Good and Bad in New Tax System

We have a new federal income tax system. The Republicans who created it say that it will transform our economy, of course for the better.

Republicans insistently repeat that tax structure determines economic behavior: people will alter their behavior depending on how their money is taxed, including moving to states with lower taxes. Let’s examine what the tax bill shows about how Republicans think Americans should earn money.

In any tax system, there is good income and bad income. Good income is taxed at low rates and bad income is taxed at high rates. For example, in current US tax policy, so-called “carried interest” is very good income. Carried interest is a kind of performance fee for managers of private equity and hedge funds, a share of the profits, which is typically the major source of income for such investment managers. Although these managers earn enormous incomes, which would normally put them into the highest tax bracket of 39.6%, special rules tax this money at only 20%, less than the rate for normal income of the majority of Americans. That’s great income.

Here’s an example of bad income that affects millions of retired Americans. If your only income is Social Security, you will probably pay no income tax on it. But if you also have some other pension income, you could pay taxes on up to 85% of your SS benefits.

Under the current system, a couple who received $40,000 in Social Security and another $20,000 in other pensions would pay under $100 in taxes. But if instead they got $40,000 in pension income, they would pay $4500 in taxes. That works out to an effective rate of about 23% on the added $20,000 in pension income, even though their total income only falls into the 15% tax bracket. Their extra pension income is bad, because it transforms non-taxable SS benefits into taxable ones.

The new tax system does not change either the good carried interest income or the bad pension income. Donald Trump famously said as a candidate that the carried interest benefit allowed the very rich to “get away with murder” and promised to eliminate it if he were elected. Of course, he has done no such thing, and the new tax bill continues this very favorable treatment of such income. No politician in either party has talked about changing the penalty for pension income.

The Republican tax reform creates new types of good and bad income. A new kind of “good income” is earned by owners of businesses which are not corporations. Their profits are taxed as individual income. Now they will be able to deduct 20% of what they earn from their taxable income, effectively dropping their tax rate by 20%. There is a limit to how much income can be sheltered this way, but complex rules put in at the last minute will allow very wealthy owners of real estate firms, like Trump himself, to shelter much more income.

Other kinds of good income in the Republican tax bill are: inheritances between $5.6 million and $11.2 million, which used to be taxed but will be tax-free; and income used to pay private school tuition, which is now deductible for the first time.

New kinds of bad income are: money spent as moving expenses, which is no longer deductible; money spent as part of your job, which is reimbursed by your employer, now to be classified as income; many kinds of employee expenses, which are no longer deductible, such as business travel, research expenses, tools and supplies.

In the new tax bill there are good and bad tax cuts. According to Republicans, corporations deserve the best tax cut. Their tax rate falls from 35% to 21%, a provision which will add $700 billion to the deficit over 10 years, even under optimistic guesses about economic growth. That cut is permanent. The smaller cuts for individuals are temporary.

You can search far and wide looking for any Republican who says that making the tax cuts for individuals temporary is a good idea. They did this because they had to limit how much the tax bill would add to the deficit in order to be able to pass it with their tiny majority in the Senate. If those individual tax cuts become permanent, that would greatly raise the impact on the deficit. If they expire as the new law says, the advantages for individuals would disappear in a few years, while corporations would continue to benefit.

Leading Republicans admit that it’s “bad policy”: White House Budget Director Mick Mulvaney calls it “gaming the system”. Mostly Republicans just hope that the economy will expand so much that the individual tax cuts can be made permanent without hurting the deficit.

Why choose to make the so-called “middle-class tax cut” temporary and the corporate tax cut permanent? Why give most taxpayers a break by cutting rates and then take away much of that benefit by eliminating the personal exemptions? Why add provisions which only help the rich, such as reducing the estate tax? Why at the last minute reduce the top rate from 39.6% to 37%?

Why make some of the income of average people “bad” while making lots of rich people’s income “good”? That shows us what Republican economic policy is all about.

Steve Hochstadt

Bloomington, IN

Published in the Jacksonville Journal-Courier, December 26, 2017

The Politics of Sexual Assault

Men of all political persuasions have been grabbing, fondling, propositioning and assaulting women for a long time. Occasionally a particularly flagrant perpetrator gets caught in public, sometimes with unpleasant consequences for him, sometimes with none at all. Suddenly we face an avalanche of news about the hidden gropers among us.

It’s not just creeps like Harvey Weinstein who are now suffering for their sins. A number of famous “good guys” turn out to have systematically abused women: of course Bill Cosby, but also Dustin Hoffman, Matt Lauer, and Kevin Spacey. The list keeps growing.

The national attention to victims of sexual abuse and punishing perpetrators is new, but it’s been a long time coming. When Anita Hill said in 1991 that Clarence Thomas repeatedly harassed her, even Democratic Senators did not take her accusations seriously. The Me Too slogan was started 10 years ago by Tarana Burke, a black woman incensed by sexual abuse, who began the organization Just Be Inc. to help victims. When the actress Alyssa Milano sent out her famous tweet, “If you’ve been sexually harassed or assaulted write ‘me too’ as a reply to this tweet,” just two months ago, she did not know that Burke had used the tag before.

Harassment happens everywhere and has been kept a dirty secret everywhere. After the movie industry and television and journalism, problems have surfaced in the hospitality industry and state politics. Institutions of higher learning are just now being forced to come to grips with serial harassers.

The grabbers come in all political flavors: four Republican and three Democratic Congressmen have resigned or have announced the end of their careers in the last two months. Both NPR (Charlie Rose) and Fox News (Bill O’Reilly) have lost big personalities.

But the national outrage over bad male behavior does have a significant partisan tinge. That partisan nature of sexual assault politics was brought out into the open by two recent polls. In a Quinnipiac survey, there is only a slight difference between Democrats and Republicans about whether sexual harassment is a “serious problem”: 94% of Democrats and 82% of Republicans said yes.

A TIME poll showed more significant political differences. Democrats are more likely than Republicans to believe female accusers, 93% to 78%. Republicans are much more likely to think the media treat the men unfairly, 52% to 20%.

The power of Republican partisanship over issues of character was revealed by questions about what should happen if a Congressman is accused of sexual harassment. While over 70% of both Republicans and Democrats agreed that this Congressman should resign if he is a Democrat, only 54% of Republicans said he should resign if he is Republican.

The issue of immoral and illegal sexual behavior became deeply politicized by the case of Roy Moore, which shows how partisanship can distort ideas of morality. Republicans at the national and state level gyrated wildly, trying to come up with a reasonable response to an accused sexual predator and child molester who might be a crucial vote in the divided Senate. Because Moore constantly quotes the Bible and represents all the right political positions of evangelical conservatives, the “family values” and religious moralizing crowd were faced with a dilemma. While a few prominent Republicans took the moral side, like Senators Richard Shelby of Alabama and Jeff Flake of Arizona, and House Speaker Paul Ryan, many equivocated (Mitch McConnell) and many put politics first, notably Donald Trump.

Thus questions about politicians and sex were implicitly questions about Alabama and control of the Senate. Questions like this one: “If a political candidate has been accused of sexual harassment by multiple women, would you still consider voting for them if you agreed with them on the issues?” Only 12% of Democrats, but 43% of Republicans would consider voting for such a candidate.

The Roy Moore problem for Republicans has gone away, but an even bigger problem remains – Donald Trump. Republican politicians and voters decided last year that multiple accusations of sexual assault and some open bragging by Trump about grabbing women, caught on tape, were not enough to disqualify him as a presidential candidate. Now when asked what should happen if Trump were proven to have harassed women, 88% of Democrats but only 28% of Republicans said he should be impeached.

Sexual harassment and assault are about power, the power of men over women, and sometimes the reverse, which permits holders of power to commit crimes of personal behavior in the belief that they are safe from consequences. Harvey Weinstein’s assertion, “You know what I can do,” stands for the threat that has forced victims into silence and others into complicity.

The silence is now broken. Every day another creep is outed, another powerful man loses his power to humiliate, shame, and demean women.

Our culture is still far too focused on women’s bodies and men’s appetites to expect that harassment will stop. But creeps like Moore, Weinstein, Cosby, and even Trump can no longer expect to get away with a lifetime of hunting and abusing women. That’s progress.

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier, December 19, 2017

Keeping the Blacks Far Away

I grew up in Carle Place, a new suburban town on Long Island, outside of New York City. Young families lived in inexpensive but well-constructed houses in quiet residential neighborhoods with good schools. When I get together with my classmates at reunions, we all agree that our little town offered a wonderful place to grow up.

I never thought about black kids, because I never saw one in my neighborhood or at my schools, right up through high school. I knew black people lived in other towns, and sometimes we faced black kids in athletic contests. I never wondered why they didn’t live near me.

Now I know. I’ve been reading a book titled “The Color Of Law” by Richard Rothstein, who explains how residential segregation happened in America and in my home town.

In response to the government-created Jim Crow discrimination in the South, millions of African Americans moved north in the Great Migration after World War I. At the same time, the nation’s population doubled from 1900 to 1950.

Facing growing population, American cities used zoning laws to direct new construction and to control where people lived. Across the country, zoning was designed to keep black and white apart, to protect white neighborhoods against black people. For example, in St. Louis zoning guided liquor stores, polluting industries, bars, and rooming houses into African American neighborhoods, preserving real estate values in white neighborhoods and creating black slums.

Private business supported segregation. The National Association of Real Estate Brokers adopted a code of ethics in 1924 warning its members that “a realtor should never be instrumental in introducing into a neighborhood members of any race or nationality whose presence would clearly be detrimental to property values.”

In the midst of the Depression, the federal government used its enormous resources to promote home ownership. In 1934, the Federal Housing Administration, part of the New Deal, created affordable mortgages and made loans to encourage home ownership based on color-coded maps of every city, where black neighborhoods were colored red, meaning no help for residents. After World War II, the newly created Veterans Administration offered mortgages to returning servicemen with no down payments and low interest rates, but only for whites.

Collaborating with private developers, banks, and realtors, the federal government helped create the new suburbs which mushroomed around America’s cities. I lived in a suburb built by William Levitt, whose name has become synonymous with suburbanization. His signature project was Levittown, a development with 17,500 mass-produced two-bedroom homes a few miles from where I lived. He repeated this success in Pennsylvania, New Jersey and Maryland. Behind him stood the FHA and the VA, which financed Levittown on the condition that it be all white. In 1953, the 70,000 residents of Levittown represented the largest all-white American community.

Carle Place was a microcosm of postwar America. Young white men and women could begin their long climb into affluence, security, and respectability through the American dream of home-ownership. Realtors would guide families into the mushrooming modern neighborhoods. Banks offered more favorable terms than ever before. And everybody depended on governments to allocate local spaces for new construction, advise the new projects, and guarantee the loans that bought the houses.

For white people. Not for black people.

So I grew up with no relationships with black Americans, whom I first met in college during the tumultuous years of the civil rights movement. By that time, for me and my suburban baby-boomer peers, getting to know African Americans was awkward and uncertain. We were all, black and white, deprived of the natural development of friendships across lines of race.

Blacks were deprived of much more than that. As I was growing up, Carle Place and much of Long Island embodied a futuristic landscape of tens of thousands of identical houses in geometric patterns on plowed over, treeless ground. Today shady streets, mature landscaping, and countless home expansions and improvements have transformed the aesthetics. The houses that cost about $10,000 to buy now sell for $400,000 to $700,000. Accounting for inflation, the white families like mine, that bought in the late 1940s and early 1950s, tripled or quadrupled their wealth through home ownership.

Instead, black families were forced to live in urban neighborhoods, where discriminatory zoning rules kept home values down. At least into the 1990s, toxic waste facilities continued to be built in minority neighborhoods. Urban highways were typically built through minority neighborhoods. It is still common in American cities to use zoning laws to place businesses that deal with alcohol, firearms, pornography, and now marijuana into low-income neighborhoods, preventing minorities there from building up equity as fast as in residential white neighborhoods.

The end of slavery in 1865 represented the beginning of other forms of government-enforced discrimination for another century. By helping white families to build up wealth through home ownership and preventing black families from doing the same, federal, state and local governments have contributed to today’s racial disparities in wealth.

As Richard Rothstein wrote, “Government and private industry came together to create a system of residential segregation.” All Americans have suffered from this history of racism.

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier, December 12, 2017