How Big A Lie Did Mitt Romney Tell When He Said His Federal Taxes Were Never Less Than Thirteen Percent Of His Income? (And Why It Affects The Economy)

Romney during second Presidential debate this week where he said he talked about eliminating capital gains taxes

Mitt Romney misled us when he told us that federal taxes on his very substantial income were always at least thirteen percent.   Knowing how very little Romney is really required to pay in taxes matters a lot.  It matters a lot because it is creating a drag on the economy.

As of now, Mitt Romney has still released only two of his tax returns.  For the longest time he had released only one tax return.  That was back when he was assuring us that, not to worry, in the absence of releasing more information he could assure us that his tax liability was always at least thirteen percent.  (See: Romney Says He Paid at Least 13% in Income Taxes, by Michael D. Shear, August 16, 2012.)

In September, Romney finally released his 2011 tax returns.  It turned out that the federal taxes he owed for his adjusted gross income of about $13.7 million was actually about only ten percent. That’s far less than that thirteen percent figure he’s been pushing out to the public with assurances back in August.

So that it didn’t appear that Romney had been too outrageously inaccurate or misleading Romney had a fix-it when he finally released this tax return: He consciously elected to pay more taxes than he had to:

Mr. Romney has said that he has paid at least 13 percent in federal income taxes in each of the last 10 years.

In order for that claim to be true in 2011, Mr. Romney had to voluntarily take a smaller deduction than he was entitled to for his charitable deductions, his advisers said Friday.

(See: September 21, 2012, Romney Releases 2011 Tax Returns, By Michael D. Shear.)

Romney overpaid his taxes by enough that he actually paid about fourteen percent in taxes.

The fix-it, as after-the-fact fix-its go, is pretty inadequate in a couple of ways. 

The first thing that makes this fix-it inadequate is that Romney was on record saying he wouldn’t be qualified to be president if he paid more taxes than he actually had to.  He said that just last July when ABC’s David Muir asked him it in an interview whether he had ever paid taxes lower than 13.9%.  (If you are wondering why Romney paid fourteen percent when he overpaid his taxes, rather than just enough to get thirteen percent, the reason may be that Muir asked him about this 13.9% figure.)

Romney responded to Muir as follows:

My view is that I have paid all the taxes required by law [. . . . .]  I don’t pay more than are legally due. And frankly if I had paid more than are legally due I don’t think I’d be qualified to become president.  I think people would want me to follow the law and pay only what . .  Ah. . the tax code requires.

You can hear an audio clip* of him saying exactly this in a Brian Lehrer show segment the following Monday. .  Romney released his tax returns just before the weekend on a Friday. . (starting at 3:52).  You can click to hear it below in the embedded audio.



You can also watch the ABC Muir interview itself or read the transcript.*

(* Here is an issue of exactitude that will be of geeky interest to those who wonkily track how the media presents stories: If you look at the transcript of the interview you can see that the audio of the Brian Lehrer show clip, a direct lift from the ABC video, and the ABC video itself are undetectably edited- ABC slid in a cut to a photo to hide the cut, but the edited deletion from what Romney said is nothing that will help or especially hurt him.  It goes in where I inserted the bracketed ellipses in the quote above: “From time to time I've been audited as happens I think to other citizens as well and the accounting firm which prepares my taxes has done a very thorough and complete job paying taxes as legally due.”)

The second thing that makes Romney’s coy ploy of this after-the-fact fix-it inadequate is that overpaying one’s federal taxes does nothing in terms of locking in his tax liability at that higher rate.  In its first New York Times report (not the second) about Romney finally releasing his 2011 tax return the paper hinted at this when it suggested that it was possible Romney “could still deduct the unclaimed amount of his charitable donations in future tax years.”

This deserves to be truly nailed down!: Overpaying taxes doesn’t establish (or `fix') tax liability.  It’s instead like socking your money away for future withdrawal from the bank.  Yep!

To confirm this I called the firm of Reiner and Reiner, Wall Street lawyers I like to consult for tax advice who also prepare tax returns.  I was assured that anytime Mr. Romney wants, after the election or otherwise, all he has to do is file an amended tax return and he can then claim the charitable deductions he didn’t recently claim. Voilà!  Mr. Romney will then have paid only the minimum ten percent in income taxes he is legally obligated to pay.  He can do this for up to three years after filing and thereby no longer be unqualified (by his own standards) to be president by paying more taxes than are legally due.

Do people, politicians and others often go around amending their income tax returns, even doing so when getting what they have filed correct is important for political purposes?  You bet they do!  In one of the same articles reporting on Romney’s final release of his tax returns we learned that his vice-presidential running mate Paul Ryan filed an amended return to deal with the fact that he and his wife failed/forgot to report $61,122 of their income for 2011:

In an amended return also released Friday, Representative Paul D. Ryan, Mr. Romney's running mate, disclosed that he and his wife had initially failed to report $61,122 in income from 2011. He said the failure was inadvertent. The change raised their total income to $323,416 and increased their taxes by $19,917 to $64,674, or 20 percent of adjusted gross income.

(See: Romney Reveals He Paid 14% Rate in 2011 Tax Return, by Nicholas Confessore and David Kocieniewski, September 21, 2012.)

It’s been suggested that the Democrats haven’t wanted to drill down on the fact that Romney’s tax liability was actually only ten percent in 2011 because it involves the difficult issue of Mr. Romney’s making what qualifies as “charitable” deductions.  That gets into a whole other kettle of fish when it comes to the vast wealth that only a few people control in this nation.  There are those like New York Mayor Michael Bloomberg or real estate developer/public subsidy collector Bruce Ratner who direct huge amounts of their “charitable” and deductible "giving," wielding it for political and personal gain.

When it comes to having to pay so very little income tax, the fascinating thing is that payment of taxes is an element of the disdain that Romeny expressed in his infamous 47% percent remark about all those Americans Romeny says “believe that they are victims” and don’t “take personal responsibility and care for their lives,” is that, in Romeny’s words:

These are people who pay no income tax. Forty-seven percent of Americans pay no income tax.

A lot has been written after Romney’s remarks about the 47% of Americans who don’t pay taxes (actually 46.4%), about how that includes young people and students, elderly collecting on the Social Security benefits they paid for, active service men and women, Americans paying payroll and Social Security taxes at a higher rate than those with higher incomes, and as Jon Stewart made fun of on the Daily Show would have included Romney's own parents when they needed to take advantage of public assistance.  (See: The 47 Percent, In One Graphic, by Jacob Goldstein, September 18, 2012, Who Are the 47 Percent? 7 Facts about the Americans Mitt Romney Attacked, by Kevin Fallon, Sep 18, 2012 and Fact-checking Romney's "47 percent" comment, by Lucy Madison, CBS News/ September 18, 2012.)

Romney’s ten percent tax liability isn’t quite down to the level of having to pay no federal taxes at all but there are those among the wealthy, those Romney might himself have been addressing at the political fund raiser where he made his 47% remark, who actually are among the 47% who don’t pay taxes.  Back when Romney hadn't yet released his 2011 tax returns the New York Times filled the void with a story about the sort of things that tax returns of the rich can reveal.  It contained the following information “never before disclosed” by the IRS (emphasis supplied):

It so happens that this summer the Internal Revenue Service released data from the 400 individual income tax returns reporting the highest adjusted gross income. This elite ultrarich group earned on average $202 million in 2009, the latest year available. And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.

(See: Common Sense, In Superrich, Clues to What Might Be in Romney’s Returns, by James B. Stewart, August 10, 2012.)

Six of those with highest adjusted gross income in the nation paid no federal income tax?   And where between no federal income tax and Romney’s ten percent tax liability do the rest of those with highest incomes in the nation stand in terms of the taxes they are required to pay?

During this week’s presidential debate Romney offered what was, no doubt, intended to be an obfuscating figure in his regard, that:

The top 5 percent of taxpayers . . . pay 60 percent of the income tax the nation collects.

The more correct figure is actually apparently 57 percent (not 60 percent), but to the extent that the figure is true it says more about the way that income in this country has been increasingly skewed to go more to the already wealthy and more advantaged, those who even paying such lower such rates, still wind up picking up that much of the nation’s taxes.  It also shows why, as incomes increasing skew to go to a small minority of the population, it is so important that that population pay their fair share, rather than the lower preferential rates Romney champions.

One reason Romney pays lower taxes than everyone else is because so much of Romney’s income is in investments and capital gains being taxed at a preferential lower rate than what other Americans must pay on their earned income.  During the debate Romney tried to pull another fast one: That because he wanted “middle-income taxpayers to have lower taxes” he had a plan where they “no longer will pay any tax on interest, dividends or capital gains.”  (One wonders: When Romney says he wants to benefit a“crushed” “middle class of America,” what percent of that group does he consider to be included in the 47% he disdains?)

When implemented Romney’s capital gains tax elimination plan will probably involve further tax cuts for himself and the similarly wealthy but CBS notes (providing a chart): That “most middle class taxpayers are not currently paying a ton of tax in these [capital gains, etc.] areas.”

Why are all the preferential tax treatments that skew more wealth to the wealthy and have them shoulder less than their fair share a very important concern?  It not only makes the rest of us poorer; it is also bad for the economy.  Here is caution about the United States from the International Monetary Fund which normally might be concerning itself instead with travesties of third world economies in the countries of continents like South America:

“Growth becomes more fragile” in countries with high levels of inequality like the United States, said Jonathan D. Ostry of the International Monetary Fund, whose research suggests that the widening disparity since the 1980s might shorten the nation’s economic expansions by as much as a third.

Reducing inequality and bolstering growth, in the long run, might be “two sides of the same coin,” research published last year by the I.M.F. concluded.

    * * * *

The I.M.F. has cautioned the United States, too. “Some dismiss inequality and focus instead on overall growth — arguing, in effect, that a rising tide lifts all boats,” a commentary by fund economists said. “When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.”

(See: Income Inequality May Take Toll on Growth, by Annie Lowrey, October 16, 2012.)

Mitt Romney Won’t Release His Tax Returns Because He Took His Wife’s Horseback Riding As a Medical Deduction? Why Romney’s Taxes Matter

Is the reason that Mitt Romney won’t release his tax returns because he took his wife’s dressage horseback riding as a medical deduction? . . .

. . . That would make sense because it would give “RomneyCare” a whole new meaning in a presidential campaign when everyone is supposed to be paying a lot of attention to the design of the national system we should have in place to pay for the public’s health care.

This is not to belittle the fact that Ann Romney has real health problems. .   she has multiple sclerosis, a serious disease. .   nor should anybody want to demean the significance of anyone else’s significant health issues.  But when so many people in the population faced with considerable health problems struggle to pay for even the minimum treatment they need there are basic questions to ask if and when Ms. Romney has relatively lavish options to attend to her personal health that are way beyond what is available to others, especially when the Romney/Ryan vision for a change to a capped-out voucherized Medicare involves everyone scrimping and saving and cutting back financially (except the insurance companies Romney/Ryan want to take over the program!).

Did the Romneys actually tax deduct Ann Romney dressage horseback riding?  Ms. Romney has “discussed the therapeutic benefits of horseback riding” and in June news reports had her doing so at the “Marion Therapeutic Riding Association in Ocala, Fla.”  (See: June 6, 2012, On horseback, Ann Romney talks about health struggle, by Chris Leyden.)  But the Romneys have released just one of their tax returns and are refusing to release any others so we don’t know and can only guess.  (The Romneys are not releasing more tax returns even after the vice-presidential vetting process was disclosed to have involved the required release to the Romney campaign of “several years” of tax returns.- Only two of Paul Ryan’s tax returns are being released to the public.  The less wealthy Ryan family paid  20% their adjusted gross income in 2011 and 15.9% in 2010.)

The political comedy troop “Capitol Steps” does a routine with a meaningful punch line where their faux Mitt Romney in their parody asks presidential debate audience members to submit their guess about why he is not releasing his tax returns so he can pick among the guesses for what he thinks might sound like the best explanation.  Consider this National Notice’s submission to that suggestion box collection of guesses!

In the only year for which the Romneys have released a tax return, it is shown that they did deduct $77,000 for one of their dressage horses.  So who knows what happened respecting dressage horse deductions in other years and whether some of them are medical?
 
Economist and New York Times columnist Paul Krugman has written a number of times about the importance of seeing Romneys tax returns to obtain critically important information.  In January he wrote about how Romney was doing the “Dance of the Seven Veils” maneuvering around the fact that he wasn’t going to release tax returns that would apparently raise issues that are deeper and more more awkward than the fact that Romney, a vastly wealthy man, is telling us that he pays only 13% of his income in taxes:

    . .  the larger question isn’t what Mitt Romney’s tax returns have to say about Mitt Romney; it’s what they have to say about U.S. tax policy. Is there a good reason why the rich should bear a startlingly light tax burden?  

(See: Taxes at the Top, by Paul Krugman, January 19, 2012.)

Krugman pointed out how knowing what Romney’s tax returns would disclose is central to the issues of the campaign:

Elections are, after all, in part about the perceived character of the candidates — and what a man does with his money is surely a major clue to his character.

and:

To the extent that Mr. Romney has a coherent policy agenda, it involves cutting tax rates on the very rich — which are already, as I said, down by about half since his father’s time. Surely a man advocating such policies has a special obligation to level with voters about the extent to which he would personally benefit from the policies he advocates.

(See: Mitt’s Gray Areas, by Paul Krugman, July 8, 2012 783.)

On the question of character, Krugman points out that when Romney’s father, George, ran for president 44 years ago he released twelve years worth of tax returns.  Those returns disclosed that because taxes on the rich were much higher in the `50s and `60s Romney paid much more in taxes (37%) than the 13% his son is now paying and that, as the senior Romney put it, he “seldom took advantage of loopholes to escape his tax obligations.”   What’s more, the senior Romney earned his money contributing value to the economy by running the American Motors automobile company making compact cars.

Exactly what the Romney son, Mitt, has been doing to build up his wealth certainly ought to be explained, and it's not just the question of why he parks his money in the Cayman Islands: We know far too little but according to Mitt Romney’s disclosure documents he has between $20.7 million and $101.6 million earning him tax-free income in his IRA.  Whether, the actual amount is closer to $20.7 million or $101.6 million (wouldn’t you like to know with a lot more specificity?) those multi-millions amount to a virtually impossible accomplishment because the Internal Revenue Code limits what can be contributed to an IRA to amounts that are relatively small by comparison ($2,000 and annual 401(k) retirement contributions at $30,000) and Romney had only about 15 years working at Bain Capital LLC. to make such annual contributions.  By rights, if you do the calculations, it ought not to have built up to even $1 million, let alone being so many multiples greater.  (See: The Secret Behind Romney’s Magical IRA, by William D. Cohan Jul 15, 2012 and Massive Romney IRA Still Sparks Unanswered Questions, by D.M. Levine, 07/17/2012.)

The reason that annual contributions to IRAs are limited by the federal tax code to somewhat moderate amounts is that IRAs are intended as a mechanism to provide a secure retirement for the general populace, not to be an instrument of abuse whereby those who are vastly wealthily can park their wealth to avoid paying taxes.  Mitt Romney must have found a way to circumvent the law’s intentions.

Since Romney isn’t releasing his secrets, what he did to build up what may be the single biggest IRA account in the country can only be guessed at.  It probably involved a degree of artificiality that, were the IRS guarding the chicken coop, the IRS probably ought not to have permitted.  If you read the above linked-to reporting, what is suspected is that Romney utilized his inside knowledge of the structuring of Bain transactions (where companies on Bain’s operating table were sliced and diced into all sorts of different  financial slivers, instruments and interest the average reader probably wouldn’t have patience to try to understand) in order to transfer what were relatively sure bets on truly huge financial pay-offs while valuing them for purposes of his IRA contribution as proportionately infinitesimal.

With Mitt Romney having by whatever trick or device tallied up a personal IRA that is at least in the tens of millions and with the Romneys taking tax deductions on the order of  $77,000 for dressage horses every year it's rather a challenge to believe Ann Romney's recent assurance in her speech at the Republican Convention that she and her husband understand and appreciate the economic challenges she describes as besetting the average American family:

    . . . that price at the pump you just can't believe, the grocery bills that just get bigger; all those things that used to be free, like school sports, are now one more bill to pay. It's all the little things that pile up to become big things. And the big things — the good jobs, the chance at college, that home you want to buy, just get harder. Everything has become harder.

This was part of Ms. Romney’s effort to encourage women (and she tried to be complete in naming all the variations: “moms of this nation — single, married, widowed — . . . mothers. . . wives. . .grandmothers. . big sisters . . . little sisters . .  daughters”) to view Romney as a potentially good provider if he is elected president.  One gathers that Ms. Romney’s point is that, if elected president, the man she “met at a dance many years ago” will spend less time looking for tax loopholes and tax deductions available only to the supremely wealthy and will spend more time considering the situation of the average Joes of the 99%.

Really? One indication on that score is the way the the Romneys interrupted their campaign (reportedly against campaign adviser advice) to rush off to attend the London Olympics (shoehorning in two ill-fated stops in Israel and Poland for cover) where Ms. Romney's horse was competing.  There Mr. Romney (who admittedly has Olympics in his resume) had to bend over backward to pretend that he didn't know anything about the "horse ballet" exploits (as dressage is sometimes called) of his wife's horse Rafalca and managed to undiplomatically offend his British hosts.

I don’t usually refer to the work of the ubiquitous Republican apologist David Brooks who, among other things, writes a regular opinion column for the New York Times: He is usually far too predictable about arguing that whatever position the Republicans have taken about things it is not necessarily entirely unreasonable when looked at a certain way.  He does that pretty much no matter how outrageous the Republicans get, rarely venturing any, even quiet, tut-tutting.  Something got into Mr. Brooks the week of the Republican Convention and he apparently couldn’t resist giving in to his sense of humor (I don’t think I’d previously picked up on the fact he had one) to write about the hilarity of the Republican chore at the convention of portraying the silver-spoon Romney biography as heroically relevant to the common man/woman/voter (a sampling to get you started before you click on to read the entire piece):       

Mitt Romney was born on March 12, 1947, in Ohio, Florida, Michigan, Virginia and several other swing states. He emerged, hair first, believing in America . . . . He was given the name Mitt, after the Roman god of mutual funds. . .

    * * * *

 . . . . He uttered his first words (“I like to fire people”) at age 14 months. . .  purchased his first nursery school at 24 months. The school, highly leveraged, went under, but Romney made 24 million Jujubes on the deal.

(See: The Real Romney, by David Brooks, August 27, 2012.)

Never did I think that I would find Brooks seeming to agree with fellow Times columnist Paul Krugman, but the truth behind the humorous bite of the Brooks piece is remarkably consonant with a more seriously scribed Krugman piece where Krugman says that the out-of-touch wealthy, “safely ensconced in a bubble of deference and flattery” look ridiculous “when they attribute the weakness of a $15 trillion economy to their own hurt feelings” which is causing them to refrain from job making.  (See: Pathos of the Plutocrat, by Paul Krugman, July 19, 2012.)

Wealthy upset is the cause of the nation’s current economic troubles?  What about the economic upset wealth run amok caused, the fact that it was the out-of-control banks, hedge funds and high finance insurance companies that wrecked the economy in the first place?  (See: Friday, August 17, 2012, The New York Times Starts Reporting That New York Government Officials Are Looking At Suing Barclays Bank- Leading to. . . ?).

Am I being the slightest bit unfair?  Just because Mitt Romney is substantially richer, does that  actually make the rest of us poorer?  Yes indeed, that question is answered at greater length here: Friday, December 23, 2011, Why Someone Else Being Wealthier Actually Makes Me Poorer: Debunking a Suspect Claim.  If nothing else, the fact that Romney and the Republicans are making it a priority to cut taxes for the wealthy (who control an ever-increasing percentage of the nations income and wealth) to historic new lows while eliminating social programs that those taxes have traditionally paid for means all the rest of us are hurt.  The Republicans, calling for cuts in social programs, set up a "deficit clock" at the convention hall in Tampa.  What they neglect to say is that the deficit being measured is a result of cutting taxes on the wealthy even in a time of war when sacrifices were called upon from others.

Why Someone Else Being Wealthier Actually Makes Me Poorer: Debunking a Suspect Claim

I found that the assertion stayed naggingly with me after I heard it expressed by one of the conservative talking heads appearing one night on Bill Maher’s Real Time HBO program: “Just because someone else is wealthier than I am doesn’t mean that it makes me poorer.”

I didn’t believe the statement when I heard it expressed but the way it seems to relinquish any envy gives it an attractive quality, making it sound admirably virtuous, as if it bespeaks a magnanimity of spirit even though it’s a statement wielded by the sort of spokespersons who also espouse such theories as “trickle down” economics. Somewhat inconsistently, “trickle down” economics proposes a world where another man’s accumulation of wealth can indeed be counted upon to affect your own but, optimistically, only for the better: Those who have less are expected to be satisfied by all the extra crumbs that will spill off the table with overflowing wealth. (The math behind this involves a prediction that the overall pie will always be bigger by more than the amount the wealthy themselves take.) These are the same sort of folk who now speak about the 1% Club as munificent “job creators.” Those espousing such theories can be counted upon to argue against measures such as a progressive income tax structure in order to to reduce the gap between the rich and the poor by having the wealthy pay higher income taxes.

“Just because someone else is richer doesn’t make me poorer”: Does this kind of statement really need debunking? Isn’t it just obviously wrong when you think about it? Maybe only to some and what might not be so obvious is just how many ways the statement is wrong. Let me count some ways:

1. Compensation to top executives in the United States is now paid at absurd multiples of other employees’ salaries. Ben and Jerry’s may no longer limit compensation of its highest paid employees to seven times that of entry level employees but the fact that it once did puts in perspective the kind of huge differentials now prevalent. Exact reliable figures about the ratio of top executive pay to bottom level employee pay or average employee pay level for given years is not easy to come by and the figures depend upon which group of companies one is selecting to derive one’s statistics, but whether one is looking at a ratio of 531 average employees’ salaries to1 highly compensated CEO’s, 525 or 263 to 1, 185 to 1, or 325-to-1 (the last ratio involving executives getting paid an average of $10.8 million each), each of those multiples represent corporate resources that could be redirected into hiring more employees or paying other lower-paid employees more. And isn’t it reasonable to expect that in the face of a more progressive income tax system we would likely see that kind of redistribution as the attraction of high salaries waned just as was the case when taxes were once more progressive?

2. Further, as focus shifts away from jobs being chased and held just for the sake of very high salaries mightn’t the quality of corporate management improve as a result? This is something we’d perhaps be more apt to believe if, along with Warren Buffett, we believe that executive compensation for U.S. executives is too often “ridiculously out of line with performance” and that a cooperation’s board’s ability to rein in such excessive compensation is a critical test of proper corporate governance. These then are two ways in which wealth lavished excessively on select individuals means the impoverishment others.

3. After another man is paid so many multiples more than his fellows the amount he is likely to invest should predictably be much greater than the rest of the populace and that investment will, in turn, spin off even more income. A fair amount of his wealth will probably be invested where so many of us inevitably think to invest: in stocks. Much of the nation’s wealth is owned through corporations. Ownership and control over a corporation is represented by its stock. The wealth of all of the nation’s investors intermingles in its ownership of the stock of those corporations but the intermingling is not equal in terms of ownership of the decision-making process because when it comes to corporate governance majority rules, the preferences of the minority must bend to the decisions of the majority. That majority is not added up in terms of stockholders as individuals; majority is counted up in terms of the majority of individual shares of stock. Which is to say the calculation involved is sheerly a measure of total wealth. As so much of the nation’s wealth is owned through corporations much of the nation’s policy is consequently set by the demands of those corporations but in the setting of such policy the voice of any minority ownership is lost as the corporate governance structure acts as a lens to focus the corporation’s influence behind the interests of aggregating wealth, much like a magnifying glass can bend the diffuse rays of the sun to focus on one concentrated incinerating point. Maybe I want my local environment kept clean and pure but maybe the corporations don’t, and maybe the wealthy will fly away to vacation in remote spots beyond my means where devastations to the environment will matter less to them.

4. When we think of influencing policy in the United States we think about appealing to our politicians and electing those we think will represent our interests, but every politician thinks of him or herself as having two constituencies: a.) Those individuals capable of voting for them, and b.) Their money constituency. The first is a finite constituency tied to a locality. In the United States every individual must decide where he will vote and there he will get to vote only once in each election. The monied constituency is free to cross lines. Those wealthy enough can support candidates anywhere no matter whether they live or vote where a candidate is running. They can even support candidates running against each other in the same election, and do. The amount of support supplied this way is limited only by one’s wealth and the will to deploy it. In the United States political spending in the form of contributions to political candidates is almost entirely the provenance of the very wealthy. Most of the money for the nation's political campaigns comes from .5% of the population,which means that it is really the .5% vs. the 99.5% that Occupy Wall Street ought to be talking about and 1 percent of the 1 percent account for almost a quarter of all individual campaign contributions to federal political campaigns in 2010. That means we have a government where it is going to be very difficult for ordinary citizens to get the attention of their political representatives because those representatives will spend most of their time preoccupied thinking about the donating elite. Unequal access to those entrusted with governing the nation leads, quite justifiably, to distrust of the system by those without access.

5. One reason that distrust of the system may now be very sensibly coming to the fore is that, as argued by Glenn Greenwald, the author of “With Liberty and Justice for Some: How the Law Is Used to Destroy Equality and Protect the Powerful,” we have seen a two-tier justice system emerge, one for the nation’s uppermost class, another for the less politically powerful. Normatively, the idea that the same rules apply to all ought to supply a check and balance against draconian abuses in the legal system and against violations of the law. With a two-tier system liberties are no longer protected by this check and balance. So yes, when others become a lot wealthier than the rest of us we poorer souls all become still poorer because even our life and liberty are put in jeopardy.

6. Others being wealthier also makes us poorer when we are competing in the market for the same limited resources. This is really classic supply and demand economics. More money chasing a limited supply drives prices up. Since real estate is unique and can’t be duplicated it is very easy to see how the rules apply. In 2004 when apartment prices in New York were rapidly rising the New York Times ran an article about “gazumping” which, technically, is the acceptance of higher offer from a different buyer after a handshake deal on a lower apartment price was reached. With the market awash in new cash, offers significantly trumping already accepted offers for which contracts weren't yet executed were becoming commonplace. It created a lot of pressure to close deals rapidly. A “gazumping” buyer can be particularly effective in persuading a seller to accept an offer (in the bidding practice that is considered less than entirely ethical) if they offer cash and a substantial deferential in price. Sellers may appreciate the higher prices the wealthy pay but say, for instance, you have a property that has been in a family for many years: Members of the extended family who want to buy it and keep it in the extended family (essentially maintain the status quo) may be “gazumped” out of their opportunity to do so by those who have become disproportionally wealthy. Another example involving real estate would be a neighborhood townhouse providing homes to perhaps nine renting families which is then purchased by a bet-winning hedge fund entrepreneur who, with his newly minted wealth intends to occupy the entire building after he evicts all the long-term tenants. Those tenants will have to move elsewhere. Shifting wealth will subtract from their other choices and the prices they will pay will accordingly be higher. These examples involve real estate but the same rules apply whenever there is competition for commodities that are limited.

7. Others having wealth substantially exceeding my own makes life more expensive in other ways. Sometimes the cost of living gets established as a community package. Say I live in co-op or condominium building where the expense of maintenance and operation are handled communally. If everyone in the building has resources similar to mine we are all apt to have similar notions about the value of certain expenditures and the need to make careful resource-conserving choices. But if others in the building become far wealthier than I am then they may want to hire extra doormen and porters, multiplying expenses. They may also care less about close oversight of the the wisdom with which each community dollar is spent. They may be more inclined to delegate such oversight to hired professionals at extra expense. In their view the lobby might need to be grander. The wintertime heat in the building might be ratcheted up profligately allowing windows to be flung open. The building may become unaffordable to the less affluent but because the expenditures are communally undertaken and enforced those expenses must be paid by all who stay. Those who need to move as a result will bear an extra expense but those who don’t, won’t.

8. The community-determined expenses discussed above which are enforced are presented conceptually with the example of a residential co-op or condo, but the very same sort of situation can occur when government in a locality decides to provide a higher level of more expensive services, better roads, more frequent trash pick-ups, a more ostentatious Town Hall, etc. Or it can work similarly but in reverse: As an area fills with wealthier residents there may be fewer among them who feel the need for the services of a good public library open at convenient hours throughout the week. As a result these services may be cut back.

9. Besides communally undertaken and enforced expenses there are expenses associated with living alongside wealthier people that are not enforced but nevertheless hard to avoid. Those with fewer resources appreciate some of the changes that come with a gentrifying neighborhood (renovations, cleanliness, policing may improve and some new stores may be appreciated) but one of the complaints such residents often have is that many of the stores selling merchandise at price points geared to their own incomes disappear and are replaced by stores selling merchandise at price points they can’t afford. A Starbucks may have a certain novel cachet but the Starbucks coffee can be a lot more expensive than the alternatives.

10. Looking for a new home one might also find one’s choices of apartments circumscribed by the wealth and more affluent life style of others when one encounters apartments that are available only if one pays unaffordable “amenity fees.” The amenity fees may boost the cost of renting more for those looking to save money by doubling up when they are required to be paid on a per person basis. Developers have been packing new New York City buildings with amenities like swimming pools, party and entertainment rooms, screening rooms, roof decks, etc. - There is no free lunch (although amenities sometimes include ostensibly-free regularly-served breakfasts) so these would be paid for in increased prices somehow but now developers make a practice of charging overtly for these amenities by required fees imposed in addition to the rent.

11. The very best schools, particularly colleges, are also likely to exceed the reach of the less wealthy for a variety of cumulative reasons: a.) tuition b.) higher SAT scores by virtue of hired tutors and prep c.) preference for legacy admissions based on prior family member attendance d.) Attendance at better feeder schools, and e.) donations from the family to the school. Whether or not one succeeds in sending one’s children to the nation’s select set of very top schools would not be such an significant issue (many schools are very good and more than sufficient for providing excellent educations) were it not for the fact that attendance and socializing at premier schools significantly eases the entry of the next generation into a privileged club whereby they can expect better opportunities in terms of earning wealth. Ultimately it becomes a self-perpetuating system.

The above list can no doubt easily be expanded. I invite readers to suggest additions by commenting on this post. I know the list is not all-inclusive.

I originally thought to write this article months ago back when I first mused about what had been said on Bill Maher’s show. Since that time there was an influential article in the May 2011 edition of Vanity Fair by Joseph E. Stiglitz that makes similar and related points even if its theme is not exactly the same. On point Stiglitz makes that could be added to the above list is that the nation’s decisions with respect to war are affected when there is a class wealthy enough not to send any of its children to war. Surely we are poorer when another disinvolved individual makes a decision to send our children to war. I strongly suggest that if you have appreciated this National Notice article and haven’t yet read Mr. Stiglitz’s, you read it: Of the 1%, by the 1%, for the 1%.

A final point to mention: After acknowledging that another man’s wealth can, indeed, make me poorer in all the ways mentioned, there is another economic truism to remember. . . The value of a dollar is greater to a poor person than it is to a rich person. Ergo, when a wealthy man’s wealth makes a less wealthy man poorer, the significance in the shift is greater to the poorer individual. To the extent that the shift reflects an injustice, that injustice is consequently greater.

Social Security Inequation: This is Rich, Living Longer While Everyone Else Enjoys It Less; Putting Two Together

Here are two stories I came across that seemed like they absolutely had to go together. Since I’ve not seen anyone else pairing them, we’ll do it here. One is from economist Paul Krugman, the other from Robert Reich, also an economist, and the former Secretary of labor under President Clinton. Each concerns Social Security, the wealthy and why the system may not be anywhere as close to insolvency as some (are they all Republicans?) would have the rest of us presuppose.

Krugman: Some of Us Are Living Longer- The Rich

The Krugman piece was the first to catch my eye back in November. It concerned the suspect work product of the National Commission on Fiscal Responsibility and Reform tasked with finding a supposedly bipartisan solution to the nation’s fiscal problems. (See: The Hijacked Commission, by Paul Krugman, November 11, 2010.)

The commission announced its plan November 10th. As Mr. Krugman points out, the section of the plan on tax reform was summarized in seven bullet points the last of which was “Reduce the Deficit” while the first was “Lower Rates.” The commission was, in fact, all about tax reduction being a priority, stating that one of its “Guiding Principles and Values” was to “Cap revenue at or below 21% of G.D.P.”

Krugman writes many great articles, but this was one of his best. The whole article is worth reading but for purposes of this National Notice story what caught my eye about Social Security was this:

Let’s turn next to Social Security. There were rumors beforehand that the commission would recommend a rise in the retirement age, and sure enough, that’s what Mr. Bowles and Mr. Simpson do. They want the age at which Social Security becomes available to rise along with average life expectancy. Is that reasonable?

The answer is no, for a number of reasons — including the point that working until you’re 69, which may sound doable for people with desk jobs, is a lot harder for the many Americans who still do physical labor.

But beyond that, the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.

Reich: Some of Us Are Paying Less Into the Social Security System- The Rich

The Krugman statistics about who, exactly, is living longer came to mind when I came across the Robert Reich piece, the basic point of which was that there is no problem with the solvency of the Social Security system except that the wealthy are now paying proportionately less into than ever before and because “Now a much larger portion of total income goes to the top -- almost twice the share they got back then.” (See: How to fix Social Security, Marketplace, Wednesday, February 23, 2011.)

As Reich points in his commentary on Marketplace and in a column that appeared a number of places, including in the Christian Science Monitor and the Huffington Post (Budget baloney: Social Security isn't to blame for deficit, and the Best Way to Fix It Permanently, February 16, 2011) the solvency question was addressed and supposed to have been dispensed with by Alan Greenspan’s Social Security commission back in 1983 by gradually increasing payroll taxes and raising the retirement age.

Why hasn’t the Social Security system stayed in balance and “fixed for good” as Alan Greenspan’s 1983 commission expected? Reich explains that it is all due to fact a shift of income to wealthier Americans who pay proportionately less to Social Security because their contributions to the system are capped after they earn more that $106,000:

The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

Putting Two Together

In other words, putting Krugman’ and Reich’s points together, the wealthy are living longer, longer then the rest of us, presumably getting more Social Security benefits paid out to them as a result, while at the same time they are paying proportionately less and less of their income into the Social Security system. And the system is becoming unbalanced because the wealthy are hoarding a greater and greater proportion of the nation’s income, thus subjecting an increasing amount of that income to an artificial cap that’s now limiting how much of the nation’s income is going to support Social Security to a lower percentage than everyone expected when things were last put in balance. . . That’s because in 1983 no one expected the degree to which income inequality would increase in the last 28 years.

Solutions Within Reach

Reich points out that the solution for balancing the system is therefore easy. Since the whole problem is that the shift in income to the wealthier earners has exempted more national income from going into the system by virtue of that cap on the ceiling income over which wealthier earners are exempted from paying into the system, all you have to do is raise that ceiling. Then the percent of income being subject to Social Security contributions will go back to the percent it used to be:

If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.

Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.

That’s the easy solution. Another solution Reich doesn’t mention would be to reverse the unexpected trend in income inequality. Do wealthiest earners really need to be earning twice the share of total national income they were earning back in 1983? Does the top 1 percent in the country need to now be earning "more than 20 percent" of the nation's total income instead of the 11.6% that very lucky and elite 1% was earning back in 1983?

Those two possible solutions both involving asking for a contribution from the longer-living (and greater benefit-collecting) rich aren’t the ones being talked about however. For some reason, increased taxes for the well-to-do always seem to be off the table. Instead, what is being talked about is having the rest of the public shoulder the extra burden resulting from the increasing income inequality. As Krugman noted, the National Commission on Fiscal Responsibility and Reform is suggesting an increase in the retirement age. Alternatively, benefits might be reduced.

As for Reich’s suggested solution, Reich makes this point:

Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn’t make it into the President’s budget.