Classy Warfare: What Wall St. Won, Why Main Street Reacts

The former CEO of Bain Capital Management thinks Occupy Wall Street is “Class warfare.” [NatlJourn] “I think it’s dangerous, this class warfare,” Romney said to an audience of about 50 people in response to a question about the protests over such issues as high unemployment, home foreclosures and the 2008 corporate bailouts.”

So, if we question why there has been no Jobs bill coming from House Republicans, no support for the President’s Jobs bill from Republican Congressional leadership, no enthusiasm from the GOP for regulating the Wall Street Casino that created the Housing Bubble — and then left the American taxpayer to clean up the mess — no demand that after the Wall Street money machine sucked out the equity in the housing market homeowners might be able to renegotiate principle, no support for requiring Wall Street investment and banking institutions be more consumer (and taxpayer) friendly after they were bailed out with taxpayer dollars…. that’s “Class Warfare?”

If this be class warfare, the Wall Street protesters are late to the game.  The top half of the top 1% of American income earners and their allies in the financial sector have been attacking the American Middle Class for three decades — and winning.

What have they won?

They’ve won a 13.4% decrease in their effective tax rate.  “The top 400 households paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995. This decline works out to a tax cut of $46 million per filer in 2007, or a total of $18 billion in tax cuts for these households per year.” [CBPP]  Here’s what that looks like in graph form:

They’ve won tax deductions for  personal yachts.   Since the Bush Tax Cuts of 2003 yacht owners have been able to avail themselves of tax deductions:

“Some ultra-rich yacht buyers are expecting to deduct millions from their income tax next year by depreciating their pleasure craft under the provisions of the Bush administration’s tax-relief program passed by Congress in 2003. About 500,000 boat owners nationwide can decrease their income-tax bill every year by declaring their vessels a second home. Some others collect healthy deductions from putting their boats into charter arrangements that may skirt the provisions of the tax code. And some corporations take deductions on yachts that seem to stretch the definition of a business resource.” [SeattlePI]

Yes, believe it or not, Uncle Sam subsidizes the purchase of sprawling, luxurious, 72-foot Viking yachts,” Senator Charles E. Schumer, Democrat of New York, said on the Senate floor in arguing to close what he sees as tax loopholes for jet and yacht owners. “As long as your yacht has a place to sleep and a place to — how shall I put it — relieve yourself, you can classify it as your ‘second home’ and claim the mortgage interest deduction.”  [NYT]

They’ve won tax deductions for multiple homes.  “The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes.” [IRS 936]

They’ve won special deductions for depreciation of private jets.  “Under the tax law that Congress passed in December 2010, companies purchasing new equipment — including jets — can deduct the entire cost of equipment purchases in the first year instead of taking depreciation deductions over time.” [Blmbrg]

They’ve won reductions in capital gains taxation.  Most of the benefits of these reductions have accrued to the top of the pyramid: “Almost two-thirds of total capital gains reported on individual tax returns go to people whose incomes exceed $200,000. In contrast, only 7.8% of the total gains are reported by the three-quarters of tax filers with incomes of $50,000 or less. Thus, more than any other type of income, capital gains are concentrated at the very top of the income scale.” [CTJ] (emphasis added)

Little wonder investor Warren Buffett can speak to the inequity in the taxation system because:

“Capital gains are not taxed until assets are actually sold. As a result, investors can put off tax on their gains indefinitely. (They can also avoid tax on realized gains by selectively realizing losses on other investments in the same year.) This deferral is unavailable, of course, to other kinds of income such as savings account interest, even if the money is left in the bank. Multi billionaire Warren Buffett, for example, has structured his investment company so that it hasn’t paid a dividend since 1966. Instead, Buffett’s $14 billion or so in accrued capital gains remain unrealized and thus untaxed.”  [CTJ]

They’ve won reductions in estate taxes.  The perpetual Republican whine says that estate taxes “hurt farmers and small business owners.”  That’s pure balderdash.  Closer to the truth:

“We estimate that under the Obama proposal, 100 family farms and businesses would owe tax.  (We define such estates as those where farm or business assets are valued at under $5 million and comprise the majority of estate assets.)  The Lincoln-Kyl proposal would cut the number to 40.  Even under current law, fewer than 2,700 family farms and businesses would owe tax.”  [TaxPolicyCenter]

What does this look like in pie graph form?

Republicans get irritated when progressives refer to the Estate Tax reductions as The Paris Hilton Legacy Protection Acts — but, that’s what those reductions and calls for elimination would do — protect the wealth of a very few very wealthy people.

It’s important to remember that the vast majority of the people who benefit from these tax loopholes, deductions, and benefits get their income from the financial sector.

Who are these people?

A financial manager explained:

“Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.”

Who picked up the slack?

While the top 1/2 of the top 1% were creatively reducing their tax liabilities, who was paying to make up the difference?  Quick Answer = The American Middle Class.

2001-2004: “Since 2001, President Bush’s tax cuts have shifted federal tax payments from the richest Americans to a wide swath of middle-class families, the Congressional Budget Office has found, a conclusion likely to roil the presidential election campaign.”

“The CBO study, due to be released today, found that the wealthiest 20 percent, whose incomes averaged $182,700 in 2001, saw their share of federal taxes drop from 64.4 percent of total tax payments in 2001 to 63.5 percent this year. The top 1 percent, earning $1.1 million, saw their share fall to 20.1 percent of the total, from 22.2 percent.”  [WaPo 2004]

2008-2009: “People in the top 20 percent of incomes, averaging $182,700 a year, saw their share of federal taxes decline from 65.3 percent of total payments in 2001 to 63.5 percent this year, according to the study by congressional budget analysts.

In contrast, middle-class taxpayers — with incomes ranging from $51,500 to $75,600 — bear a greater tax burden. Those making an average of $75,600 had the biggest jump in their share of taxes, from 18.5 percent of all payments in 2001 to 19.5 percent this year.”  [CBS 2009]

This handy graphic illustrates the shift from the top 400 to the rest of the U.S. taxpaying population:


Is it “class warfare” for middle income Americans to question the decision of banks who accepted TARP funds to stabilize their liquidity, made record profits in 2010, and then decided to offset the statutory reduction in “swipe fees” by gouging customers who use their debit cards?

Is it “class warfare” for middle income Americans to question tax havens, tax loopholes, tax subsidies, and tax breaks for multinational corporations after those middle income Americans have been picking up the slack in government revenues?

Is it “class warfare” for middle income Americans to suggest that bank holding companies offer more generous terms for homeowners such that fewer homes would be in foreclosure?  Especially since it was those very institutions who were only too happy to generate all the mortgages the investment houses could ask for in order to slice and dice the loans into “creative financial products,” and when the bubble inflated by these very “creative financial products” burst — the banks bought out the investment houses, turned themselves into bank holding companies, and reaped the profits in 2010? [Blmbrg]

Is it “class warfare” to contend that the American consumer and taxpayer should have some protection from the Wall Street investment houses who found it ever so much more profitable to inflate bubbles than to invest in long term capitalization of American businesses?

Is it “class warfare” to assert that American middle income consumers be protected from outrageous fees, questionably ethical pay day lenders, and other forms of predatory lending?

If Occupy Wall Street is class warfare — it’s only because middle income Americans have finally decided to fight back.

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Filed under 2012 election, corporate taxes, Economy, financial regulation, Foreclosures

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