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Wednesday, February 8, 2012

The American Middle Class Is Becoming Poor, and Mitt Romney Doesn’t Realize It

Those who vote for GOP candidates, and  are NOT in the one percent, don't realize that they might actually be one breath away from losing it all; yet, out of ignorance and shortsightedness, they cast their votes for the most regressive people in America who actually want to take it all away from them, if they can. Their only aim is to enrich the richest among them, and, of course, their benefactors--the corporate predators and job destroyers.

"The way to dusty death. Out, out, brief candle!Life's but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury
Signifying nothing." — Macbeth
by: Robert Reich, Robert Reich's Blog | Op-Ed
January’s increase in hiring is good news, but it masks a bigger and more disturbing story – the continuing downward mobility of the American middle class.
Most of the new jobs being created are in the lower-wage sectors of the economy – hospital orderlies and nursing aides, secretaries and temporary workers, retail and restaurant. Meanwhile, millions of Americans remain working only because they’ve agreed to cuts in wages and benefits. Others are settling for jobs that pay less than the jobs they’ve lost. Entry-level manufacturing jobs are paying half what entry-level manufacturing jobs paid six years ago.
Other people are falling out of the middle class because they’ve lost their jobs, and many have also lost their homes. Almost one in three families with a mortgage is now underwater, holding their breath against imminent foreclosure.
The percent of Americans in poverty is its highest in two decades, and more of us are impoverished than at any time in the last fifty years. A recent analysis of federal data by the New York Times showed the number of children receiving subsidized lunches rose to 21 million in the last school year, up from 18 million in 2006-2007. Nearly a dozen states experienced increases of 25 percent or more. Under federal rules, children from famlies with incomes up to 130 percent of the poverty line, $29,055 for a family of four, are eligible.
Experts say the bad economy is the main factor driving the increase. According to an analysis of census data by the Center for Labor Market Studies at Northeastern University, 37 percent of young families with children were in poverty in 2010. It’s likely that rate has worsened.
Mitt Romney says he’s not concerned about the very poor because they have safety nets to protect them. He says he’s concerned about the middle class. Romney doesn’t seem to realize how much of the middle class is becoming poor.
But Romney doesn’t like safety nets to begin with. He’s been accusing President Obama of inviting a culture of dependency. “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society,” he says over and over, arguing that our economic problems stem from a sharp rise in dependency. Get rid of these benefits and people will work harder.
He and other Republicans point to government data showing that direct payments to individuals have shot up by almost $600 billion since 2009,  a 32 percent increase. And 49 percent of Americans now live in homes where at least one person is collecting a federal benefit such as food stamps or unemployment insurance, up from 44 percent in 2008.
But Romney and other Republicans have cause and effect backwards. The reason for the rise in benefits is Americans got clobbered in 2008 and many are still sinking. They and their families need whatever help they can get.
The real scandal, as I’ve said before, is America’s safety nets are too small and shot through with holes. Only 40 percent of the unemployed qualify for unemployment benefits, for example, because they weren’t working full time or long enough on a single job before they were let go. The unemployment system doesn’t recognize how many Americans work part time on several jobs, and move from job to job.
And even those who are lucky enough to be collecting employment benefits are about to lose them. A record and growing percent of the unemployed have been jobless for six months or more, and Republicans in Congress are unwilling to extend their benefits.
Romney’s budget proposals would shred safety nets even more. According to an analysis by the Center on Budget and Policy Priorities, his plan would throw 10 million low-income people off the benefit rolls for food stamps or cut benefits by thousands of dollars a year, or some combination. “These cuts would primarily affect very low-income families with children, seniors and people with disabilities,” the Center concludes.
At the same time, Romney’s tax plan would boost the incomes of America’s most wealthy citizens, who are already taking home an almost unprecedented share of that nation’s total income. Romney wants to permanently extend George W. Bush’s tax cuts, reduce corporate income tax rates, and eliminate the estate tax. These tax cuts would increase the incomes of people earning more than a million dollars a year by an average of $295,874 annually, according to the nonpartisan Tax Policy Center.
By reducing government revenues, Romney’s tax cuts would squeeze programs for the poor even further. Extending the Bush tax cuts will add $1.2 trillion to the nation’s budget deficit in just two years. That’s the same as the amount that’s supposed to be saved by automatic spending cuts scheduled to start next year – which, by the way, will hit the poor especially hard.
Oh, I almost forgot. Romney and other Republicans also want to repeal of Obama’s health care law, thereby leaving 30 million Americans without health insurance.
The downward mobility of America’s middle class is the big news, but the GOP apparently hasn’t heard about it. Maybe it’s too hard to hear about from that far away – and Mitt Romney is certainly far away. His unearned income last year was more than $20 million. That’s about as much as the combined earnings of a thousand American families at or just above the poverty line.

The Zuckerberg Tax

WHEN Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth. The $5 billion he will receive upon exercising those options will be treated as salary, and Mr. Zuckerberg will have a tax bill of more than $2 billion, quite possibly making him the largest taxpayer in history. He is expected to sell enough stock to pay his tax.
But how much income tax will Mr. Zuckerberg pay on the rest of his stock that he won’t immediately sell? He need not pay any. Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. That’s what Lawrence J. Ellison, the chief executive of Oracle, did. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world.
If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death.
Consider the case of Steven P. Jobs. After rejoining Apple in 1997, Mr. Jobs never sold a single Apple share for the rest of his life, and therefore never paid a penny of tax on the over $2 billion of Apple stock he held at his death. Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale.
Now compare Mr. Zuckerberg with Lady Gaga. Last year she told Ellen DeGeneres that she had to get “completely wasted” to sign her tax returns because she owed so much. Lady Gaga reportedly earned $90 million in 2010. Because she earns fees and royalties, she’s subject to the highest income-tax rate. So, assuming she’s just as successful this year, she will certainly pay more than $30 million in taxes and probably more than $45 million, which is infinitely more tax than Mr. Zuckerberg will pay on the $23 billion of Facebook stock he now holds.
Why is this?
Our tax system is based on the concept of “realization.” Individuals are not taxed until they actually sell property and realize their gains. But this system makes less sense for the publicly traded stocks of the superwealthy. A drastic change is necessary to fix this fundamental flaw in our tax system and finally require people like Warren E. Buffett, Mr. Ellison and others to pay at least a little income tax on their unsold shares. The fix is called mark-to-market taxation.
For individuals and married couples who earn, say, more than $2.2 million in income, or own $5.7 million or more in publicly traded securities (representing the top 0.1 percent of families), the appreciation in their publicly traded stock and securities would be “marked to market” and taxed annually as if they had sold their positions at year’s end, regardless of whether the securities were actually sold. The tax could be imposed at long-term capital gains rates so tax rates would stay as they were.
We could call this tax the “Zuckerberg tax.” Under it, Mr. Zuckerberg would owe an additional $3.45 billion when Facebook went public (that’s 15 percent of the value of the roughly $23 billion of stock he owns). He could sell some shares to pay the tax (and would be left with over $20 billion of Facebook stock after tax), or borrow to pay the tax.
If his Facebook shares decline in value next year, he’d get a refund.
President Obama has proposed a “Buffett rule” that would require millionaires to pay tax at a 30 percent effective minimum rate. Under the rule, Mr. Buffett’s taxes might have doubled to $12 million in 2010, but this would represent only a trivial amount of additional tax for him. If the Buffett rule applied in 2010, Mr. Buffett’s effective tax rate would be only about 2/100 of 1 percent on the $8 billion in appreciation of his holdings. A Zuckerberg tax would be far better: under it Mr. Buffett would have paid $1.2 billion in tax in 2010.
A mark-to-market system of taxation on the top one-tenth of 1 percent would raise hundreds of billions of dollars of new revenue over the next 10 years. The new revenue could be used to lower payroll taxes, extend the George W. Bush tax cuts, repeal thealternative minimum tax, reduce the budget deficit, prevent military cuts or a combination of all of these.
This tax would not affect the middle class, or even most wealthy Americans. Nor would it affect small-business owners. It would affect only individuals who were undeniably, extraordinarily rich. Only publicly traded stock would be marked to market.
Some would argue that it is inherently unfair to tax “paper gains” before they are realized — Mr. Zuckerberg won’t receive $28 billion in cash; he holds only paper. Moreover, markets are inherently volatile; one year’s paper gains is another’s real losses. However, these arguments are far less credible when paper losses give rise to real tax refunds. Moreover, in a downturn, the mark-to-market tax would act as a fiscal stimulus — the cash refunds would offset a declining stock market.
This proposal follows the Ronald Reagan model by broadening the “base” of tax without increasing rates. In fact, Reagan was responsible for the last major reform of our antiquated realization system when he signed a law requiring taxpayers to pay a tax on interest that accrued on bonds but was not paid.
The most profound effect of a mark-to-market tax would be to level the playing field between wage earners, on one hand, and founders and investors on the other. Superwealthy holders of publicly traded securities could no longer escape tax on their vast wealth.
David S. Miller is a tax lawyer.