Rachel Maddow this past week hyped in advance of her MSNBC show her receipt of a Trump tax form of 2005. It was a letdown scorned by some in the media. It was only the first two pages of his form 1040, U.S. Individual Income Tax Return. It revealed in 2005 Trump had earned $155 million dollars in income, which represented him as a millionaire not a billionaire.
Millionaires come and go. Their source of high income can disappear just as rapidly as it appeared – a sports star losing his/her contract, an investor making some bad bets, a landlord stuck with renters who default, a mine operator where employees are killed, and bankruptcy for any numbers of reason. So BAM they are no longer millionaires.
Trump’s two-page return told us his income but little about his wealth. In today’s world of inequality, a more important measure is wealth not income inequality. Wealth can be perpetuated from generation to generation. The lack of wealth of the middle class and the poor is also perpetuated into the next generation and made even more severe in today’s economy where “living wage jobs” are harder to find. The wealthy are not so impacted, in fact the stock market is booming, as firms substitute robots for humans, adding profit dollars to the holdings of the rich.
We have no idea from Trump’s two-page return what his wealth was in 2005. If his $155 million income represented a 10% return of income on assets he might have been a $1.55 billionaire. With the intricacies of tax law, however, his wealth could have been far more or far less. Incidentally the two pages also told us nothing about any charitable donations, and the sources of his income: foreign or domestic, respected businesses or shady operators, lease or ownership, losses incurred, tax loopholes utilized, etc.
In New Jersey Governor Christie has sided with benefitting wealthy individuals and certain big corporations, showing little concern for the rest of us. One example is how in order to refinance the Transportation Trust Fund he coerced legislators into phasing out the estate tax while increasing the gas sales tax substantially, burdening most those with little income. With the end of the estate tax he facilitates and perpetuates wealth inequality. The “American Dream” that anyone today can rise by their bootstraps has become more a nightmare, while visions of sugar-plums dance in the heads of the lucky few.
What are the benefits of wealth? Concretely it can provide a better education, health, luxury items, connections and comfort for its individuals and their progeny who inherit the wealth. It also offers numerous tax goodies. A person who inherits or builds up an investment fund of millions (or billions) may report relatively little in income and hence have a lower tax rate. A famous example is billionaire Warren Buffett who complains about the tax system saying it allows him to pay a lower tax rate than his secretary.
Here is how it works. The rich person has assets – it may be land, ownership of one of one more corporations, income from patents or licenses or market investments, much of which earn income and is put into a fund earning further income. That person may retire receiving no salary or may never have a job reporting no salary, and it is salary income which is taxed at the highest rate. In the meantime the person receives income from qualified dividends that enjoy a low tax rate and interest on tax free bonds that require no tax payments. Capital gains from the portfolio are also taxed low, and capital losses can be written off over a period of years. These advantages lower substantially taxes due to Uncle Sam. Monies withdrawn from the fund are also not taxable and can provide a high and even obscene standard of living for the individual.
After World War II the top earners in the eight years of Eisenhower’s presidency paid a top income tax rate of 91% – such impeded the ability of people to earn and transfer to children huge estates. It evened out the playing field and allowed many in the middle class and some of the poor to taste the American Dream. Such is no longer the case today as the highest federal income tax rate is 39.6%. Federal estate tax allows an exemption up to $5.34 million. Sen. Bernie Sanders has been calling for a “responsible federal estate tax” with a $3.5 million exemption and a 65% top estate tax rate. We are not there now. We should be.
In New Jersey the new state estate tax exemption would go up from its current low $675,000 to $2 million for deaths as of Jan. 1, 2017. That means an individual can leave $2 million to heirs without a state estate tax levy (money left to spouses is always exempt.) On decedents dying on or after January 1, 2018 there are zero estate taxes imposed. For out-of-staters with beach houses, there’s another freebie – the latest legislation eliminates a provision that imposed estate tax on the New Jersey property of nonresident decedents. Flee to Florida where there are lower taxes, and escape estate taxes on NJ property.
All of this in the Garden State must be reversed by our new governor, and reversed nationally. It’s a small step, but it provides the government with more revenue to meet essential needs, and it lead toward more wealth equality. Nationally, with Trump as President and a Republican congress we can only expect the wealthy to grow wealthier and the rest to suffer. It should be a lesson to the middle class and poor, particularly for those who rooted for Trump, that they will be going backward not forward.
It doesn’t have to be that way. Democratic politicians in NJ and the nation need to show they will help the vast majority of Americans and work toward the type of wealth equality that is needed. Can you imagine what Trump would be like if he had to pay a 91% tax rate in 2005 and going forward rather than the reported 25%?