The Business of America—Making Billionaires

The word on the street—and the street I’m referring to is Pennsylvania Avenue—is that the next big undertaking in the city that never wakes up to reality but always knows how to put a good spin on a bad message will be rewriting the tax code.

This isn’t the only talk in the city where talk couldn’t be cheaper. Russian involvement in last year’s election is another hot topic making the rounds. Topping off the discussions is Putin but more and more, interactions between Russian oligarchs and Trump subordinates are making their way into the conversation.

Oligarchs, and the word itself seems to suggest the sort of evil ogres found hiding in the swamps and dark forests of children’s fairy tales, are those billionaire bullies siphoning off the Russian wealth and depositing it in their personal bank accounts around the world. They are allowed to do this because they support Putin, who has stashed his own wealth in crooked banks around the world.

The banks often serve as nothing more than money laundering facilities. On the surface, it would seem that every Trump associate has at least one, and usually several, Russian billionaire bully friends (BBF’s). On the surface it is an embarrassment of riches because everyone involved are rich and they all should be embarrassed.

Most of this is not new information. It simply wasn’t well-known information until Trump ran for president. What I do find surprising about Russian oligarchs is how well known they are in Russia. Everyone seems to know these corrupt, bullying, billionaires situated at the seat of power in a corrupt, bullying government that thrives on stealing its nation’s wealth. There is no effort on their part to disguise their identities or hide what they do.

I guess that’s the beauty of Communism. It’s bad, everyone knows it’s bad and no one cares that it’s bad.

You wouldn’t expect to find such blatant corruption in an economic system like Capitalism, a system which supposedly is as good as it gets—not perfect by any means but certainly good enough to satisfy the needs of the rich, poor and everyone in the middle. That doesn’t mean corruption doesn’t exist.

The last major tax reform bill was in 1986. There have been adjustments at various times but that was a big deal. President Trump and Republicans tell us it is time to bring the tax codes into the 21^st century. Nineteen-eighty-six was a long time ago. A lot has changed. Yeah.

Revising the code, we’re told, will give relief to the middle class, get rid of entitlements to special interests, and help the investment class who would rather be known as job creators and definitely don’t want to be called the wealthy class. It will also reduce the deficit. Don’t forget the deficit.

The funny thing, and everyone might not find this funny, but these were the same stated goals of the Tax Reform Act of 1986. Help the middle class, create jobs, and eliminate special interests.

Thirty years later, this is where we stand.

The middle class has all but vanished. Manufacturing jobs are gone, probably never to return. More Americans than ever are working part-time with little or no benefits in the fast-food industry or large box-stores and warehouses. One is almost at a loss to find any winners coming out of the 1986 Tax Reform Act. Almost but not quite.

In 1986, there were 13 billionaires living in America. This was four times as many as I remember growing up in the fifties when there were three—J. Paul Getty, Howard Hughes, and the Rockefeller family. The next year, there were 41 and the number increased steadily to 149 in 1996 before dropping back to 49 in 2000.

Then there was the Bush tax cut in 2001, where everyone got a $100 check in the mail and billionaires got their capital gains tax rate cut to 15 percent, or a little bit more than what a family making $25,000-a-year might pay.

That year, the number of billionaires jumped to 272, decreased a bit following the 2008 Recession before rebounding to where it stands today at 565.

Now I know there has been a lot of innovation over the last thirty years, a lot of opportunities created that have led to the current number of super wealthy Americans. But I also know that favorable tax laws and a reluctance of job creators to share their wealth with the job doers has led to a situation where we have a shrinking middle class and a rather vibrant wealthy class.

However, this is not the whole story. Something else happened in 1986 that few Americans are aware of. In 1989, two reporters from the Philadelphia Inquirer, James B. Steele and Donald L. Barlett won the Pulitzer Prize for their reporting on the Tax Reform Act of 1986.

What they found was over a thousand pages of exceptions written into the law to benefit individual taxpayers and corporations.

Unlike with Russian oligarchs, who everyone knows their names, lawmakers who wrote the 1986 bill went to great lengths to disguise the beneficiaries of their generosity. This is what a tax exemption looks like when an American lawmaker wants to give special treatment to an American Corporation and doesn’t want anyone to know: Subsection (f) of section 621of the Tax Reform Act of 1986 is amended by adding at the end thereof the following new paragraphs: For purposes applying section 382(k)(6) of the Internal Revenue Code of 1986, preferred stock issued by an integrated steel manufacturer incorporated on November 9, 1982, and reincorporated on February 11, 1983, and having its principal place of business in Trenton, Michigan, and mentioned in a letter of intent dated July 10, 1987, signed by such manufacturer, shall not be treated as stock. Only one corporation fit this description and it received a three-year $26-million tax break.

Like Vaudeville jokes, there are a thousand of these—at least a thousand pages.

There was a lot of excitement of the Trump/Ryan health care reform bill until word came out that it was going to cut off insurance for 24-million Americans and reward the wealthy with a huge tax break. This brings us to the much ballyhooed tax reform bill of 2017. There will no doubt be a lot of good sounding slogans—maybe as good as “Repeal and Replace,” maybe not. We are going to hear a lot about helping the middle class and investor.

My advice: don’t believe everything you hear. And don’t be surprised if somewhere down the road, there are even more billionaires, whose names we won’t know until they turn up on the “Forbes One Thousand List.” By then it will be too late.