Parasites Unite! America’s Entitlement Problem

Huck/Konopacki Labor Cartoons

Mitt Romney was recently embarrassed by a leaked video in which he wrote off the “47% of Americans who don’t pay taxes,” accusing them of feeling victimized and expecting the government to take care of them. NPR’s Planet Money says that it is actually just over 46% of Americans and it is primarily just the federal income tax that they do not pay and they don’t pay it because they receive tax credits or untaxed income like Social Security, Earned Income Tax Credits, child care tax credits and disability payments. The overwhelming majority of these people are poor or low income working people and retirees.

The biggest reason why so many people pay no federal income tax is the Earned Income Tax Credit (EITC), which was established in 1975 for low and moderate income working Americans, particularly those with children, as a way to offset social security taxes and to provide an incentive to work. The idea was that if you were working full time, you shouldn’t be starving, too. So the feds established this tax credit to put more money in the pockets of the working poor by taxing them less. The result was that many working poor no longer had any income tax liability. Thus, they paid no taxes.

Romney’s disparaging of these Americans, most of whom have worked hard all of their lives, belies his disdain for the rabble who he and his ilk have exploited to enrich themselves. Yet, in reality, the EITC has contributed to this exploitation, as it subsidizes low wages. The credit is only available to full time workers. So if you are willing to work for low wages, you will be rewarded with a tax credit. This helps ensure that there will always be a pool of workers willing to take on the lowest paying and most degrading, stressful and dangerous jobs out there and that bosses can continue to make millions of dollars per year by paying them so poorly for their toil.

Consequently, the EITC has received widespread support from both parties throughout most of its existence. The program was expanded under Reagan, Clinton, Bush, and again under Obama, with the American Recovery and Reinvestment Act. Clinton’s expansion of the program resulted in nearly 25% of Americans paying no federal income tax. Under George W. Bush, the percentage of Americans paying no federal income tax rose to 36% as a result of a child tax credit he added to the program. And as a result of high unemployment and temporary tax breaks, the number of Americans paying no federal income taxes under the Obama administration has risen to nearly 50% of all American households, according to NPR’s Planet Money.

So what’s wrong with this?

From Romney’s perspective, the beneficiaries are just a bunch of crybabies and self-entitled brats who will never vote for him anyway or do anything to end their dependency on government aid. From the perspective of anti-Big Government activists, like Romney, the only role of government is to provide subsidies and tax benefits to the wealthy and their businesses and provide military and police services to protect their property and investments. Any government spending that provides assistance to the rest of us is wasteful and irresponsible.

While this is not true (the EITC actually benefits the wealthy by encouraging them to continue paying poverty wages), this rationale is consistent with their never ending quest to lower taxes for themselves, something that requires a concomitant reduction in government services (for the majority of Americans, but not themselves).

One problem with the EITC is that if 50% of Americans aren’t paying any federal income taxes, the middle class is forced to cover the difference, leaving the rich effectively off the hook. Most of the wealthy do pay some income tax. However, they pay a far smaller percentage of their income than do middle class wage earners, since the majority of their income comes from capital gains, which are taxed at a much lower rate than regular income. And some wealthy Americans in fact pay little or no income taxes. (For the years he actually provided data, Mitt Romney paid an effective federal income tax rate of around 15% on all income, far less than what middle class people pay. This is because the bulk of his income was capital gains and because of all the extra deductions available to wealthy investors and businessmen that are unavailable to the rest of us). Thus, this system allows the wealthy to retain a greater percentage of their income than middle and lower class wage earners, further enriching them and increasing the wealth gap.

As for the beneficiaries of the EITC, it has not ended (nor can it end) poverty. Rather, it encourages it by subsidizing low wages. This is not to say it should be abolished—it does provide some relief for low income wage earners. However, everyone should have the basics for survival, including sufficient food, housing, healthcare, leisure time, as well as access to the good things in life. The primary reason why we do not all have these things is that we are dependent on the wealthy to provide us with jobs and decent wages and they are dependent on our low wages for their profits and wealth. If we do not work, we cannot put food on the table. Thus, we have no choice but to continue selling our labor to them for whatever price we can get (a price that has been diminishing yearly since the 1970s when adjusted for inflation).

Until wage slavery itself is abolished, wages will continue to be the biggest influence on living conditions. Therefore, rather than simply giving a tax credit to the poor that lets the bosses off the hook and that encourages low wage work, the entire wage-based system must be ended and the quality of life needs to be unlinked from the type of work we do.

Is College Still Worth the Investment?

Indentured Student (Image from Flickr, by DonkeyHotey)

Half of all recent college graduates are currently unemployed or underemployed in low wage jobs unrelated to their training, the San Jose Mercury News reported this week. Roughly 1.5 million, or 53.6%, of those under the age of 25 with bachelor's degrees were jobless or underemployed. This is the highest rate in more than a decade.

While it is true that average wages are higher and unemployment lower overall for those with college degrees, the type of degree and its cost are becoming more and more significant, particularly for recent graduates who are facing a dismal job market and skyrocketing debt. With average student debt of more than $20,000 and the dearth of decent-paying jobs, college has become a big financial gamble for young people.  Graduates with degrees in zoology, anthropology, art history and philosophy, for example, were among the least likely to find jobs in their fields, while many recent college grads are accepting low wage jobs as bartenders, baristas and retail clerks.

Government projections released last month indicate that only three of the 30 fields with the largest number of projected job openings by 2020 will require a bachelor's degree: teachers, college professors and accountants. The majority of projected new jobs will be in retail, fast food and truck driving. According to the Mercury News report, close to 95% of the jobs lost during the recession and “recovery” were middle-income occupations like bank tellers, and many of these are not expected to return due to technological advances.

Considering the job prospects and the potential debt after four years of college, young people need to carefully weigh the risks and benefits of investing in a degree program. For example, if one is earning only $24,000 per year after taxes, or $2,000 per month, and spending half of that on rent, how can they afford to pay back any of their debt and still afford to eat? Even with an after-tax income of $36,000 per year, people living in high cost cities like New York, San Francisco or Los Angeles would have a difficult time surviving and paying back their debts.

Deliberately choosing a college major in one of the few growth industries (e.g., K-12 or college educator or accountant) might seem like a prudent move. However, even this is a huge risk. 50% of all teachers leave the profession within the first 5 years, at which point, they may still be saddled with a large college debt and lack the skills for a more appropriate and adequately paying job. At the same time, the working conditions for both K-12 teachers and college professors have been deteriorating rapidly, with increasing teaching loads and student to teacher ratios, longer hours, increased responsibilities, and decreased opportunities for tenure and job security. Thus, even for those with the interest and desire to stay in the field, they could still find themselves jobless within their first few years.

Do I even need to say anything about the absurdity of becoming an accountant just to be able to pay off one’s student debt?

Obama’s “Buffett Tax” Will Widen The Wealth Gap

President Obama has called for a new “Buffett Tax” on millionaires as part of his plan to cut the deficit by $3 trillion. The effort, he says, is aimed at making sure that people who earn more than $1 million a year pay at least as much tax as middle-class families, Democracy Now reported yesterday.

The "Buffett Tax" is named after billionaire U.S. investor Warren Buffett, who wrote that rich people like him often pay less in tax than those who work for them. He also said that there is a class war going on and the rich are winning [in part because the current tax system has hastened the widening of the wealth gap].

The “Buffett Tax” contradicts Obama’s repeated calls for affluent Americans to pay their fair share. The concept of progressive taxation is based on the principle that the greater one’s income, the greater the percentage of their income that is taxed. The basis for this system is the assumption that the affluent can afford to part with a larger share of their income and still remain affluent. Therefore, if a “Buffett Tax” only makes the rich pay the same amount as the middle class, all it would do is possibly get the wealthy pay $20,000-30,000 per year in taxes, which is approximately what a lower middle class family is taxed.

However, if millionaires truly paid all the income taxes they are supposed to pay, they would have to pay 35% on all income above $379,150. Therefore, a millionaire would pay 35% of $620,850, or $217,297.50. Obviously, those making more than a million would pay much more. However, even this is letting them off easy. Consider that during the Great Depression, the marginal rate for the highest tax bracket was 63% and from 1953-1963 it was over 90%! In fact, from 1932 to 1986, the tax rate for the richest Americans never dropped below 50%, possibly Reagan’s most lasting legacy and why he is so adored by the wealthy.

This, of course, does not even take into account all the other tax breaks they get, like the current capital gains tax rate of 15% (28% under Reagan), or the inheritance tax breaks that have occurred over the past few years.

Let the Rich Eat Cake—General Strike!

In the largest demonstration in Wisconsin’s history, over 100,000 workers, farmers and students marched in the state capital of Madison, Saturday, against attacks on unions and cuts to education, health care and other services. The day before, Gov. Walker had signed into law his “budget repair bill,” stripping most of Wisconsin’s 300,000 public employees of collective bargaining rights.

Class War

The media and politicians never use the words “working class,” and seldom even mention poverty or homelessness. The unions, too, are infatuated with the delusion that we live in a monolithic middle class nation. Such misrepresentation of reality only serves the interests of the ruling class. It distracts attention from their aggressive attacks on the living standards of the poor and working and middle classes, and it diffuses working class solidarity and militancy against ruling class power.

Despite the unions’ pathetic capitulations and class betrayals, the militancy of the demonstrators has grown, with increasing numbers of workers recognizing that their protests are part of the class struggle. Chants and signs have referenced general strikes, class war, taxing the rich, and reversing the wage and benefits cuts.

Video: Wisconsin Workers Talk About the General Strike (from the WSWS)

Class Traitors

Wisconsin’s mainstream unions quickly threw in the towel and completely surrendered to the Republicans, both by conceding to Walker’s demands for pay and benefits cuts and by telling workers to behave themselves and to go back to work. Indeed, they have been actively working to divert worker rage and solidarity by redirecting their energy into a vapid campaign to recall the Republicans and bolster the Democrats in the state legislature. The 14 Democrats who had fled the state in order to delay the union-busting were treated like heroes by the unions despite the fact that they had presided over the deepest spending cuts in state history—hardly the behavior of real working class heroes, (but a good indication of the unions’ true allegiances). In fact, the Democrats joined the unions in their demands that the protesters return to work and focus on the ballot box.

Why would the union leaders so brazenly betray their own members? The most important reason is self-preservation. In order to maintain their 6-figure salaries and their sleazy relationships with Democratic lawmakers they need to preserve the automatic dues check-off that funnels money directly from workers’ paychecks into their coffers, and indirectly into the hands of lawmakers. Proof of this can be seen in the cowardly and desperate contract signed by Madison Teachers Inc. on Saturday. The union, which represents 2,700 teachers and other school employees, conceded to a wage freeze, increased health premiums, and increased out-of-pocket pension contributions equal to those demanded by Walker, in exchange for a temporary continuation of the automatic dues check-off (under Walker’s bill such deductions are prohibited once existing agreements expire).

Unions Stupidly Insist On Playing Losing Game

While the unions continue to act as though the political game is the only game in town, they have already been ejected and sent home, at least in Wisconsin. Without the automatic dues check-off, unions will be severely limited in their fundraising efforts, thus hampering their efforts at kicking the Republicans out of office. Even with the dues check-off, unions cannot compete with the bottomless purses of corporations. In 2009-2010, corporations outspent unions by 13 to 1 in Wisconsin.

To add insult (and what should be seen as humiliation) to injury, Wisconsin Senate Majority Leader Scott Fitzgerald made it abundantly clear that the goal was to eviscerate the union-Democratic Party machine. “If we win this battle, and the money is not there under the auspices of the union, what you're going to find is President Obama's going to have a much more difficult time getting elected and winning the state of Wisconsin.”