Category: Tax Policy

Another Reason Why People Think The Economy Sucks

The Daily Escape:

Sunrise, Camden Harbor, Camden, ME – January 2024 photo by Daniel F. Dishner Photography

The Economic Policy Institute (EPI) has crunched the latest Social Security Administration (SSA) wage data. It shows the average American workers haven’t made much money since the 1970s:

“The latest SSA data demonstrates how vastly unequal earnings growth has been between 1979 and 2022. Over that period, inflation-adjusted annual earnings for the top 1% and top 0.1% skyrocketed by 171.7% and 344.4%, respectively, while earnings for the bottom 90% grew just 32.9%.”

That’s 33% over 43 years, less than 1% per year. The largest share of total earnings in the US economy have accumulated at the top of the wage ladder. The EPI is describing  “labor market earnings”, the pay (including benefits) of the 80% of workers who are not managers or supervisors at work. For decades before 1980, these workers’ hourly pay largely tracked economy-wide productivity growth.

When productivity growth slowed significantly, hourly pay growth collapsed even faster, leading to a growing gap between these typical workers’ pay and overall growth. That difference in missing pay for typical workers went to workers at the top or to business owners.

The EPI study shows that if you’re in the bottom 90% of wage earners, you’ve seen annual wage growth of less than 1% per year over the past 43 years. If you’re in the “upper middle class” things were very different. Here’s a chart from EPI:

Average wages in the 95th to 99th percentile have almost doubled, from $120K to $234K (all figures are in 2022 dollars). But this leaves out the real winners, the top 1%. Average wages for them went from $289K in 1979 to $786K in 2022. But even this huge growth is eclipsed by the wages of the top .1%, which increased an astounding 344%, going from $634K to $2.82 million.

Note that the data are for average annual wages which for the bottom 90% were $40,845 in 2022. Data on average wages are all that’s available, but it’s misleading. The MEDIAN wage for all workers is around $34k. That means half the bottom 90% are making LESS than 34k. Also, median household income is around $76k; which is two people working in the same household.

The media and the rest of us really have no idea how little the average person is earning.

And this is just income from wages. People at or near the top of the pyramid own the vast majority of the equity capital in the US — the top 10% of households own 85% of the total corporate stock owned by households.

The economic debate in America since the 1880s has been between those in favor of lightly regulated heavily financialized consumer capitalism, with some very modest income redistribution, sufficient — barely — to keep the losers in that economy from starving or freezing to death.

The other side are the Republicans who think England in the Industrial Revolution, is a model for what America ought to look like today. And Chase’s CEO Jamie Dimon says we should listen to Republicans more. He’s specifically talking about NATO and immigration.

And this has been the GOP’s pitch forever:

Democrats need to address the negative impacts of US wage distribution as part of their 2024 pitch to keep the presidency, and return to controlling the House and Senate in November.

The Fields of Wrong are covered in snow, mostly due to temperatures being below freezing for the past several days. We had a tree fall into the road during the big windstorm last Sunday. Now it sits, snow-covered, on our property waiting for our next chain sawing event.

It’s Saturday, and professional football will be all over the television for the rest of the weekend. Good luck to those of you who follow one of the remaining eight teams. It’s time for our Saturday Soother, where we  try to forget about the Red Sea, the New Hampshire primaries and funding the government, and instead try to calm ourselves for a few moments. Hopefully we’ll be in better shape to launch into the roller coaster ride of next week’s horrors.

Take a few minutes and grab a chair by a window. Now, watch and listen as John Williams is persuaded to conduct the National Symphony Orchestra in a performance of his “Imperial March” from Star Wars during a gala to celebrate his 90th Birthday.

There are many seriously talented people on the stage, including track star Florence Joyner, cellist Yo-Yo Ma, Steven Spielberg, violinist Anne-Sophie Mutter, and Star Wars actor, Daisy Ridley. Williams is 91, still going strong, and an example to those who think young Biden is too old to run again. Bravo, Maestro:

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Why People Say The Economy Is Terrible

The Daily Escape:

First snow, Doubling Point Lighthouse, Kennebec River, ME – December 2023 photo by Rick Berk Photography

Wrongo may have stumbled upon the reason why people say the economy is bad when so many economists say it isn’t. From a LendingClub report from last May: (emphasis by Wrongo)

“For some Americans, earning a six-figure income doesn’t guarantee a comfortable lifestyle….many Americans are struggling to make ends meet — with 61% of those surveyed saying they feel stretched too thin, and 49% of those earning $100,000 or more saying they’re living paycheck to paycheck.”

This ties together with other information, some of which comes from the issue, who reported this from the Aspen Institute: (emphasis by Wrongo)

“Though routinely positive cash flow is the starting point for financial stability, it remains largely out of reach for many Americans. Even before the fallout of the COVID-19 pandemic, nearly half (46.5%) of households reported that their income did not exceed their spending over the course of a year. For households with annual income of less than $30,000, this number increases to three in five (61.5%).”

Now there may be many reasons why people spend beyond their means. Some seem to be unable to defer gratification until there’s money in the bank, so they buy on credit. There was a $48.5 billion jump in spending from September to October 2023. For others who make less than a living wage, the problem isn’t one of choice, it’s existential.

The searing takeaway from the above is that negative personal cashflow was a problem even before the post-Covid inflation drove prices through the roof in America. The Aspen Institute provides this handy chart showing how individuals build financial security:

Financial security starts with having a routinely positive cashflow. But, nearly 50% of Americans today aren’t cash flow positive (see quote above), while 49% of people earning more than $100k are living paycheck to paycheck.

This dovetails with Wrongo’s Monday column which showed that “Nearly 3 in 10 Americans say they have had to forgo seeing a doctor in the past year due to costs.” If you’re one of the 7.5% of uninsured Americans, and have money in your checking account that isn’t going to necessities, you can definitely go to the doctor.

Aspen has another chart that shows the breakdown of who lives paycheck to paycheck by income levels:

Seventy-four percent of those making less than $50k are living paycheck to paycheck, and while the percentage gets smaller as annual income rises, it’s still 48.7% for people making more than $100k, in an economy where the median income is around $54K!  FYI, the percentage of Americans who make $50k or less is 37.8%.

More from LendingClub: (brackets and emphasis by Wrongo)

“The share of consumers in the US earning over $100,000 per year who live paycheck to paycheck increased 7 percentage points in April year over year. High-income consumers are particularly likely to live in urban areas, at 36%, and these tendencies toward higher incomes…[don’t] prevent almost 70% of urban dwellers from saying they live paycheck to paycheck.”

It’s hard not to conclude that the majority of Americans are currently experiencing dire financial conditions, including many who live with negative cashflow. When your cashflow is negative, you either cut back, borrow or sell assets. For most people selling assets isn’t a real choice. So while some cut back, the majority borrow to make ends meet. According to the issue, the:

“…highest risk, and most expensive forms of debt are now growing fastest. Payday loans, online insta-loans, and so forth. That means that people are exhausting the more mundane forms of debt—credit cards, bank loans, government loans, etcetera.”

This squares with a report by Achieve, a personal debt management firm, that shows:

“In the first nine months of 2023, the average monthly participation in debt resolution programs increased by 119% compared to 2020, even though the average earnings rose by approximately 37% during the same period.”

It gets worse:

“In 2023, the typical household income of individuals enrolled in debt resolution programs was $59,900, which is a notable increase from $43,598 three years prior.”

Americans are earning 37% more but are still struggling with debt. Not a pretty picture to take before the voters.

Meanwhile, Democrats still are touting how “strong” the economy is. The aggregate numbers hide terrible personal experiences that are happening out of sight of our politicians and surprisingly, our economists. However, it’s clear from the polls that few Americans are buying that message apart from the true believers, the media and pundits.

The disconnect between economic data and the lived experience of average people needs to be addressed by Biden and the Democrats. If nothing is done to at least acknowledge the actual problems of many Americans specifically, their negative personal cashflow, these angry folks will certainly tilt toward giving Trump another chance.

Let’s give the issue the last word:

“What is this? What do we call it when the majority of people can’t make ends meet, as in, they’re literally spending more than they make, because they don’t make enough to live a stable or secure life?

Today the averages are hiding a truth: that a near-majority of American citizens are financially underwater. These are big numbers. The Census Bureau says as of now, 258.3 million Americans are adults. And the Aspen Institute says that 46.5% of them can’t make ends meet. That’s 120 million of us that are going deeper in debt every month.

That can only happen when those at the very top are skimming off more than 100% of the growth in the economy. This suggests that Biden et al need to run on policy that will help the majority of voters, not simply the moneyed people who finance political campaigns.

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Dark Money Keeps Flowing Into Our Politics

The Daily Escape:

Cranberry Bog, Old Sandwich Road, Cape Cod MA – October 2023 photo by Ken Grille Photography

As usual, we’re enjoying our time on Cape Cod. We visited a cranberry bog operator yesterday and learned that the number one use of cranberries in America is making crasins. Those packages of whole cranberries you purchase at Thanksgiving make up just 1% of US cranberry sales.

Two topics today: First, as much as Wrongo would like, he can’t ignore the escalating war between Israel and Hamas. Many have written about the conflict. Wrongo wants to spend a few minutes on this week’s hypocrisy by House Republicans. Ja’han Jones wrote for MSNBC:

“In February, several Republicans signed on to a bill, introduced by Rep. Matt Gaetz, R-Fla., that was aimed at ending US military and financial aid to Ukraine.”

At the time, Gaetz said:

“America is in a state of managed decline, and it will exacerbate if we continue to hemorrhage taxpayer dollars toward a foreign war…”

But on Sunday, Gaetz said on Meet the Press that we should up our support to Israel:

“The reason we have this multibillion-dollar commitment…to Israel is because we want Israel to have a qualitative military edge over everyone in the region…”

Just last week Gaetz and other Republicans were willing to shut down the federal government over aid to Ukraine. Aiding Ukraine means spending to assist in a fight against Russia, which the MAGAverse is apparently supports only very weakly. But aiding Israel, which this time means spending to assist in a fight against Hamas, is ok. Republicans like spending money fighting Muslims.

Anne Applebaum in The Atlantic warns that the “rules-based world order” is on the verge of breaking down:

“Open brutality has again become celebrated in international conflicts, and a long time may pass before anything else replaces it.”

This applies to both Ukraine and to Israel. We can’t afford to ignore one in favor of the other.

Our second issue today is that the billionaire Charles Koch is using a tax dodge to fund his ongoing political activities. From Judd Legum:

“…Charles Koch…is funneling his wealth into two organizations that can continue his right-wing political advocacy for years. Koch structured more than $5 billion in donations to…allow him to avoid paying capital gains or gift taxes. It’s not surprising that Koch is familiar with the loophole — he spent hundreds of thousands of dollars lobbying to create it.”

Legum cites a Forbes article which states that in 2022, Koch donated $4.3 billion in Koch Industries stock to Believe in People, a newly formed 501(c)4 nonprofit organization. The organization is run by Koch’s inner circle, including his son, Chase Koch along with Dave Robertson, co-CEO of Koch Industries, and Brian Hooks, the co-author of Charles Koch’s last book.

From Forbes: (brackets by Wrongo)

“ [Koch] has already quietly transferred $5.3 billion of nonvoting stock to a pair of nonprofits….Forbes estimates those shares account for nearly a tenth of the 42% stake previously held by Charles (though he still has 42% voting power).”

The other Koch nonprofit is called CCKc4. In 2020, Koch also donated $975 million in Koch Industries stock to CCKc4, controlled exclusively by Charles’ son, Chase Koch. Legum reports that in its 2020 IRS filing, CCKc4 listed its mission as “N/A.” The gift to Believe in People is now the largest publicly disclosed donation to a 501(c)4–a type of nonprofit with fewer restrictions on lobbying and politics than traditional charities.

Unlike a traditional 501(c)3 nonprofit, a C4 can own an entire for-profit company indefinitely and (so long as these activities support its principal purpose) benefit private individuals; engage in an unlimited amount of issue lobbying; and get directly involved in politics.

Since Congress exempted donations to C4s from the usual 40% federal gift tax in 2015, a number of billionaires have donated 100% of their companies to C4s. Before Koch’s gift the largest of these C4 donations was by Patagonia’s founder Yvon Chouinard, who transferred all of his outdoor clothing and gear retailer’s nonvoting stock to an environmentally-focused C4 in 2022. At the time of the gift, Patagonia was reportedly valued around $3 billion.

Legum reports that Koch’s main political spending vehicle, Americans for Prosperity Action (AFP Action), in the 2022 election cycle spent 95% of its money on Republican candidates who were formally endorsed by Trump or who actively campaigned as Trump supporters. AFP Action spent just $3.5 million on candidates not aligned with Trump and zero dollars supporting Democratic candidates.

This is America in the 2020s: $ billions “donated” by billionaires to protect other billionaires. The tax dodge was enacted in 2015 during the Obama administration. This expansion of tax-free funding of political action is something that is unknown to average people, yet it impacts our politics through its substantial invisible influence. It strips money from the government’s coffers while simultaneously further poisoning US democracy. The only way to take back control of our politics is to take back control of the flow of money into our politics.

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Two Writers Who Speak To What America Needs

The Daily Escape:

Wukoki, Wupatli National Monument, AZ – September 2023 photo by David Erickson

September is underway, and we’re about to have a negotiation about government spending. But that doesn’t mean that the news this month will be any less stupid than last month’s. Also, as the Republican presidential candidates demonstrate every day, we don’t actually know whether the GOP is a dying Party or, the rising single Party of an authoritarian state.

Unless and until the traditional press presents these as the stakes, it is very unclear which it’ll end up being. With this as an introduction, Wrongo wants to introduce two writers who are attempting to break through our chain of bad policies and the bad ideology that threatens our democracy.

First, from Wesley Lowery in the Columbia Journalism Review:

“We find ourselves in a perilous moment. Democracy is under withering assault. Technological advances have empowered propagandists to profit through discontent and disinformation. A coordinated, fifty-year campaign waged by one of our major political parties to denigrate the media and call objective reality into question has reached its logical conclusion: we occupy a nation in which a sizable portion of the public cannot reliably tell fact from fiction. The rise of a powerful nativist movement has provided a test not only of American multiracial democracy, but also of the institutions sworn to protect it.”

Lowery is a Pulitzer Prize-winning reporter. He goes on to say:

“In 2020, I argued that the press had often failed this test by engaging in performative neutrality, paint-by-the-numbers balance, and thoughtless deference to government officials. Too many news organizations were as concerned with projecting impartiality as they were with actually achieving it, prioritizing the perception of their virtue in the minds of a hopelessly polarized audience…”

Lowery also says that news organizations often rely on euphemisms instead of clarity in clear cases of racism (“racially charged,” “racially tinged”) and acts of government violence (“officer-involved shooting”). He says that these editorial decisions are not only journalistic failings, but also moral ones:

“…when the weight of the evidence is clear, it is wrong to conceal the truth. Justified as “objectivity,” they are in fact its distortion.”

Lowery concludes by saying:

“It’s time to set aside silly word games and to rise to the urgent test presented by this moment.”

Second, Bob Lord is a tax attorney and associate fellow at the Institute for Policy Studies. He also serves a senior advisor on tax policy for Patriotic Millionaires. At Inequality.org, he proposes a graduated wealth tax on the rich:

“The United States is experiencing a level of wealth inequality not seen since the original Gilded Age. This yawning gap between rich and poor has unfolded right out in the open, in full public view and with the support of both political parties.

A malignant class of modern robber barons has amassed unthinkably large fortunes. These wealthy have catastrophically impacted our politics. They have weaponized their wealth to co-opt, corrupt, and choke off representative democracy. They have purchased members of Congress and justices of the Supreme Court. They have manipulated their newfound political power to amass ever-larger fortunes.”

More from Lord:

“In well-functioning democracies, tax systems serve as a firewall against undue wealth accumulation. By that yardstick, our contemporary US tax system has failed spectacularly….Our nation’s current tax practices allow and even encourage obscene fortunes to metastasize while saddling working people with all the costs of that metastasizing.”

Lord along with the Patriotic Millionaires propose new legislation, called the Oligarch Act (Oppose Limitless Inequality Growth and Reverse Community Harms). It is being brought forward by Rep. Barbara Lee (D-CA) and Summer Lee (D-PA). The Lees have developed a graduated wealth tax tied directly to the highest wealth in America. The Oligarch Act propose a set of tax rates that escalate as a taxpayer’s wealth escalates:

  • A 2% annual tax on wealth between 1,000 and 10,000 times the median household wealth.
  • A 4% tax on wealth between 10,000 and 100,000 times the median household wealth.
  • A 6% tax on wealth between 100,000 and 1,000,000 times the median household wealth.
  • An 8% tax on wealth exceeding 1,000,000 times the median household wealth.

Per the US Census Bureau, the median household wealth in 2021 was $166,900. So the first tier 2% wealth tax would kick in at $166,900,000, and so on.

This would affect only very high levels of household wealth. To put that in perspective, according to the Federal Reserve, the wealth level that puts you into the top 0.1% of households in 2019 Q3 was $38,233,372. So if enacted, this Act would touch a really small number of outrageously wealthy households. Also, their taxable amount would be peanuts by their own standards.

The legislation would also require at least a 30% IRS audit rate on households affected by the new wealth tax. One recent estimate indicated that the richest Americans dodge taxes on more than 20% of their earnings, costing the federal government around $175 billion in revenue each year.

The immediate argument is that this tax will never pass as long as the filibuster is intact. And here’s how the work of both authors comes together. We see the “it will never pass” objection from journalists and pundits who try to appear savvy in the ways of DC. On any cable news show, someone is sure to jump up to say it.

The paradox is that if you look at the Congressional Record and flip to the special orders section and extensions of remarks, you’ll notice they’re filled with speeches and statements on behalf of recently introduced bills which the sponsors know will never pass as written. So why do they do it?

Because the point of introducing a bill is not just to pass it in the current session of Congress. It never has been. There is a tradition going back to the earliest days of Congress of introducing bills to make arguments and advance debate. Many famous members of Congress (think Ted Kennedy, Thaddeus Stevens, John Quincy Adams) sponsored or backed multiple bills they knew were not going to become laws.

They did it because they knew that debates over bills that will become laws don’t occur in a vacuum. They happen in the greater context of the debate in Congress over issues which are influenced by every other bill under consideration. And of course, you’ve gotta start somewhere.

Jumping to the conclusion “it will never pass” isn’t being savvy, it’s a sign you’ve missed the point. And it’s a sign of the vapidity of so many journalists and pundits that it’s the first thing out if their mouths. It’s never a good idea to take cues from the stuffed shirts on Fox, CNN and Meet The Press.

This graduated wealth tax is a good start and sets a precedent: There is an amount of wealth that is ruinous to democracy. Taxing it is a necessary condition for preserving democratic governance.

It is true that Congress, as it is presently constructed, will not pass this, or other badly needed legislation. A genuine revolution in thinking will be required. Both Wesley Lowery and Bob Love point us toward fresh thinking about how we start dealing with what we consider to be intractable problems.

Wrongo still has hope for the younger generations who are suffering the consequences of all this government sanctioned selfishness.

Change is coming.

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Two Data Points That Say Much About Our Economy

The Daily Escape:

Another Alaska pic: Wrongo was in a kayak about 20 yards from this big guy asking himself whether he could out-paddle a charging grizzly. June 21, 2023 photo by Kristina Rau for the cruise line.

Today let’s talk about two interrelated economic issues. First, with more than 200,000 jobs created in the US economy in June, nearly 4 million more people are now employed than just before the pandemic.

Heather Long at the WaPo looked at who’s getting them. Along the way, she busts a few Right Wing myths:

“The mistaken notion that Americans don’t want to work can now be put to rest. Nearly 81% of Americans ages 25 to 54 are working, the highest share since 2001.”

Long reminds us that in March 2022, Fed Chair Powell argued the labor market was “unhealthy”:

“There was a misguided belief that it would take a recession to get supply and demand for goods — and workers — back to more normal levels. But what many experts missed was how many workers of color and immigrants wanted to work and were still looking for opportunities.”

Long provides the demographic breakdown for our recent job gains:

“Fewer White people are employed now than pre-pandemic. In contrast, over 2 million more Hispanics are employed now, over 800,000 more Asian Americans and over 750,000 more African Americans.”

Before the pandemic, companies were complaining that they couldn’t find workers, while the experts were saying the nation was at “full employment.” However, every month, Black and Hispanic people (largely women) kept entering the labor force and getting jobs.

Also, more than 2 million more foreign-born people are employed now than before the pandemic. This means that more than half of the new workers have been immigrants.

This is partly a result of low unemployment. Blacks and Hispanics often do not get hired until late in an economic recovery. In the past year, there’s also been a strong uptick in jobs in government and health care, two sectors in which women of color have historically found employment opportunities.

Employers have also loosened their hiring criteria, offering improved pay and benefits, and removing requirements for college degrees for many positions. Long says:

“This past spring, for the first time, Black Americans were as likely to be employed as White Americans.”

What a change! Hard to see much “socialism” in this new jobs analysis.  This is good news that disputes the old Right wing bromides about how “these folks don’t want work; they want to sit back and get free stuff”.

Second, the WaPo’s Department of Data, a new statistical analysis feature, answered the question:

“Which states contribute the most to the federal budget in taxes, and which get the most back in terms of benefits?”

They start by reminding us where tax revenue comes from:

“The vast bulk of the $4 trillion in revenue the federal government received in 2021 came in the form of income taxes and payroll taxes for Medicare and Social Security. Most of the rest comes from corporate income taxes and excise taxes on goods such as gasoline and alcohol.”

And just 4.5% of that income (customs duties and earnings on Federal Reserve deposits) cannot be traced to individual states.

But let’s get to the good stuff. Just eight blue states, (CA, NY, NJ, MA, CT, WA, NH, and CO) pay more in taxes to the federal government than they receive in federal benefits. They therefore subsidize all other states. Every other state receives more federal money than they pay in taxes.

And unsurprisingly 9 of the 11 top recipients of federal benefits are red states (KY, WVA, MS, AL, AK, LA, OK, AK, SC).

Nine of the 10 states that sent the most to the federal government, per person, voted for Biden in 2020. Nine of the 10 states that sent the least voted for Trump. So who’s got the bigger stake in socialism?

Its important to remember that when Republicans complain about “out of control” federal spending, most of them live in a state that receives more from the federal government than they contribute.

If we ever called their bluff, Republicans would scramble to decide what federal benefits their home states would be willing to give up in order to cut federal spending.

But of course, they would simply bluster on about socialism in the cities.

Maybe we should divide America into the MAKER states and the TAKER states. It’s nice to see that the data again shows Blue states are far more productive. Maybe another question for the Department of Data is:

“Why is higher income so closely aligned with support for Democrats?”

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How To Think Differently About Housing

The Daily Escape:

Sunrise, Outer Banks, NC – June 2023 photo by Stephen P. Szymanski

Wrongo and Ms. Right have 12 grandchildren, only one of which is still in high school. The other 11 are out of school and pursuing their careers or are finishing their education. Only one of the 12 owns a home. Their experience with real estate is representative of what most younger Americans face in today’s real estate market. Ben Carlson uses data from Redfin to show us that mortgage payments are way up over prior years:

The median mortgage payment was up by more than $1,000 over four years. Carlson reminds us that this is just the monthly mortgage payment, it doesn’t include insurance, property taxes or upkeep. This is part of the reason that housing affordability is more excruciating — the pace of the increases has happened so quickly. We’ve simply never seen prices and rates rise this fast in such a short period of time. And asking prices are up as well:

Note that at the end of May 2023, the median asking price was $397k, up from $300k in May 2020, a 32% increase in four years.

But high mortgage rates and rising home prices aren’t deterring all buyers. John Burns Research shows buyers still outnumber sellers by a wide margin in today’s market. They report that as of April, even with 7% mortgage rates, 78% of all real estate agents say that buyers outnumber sellers in their markets.

And for rentals, the national median rent for a one-bedroom apartment has climbed to $1,504, according to research from Zumper. That’s significant: It’s only the second time in history that it has risen past $1,500. But the median doesn’t represent what you’ll pay in big cities:

In America, buying an investment property near work is more lucrative than actually working. The growth of asset values has outstripped returns on labor for four decades. Last year, one in four home sales was to someone who had no intention of living in it. Investors are incentivized to buy the type of homes most needed by first-time buyers: Inexpensive properties generate the highest rental-income cash flows.

Harvard’s Joint Center for Housing Studies found that in 2019, the median net worth of US renters was just 2.5% of the median net worth of homeowners: $6,270 versus $254,900. There’s no better example than the economic challenges to America’s young persons than trying to find (relatively) affordable housing near where they work.

A very interesting article in the May 23 NYT Magazine suggests a possible solution to housing inflation. Vienna, Austria began planning it’s now world-famous municipal housing in 1919. Prior to that, Vienna had some of the worst housing conditions in Europe. Vienna’s housing program is known as “social housing” (Gemeindebauten), a phrase that captures how the city’s public housing and other limited-profit housing are a widely-shared social benefit:

“The Gemeindebauten welcomes the middle class, not just the poor. In Vienna, a whopping 80% of residents qualify for public housing, and once you have a contract, it never expires, even if you get richer.”

Vienna isn’t a small town. Its population is just under 2 million, and if it were in the US it would be our fifth largest city, between Houston and Phoenix.

The availability of Vienna’s social housing also helps to keep costs down even for private housing:

“In 2021, Viennese living in private housing spent 26% of their after-tax income on rent and energy costs on average, which is…slightly more than the figure for social-housing residents overall (22%).”

One of the reasons Vienna’s social housing works is that it is not means-tested; it is open to middle class people. And as a result, the residents care more about whether their grounds stay clean and beautiful. In the US we restrict public housing to the poorest of the poor, making public housing something to escape from, not to enjoy.

Meanwhile, 49% of American renters are paying landlords more than 30% of their pretax income, In New York City, the median renter household spends 36% of its pretax income on rent.

The key difference is that Vienna prioritizes subsidizing construction, while the US prioritizes subsidizing people, like with housing vouchers. One model focuses on supply, the other on demand. Vienna’s choice illustrates a fundamental economic reality, which is that a large-enough supply of social housing offers a market alternative that improves housing for all.

Calls for a federal social-housing plan in America might sound far-fetched but the US government is already deeply involved in the housing market. There’s generous support for homeowners and deliberately insufficient support for the lowest-income households. In 2017, the US gave $155 billion on tax breaks to homeowners and to investors in rental housing and mortgage-revenue bonds, more than three times the $50 billion spent on affordable housing.

For many, housing expense can be an economic burden. And it’s hard to even contemplate what it would mean to have it not be a problem. What’s mind-boggling is how social housing gives the economic lives of Viennese an entirely different shape.

Imagine where the rest of America’s young adults’ income might go if they were able to spend much less of it on housing. Vienna’s program is a look into a world in which homeownership isn’t the only way to secure a financial future.

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Links You Can Use

The Daily Escape:

Santa Rita prickly pear in bloom, AZ – May 2023 photo by Wilson Goodrich

Today Wrongo returns to his “Links you can use” format from several years ago.

First up, Bloomberg reports that Trump’s takeover of the GOP helped him to rewrite the rules on how primary delegates to the GOP presidential convention will be awarded. Since leaving office, Trump has gotten 10 more states to award delegates through winner-take-all primaries, even if the winner receives fewer than a majority of the votes. The number of winner-take-all states has grown from seven to 17.

Needless to say, if it’s crowded field and he gets the most votes, even if it’s only 30%, he’ll win.

Second, Republican governors have discovered that they’re getting significant political mileage out of championing people who have engaged in vigilante violence that dovetails with the GOP’s culture wars. Brian Klaas writes about the Right’s open embrace of political violence. In Texas, Governor Abbott has said that he was “looking forward” to pardoning Daniel Perry, who murdered a Black Lives Matter protester. Perry was sentenced to 25 years in prison. He had previously texted a friend that he “might have to kill” some people on his way to work.

Over the weekend, Florida Governor DeSantis tweeted his support for Daniel Penny (Perry and Penny?) after Penny killed the homeless Black man Jordan Neely, on NYC’s subway. DeSantis didn’t hold back:

Lots of dog whistles right there from the governor. NBC 4New York reported that the legal defense fund had raised more than $2 million after DeSantis tweeted the link to Penny’s donation page. This shows MAGAs have found another way to wealth and fame as Daniel Penny now joins Kyle Rittenhouse as a violent millionaire funded by the Republican Right.

Brian Klaas wrote about a study that shows “Who Supports Political Violence?”, conducted by Miles T. Armaly, Assistant Professor of Political Science at the University of Mississippi and Adam M. Enders, an Assistant Professor of Political Science at the University of Louisville. Their findings show some key traits that predict support for political violence:

Perceived victimhood is highly correlated with support for political violence. This is different from actual victimhood. While previous research found that people who are actually being oppressed are more likely to turn to violence, this study shows that it doesn’t really matter whether someone is actually being oppressed; instead, the feeling of being oppressed is sufficient.

This was the strongest predictor of support for violence.

The next strongest correlate was a sense of “white identity.” And the two interact, as those who buy into the Right-wing narrative that white people are under attack in America (due to their loss of social dominance), are also likely to be the same individuals who feel perceived victimhood.

Also, past military service is correlated with a predisposition for vigilante violence. People who previously served in the American armed forces were more likely to express support for political violence than those who have not. None of this is good news for the US.

Third, the Debt Ceiling negotiations are resuming today in the White House after House, Senate and White House negotiators met for three hours Saturday, and then reconvened on Monday. Benjamin Studebaker worries that Biden may be about to repeat Obama’s errors in negotiations with Republicans in 2011:

“Back in 2011…Obama faced the same problem…Biden now faces. Congressional Republicans refused to raise the debt ceiling unless Obama agreed to budget cuts….Obama….Instead…cut a deal. He signed the Budget Control Act of 2011. It committed the federal government to…enormous cuts. Over the course of 2012, it became clear that these cuts would cause serious damage to the economy. So…Obama negotiated another deal that would save most of the cuts for 2013. Over the course of 2013, the same arguments were made again, but this time Obama was unable to secure another delay, and the cuts took effect.”

Sounds like what we’re going through right now. In 2013, we escaped the economic disaster, but at the price of the Fed adding several rounds of Quantitative Easing leading to our current economic situation. If Biden agrees to cut spending, the economy will again be damaged.

And the Federal Reserve will be pressured to limit the damage via lower rates or flooding the market with more dollars.

Republicans will, of course, oppose tax increases. That means the Biden administration won’t be able to raise taxes to help offset the growing deficit or pay for future expenses. Therefore it has to rely on the Federal Reserve’s monetary policies. The weaker economy created by rate hikes is an economy where the current tax rates will generate less tax revenue. That creates more political pressure to cut spending.

All of these stories look like rinse, lather, repeat. And not to the nation’s benefit.

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Prepaying Taxes? Don’t Be Stupid

The Daily Escape:

Saguaro in bloom, Gold Canyon, AZ – May 2023 photo by Karin Ingebrigtsen Hetsler

In the discussion about the Debt Ceiling, it’s become clear that America has a problem with tax collections, which are running behind what was forecast. While tax receipts were always expected to be below 2021’s robust levels, they are even weaker than forecast, down around 35% so far.

That means absent a deal between the Parties, we will hit the Debt Ceiling sooner than we thought. This is largely due to a weaker stock market and lower economic growth than the country had in 2021.

But it’s also true that America has an enormously complicated tax code, built by decades of lobbyists working with the Congress to carve loopholes into the Code to provide legal tax avoidance strategies to their corporate clients.

Imagine a world where corporations and individuals didn’t try to weasel out on their tax obligations to the government…Impossible, you say?

Well, consider Ukraine. We’ve been told that Ukraine is rank with corruption and a large informal economy. Both may be true but read what The Economist has to say about tax receipts during their war with Russia: (emphasis by Wrongo)

“After Russia invaded in February last year, Ukraine’s finance minister, Serhiy Marchenko, braced…for government revenues to “plummet”. He says he expected them to fall by roughly as much as economic activity. That did not happen. Although Ukraine’s GDP plunged by 29% in 2022, the state pulled in just 14% less than the year before.”

Of course the war led to drops in tax revenues from imports and tourism. Blackouts caused by Russian attacks on power plants and the grid disrupted automated reporting of taxable transactions. More from The Economist:

“What, then, is behind the state’s “unique results”, as an official puts it, in wartime revenue collection? One explanation is that firms and taxpayers, eager to support their country’s defense, are paying more tax than required.”

Still more: (brackets by Wrongo)

“According to Ukraine’s finance ministry, in March last year such donations came to 26b[illio]n hryvnias ($880m), rising to 28b[illio]n in May.”

Why are Ukrainian businesses and individuals motivated not to avoid taxes like in the US, but to make donations and pay taxes in advance? The Economist quotes a tax partner with Price Waterhouse Coopers, with responsibility for Ukraine:

“…if Ukraine wins, you’ve got your country; if Russia wins, thuggish authorities will take your money anyway, so why not help out now?”

A lawyer at a Ukraine law firm says that many of his corporate clients have asked for guidance on how to prepay taxes. And now a year later, the lawyer says that nearly all the 100-odd clients he serves have begun to prepay. According to the lawyer, efforts to seek loopholes to lower tax bills have decreased.

Finally, The Economist reports that Ukraine’s State Tax Service continues to receive payments, through its online portal, from the territories occupied by Russia (except for Crimea). Despite the pressure to pay Russian taxes, apparently, last year 2.3 million individuals and organizations in occupied areas paid $9.5 billion in taxes to Ukraine.

They are doing this despite the risk of retribution from their Russian overlords. Can you imagine anything like this happening in the shell of a country we call the United States?

There are other factors at work. Taxes on gas production were raised last year. The Economist quotes Danil Getmantsev, chair of the Ukrainian parliament’s Committee on Finance, Taxation and Customs Policy, who says that a crackdown on corruption also may have had something to do with it.

No one should think that Wrongo is saying that Ukraine is a better place to live and work than is the US. The key point is they are demonstrating that in a country that was thought to be barely unified before the war, it now acts as one. Try to imagine how, under similar circumstances what it would take for companies and citizens in the US to freely prepay their taxes. (Wrongo knows about the need in the US for some Americans to file quarterly returns, which is a form of prepayment).

Or imagine people willingly donating to the government in an effort to keep us free.

Nope. We’re addicted to fiscal gimmickry. Anything to pay less to the government. After all, Trump said not paying taxes showed that he was a smart guy.

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Late Stage Capitalism

The Daily Escape:

A 20 feet x 9 feet sign placed in Times Square, NYC in Sept. 2013. Created by Steve Lambert.

In yesterday’s column about Bed Bath and Beyond’s (BBBY) bankruptcy, Wrongo used the term “Late Stage Capitalism” to describe some of the factors that led to the firm’s demise. Several readers asked what Wrongo meant.

First, some history. A German economist named Werner Sombart seems to have been the first to use the term “Late Capitalism” around the turn of the 20th century. A Marxist theorist named Ernest Mandel popularized it in the 1960s. For Mandel, “late capitalism” described the economic period that started with the end of World War II and ended in the early 1970s, a time that saw the rise of multinational corporations, mass communication, and international finance.

In America the terms “Late Capitalism” and “Late Stage Capitalism” are used interchangeably. Late-stage capitalism is characterized by greed, corruption, and a focus on profits over people.

The current crisis of capitalism’s legitimacy stems from business pursuing the aberrant form of capitalism known as shareholder capitalism, which began in the 1970s. It causes firms to seek maximizing shareholder value as reflected in the current share price, at the expense of all other stakeholders and society.

Some of the problems with late-stage capitalism include wealth inequality, environmental destruction, and financialization. Financialization refers to the increase in size and importance of a country’s financial sector relative to its overall economy. In the US, the size of the financial sector as a percentage of GDP grew from 2.8% in 1950 to 21% in 2019. The financial services industry, with its emphasis on short-term profits, has played a major role in the decline of manufacturing in the US. Financialization has created “unproductive” capitalism. According to economist Michael Roberts: (brackets by Wrongo)

“…financialization is now mainly used as a term to categorize a completely new stage in capitalism, in which profits mainly come not from…production, but from financial [engineering]

Today, capitalism is no longer the heart of a free market. Algorithms run the stock and foreign exchange markets. Large players in these markets operate freely with the expectation that they will eventually be caught. They then pay off the DOJ or SEC, chalking up the fines to the cost of doing business.

Lobbyists on Capitol Hill curry favor with politicians. Companies then receive substantial tax breaks and move their ever larger profits to offshore tax havens. The revolving door between Wall Street and the banking sector allows former Federal Reserve Chairs to charge speaking fees of $500,000 and earn seats on the boards of the algorithmic trading firms. The Pentagon continues to benefit from budgetary increases while the profits of Boeing, Lockheed Martin, and other defense contractors continue to swell.

Late stage capitalism helped create the current distortion of wealth. From the wealthy one percent living in multiple homes and flying private, to the plight of the working poor in America. In a 2020 survey by Edelman, a marketing and public relations firm, 57% of people worldwide said that:

“capitalism as it exists today does more harm than good in the world”

When you have money, capitalism is your wing man. It opens doors to business leaders and helps develop political influence, all with the goal of amassing more wealth and power.

Late stage capitalism has allowed oligopolies and the oligarchs that run them, to rig the system in their favor. They’ve won Supreme Court cases, such as Citizens United v. FEC (2010), that give corporations the same speech rights as people, allowing them to spend millions on political ads to elect compliant politicians.

In recent years, capitalism’s shortcomings have become more apparent: Prioritizing short-term profits has sometimes meant that the long-term well-being of society and the environment has lost out. Indeed, if you judge by measures such as inequality and environmental damage, as economists Michael Jacobs and Mariana Mazzucato wrote in their book “Rethinking Capitalism”:

“…the performance of Western capitalism in recent decades has been deeply problematic…”

There’s also no denying that this strain of capitalism has led to increased economic growth worldwide, while lifting a significant number of people out of poverty. At the same time, its tenets of lowering taxes and deregulating business has done little to support investment in public services, such as crumbling public infrastructure, improving education and mitigating health risks.

Watch Paul Tudor Jones, a successful hedge fund manager describe why we need to rethink capitalism:

He’s concerned about capitalism’s laser focus on profits. He says that it’s:

“….threatening the very underpinnings of society.”

More people are aware of the term “late, or late-stage capitalism,” due to the growing wealth gap. People now have access to information that exposes the defects of capitalism, and the effects of political and elitist interference in the monetary policy of a country. There is a popular Reddit community devoted to it.

And calling something “late” implies the potential for significant change or revolution, A “late” period always comes near the end of something. Calling it “Late capitalism” says:

“…This is a stage we’re going to come out of at some point…”

Perhaps we’re on the cusp of society dictating that capitalism provide us with a more equitable way of life. Or maybe the wealth gap will continue to grow, and the corporations will continue to seize more power.

Whenever late-stage capitalism eventually comes to an end, you can be sure of one thing – it won’t be a soft landing.

 

Sources and reading list:

https://wrongologist.com/2023/04/bed-bath-and-beyond-another-retailer-bites-the-dust/

https://en.wikipedia.org/wiki/Werner_Sombart

https://www.theatlantic.com/business/archive/2017/05/late-capitalism/524943/

https://www.investopedia.com/terms/f/financialization.asp

https://www.linkedin.com/in/prof-michael-r-roberts/

https://www.fec.gov/legal-resources/court-cases/citizens-united-v-fec/

https://www.wiley.com/en-gb/Rethinking+Capitalism%3A+Economics+and+Policy+for+Sustainable+and+Inclusive+Growth-p-9781119120957

https://www.bbc.com/future/article/20210525-why-the-next-stage-of-capitalism-is-coming

https://www.edelman.com/sites/g/files/aatuss191/files/2020-01/2020%20Edelman%20Trust%20Barometer%20Global%20Report.pdf

https://www.reddit.com/r/LateStageCapitalism/

Alternative Views:

https://tomdehnel.com/crushing-the-myth-of-late-stage-capitalism/

https://www.nytimes.com/2023/04/20/opinion/american-capitalism-good.html

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Sunday Cartoon Blogging – April 23, 2023

Another busy week filled with news we didn’t want to hear. Fox’s huge $787.5 million payout in the Dominion lawsuit seems appropriate, but Lever News reports that Fox can take a tax deduction from the settlement. Ironically the financial consequences of lying are just a cost of doing business for Murdoch and Co.

Fox Corporation reported $1.2 billion in net income in 2022, so the $787 million Dominion settlement is equivalent to about two-thirds of the company’s profits last year. The Lever quotes Daniel Shaviro a tax professor at NYU:

“If your business model is to tell lies so that you’ll get viewers and have lots of advertising revenues, then, odious though this business model may be, the tax system’s job is to tax you on the profits that you actually make from it…”

Fox reported paying an effective income tax rate of 27% in 2022 (the  combination of federal and New York taxes). If Fox can write off the full settlement payment to Dominion, it could amount to an estimated $213 million in tax savings. On to cartoons.

Fox didn’t even have to do this:

Losing the lawsuit didn’t cost Fox any viewers:

Justice Sam Alito was in an especially grumpy mood after the other Justices on the Supreme Court ruled that access to Mifepristone will remain unchanged while the case continues to wind through the courts. Alito and Thomas dissented even though the underlying suit is frivolous:

Note that Thomas is drinking a coke.

That the SpaceX rocket crashed and burned was totally on brand for Elon:

Kevin McCarthy explains his position:

Dalai Lama must retire:

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