November 16, 2021

Lifting SALT Deduction Would Help the Rich

Manhattan residents who itemize their federal tax returns pay an average $102,000 in state and local taxes – more than anywhere else. The second highest tax tabs, nearly $50,000, are in Marin County, the home of musicians and movie stars across the Golden Gate Bridge from San Francisco.

Other enclaves with large bills for property, sales, and income taxes include Falls Church, Virginia, a high-income community outside Washington, D.C., and Teton County, Wyoming, where the super-wealthy buy property on the open range surrounding Yellowstone and Grand Teton National Park.

In 2017, Congress put a $10,000 cap on the amount of state and local taxes – or SALT – that all homeowners could deduct on their federal income tax filings. The proposed reconciliation bill being hashed out in Congress might increase or remove that cap.

The Brookings Institution argued that lifting the cap would “massively favor the rich” at a time U.S. inequality is already at historic levels. There is no shortage of evidence to back that up.

High-income Americans on both coasts and in major cities like Chicago and Dallas would save thousands of dollars from lifting the cap on SALT deductions. In Santa Clara County, home to Silicon Valley, for example, the average high-income taxpayer who itemized reported that they paid nearly $47,000 in state and local taxes in 2018, according to the bipartisan Tax Foundation’s analysis of IRS data.

But due to the current cap, the IRS permitted county residents to deduct only about $9,000 for their SALT taxes. (The number is slightly below the $10,000 cap because some itemizers take smaller deductions if, for example, they are renters and don’t pay property taxes.)

One proposal gaining currency in the House would increase the cap on deductions from $10,000 to $80,000, as an alternative to eliminating it entirely. Garrett Watson, author of the Tax Foundation report, said that either raising the cap or another idea – limiting the cap to the nation’s top earners – would still mainly benefit the top 5 percent.

But, he added, preserving some type of cap, even if it’s more generous, “will be less regressive than eliminating it altogether, because the folks at the very top – the multimillionaires and billionaires – would still face that curtailed SALT deduction.”

The Tax Policy Center, an affiliate of the Urban Institute and Brookings, estimates that repealing the cap on SALT deductions would increase after-tax income for households earning more than $100,000 by between 1 percent and 2 percent. Families with lower earnings would be unaffected. …Learn More

February 11, 2021

Billionaires Got Much Richer in Pandemic

In the COVID-19 downturn, this blog has had a steady supply of stories and statistics about the damage being done to low-income and middle-class families.

That’s one perspective on the pandemic. The growing billionaire class is another one.

Since last March, the nation’s 660 billionaires have added more than $1 trillion to their wealth – a 39 percent increase. Their combined net worth is now $4 trillion, which is nearly double the $2 trillion held by the 165 million Americans in the bottom half, according to the Institute for Policy Studies’ new report.

“It’s a troubling sign that too much of society’s wealth and income is flowing upwards to that small group of people,” Chuck Collins of the Institute for Policy Studies said during an interview on NPR’s Fresh Air.

The institute’s report is based on Forbes magazine’s annual estimates of the net worth of the world’s richest people.

Inequality has always been with us, but economists say it has grown as billionaires’ wealth has hit stratospheric levels.

To be sure, inequality would’ve been worse without the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $500 billion in direct assistance to families last spring prevented a surge in poverty, and the relief bill passed in late December is sending more aid to unemployed and under-employed people who need it.

The billionaires are getting richer for a couple reasons, starting with a surprisingly strong stock market in 2020. Despite the worst public health crisis in a century and a struggling economy, the Standard & Poor’s 500 stock index shot up 18 percent.

But some billionaires were also in the right place at the right time – a pandemic. …Learn More

October 27, 2020

Retirement System Urgently Needs Fixing

The state of our retirement preparedness is captured in this fact: about half of U.S. private sector workers at any given time are not enrolled in an employer retirement plan.

To be clear, they are not currently enrolled. Some of them have participated in a plan in the past or will in the future. But this inconsistency is the problem, largely because so many employers still don’t offer 401(k) savings plans to their employees.

The financial toll of not saving consistently is modest retirement account balances. Yet saving has become increasingly urgent as traditional pensions have virtually disappeared from the private sector and Social Security is replacing less of workers’ incomes over time.

In 2019 – after several years of economic growth and a surging stock market – the typical working household, ages 55 to 64, that saves in a 401(k) had only $144,000 in its 401(k)s and IRAs combined, the Center for Retirement Research found in an analysis of the Federal Reserve’s 2019 Survey of Consumer Finances.

That’s just $9,000 more than they had in the 2016 survey, and $144,000 won’t go very far.

A $144,000 account would yield $570 per month for retirement if a couple purchases an annuity that pays a guaranteed income for the rest of their lives. For most retirees, the annuity payments – totaling just under $7,000 per year – would be their only source of income outside of Social Security.

There are also enormous differences between high- and low-income households’ savings, which reflect the nation’s economic disparities and uneven employer coverage. The highest-income older households in the study had $805,500 in their combined 401(k) and IRA accounts, compared with just $32,200 for low-income households. …Learn More

January 22, 2019

A Taste of How the 1 Percent Lives

The dramatic increase in U.S. inequality is due almost entirely to the expanding fortunes of the
1 percent. They have tripled their share of the nation’s total wealth to 21 percent since the 1970s.

Such extreme concentrations of wealth are of growing concern to economists and even one Wall Street firm. They argue that it hurts the economy for everyone.

The public’s reaction couldn’t be more different. Their preferred solution to barely coping financially is to become rich themselves. Two out of three Americans told Gallup they aspire to being rich and say that the super-wealthy are good for the country. Democrats and Republicans are equally enamored of the rich.

What it means to be in the top 1 percent is, for most of us, an abstraction since the wealthy largely keep to their own. But the crew of the Double Sunshine tour boat are happy to show tourists the lifestyles of Florida’s rich and famous during daily tours of the dolphins and multimillion-dollar mansions on Naples Bay.

During my Christmastime tour of the bay, the crew pointed out one property where the new owner had demolished a $49 million house to build a new one. “Tear-downs are on a tear,” says The Naples Daily News, which closely follows the real estate transactions of celebrities and chief executives.

In property after property, royal palms sway over lawns that tumble into the bay. Every house has a yacht or an empty boat slip with a full crew awaiting the owner’s return, said Greg Dyer, the tour boat company’s assistant operations director. One homeowner pays nearly $600,000 a year in property taxes. No wonder Naples has such great bike paths. …Learn More

November 1, 2018

US Inequality is Feeding on Itself

The fact that the richest Americans are grabbing such a big slice of the pie isn’t exactly breaking news.

What is news is that Wall Street is getting nervous about it. Moody’s Investors Service, a private watchdog for the federal government’s fiscal soundness, has concluded that inequality has reached the point that it threatens a system already being strained by increases in the federal debt. But Moody’s also noted that inequality is contributing to slower economic growth, which further aggravates inequality.

The high level of U.S. inequality today “sets us apart” from Canada, Australia, and several European countries, Moody’s said in an October report, “Widening Income Inequality Will Weigh on U.S. Credit Profile.”

Moody’s central concern is how inequality will affect the federal budget. When the economy slows in periods of high inequality, there are more lower-income households requiring support from costly programs like Medicaid.  Federal tax revenues also decline during any downturn, leaving less money to pay for these means-tested programs and for social insurance programs like Social Security and Medicare.

The firm’s second concern is that inequality is a drag on the economy. When the middle-class is squeezed, for example, they have less money to buy consumer goods. And when the economy slows down, inequality can increase, as it did in the years after the 2008-2009 recession.

This has played out in a widening wealth gap, Moody’s said.  The typical lower and middle-income worker’s net worth – assets minus liabilities – has shrunk since the recession, while net worth rose sharply for the people at the top.

One big reason for widening inequality is the stock market. Even though the market declined sharply this month, the post-recession bull market has beefed up investment portfolios – but only for the 50 percent of Americans who own company shares or stock mutual funds.

A second contribution to a widening wealth gap, post-recession, has been housing. A home is often the most valuable asset people own, so the steep drop in house prices and the spike in foreclosures were big setbacks for people who aspired to build wealth through homeownership. …Learn More