without the responsibility of paying its fair share.
The latest tax-reform bills are far from perfect134—they leave open a number of loopholes and would only recoup a very small fraction of the $100 billion that corporations and wealthy individuals are siphoning off from the U.S. Treasury. And they wouldn’t ban companies using offshore tax havens from receiving government contracts, which is stunning given the hard times we are in and the populist groundswell against the way average Americans are getting the short end of the stick.
But the bills would end one of the more egregious examples of the tax policy double standard, finally forcing hedge-fund managers to pay taxes at the same rate as everybody else. As the law stands now135, their income is considered “carried interest,” and is accordingly taxed at the capital gains rate of 15 percent.
According to former labor secretary Robert Reich, in 2009136 “the 25 most successful hedge-fund managers earned a billion dollars each.” The top earner clocked in at $4 billion. Closing this outrageous loophole137 would bring in close to $20 billion in revenue—money desperately needed at a time when teachers and nurses and firemen are being laid off all around the country.
But the two sets of rules—and the clout of corporate lobbyists—leave even commonsense, who-could-argue-with-that proposals in doubt, and leave the middle class shouldering an unfair share of a very taxing burden.
Indeed, the double standard was famously ridiculed138 by Warren Buffett in 2007 when he noted that his receptionist paid 30 percent of her income in taxes, while he paid only 17.7 percent on his taxable income of $46 million.
HOMER SIMPSON HAS IT TOO GOOD: SNAPSHOTS FROM THE MIDDLE-CLASS BATTLEFIELD
The numbers don’t lie: We increasingly live in a “winner take all” economy. Indeed, we’ve arrived at a point where even Homer Simpson—created as a classic American Everyman character—is now living a middle-class fantasy. After all, how many American middle-class families do you know where the family’s sole breadwinner, a safety inspector at a nuclear power plant, can still comfortably support a family of five on a single income?
A more accurate snapshot139 of a modern middle-class family can be found in Nan Mooney’s book (Not) Keeping Up with Our Parents. One person profiled in the 2008 book is Diana, thirty-six, a licensed psychologist with a doctorate in clinical psychology. Her husband, Byron, is a trained engineer who makes his living as a technical writer for a patent attorney. The couple has two young children. Besides bringing up her kids, Diana holds down two part-time jobs, one as an assessment director for a nonprofit organization that places school counselors, the other building her private practice as a psychologist. She makes $35,000 a year. Her husband, a contract worker paid on a per-project basis, makes $40,000. When interviewed by Mooney, their credit cards were loaded with debts totaling $17,000. Their mortgage cost them $1,150 a month. Diana was paying $450 a month on her school loans, but that figure was about to get bumped to $550 a month. Rent on her office, plus condo fees, added another $750 a month. The couple had little equity in their property and had wiped out their savings.
“I feel like we’ve cut every corner we can cut,” Diana told Mooney. “We don’t take vacations. We never go out. Right now, I just keep my fingers crossed that nothing breaks. We need a new roof and new tires for the car. And we’re going to get hit hard by taxes this year.” At that point, Diana’s voice began to crack. “I’m scared. I’m scared we’ll never be able to retire. I’m scared we won’t be covered for health care. I’m scared we won’t be able to send our kids to college. We’ve never had much, but before I always felt like we were doing our time. We were working our way toward a more comfortable future. That doesn’t seem true anymore. At this point, I see no way out at all.”
Diana and Byron’s tale is an increasingly common one. Their high-priced college education—the kind many see as a safeguard against economic hard times—is no longer enough at a time when the jobless rate is almost 10 percent140 and twenty-six million people141 are out of work or underemployed.
Troy Renault is one of them142. In August 2009, Troy, his wife, Tammy, and their five children were living in a three-bedroom home in Lebanon, Tennessee. Two years earlier, Troy had lost his construction job. Ultimately, as the Huffington Post’s Laura Bassett reported, they lost their home and had to move into a donated trailer on a local campground. They downgraded from a 1,900-square-foot house to a 215-square-foot trailer.
Says Troy143, “You wind up starting to think to yourself, ‘Okay. Do we go ahead and make the house payment and keep a roof over our head but have no lights and no water, or do we go ahead and keep those utilities on and forgo the house payment, and hope that you can get caught up?’ ”
Rebecca Admire is another144 of the more than eight million people who have lost their jobs since December 2007. A single mom with two kids, Admire was laid off from her job at the Family Guidance Center for Behavioral Healthcare in St. Joseph, Missouri. After several months of struggling to pay her rent, she invited her cousin and two children to move in with them and share costs. There are now eight people living in Admire’s two-bedroom house. The four children sleep in one bunk bed, two to a mattress. But with so many in the house, the utility bills have gone through the roof. “I cry every time a bill comes in the mail,” Admire says.
In some cases, entire towns are falling into permanent decline when their central industries disappear. Mount Airy, North Carolina, for example145, which has a population of just 9,500, historically relied largely on the textile industry for jobs. But, as Paul Wiseman reported in a March 2010 piece in USA Today, one after the other, the city’s textile and apparel factories shuttered, shedding more than three thousand jobs between 1999 and 2010. It’s a trend bound to continue: According to the Bureau of Labor Statistics, openings in textile and apparel manufacturing will nearly halve by 2018, as work is increasingly outsourced overseas and replaced by technological advances.
And in Mount Airy—the city where Andy Griffith grew up146, and the inspiration for Mayberry, the epitome of small-town America for TV viewers for half a century—the transition has rattled an entire generation that had banked on the security of manufacturing jobs. “When you started work, you thought you’d be there until you retired,” Jane Knudsen, who began working in a textile mill in 1973, told USA Today. But Knudsen’s mill closed down, and now she works as a part-time cook at the local jail for two dollars less per hour. Another local, Steve Jenkins, opted to skip college and go straight into apparel manufacturing. He worked at Perry Manufacturing for more than thirty years, advancing through the ranks to earn a salary of $103,000 as director of purchasing. But Perry shut down in 2008. For Jenkins, who received no severance and had few other skills, life was suddenly upended.
“We were not prepared147,” Mount Airy City Council member Teresa Lewis conceded. “We’ve had a huge loss of jobs in the textile industry. A lot of those people had devoted 30, 35 years to one particular company, and they found themselves in their early to mid-50s without a job or without the skills to go into something else.”
The aggregate effect of these stories—and tens of thousands more like them—is deeply troubling for our country. Through an enviable mix of jobs created by innovative American businesses and a national culture based on self-reliance, America has always had unemployment rates far lower than other developed nations. But this