As bad as you might think inequality is, the reality is it’s even worse for a very simple reason: Taxes really are only for the little people. By which I mean anyone who doesn’t have a net worth solidly in the nine figures. As the New York Times’s blockbuster report on how President Trump managed to inherit $413 million in inflation-adjusted dollars without paying much in the way of gift or estate taxes shows, the super-rich tend to be even more super and rich than the tax returns that economists use to estimate inequality say they are. That isn’t to say that the uber-wealthy are all bending the law to the point of potentially breaking it, like the Trumps are alleged to have done — disguising gifts as “loans,” inflating invoices to make other gifts look like business income, and assessing properties at wildly different values, sometimes within weeks of each other, to minimize their tax bill — but rather that there are plenty of other more and less legitimate ways for well-heeled individuals and companies to shield their money from Uncle Sam. Like using tax havens.
Now, on the legal end of the spectrum, there’s the way that companies shift their profits to show up in low-tax jurisdictions such as Switzerland or the Cayman Islands. This, according to Berkeley economist Gabriel Zucman and his co-researchers, covers as much as 40 percent of all multinational profits and 50 percent of U.S. ones. To put that in perspective, U.S. companies report more profits in Ireland, the top tax-avoidance destination in the world, than they do in China, Japan, Germany, France and Mexico combined. All of this can be inferred from the fact that foreign firms tend — on paper — to be much more profitable than local ones within these tax havens. Not to mention that multinationals book five times as many profits in their haven subsidiaries as they do in their non-haven ones. This, as you might expect, increases inequality, but it doesn’t do it in a way that escapes the eyes of the authorities. Whenever these “overseas” profits are paid out to investors — a bit of a misnomer, because a lot of that money is often invested in things such as U.S. Treasury and corporate bonds despite being listed in other countries for accounting purposes — they still have to pay taxes on it here, so we can keep track of how much they have. That isn’t the case, though, when it comes to the less scrupulous use of these havens: the outright evading of taxes. The problem is that, by its very nature, this isn’t the kind of thing we can begin to quantify. People, after all, don’t exactly fill out forms telling us how much of their taxes they’re notpaying. But it turns out that we don’t need them to. That’s because the Bank for International Settlements has begun publishing statistics on the banking relationships between different countries that allow us to stitch together a picture of how much wealth is being held offshore. And it’s a lot. Zucman and his team estimate that around 10 percent of global GDP is being held inside all the different tax havens.
This experience points to an enduring scandal that goes well beyond the Trumps. “The key takeaway from the New York Times article . . . is that the wealthy and powerful abide by a different set of rules than the rest of us,” Alan Essig, the executive director of the Institute on Taxation and Economic Policy, a nonpartisan research group, said in a statement. “Not only does the tax system allow the wealthy to take advantage of legal loopholes, it also allows them to blur the line between legal avoidance and illegal tax evasion with little consequence. . . . We need to reform the tax system to close the loopholes the wealthy use to avoid taxes and substantially increase funding to the IRS to ensure that the laws we do have are robustly enforced.” But, of course, the Trump Administration and the Republican Party are busy ignoring this advice. The G.O.P. tax-reform bill that passed at the end of last year did virtually nothing to prevent rich people from evading the estate tax and other levies. In reaction to budget cuts imposed by the Republican-controlled Congress, the I.R.S. has slashed its enforcement staff by about a third and reduced the number of cases it brings by about a quarter. “Due to budget cuts, attrition and a shift in focus, there’s been a collapse in the commitment to take on tax fraud,” Chuck Pine, a tax consultant who was formerly a senior criminal-enforcement officer at the I.R.S., told ProPublica. “I believe there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.” They are following the example set at the top.
What do Trumpeters think of this great businessman now?
In the United States, back during the Great Depression, three simple words animated a grassroots upsurge that would help make this nation the world’s first mass middle-class society: Share the wealth! And the nation did. By the end of the 1960s, the top one percent’s share of America’s national income had dropped by more than half. The bottom 90 percent share, meanwhile, had jumped from half the nation’s total income to over two-thirds. Redistribution — via the tax code — drove this dramatic egalitarian shift, as high incomes faced high tax rates throughout the middle decades of the 20th century. But these high tax rates, levies that topped 90 percent on income over $200,000, would have no staying power. The relentless assaults of America’s wealthiest would over time grind them down. Egalitarians in other developed nations saw the same dynamic. They could not sustain steeply progressive tax rates. Redistribution via the tax code, progressives worldwide began to understand, would not be enough. We can’t tax away inequality. We have to prevent inequality from taking hold in the first place. We have to brake the economic forces making the rich ever richer.
Foremost among the forces: the large corporations that dominate our global economy. These corporate giants create grand fortunes for those who run them. And those who run them create chronic economic insecurity for those they employ and the communities where they live. Corporations have, in effect, become inequality’s single most powerful engine. We need to slow that engine down. But how? Our mainstream political discourse — on both sides of the Atlantic — brushes off questions like this. But progressives are beginning to rile that mainstream. They’re generating bold and politically plausible approaches for confronting corporate power and privilege. Last week, for instance, the British Labour Party unveiled a new proposal designed to help make good on the party’s century-old pledge to secure for workers “the full fruits of their industry.” This new Labour plan would require all companies with over 250 employees to shift one percent of their stock every year into a “inclusive ownership fund” that would belong to the firm’s employees as a group.
These stock transfers would continue until each company’s employees own ten percent of their company’s shares. In many firms, that would make workers the single largest shareholder. These workers would have the same voting rights in corporate decisions as other shareholders. These workers would also individually receive a dividend from their shareholdings, up to £500, about $650, a year. Dividends owed to the worker shares above that £500 cap, notes the Labour Party’s John McDonnell, would be “transferred back to our public services as a social dividend.” “We all know it’s not just the employees of a company that create the profits it generates,” McDonnell explained last week at the annual Labour Party conference. “It’s the collective investment in infrastructure, education, and research and development that we as a society make that enables entrepreneurs to build and grow their businesses.”
In Britain, as in the United States, workers’ share of national income has been shrinking over the past four decades. In fact, if British worker wages today reflected the rising productivity of their labor, average British workers would be 20 percent better off today. They could be enjoying, points out analyst Aditya Chakrabortty, “three-day weekends all year long and still get paid the same.” Why are British worker wages — and worker wages in the United States — not rising as fast as productivity? Corporate executives have a vested personal interest in keeping worker wages low. The fatter their corporate bottom line, the higher their personal compensation. Any serious move to slow inequality’s corporate engine needs to curb that incentive for squeezing workers, and the UK Labour Party understands this imperative to clamp down on executive pay excess. Labour leaders last year proposed legislation that would deny government contracts to corporations that pay that top executives over 20 times what they pay their average workers. Major corporations in the UK last year paid their top execs 145 times average worker earnings. In the United States, at least 21 major corporations last year paid their top executives over 1,000 times the pay of their most typical workers.
The big uncertainty relates to wage growth and labor-force participation. By beneficially impacting the demand and supply sides of the economy — both on a standalone basis and through their interaction — they influence actual and potential economic performance. They also impact monetary policy, including the degree of risk for a policy mistake down the road. Economists’ forecasts for these metrics have tended to be more often wrong than right for quite a while. Yet two statements can be made with a relatively highly level of conviction.If not this month, then almost certainly in the ones that follow, wage growth will go above 3 percent. This would be consistent with a host of other macro indicators, as well as partial micro data (such as Amazon’s decision this week to increase its minimum wage to $15 an hour). Accelerated wages would be part of a broader set of forces pushing inflation up, though that wouldn’t have a dramatic effect for the economy or the Federal Reserve.The prospects for labor-force participation will remain uncertain. Due to accelerating technological changes that alter not just what we do but also how we do it — developments in machine learning, mobility and big data, for example — there is an unusual degree of fluidity in the way the economy functions. This has changed, and will continue to change, the labor intensity of economic cycles. It also amplifies the economic and social costs associated with persistent skill mismatches, lagging educational reform, and the still too-slow spread within the corporate sector of labor tooling and retooling program programs (including through wider use of apprenticeships). The September jobs report will likely reinforce the notion of a strong U.S. economy that, rather than converge down to the slowing trend experienced by other advanced countries and several emerging ones, is pulling further ahead. It may also suggest that growth is getting somewhat more inclusive as wages increase faster. It will not answer the deeper structural and socially important question of how to reincorporate those who are marginalized and alienated into the productive and expanding economy.
President Donald Trump announced his new North American trade deal with much fanfare. It was, he said, “the most important trade deal we’ve ever made — by far!” And it would replace what he described as “the worst trade deal ever … the job-killing disaster known as NAFTA.” What a Trumpian moment this was. The deal to succeed the North American Free Trade Agreement, and all the pomp and circumstance surrounding the announcement, was Trump in microcosm. Trump has spent much of his presidency breaking things, both to garner the attention he craves and to make the point that the previous presidents and congresses who made these laws, policies and agreements lacked his brilliance. In some cases, his plan has been to leave the detritus strewn about the playroom floor like Lego blocks and dismembered GI Joe parts. With North American trade, his plan is to reassemble the parts in more or less the same order and claim he has created something new and marvelous.
Some observers will find NAFTA 2.0 — which Trump has rebranded USMCA, for the United States-Mexico-Canada Agreement — modestly better than NAFTA. Others will find it modestly worse. We find ourselves in the modestly worse camp. This deal’s big “win” for the United States is an agreement by Canada to remove some protections for its domestic dairy industry. This might mean a lot to American dairy farmers, but not so much for the remaining 99.9% of the country. What’s more, Canada had already agreed to similar language with other countries in Asia and the Americas as part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. For all the hoopla surrounding Monday’s announcement, Trump was quick to downplay its chances in Congress, which must approve the deal for it to take effect. Democrats, who have largely been quiet, will ultimately line up against the measure, he argued. And many Republicans will wonder why they should support domestic-content regulations that are stricter than those they didn’t like in the first place. That leads to the question of why the president would invest so much time and effort on a NAFTA tweak that might not even be approved. The best answer seems to be that Trump wants something new to put his name on.
The Labor Department’s data showed U.S. wages barely budged more than a year into Donald Trump’s presidency, but Kevin Hassett had a ready response. Alternative statistics. Hassett, chairman of the White House Council of Economic Advisers, came to a press briefing on Sept. 10 boasting that Trump’s policies had fueled “massive” wage growth and dismissing the government data showing otherwise as “not a very reasonable statistic.” The CEA — a Senate-confirmed three-member council of economists established by law to advise the president on policy — often highlights economic data that bolster the case for the administration’s policies. But Trump’s CEA has increasingly taken aim at official statistics that don’t back up the president’s claims of an economic surge of historic proportions.
Hassett, a sunny economist with an easy smile, is becoming the point-man in the White House’s campaign to show a pivot in the economy under Trump from its performance during President Barack Obama’s administration — an effort that has come under scrutiny for unconventional interpretations of economic data, occasionally erroneous claims and hyperbole. Hassett takes on the mission with a record of sometimes overenthusiastic optimism. The CEA report on wages Hassett highlighted at the press briefing expressed “concerns about traditional wage measures’’ from the federal government. It asserted that real wages were actually up 1.4 percent over the last year; the Labor Department’s main measure of after-inflation wages, real average hourly earnings, was down 0.1 percent in July versus a year earlier. The CEA released a series of charts during Hassett’s briefing aimed at showing an economic resurgence after Trump’s election, using unusual 18-month increments in some cases. “The chart is bad and dumb because the peg to the election, the 6-quarter moving average, and the linear trend don’t seem like they were chosen to help people understand the underlying economic activity,” Kevin Rinz, a former CEA economist during the Obama White House who now works at the Census Bureau, tweeted last month about one of the charts.
During the Sept. 10 White House briefing, Hassett also claimed that last year’s corporate tax cut had already “about paid for itself” and asserted that the U.S. was seeing “a massive amount of wage growth right now” compared to earlier projections. Both claims stirred a public backlash from economists, including some who support Trump. Stephen Moore, an economist at the conservative Heritage Foundation who advised Trump’s campaign, called Hassett’s tax-cut claim “a little premature, because we don’t know how long this boom will last.” Kyle Pomerleau, an economist at the conservative Tax Foundation, and Peter Morici, a conservative economist at the University of Maryland, also said Hassett’s claim went too far. The CEA representative said Hassett was using updated gross domestic product figures from the Congressional Budget Office to show that government revenues were likely to increase by $1 trillion over the next decade over previous estimates — a number that the White House attributes to the corporate tax cuts. That economic growth and new revenue will cover the cost of the corporate tax cut, the representative said. CBO Director Keith Hall has said that he stands by his earlier estimates, which forecast the tax bill would not pay for itself and would add more than $1.8 trillion to the deficit through 2028. “So far, I’m not sure we’ve changed much at all,” Hall told the Senate Budget Committee last month. “In fact, our forecast for the deficit this year is pretty much on target.”
Hassett’s claims on wages also received pushback. His report on wages came less than a month after the Labor Department reported the July drop in inflation-adjusted wages from a year earlier, the worst reading since 2012. Real hourly wages have grown at an average 0.3 percent annual pace under Trump overall, down from 1.1 percent during Obama’s second term. To reach its own figure for wages, CEA included non-cash benefits such as paid leave and added the impact of tax cuts. It also used an alternative, lower measure for inflation and an adjustment for newer workers. Taken together, the changes produced better wage figures for Trump. But even the customized data showed no major jump in wages since Trump took office because it also raised earnings under Obama. Last year, Hassett predicted Trump’s tax cuts would spark an “an immediate jump in wage growth.” Erroneous data from Trump’s White House has undermined CEA’s credibility in the eyes of some economists. In August, White House Press Secretary Sarah Huckabee Sanders said that Trump had tripled Obama’s eight-year job creation record for black workers in just 18 months, quoting numbers that were not accurate. She later issued a correction. Hassett claimed responsibility for the flawed figures during the Sept. 10 briefing. “I gave Sarah a bad number,” he said. “It was 100 percent my fault.”
MB: It makes me realize how much of American politics is tribal and how little of it has to do with principles or ideas. The reason why so many people are Republicans is because they hate Democrats; the actual substance of what Republicans stand for almost doesn’t matter. And that’s been a shocking realization. I reregistered as an independent the day after the election and no longer think of myself as a member of that community. On a personal level, it’s been a difficult experience because much of my identity was tied up in the conservative movement. And it’s hard for me to talk to a lot of my friends—the gap between us is so wide. But I’ve also realized the extent to which I had tailored my public statements to what the movement would find acceptable. I didn’t say anything I didn’t believe in, but there was a lot of stuff that I just didn’t comment on. I think it’s crazy that Republicans are opposed to all gun control when we have such a rampant problem with gun violence. But I just never tackled it. Or when Republicans deny climate change, which is a scientific fact, I didn’t deal with it. I just stayed in my lane, foreign policy and national security policy, and ignored the craziness all around me. I went with the tribe. I took the path of least resistance, and now it’s making me realize, no, I’ve got to think for myself, and that’s something very few people do, because being part of one of these political tribes, as much as anything, is a substitute for thought. So it’s been both chastening and liberating to escape from that stifling orthodoxy.DC: In the book, you write, “Only if the GOP as currently constituted is burned to the ground will there be any chance to build a reasonable center-right political party out of the ashes.” So your position now, Max, is burn, baby, burn. It sounds like the old Marxists.
MB: I respect some of my friends trying to work on reforming the Republican Party, but at least for the time being, I think it’s a lost cause. So my hope is that the Republican Party will suffer massive and repeated drubbings at the ballot box. That’s why I urge everybody to vote straight-ticket Democratic even though I have a lot of disagreements with Democrats. I’m not a Democrat; I’m an independent. But for the health of our republic, I think we need to destroy the Republican Party. We need congressional oversight of Donald Trump, which you’re never going to get out of Republicans. I think you need to punish the Republicans for taking these appalling positions, abusing minorities, championing white nationalism, isolationism, protectionism. The only way to wean them from that is to punish them electorally.
DC: As a man without party, a man without ideology, with maybe fewer friends than you used to have, are you feeling hopeful or more in a despairing sort of mindset?
MB: I am a lot less optimistic or, if you like, Pollyannaish about the future of America than I used to be. I was this immigrant kid who came here in 1976 from the Soviet Union, and I’ve always believed in America and the goodness and greatness of America, and that’s really been my greatest faith. And that faith has been battered. This is a country that could elect Donald Trump. People like me kind of arrogantly assumed it can’t happen here, that there’s something in the water in America that renders us immune from this kind of threat to our democracy. And lo and behold, we’re not immune. We could easily go the way of countries that are backsliding from their democracy. I don’t think that’s inevitable, and I think the checks and balances in our system are stronger than in other countries. I’ve been cheered to see the way the press has taken on Trump. I’ve been cheered to see what the Democrats have done even as a minority in Congress, and the courts, and also the federal bureaucracy—even some of Trump’s own appointees. If Trump could get away with it, I’m sure he would love to emulate Putin and impose a dictatorship of his own. But, mercifully, we’ve had over 200 years of democratic tradition, and we do have pretty strong institutions. But we’re not as different from the rest of the world as I had previously thought, and so I’m no longer as optimistic about America. And I am pretty pessimistic about the survival of the American-led world order that we created in 1945. I mean, if you’re an American ally, why would you ever trust America again?
DC: I suppose all our moods will be severely impacted by what happens on Election Day.
MB: Absolutely. If Republicans hold on to the House and Senate, Donald Trump will see that as a green light to do the worst. Within a couple of days, he’s going to fire Sessions, Rosenstein, Mueller. He’s going to pardon Manafort and everybody else. It’s going to be a catastrophe without precedent for American democracy. He may still do that even if Democrats win, but if Democrats can take control of at least one house, there’s going to be some pushback, there’s going to be some subpoenas, there’s going to be some investigation, and basically the American people will be sending a cry and saying, “No, we will not put up with this. We will not allow you to undermine and even destroy our democracy. We’re going to stand up for the principles of 1776.” Every election people say there’s a lot at stake, but this time I really think that’s true.
Recent Comments