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Welcome friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives and those of our children. I'm your host, Richard Wolff. Today is a special program. I want to do nothing less then really go over taxes, the structure of the tax system of the United States. I want to show you how it works. I want to show you what it's all about. And I want to expose the genuinely enormous injustice that it represents. And that's what we're going to do both in the first and second half. Think of it as a kind of primer on the tax structure of the United States. Let's begin. Taxes have been used for thousands of years by governments to raise the money they need to do whatever is asked of those governments or what those governments want to do. There is nothing new about taxes. And there was always the same set of struggles around every tax system in every place that ever existed. Here was the struggle who would have to pay the taxes and who would benefit from what the government did with the taxes it raised. In other words, who would carry the burden of paying the taxes and who would get the benefit of what the government did with those taxes? And because every tax system has always been a place of struggle, here's what we know is the ever recurring pattern. The rich and the powerful struggle to push the burden of taxes and to keep it off of them and onto the mass of people. And likewise the rich and powerful want the government to use the taxes it raises for their benefit first and foremost. And because they are the rich and powerful, they're in the dominant position to shape how and what the government does. So they usually succeed, maybe not all at once, maybe not at the beginning, but over time they push the burden of taxes onto the mass of people. And likewise over time they get more and more of the benefits of, of government spending that tax money on them, on keeping them rich and powerful. So when I tell you that that's what happened in the United States, I'm not telling you about anything that hasn't happened in many other places at many other times. Here in the United States. It takes a particular form. The tax structure, as I'm going to show you, has shifted the burden of taxes and here in the United States off of the business community, corporations and businesses onto individuals, basically to say the same thing, off of the employer class and onto the employee class. And at the same time it shifted the burden of taxation from the upper levels of the employee class, the better paid workers, onto the middle and the bottom. So two movements going on Together, off of business, onto the individual, off of wealthy individuals, on to the rest of us. So as I go through how it particularly works, keep that large picture in mind, because that's what's going on. And by the way, you know what has happened after some years, sometimes some decades, sometimes even some centuries of all of this, eventually the employer class, the rich and the powerful, the feudal lords, the slave masters, whoever it was at the top, who pushed taxes off of themselves and who got the government to spend on them, went too far and provoked a revolution, provoked the resistance, provoked the explosion. Remember back in school, those of you that are Americans and you heard about the Tea Party in Boston as setting off the American Revolution. Right you are. And you know what the Tea Party was about. Resistance of merchants in Boston to a tax put on their little businesses by the King of England. There we have it, endless examples of the same thing. Okay, here we're going to go now into the specifics. What does the government tax? It basically taxes three kinds of wealth. Pull money out of three kinds of wealth. Income. The government takes a portion of your income away from you. You all know that, because many of you get a check every week or every two weeks. And there is withheld from that something called fica. Long story short, it's your income tax that's withheld. The government gets it as fast as you do, and then you make up the adjustment at the end of the year. Taxing income is one kind of tax. Here's a second kind of tax. Taxing your spending. In other words, when you go and you buy a shirt for $10, you'll notice the cash register rings up $10.50 or $10.80. The extra cents, that's a sales tax. It gets you when you spend. So we all in America today, we get taxed on the income we get. The government gets a piece of that. And then when we spend what's left after taxes out of our income, they get us again. So there's an income tax, a spending tax, and then there's a third kind of tax that's on your property. It's not on your income, not on your spending. They already got us there. But on what you own, your wealth. Property tax here in the United States, largely to fool you, partly for administrative convenience, but a good part to fool you. We have different levels of government, three of them, federal, state, and local, and they each tax differently. They each go after income or not, after your property or not, after your spending or not. And they mix and match. So you can never Quite get it. But do remember you are taxed by all of them multiple times in many cases. Don't ever think that when someone says hey, I'm paying twice, that that makes them unusual. Everybody pays, not just twice, many times. Here we go. Let's start with the federal government. The federal government relies mostly on taxing your income. They don't do much with property taxes and they really don't do much with spending taxes. Yeah, they tax a gallon of gas when you buy it, and a pack of cigarettes when you buy it, and alcohol, beer and so forth when you buy it. There is a federal tax on the money you spend there, but it's not a big part of your finances and it's not a big part of the government. The government taxes income and here you see a struggle right away. Whose income and how? Strictly speaking, the income tax they literally take out of your paycheck or they take out of rental income. If you have property and you get an income from renting it, or if you own shares of stock and you get an income of dividend, or you have cash you lend to people and you get interest on rent, interest and dividends, that's part of your income and the federal government taxes it. Well, right away we can see big injustices here. First, the tax rate on your non labor income is much lower than the tax rate on your paycheck. So right away, people who are rich enough to get a big part of their income coming from shares they own or land they own or cash that they lend out, their level of taxation on that income is lower than that rate of taxation on the money we earn from our labor. There's no need for that. That's just the success of of rich people getting the burden shifted somewhere else. Then there's the fact that the income tax was initially levied a century ago in this country aiming only at the people at the top. That's how it was passed. The mass of people didn't object because it was only hitting the very top. Well over the last century the people at the top didn't like that surprise. So they shifted the burden of income tax on down to everybody else. Occasionally the mass of Americans pushed back, but over time the rich got it down. So the tax on individuals, while it's higher the tax on individuals labor than it is on their property income, it's still an all progressive. It means the more income you have, the higher the rate you have to pay to the government. But that's only about half of what the government takes in on income. Tax. The other half is what we use to pay for Social Security. And this is not a progressive tax. It does not go up the higher your income. In fact, it goes the other way. And we have a name for that in tax economics. It's regressive. This is the Social Security tax that is levied on the first $140,000 you earn. Whether you earn $10,000 or $50,000 or $100,000, you pay the same rate to your Social Security system, but after $140,000, everything you earn above that, no Social Security tax on it at all. So if you're a millionaire, if you earn a million or more, most of that money is not taxed for Social Security. Only middle income and low income people required to pay Social Security to the government. There's no fairness there. None at all. The little bit of the income tax that is progressive is the only progressive tax we have in the United States. As you'll see, all the others aren't. Now let's turn to the 50 states. What do they do? Some of them have an income tax, but many of them don't. And many of them don't rely on it. Even if they do, they tend to rely on spending taxes, that sales tax that you pay for, on almost anything you buy in whatever state you live in. That's how the state governments get the bulk of their money. So after we've paid income tax to the federal government, when we turn around and spend, what's left after we pay the income tax, the state government grabs that for their purposes. And then we get to the local government. And by the way, estate tax is regressive. Estate tax makes no effort to tax you according to your ability to pay. You pay the same sales tax level, let's say 6% or 5%, whether you buy a $2 pair of shoes or a $2,000 pair of shoes. Same percentage. There's no effort to adjust the percentage of tax to your ability to pay. That is the logic of the federal income tax, which brings in only about half of what the federal government gets. And the taxes on business, much, much lower in the income tax. The business tax, virtually gone in America, used to be significant, but the corporations were able to get rid of it. And then we get the really interesting one, the local tax, the tax levied by your town, by your city, by your community. There are a few cities in America that have an income tax. Here in New York City, where I live, I get to pay a federal income tax, then a New York state income tax, and A New York City income tax. But most cities and towns have no income tax. Most cities and towns have no sales tax. What most cities and towns live off is a property tax. And I've got to explain to you here in the remaining minute of this first half that the property tax is a tax on land. Your home, your automobile, your little business, the inventory of the business. That's what the property tax is levied on. That's the kind of property. Here's the kind of property that no city or town taxes. Stocks, bonds, cash. Whoa. The richest people in America have most of their wealth in the form of stocks and bonds. They pay no property tax. You who may have a house or live in a house where the landlord owns the house, that landlord has to pay the property tax on the land and the building and charges you right rent to pay for it. Property tax is the most unjust of all the taxes. And that's saying a lot given how unjust the other ones are. We've come to the end of the first half of today's show. Please stay with us. You're going to learn much more about the American tax system in our second half. Welcome back, friends, to the second half of today's Economic Update. This program, as you know, is devoted to the tax structure of the United States as an example of the deep social injustice of the American capitalist system as expressed and exemplified in its tax structure. Having spent the first half going through the federal, state and local tax systems, generally speaking, I now want to focus on a few particular kinds of taxes because they show it even more strongly. I'm going to begin with inheritance taxes, and let me explain what that means. Many societies throughout history have decided that when a person dies, the transfer of the wealth of that person to others is an appropriate opportunity for the government to raise taxes. Why was it thought to be appropriate? Because a fair society would have everybody starting more or less in the same situation, what Americans like to call a level playing field. You're not going to have an equal opportunity if you inherit a ton of money, whereas the person competing against you inherits nothing. So the government can come in. It was thought by many governments all over the world, including the American government for most of our history, that we can and we should tax either inheritance, if you want to call it that, or estates. There's a small difference about who exactly pays it. But. But the point is the government takes a chunk either from the person who died and their estate or from the person who inherits that estate. And until recently, it was a fairly Significant federal inheritance tax that we're talking about. Some states also levy an inheritance or estate tax, but it was the federal government that was the big player and rich people didn't like it. So for example, just two or three decades ago, it was at the level of two or three or $400,000 that you could leave without paying inheritance tax. But everything above that would be subject to the federal inheritance tax. Let me give you an idea of what the rich people did. First thing they did is they moved the exempt part. So today, for example, a person who dies, an individual can leave the first ready $12.9 million worth of wealth to anyone that person has chosen to get that. And that person doesn't owe a nickel in federal inheritance tax. If you're married, you can leave double that amount. In other words, nearly $26,000 of your wealth passes without an inheritance tax. Well, that takes care of more than 99% of the American people who die. They don't have, if you're a couple, 26,000 or if you're an individual, just shy of 13,000. So in effect, they got rid of of the estate and inheritance tax so that rich people can leave enormous sums of money to their children. And you know what that does? It makes the super rich an inherited class. It keeps them, it guarantees them. It means there is no level playing field. And the rich people have made sure that there isn't a level playing field for any generations to come. It's a remarkable move, gets way less attention. And even if you are super rich and do have to pay because you leave more, you and your husband, you and your wife leave more than 26 million. If you're in that tiny percent who do, the rates are not all that bad. They range from 18% to 40%. So as long as you have 2 billion or more, your children will get at least 1 billion of that. Billionaires will leave their children as billionaires as well. That's a remarkable example of the shift of the burden of taxes off of rich people. Because of course, if the government cannot tax the wealthiest people that top 1% of what they leave beyond 26 billion, that money that's not coming into the federal government has to be raised some other way. So the rest of us are going to be taxed more or the government, if it doesn't tax us more and gets less from the super rich, will do less for the rest of us. And boy, will that mean the middle and lower income people again. Then there are the people who are exempted from taxes in other Words. So far I haven't told you about them, but I want to because they're really interesting churches. In our society, churches are exempted from paying any tax. If they have property, land or a building, do they pay property tax to the local community? Not a nickel. If they own shares of stock and earn dividends or, or they own land and earn rents, or they make loans and earn interest, do they pay income tax on that income the way you and I do? Not a nickel. If people give huge donations to churches, if they own shares of stock, nobody taxes anything. And you know what that means? It means those of us who don't go to church are subsidizing the church. If the church didn't get this gift of having to pay no taxes on anything, by the way, they don't pay on sales tax when they buy shirts to give out to their parishioners, they don't pay the sales tax. You and I do. If we buy the same shirt in the same store, the churches have a tax exemption. It means that the people who don't go to church subsidize the church. It's very important. You may not like this or that church, but you're funding them because if they didn't get this tax break, they'd have to pay taxes like everybody else. You know, the garbage truck picks up the garbage in front of the church. The street cleaner cleans the street in front of the church. The health department makes sure that the community is healthy for the churchgoers too. They get all the services from the state, from the local government, from the federal government, but they don't pay anything for those services. The rest of us pay for the services delivered to the churches. For those who don't like churches, for those who are critical or opposed to organized religion, this is an interesting system because you are forced to subsidize the what you don't believe in. And in a country that recently is making a big thing to give freedom, as our Supreme Court has done, to people who don't like the gay lifestyle and therefore don't have to bake a cake for a gay couple. Wow. We require all the non churchgoers to fund the churches, even the churches who are in the forefront of, of blocking tax benefits to others. Then there's a second category of people who don't pay tax. Tax exempt schools and colleges don't. Let me give you an example. I was a student at Harvard and Yale, two of the richest universities in the world. They have tens of billions of dollars in stocks. They earn Dividends on those. They earn interest on the bonds they hold. They earn rent on the land and buildings. Yale has big buildings in the middle of New York City, generating them a fortune of rental income. These multibillion dollar entities don't have to pay any tax. That's a leftover from ancient American history. When we were a colony of England, these laws were passed. Why? Because they wanted local ministers in their Protestant churches in Boston and New Haven. And if they had had to set up a school to train ministers, and if the school had to pay taxes, it would have been too hard to pay for it. So they gave them a tax exemption because in return, the local people who gave them a tax, who had to pick up the cost of government because the church wasn't paying, they at least got some local ministers back. Nowadays, neither Harvard nor Yale trains very many ministers, and the few that they do don't stay in Boston, Cambridge or New Haven. So there's nothing that the community gets back. Meanwhile, it's out of taxes. Yale, for example, is the largest landowner in New Haven, the largest employer. Everybody else in New Haven, I lived there for decades, pays more to make up for what Yale doesn't pay. So the middle and poor people of New Haven pay more to this city in property tax on their home in order to subsidize the delivery of free services to the billionaire Yale University. You know what that's called? Robin Hood in Reverse. You don't steal from the rich for the poor. You steal from the poor for the rich. And Yale and Harvard have been riding that for 300 years. Here's another example, what you hear called the not for profit world. Charities and foundations of all kinds. The phrase not for profit is a hustle. It's rebranding. All it means is they don't pay taxes. They ought to be called tax exempt. They are given a free ride, and rich people have figured out, oh, is this a hustle? I set up a foundation. I give the foundation a lot of money. The foundation doesn't have to pay taxes on that money. I put myself, my cousin, my sister, and my brother on the board of that foundation to decide what that foundation does with all that money. And here's the best the money I give as a rich person to the foundation, I can lower my tax bill because I've been charitable. When you understand how the American tax system works, you will understand that it's a hustle from beginning to end. And it never stops, this struggle. They're working now. And there are bills in state governments, local Governments and the federal government to continue to lower the tax on corporations and shift it to individuals, to lower the taxes on high income individuals and, and shift them over. That's why masses of people are so bitter about taxes. They kind of know that's why the Republican Party has as its major platform in every election, we won't raise your taxes. We know that taxes are terrible. We promise to cut your taxes. Why are they so focused on taxes? Because they're cashing in on the deep antipathy, the deep hostility that Americans have. They may not know all the details, but they get the picture. And I've tried to give you some sense of the details so you understand that that gut level feeling of a ripped off rigged tax system, you're absolutely right. If you really cared, as many of our leaders say they do, about the inequality of wealth and income here in the United States, the tax system is the easiest, quickest way to change that. Tax the rich, don't tax the poor. Shift the burden back. I want to end with one statistic which is as good as many of these others, but that you might not know. Back during World War II, when we were fighting the Germans, the Italians, the Japanese and so on, the President of the United States then sent a message, a State of the Union message to Congress proposing that the top income tax bracket for people earning over what was then $25,000 a year be about $400,000 now, that their tax rate would be 100%. And he said, I cannot send young American men and women to fight and die in a war while other people are becoming rich in our country. What he was saying was it was unfair. So he was going to say, every dollar you earn over 25,000, I'm going to take it for the government, 100% tax. Republicans and Democrats went crazy, but they compromised. And the tax at the end. 94. What is the tax on the richest Americans? Income tax today? 39%. That's how far they got it down and they're trying to get it down more. We've come to the end of this program. It's important to understand the tax system because it's a window into the injustice of American capitalism. And I look forward to speaking with you at again next week.