Our Record Income Inequality Needs Fixing

Financial FAQs

FRED

In an earlier column I imagined what could have been accomplished if the $2 trillion given to corporations in the 2017 Tax Cuts and Jobs Act had been put into upgrading our infrastructure, instead of given to corporations and used to boost their stock prices and executive incomes. We might have avoided what will become another severe, maybe Great Recession lasting years,as I said.

This downturn could be as disastrous for the US economy with upwards of 30 million applicants filing initial unemployment claims, and an unemployment rate that approaches 20 percent, if the $ trillions just raised in support of a revival is not put to better use.

The COVID-19 pandemic offers a once is a lifetime opportunity to make drastic changes in American capitalism that would level the playing field for salaried workers most affected with the loss of jobs. Most of the $$ must be spent in the public sector for infrastructure, education, healthcare, R&D, and environmental protection, it the US is to recover from this any future pandemic.

The decline in public spending encapsulates why America still has record income inequality equaling that of the Great Depression. Most economists agree the starving of government programs that would benefit working folk is a major cause of most recessions, including the Great Depression and Great Recession that must be corrected if there is to be a robust recovery.

And we are dependent on those salaried working folk to generate 70 percent of U.S. economic activity, yet at least 80 percent are earning no more than in the 1970s with inflation factored in.

I say this because we have always been a fragmented country with a weak federal system, a system of red and blue states still fighting over the same issues that prevailed during the civil war, resulting in the least regulated capital and labor markets in the developed world with no universal health care.

The record decline of the American worker’s income and labor organizations that supported it since World War II is a long story, though I will attempt to condense its history without too much simplification.

First a fact. The most recognized measure of income inequality is the Gini inequality coefficient, that calculates the percentage of income earned by different segments of a country’s populace. The U.S. ranks 118^th in the list of 157 countries compiled by the CIA World Factbook, which is below every other developed country in the equal distribution of national income—between Peru and Cameroon.

We know about our record income inequality from countless stories of rising poverty levels, homelessness, and the Occupy Wall Street movement that first focused attention on the extreme wealth of the top one percent of income earners. French economist Thomas Piketty and UC Berkeley economist Emmanuel Saenz were the first to plough through 100 years of tax returns that measured income differences of the wealthy and poor.

The rise in income inequality and poverty levels was also due to the decline in progressive tax rates. The maximum income tax rate topped out at 92 percent during Eisenhower administration, uniting Republicans and Democrats to build our modern post-WWII public infrastructure, before declining to 36 percent today.

After the 1973 Arab oil embargo that boosted oil prices and inflation to unacceptable levels, a new kind of economics was born. Some called it trickle-down economics, others supply-side economics. The idea was to shift most profits to the side of business owners so they would produce more by cutting taxes and regulations.

They used an old French economic theory as the justification for such a shift in economic thinking—Says Law named after an earlier French economist. It said that producers should maximize their profits, and enough would trickle down to the workers that produced their increased profits. Everyone would then be happy, there would be enough to go around, a rising tide would lift all boats, etc., etc.

However, lowered taxes did not raise all boats, but it did create soaring federal debt. And labor had lost its clout as higher-paid manufacturing jobs went overseas, leaving the U.S. with lower-paying, service jobs at warehouses and transportation hubs.

The end result was that most industries were deregulated creating today’s dog-eat-dog capitalism that has starved government of public services and rules that would mitigate the predatory behavior of modern capitalism.

All public sector investment consequently declined—in education, Research and Development (that created the Internet and sent us to the moon), and modern infrastructure that would boost our declining labor productivity.

There is really no other choice but reform of the economic system Americans live with. A country that unites behind the support of its workers by giving them a greater of our national wealth—sich asbetter healthcare, education, while fixing our infrastructure—and raising taxes enough to keep social security and Medicare financially sound—will put US on the road to a better recovery.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Judge Tentatively Denies Dismissal of Trump RICO Charges

Financial FAQs

It looks like Donald A Trump will be on trial under RICO, or The Racketeer Influenced and Corrupt Organizations Act. A federal judge strongly indicated last Friday he would allow a lawsuit to move forward against Republican presidential nominee Donald Trump under RICO by former customers who contend they were defrauded by his defunct real estate program, Trump University, reports Greg Moran, for the San Diego Union-Tribune.

U.S. District Court Judge Gonzalo Curiel issued a tentative oral ruling from the bench at the start of a hearing in San Diego on a motion to dismiss the case by Trump’s lawyers. The ruling came a day after Trump accepted the GOP nomination at the Republican National Convention in Cleveland, said Moran.

RICO is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization, says Wikipedia. The RICO Act focuses specifically on racketeering, and it allows the leaders of a syndicate (such as a corporation) to be tried for the crimes which they ordered others to do or assisted them in doing, closing a perceived loophole that allowed a person who instructed someone else to, for example, murder, to be exempt from the trial because he did not actually commit the crime personally.

Curiel said that plaintiffs had met the legal requirements to move the case forward and have a jury decide it.  Trump “participated in a scheme to defraud” people who signed up for the seminars, some at a cost of about $35,000.

The complaint, filed in 2013 by former customer Art Cohen, is one of two class-action lawsuits that Trump is facing in San Diego over Trump University before the same judge. Trump also faces a lawsuit in New York.

The lawsuits allege that Trump University gave seminars and classes in hotel ballrooms across the country that were like infomercials, constantly pressuring customers to buy more and, in the end, failing to deliver. Cohen went to a three-day seminar in 2009 in Palo Alto, California, for $1,495 and bought into the "Gold Elite" mentorship program for $34,995.

But that may not be the most serious financial crime Trump is guilty of. He won’t release his tax returns, even though he has said he would in the past. And that means he could be hiding a whole lot of sins.

It’s been well-documented that Donald Trump has a history of promising to release his tax returns — and then not doing so. In 2011, when Trump was spearheading the movement questioning whether President Obama was born in the United States, Trump told ABC News that he would release his tax returns if Obama released his long-form birth certificate. “I’d love to give my tax returns,” he said, in the ABC interview.

But once Obama released his birth certificate, Trump hedged. “At the appropriate time I’m going to do it,” he said. The appropriate time never came.

Then, in 2012, Trump criticized Republican presidential nominee Mitt Romney for being slow to release his tax returns. Trump was asked by Fox News whether he’d ever have a problem releasing his returns.

“No,” he said. “I actually think that it’s a great thing when you can show that you’ve been successful, and that you’ve made a lot of money, that you’ve employed a lot of people. I actually think that it’s a positive.” But again, he refused.

This is even though such Republican luminaries as former GOP presidential nominee Mitt Romney has criticized Donald Trump for failing to disclose back taxes, repeatedly suggesting that the billionaire’s financial records may contain “a bombshell” that could damage his White House bid.

“I think we have good reason to believe that there’s a bombshell in Donald Trump’s taxes. I think there is something there,” Romney said on Fox News’ “Your World” with Neil Cavuto. “The reason I think there is a bombshell in there is because every time he is asked about his taxes, he dodges and delays.”

What could he be hiding? The first thing the public would find is Trump's tax rate. The candidate has bragged about paying a very low tax rate and taking advantage of the complex US tax code with its many loopholes. This is what Romney’s tax returns revealed—that he paid a lower tax rate than his secretary.


Then there is the much-publicized claim that he has a net worth of “billions”, even ten billion, he has claimed most recently.  This would be hard to ascertain from tax returns alone, as they report income rather than assets. Tax expert David Cay Johnston has uncovered past audits of Donald Trump from the 1980s and 90s that show no income at all, but lots of undocumented expenses.

In fact, Trump’s taxes may have been fraudulently filed, in some cases.  When shown a photocopy of Trump’s 1984 tax return during an appeal, Jack Mitnick, Trump’s accountant for more than 20 years, testified that “we did not” prepare that return, referring to himself and his firm, and he said did not know who did. However, Mitnick did not dispute that it was his signature on the photocopy.

The original tax return was never found, the judge noted.  “Among the issues raised by Mitnick’s 1992 testimony is whether Trump or someone acting on his behalf substituted a return that he or someone else prepared and then transferred Mitnick’s signature using a photocopier,” said Johnston.

So the fact that Trump is worth "billions" would be hard to ascertain from tax returns alone.  But his repeated promises to release his taxes, and then refusing to do so, should be a red flag to voters. What is he hiding that he is willing to break the precedent of every President since Richard Nixon to release their taxes and that will further damage his reputation for truthfulness?

We should know within days what Judge Curiel’s verdict will be on Trump’s RICO indictment. It doesn’t look good, needless to say, as he could be convicted of a felony, which would be grounds for impeachment should he be elected President.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Did Michael Moore Invade Those Countries In Film, "Where Do We Invade Next?"

The answer is so simple, and sad.  Mr. Moore’s latest eye-opening documentary, “Where To Invade Next?” visits countries that have learned from, and adopted our laws and policies, policies that no longer exist in the U.S. of A.; such as tuition-free public colleges (Slovenia), prison systems that rehabilitate rather than punish (Norway), where drug use is not a crime (Portugal), and 8 weeks paid vacation is the law (Italy).

His film shows America on the way to becoming a Third World country, somewhat lost in the last century and falling behind other developed countries and many developing countries, in caring for our citizens.

Perhaps the most moving segment was that on women’s rights. We who were not able to pass the Equal Rights Amendment that prevented discrimination against women in the 1970s, were imitated in countries like Iceland with the first democratically elected President in 1980, and where women’s rights are enshrined in their constitution (Tunisia, a Muslim country).

For some reason, beginning in the 1970s, these countries began to give more rights to their citizens, while America, the world’s oldest democracy, took them away.  Germany has enshrined collective bargaining in their corporations, where 50 percent of the governing board has to be made up of its employees, whereas many states in the U.S. have either banned collective bargaining, or the paying of dues to support collective bargaining, in 25 right to work states. 

And Icelandic corporations must have at least 40 percent of each gender on their boards, which was made law after 2008 and the collapse of their banking system.  The 3 largest banks all filed for bankruptcy, and some of their all-male executives went to jail, the result of “excessive, testosterone-driven risk taking” said a commentator on their trials.  The result was a mass revolt by Iceland’s women that demanded a greater role in the running of their own country.

Michael Moore interviewed Iceland’s special prosecutor for financial crimes, Olafur Hauksson, who said he had learned his prosecution techniques from Bill Black, a U.S. special prosecutor who had convicted bank executives resulting from our Savings and Loan scandal.  But no U.S. executive has been prosecuted since, much less convicted, for their excessive risk-taking and disregard of financial regulations during the subprime meltdown and Great Recession.

Why have such more modern democracies passed us by?  Moore hints that maybe they have learned from their horrific past of religious and world wars to care better for their citizens.  But the U.S. hasn’t learned from the biggest stain on our democracy—slavery.  We still enslave mostly African Americans in our prisons, thanks to the war on drugs initiated by President Nixon, after President Johnson had signed the Civil Rights Act that finally gave Blacks the same rights as other American citizens.

While crime rates have gone down, the number of people incarcerated has gone up in U.S. prisons. According to Human Rights Watch, 2.3 million people were incarcerated as of 2007. The United States has the largest incarceration rate in the world with a staggering 762 per 100,000 residents. Compare this to the U.K. whose rate is 152 per 100,000 residents, or Canada whose rate is 102.

Graph: Policy.mic

So many prisoners create a large workforce. According to truth-out and the Left Business Observer, “the federal prison industry produces 100 percent of all military helmets, ammunition belts, bullet-proof vests, ID tags, shirts, pants, tents, bags, and canteens. Along with war supplies, prison workers supply 98 percent of the entire market for equipment assembly services; 93 percent of paints and paintbrushes; 92 percent of stove assembly; 46 percent of body armor; 36 percent of home appliances; 30 percent of headphones/microphones/speakers; and 21 percent of office furniture. Airplane parts, medical supplies, and much more: prisoners are even raising seeing-eye dogs for blind people.”

And why do we no longer have tuition-free public colleges?  It perhaps began when Ronald Reagan was elected Governor of California in 1966, UC Berkeley was a hotbed of protests, and tuition-free for California residents. 

Governor Reagan didn’t believe such an education should be free for rebellious college students.  His most famous action of that time was the firing of the UC Berkeley Chancellor Clark Kerr for not following his orders to ban the student protests. Reagan vowed to “clean up that mess in Berkeley,” warned audiences of “sexual orgies so vile that I cannot describe them to you,” complained that outside agitators were bringing left-wing subversion into the university, and railed against spoiled children of privilege skipping their classes to go to protests, according to Dissent Magazine, describing that time.

            “He cut state funding for higher education, laid the foundations for a shift to a tuition-based funding model, and called in the National Guard to crush student protest, which it did with unprecedented severity. But he was only able to do this because he had already successfully shifted the political debate over the meaning and purpose of public higher education in America.”

California was becoming more conservative, in other words.  Instead of seeing the education of the state’s youth as a patriotic duty and a vital weapon in the Cold War, Reagan cast universities as a problem in and of themselves—“both an expensive welfare program and dangerously close to socialism”. He even argued for the importance of tuition-based funding by suggesting that if students had to pay, they’d value their education too much to protest.

Reagan’s assault against higher education was only the beginning of the neo-cons attack on our educational system.  Their real purpose was an attempt to dumb down the electorate by crippling our public school and university systems.  The fewer that were well educated meant the fewer could challenge the power of those that supported the so-called Reagan Revolution.

So there is a reason our educational system ranks lower than 20 or more countries in the world.  M Moore visited Finland to learn why they are ranked #1 in the world, according to the Programme for International Student Assessment (PISA), “a standardized test given to 15-year-olds in more than 40 global venues.”

He interviewed teachers, students, and education officials. They all said their students’ welfare came first, and standardized tests should be abandoned.  They had learned from our educational system that once upon a time allowed more free time for social interaction, little or no homework, when music and art were an important part of our educational curriculum from elementary school onward.

            Perhaps that is the saddest revelation of Michael’s film.  How we have come to undervalue the lives of so many American citizens, including our own women and children.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Does Bernie Love Denmark?

Presidential candidate Bernie Sanders is breathing fire on the campaign trail these days, including his most recent campaign speech that advocated the breakup of too-big-to fail banks.  "We will no longer tolerate an economy and a political system that has been rigged by Wall Street to benefit the wealthiest Americans in this country at the expense of everyone else," said Sanders.

Then why does Senator Bernie Sanders love Denmark, and has been mentioning it and the other Scandinavian countries as ideal models for a developed country, one he would like the U.S. to emulate?

“In Denmark, social policy in areas like health care, child care, education and protecting the unemployed are part of a "solidarity system" that makes sure that almost no one falls into economic despair,” he said in a 2015 Huffington Post article. “Danes pay very high taxes, but in return enjoy a quality of life that many Americans would find hard to believe.”

 A recent Center For Economic Policy and Research report highlighted the differences between Nordic countries and the United States.  The differences are mainly because of their superior social safety nets.

           
For instance, the U.S. has the lowest average longevity at 78.8 years, vs. Denmark’s 80 years, while citizens of Iceland and Sweden live 82 years.  Do their colder climates have something to do with it?  No, more likely is the fact that they have to work fewer hours for almost the same income, with better health, educational and retirement outcomes.

  

It’s well-known that U.S. health care costs are double that of all other developed countries, as are infant mortality rates, while homicide rates are more than double of any other developed country.  We know, for instance, there are more than 32,000 gun deaths per year in the U.S., with the majority due to suicides—which also tells us the mental toll that comes with an inadequate social safety net that doesn’t support its citizens.

So it should be no surprise the U.S. has the highest income developed world, before and after taxes and transfers. The higher the Gini Coefficient number portrayed in the graph, the higher the inequality.  With the exception of the United States, there is a perfect correlation between market inequality and the role of fiscal policy in reducing inequality.

That is to say, western capitalist-oriented economies generate profits that go to the major wealth holders, so fiscal policies need to rebalance this effect.  And that is what the Nordic countries in particular, do so well.  “Countries with greater levels of market income inequality are more proactive at reducing inequality through their tax and spending systems,” says the CEPR.

Then why is there opposition in our Congress, particularly, to U.S. citizens having the same benefits as other developed countries, when we are supposed to be the richest country in the world?  It’s the successful opposition to higher taxes by the wealthiest among US.  The wealthiest have succeeded in reducing their taxes and tax rates since President Reagan, the first ultra-conservative Republican president.

The result is ugly—and shows the U.S. is not the land of opportunity for many Americans.  Instead, we have the result of a largely unregulated financial system--higher death rates, violent crime and incarceration rates, as well as inadequately funded health care, retirement, and educational systems. 

 

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen