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The Fund for Needy Millionaires

Think government benefits all go to the poor? Think again — here are five ways Washington shovels billions in public money to the superrich.

Ferrari automobiles displayed in a Manhattan window on September 28, 2017 in New York City, a day after the Trump administration released their tax reform plan. Spencer Platt / Getty

Many people imagine the state as a kind of referee — a transcendent mediator enforcing theoretically neutral rules, arbitrating as fairly as possible between different interest groups in society. This faith in the state’s basic neutrality leads even people who care about inequality to miss the big picture, which is that the capitalist minority is absolutely pummeling the working majority and has enlisted the referee to assist their victory.

From the Supreme Court’s assault on unions, to cities shamelessly prostrating themselves before corporations, to big companies taking gobs of public money and then instituting mass layoffs, to bank bailouts to regulatory capture to deadly austerity, we’re not looking at a series of bad calls. This is a deliberate program of class domination being administered through the state itself.

One place we can look to gauge the extent of the capitalist class’s triumph in the state is the tax code. While government programs in the US are commonly viewed as the province of the poor, the US tax code is actually riddled with giveaways to the rich. In 2014, the average household in the top 0.1 percent — people with more than $100 million in assets — received more in tax breaks than the average household in the bottom 50 percent.

Make no mistake, this is public spending. It’s just that the rich and powerful, through control and manipulation of politics, are spending on themselves. This money might otherwise be spent on improving the material conditions of the people whose hard work creates that wealth: keeping public schools open and making universities tuition-free, replacing private insurance with a Medicare for All program, building high-quality social housing, improving public transit and infrastructure, providing universal childcare, or investing in a Green New Deal.

But instead we have bespoke tax breaks for hedge fund managers, and special rules to preserve the integrity of massive inheritances. Here are five of the most flagrant tax giveaways to America’s richest citizens. When you read them, imagine the winning team running a victory lap while the ref cheers them on.

1

Capital Gains Tax Break

The rich make money differently than people who work for a living. Workers get earned income, calculated by the hour or year, predetermined by their boss and agreed upon as a condition of employment. Capitalists make a lot of their money by simply watching value appreciate on their investments — in effect, turning wealth into more wealth.

People who make money from investments, who are overwhelmingly affluent, pay a special low tax rate. In many cases it’s lower than the taxes workers pay on wage income. Right-wing economists have floated a number of supply-side theories about why this is good for the economy: if we tax the rich too much, we’ll hobble their ability to create jobs and innovate, for example. These theories are fiercely disputed by left-wing economists, who argue that it doesn’t really work that way — making the rich richer doesn’t spur economic growth, it just further immiserates everyone else. But politicians can choose to believe whichever of these theories they like. And when you’ve got billionaires dangling donations in exchange for policy that favors them, you’re likely to adhere to the theory that justifies your sycophancy.

A low tax rate on capital gains means that the rich get to keep more of their money, and they like it that way. The politicians on their leash tell us that this policy is good for workers — the richer the owner, the more they can afford to pay their employees, in theory. But history shows that capitalists have never paid their workers well just because they’ve got money to burn. They only ever fork it over when they’re forced to, either by robust labor unions or by a state that understands the only surefire way to redistribute wealth is to take it via taxes and invest it in the public sector.

Until we have those two ingredients, millionaires will likely continue to reap 70 percent — and counting — of the rewards of our tax code’s preferential treatment of capital gains.

2

Mortgage Interest Deduction

The mortgage interest deduction is a rule that says that homeowners can pay interest on their mortgages tax-free. The supposed rationale is to reduce the burden of homeownership for ordinary people, but the actual effect is quite different: most people who aren’t rich don’t even use the mortgage interest deduction, because the interest they pay on any mortgage they might have is less than the standard deduction. Of those who do, the average break for households with incomes between $40,000 and $75,000 is a measly $523.

So, who takes advantage of this thing? Rich people do. For households with incomes over $250,000, the write-off averages $5,459. It’s a great deal for the economic elite — the more expensive your mortgage, the more taxes you aren’t paying. The result is a deeply unequal and upwardly redistributive housing tax policy. Renters don’t get a break at all, and the break that exists is functionally useless for working- and middle-class homeowners. But the wealthy go hog wild. You can even apply it to a second home, and many do.

The idea that the mortgage interest deduction encourages homeownership for the working and middle class has been pretty thoroughly debunked. Only 20 percent of Americans take the deduction, and the number is slated to drop precipitously this year. But who needs an airtight justification when you’ve got the ruling elite on your side?

3

Exemption of Employee-Provided Health Care

The largest tax break of all is the health benefits exclusion. Every year, it costs the federal government $250 billion in lost tax revenue. The subsidy applies to everyone who gets health benefits through their employer, which doesn’t sound so terrible on the face of it. The problem is that it’s completely regressive.

People with incomes below $30,000 get an average of $1,650 per year under this exemption. But people with incomes above $200,000, who are more likely to have employer-provided health insurance and nicer benefits to boot, save an average of $4,580. The federal government is spending a quarter of a trillion dollars every year on a subsidy that rewards wealthier people with bigger tax breaks than their cash-strapped counterparts, and ultimately exacerbates inequality, all while sustaining the steady flow of cash to private insurance companies.

Two hundred and fifty billion dollars is a lot of money. As the New York Times notes, this subsidy is the third-largest public health care expenditure after Medicare, which costs $581 billion a year, and Medicaid, which costs $349 billion. Why are we spending all of this public money on a complicated patchwork system that disproportionately benefits the rich, doesn’t insure everyone, and doesn’t even protect the insured from drowning in medical debt?

We should use this public money to pay for a single-payer health care system instead, or what Bernie Sanders calls Medicare for All. A unified and simplified public insurance program would actually be $5.1 trillion less expensive than the current messy system, would guarantee universal coverage, and would make it so that Americans never again had to choose between their physical and financial health. The only losers would be the health insurance corporations, and the politicians who faithfully represent them.

4

Executive Deferrals

Millions of working Americans save for retirement using 401ks and IRAs, which allow them to put away money on a tax-free or tax-deferred basis. Executives started offering these plans at the dawn of the Reagan era as an alternative to traditional pensions, which were safer for employees but a burden on bosses.

At the beginning of the 1980s, 60 percent of American private sector workers had pensions. Today only 4 percent do — the remainder have 401ks and IRAs or, increasingly, no retirement savings plan at all.

Having successfully revolutionized the way in which workers grow (or don’t grow) their nest egg, the ruling elite then got a bright idea: executive pay should be tax-deferrable too. In their case, however, there would be no limit to how much they could put away. They could let the company hold onto millions of untaxed dollars at a time, which the company could then invest to increase profits for those same executives.

Companies are supposed to pay corporate taxes on the money executives relinquish, but they’re masters of legal avoidance. As a result, corporations become more powerful and individual elites’ fortunes grow while public coffers deplete. Depleted coffers are used to justify austerity measures that make life harder for average people . . . average people who used to have pensions.

5

Estate-Tax Relief

Until recently, the estate tax threshold was $5.5 million per person, or $11 million per married couple. Beyond that point, the deceased’s heirs had to pay a 40 percent tax on everything they inherited. It was already extraordinarily generous to the wealthy, considering that their scions do nothing to earn such large bequests besides being born into the right family. You’d think the rich would be satisfied. But the rich are never satisfied.

The so-called “death tax” has become a touchstone for ultraconservative politicians in the last couple of decades. In the 2000s, commitment to raising the estate-tax threshold became a sort of litmus test for hard-line right-wingers, a means of impressing one’s loyalty upon the Koch brothers and their clandestine donor network, which now sustains the political right.

Last year, decades of activism around the issue paid off. Both houses of Congress voted to double the threshold, and the Treasury finally sealed the deal just last month. The new rule is temporary, so the ultra-wealthy are striking while the iron’s hot, in many cases gifting the full untaxed amount to their children while they’re still alive.

Every dollar effortlessly inherited by the children of the ruling class — people who already had the benefit of the best schools, professional connections, and other life opportunities money could buy while their parents were alive — is a dollar that doesn’t go toward public services.

Tax breaks for the rich are public spending. There’s no question about that. The only question is in whose interests the state chooses to spend: the tiny minority in the highest echelons of society, or the vast majority of people who work to make their wealth possible.