A Self-Fulfilling Prophecy

Class warfare. It’s an expression designed to make your ears bleed and your blood boil. While Republicans insist that a tax code targeting the elite 1% is unfairly punishing the job creators, the Democrats are insisting it’s the middle class getting shafted. The summary of our nation’s love affair with “tax hate” is perhaps best summed up by the GOP rock star, Paul Ryan, in a hefty bit of political irony. (Credit to Chris Kelly for his recent piece here.)

(From page 60 of Paul Ryan’s budget.)

… these tax preferences are disproportionately used by upper-income individuals… For instance, the top 1 percent of taxpayers reap about 3 times as much benefit from special tax credits and deductions… than middle-income earners and 13 times as much benefit than the lowest income quintile…A code with high rates and lots of loopholes benefits those who can afford the best lawyers and lobbyists in Washington… those with political muscle usually take the path of least resistance by pushing for special deductions and carve-outs. This not only lowers their effective tax rates, but also enables them to use the complexities of the tax code to stack the deck against their competitors. There’s nothing fair about that.

Opposite Poles

Let’s stop for a moment and reflect on the polarity of wealth in our country. In 2009, according to the Economic Policy Institute, the average wealth of someone in the top 1% was $14 million. The average wealth of someone in the bottom 20% was -$27,200. (Yes, you read that correctly: negative wealth.) Interestingly, the poorest in our society were already suffering negative wealth before the recession hit in 2007, with an average wealth of -$13,800.

Who are the bottom 20%? Well, I suppose that depends on who you ask. Some cynics will say they are the ones who don’t pay taxes, don’t work, collect handouts and buy plasma TVs. Others will tell you they are working at Walmart, McDonald’s, or another low wage job. The more critical question is how we as a society can offer them a clear path out of poverty. But we’ll come back to that.

On the other end of the spectrum, we have the often demonized billionaires. The person who maintains that obsessive, single-minded focus and carries a determination to get as rich as is humanly possible on the backs of the rest of us. Well, the evidence is that billionaires are a bit like everyone else, (only a lot richer). There are some saints, and there are some jerks.

One saint found in the top 1% is Bill Gates, who gives away an estimated $1.5 billion annually (minimum) through the Bill and Melinda Gates Foundation. Even Microsoft’s staunchest critics have trouble mustering hate against that kind of charitable giving.

The hate on Wal-Mart, in contrast, knows no bounds. The Walton family own more wealth than the bottom 40% of our country, as recently confirmed by Politifact, while offering an average entry level salary of $17,500 ($8.50/hr.). Besides the low wages, America’s small mom-and-pop shops have been driven nearly to extinction in the wake of the Wal-Mart titanic, which also saddles our communities with higher health-care costs.

Job Creators

In this failing economy, the tired expression “job creators” barely holds water when wages are too low to make ends meet, as is often discussed in connection with the Waltons. The term “job creator” becomes even more iffy when one addresses the huge sums of money our government pays in subsidies, tax breaks, deregulation and other preferential treatment for selected corporations. (After all, if one is going to be critical of “handouts” at one end of the tax spectrum, one needs to look at the other end as well.) But the term “job creator” doesn’t hold water at all when jobs are slashed and/or sent overseas.

Republicans and Democrats alike point fingers, both enraged by the politics of the other side. Both deny culpability, as if one side were magically absent through the Bush years, or through Obama’s first term.

The real eye-popping bit of “conventional wisdom” is the ascribing of blame to our government alone for the condition of our economy, and how quickly we’ve chosen to exonerate the criminal mischief on Wall Street. The government is one influencing factor on the economy, but if a single family can own more than 40% of our nation’s wealth, who is really in control? Besides, blaming the government for providing the opportunity to earn that sort of wealth is like getting mad at Monopoly for not including more of that pretty paper money.

Many of the richest (and those seeking to become the richest) Americans make their fortunes by playing the game by the government’s rules and/or skirting the edges of legality. And while some even break the law, they nevertheless know the rules well and know how to exploit them. They know that, before you create a new job, you must have a few customers at the door. They know that if no one is buying, they’ve been doing something wrong with their business.

After all, they built that.

So if that “job creator” is losing jobs, s/he has one of three choices to make:

  1. Earn a few million less and maintain the number of employees
  2. Cut jobs and/or outsource for cheaper labor.
  3. Split the difference.

None of those options makes someone a job creator. (Option one makes you a job sustainer, right?) Having said that, something else even more basic needs to be addressed.

Winners and Losers

The term “class warfare” is used to discuss what happens when tax policy unfairly targets one bracket of people. While it’s true that a tax code penalizing the wealthiest one percent is targeting the richest of the rich, it’s also true to say that the wealthiest one percent has long since “won” the war. Arguing anything else is intellectually dishonest; the richest people in the country are, by definition, the richest.

The disparity of wealth in our society, and the staggeringly low rate of economic mobility, makes it clear who the winners and losers of this hyperbolic war really are. Here is some data for America’s income in 2011, according to Jim Nunns, a senior fellow at the Urban Institute.

  • The top 1% of American households’ average income was $1,530,773.
  • The Median income was $65,357.
  • The bottom 20%’s average income was $9,187.

(One further statistic that jumped out at me while I was researching this blog was from 2009 when the top 1%  averaged 225 times greater wealth than the national household average.)

The American Dream: Economic Mobility

In preparing this blog I began wondering about the American Dream, that wonderful rags to riches story that is statistically so rare. Of the 1%, how many represent a true “rags to riches” story, and wouldn’t it be great if we could know the precise number of people who moved from the bottom 20% into the top 1%?

I found this report, published by the Century Foundation, which followed 6,000 people born between 1942 and 1972. It concluded that the American Dream is perhaps more of a pipe dream than it used to be. Here are some facts from their study.

  • A person born into the top 20% is five times more likely to remain there than the chances of a person born into the bottom 20% to get to into that top 20%.
  • In America, the odds are against you if you want to earn more than your dad. When fathers’ and sons’ earnings are averaged over the course of their lifetimes, we find very little economic mobility. In other words, if you’re an American boy, you’re statistically unlikely to climb to the ladder to the next highest economic class.
  • Scandinavia, Germany and Canada have greater economic mobility than the United States.

What it Means to be Poor

Finally, the term “class warfare” typically misses another point, perhaps the most critical one. There are a host of socioeconomic forces set against the poor that aren’t directly related to the subject of tax code at all but are arguably of greater impact in smothering economic mobility in this country. For instance, a poor person cannot afford to gamble his/her money in the stock market in the way a rich person can, and banks offer next to nothing in interest rates. (Nor do CDs at this point.) Massaging a little bit of money into a lot is a far greater challenge, mathematically, than it is for a rich person.

The poor live in economically depressed areas, which typically suffer from something known as the “ghetto tax.” A gallon of milk for a poor person costs more than it does for the upper 80%, unless that poor person takes the bus uptown and back every time s/he runs out. Any rich person will agree that time is money, and the working poor are likely working more than one job.

A poor person cannot avail him or herself of a “wealth manager” in the way that a rich person can. A poor person does not live near a person of wealth and cannot network the way a rich person can. A poor person will not join the rich person on the golf course, likely even to carry the bag, since those jobs are typically “networked” by club members’ sons or daughters, friends of family, etc. Instead, a poor person will network with other poor people and/or social workers. Yet, the elected leaders who champion the rights of businesses (corporations are people, it is the law of the land) are the same ones who want to tear down government programs which are, in a very real way, among the maddeningly few paths out of poverty—paths which are statistically improbable to travel, true, but social programs are a path nonetheless.

The part of this that should alarm us all, as the country braces itself for a potential hydroplane to the right with the promise/threat of repealing so much social legislation, is the sure knowledge of what happens when you corner a desperate person who only wants to live. Talking points coming from the right are too shrill, here. And this, ironically, is what cynics believe was the motivation, for the creation of welfare. A cynic will tell you that welfare was created because it was believed that was the cheaper option as compared to the cost of a sizeable enough police force necessary to safeguard the population from a desperate poor class, heavily armed, and searching for white collars. If there is no path out of poverty, we may just learn the grievous error of whipping up so much hate in our politics and believing that so few Americans could live so large while so many others are left to rot. We may actualize our self-fulfilling prophecy, and learn the difference between hyperbolic class warfare, and the real thing.