A Metaphor for the Bush Tax Credits Destroying the Middle Class

Two years ago today, Senator Bernie Sanders filibustered the extension of the Bush Tax Credits. Ligorano Reese put Sanders speech to music by Michael Galasso using a melting ice sculpture as a metaphor to represent the middle class in this video entitled “A Thousand Cuts”. Bush tax cuts will expire at the end of the year.

Discussions of Wealth in America

If a man has an apartment stacked to the ceiling with newspapers, we call him crazy. If a woman has a trailer house full of cats, we call her nuts. But when people pathologically hoard so much cash that they impoverish the entire nation, we put them on the cover of Fortune magazine and pretend that they are role models.

Class warfare or simply paying your fair share?

Former Gov. Mitt Romney (R-MA) last night on CNN actually said:

I’m not concerned about the very poor.

to which conservative writer Jonah Goldberg (National Review) asks “What is wrong with this guy?” and Michelle Malkin quips “Let them eat food stamps.”

Meanwhile, Romney has not addressed the questions raised by Brian Beutler about possible offshore tax avoidance scheme raised on his on-the-record press call last week.

The briefing cleared up several questions, but left others unanswered – including one from TPM that will either exculpate Romney from allegations that he’s used investments in offshore entities to avoid U.S. taxes, or reveal that his campaign has not fully addressed those allegations.

On the call, Romney’s trustee pledged get back to us with this information. But despite multiple inquiries in the days since the conference call, the Romney camp has not set the record straight one way or another….

An IRA can’t finance investments with debt, and, in the United States, it can’t invest in entities that lever up, without being hit by the UBIT.

But if an IRA invests in an offshore fund, and that fund levers up, it can avoid the UBIT altogether. And at 35 percent that’s no small tax to get around, according to multiple tax experts.

When first questioned about this on the call, Romney’s trustee noted, “Governor Romeny’s IRA is not structured in the Caymans, it’s not located in the Cayman’s. It’s tax deferred just like your IRA, and my IRA.”

But in a followup, I asked if his IRA had invested in any offshore entities that would have made it subject to the UBIT if those entities were located on U.S. soil. Romney’s staff has yet to provide the answer.

They talk about class warfare - the fact of the matter is there has been class warfare for the last thirty years. It's a handful of billionaires taking on the entire middle-class and working-class of this country. And the result is you now have in America the most unequal distribution of wealth and income of any major country on Earth and the worst inequality in America since 1928. How could anybody defend the top 400 richest people in this country owning more wealth than the bottom half of America, 150 million people? The other reason Romney pays a lower tax rate than most of us is that so-called “carried interest” (the commission charged by hedge fund managers) is treated as long-term capital gains and taxed at 15%. According to Mother Jones, Bain Capital

spent $300,000 between August 2007 and April 2008 lobbying the House and Senate on bills that threatened the carried interest loophole. Along with other private equity titans like Kohlberg Kravis Roberts and Apollo Management, Bain and its ilk paid lobbying shops, public relations firms, and trade groups like Ogilvy and the Private Equity Growth Capital Council an estimated $15 million between January 2009 and April 2010 to convince lawmakers to keep the loophole alive. The force of those combined lobbying efforts kept the carried interest loophole wedged open, denying the federal government some $10 billion in revenues.

Origins of Democratic-Socialism in Israel: Foundations and Leadership

Origins of Democratic Socialism in Israel: Foundations and Leadership by Ivan C. Frank, Ph.D.

— reviewed by Jerry Blaz

During our current moment when Israel seems to be a Jewish embodiment of an American state with the bad fortune of living in a more chaotic neighborhood, it is easy to forget that Israel and the Yishuv, the Jewish settlement in pre-state days, did not have as its goal to become a “free-market economy.” Much of the early Zionist immigration to Palestine was oriented to creating a working class. Indeed, they were socialists.

More after the jump.
They were more interested in getting Jews who would do the manual labor and the crafts that often were accomplished by non-Jews in many countries from which they came. At the same time, most of those who came to “the Land” during this period were socialists. They didn’t have confidence that the general socialist movements sweeping would solve the Jewish vulnerability of intermittent anti-Antisemitism of the region where they lived, mostly in the “Pale of Settlement” in Eastern Europe. These Socialist-Zionists reached Palestine and comprised the Chalutzim or pioneers, the most important segments of the population that created the State of Israel.

This little book by Dr. Frank is a source-book for the history of this movement that saw socialism as a solution for the Jewish people in the Land of Israel, Eretz Yisrael.  How and why this came about is explained in a cursory language for a story that could easily take a series of books, but is told in an economy of only 115 pages. For someone who believes that Israel was always a capitalist bulwark, and is unfamiliar with the real narrative, Origins of Democratic Socialism in Israel is a good eye-opener.

The origins in the Bilu movement — Bilu is an acronym of a Biblical expression meaning “House of Jacob let us ascend” (to Eretz Yisrael) — in the 1880s had more prosaic plans, like starting a farm and hiring local people to work the land for them, was sponsored by philanthropists like the Montifiore brothers and the more famous family, the Rothschilds. They created “colonies.”

The socialist emphasis of an aliyah (or “ascent” as immigration of Jews to Eretz Yisrael was [and is] called) came with the second aliyah, a wave of newcomers that became the workers’ movement, generally between 1905 to 1918. This period witnessed a great deal of experimentation in creating institutions, some of which didn’t “take hold” and others that at a later time, came to characterize the Jewish State. There was the organization of “kvutzot,” small groups of workers who shared their resources communally. There was the Jewish National Fund that began to purchase land in “the name of the Jewish people” (who doesn’t remember the omnipresent blue box?) and which held to that truth until the state took over much of the JNFs work.

In 1917 the first communal settlement, a kvutza called Degania was established on the shores of the Sea of Galilee. Workers attached to the G’dud Ha-avodah or workers’ battalions went to work doing hard labor Jews did not generally engage in while in diaspora, like paving the roads and draining the swamps. These were key developments in the establishment of a new Zionist institutional structure.

The third aliyah commenced in 1919 and brought the idea of the large kibbutz, a commune comprising several hundred members. Ein Harod was established in the Valley of Jezreel, and a problem that had been previously discussed, the fate of the nuclear family placed in a communal setting, thus losing its economic function, was evident for anyone who made the commune home. At a later date, when the kibbutz/kvutzot movement reach a stasis and maturity, the communal children’s house was one of the first social institutions in the communal settlements to begin to disappear, with the children returning to the more conventional spending their nights in their parents’ quarters rather than under the watch of a kibbutz member, usually trained for this kind of duty, in the children’s house.

And it also created a divide that became almost permanent in the movement. Ben Gurion did not favor the large kibbutz, while Yitzhak Tabenkin, leader of the kibbutz movement, was in favor, and the ideological difference was felt through the movement and probably was an element in the great pillug or split-up of the United Kibbutz Movement in the 1950s, though the precipitating factor was external. Hapoel Hatzair becoming the larger part of the Labor Party, and Tabenkin’s group, Faction B (Si’ah Bet), which later became Achdut Ha’avodah. Achdut Ha’avodah joined with Hashomer Hatzair to create Mapam together. Later Achdut Ha’avodah quit Mapam over Soviet anti-Jewish actions, and was an independent faction for a period, and has been a part of Labor again for many years.  

As a result of these ideological differences, Hakibbutz Hameuchad movement had found some of its kibbutzim physically split up by the great pillug of this United Kibbutz movement, and was to suffer a smaller convulsive split several years later with the more radical elements of its membership over what was then called the Snehist faction, again over stances regarding the Soviet Union, which was also the incentive for Achdut Ha’avodah to leave Mapam and become an independent political party. These radical elements left their kibbutzim, some going to Yad Hanna, where the majority of the people were “Shnehists” and others going to the city. The term “Snehist” comes from the name of the leader of this movement, a former chief of staff of the Haganah by the name of Moshe Sneh, who went further left than the Labor Zionists.

This had already been reflected in the Mapai (Labor) orientation of the Chever Haq’vutzot (the kvutzah) movement while the Kibbutz Hameuchad movement was largely oriented towards Si’ah Bet. Perhaps, the largeness of some of the Kibbutz Hameuchad kibbutzim contributed to their problem when a large area of commonality of thought was necessary for a commune to remain intact, but I know personally of some of this ideological mischief occurring in small kibbutzim as well.

Nevertheless, the kibbutz movement, though inordinately influential during these early days, comprised only about three percent of the Jewish population of Israel. Yet its members were influential in the Zionist institutions and in the state institutions. In fact they were in the front-line of the creation of the state and were active in the Haganah and the pre-state “shock brigades” or Palmach.

Today, with Labor in the decline, history has been rewritten to give more credit to the right-wing underground movements like the Irgun Zvai Leumi, usually called by the Hebrew acronym Atze”l and referred to often as the “Irgun,” and its offshoot, the Lochmei Cherut Yisrael, known by the Hebrew acronym Lechi.

My own personal historical memory of a different pre-state history was the unwillingness of the right-wing groups to accept the discipline of the Zionist movement which had put limits on how the nascent state would oppose Arab opponents, like differentiating between friendly and non-friendly villages, treatment of civilians, etc.

When the state was established all the military groups accepted the discipline of the new state, and one of Ben Gurion’s first acts after the army was formed was to disband the Palmach because of its reputed leftish kibbutz orientation. The right-wing organizations were not brought in as organizations though many joined the army as individuals. These ideological differences continued and, to some extent, still continue to this day, a time when Israel is currently ruled by its most rightist government since its establishment.

Dr. Frank also outlines the development of other workers’ institution like union, the Histadrut, which began in 1920, its Sick Fund, Kupat Holim; its contracting arm; Solel Boneh, Paving and Building; T’nuva, the marketing cooperative of the workers’ settlements; Hamashbir Hamerkazi, which was the buying coop; Bank Hapoelim, which was the “workers’ bank;” the Labor exchanges where people could find employment, and even a publishing house, Am Oved. Most of these organizations were attached to the Histadrut through a holding firm called Chevrat Ovdim or Workers’ Community.  How these various industrial and organizational arms of the Histadrut  have developed since then is this description of Koor, which handled manufacturing of steel, and other manufacturing now describes itself:

Once a socialist vision, now a model of capitalism, Koor Industries is Israel’s leading holding company” and so it brags its capitalist characteristics, and is an indication of the changes that have occurred in Israel since the Labor-led governments have become a part of this past.

In general, the role played by the Histadrut can be summed up in the words of Ronald Sanders in his 1966 book, Israel: The View from Masada 1st edition:

The Histadrut was, in fact, in a unique historial situation; it had not only to serve as an instrument for organizing workers and as the creator of such welfare institutions as a system of socialist medicine but also had to be the medium for the development of an economy. In time the Histadrut became as much an entrepreneur — and a large-scale one, at that — as it was an organizer of labor. From the point of view of Histadrut ideologists in the early days, this arrangement made the organization all the more a potential instrument for the creation of a society that would be socialist and worker-owned from the outset. It is only in recent years that contradictions have clearly emerged from the fact of being both a national labor union and the largest employer of labor in the country.

During the pre-state days, while Dr Frank doesn’t dwell on it, there were at least three more waves of immigration which included the larger wave of German Zionist immigration, before the state-sponsored mass immigration called Kibbutz Galuyot, the ingathering of the exiles.  

Some of the personalities whose prominence Dr. Frank mentions in the establishing of a socialist-Zionist philosophy and movement were Ber Dov Berochov, A.D. Gordon, Berl Katznelson, Manya Shahat, who, with the aforementioned Ben Gurion and Tabenkin, and their roles are described by Dr Frank. Each individual deserves his or her own biography.

Today, Israel is a capitalist, free-market economy, and as such, has the internal problems of all such economies as the tent cities in Tel Aviv and other Israeli cities can attest to, and socialist Zionism seems to have been eclipsed by this capitalism. Many kibbutzim have often ceased to epitomize communal living, but are now often members who have a cooperative share in a meshek or agricultural/industrial group of enterprises, very often worked by outside labor rather than members of the kibbutz, many of whom are already retired. Those members who do work, receive wages in addition to their share of any profits the meshek earns, and the wages are generally commensurate with the level of skill of the member-worker, just as it would be for an hired worker.

Their children have deserted the “old homestead” for other endeavors. After all, it was their parents’ choice to become Chalutzim (pioneers), and not theirs. So very often, after army service, many of the children find other life-paths. However, there have been cases during this period when the economics have created the aforementioned tent city protests, there have been reports about kibbutz children, now adults, returning. While the story isn’t finished, it would be a nice conclusion to say: “Your future is filled with hope, declares the LORD. Your children will return to their own territory.”Jeremiah 31:17.

Today’s “To Do” List

  • Pay your fair share of the cost of providing for our nation’s common defence and other important government services to protect and preserve the freedom’s which we enjoy in our great nation. (IRS forms must be postmarked today.)
  • Burn the chametz collected last night.
  • Help your youngest child practice the Mah Nishtana.
  • Scout out good locations to hide the Afikomen.
  • Set the table for the seder.
  • Prepare the haroset, salt water, egg and shank bone.
  • Set a wine cup for Elijah the prophet, and a water goblet for Miriam the prophetess.
  • Open up your doors and your hearts by inviting someone in need to join you at the seder table.
  • Wonder why companies like Exxon-Mobil, Bank of America, General Electric, Chevron, Boeing, Valero, Goldman-Sachs, Citigroup, ConocoPhillips and Carnival are not paying their fair share to keeping our nation strong.

Birth Tax vs. Death Tax: Borrowing Money to Create More Paris Hiltons

Ten years ago, Bush and the Republican Congress set out to reduce or eliminate the estate tax which they derided as the “death tax.” However, is it fairer to tax people who are dead and can no longer make use of their wealth, than to increase the national debt which will be the legacy we are leaving our children and their children. Perhaps it would be fair to call the Republican proposal “a birth tax” since future generations will be born saddled with an increasing share of the national debt in order to fund lavish inheritances for multi-millionaire heirs and heiresses like Paris Hilton.

The Republicans wanted to completely eliminate the tax, but they could not resolve the budget implications involved in doing so. Instead, they employed a nice trick. They limited the budget implications by making the changes expire after a decade, but they made the changes incremental building up to this last year in which there was no estate tax whatsoever. By doing so, they hoped to set a favorable baseline for the current debate on future estate tax policy. Indeed, many people would now consider any return to the previous status quo to be a “tax hike”.

Republicans argue that taxing an estate is an example of double taxation. However, this is not true since many estates consist of appreciated assets (stock, businesses, real estate) which have never been taxed, since capital gains are only taxed at the time of sale.

Republicans argue that the income tax is a disincentive to work. However, the same cannot be said of an inheritance tax. If anything, huge tax-free windfalls leave an unskilled heir or heiress without any reason to work. Winston Churchill argued that estate taxes are “a certain corrective against the development of a race of idle rich”. Indeed, according to the  research at Syracuse University, the more wealth one inherits, the more likely one is to quit the labor market.

Year Plan Initial rate Applies only to income above: Top rate Applies only to income above:
2001 Original rates 18% $675,000 55% $3,000,000
2010 Current rates 0% 0%
2011 No action by Congress 18% $675,000 55% $3,000,000
2011 Obama GOP Compromise 35% $5,000,000 35% $5,000,000
2011 Obama 2008 45% $7,000,000 45% $7,000,000
2011 McDermott plan 45% $2,000,000 55% $10,000,000
2011 Sanchez, Sanders et al plan 45% $3,500,000 65% $500,000,000

There are a number of estate tax proposals on the table including one hammered out by President Obama and the Congressional Republicans, and recently passed by the Senate. They propose a 35% flat tax on estates beyond the first $3,500,000 (or $7,000,000 for couples). This plan is likely to meet stiff resistance in the House of Representatives.

If nothing is done by the end of the year, we will return to the estate tax rates prior to the passage in 2001 of Bush’s Economic Growth and Tax Relief Reconciliation Act. At that time, the estate tax applied to single people estates over $675,000 (or couples with estates twice as large). The amount over that amount was taxed progressively higher starting at 18% and reaching 55% for the portion of the estate over $3,000,000.

Though the Republicans try to frame the tax debate as a populist issue, only the richest quarter of a percent of our nation’s families would pay any estate tax at all under the plan negotiated between Obama and the Republicans.
Those that do pay would only pay a marginal rate of 35% which is less than the pre-Bush top rate of 55%, and far less than the top marginal rate of 77% which was in effect from 1941-1976.

Even if Congress does nothing and the Bush tax cuts are allowed to expire, only 2% of estates will pay any inheritance tax whatsoever. Furthermore, this tax can be avoided in a number of ways such as leaving the excess estate to some worthy charity.

Last month Responsible Wealth gathered millionaire and multi-millionaire signers of the call who are small business owners and entrepreneurs to speak out on why they support a strong estate tax.

High-profile signers of Responsible Wealth’s “call to preserve the estate tax” include Forbes 400 members David E. Shaw, Julian Robertson, Jr., George Soros, John Sperling, and Ted Turner. All six children of David Rockefeller, the oldest Forbes 400 member, have signed too….

Microbrewery owner Dave Eiffert explained how when his parents died in 1994 and there was a federal estate tax exemption of $600,000 per person, an estate tax was due. “It was pretty hard to write a large check to the IRS, but I strongly thought it was the right thing to do, and look I still had enough money to start a business and provide jobs in my state.” The Snoqualmie Falls Brewery outside of Seattle that Eiffert co-founded in 1997 employs 20.

Another speaker, Jerry Fiddler, a venture capitalist in Oakland, Calif., who sold his software company Wind River Systems to Intel in 2009 and is clearly in estate tax territory, said: “The estate tax is the best possible way to pay back into the common good. I see it as a point of pride to pay back in.” He said that Congress should reinstate the estate tax at the 2009 levels, indexed for inflation, adding: “They should do it now and they should do it permanently.”

To find a lower tax rate imposed on the crème de la crème of society, we would have to look all the way back to the roaring twenties. This was a time when people earned their fortunes the old fashioned way, they inherited it. This was a time of the Great Gatsby and a time of speculation and excesses which led to the Great Depression.

As Justice Louis Brandeis said, “We can have concentrate wealth in the hands of a few, or we can have democracy, but we can’t have both.” Even Andrew Carnegie testified in support of the creation of an estate tax in 1916.

It seems that the Republican Party wants to “Take America Back” to an era of generations of entrenched wealth, creating a “new plutocrarcy to rival the industrial barons of America’s Gilded Age”. Unfortunately, as a misplaced gesture of “bipartisanship” Obama is willing to lead us along that road.
Estate Tax Facts

  • A table of historical estate tax rates can be found at http://jewi.sh/etax
  • The estate tax has been imposed in the United States since 1916. Small estate taxes were applied in the past: The Stamp Tax of 1797 (repealed 1802), The Revenue Act of 1862 (repealed 1872) and the War Revenue Act of 1892 (repealed 1902). These taxes were small percentage which in the later two cases varied by a factor of around 6 depending on how closely related the heirs were to the deceased. In a similar way, France’s inheritance tax depends on the relationship between the deceased and his heir. Immediately family pays a maximum 40% marginal tax rate, but siblings pay a maximum of  45%, “significant others” pay a maximum of 50%, other close relatives pay a flat rate of 55%, and distant relatives or unrelated heirs pay a flat rate of 60%.
  • Federal Estate Tax only applies to the amount over the personal exemption ($1,000,000 in 2009 and $3,500,000 in 2011 under Obama/GOP plan). This liability can sometimes be reduced by:
    • $1,000,000 in gifts given to relatives during your lifetime,
    • The part of the estate given to your spouse,
    • Part of the amount of your family business,
    • Designating a charity among the recipients of the estate.
    • The amount paid for a state estate tax.
    • Generation skipping transfers up to $1,000,000 (2009) or $3,500,000 (2011, Obama/GOP Plan)
    • Universal credit $345,800 (2009) or $1,455,800 (2011, Obama/GOP plan)