Einstein's phrase is well known: God doesn't play dice. It was a demonstration of confidence in a deterministic logic for the physical universe. It may be that God, after all, plays dice and nature is less deterministic than Laplace supposed. The bets are open in the mortal realm.
But, apparently, in terms of riches, if God plays dice, they are rigged. In this casino, the bank always wins.
It was something I thought about when I read a book in which Richard V. Reeves exposes some astonishing facts about what can be called the “cream of society” in North America. The book is this: DreamHoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do about It, Brookings Institution Press, 2017.
If you thought the title was long, the problem is even bigger. Reeves recognizes the existence of the concentration of income in the famous 1% that is talked about so much after Thomas Piketty and Occupy Wall Street. But Reeves draws attention to something less noticed and, he says, relevant to explaining the stability of something so shockingly unequal. His focus is on the 20% of the upper-middle-class, the segment that in fact welds the alliances of disseminated power in American society, largely explaining the way in which it stabilizes the silence of the rest. Reeves is troubled by the dangerous insulation of this social stratum, the potentially disastrous results of this transformation into “caste.”
I'm not going to review the book. I'm just going to select one of these bothersome aspects.
The story begins with an idea from Barak Obama, one of the many that he quickly abandoned due to the “realism” essential to sustaining his government (or that of the one he expected to succeed him). It happened in January 2015. The idea, suggested to Congress, was aborted by him. After he realized what could happen.
The foolhardy idea was to remove tax benefits from so-called “529 Higher Education Savings Plans.” The number is a reference to its insertion in the Revenue code (IRS). A detailed study by the US Treasury, back in 2009, showed that these benefits disproportionately helped rich families. The report - An Analysis of Section 529 College Savings and Prepaid Tuition Plans – is available on the web.
Obama's project aimed to use the funds resulting from this abolition of tax breaks to create a broader and fairer fund. After all, the study showed that more than 90% of the benefits went to the richest 25% (more than 200 thousand dollars per year), in a country whose median family income was around 54 thousand.
Obama had to back down precisely because... the reform went against the pillar of support for the American “order”, whether on the Republican side, in almost all its aspects, or on the Democratic side, among the so-called “limousine liberals” who control the party apparatus.
But there is something more serious, says Reeves. What happened with the “529 plans” was just one example of how North American taxation policies increase inequalities, instead of moderating them.
Let's look, for example, at deductions and subsidies relating only to property ownership. Reeves refers to a study by the Urban Institute – also available on the web: www.urban.org/sites/default/files/alfresco/publication-pdfs/413241-Who-Benefits-from-Asset-Building-Tax-Subsidies-.PDF.
And reproduce this stunning graphic (I translate and adapt it from the original):
Reeves' comment is facetious: “The IRS is generous when we sell our expensive homes, giving us a break from any capital gains tax. Half the value of this tax break goes to those of us in the top income quintile. Thank you, Uncle Sam!"
The top 25% are grateful to the inverted Robin Hood based in Washington DC.
American tax laws are extremely regressive when it comes to credits, deductions, exemptions and immunities, as well as capital gains and dividends. Together, these “tax breaks”, taken as an example, total more than a trillion dollars (yes, I said a trillion dollars). This is what the Urban Institute study, mentioned above, shows. Where do these tax breaks go? For the most part, for upper middle class portfolios. After all, “tax deduction” can only benefit those who would, hypothetically, have to pay as taxes. Not those who don't reach such levels... of course Brazilians know what that is. Just look at similar studies available on the website of our glorious Federal Revenue. I commented on one of them at this address: http://brasildebate.com.br/que-os-super-ricos-paguem-a-conta-ou-como-tirar-a-classe-media-da-influencia-da-direita/. But, as you know, I'm not talking about Brazil...
Obama tried to take some coins from the cream of the crop, with the proposal to abort the “529 saving plans”. It was enough to, perhaps, show how melancholy the end of his government was going to be and how frustrating his “legacy” was going to be.
As soon as the government ended, the NY Times and some gossips here in the province made the inevitable report on the legacy. Among the “achievements”, economic recovery. Among the defeats, unemployment, inequality, poverty. These three terms, apparently, do not belong to economics. They do not belong to the upper-middle class universe. They don't use “529 plans” and other tax nonsense.
