Media Push Trickle-Down Tax Cuts for the Rich
At a time of record income inequality and massive budget deficits, how do you justify a $700 billion plus tax cut for the wealthiest Americans? By claiming that the fate of the economic recovery depends on the rich - and the rich alone. And with the very top income earners facing a return of their tax rates to the 39.6% rate of the economy's Clinton-era halcyon days, the media is helping the GOP in waging its full court press to prevent that from happening.
As the battle over the expiring Bush tax cuts heats up, media outlets are of all stripes are increasingly enlisting on the side of the Republican Party and its gilded-class constituents. While nearly three-quarters of Americans in April 2009 supported ending the Bush tax cuts for households earning over $250,000 a year, new polls now put that support just over 50%. Over just the last week, AP, CBS and the Wall Street Journal led the way in warning that when "wealthy Americans aren't spending so freely anymore...the rest of us are feeling the squeeze."
But it was the New York Times which on July 16 led the way in announcing that "even the rich appear to be tightening their belts." While Global economic instability helped undermine consumer confidence, volatility in U.S. stock markets has a "bigger psychological and financial impact on high-income households." And that is a problem, the Times warned ominously:
But the Top 5 percent in income earners -- those households earning $210,000 or more -- account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody's Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data.
By last week, the media panic on behalf of the tragically rich was under way.
On August 1st, the AP explained Trickle-Down 101 (if not income inequality not seen sine 1929) this way:
Think of the wealthy as the main engine of the economy: When they buy more, the economy hums. When they cut back, it sputters. The rest of us mainly go along for the ride.
Which can only mean one thing. Not additional stimulus funding certain to be spent by states, local governments and individuals alike, but - wait for it - tax cuts for the wealthy:
Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans -- those earning at least $207,000 -- are buying less...These shoppers have retrenched as their investment values have sunk and home values have languished.
In addition, the most sweeping tax cuts in a generation are due to expire in January, and lawmakers are divided over whether the government can afford to make any of them permanent as the federal budget deficit continues to balloon. President Barack Obama wants to allow the top rates to increase next year for individuals making more than $200,000 and couples making more than $250,000. The wealthy may be keeping some money on the sidelines due to uncertainty over whether or not they will soon face higher taxes.
Not to be outdone, in "U.S. Economy Is Increasingly Tied to the Rich," the Wall Street Journal upper the ante on AP headline, "As Spending by Wealthy Weakens, So Does Economy." Working Americans should look at the caviar class and think, as the Wall Street Journal seemed to suggest Thursday, the rich must be saved:
Who cares how the rich spend their money?
Well, perhaps everyone should these days. Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years.
According to new research from Moody's Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments. By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.
And on Friday, Chip Reid of CBS joined the act. Regurgitating debunked Republican talking points on the impact of the expiring tax cuts on small business, Reid added:
Overall only about two percent of Americans qualify as rich under the president's plan and would see their tax rates rise -- but they pack an enormous economic punch.
While Treasury Secretary Tim Geithner argues that, "permanently extending the tax cuts for the top two percent would require us to borrow $700 billion more over the next decade, adding significantly to an already unsustainable level of debt," Moody economist and former McCain adviser Mark Zandi urged at least a delay in their expiration. But Zandi, who supported the Obama stimulus package as well as extended unemployment benefits and more aid to the states, cautioned:
"I don't think it's healthy for the economy to be so dependent on the top 2% of the income distribution. In the near term it highlights the fragility of the recovery."
For his part, Robert Frank of the Wall Street Journal nonchalantly noted that, "It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income," adding, "What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession."
Of course, it shouldn't have been surprising to anyone who was paying attention.
In June, an analysis from the Center on Budget and Policy Priorities confirmed that gap between rich and poor in the United States reached levels not seen since 1929. Between 1979 and 2007, the yawning chasm separating the after-tax income of the richest 1 percent of Americans from the middle and poorest fifths of the country more than tripled. But while the Bush recession which began in December 2007 temporarily halted the stratospheric advance of the wealthy, the rich - and the rich alone - have largely recovered their losses. Which means that the record level of income inequality in America is growing once again.
The CBPP report found a financial Grand Canyon separating the very rich from everyone else. Over the three decades ending in 2007, the top 1 percent's share of the nation's total after-tax household income more than doubled, from 7.5 percent to 17.1 percent. During that time, the share of the middle 60% of Americans dropped from 51.1 percent to 43.5 percent; the bottom four-fifths declined from 58 percent to 48 percent. As for the poor, they fell further and further behind, with the lowest quintile's income share sliding to just 4.9%. Expressed in dollar terms, the income gap is staggering:
Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation -- an increase in income of $973,100 per household -- compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.
To be sure, the deficit-exploding Bush tax cuts played an essential role in fueling the gap. (This is evidenced by the fact that between 2001 and 2007, the income share of the 400 richest American taxpayers doubled even as their tax rates were halved.) As the New York Times revealed in October, by 2007 the top 1% - the 1.5 million families earning more than $400,000 - reaped 24% of the nation's income. The bottom 90% - the 136 million families below $110,000 - accounted for just 50%.
But with the devastating Bush recession, the upper class joy ride hit a speed bump. As the media last fall lamented the downturn's impact on the tragically rich, David Leonhardt and Geraldine Fabrikant of the New York Times concluded concluded, "After a 30-year run, [the] rise of the super-rich hits a sobering wall."
They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.
But economists say -- and data is beginning to show -- that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.
As it turned out, that time wasn't just soon. It's already here.
The Los Angeles Times announced the return of record-setting income inequality last month in an article titled, "Millionaires Make a Comeback." After getting pummeled as Wall Street plummeted in 2008, the rich have begun to recoup their losses. The short period of Gilded Interrupted is over:
In 2008, as the financial crisis raged, the stock market hit bottom and the Great Recession ate into the economy, the number of millionaires in the United States plunged.
But last year the number of millionaires bounced up sharply, new data show.
And after that decline and rebound, the millionaire class held a larger percentage of the country's wealth than it did in 2007.
"It's been a recession where everyone took a hit -- with the bottom taking a bigger hit," said Timothy Smeeding, a University of Wisconsin professor who studies economic inequality. But "the wealthy alone have bounced back."
Bounced back, it turns out, with a vengeance. The Boston Consulting Group found that "the number of U.S. households with at least $1 million in "bankable" assets climbed 15% last year to 4.7 million after tumbling 21% in 2008." Despite there being 10% fewer millionaires than in 2007, the percentage of Americans' total wealth held by those households was slightly higher, growing to 55%.
Writing in the Washington Post, Ezra Klein neatly summed up the dynamic which has restored income inequality to record highs:
The basic story here is that assets have recovered so much more quickly than the broader economy that in 2009, "the millionaire class held a larger percentage of the country's wealth than it did in 2007." In other words, inequality has actually gotten worse. If you want to see why that's unexpected, check out the chart I cadged from the Center for Budget and Policy Priorities: After the Great Depression, inequality fell and didn't recover until 2007. That's about 80 years. After the Great Recession, inequality fell and didn't recover until ... 2009? That's one year.
For his part, Larry Mishel of the Economic Policy Institute argued, "The recession is going to end up accentuating the inequalities of income and wealth we've seen for 30 years," adding, "This requires attention if we're going to see robust wealth growth going forward."
Of course, that attention won't be coming from the Republican Party or its echo chamber in the media. Even as they push to extend the Bush tax cuts for the wealthiest Americans who need them least, GOP leaders plan to once again push a balanced budget amendment for the midterm elections. As to where they will make the draconian spending cuts their Starve the Beast Amendment will require, Republicans won't say.
But if they have their say, one granted at every opportunity by the media, Republicans won't be balancing the budget on the backs of the rich. Put another way, the side winning the class war is the only one fighting it.