Rise of the Elite: Enabled in Great Part by Tax Expenditures, Corporate Subsidies and Farm Subsidies; at the Expense of the Commoners.
January 20, 2011
A personal note: In an effort to keep this post as short as possible without sacrificing important details, separate reports were created on four of the major topic. Links to those reports are provided at the end of each of those topics. The reports may be updated periodically.
The Rise of the Elite
The continuing and escalating rise of our “masters of the universe” has caused great pain and suffering to all common peoples, and to some, actual death. This is the price we-the-people have paid and will continue to pay to our “Overlords”.
Lindsay Beyerstein recently wrote “We Welcome Our New Plutocratic Overlords” in which she said “they’re pretty much the same as the old global elite, only richer and more smug” [bold added].
Her article is about the class warfare that’s raging in our country, and it’s painfully obvious that the elite is not only winning, but destroying most beneath them. But what caught my eye immediately is her segment on “Divide and Conquer” — a phrase I have often used over the past 20 years or so — describing how the elite have been able to slaughter us.
Kari Lydersen of Working In These Times explains how conservatives use misleading statistics to pit private sector workers against their brothers and sisters in the public sector. If the public believes that teachers, firefighters, meter readers and snowplow drivers are parasites, they’ll feel more comfortable yanking their pensions out from under them. [bold added]
The “divide and conquer” strategy has never ever failed. It has always been a key element in traditional warfare throughout history. In most cases it was used so that the few could conquer the many. And that is exactly what our political machine, in conjunction with corporate America, the wealthy and a supercharged biased news media has used to conquer us.
Beyerstein references a very lengthy piece by Chrystia Freeland, Global Editor at Large for Reuters news service: “The Rise of the New Global Elite”. Freeland references the two Plutonomy reports put out by Citigroup in 2005 where it was pointed out that the “World is dividing into two blocs — the Plutonomy and the rest” (you can find those two reports on this blog here and here [both PDF’s]). And she accurately says that the rich of today are very different from the rich of yesterday.
Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.
Freeland’s report is divided into 8 headings:
- The Winner-Take-Most Economy
- Plutocracy Now
- The Road to Davos
- A Nation Apart
- Revolt of the Elites
- The Backlash
- Bridging the Divide
Maybe “The Backlash” is where the commoner’s hopes’ rest. Speaking about how American elite differ from European elite, Freeland said:
One measure of the pricklier mood is how risky it has become for politicians to champion Big Business publicly. Defending Big Oil and railing against government interference used to be part of the job description of Texas Republicans. But when Congressman Joe Barton tried to take the White House to task for its post-spill “shakedown” of BP, he was immediately silenced by party elders. New York’s Charles Schumer is sometimes described as “the senator from Wall Street.” Yet when the financial-reform bill came to the Senate last spring—a political tussle in which each side furiously accused the other of carrying water for the banks—on Wall Street, Schumer was called the “invisible man” for his uncharacteristic silence on the issue.
She goes on with more examples which tell us that our politicians know — at least for now — there is a limit to how rapidly they can abandon the commoner in favor of the elite.
In her closing paragraph she says:
The lesson of history is that, in the long run, super-elites have two ways to survive: by suppressing dissent or by sharing their wealth. It is obvious which of these would be the better outcome for America, and the world. Let us hope the plutocrats aren’t already too isolated to recognize this. Because, in the end, there can never be a place like Galt’s Gulch. [“Galt’s Gulch” briefly defined, and in-depth.] [bold added]
Through my work as a business journalist, I’ve spent the better part of the past decade shadowing the new super-rich: attending the same exclusive conferences in Europe; conducting interviews over cappuccinos on Martha’s Vineyard or in Silicon Valley meeting rooms; observing high-powered dinner parties in Manhattan. Some of what I’ve learned is entirely predictable: the rich are, as F. Scott Fitzgerald famously noted, different from you and me.
[She will publish a book soon based on her research.]
At the end of this post is a 14 ½ minute video interview with Freeland on this research.
Frank Rich asked “who will stand up to the superrich?”
The wealthy Americans we should worry about instead are the ones who implicitly won the election — those who take far more from America than they give back. They were not on the ballot, and most of them are not household names. Unlike Whitman and the other defeated self-financing candidates, they are all but certain to cash in on the Nov. 2 results. There’s no one in Washington in either party with the fortitude to try to stop them from grabbing anything that’s not nailed down.
The Americans I’m talking about are not just those shadowy anonymous corporate campaign contributors who flooded this campaign. No less triumphant were those individuals at the apex of the economic pyramid — the superrich who have gotten spectacularly richer over the last four decades while their fellow citizens either treaded water or lost ground.
How the Commoner Heavily Subsidized the Elite
Our politicians, as a whole, begin inviting the elite to become their masters just about 25 years ago, which has resulted in them becoming our masters also. Due to the obvious — no true representation in government for the commoner — the elite now walk on “streets of gold” paid for, without choice, by the commoner with their blood, sweat and tears. However the elite has rewarded the politicians by providing for their present and future well-being.
In September 2010 The Annie E. Casey Foundation released a report, Upside Down: The $400 Billion Federal Asset-Building Budget that, in part, said:
More than half of the $400 billion in [specified tax breaks] go to the top 5 percent of taxpayers, those earning more than $167,000. Meanwhile, low-income families get next to nothing. This report looks at the upside down set of tax subsidies at a time when the economic downturn has left many low- and middle-income families struggling to get by.
Reuters news service, in reference to the AECF report, put it this way:
Billions of dollars in U.S. tax breaks to encourage home ownership, retirement savings, business start-ups and education mostly benefit top income earners and do little to help low- and middle-income people build wealth.
The U.S. government spent nearly $400 billion, mostly through tax breaks, in 2009 to promote home ownership and other wealth-building strategies, and more than half of that benefited the wealthiest 5 percent of taxpayers.
It must be pointed out that in 2010 only $123 billion was due to the “sacred cow” of home ownership (PDF): Federal deductibility of mortgage interest on owner-occupied homes and deductibility of State and local property tax on owner-occupied homes; just about the only part of the $1 trillion-plus per year federal subsidy programs that benefits the commoners.
It’s important for the remainder of this post to understand the meaning of:
Capitalism: An economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the free market; profit is distributed to owners who choose to invest in businesses, and wages are paid to workers employed by businesses and companies. [Meaning they stand along in their endeavors WITHOUT any assistance from the government or taxpayer.]
Privatized Profits and Socialized Losses: Any instance of speculators benefiting (privately) from profits, but not taking losses, by pushing the losses onto society at large, particularly via the government.
The following is a brief introduction to Tax Expenditures, Corporate Welfare, Oil & Gas Industry Subsidies and Farm Subsidies. At the end of each segment is a link to a report that will cover each one in more detail. In this format, new info can be added as it becomes available.
Tax expenditures are lost revenues (income): “Any reduction in government revenue through preferential tax treatment such as deductions or credits”.
Definition as defined in the law: “Revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability.”
Tax Expenditures cost the federal treasury between $800 billion to $1.2 trillion each year, depending on which report you read. The reason for the difference is that it’s very hard to actually pin-point what is and isn’t a Tax Expenditure. Every state in the union also provides Tax Expenditures to businesses and individuals. That was estimated at about $774 billion in 2004 (the latest year I could find a “total” for all states), but with so many states hiding this information it’s literally impossible to come up with an exact total figure.
On January 8 of this year David Cay Johnston, a Pulitzer Prize winning columnist who teaches law at Syracuse University, addressed state tax expenditures. He notes that the news media is conveniently ignoring this subject at a time when every state in the union is in very serious financial trouble. One glaring example of this is Tax Expenditure-created-jobs that cost millions of dollars for each job. (I, too, addressed this just three days earlier in One Hourly Job Cost Taxpayers $3.1 Million.) So, as Johnston asked, why isn’t the media reporting this?
The reason the main-stream media is deliberately ignoring this subject is because it’s self-serving to not report it. They, too, are enjoying the massive fruits of Tax Expenditures at taxpayer expense.
Tax expenditures are often mingled in with Corporate Subsidies (welfare), which is at times appropriate. However Corporate Subsidies include much more, but all involve taxpayer-money giveaway to corporations in some form or fashion.
REMEMBER THE DEFINITION OF “CAPITALISM”!
Corporate Subsidies (Welfare)
One year ago this month I posted Corporate Welfare vs. The National Debt, which has been very popular among readers. Most of that info is included in the accompanying report linked at the end of this segment. Additional information has been made available since then which is also in the separate report.
The bottom line on corporate welfare is that commoners are required to make up the difference of about $100 billion each year due to Corporate Subsidies. And it important to understand that hundreds of businesses (corporations) consist of as few as two individual owners organized under different kinds of partnerships. Therefore, they benefit from Corporate Welfare which, in many cases, is the sole purpose of their endeavors.
REMEMBER THE DEFINITION OF “CAPITALISM”!
Oil & Gas Industry Subsidies
(Reports on Oil & Gas Industry Subsidies are often wrapped in Corporate Subsidies. Therefore it becomes a little difficult at times to separate the two.)
It is literally impossible to determine exactly how much taxpayer money is dished out just to the Oil & Gas Industry each year. The reason is painfully obvious; our elected officials, and certainly the industry, don’t want the public to know how much it is. But many organizations and individuals have attempted to do so with some success.
Figuring out exactly, or even roughly, how much oil companies receive in subsidy turns out to be a complicated challenge. Greenpeace believes Europeans spend about $10 billion or so (USD equivalent) annually to subsidize fossil fuels. By contrast, it thinks the American oil and gas industry might receive anywhere between $15 billion and $35 billion a year in subsidies from taxpayers. The exact number is slippery and hard to quantify, given the myriad of programs that can be broadly characterized as subsidies when it comes to fossil fuels.
In 1999 Assistant Treasury Secretary Donald Lubick testified before the Senate Finance Committee and said the petroleum industry probably receives the largest tax incentives than any other industry. If true, that may be due to their big lobbying interest. The New York Times reported in July of last year, not long after the BP oil blowout, that the oil & gas industry had spent $340 million on lobbyist since 2008.
Regardless of how much taxpayer money the industry is receiving, it’s too much. In 2010 the “Big 5” — BP, Chevron, ConocoPhillips, ExxonMobil and Shell — projected profits of nearly $100 billion. Since then the price of oil has increased by about 21%. Even without corporate welfare they would make a much-higher-than-fair profit.
As for the claim that the Oil & Gas Industry would not have an aggressive exploration and drilling program if not for subsidies, that is clearly debunked from a separate report linked in the accompanying report.
REMEMBER THE DEFINITION OF “CAPITALISM”!
Farm Subsidies (Agricultural Subsidy)
“A governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.”
Farm Subsidies amount to about $17.5 billion each year (others put it around $20 billion).
Washington paid out a quarter of a trillion dollars in federal farm subsidies between 1995 and 2009, but to characterize the programs as either a “big government” bailout or another form of welfare would be manifestly unfair – to bailouts and welfare.
After all, with bailouts taxpayers usually get their money back (often with interest), while welfare recipients are subjected to harsh means-testing, time-limited benefits, and a work requirement, all in order to receive modest-to-pitiful government benefits that are more or less uniform for every applicant.
None of those characteristics apply to America’s farm subsidy system.
The original intent of farm subsidy program was to “alleviate farmer poverty”. It was established back in the Great Depression of the 1920’s and 30’s. It was urgently needed back then. Had the government not stepped in to help those farmers many would have lost their farms through no fault of their own, and many in America and the rest of the world would have gone hungry. But the program has long since lost it’s intended purpose.
The majority of subsidies now go to commercial farms with average incomes of $200,000 and net worth’s of nearly $2 million. In fact, many wealthy people who were never farmers teamed with other wealthy people and formed farm partnerships. Many qualify as “Small Businesses”, under which they are able to take advantage of other very lenient tax laws written especially for them.
36% of all farms are classified as residential / lifestyle farms with the farm operators listing a primary occupation other than farming. The wealthiest top 10 percent of farm program recipients received 74 percent of all farm subsidies. For example, Riceland Foods Inc. of Stuttgart, Arkansas — the number one recipient of farm subsidies — has annual revenues of about $1.1 billion, yet they’ve averaged $3.7 million per year in farm subsidies over the past 15 years. And there are dozens more just like them.
REMEMBER THE DEFINITION OF “CAPITALISM”!
So why isn’t the mainstream news media reporting on these travesties? Here’s why.
From the 1998 TIMES Magazine investigative report (PDF):
Like most major corporations, Time Warner Inc., the parent company of TIME, has received millions of dollars in tax concessions or free services from federal, state and local governments over the years. The benefits include:
–A $2 million-a-year exemption from Florida sales taxes on promotional items mailed from the Time Customer Service Center in Tampa, which sells and renews magazine subscriptions to TIME, PEOPLE, LIFE and SPORTS ILLUSTRATED.
–A five-year freeze on real and personal property taxes (a savings of $224,550) from Shelby County and Memphis, Tenn., on an operations center for cable installers.
–A rebate of $168,800 from Simi Valley, Calif., to defray construction costs of a warehouse for Warner/Electra/Atlantic Corp., a music subsidiary.
Time Warner is based in New York City, and the company is expected to ask the city for a large incentives package for building its new headquarters at Columbus Circle, on the southwest corner of Central Park. Known as Columbus Centre, the $1.3 billion project has been called by one developer the “Rockefeller Center of the 21st Century.” Time Warner president Richard D. Parsons confirmed that the company would ask for tax breaks–though he emphasized that the project was not contingent upon receiving them.
If Time Warner gets a special deal from New York, it will join a host of media companies that have received tax relief and other incentives worth an estimated $400 million to build new offices or to keep their work forces in New York. The list includes Germany’s Bertelsmann AG, which now owns Random House and Bantam Doubleday Dell; ABC, part of the Walt Disney Co.; Conde Nast; McGraw-Hill; NBC, owned by General Electric; the New York Times Co.; the New York Post and its parent company, the News Corp., which also owns Fox; Reuters; and Viacom.
One last time: REMEMBER THE DEFINITION OF “CAPITALISM”!
If homeowners were allowed to keep their mortgage interest deduction on the home they occupy and all other Tax Expenditures, Corporate Subsidies, Oil & Gas Industry Subsidies and Farm Subsidies were eliminated, the savings to taxpayers would be about $885 billion each year. However, since there are most likely some Tax Expenditures that actually benefit the commoner, and some farmers who really need farm subsidies, we will generously deduct 25% more, which means the more realistic amount that could be saved is $664 billion each year (Our current deficit for 2011 is projected at $1.27 trillion, which includes $232 billion that will be spent in the name of the American Recovery and Reinvestment Act of 2009).
However, do not look for our politicians to cut anything that benefit the elite. Expect, instead, to have hundreds of things cut that benefit the commoner — including jobs — to balance budgets.
At the state level it is realistic to think that between $500 billion and $700 billion of the estimated $1 trillion cost could be saved each year by eliminating financial support for the elite. The added gift of doing this is that states would require much less federal support, thus saving billions more in federal dollars. But instead, ………
The public workforce is a major target of state budget-cutters. Since all 50 states have serious debt problems, you could pick any state as an example. But since I live here in Texas, I’ll use my state as the example.
Just before the elections last November, Republican Governor Rick Perry — who had been in office for 10 years — insisted the states’ deficit was slightly over $10 billion. That number was vigorously challenged at the time, but Perry and his hierarchy insisted the number was correct. However, just two months later — after Perry was reelected — he admitted the real number is nearly three times what he claimed: $27 billion. So what is Perry doing about it? For starters he’s going to cut 8,000 state jobs. But he, along with the Republican-controlled legislature, refuses to talk about the estimated $35 billion each year (PDF) in Tax Expenditures and Corporate Welfare. In other words, like our federal government and other states, the elite will not be touched under any circumstances; only the commoner will pay.
Some Tax Debunking
The statutory rate of 35% is not indicative of the tax burden carried by corporations. The tax base is riddled with holes, the amount subject to the tax is much smaller than the corporations’ economic income, and the loopholes that permit imaginative tax-avoidance schemes are superabundant.
The U.S. corporate tax burden is smaller than average for developed countries. Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent.
From “Understanding Tax”:
- 1 Why Bonus Depreciation is Not Necessarily a Good Idea – Temporary bonus depreciation rules, enacted as part of the Economic Stimulus Act of 2008, are likely to reduce job growth and depress wages through the end of this year, and perhaps beyond.
- 3 Why Oil Companies Don’t Drill – Three-quarters of the 90 million-plus acres of federal land already leased for oil drilling are not being worked.
- 4 Why We Pay Taxes – Taxes are the dues we pay to belong to Club USA. The Club provides enormous benefits to its members – safety, prosperity, freedom, security, community.
- 5 Who Pays Taxes: The Concept of “Incidence,” Part I – One of the least understood but most important concepts in tax is “incidence“. [latter link added]
- 6 How the Tax Code Subsidizes Businesses that Move Jobs Elsewhere – “Made in China with the benefit of US tax subsidies”.
Some Tax Sites To Follow For Actual Tax Facts
Center for American Progress – Taxes – Recently launched a new weekly series explaining Governments biggest tax breaks, which will include expenditures and special tax codes just for corporations and wealthy individuals.
Interview with Chrystia Freeland