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Taxes, Class Warfare and eMeg’s Vast Fortune

Oct20

Faced with Jerry Brown’s intensifying attacks on her call to end California’s tax on capital gains, Meg Whitman has responded with one of the hoariest political lines in the Republican campaign play book: the Democratic nominee, she says, is engaging in “class warfare.”

Whitman argues that her capital gains proposal, which would eliminate state taxation on sales of stocks, bonds, real estate and other assets, would jump start California’s economy, by keeping the profits from such transactions in the hands of investors, who would channel the money into starting and sustaining businesses, thereby creating jobs.

Brown argues, however, that the tax cut not only would blow a $5 billion hole in a state budget already wracked with huge deficits, but also would prove beneficial only to the very wealthy, including Whitman herself.

In the days since their final debate, when Brown repeatedly charged the big winners with the tax cut would be Whitman and “her billionaire friends,” the “class warfare” meme has been sounded and echoed in quick succession by Whitman spokesmen, by the state party and by the candidate herself, at a Monday appearance in Southern California.

The fact that I would run for governor to enrich myself is ridiculous – all you have to do is to look at how much money I have spent versus how much money I would save. He is so off-base on this. It’s a political stunt. It’s class warfare.

Well and good, but inquiring minds want to know: Why does “class warfare” always only go in one direction?

For Whitman and her allies, taxing profits of investors and the wealthy, in essence, is a wrong-headed, socialist, economic redistributionist notion that strikes at the most fundamental values of American capitalism.

Yet they never portray their own, constant, fierce and unbridled attacks on unions as “class warfare,” no doubt because they are the most selfless of citizens — “I refuse to let California fail” — whose beef with labor represents nothing more than high-minded, good government reform, which they embrace solely for the most civic-minded of motives.

Whitman mocks Brown as “crazy” for even suggesting that economic self- interest might help explain the great personal favor she’s done all of us by deigning to run for governor; after all, Meg notes, she and Griff might only net $15 million a year as a result of her proposed tax cut – a mere bagatelle.

What person in their right mind would spend $140 million to run for governor to save $15 million? I mean it just shows Jerry Brown does not understand math.

How about some Calbuzz math:

According to an in-depth study by our Department of Investment Risk Management Modeling and Abacus Repair, $15 million a year on a one-time investment of $140 million works out to a 10.7% annual rate of return, most likely more than Our Meg could make anywhere outside of those early-peek IPOs she got the inside track on over at Goldman Sachs.

Qui bono capital gains: Despite eMeg’s distaste for “class warfare,” a look at the numbers clearly shows that it is precisely her economic class – the wealthiest 1% of taxpayers – who would reap the outsize benefits of her tax cut proposal. As Michael Hiltzik, the Pulitzer Prize-winning economics columnist for the by-God L.A. Times, has noted:

The real problem with this proposal is that it looks like a pure handout, and a costly one, to the wealthy, a group that includes the billionaire Whitman herself. In 2008, according to figures from the Franchise Tax Board, more than 82% of the $56 billion in capital gains earned by California residents were reported by the top 1% of income earners (those touching about $500,000 or more).

And this, from Hiltzik’s colleague, the redoubtable George Skelton:

Who pays the (capital gains) tax?

–People with adjusted gross incomes exceeding $500,000 pay 82% of the total capital gains tax. For them 38% of their earnings comes from investment profits.

–These $500,000-plus earners amount to only 1% of taxpayers – or about 150,000 returns – but provide 48% of the total personal income tax.

–-People with more than $200,000 in adjusted gross incomes – 4.4% of filers – provide 93% of the capital gains tax.

Whitman says that eliminating the tax would “spur innovation, which we have to own in California.” But, I note, many people realize investment profits merely by buying and selling stock. That hardly induces innovation.

Still, eMeg stands aghast at the shocking suggestion of “class warfare,” though she never hesitates for a second to demonize as “labor bosses” public school teachers who knock down 60 grand, or thinks twice about bashing some poor shlub living on a $25,000 pension after 30 years of mopping floors at the DMV office for “sucking up taxpayer funds.”

How rich is eMeg? Fortune magazine, which just released its annual compilation of the 400 richest individuals in America, pegs Whitman as the 332nd wealthiest person in the nation, with a net worth of $1.2 billion.

Among the 400, there are 84 people who live in California – about 21% of the total – and Whitman sits near the bottom of that list, which makes the wannabe governor only the 74th richest citizen of the oh-so-Golden State.

These 400 people, who represent 0.0000012% of the country’s population,  control about 2.5 percent of its wealth – about $1.5 trillion; thus the Fortune 400 control only slightly less wealth than the $1.6 trillion held by the bottom half of the U.S. population, no doubt most of them avaricious public employees with outrageous salaries and benefits.

Of course, it must be noted that Meg’s cohort of 400 is just the crème de la crème of the upper 1% of taxpayers who have made out like bandits prospered disproportionately over the past decade. Washpost columnist Steven Pearlstein writes:

By 2007, the top 1 percent of households took home 23 percent of the national income after a 15-year run in which they captured more than half – yes, you read that right, more than half – of the country’s economic growth. As Tim Noah noted recently in a wonderful series of articles in Slate, that’s the kind of income distribution you’d associate with a banana republic or a sub-Saharan kleptocracy, not the world’s oldest democracy and wealthiest market economy.

Put another way, as the Center on Budget and Policy Priorities did in boiling down the same economic trends in a 2009 report:

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.

During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households…

The last time such a large share of the income gain during an expansion went to the top 1 percent of households – and such a small share went to the bottom 90 percent of households – was in the 1920s.

1928 – now that was a helluva’ year.

Why it matters: All this talk of class warfare – the horror, the horror! — would be little more than fodder for Marxist whining sessions or kvetching by petty and jealous-minded souls who lack the innovative imagination, spirit and perseverance needed to make themselves fabulously wealthy in the entrepreneurial manner of, say, Calbuzz, a privately-held partnership, plenty of free parking.

Turns out, however, there are some practical reasons that this wealth concentration business is a real bummer, even for those of us who long ago left behind their obsession with dialectical materialism. Pearlstein again:

There are moral and political reasons for caring about this dramatic skewing of income, which in the real world leads to a similar skewing of opportunity, social standing and political power. But there is also an important economic reason. Too much inequality, just like too little, appears to reduce global competitiveness and long-term growth, at least in developed countries like ours…

The biggest problem with runaway inequality…is that it undermines the unity of purpose necessary for any firm, or any nation to thrive. People don’t work hard, take risks and make sacrifices if they think the rewards will all flow to others. Conservative Republicans use this argument all the time in trying to justify lower tax rates for wealth earners and investors, but they choose to ignore it when it comes to the income of everyone else.

It’s no coincidence that polarization of income distribution in the United States coincides with a polarization of the political process. Just as income inequality has eroded any sense that we are all in this together, it has also eroded the political consensus necessary for effective government…

Political candidates may not be talking about income inequality during this election, but it is the unspoken issue that underlies all the others.

And thank you for that.


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There are 10 comments for this post

  1. avatar Penguin says:

    This should be required reading for all tea party members

  2. avatar Bob Mulholland says:

    Whitman & Fiorina subscribe to a basic principle- wealthy people need more tax cuts and tax breaks, like for for sending jobs overseas. When wealthy people have more money they can hire more domestic help. What’s that Whitman & Schwarzenegger saying- if you try something over and over, you’ll get different results. Well, Republican Presidents and Republican candidates keep saying if you give more tax cuts to the wealthy, then revenue will increase to government and you can balance the budget. The last Republican President to balance the budget was Eisenhower, for one year, out of his 8 years. Candidate Bush Sr in 1980 called it Voodoo Economics. President Clinton in 1993 raised taxed on the wealthy and we ended up with the greatest economy ever, balanced budgets and the wealthy got wealthier (a win win). Last year President Obama signed the Recovery/Stimulas bill which included tax cuts to the middle class. Republicans voted No. Whitman & Fiorina are running on the “Voodoo Economics” Platform.

  3. avatar chrisfinnie says:

    Go to Comedy Central and look up the bit Stephen Colbert did on class warfare. It’s hysterical, and incidentally makes the same point you noted about 1928. He asks with some concern whether his success will make him a target for the dissatisfaction of the teeming masses. That, or the next Tea Party candidate for governor. It’s a cryin’ shame.

  4. avatar tonyseton says:

    The hoariest of the hoars…this is more of that noblesse oblige tinkle-down math that Arthur Laffer (Laugher) dribbled out a quarter-century ago. Whitman and her supporters probably never feared the phone ringing with creditors a dozen times a day, or were reluctant to check the mail for the dunning notices they would find. Can they even imagine what it’s like to have a sick child and no money for a doctor, to feeding and McDonald’s because it’s the cheapest meal they can find? How ’bout we restore the 90% personal income tax rate that we had until 1962, and while we’re at it, limit deductions to $50,000 a year?

  5. avatar Adelaides Lament says:

    I believe that Meg rented that horse shown on the Fortune cover. She probably didn’t want to get her own horse dirty so she left it home in the stables.
    The Repubs have become expert at accusing the Dems of exactly what they themselves are most guilty of. When will the Dems learn?

    • avatar Donald from Pasadena says:

      But if we were going to simlilarly project ourselves upon Republicans and accuse them of being our own mirror image, we’d have to say they were spineless wimps who suffer from the political equivalent of “battered wife syndrome.”

      Far better that we just look at them incredulously when they talk, then laugh in their faces and call them out for the incredibly selfish morons they are.

      Look at that clown in Ohio who’s a GOP candidate for the U.S. House, and who apparently also likes to play dress up in a Waffen S.S. stormtrooper uniform. When he tried to explain away his behavior at a subsequent local debate by saying that he wasn’t dressing up as a Nazi Party member, his Democratic opponent literally laughed at him and then responded curtly, “What part of ‘Nazi’ don’t you understand?”

  6. avatar cbarney says:

    i lost my abacus long ago but still…

    if meg still had her $140 million, she’d be getting 10.7% on her cap gains savings. but having spent the $140 mill she’d be in the hole 89.3% after the first year and upside down for ten years before she even broke even, no?

    unless you think the governorship is a fungible asset that could be sold on the market, which, come to think of it, just might fly these days.

  7. avatar Adelaides Lament says:

    I wasn’t a math major, but it seems to me that there’s big piece of the formula that Meg left out of her hypothetical calculations and hence, a lot of other people seem to be leaving out, too. That would be the incalculable value of power.

    Even though she’s not mentioning it now, if Meg is able to purchase the governorship of California she gains prestige and power and a sweet stepping stone to the Republican nomination for President of the United States.

    $150 million investment = $40 mil tax break + leader of the free world

  8. avatar Moderate Democrat says:

    I dusted off my abacus, but I am not understanding the Calbuzz math.
    That $140 million spent is not principal on an investment that would yield 10.7% return because it money already is spent

    Moderate Republicans like eMeg could be okay if they indeed were moderate, or, better, an Independent. But eMeg is none because she has not voted in any election. When eMeg ran further to the Right to beat out the Poiz, she killed her chance to beat Jerry the Krusty despite flipping or ignoring her past positions, like Braceros for the 21st Century.

    Of course, being a hypocrite and liar on her illegal immigrant nanny employee did not help either. Nor being a J-Street Whore.

    • avatar pjhackenflack says:

      Note to moderate dem and cbarney: On the investment math, Adelaides Lament got it right, as usual.

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