Jim McDermott's Blog
November 16, 2015
Inequality: Top Earners Can Afford Elimination of Bush Tax Cuts
Jim McDermott:
In the Oregonian, 18 months ago, I wrote that I wanted to pay more taxes -- and invited others of means to join me. Since then, income inequality has only gotten worse. Last month's US Census data unmasks the widest income gap ever between the richest and poorest Americans. This confirms recent IRS data, which show the greatest income disparity since the Great Depression.
Why, then, did Congress recess without eliminating the Bush tax cuts for the top 3 percent of U.S. income earners, families earning more than $250,000 a year? Scrapping the Bush tax cuts for top earners would put another $700 billion into an already depleted U.S. Treasury in the next decade or could be used to help those in need.
The trickle-down apologists claim that those of us in the top 3 percent will cut jobs or be unable to grow our businesses unless we keep paying a 35 percent marginal tax, instead of a 39.6 percent marginal tax. By way of example, if your family makes $750,000, you will pay about $20,000 more in federal taxes. Can a family making $750,000 really not afford to pay an additional $20,000 in taxes? Is this really considered punishing the rich?
I can't understand how the middle class and many of their elected representatives have bought into the propaganda that taxes can't be raised on the rich.
The idea that a 4.6 percent tax increase on the wealthiest Americans will somehow eliminate jobs is unsupported by any credible evidence. Such a minor tax increase on the top 3 percent simply returns us to the 39.6 percent tax rate of the generally prosperous 1990s.
For our country to truly prosper, all Americans have to do better economically, not just the wealthiest few.
Even a capitalistic country isn't judged solely by its total GDP growth. Our country should also be judged by how equitably we distribute the benefits of economic growth among our citizens. We haven't done well in this critical area over the last 30 years.
According to the Institute for Policy Studies, in 1980 the average CEO to average worker pay ratio was about 30-to-1. As of 2009, the average CEO to average worker pay ratio had grown to 263-to-1. This astonishing change is nothing short of revolutionary.
While incomes at the top have soared, Congress has gone in the opposite direction by cutting tax rates on the top earners. The highest tax rate was 70 percent in 1980, as compared with 35 percent today. The recent census and IRS data reveal that our country's movement toward a wealth-concentrated feudal society is just being stoked by our existing tax structure.
We can't keep in place a tax system that leaves so many of our fellow citizens economically behind.
Compassion must play a more central role in this tax debate.
We need our elected leaders to say that we in the top 3 percent of earners can easily make a modest sacrifice of 4.6 percent of our annual incomes. That's little compared with the sacrifices already made by tens of millions of people who have endured real hardship in our recent hard economic times.
Raising taxes on us top earners would be a perfect place to start rebalancing our country's wealth disparity. I believe in my heart that more than 3 percent of us have to succeed economically for our country to be successful. We at the top have received inordinate spoils from this great country, and we need to contribute more in taxes to ease the burden on those less fortunate.
- Jim McDermott chairs the litigation department at a downtown Portland law firm.
The Tax Code Divides Us into Haves, Have-Nots
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Jim McDermott
Thirty years ago, I was pumping gas at a Mobil station for minimum wage. Then our government gave me grants and loans for college. When I got into law school, our government gave me more grants and loans. Now I'm fortunate to be a successful lawyer. My kids go to private schools. We live in a large home. I can afford to pay more taxes so others can benefit like I did.
Sure, I worked hard for my money. I had talent. I had drive and ambition. But I also had a government that was there for me along the way, giving me financial aid so I could get a first-rate education. Today, our relatively flat-rate tax structure leaves little money left to help those in need.
For most of the 20th century, the graduated income tax helped keep Americans closer together economically. More recently, tax cuts for the rich, like me, have fostered economic inequality. In the 1950s, our top marginal tax rate was 90 percent. As recently as 1980, our top tax rate was 70 percent. Now our top tax rate is only 35 percent. The IRS' latest data show the greatest economic inequality since the Depression.
Our tax system is dividing our country into haves and have-nots. This is because our tax code now favors wealth over work. My stock dividends are taxed at just a 15 percent rate. So are my capital gains. If I die, my wife and kids will inherit all my money without having to pay any estate tax. And, if I keep living, I will continue to pay just 35 percent tax on my substantial income.
We didn't use to concentrate wealth in so few. Economic mobility has always been one of our cherished ideals. But cutting taxes on rich people like me in the past 30 years is turning economic mobility into an American myth. Since I pumped gas for $2.10 an hour, the richest 10 percent have gained the most. The richest 1 percent have done even better and now make more than 20 percent of all the recorded income.
The 90 percent of Americans left behind could stand to keep more of their earnings. The single mothers. The veterans. The truckers. The waiters and waitresses. The teachers who educate our kids. The cops and firefighters who keep us safe. We are breaking our social contract with all of them.
Our government also has great needs for more money. We need to look after our troops. We need to fund Medicare and Medicaid. We need to better educate all of our children, not just the rich ones. And we need to stop adding to our deficit. I want to help with all of these needs by paying more taxes. I want to help bring us closer to fulfilling America's promise to everybody. "One nation indivisible" means we all have to be closer to each other economically.
We can achieve this goal if I and others like me pay more taxes.
Jim McDermott chairs the litigation department at a downtown Portland law firm.
Jim McDermott
Thirty years ago, I was pumping gas at a Mobil station for minimum wage. Then our government gave me grants and loans for college. When I got into law school, our government gave me more grants and loans. Now I'm fortunate to be a successful lawyer. My kids go to private schools. We live in a large home. I can afford to pay more taxes so others can benefit like I did.
Sure, I worked hard for my money. I had talent. I had drive and ambition. But I also had a government that was there for me along the way, giving me financial aid so I could get a first-rate education. Today, our relatively flat-rate tax structure leaves little money left to help those in need.
For most of the 20th century, the graduated income tax helped keep Americans closer together economically. More recently, tax cuts for the rich, like me, have fostered economic inequality. In the 1950s, our top marginal tax rate was 90 percent. As recently as 1980, our top tax rate was 70 percent. Now our top tax rate is only 35 percent. The IRS' latest data show the greatest economic inequality since the Depression.
Our tax system is dividing our country into haves and have-nots. This is because our tax code now favors wealth over work. My stock dividends are taxed at just a 15 percent rate. So are my capital gains. If I die, my wife and kids will inherit all my money without having to pay any estate tax. And, if I keep living, I will continue to pay just 35 percent tax on my substantial income.
We didn't use to concentrate wealth in so few. Economic mobility has always been one of our cherished ideals. But cutting taxes on rich people like me in the past 30 years is turning economic mobility into an American myth. Since I pumped gas for $2.10 an hour, the richest 10 percent have gained the most. The richest 1 percent have done even better and now make more than 20 percent of all the recorded income.
The 90 percent of Americans left behind could stand to keep more of their earnings. The single mothers. The veterans. The truckers. The waiters and waitresses. The teachers who educate our kids. The cops and firefighters who keep us safe. We are breaking our social contract with all of them.
Our government also has great needs for more money. We need to look after our troops. We need to fund Medicare and Medicaid. We need to better educate all of our children, not just the rich ones. And we need to stop adding to our deficit. I want to help with all of these needs by paying more taxes. I want to help bring us closer to fulfilling America's promise to everybody. "One nation indivisible" means we all have to be closer to each other economically.
We can achieve this goal if I and others like me pay more taxes.
Jim McDermott chairs the litigation department at a downtown Portland law firm.
The Estate Tax Promotes Family and Societal Values
In recent years, I have advocated passionately for imposing higher income and estate taxes on the wealthy. In Oregon, our state and federal governments need greater revenue, and we at the top collectively have the money to spare. The same is true for well-off companies. Multiple studies show that higher taxes on the rich do not stymie economic growth.
Just as our elected state and federal leaders have failed sufficiently to tap into this large source of additional revenue, our leaders have likewise failed to pay sufficient attention to the expense side of the budgetary equation. On the state level, PERS is a prime example of leadership failure. For example, a teacher in his or her mid-50s retiring after 30 years of service typically receives a guaranteed annual check for life of approximately $60,000, plus cost-of-living increases each year. That teacher has a life expectancy of approximately 30 years. The present value of this defined benefit future income stream is $1.5 million, using a 3 percent discount rate. And this is just for one teacher's retirement. Does it really make sense to pay a public employee more in retirement than what we paid him or her to actually work for us?
PERS represents a gushing budgetary drain. Teachers, I applaud your public service. I honor your commitment to educating our kids. I don't want you to suffer in retirement. But very few people in the private sector making your income for the past 30 years have saved $1.5 million for retirement. And, importantly, PERS beneficiaries don't have to worry about running out of retirement money. If they live five to 10 years beyond their life expectancies, they'll still get their guaranteed pension, plus a generous COLA, until death.
Applying any rational economic model, PERS is just too rich. The medium- and long-term costs are staggering. PERS benefits -- absent further changes -- will sap current and future necessary public investments. One of the larger public investments we need to make is in public education. But PERS costs are seriously hampering our ability to make that critical investment.
The recently enacted anemic PERS changes don't even reform the unconscionable spiking problems, the money match problems or the 6 percent public employer "pickup" problems. Instead, the state supposedly just "reformed" PERS by, in part, deferring $350 million in public employer rate increases to the future. What our elected leaders have done, so far, is similar to a family paying its current bills by converting its fixed-rate mortgage into an interest-only loan and borrowing from an existing IRA. This is Band-Aid financial planning at its worst. This "solution" will only compound our state's long-term financial problems.
This is not leadership. Instead, all this does is stoke the public perception that government doesn't budget wisely and is an irresponsible steward of taxpayer money.
I and others like me -- should be a prime source of additional tax revenue. But public employees making, or soon to make, more money in retirement than they made while working should give up more of their overly generous PERS benefits.
- Jim McDermott chairs the litigation department of a Portland law firm.
Just as our elected state and federal leaders have failed sufficiently to tap into this large source of additional revenue, our leaders have likewise failed to pay sufficient attention to the expense side of the budgetary equation. On the state level, PERS is a prime example of leadership failure. For example, a teacher in his or her mid-50s retiring after 30 years of service typically receives a guaranteed annual check for life of approximately $60,000, plus cost-of-living increases each year. That teacher has a life expectancy of approximately 30 years. The present value of this defined benefit future income stream is $1.5 million, using a 3 percent discount rate. And this is just for one teacher's retirement. Does it really make sense to pay a public employee more in retirement than what we paid him or her to actually work for us?
PERS represents a gushing budgetary drain. Teachers, I applaud your public service. I honor your commitment to educating our kids. I don't want you to suffer in retirement. But very few people in the private sector making your income for the past 30 years have saved $1.5 million for retirement. And, importantly, PERS beneficiaries don't have to worry about running out of retirement money. If they live five to 10 years beyond their life expectancies, they'll still get their guaranteed pension, plus a generous COLA, until death.
Applying any rational economic model, PERS is just too rich. The medium- and long-term costs are staggering. PERS benefits -- absent further changes -- will sap current and future necessary public investments. One of the larger public investments we need to make is in public education. But PERS costs are seriously hampering our ability to make that critical investment.
The recently enacted anemic PERS changes don't even reform the unconscionable spiking problems, the money match problems or the 6 percent public employer "pickup" problems. Instead, the state supposedly just "reformed" PERS by, in part, deferring $350 million in public employer rate increases to the future. What our elected leaders have done, so far, is similar to a family paying its current bills by converting its fixed-rate mortgage into an interest-only loan and borrowing from an existing IRA. This is Band-Aid financial planning at its worst. This "solution" will only compound our state's long-term financial problems.
This is not leadership. Instead, all this does is stoke the public perception that government doesn't budget wisely and is an irresponsible steward of taxpayer money.
I and others like me -- should be a prime source of additional tax revenue. But public employees making, or soon to make, more money in retirement than they made while working should give up more of their overly generous PERS benefits.
- Jim McDermott chairs the litigation department of a Portland law firm.
A Story about Mobility
Bitter is the Wind is the story of a young man from a working class background who loses his mother and sister. With the steadying encouragement of his father, he strives to overcome missteps and obstacles to make a success of himself.
In a political season where the terms “inequality” and “lack of mobility” are tossed back and forth by candidates and talking heads, Jim McDermott leads us behind the headlines, the statistics, and the academic studies to reveal a hidden world of fear, desire, and sometimes haunting memory—life as it is felt and lived by the millions of Americans beyond the media lights and outside the trust fund comfort of our talkative elites and their precocious offspring. This is the life of a forgotten working class who live in communities all over the country that have been hollowed out by the creative destruction of our shiny capitalism.
These are men and women who seek dignity, respect—a slight bit of financial security—and hope that their children will attain something better. Jim McDermott has given us the story of one such family.
- Scott C. Davis is the author of The World of Patience Gromes: Making and Unmaking a Black Community. He is also the founder
of Cune Press.
In a political season where the terms “inequality” and “lack of mobility” are tossed back and forth by candidates and talking heads, Jim McDermott leads us behind the headlines, the statistics, and the academic studies to reveal a hidden world of fear, desire, and sometimes haunting memory—life as it is felt and lived by the millions of Americans beyond the media lights and outside the trust fund comfort of our talkative elites and their precocious offspring. This is the life of a forgotten working class who live in communities all over the country that have been hollowed out by the creative destruction of our shiny capitalism.
These are men and women who seek dignity, respect—a slight bit of financial security—and hope that their children will attain something better. Jim McDermott has given us the story of one such family.
- Scott C. Davis is the author of The World of Patience Gromes: Making and Unmaking a Black Community. He is also the founder
of Cune Press.
