Perfectly Legal : The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and CheatEverybody Else
by David Cay Johnston
Really interesting stuff on how our tax system in the U.S. is, in effect, quite regressive.
Taxes are not my thing. (My accountant will testify to the effect that I don't know a damned thing about them.) But I find this stuff fascinating. Sometimes I have to re-read individual paragraphs to make sure I fully grok what the author is talking about, but once I do follow it, the subject matter is actually fascinating to me.
Of course, I'm not even halfway done reading yet, but it shouldn't be long before I finish this one up. One of the most interesting concepts I've encountered thus far has been the notion of the middle class' most prized tax deduction (mortgage interest) actually benefitting the rich and super-rich more than the middle and working classes. The move led to a vast increase in housing prices, and those who could afford to buy more real estate were able to deduct more from their tax returns, so the rich and super-rich were able to pay less in taxes over time.
On a similar note, I keep wondering whether the low interest rates and housing boom that have been underway for a while are screwing younger, working-class people in the long run. In 1978, my parents paid $60,000 for their house in Wading River. Adjusted for inflation, that's just under $180,000 in 2005 dollars. Yet in today's housing market, that house sells for around $450,000, which is a remarkable rate of return. First-time homebuyers are making it possible for people who are better off to lock in these gains. Granted, they're paying for it with low-interest loans as compared to what folks might have paid 10-15 years ago. But one wonders whether we're in a housing bubble or not.
After all, housing prices are affected by a number of different factors, including rents in the area, taxes and a number of other things. One of the biggest factors is the price of a home in comparison to the cost of buying land and the labor/material cost of building a home yourself. If I can do this in my area for approximately $300K, what's the incentive to pay $450K+ for something that's already built? It makes me wonder whether real estate can continue on this path.
If it does come crashing down, we'll see older, better off people with money in the bank while new homebuyers struggle (and even go into bankruptcy). This could be another way in which the gap between the haves and have-nots is both reinforced and made even worse.
Posted by THespos at March 16, 2005 10:13 AM | TrackBackGreat book
However, I think the real story is the one you tell about your parents. In 1978 I will assume they were making at least 20,000 to be able (28% of income) to buy that 60,000 house. Would your dad's salary today be at least 60,000 based on his same job position and time with the company? Then his salary would match the inflation adjusted price of 180,000 (4% per year for 27 years) you said the house would be worth. Of course raises of just 4% would only keep you even with inflation, so that is no raise in real money at all. To get ahead, you would have to be getting raises of more than 4%. A 5% raise would only be giving your dad a 1% merit increase for all his extra hard mental or backbreaking work ( a miserly 200 on a 20000 salary) 6% would only be a 2% merit increase every year (400 on a 20000 salary). A 7% raise would only be giving him a 3% raise (600 on a 20000 salary) of get ahead money. So, the 5% raises every year (1% merit 4% inflation) would make his old job worth 75,000 today, a 6% would make it 100,000 and a 7% (3%merit) would make it worth 125,000-130,000. Now, lets figure out which occupations (the people having the same amount and years of experience with the company like your dad had when he made 20,000) have been getting 7% (only 3% (600 on a 20,000 job) of that is merit since 4% is inflation and is really no raise at all) raises over the 27 years and these are the people who can afford the price that your parents house now sells for. How many people at different occupations that were making 20,000 back in 78 are making 60,000 which just keeps up with inflation. (That would be 45,000 for someone making 15,000 back in 78). Now back to the 20,000 in 78, how many make 75,000 in those occupations which would just be a 1% merit increase each year for all those years of hard work, 100,000 which would be just a 2% merit increase and so on. Only a select group and you knowing more than I do by a long shot can figure out from your resources who these people and occupations are. That is the real story out of your article, but Mr. Johnston will give you an real live eye opener on the super rich and how everyone else (the youngest of the "greatest generation" started this in their later years and continued as they went out the door if you ask me and passed it on, Ross Johnson, Jack Welch, Carl Ichan,) and everyone else is paying for their greed. However, if the greatest generation (remember people from all walks of life were in that fox hole) had anyone try these shenanigans on them, they would have raised holy hell and not put up with it for one minute. Anyway read Johstons book.
Posted by: lvm at March 28, 2005 09:59 PM
All comments are property of the individual poster who left them. Everything else, copyright 2005, Tom Hespos