Income gap grows, even before tax bill's effect

The rich are getting richer and the poor are getting poorer, and that's before this year's tax bill.

While the Washington debate has focused on the size of tax breaks and who will get them, the tax overhaul takes place against a background of major growth in the gap in family assets between those at the top and everybody else. It will make it the difference even greater.

Do people care about the wealth and income spread? It may become a problem for society when those at the low end simply cannot meet their basic expenses as government faces the need to cut spending.

In 1963, the wealthiest had six times the assets of middle-income families, according to Urban Institute statistics. By 2016, they had 12 times as much as middle-income families. Meanwhile, the poorest went from having assets of about $1,000 to bearing debt of $1,000.

The biggest cause for the gap is the meteoric increase in the wealth of the top 10 percent. In the past 20 years, their wealth has taken off, leaving others behind.

With higher incomes, people can save more and make investments that increase their wealth. There’s obvious momentum that shows that having some money is the best basis for making more money.

What’s the reason for the widening gap? Wealthier people have higher incomes. And they enjoy the effect of government programs to stimulate growth in family wealth far more than the rest of the population.

In an economy with high employment, concerns now focus on the lack of progress in improving family income. The average expected tax cut of about two percent will do little to solve that problem. In fact, the gap is likely to grow thanks to bigger breaks for the wealthy.

Technology and imports have undermined pay raises for people with less skilled jobs. The value of their labor in the market cannot grow when they must compete with production by robots or low-income foreign workers.

To see their incomes increase, workers will need training for more advanced jobs. The looming problem is that the number of jobs based on technology may be less than the number of jobs performed by lower skilled workers. That may help explain why so many people have dropped out of the work force.

Not all people are economically equal. The lifetime income of white men is $2.7 million compared with $1.5 million for African American men. Men of either group do better than women of any group.

Another reason why most families have relatively little wealth is the emphasis on consumer spending as the chief driver of the American economy. High retail spending means little income is left for savings. Automatic savings plans have been consistently opposed by retail business.

The main sources of family wealth are home ownership and retirement funds. Tax laws are designed to support the growth of both of these assets, but the benefits flow mostly to higher income families.

Before the new tax bill, the federal government spent about $400 billion a year to help people boost their wealth, according to the Urban Institute. Almost half of these tax breaks goes to supporting employer-sponsored retirement plans, which mostly benefit the wealthiest 20 percent.

Next is the tax write-off for mortgage interest and an even larger share goes to the wealthy few. The tax break is designed to encourage home ownership, but Canada, without such a benefit, has a higher share of families that own homes. The U.S. system serves mainly to encourage buying bigger homes.

The ability of many people to survive through their retirement results from federal government programs like Social Security, Medicare and Medicaid. These programs essentially replace what would ideally be income from personal savings.

Because these so-called “entitlements” form a major part of the federal budget, and House Speaker Ryan will propose next year to reduce them. Employers are unlikely to step in to fill the gap. What will happen to those dependent on them for their economic survival?

In the end, the only solution to avoid an economic crisis may be targeted tax increases. The ceiling on the mortgage interest write-off could be lowered further and the proceeds used to assist first-home buyers.

Social Security and Medicare benefits might be taxed more at top income levels. The wealthy are not heavily dependent on these programs, but a higher tax on their payments could be used to protect people who need them to survive.

The federal government now leans toward promoting the growth of wealth for the already wealthy. At least, it should do the same for everybody else.

Another surprise winner in Alabama: The Constitution

The Senate election victory in Alabama of Democrat Doug Jones over Republican Roy Moore has led to much analysis of what it meant and who the real winners and losers were.

One winner that may not get much attention was the U.S. Constitution. It needed a win.

Why? Moore’s comments a few years ago to Maine conspiracy theorists had become part of the campaign. He said that he favored eliminating all amendments after the first ten. As a hard right Republican, he was ready to roll back history.

His principal target were the three amendments adopted after the Civil War. He noted, correctly, that the 11 states of the Confederacy had been forced to choose between accepting them and regaining their seats in Congress or continuing to be territories under Federal military control.

The Confederacy has declared war on the Union in violation of the Constitution. It lost and they ratified the amendments. Today, Moore and others want to act as if the war went the other way.

Moore argued that amendments ratified at the point of a gun should be repealed. He went further, saying America was at its best before the Civil War. He painted a totally false picture of the happy family life of slaves.

He dislikes intensely the Fourteenth Amendment, one of the post-Civil War package, because it means the federal government can require the states to accept the Bill of Rights, the first ten amendments he said should survive. In short, those freedoms should apply to the federal government but also in the states.

What was most worrisome about Moore’s proposal, which he did not reject after it became public, was that it revealed that the so-called “alt-right,” which hopes to gain control of the Republican Party, wants to abandon much of the Constitution.

The hard right is not merely seeking to cut taxes for the wealthy or end net neutrality. They want to rewrite history. Moore would eliminate the end of slavery, votes for African Americans and women, and popular election of the Senate.

The Constitution survived his attack. Even if the GOP regains the Alabama seat, it’s not likely to be with a candidate supporting Moore’s views.

But the Constitution is not safe. Political partisanship has become so intense that it remains under attack. While lawful constitutional change is necessary over time, trying to undermine it for short-term political gain is a serious threat.

The very Republicans, led by Majority Leader Mitch McConnell, who are the targets of Moore and President Trump, are responsible for much of the attack on the Constitution for partisan purposes.

In 2016, Democrat Barack Obama was president. He sent a Supreme Court nomination to the Republican Senate for its review and possible approval. McConnell blocked the nomination from even being considered. This year, Republican senators whistled through Trump’s pick.

The Constitution says Supreme Court justices are appointed by the president subject to the advice and consent of the Senate. While the Senate can reject a nominee, the clear constitutional intent is that it must act on the nomination, not ignore it. McConnell’s action intentionally ran against the intent of the Constitution.

Or how about McConnell keeping the Senate in phony session, just to prevent Obama from making any nominations when the senators were at home?

Or the Supreme Court deciding that spending campaign money is the same thing as free speech, protected from government action by the First Amendment, and that corporations can spend all they want?

Or, for that matter, the Supreme Court, with judges favorable to one party picking the president, when the Constitution lays out a plan, followed earlier in American history?

Or, in Maine, Gov. LePage imposing his arbitrary conditions to block the application of the voters’ referendum decision on Medicaid, despite the state constitution?

Nothing is sacred. The fabric of the American republic can be torn for immediate, partisan purposes.

For Moore, trampling on the Constitution was all right, because the U.S. should be subject to a higher law, divine law. And if you want to know what that is, just ask Judge Moore.

The U.S. is not governed by divine law; it is governed by the Constitution. To govern ourselves, we look to secular guidance from that document above all and from the votes of the people and their representatives. Judge Moore, the Constitution makes clear you may follow any religion or no religion.

Moore and even McConnell feel free to undermine the Constitution, the only guaranteed link among the people, whatever their politics. This week, the Constitution won.

Tax cut bill shrouded in myths, pure politics

The tax bill to be finally adopted by Congress before the end of the year has produced of a series of myths, mainly the result of its rushed legislative process.

These myths result from ignorance of its content and its economic and political effects. They are separate from the purely partisan debate about who gets what and how much.

Myth 1. We know what the impact of the tax bill will be.

It is designed to give major cuts to the wealthy and corporations to make more job-creating investments. The middle class will supposedly gain. And it will the biggest tax cut in history.

We have no way of knowing what the recipients of the largest tax cuts will do. If they invest, reflecting the most favorable view of the bill, tax revenues from a booming economy might cover the cost of the cuts. If they keep the money, the tax cuts will boost the deficit.

It is impossible to measure tax cuts comparatively, and they vary by income. And we will never know if this really is the biggest reduction. As for the middle class, many will gain a little and some will pay more. Nobody now knows where he or she stands.

Our inability to understand the impact of the tax cuts is partly because we don’t know what all the tax cuts are. The bill is a Christmas tree, decorated with special tax gifts for limited groups.

Some of the tax cuts were added out of sight of the members of the Senate just before they voted on the bill. Looking at the bill, you will see handwritten notes adding and changing provisions. Senators had no way of knowing what they voted on.

Myth 2. The tax bill will simplify taxation.

Its advocates claimed it would simplify paying taxes. The tax code was only simplified by eliminating benefits for average taxpayers. For example, the code drops personal exemptions. And people in high income tax states, like Maine, will suffer from the deletion of a tax deduction for state taxes.

The bill is criticized for being over 400 pages, as if that is an indication of how bad it is. But that’s just another myth. When Congress changes any law, the language required to do something simple may take a lot of words. It’s the content that counts.

Myth 3. The tax bill was given careful consideration.

In fact, the bill was passed in the House and Senate in a hurry, though there was no need to rush. But the GOP wants at least one big legislative win in 2017 to show it was worth turning the entire federal government over to them.

If merely having a bill was more important than what it contained, they will have succeeded. That approach opened the way to all the special interest deals in the middle of the night.

The Republicans wanted to make sure they could pass the bill without any Democratic votes. They know that now they have just barely enough of a Senate majority to pull that off. They avoided the risk of achieving fewer cuts if they proceeded more carefully.

Myth 4. This tax bill makes permanent changes in the tax code.

Republicans eliminated the ability of a Senate minority to block action. When the Democrats regain a congressional majority, they can amend and repeal the Republican cuts and add some of their own.

The chances of laws swinging wildly back and forth with the change of parties should encourage cooperation and moderation. Not this time. Candidates may claim they can work with the other side, which is what voters want. But once they are in office, they follow the party line.

The last major tax bill in 1986 came during the administration of Ronald Reagan, the model of a conservative Republican president, and it had strong Democratic support. That was real, revenue-neutral tax reform. This year’s bill isn’t; it’s a revenue-losing tax cut.

Myth 5. This is a tax bill.

Not exactly. The Senate version would eliminate the Affordable Care Act mandate, which will mean millions lose their coverage and many will face higher insurance premiums. And it would allow oil drilling in the Alaska National Wildlife Refuge.

This bill is supposedly about cutting taxes for middle-income people. Whether it succeeds in cutting taxes or in creating jobs won’t be known for at least a year.

But the bill is really meant to score political points for its supporters in the 2018 elections. Watch for these myths in that political campaign.

New round in fight between government and private sector

When you hear the term “net neutrality,” do your eyes glaze over?

It may sound techie, but it is about the major issue of the day: the roles of government and private enterprise.

The Internet was a creation of the U.S. Defense Department, allowing almost instant communication between computers. It was soon made available for commercial use so that all computer users could access the Internet. To do so, they must normally use an Internet Service Provider (ISP).

Sharply different views have appeared over what kind of access people should get when they use the Internet. One view – net neutrality – is that the Internet is like a highway and should be open to all to reach any content on an equal basis. The alternative view is that ISPs can manage user access for their own profit.

Under President Obama, the U.S. adopted net neutrality. Now, under President Trump, federal regulators have decided to allow competitive use so that ISPs can control access.

The competitive approach means, for example, that ISPs provide service at differing speeds, direct searches to certain sites and products and away from others, and make it difficult to reach their competitors. The fastest service will cost more. If you don’t pay premium rates, your access will be slower.

By managing access, ISPs should be able to boost their profits. And they will create classes of users based on how much they pay.

Net neutrality is based on non-discriminatory access regulated by the government. The new system eliminates much of a government role and leaves the Internet to the private sector.

This is a classic case of the two competing economic views. Should the government regulate to ensure equality and wide public access or should the system be left to the private sector, protecting what are seen as the liberties of people and enterprises?

In short, however technical it may seem, the issue of net neutrality is new round in the fight between government and the private sector.

Much the same difference in views is the focus of the battle about the Affordable Care Act. The traditional system has been to leave health insurance coverage to competing private companies. That system produced coverage for many, but left millions of others without insurance, limiting their ability to get good care.

Because many people were uninsured under the competitive system, the federal government introduced Medicare for seniors, Medicaid for low-income people and, finally, the ACA, which is meant to subsidize coverage for most other people who had been left uninsured.

This year, the Republican Congress has tried to reduce or eliminate the ACA and cut back on Medicaid, permitting a return to the old, competitive model. They focused on private sector action over government programs and their cost. The model is more important, in this view, than covering the uninsured.

The current tax cut legislation reflects the same divergence of views. The GOP proposals would cut taxes more for the wealthy than for the middle-class and poor. The Republicans maintain that more money in the hands of the wealthy and corporations will lead to more investment in job-creating enterprises.

The Democrats would give biggest cuts to middle-income people who would spend more of their income. While the GOP approach relies on the private sector to promote personal income and growth, the Democrats favor more direct boosts to individual purchasing power.

These divergent views are repeated throughout the national political debate. Will the environment be protected through a competitive market or thanks to government regulation? If competition yields more jobs and profits in preference to better air quality, is that a fair trade-off?

What is the extent of government responsibility for assisting the poor? Should there be government income support programs or should the country rely on charitable aid, possibly encouraged by tax deductions?

As you have read this column, you may have answered these questions in the national debate. These issues are worth consideration. This debate is worth having.

But the main issues are often obscured by partisanship. It is more important for some that their party wins on an issue than the substance of the issue itself. Members of Congress line up on some bills even before they know their content.

Some political leaders try to obscure these basic issues by promoting “wedge” issues like abortion and guns. They expect voters to give them a blank check in return for their position on a single sensitive issue.

The American political system depends on compromise. But getting agreement on basic issues is impossible when partisanship and wedge issues dominate the debate.

Tax cut would bring big increase in national debt

Tax reduction is the hotly discussed issue of the day, but almost no attention is paid to its most important effect.

If any tax bill were passed, it would add about $1.5 trillion to the federal deficit. Trillion.

The added deficit would have to be financed by borrowing, and the national debt would grow beyond its current level of about $20 trillion. The instant gratification of a tax cut will bring delayed pain for future generations. Today’s grandchildren get to pay the bill.

We know this, because Congress intentionally set it up to work that way. All Senate Republicans and all but 20 House Republicans voted for a phony federal budget authorizing the new deficit spending. A deficit increase cap would allow the tax bill to pass without a single Democratic vote in the Senate.

That meant a once numerous Washington bird has almost disappeared. When Democrats proposed deficit spending, the GOP opposed and fought to prevent any more debt. They became known as “deficit hawks.” With the exception of a couple of Republican senators who won’t run again, the hawks have flown.

This deficit game has led to even worse moves. To keep the total shortfall under the cap, the Republicans would make the corporate tax cuts permanent, but the much vaunted help for middle income taxpayers would only last five years. The GOP tax cutters say the middle income tax cut could be extended later.

If they are right and Congress later makes the middle class cuts permanent, the true deficit increase will be more than $2 trillion. In the meantime, corporations get priority over people.

Candidate Donald Trump promised to eliminate “carried interest,” a complicated tax break for the wealthiest. It survives, while deductions for state and local taxes would disappear. It looks like a cosmetic change to the loophole would be made, but the give-away to hedge fund bosses would remain.

How can this preference be justified? Tax cut advocates claim that reduced taxes will leave corporations more money to invest in expansion, thus producing more business activity and jobs, which in turn would produce more tax revenues. If this theory works, the tax cuts won’t add to the deficit.

There’s no way of knowing what corporations will do with more money and if their actions will boost tax revenues. Congressional experts look at the measurable tax cost, while tax cut advocates prefer “dynamic” studies, showing the hoped-for tax growth.

Both ways of looking at the effect of tax law changes are imperfect. Experts lack the tools to forecast accurately revenue gains from tax cuts, if any. Advocates feel free to sell their proposals by relying on unproven optimistic projections. The only known fact is that on Day 1, there will be massive growth in the federal deficit.

Congressional Republicans want to pass the tax cuts quickly for two reasons. President Trump had has no major legislative victories in his first year in office, and his party wants to hand him a win.

Also, GOP congressional candidates promised to kill the Affordable Care Act and to cut taxes. After failing to do the first, they want to produce a tax cut before the 2018 elections to show they keep their promises. Interestingly, polls show that many people don’t care about tax cuts.

To find money to keep the deficit within limits, the Senate bill would end the ACA requirement to buy health insurance, whose premiums are eligible for federal subsidies. No requirement to buy means no subsidies and more money for tax cuts.

That may be an incorrect calculation. Many people buy insurance because of the federal subsidy, not because of the mandate. Eliminating the requirement might not save as much as expected, if people keep drawing on the subsidy. The ACA proposal looks unlikely to survive.

Another major impact of the tax bill that has mostly been ignored is the effect on state taxes. Many states, including Maine, base their individual tax collections on the federal form. For example, the definition of taxable income may be the same.

The Maine Legislature at its session early next year may find itself faced with making big decisions about how much to carry into Maine law of what congressional Republicans and Trump may have enacted. The state is teeming with candidates for governor, so that should make for an interesting debate.

The bottom line is tax cuts would be financed by massively adding to the federal debt. Washington has plenty of coal to put in the grandchildren’s holiday stockings this year.

World War I made U.S. world power; now it quits role

Americans now mark the 100^th anniversary of the U.S. entry into World War I. As meaningless as that war was, it served notice that the U.S. had become a world power, rivaling the British Empire.

The war ran for more than four years. The massive deployment of American troops in six months in 1918 brought it to an end. Europeans were surprised by the rapid pace of U.S. involvement, but also by the dominant role it expected to play in the post-war world.

Exhibits across the country now remember American involvement. The Maine State Museum in Augusta has an informative and appealing exhibition showing that Mainers supported the Allies even before American entry into the war by sending food to the beleaguered Belgians and others.

Once the war ended, the U.S. pulled back into isolationism, reducing its ability to influence world events. Leaders believed it could act unilaterally and other countries would have to follow. But it would withdraw behind its oceanic moat.

Americans took national pride from events such as the trans-Atlantic solo flight of Charles Lindbergh. He would later see no reason for the U.S. to take on the Nazis from his position at the top of a movement called “America First.”

Of course, the rest is history. The Great Depression spread across the world. Pearl Harbor, the London Blitz, merchant ships torpedoed, and Nazi aggression led to millions dead. Whether a continued American involvement in the world would have yielded a different result is beyond knowing.

It is certain is that the U.S. backed away from global leadership as the world descended into economic crisis and war. As a result, it was less able to take care of its own economy and stay out of a new and bloodier war.

After World War II, the U.S. and other countries showed they had learned their lesson. The U.S. was now the greatest world power. Modern transport and communications meant it could no longer withdraw behind the moat.

More importantly, the U.S. had learned it was part of a world economic and political system and could achieve its objectives only by cooperating with others.

Out of the war came NATO, a mutual defense arrangement designed to discourage aggression against America and its allies. The United Nations, led by the U.S., was to develop peaceful solutions to major issues. Trade agreements were to promote national economies by boosting international efficiency.

And all of that began to work. It did not meet the highest expectations, but it produced some positive results. The world avoided major war and the biggest threat, the Soviet Union, collapsed. Health improved, and poverty and hunger were reduced, though there is still a long way to go.

But progress is uneven and does not benefit all people equally. Some costs are inevitable. Horse-drawn wagons gave way to pick-up trucks. Tough for the wagon makers. Natural gas and renewable resources push back coal. Tough for the coal miners.

Money became the standard of success. Some profited at the expense of others, resulting in the Great Recession that began a decade ago and has just ended. Many people came out of that crisis finding their jobs no longer existed as technology had moved on.

Some voters rebelled against these changes. They longed for their past. Some resented the rise of minorities, who could be falsely blamed for taking their jobs.

They chose as their president a man who promised to revive the past and the wholesale repeal of the policies of the first minority president.

President Trump, a success in the New York real estate business, convinced voters that the art of his deals would work better than the deals of the post-war world. Don’t criticize Russia for tampering with American elections, he implied, but butter up its leader in hopes that he will accommodate Trump administration policies.

Trump chose “America First” as his model, though, like Lindbergh, he meant “America Alone.” In less than a year, America has shed its role as the undisputed world leader. China has moved to the front row as a world power as Trump has focused his policies inward to promote corporate interests and his own standing.

“Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit,” said President Franklin D. Roosevelt in his 1933 inaugural address.

Trump needs to understand that Roosevelt’s words remain true.

Trump’s falling popularity hurts GOP; Dems search for options

There are two problems with the Trump administration’s tax reform proposal.

First, it’s not Trump’s. It comes from the Republican Congress, just as did all of his claimed health care “repeal and replace” proposals.

It’s not “reform.” The proposal’s main purposes are to cut corporate taxes and taxes paid by the wealthiest investors.

Like almost everything coming out of government – federal and state, Republican or Democratic – it lacks a consistent policy. Voters today see the GOP relentlessly pursuing a reduction in the size of government and Democrats failing to offer any alternative beyond not being Republicans.

President Trump promised an approach to health insurance reform that would be better for all. He said that the focus of tax reform would be better treatment of the middle class. He offered neither.

On health care, he had no proposal of his own, but supported with equal enthusiasm each successive fallback proposal by congressional Republicans. On tax reform, he offered great praise for a bill that had not yet been drafted.

The voters now get it. The latest Washington Post/ABC poll shows, after the same period in office as his predecessors, he is the least popular president since these polls began in 1953 and the only one with a net unfavorable rating.

Even on the economy, he gets an unfavorable response. For a while, he got credit for a rising stock market, but it is reasonably clear that investors boosted share prices in the expectation of corporate tax cuts.

Gov. LePage, a Trump ally, showed up in another poll as one of the most unpopular governors in the country. His lack of compassion and his narrow focus on cutting taxes above all is turning out not to be a substitute for sound management or the ability to work with the Legislature.

In the case of Maine, using the processes of initiative and referendum, the voters took the issue of Medicaid expansion out of the hands of state government. This week, the people, whom government supposedly serves, voted for expansion. LePage vetoed Medicaid, but the voters vetoed LePage.

Here’s what the GOP House tax bill really does. It simplifies some portions of the tax code, but much of that “reform” takes benefits away, even from the middle class. The wealthiest would keep their tax breaks and see the estate tax melt away. The proposal slashes the corporate rate.

Tax reform is supposed to collect taxes differently but with no change in the government’s total take. This “tax plan” would produce a $1.5 trillion deficit over the next six years. Don’t worry, though, its supporters claim it will stimulate the economy and produce new tax revenues to cover that new debt.

If such a bill passes, and it could, it would be a top sales promotion feat, promising much more than it produces. It could create the major campaign issue for 2018.

But there’s the problem for the Democrats. In the same survey giving Trump an unfavorable rating for his job performance, voters said the Democrats mainly criticize Trump rather than offering alternatives. The Dems’ rating was even worse than Trump’s low grade.

Neither party seems to be able to make the process work. If it passes, the tax bill may be the only major piece of legislation enacted this year, possibly without a single Democratic vote.

Admittedly, there are risks for both parties these days. But in the governor’s race in Virginia, a Democrat defeated a pro-Trump Republican and the results were not as close as forecast.

GOP members of Congress announce regularly that they will not run for reelection. Either they want to flee the toxic Washington atmosphere or they are afraid of challenges from the extreme right, supposedly loyal to Trump.

The Democrats are split between moderates and those who want to move the party to the left. If they cannot find compromises, their party could throw away its chance to have a bigger say in government.

The answer for Republicans is to stand on conservative principle, but worry less about keeping their unpopular campaign promises. They may risk losing a GOP primary, but dropping unworkable plans and opposing Trump are worth the risk.

For the Democrats, who have never had a tightly organized party, the solution would seem to be getting under the “big tent.” No Democrat should spurn another simply because they disagree on some policies. And the party needs new leaders from outside Congress.

Both Republicans and Democrats look over their shoulders too much and should face up now to the problems Trump causes nationally and internationally.