shows wealthy individuals getting the lion’s share of the tax “relief” under both the House and Senate  versions. According to Politifact,

  • The highest-income 0.1 percent of taxpayers — those who had an income of over $3.7 million in 2015 — would get an average tax cut of more than $1.3 million in 2017.
  • That same group would receive 18 percent of the tax reduction, while the bottom 60 percent of taxpayers would receive 16.4 percent of the reduction.

Credible sources analyzing the plan’s consequences quibble on some of the details, but all of them agree on two points: the cuts disproportionately benefit the rich, and they will add somewhere between 1.5 and 1.7 trillion dollars to the current deficit.

A deficit of that magnitude would be unsustainable, and the result would be savage cuts in social welfare programs like Social Security, Medicare and Medicaid. (Those cuts, of course, would come later–In the time-honored practice of politicians everywhere, the bill pushes the most noticeable negative consequences to a future election cycle.)

I was flabbergasted at the out-and-out dishonesty of the television spot. I’ve seen plenty of spin, but this went far beyond that–it took flat-out lying to an entirely new level. The extra adrenaline probably improved my workout, but all I could think of was “how stupid do the people who created this ad think Americans are?”

And then all I could think about was, what if they’re right?

Rent Seeking 101

In our highly polarized political environment, we sometimes overlook areas of agreement between otherwise warring portions of the political spectrum. A recent post at Political Animal pointed to one such area between libertarians and liberals: opposition to “rent seeking” aka “corporate welfare.”

Those of us who genuinely value markets and market economies understand that much of what passes for capitalism these days is anything but, and that the influence of the “haves” is routinely used to ensure that they “have” even more. Libertarians protective of true capitalism and market economics see this state of affairs as undermining the integrity of the economic system; liberals note that it exacerbates the widening gap between the 1% and everyone else.

They are both right. Per a lengthy paper by John Teles of Johns Hopkins, a few examples:

Car dealers, for instance, have a sizable presence in the top 1% of earners, have a major lobbying presence in almost every state capital, and have made contributions to almost every member of Congress. That should not be surprising, because regulations (again, often at the state level) protect car dealerships from competition by limiting direct sales, restricting the termination of franchises, limiting the entry of new dealers, and preventing manufacturers from offering preferential pricing to larger franchisees. Together, these rules, economists Francine Lafontaine and Fiona Scott Morton found in a 2010 study, “almost guarantee dealership profitability and survival,” while simultaneously driving up costs to consumers…..

A concentration of high incomes also characterizes the field of government contractors, such as private-prison managers, defense contractors, and for-profit colleges. All these industries are characterized by dependence on government as a nearly exclusive source of revenue, by extraordinary levels of lobbying, and by asymmetries of power between firms and their government counterparts.

Or consider the field of management consulting, which attracts an extraordinary percentage of Ivy League college graduates. As Christopher McKenna shows in his book, The World’s Newest Profession, the outsized incomes of consultants do not come from their ability to recommend innovative practices to firms. Instead, they come from the rent they extract from performing a legally mandated due-diligence ritual for firms or from performing tasks that could otherwise be done at lower cost by public employees. These are not, in short, meaningfully “private” firms at all, despite their high profitability.

You should really read the whole thing….

There is a compelling case to be made for properly operating market economies—“properly operating” meaning markets operating in economic areas where buyers and sellers have equal access to relevant information (a characteristic that would exclude health care and other goods and services involving inescapable asymmetries of information), and where the sorts of creativity, hard work and entrepreneurial prowess that improve life for everyone are incentivized and rewarded.

There is no case—compelling or otherwise—to be made for the rent-seeking that characterizes American economic activity in the 21st Century.

Two Wrongs, Eroding Rights

January 21st was the 2-year anniversary of the Supreme Court’s decision in Citizens United. 

The anniversary was marked with a number of protests, and an even larger number of news articles and blog posts documenting the dramatic growth of political “Super Pacs” and other unaccountable third-party political actors in the wake of that decision.  We have seen an almost unimaginable amount of money being spent to influence–okay, buy–elections.

As a guest blogger for the American Constitution Society recently wrote,  “people are expressing outrage about the corrosive effect of big money in politics, particularly in the wake of the Supreme Court’s ruling in Citizens United v. FEC.

This outrage is well founded –  in a report Public Citizen published one year after the Court’s disastrous decision – we found that spending by outside groups jumped to nearly $300 million in the 2010 election cycle, from just $68.9 million in 2006.  The donors for nearly half of this independent money spent remain undisclosed. And, that’s just a taste of what’s to come.  The influx of independent expenditures in allowed by Citizens United will bump up election campaign spending to record levels in 2012; by some accounts to as much as $8 billion, dwarfing previous records.

We want to get big money out of politics, but do that, you have to engage the very system that is weakened and undermined by that money. The deck seems stacked.  How does an ordinary person find a way to make that change happen?”

The entire post is worth reading, and the author concludes–as have many others–that we need a constitutional amendment that would overturn the decision and confirm that corporations are not people.

I agree that such an amendment is warranted, if incredibly difficult to pass. But as a retired Judge told me several months ago when we were discussing the case, the real travesty was the earlier decision in Buckley v. Valeo, in which the Court equated money with speech. That was the decision that made Citizens United possible.

We all know that wealthier people have more clout in every society; they always have and probably always will. Wealth buys privileges–it allows people to get better educations, join organizations that are influential, have more leisure, hire lobbyists, and access a wide variety of other social “megaphones” that allow them to influence others. That’s just reality–an inescapable consequence of free speech in a market economy, and in my view, an acceptable if regrettable trade-off.

But Buckley and Citizens United  vastly increase the power of the rich at the expense of everyone else. Rather than helping to level the playing field by upholding laws that would have moderated political advantage, those decisions dramatically increased the disparity.

If money is speech, and corporations are people, the 1% will always own the political process.