The Hatter wants to cut "your" taxes

After just wondering a few days ago if the country had fallen through the rabbit hole into WonderLand, I'm now certain it has. Yesterday, I spoke with someone who wants the estate tax (which he will only refer to as the "death tax") eliminated. Why? Because the estate tax unfairly burdens the middle class. In fact, the estate tax doesn't really apply to the rich and primarily targets the middle class. So says he.

This is the sort of thing that makes me want to go live in solitude in a cave on an island somewhere.

As it turns out, this person has had his head filled with the lies of this website* and the propaganda of the Heritage Foundation. Those websites are to economics what the Discovery Institute is to science. It takes a special kind of villainous dishonesty to turn the elimination of a tax that affects almost exclusively a handful of the super rich into a populist cause.

But it's working.

During the 2006 campaign, both the Democratic and Republican candidates for the House in my district promised they would end the "Death tax." I'm betting the number of their constituents to whom the tax applied is zero, yet I also know that a substantial number of them were certain it did apply to them.

Our tax system has been rigged to flow wealth upwards to the richest 1 percent of the country like Niagra Falls in reverse, yet the middle class, feeling the squeeze of an increased tax burden, votes to restore a system of wealth transferance that harkens back to feudal aristocracy. I expect that in the future anthropologists are going to look back on this "Death tax" craze like we look back on witchcraft crazes. Funny thing is those served as a means of redirecting people's attention away from the source of their troubles, too. In the words of anthropologist Marvin Harris:

The principal result of the witch-hunt system was that the poor came to believe that they were being victimized by witches and devils instead of princes and popes. Did your, roof leak, your cow abort, your oats wither, your wine go sour, your head ache, your baby die? It was the work of the witches. Preoccupied with the fantastic activities of these demons, the distraught, alienated, pauperized masses blamed the rampant Devil instead of the corrupt clergy and the rapacious nobility.

The conservative movement's Devil is the "tax and spend" Liberal. The Limbaugh's Youth I was talking to calls them Socialists. Saint O'Reilly, savior of Christmas, prefers S-P.

Speaking of which, a couple of nights ago, I flipped by The O'Reilly Factor and saw Bill saying that Hillary Clinton and Warren Buffet are engaging in class warfare because they want to prevent the repeal of the estate tax. Yep, I mean, just look at this list of far left, anti-capitalist, anti-business, communists S-Ps who are leading the war against the rich ... Warren Buffet, Bill Gates Sr., Rockefellers, Susan Packard - those folks are to the left of Lenin.

Let's take a look at how this "class warfare" works out. Democrats had proposed raising the exemption for the estate tax up to 5 million. Paul Krugman crunched some numbers:

An estate tax with an exemption of $5 million would affect only a handful of very wealthy families: in 1999 only 3,300 estates had a taxable value of more than $5 million. The average value of those estates was $16 million. If the excess over $5 million were taxed at pre-2001 rates, the average taxed family would be left with $10 million - which doesn't sound like harship to me - and the government would collect $20 billion in revenue each year

Republicans, who had marketed the elimination of the estate tax as "relief" for the average American, voted against the exemption in favor of complete elimination. Senator Russ Feingold then proposed a $100 million dollar exemption. Guess what? That didn't pass, either.

In the past, O'Reilly has called the "death tax" socialism and asserted that it's unconstitutional. This doesn't make me want to go live in a cave. It makes me want to tell every person on the planet what an incredible idiot O'Reilly is.

Our government is now running massive deficits thanks to President Bush's tax cuts for the megawealthy. The children and the grandchildren of the poor, middle class, upper middle class, and moderately rich are going to pay for that. Bush's tax cuts will constitute a birth tax on future generations.

As far as I know, we're the only society in the history of human civilization that has cut taxes for the wealthy - 40% of the cuts went to the wealthiest 1% - in a time of war. To make up the difference we've been cutting out spending that actually helps the people O'Reilly claims to be a champion of. As former Secretary of Labor and author of Supercapitalism Robert Reich put it on his blog last summer

Right now, the [estate] tax only hits families with more than $4 million to give to their heirs. That's the richest one-half of one percent of American families. Families can leave their children up to $4 million without any tax at all. But because this small group of families has so large a fortune, repeal would cost the U.S. Treasury $1 trillion in its first ten years. That's about equivalent to what's needed to save Social Security over the next 75 years. Put another way, the yearly loss to the Treasury is almost exactly equal to the amount the U.S. spends each year on homeland security. If the super-wealthy won't pay, the middle class will have to pay more taxes to make up the difference. Or the national debt will expand, and we'll all be paying more interest on the resulting borrowing (mostly from wealthy Americans, along with China and Japan).

But Bill O'Reilly being able to take his fortune with him into the grave is more important.

That the estate tax constitutes some kind of socialist oppression of the rich is an insane belief. Look around, the existence of the estate tax since 1916 has not exactly prevented the wealthy from passing on their wealth. Robber-baron money is still making its mark on the country. (Hello, Richard Mellon Scaife bankrolling the impeachment of a president anyone?) From American Dynasty:

Between 1937 and 1999, four of America's richest families - the Rockefellers, Mellons, du Ponts, and Phippses - increased their combined net worths from between $2 billion and $4 billion to roughly $38 billion without enjoying ownership of any new, cutting edge industry ...

... 120 years after the death of Commodore Cornelius Vanderbilt, the forty-three descendents of one of his great-great grandsons, William A. M. Burden, were reported to enjoy a comforting half billion dollars ...

"An equality of property, with a necessity of alienation, constantly operating to destroy combinations of powerful families, is the very soul of a republic."

What S-P said that? Give up? ... It was Noah Webster. He was a Federalist.

"[T]he transmission from generation to generation of vast fortunes by will, inheritance, or gift is not consistent with the ideals and sentiments of the American people."

You hear that Bill O'Reilly? Franklin Delano Roosevelt thinks you're un-American.

Kevin Phillips has written that the income, inheritance, and gift taxes were designed to prevent the rebirth of the old European standard of primogeniture. It was a meant to keep America a meritocracy and not a plutocracy. Now the pseudo-populist revolt is changing all that. Economic extremists have captured the national discourse and shifted policy ever rightward. As Thomas Frank put it in What's the Matter With Kansas?

Like a French Revolution in reverse - one in which the sans-culottes pour down the streets demanding more power for the aristocracy - the backlash pushes the spectrum of the acceptable to the right, to the right, father to the right. It may never bring prayer back to the public schools, but it has rescued all manner of right-wing nostrums from history's dustbin. Having rolled back the landmark economic reforms of the sixties (the war on poverty) and those of the thirties (labor law, aggricultural price supports, banking regulation), its leaders now turn their guns on the accomplishments of the earliest years of progressivism (Woodrow Wilson's estate tax; Theodore Roosevelt's antitrust measures). With a little more effort, the backlash might repeal the entire twentieth century.

In the 80s and 90s, the Wall Street Journal was running editorials declaring that we were now a "Republic of Shareholders", but Kevin Phillips points out that the news section told the real story. He quotes the Sept. 13, 1999 WSJ article, "Wealth Gap."

For all the talk of mutual funds and 401(k)s for the masses, the stock market has remained the privelege of a relatively elite group. Nearly 90% of all shares were held by the wealthiest 10% of households. The bottom line: that top 10% held 73.2% of the country's net worth in 1997, up 68.2 in 1983. Stock options pushed the ratio of executive pay to factory worker pay to 419:1 in 1998, from 42:1 in 1980.

But's that nothing. Take a look at these numbers from David Cay Johnston (via Jim Lippard who saved me the trouble of having to break out my copy Johnston's book)

As Johnston's book shows (p. 31), the top 10% of American taxpayers saw their average income rise 88.6% between 1970 to 2000, from $119,249 to $224,877 (inflation-adjusted); their percentage of the total U.S. income increased from 33% to 48%. The bottom 90% of American taxpayers saw their average income go from $27,060 in 1970 to $27,035 in 2000, and their percentage of total U.S. income dropped from 67% to 52%. Within the top 10%, those at the 90-95th percentile saw a 29.6% increase in income between 1970 and 2006, those from the 95th to 99th percentile saw a 54.2% increase in income during that period, those from the 99th to 99.5th percentile saw an 89.5% increase in income, and those in the 99.5th to 99.9th percentile saw a 144.8% increase in income (p. 34). Those in the 100th percentile saw a 558.3% increase in income from 1970 to 2000 (p. 36).

The result of Bush's 2001, 2002, and 2003 tax cuts by 2010 will be an increase in the share of taxes paid by the bottom 95% of taxpayers by 3.8%, and decrease the share of taxes paid by the top 5% by 3.8%. The top 1% will see a decrease in their share by 2.7% (p. 94).Looking at it another way, the percentage of income paid as taxes by the top 20% of taxpayers in 2001 was 19%; the percentage of income paid as taxes by the bottom 20% of taxpayers was 18% (also p. 94). That's practically a flat tax today, yet the relative burden on the poorest is much greater than on the richest, since a smaller percentage of their income is discretionary.

If this is class warfare, who seems to be winning? [Hint]

Back to Phillips. His bottom line on the estate tax elimination: "Given that fully half of the federal estate tax was paid in 1999 by the 6.6 percent of estates over $5 million and a quarter by the 467 estates worth more than $20 million, its full elimination promised to be the ultimate enabler of wealth dynasticzation."

Meanwhile, our government has been financially crippled by Bush's tax cuts for the super rich

From 2002 to 2011, forgone revenue from the cuts will account for 37 percent of the federal budget’s descent into the red, according to the Congressional Budget Office. War and defense spending come next, producing 30 percent of the deterioration, followed by domestic spending at 11 percent.

With revenue falling short year after year, federal borrowing from the public has mushroomed since 2001, by 53 percent, to $5.1 trillion, compared with a 2 percent increase during the Clinton years. American taxpayers must repay the borrowed money with interest, which means fewer federal dollars to spend on everything else for decades to come, including health care, infrastructure repair, emergency response, chemical plant security and alternative energy.

The Republican presidential candidates' solution to the government being finacially crippled by Bush's tax cuts for the super wealthy is to extend Bush's tax cuts for the superwealthy. Democratic candidates are afraid to challenge Republicans on the issue of taxes for fear of being labeled "tax and spend" Democrats.

Here's a clue: they're going to do it anyway. And unless the Democrats stand up and start developing a narrative explaining what's happening to the country, we're going to have economic mad Hatters like Grover Norquist telling the public that the principle behind the estate tax is the same one that was behind the Holocaust.

And as things get tougher for the average American, with the Democrats having failed to explain to them what's happening, they're already going to know which witches to burn.

*That site was created by the Frank Blethen, owner of the Seattle Times. Eliminating the estate tax is a personal crusade for Blethen. He is worried that his family will not be able to keep possession of their business because of it (although they've managed to retain ownership for three generations despite the existence of the estate tax.) I am sympathetic to that concern. However, what I am not sympathetic to is a deceptive p.r. campaign pretending to be a populist cause in order to hide the reality that it is really about the financial interest of a handful of superwealthy families.