Third World America: How Our Politicians Are Abandoning the Ordinary Citizen. Arianna Huffington
In contrast, the nation’s top 5 percent117 saw their pay rise 29 percent over the same period, up to $177,518. And the top 1 percent did best of all. In fact, between 1977 and 1989 the richest Americans’ average income rose from $323,942 to $576,553—a whopping 78 percent increase in real terms.
The trend continued into the first decade of the twenty-first century. According to a report compiled by Elizabeth Warren118, the average middle-class income between 2000 and 2007 fell $1,175, while expenses rose $4,655. Over the same period, the top 1 percent119—which had pocketed 45 percent of the nation’s income growth under Clinton—captured 65 percent of all income growth under Bush.
And according to a report released in May 2010120 by the Brookings Institution, between 1999 and 2008 the median house hold income fell $2,241 to $52,029, while the share of house holds earning middle-class incomes dropped from 30 to 28.2 percent.
So it’s clear: Well before the economic crisis hit in the fall of 2008, the once-envied American middle class was already being driven to its knees. Indeed, in a 2008 Pew survey121, 56 percent of middle-class Americans said they had either fallen back or merely managed to tread water over the previous five years. It was, according to Pew122, “the most downbeat short-term assessment of personal progress in nearly half a century of polling. Fewer Americans now than at any time in the past half century believe they’re moving forward in life.”
And that was just as the Great Recession was beginning to ravage the economy. Since then, life for the middle class has gone from bad to worse. In a revised take on the original Misery Index123—the measure developed by the late economist Arthur Okun that combined the unemployment rate with the consumer price index to condense the state of the economy into one neat, digestible number—the Huffington Post created the Real Misery Index. Incorporating a more extensive host of metrics, including the most accurate unemployment figures; inflation rates for essentials such as food, gas, and medical costs; and data on credit card delinquencies, housing prices, home loan defaults, and food stamp participation, the Real Misery Index is a much more accurate estimate of economic hardship. In April 2010, as the unemployment rate remained stubbornly high and the number of Americans on food stamps grew to forty million, the Real Misery Index, which charts data from 1984 to today, hit the highest level on record. And the bull rally that sent the stock market up an impressive 56 percent from March 2009 to April 2010 surged in tandem with the Real Misery Index, which climbed 16 percent in the same period—reflecting what Lynn Reaser, the incoming president of the National Association of Business Economists, called a “two-tier economy.”
THE MIDDLE CLASS PAYS ITS UNFAIR SHARE
This two-tier economy comes with two sets of rules—one for the corporate class and another for the middle class.
The middle class, by and large, plays by the rules, then watches as its jobs disappear. The corporate class games the system—making sure its license to break the rules is built into the rules themselves.
One of the most glaring examples124 of this continues to be the ability of corporations to cheat the public out of tens of billions of dollars a year by using offshore tax havens. Indeed, it’s estimated that companies and wealthy individuals funneling money through offshore tax havens are evading around $100 billion a year in taxes—leaving the rest of us to pick up the tab. And with cash-strapped states all across the country cutting vital services to the bone, it’s not like we don’t need the money.
Here is Exhibit A of two sets of rules: According to the White House125, in 2004, the last year data on this was compiled, U.S. multinational corporations paid roughly $16 billion in taxes on $700 billion in foreign active earnings—putting their tax rate at around 2.3 percent. Know many middle-class Americans getting off that easy at tax time?
In December 2008, the Government Accountability Office126 reported that 83 of the 100 largest publicly traded companies in the country—including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and AIG—had subsidiaries in tax havens, or, as the corporate class comically calls them, “financial privacy jurisdictions.”
Even more egregiously127, of those 83 companies, 74 received government contracts in 2007. GM, for instance, got more than $517 million from the government—i.e. the taxpayers—that year, while shielding profits in tax-friendly places like Bermuda and the Cayman Islands. And Boeing, which received over $23 billion in federal contracts that year, had 38 subsidiaries in tax havens, including six in Bermuda.
It’s as easy as opening up128 an island P.O. box, which is why another GAO study found that more than 18,000 companies are registered at a single address in the Cayman Islands, a country with no corporate or capital gains taxes.
America’s big banks—including those that pocketed billions from the taxpayers in bailout dollars—seem particularly fond of the Cayman Islands. At the time of the GAO report129, Morgan Stanley had 273 subsidiaries in tax havens, 158 of them in the Caymans. Citigroup had 427, with 90 in the Caymans. Bank of America had 115, with 59 in the Caymans. Goldman Sachs had 29 offshore havens, including 15 in the Caymans. JPMorgan had 50, with seven in the Caymans. And Wells Fargo had 18, with nine in the Caymans.
Perhaps no company exemplifies the corporate class/middle class double standard more than KBR/Halliburton. The company got billions from U.S. taxpayers130, then turned around and used a Cayman Islands address to reduce its expenses. As the Boston Globe’s Farah Stockman reported, KBR, until 2007 a unit of Halliburton, “has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.”
In 2008, KBR listed 10,500 Americans131 as being officially employed by two companies that, as Stockman wrote, “exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Ca rib be an.” Aside from the tax advantages, Stockman points out another benefit of this dodge: Americans who officially work for a company whose headquarters is a computer file in the Caymans are not eligible for unemployment insurance or other benefits when they get laid off—something many of them found out the hard way.
This kind of sun-kissed thievery is nothing new. Indeed, back in 2002, to call attention132 to the outrage of the sleazy accounting trick, I published a tongue-in-cheek newspaper column announcing I was thinking of moving my syndicated newspaper column to Bermuda. “I’ll still live in America,” I wrote, “earn my living here, and enjoy the protection, technology, infrastructure, and all the other myriad benefits of the land of the free and the home of the brave. I’m just changing my business address. Because if I do that, I won’t have to pay for those benefits—I’ll get them for free!”
Washington has been trying133 to address the issue for close to fifty years—JFK gave it a go in 1961. But time and again corporate America’s game fixers—a.k.a. lobbyists—and water carriers in Congress have managed to keep the loopholes open.
The battle is once again afoot. While Congress considers legislation that would clamp down on some of the ways corporations hide their income offshore to avoid paying U.S. taxes, corporate lobbyists are furiously