How Do We Coddle the Super-Wealthy?

"Our leaders have asked for 'shared sacrifice.' But when they did the asking, they spared me." 
-Warren Buffett, New York Times, August 14, 2011

How do we "coddle" the super-wealthy?

The rules that help shape our economy have been influenced by the super-wealthy over the past 30 years, and tilted in their favor. Here’s how:

1. Huge Tax Breaks

Tax rates for our nation’s wealthiest have plummeted since the 1940s. Despite historically low tax rates in the late 1990s, President Bush created more tax giveaways that flowed directly into the pockets of the wealthiest Americans.

$1.8 trillion in revenue was lost as a result of the Bush tax cuts. 40% of benefits went into the bank accounts of Americans making over $500,000 annually.

2. Preferential Tax Treatment

It pays to make money from money. A paycheck—that is, income from work—is taxed at a higher rate than income from interest on captial gains and investments, the main source of income for most millionaires and billionaires. In addition, we shower wealthy folks with exemptions, credits, and deductions that amount to $1.1 trillion in giveaways each year.

2010 Effective Income Tax Rates (as a percent of income):

  • Warren Buffet: 17.4%
  • His Secretary & the rest of his staff averaged: 36%
3. Tax Dodging and Loopholes

Wealthy corporations have become incredibly skilled at avoiding taxes. Shifting operations overseas, creating sham headquarters in tax haven countries, and even renouncing American status are all common ways of “gaming” the system.

For example:

  • Exxon Mobil paid $15 billion in income taxes in 2010, but zero dollars were paid to the U.S.
  • General Electric made $5.1 billion in U.S. profits in 2010, but paid zero dollars in taxes.
4. No Limits on Influencing Government

Wealthy individuals and corporations spend billions on lobbyists (PDF) to tilt the rules that govern our economy. Why? Because they stand to get richer.

  • 1983: $200 million        
  • 1999: $1.44 billion
  • 2009: $3.87 billion

Corporate lobbying expenses in 2009 were 6 times greater than all consumer, environmental, worker, and other non-corporate groups combined.

The growing size (PDF) of the U.S. Lobbying Directory:

  • 1981: 531 pages        
  • 2008: 2,154 pages
5. We Buy the "Job Creator" Farce

Economists agree: tax cuts for the wealthy are not a good way to stimulate the economy.To the contrary, evidence shows that higher income households are more likely to bank their tax cut than spend it.

Each dollar of the Bush income tax cuts resulted in just 32 cents of economic activity.

6. We Buy the "CEO Meritocracy" Myth

Exorbitant CEO salaries are overlooked because we wrongly buy the “meritocracy” myth. That is, the inaccurate notion that in order to attract the best and brightest we must pay CEOs skyrocketing salaries.

Consider this:

  • Income of a U.S. Navy Seal: $54,000
  • Income of the average CEO at S&P 500 company: $11,400,000

Average CEO to Average Worker Pay Ratio:

  • 1980 ratio— 42:1
  • 1988 ratio— 191:1             
  • 2010 ratio— 343:1 
7. Keep it in the Family

Our nation’s most progressive tax—the estate tax—was designed to prevent the dynastic accumulation of wealth. But over the past decade, the estate tax has been phased out, repealed, and dramatically weakened. Since the tax only applies to our nation’s wealthiest elite, these changes have benefited only an exclusive club of millionaires and billionaires.

Higher exemotion threshold (PDF) (i.e. the amount of money transferred to heirs before the estate tax kicks in.):

  • 1981: 175,000
  • 2011: $5,000,000

Lower Estate Tax Rate (PDF):

  • 1981: 70%
  • 2011: 35%

Thirty-two percent of the wealthiest people on the Forbes 400 list in 2009 inherited all or a portion of their wealth.