The United States has become so economically polarized that your parentage is now a better predictor of your income than it is of your height and weight. So writes the Hillman Prize-winning journalist Timothy Noah in his cogent new take on how America's rich have left everyone else behind. Out this week, The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It springs from Noah's 2010 Slate series,which contributed to the "1 percent" meme that galvanized Occupy Wall Street. It's a dense but informative read, harnessing a wealth of economic data to show how everything from globalization to union-busting to dual-income power couples helped the 1 percent capture the vast majority of income gains over the past 30 years. Noah's suggestions for reversing the trend are pretty much required reading for the rest of us. I caught up with the author to get his personal take and predictions for what might be in store for us.
Mother Jones: What inspired you to expand your series into a book?
Timothy Noah: In times of economic hardship, people kind of wake up to these long-term trends. The series got a tremendously favorable reception, which was gratifying, because when I told people I was working on it, I tended to get this slightly condescending response; "Oh, good for you!"
TN: For a long time there were lots of contradictory theories about what was causing it. There was a certain amount of inequality denialism. Also, it was gradual, and journalism is not very good at covering things that are happening slowly. It really wasn't until [economists] Thomas Piketty and Emmanuel Saez came up with their findings in the early aughts that people really grasped the full extent of income inequality.
MJ: What is the most shocking stat you uncovered?
TN: From 1980 to 2005, 80 percent of the total increase in America's income went to the top 1 percent. That doesn't factor in taxes and benefits, but when you calculate it that way it's still 36 percent, which is also amazing.
MJ: You also mention that a person's parentage is now a better predictor of income than it is of height and weight.
TN: I call it "income heritability," the degree to which you inherit your parents' relative position on the income spectrum. And that is just stunning to me, because obviously we inherit our height and weight in a literal sense. We inherit our parents' relative income only in a figurative sense, but the correlation is about as strong. That's not what America is supposed to be about; America is supposed to be about opportunity and mobility.
Today, the Secret Service confirmed that it will interview right-wing shock rocker Ted Nugent in connection with his comments at last week's National Rifle Association convention in St. Louis.
This does not appear to be the first time that the Secret Service has expressed an interest in the Nuge. At the NRA's 2005 conference in Houston, I witnessed Nugent bragging about getting harassed by President George W. Bush's security detail. "I kept getting these phone calls from the Secret Service," he said, wearing fatigues and standing in front of a "Don't Tread On Me" banner on a small stage. "And I'm like, 'Oh shit, what do I do now?'" He recounted that Secret Service agents eventually showed up at a BBQ at his ranch near Crawford, Texas. Nugent thought it was a raid. "I was running around," he recalled. "I thought there was going to be a couple of guys pulling into the BBQ and shooting."
Nugent expressed no qualms about engaging in a gun battle with the heavily-armed agents. "I said, 'I've got a bunch of guys with McMillan assault rifles trained on the back of your head, so if this is a raid, you can just turn right back around.'"
But it turned out that the Secret Service had just stopped by to play target practice. Nugent said he set up bowling pins a few hundred feet away and took aim with a borrowed government rifle and pretended to shoot the director of Bowling for Columbine. "Before I shot, I went, 'In the name of the Father, the Son, and the Holy Spirit.' Michael Moore! And I blew him up. Beautiful!"
It's unclear whether Nugent had exaggerated or fabricated parts of this story, though the part about the Secret Service showing up at his ranch near Crawford seems plausible, given that George W. Bush often vacationed at his own ranch nearby. The Secret Service could not immediately be reached for comment.
"If Barack Obama becomes the president in November, again, I will be either dead or in jail by this time next year," Nugent said at last weekend's NRA convention. Or maybe he'll end up shooting off a few more rounds with the feds.
Unlike Mitt Romney, most Americans who will pay their taxes today can't afford fancy accountants. But Romney has reluctantly made public his tax returns, and thus shared valuable strategies to ensure that he pays a far lower rate than, say, Warren Buffett's secretary. Citizens for Tax Justice recently waded through Romney's 2010 return—in which his $22 million in income was miraculously taxed at just 13.9 percent—to come up with a handy primer for how you, too, can beat the IRS at its own game. To paraphrase:
1. Don't work for a living
The tax rate on money earned actually working ("salaries and wages") can be more than double the rate on money earned sitting around watching your investments go up in value ("capital gains"), thanks to the work of other people. Almost all of Romney's income is taxed as capital gains.
2. If you work, disguise your compensation as capital gains
About half of the $15 million in capital gains and dividend income Romney reported in 2010 was actually compensation for his work at Bain Capital. But using a tax loophole favored by private-equity guys, he was able to get paid by taking equity stakes in deals that he put together ("carried interest," in tax parlance) instead of in the proletarian form of a fully taxable salary. Bonus: This allowed Bain to avoid paying Medicare payroll taxes.
3. Give to charity—but not with cash, checks, or money orders
In 2010, Romney was able to write off $1.5 million worth of Domino's Pizza stock he donated to a charity. It is likely that he originally received the stock as compensation from Bain, in which case the price he paid for it would have been close to zero. In this scenario, by donating the stock instead of selling it and donating the cash, Romney would have saved about $220,000 in taxes.
4. Give to charity—but not now
Romney's return reports income from the W. Mitt Romney 1996 Charitable Remainder UniTrust. Not only is the trust tax exempt, but when Romney set it up 16 years ago, he got a tax deduction for making a charitable donation. Though the money in the trust is eventually supposed to go to charity, Romney can receive income from the trust for a number of years—quite possibly for the rest of his life.
5. Give to charity—your own
In 2010 Romney made a tax-deductible, $1.5 million donation to the Tyler Charitable Foundation, which he controls. Commanding your own foundation allows you to curry favor with political and business allies by donating money to their pet organizations and causes. For instance, in 2010 the Tyler Charitable Foundation donated $100,000 to to the George W. Bush Library.
6. Do not invest in America
Certain foreign investment vehicles allow you to avoid certain taxes. For example, Romney's Individual Retirement Account could bypass the Unrelated Business Income Tax by investing through a foreign corporation. Though it's hard to know whether Romney availed himself of those kinds of savings, he has invested substantially in foreign entities, including ones based in offshore tax havens such as Bermuda, the Cayman Islands, and Luxembourg.
7. Invest in sexy financial instruments
Romney earned $415,000 from an investment that gets special tax treatment: Through an accounting loophole, 60 percent of the profits from the investment are treated as long-term capital gains, a designation that has tax benefits, no matter how long the investment is held.
8. Borrow money to invest
While you can't deduct interest from car loans or credit cards, you can write off interest on the money you borrow to make certain types of investments—for instance, if you borrow from a broker to buy stock (a "margin loan"). Portfolio management fees are also write-offs. A fellow like Romney, who makes his millions mainly from investments, could probably deduct a fair sum.
9. Push the limits of the law When you engage in a type of transaction that the IRS views as potentially abusive, you must disclose it in a separate form. In 2010, Romney filed six such forms.
10. Be part of the 1 percent When it comes to taxes, it costs money to save money. You'll need to hire lawyers to help you set up tax-exempt charities and trusts or exploit offshore tax havens—and a professional money manager if you plan to invest in sexy financial instruments. It probably won't be cost effective if you aren't already rich, but any hard-working son of a governor can land a job at a private-equity firm and start getting paid in carried interest. Bonus: You might make enough money to one day run for president.
If you're one of the millions of people who get emails from MoveOn.org, then you've probably heard of the "99% Spring." Far from another clickable internet petition, it is possibly the largest attempt ever to train people in nonviolent protest techniques. Some Occupy types have criticized the effort as a scheme by Democratic operatives to co-opt their movement. But the reality is probably the opposite: It seems that America's best-known progressive fundraising organization is now taking its cues from Occupy Wall Street.
I didn't know what to think of the 99% Spring until I stopped by a three-hour training session—one of more than 900 being held nationwide this week—at a Unitarian church in San Francisco. My presumption was that the 60 or so gray-haired attendees would be interested in supporting Democratic candidates—after all, the event was cosponsored by the Progressive Democrats of San Francisco—but many seemed just as disillusioned with electoral politics as the folks who took over New York City's Zuccotti Park this past fall. "I believed Obama when he said he would change things and he didn't, so I quit the Democratic Party," said one middle-aged MoveOn member who asked that I not use her name. She went on to talk about about how "the deck is stacked" and "voting doesn't work anymore." She'd come to the training looking for a new way to get involved.
From left: Occupy.com cofounders Seth Adam Cohen and David Sauvage, manager Samantha Pastor, and social-media editor Justin Wedes. Photo by Alex Fradkin
Call him Occupy's Arianna Huffington.
New York filmmaker David Sauvage is cofounder of Occupy.com, a nonprofit multimedia and news-aggregation site that launches today with financial backing from Hollywood, lots of complicated internal politics, and a plan to become a must-read for a new generation of activists. "There is so little in the media that the vast majority of people engage with that is alive, or powerful, or truthful, or messy, or complicated, or real," says Sauvage, 31, whose last project before joining Occupy Wall Street was a TV commercial for WSJ, the glossy magazine of the Wall Street Journal. "I would like to see the makers of content emerge as the shakers of the world."