Goodbye, Social Security, Hello Screw Deal

Under the Screw Deal between President Barack Obama, most of the Republican Party members of Congress, and most of the Democratic Party members of Congress, the Social Security payroll deduction is being cut by 2%. One might wonder why, after two decades of official government moaning about Social Security being endangered by insufficient funding, they would choose to reduce funding. The only logical answer is they intend to dismantle Social Security; this is the first step.

Where is the public outrage? Workers are happy to have a slight reduction in the Social Security tax in 2011, and seniors already on Social Security are not too worried. The crisis is probably still about a decade away. Everyone is too worried about the short term to worry about the long term. Retired workers will starve some time in the future, but they have no political representation to speak of. Certainly the Democratic Party gave up representing workers decades ago.

Everything is going according to plan, if you are rich. The rich shall pay no taxes. And I really mean no taxes, because even though rich people in theory pay a 15% long term capital gains tax, in reality they can delay payment forever. The other taxes rich people pay, the ones that everyone pays like sales tax, are trivial to them.

A lot of government spending is ongoing, but no one wants to pay for it. Current Social Security taxes pay for current Social Security recipients. In turn current payers are supposed to have their retirements subsidized by future payers. But once erosion begins (and it has now officially begun) no one wants to be there when the levee breaks. So younger current workers will join the rich in calling for reducing the SS tax even further. Until the cycle is complete and we are back to 1929.

Social stratification is growing. The traditional conveyor belt from the working class to middle class, the low-cost college education, is drying up faster than roadkill on a desert highway at midday in summer. Talented people will be trapped in the working class, no-talent rich kids will increasingly become the decision makers of this nation. They will decide to tax the workers and repeal the minimum wage laws. If you want work your options will be the Army, homeland security, and mopping the floors of their yachts.

The working class is not just unorganized, it is disorganized. Socialist parties and revolutionary groups have all but disappeared. The Democratic Party and most unions are rotten or at best incompetent. Even the middle class seems paralyzed by free-market rhetoric.

In the next year or two the economy will continue its normal business cycle recovery. It would have even without the new tax cuts. Given the depth of the recent recession, a recovery cycle might even last five to ten years. The cycle will end when the national debt it too big to repay and interest rates on that debt start spiraling out of control. The rich will be so powerful you can count on both the dismantling of any remaining social programs and the imposition of higher taxes on everyone who is not tax-sheltered.

Of course, other scenarios are possible. But they would take effort. The real problem was the New Deal and the Great Society combined with American global economic dominance post World War II to create an imperialist working class. No one complained about getting $30 an hour to make the steel and explosives dropped on rebellious peasants. Remember when the unions organized workers to attack peace protesters during the Vietnam War? Our unions thought they were indispensable, but they were wrong. Surprise, steel can be made anywhere. Factories can be dismantled and put together somewhere else.

Hopefully Barack Obama will put himself out of his misery and not run for President in 2012. I admit that Obama may have proven to be a better President if he did not have the Republican Party to deal with. But the President can veto any bill passed by Congress, and there should be enough Democrats in Congress to sustain a veto. He could have stopped the tax cut extensions for the rich. He could have gotten a much better deal for the American people in return for those cuts, if he had wielded his veto.

Imagine it being, say, March 2011, three months into taxes going back up to pre-Bush levels. Who would be hurting, who would be willing to make a deal? The rich and their wholly owned politicians. This whole "we have to do it in December" bit was another Big Lie.

What did Barack Obama get in return for himself? Two years of cooperation with Republicans in Congress?

Forget the old deal. Welcome to the Screw Deal. Next Act: Return to the Dark Ages.

The New Tax Scam

If America's politicians and those who report on them are to be believed, December 2010, in addition to being the last month to kill your ancestors so that you can get a tax-free inheritance [not too quick, John, this applies only to those with ancestors worth over $3 million], is when President Barack "Hawaii" Obama, the corporate controlled U.S. Senate and the corporate controlled House of Representatives must renew the George W. Bush Memorial Tax Cuts.

You probably don't recall that under President Dwight David Eisenhower the top margin income tax rate for the richest Americans was near 90%. Starting with President John if-I-just-live-until-pop-dies-I'll-be-a-billionaire Kennedy, the top tax rates have been lowered at regular intervals.

Also keep in mind that most rich people are not like you and me. If you consider a $1 million per year lawyer rich, you don't get around much. He's just a highly-paid working stiff, a member of the middle class. No, a rich person gets most of their increase in wealth through investments. They own things. That means their income-like substance is actually classified as interest, dividends, or capital gains. The best are capital gains, because you (or rather they) don't have to pay capitals gain tax until the gain is "realized." Allow me to illustrate.

You own Apple stock, a lot of Apple stock, and are known for yelling at employees and selling commodity products to consumers for designer product prices. Your stock was priced at $13.87 on, say December 31, 1990 and today it is worth $317.44 per share. You own 5.6 million shares. Your capital gains during the period is (317.44 - 13.87) x 5.6 million, or $1.7 billion.

How much federal tax has this particular rich person paid to the federal government on the $1.7 billion increase in wealth during this period, classified as capital gains? Nothing. Zero. I kid you not. No one pays taxes on capital gains until the asset that has increased in value is sold.

It's true, I know it's true, not just because every financial advisor can tell you this, because a few years ago I began building my own retirement fund, buying some stocks. I only report capital gains (or losses, in my case) when I sell a stock. The IRS would not have it any other way.
Multiply this by about 1 million people whose increased wealth mainly comes from capital gains, and you have a capitalist love fest.

And (this is a very big And) capital gains, if actually taken by sale of stock, are taxed at a special extra-low, friend of Congress and Presidents rate. As are dividends (sort of like interest on a savings account, but paid on stocks).

And no Social Security or Medicare tax is paid on capital gains, dividends, or inheritance.

So what are Obama, the Democrats, and the Republicans arguing about? Exactly how deep the feather beds of the richest Americans will be after January 1. Do not be deceived. Yes, the payroll taxes, including the Federal Income Tax, are important. But what the truly rich are really worried about are the capital gains tax, the tax on dividends, and the estate tax.

The second-tier rich people, the ones with actual incomes who pay income taxes, are of course pretty powerful as a class, and numerous compared to those whose main concern is capital gains tax rates. They care about the income tax rate on incomes over $250,000 per year. They contribute heavily to candidates for congress.

It sounds like Hawaii Obama is going to trade a tax cut extension for the rich in return for being allowed to extend Federal unemployment payments to the unemployed. The Republican Party voted trillions to bail out the likes of GE, Citibank and Goldman Sachs, but a few hundred dollars a week for a long-term unemployed person, why, that's socialism! It is un-Christian, the work of the devil.

Which leaves us with the astonishing federal deficit in place. Which means (and I know you knew this already) the Tea Party Republicans and the Regular Republicans were using the deficit as a phony political issue. They did not care about Bush era deficits that financed the Islamic Wars and the hyper-expansion of the police state (Homeland Security). They would like to throw poor people off unemployment and Medicaid and Social Security, but that is just a matter of principle. Deficits are fine as long as the federal dollars go to the military industrial complex and special projects to enrich government contractors for civilian projects.

Here's what is going to happen: the rich will get what they want. Having a Democratic Party majority in the Senate and the first Hawaiian President in American history are not going to prevent that.

And if history is any indicator, the American worker is just going to take it on the chin. Because we have the weakest-spined workers in the world. American workers (and I include the unemployed) won't march, won't riot, won't even organize a union at their work place, much less register and vote Green Party or for a socialist party. They won't even try to make the Democratic Party work for them.