The Home, the Bank, and the Treadmill

The widening gap

The middle class “American dream”, at least since World War II was founded on the idea of the home not only as lodging but as investment savings. My dad (a common wage-earner employed as a depot agent with the Milwaukee Road Railroad) counseled that it was a good idea to buy the largest house you could afford “because a house will appreciate in the long run.” I still remember my parents sitting at the kitchen table pencilling out what they could afford to buy, calculations that finally resulted in the momentous purchase of a two bedroom, one bath, single family dwelling priced at $15,600. That was a price that was somewhere between two and three times my dad’s union negotiated railroad annual salary. That purchase, and the mortgage that came with it, wasn’t just a dwelling, it was a major portion of my family’s net worth at the time. 

Work hard to scrape together enough money for a downpayment, put money down on the biggest home you think you can afford, find a mortgage lender, and jump on the economic treadmill. For at least a half century this path was considered the way to financial security and the middle class—an opportunity brought to you by the banks, the developers, and the homebuilding industry. Short on cash? Take out a second mortgage or a “reverse mortgage” on your home piggybank! 

It worked pretty well for decades. (That is with the major exception of 2008, when the banks, lending institutions, and regulators, in their relentless quest to make money on the backs of others, bankrupted many who had invested in the home as a vehicle to wealth.) Paying on a mortgage to own the biggest home one could stretch to afford was the prime savings plan for most Americans aspiring to the “American Dream” of upward social and economic mobility. Many folks running on this treadmill of mortgage payments have little left over each month to invest in retirement savings, stocks, and bonds. 

In that same half century, even as average family size has roughly halved, the average square footage of a new single-family home has ballooned by a factor of 3 (as has the associated carbon footprint). 

Meanwhile the income gap has vastly widened over the same time period that the cost of housing has risen. In 1950 the median (not average, but median) home price was 2.2 times the average yearly income. Today the median sales price of houses sold in the U.S. is $404,700 while median real personal income is just $35,805, so the median home price today is more than 10 times the median income.¹ Is it any wonder why cities with the hottest housing markets (and concurrently rising rental prices) are experiencing homelessness at levels not seen since the Great Depression? The relationship is clear.

If you’re one of those folks living in the Inland Northwest with a stable job and a low interest 30 year mortgage on a home you purchased ten years ago, life is good (at least until you sell at the inflated price and then try to buy something else). If, on the other hand, you’re making even $20/hour ($40,000/year) and you lack any familial wealth to fall back on, you might be holding on by the skin of your teeth to pay rent and stay housed, much less thinking about buying a home. 

For developers, builders, and realtors the greatest profit margins are in building and selling tract and high end housing. Neither offers housing a local average worker can afford. Neither contributes much to alleviating homelessness, in spite of local election claims made by realtor/developer PACs. Both types of housing are sold to folks moving here from places where they’ve been able to sell their home at an inflated price to someone even better off—and then use that money to bid up home prices in Spokane and North Idaho. Homelessness goes unaddressed, the developers profit, home prices soar, and locals, some of whom do the actual building, are priced out of a place to live. 

The part of the American Dream that specifies a large home with a bigger mortgage as the stepping stone to family savings and the middle class has become steadily more unattainable. Those who are still able to mount the mortgage treadmill in hope of a better life find the financial system rigged—as many found in the crash of 2008—or they find, like they did in Detroit, that when jobs move elsewhere, their mortgage exceeds the value of their home. Home values are neither portable nor fungible the way stock and bond investments usually are. If your home value is your only savings you’re on thin financial ice.

The home-mortgage-based stepping-stone to wealth developed in the aftermath of World War II. That was a time when many a monumental familial fortune was depleted. The home value playing field was leveled by high estate taxes and marginal income taxes running as high as 90%. In that financial milieu housing prices were driven by demand from the bottom up—not from the top down, as they are today. 

The paradigm of pursuing the American Dream by building more McMansions and pricey tract homes spread out on agricultural land is unsustainable and only serves to further enrich the already wealthy. A change in tax structure from the Republican and neoliberal trend of the last forty years (since Reagan) is required to shift this paradigm before the pitchforks come out (if they aren’t out already…) 

Keep to the high ground,

Jerry1

If you dig into these statistics note that quoted numbers are for individualincome. In 1950 home mortgages were commonly taken on by single income families. Today, qualifying for a mortgage often requires the income of at least two adults. The numbers quoted today are often “household”, not individual income figures. That difference underlines how unaffordable housing has become over my lifetime.

Central Valley SD and the Shea Machine

The On-going Assault on the Central Valley School Board

The attempted takeover of Central Valley School District Board (CVSDB) by far right Shea Republicans did not end with the voting in the November 2 General Election. Prior to the election, CVSDB meetings were disrupted by a fired-up group of parents protesting mask mandates; recall petitions were filed against seated Board members who were not up for re-election; a write-in candidate, Brett Howell (remember that name), filed against Teresa Landa, a previously uncontested candidate for one of two open seats on the Board; and a bogus “non-profit” (Washington Citizens for Liberty) was used by Pam Orebaugh, a candidate for the other open seat, and her ally, Rob Linebarger, to gather an undisclosed amount of money to support all of this political maneuvering. (More orientation is available here.)

Reasonable people came to the defense of the CVSDB by mounting a write-in campaign to elect Stan Chalich, a retired educator, to challenge Orebaugh. 

In a general election in which only 38.64% of voters registered in the CVSD turned in ballots, Pam Orebaugh, the anti-vaccination, anti-mask far-right candidate, was elected over write-in candidate Stan Chalich by 10,129 to 8,018 votes. Garnering eight thousand votes on a local write-in campaign is an impressive achievement (Howell managed only 3939 as a write-in for the other position, losing to Teresa Landa’s 15,412).

When Pam Orebaugh takes her seat on the CVSB she will be one of the six school board“directors”, against five of whom the triumvirate of Orebaugh, Linebarger, and Howell leveled nasty, venomous attacks. Those efforts included filing petitions to recall the three directors who were not up for reelection (petitions that were rejected by Judge Harold Clarke III in late October, finding every charge “legally and factually inadequate”). 

Once Pam is seated will CVSDB meetings be further disrupted by her band of obstreperous anti-mask, anti-vaccination, anti-science, far-right followers? Will their ongoing nastiness make volunteering to serve in the unpaid position of school board director unpalatable to reasonable people? The campaign against the CVSDB shows no sign of letting up—despite the election results.

This pseudo-Christian movement railing against legal efforts to control the Covid pandemic always traces back to a few leaders, Caleb Collier, Matt Shea, and Gabe Blomgren. (See here and here.) Collier and Blomgren are joint hosts of “Church and State,” a podcast spread on Facebook, on which Brett Howell appeared on November 11th. In that podcast Howell spread lies, doubts, and innuendo against Teresa Landa (the candidate who bested Howell’s write-in campaign for CVSDB). Howell and Collier, if you click on the podcast, will waste a half hour of your time suggesting that Teresa Landa is ineligible to serve on the Board and calling for her to step down. This time there is no mention of a recall petition. Howell’s and Collier’s purpose is to rouse the anger and suspicions of their cult and anyone on the periphery they think they can attract to their cause, not to mount an actual legal challenge. Jim Allen, writing in the Spokesman on November 11th gives Howell’s and Collier’s bogus claims recognition with an article entitled “Newly elected Central Valley school board member’s residency challenged by opponent.” (No wonder that Howell and Collier speak fondly of Mr. Allen’s notice during their podcast.)

This podcast, entitled “EXPOSING FRAUD”, by yesterday morning had been shared 51 times and seen by “2K”, so this breathless bullshit has an audience of gullible Facebook followers. “Church and State”, the Facebook page says,

is about getting people plugged into politics and back into pews. The U.S. Constitution and the Holy Bible are our pillars & Only God King.

and “Dispelling the Myth of Church and State Separation”.

The address on the Facebook page is still that of Ken Peters’ non-denominational Covenant Church at 3506 W. Princeton on the near north side, but during the podcast Collier notes that funding is provided by “On Fire Ministries”, On Fire Ministries is located in a beehive of politico-religious activity in a warehouse building at 115 W. Pacific (just north of AutoRain), a building Matt Shea rented after he left Covenant following a dispute with Peters. Shea has launched a thinly documented new school, Kingdom Christian Academy, in order to support and insulate his politico-religious cult. If you take note of the names Collier, Shea, Blomgren, and Peters you will find they pop up with regularity among the ranks of the armed far right. 

We ignore these people and this assault on school boards at our peril. Reasonable people need to attend school board meetings, take note of the goings on, and support the reasonable folk who are donating their time and expertise to the education of our children. If the Matt Shea, Pam Orebaugh, and Caleb Collier set succeeds in frightening good people away from serving on the school boards we are in for big trouble. 

Keep to the high ground,

Jerry

Welfare for whom?

Another example of dishonest labelling

This morning I want to share with you Thom Hartmann’s November 11th email. It stands very well on its own, but it also follows well on my last Friday’s (November 5) post on estate taxes entitled “Wealth and Taxes”. Hartmann’s post will go into my file labelled “Devastating arguments I wish had occurred to me.”

Keep to the high ground,

Jerry

The Tragic Plight of the Children of Wealthy People Exposed

Why is free money a good thing for the children of wealthy white kids but free money to poor people or minorities is a terrible social ill that damages those young people for life?

Thom Hartmann

Earlier this week, Newt Gingrich dropped by my show to promote his new book, Beyond Biden: Rebuilding the America We Love.

We talked about how terrible it is when people get “free money” from the government, how it destroys individual initiative and turns otherwise productive people into lazy whiners.

Thom: “You have, throughout the years that you were in congress, repeatedly pointed out that it’s destructive to people to give them free money, whether it’s free housing or free food or, you know, any kind of welfare payments generally, particularly over a long period of time and particularly enough money that they never have to work again. Please correct me if I’m mischaracterizing your position?”

Newt: “Yeah, it’s actually a paraphrase of Franklin Delano Roosevelt’s 1935 State of the Union speech when Roosevelt says welfare ultimately undermines and debilitates the entire society and that we should be very careful not to create a system of permanent welfare. So in that sense I’m quoting the greatest Democratic president of the 20th century who understood culturally that if you create a dependency class that it is very, very dangerous and it’s very bad for the people who end up on welfare.”

Thom: “Would it be even worse if those people who are now damaged and lazy as a consequence of getting free money had considerable power in society as well? I mean, therefore, shouldn’t we tax inheritances at 100 percent so that we don’t create a whole class of trust fund babies who now not only are damaged and lazy but also have considerable political power because of their wealth?”

Newt: “Well… I mean… I… I find your premise fascinating.  Why do you think it’s your right to say to a parent or a grandparent who’s worked their whole lifetime, ‘We’re not going to take care of your family we’re going to take all of your money away for the government?’”

Thom: “Because you just told me that it would be a bad thing to do to our children.”

Newt: “Well, uh, but I also think it’s a very bad thing to have government think that it’s their money that they didn’t earn the money, uh, the government, I mean…”

Thom: “So you’re saying that government money makes people lazy but daddy’s money doesn’t?”

Newt: “I think that it depends on how smart daddy is and I know a lot of successful people who put their kids on allowances and make them work for it. I don’t, I don’t, you know, but, but I’m also raising a deeper point which is, why do you think it’s your money? Why do you think it’s your right to say to a parent or a grandparent, ‘I’m taking away your lifetime’s work because I have moral superior judgment to you and I’m going to save your child because I’m going to intervene and rip off all of your money?’”

Thom: “Well it’s simply the same money isn’t it? Is it not the same thing as saying, ‘No I’m not going to help you out with food or housing or other things, or even disaster relief, because it’s going to make you lazy and crazy?”

Newt: “Well, that’s the reason, I mean, you jump wildly…”  From there he went into an extended discourse about how fully he supported disaster relief for New Orleans after Hurricane Katrina.

Jumping wildly or not, Republicans have a problem here.  For forty years, since Ronald Reagan began attacking the estate tax (which is now so full of loopholes it’s largely meaningless), they’ve argued that giving free, unearned money to wealthy white kids after their parents die is a vital part of The American Way. 

Billionaire heirs even reportedly hired Frank Luntz to change the language around the Estate Tax and he recommended that Republicans start calling it the “Death Tax,” although it’s actually a tax on unearned income, not on dead people (who can’t be taxed because they’re dead).

At the same time that they’re pushing this line — that free money is a goodthing for the children of wealthy white billionaires — Republicans also argue that giving free money to poor people or minorities is a terrible social ill that damages those young people for life.

Saint Ronnie Reagan used to tell voters in the South about how upsetting it is when standing at the check-out line in a supermarket watching “some strapping young buck ahead of you buy a T-bone steak” presumably with food stamps while “you were waiting in line to buy hamburger.”  Reagan loved that line and repeated it as often as he did his story about the Black “Welfare Queen” who no newspaper was ever able to find.

While no reasonable person is suggesting the extreme, confiscatory Estate Tax example I ran by Newt, the truth is almost certainly somewhere in the middle.  Giving people the means to be totally indolent for the rest of their lives, whether from inheritance or unlimited government welfare, often turns out badly: just look at all the ne’er-do-wells produced by dynastic families.

On the other hand, giving people enough money or resources to meet their basic needs in life — the bottom two-thirds of the pyramid of Maslow’s hierarchy of human needs — gives them a launching pad from which they can become their very best.  Just ask any middle-class parents who paid for their kid’s college or helped them buy their first house.

It’s time for us to put aside rhetorical arguments and get serious about this issue. 

The experience of every other advanced democracy in the world demonstrates that society needs a basic foundation that includes free healthcare and college, decent wages, minimum standards of housing and access to food, and assistance with raising children. 

In that context, “welfare” programs should be available to people who can’t work or are experiencing a temporary crisis, but much of what we call “welfare” today in America is just the foundational responsibility of government to its citizens.

The Republican failure to understand the difference between “a basic floor for society” and what they call “welfare” is the real problem here.

Instead of constantly reaching down to pull up those among us who have fallen through the cracks, let’s seal up the cracks and provide a solid floor for all Americans.

Similarly, when people receive vast sums of money that they didn’t earn or work for in any way — money that was simply a result of them having been a member of the lucky sperm club — society has every right to tax that money at least as enthusiastically as it taxes money that people earn by the sweat of their brow or through actively making investments.

If we want to avoid the tragic plight of the children of wealthy people, and also produce a society that works as well as those democracies that have a higher quality of life than Americait’s time for an honest discussion about unearned income.

CMR Votes Against Infrastructure Funding

She Operates in a Parallel Universe

Last Friday the U.S. House of Representatives passed H.R. 3684, the Infrastructure Investment and Jobs Act (AKA the INVEST in America Act) and sent it President Biden’s desk. H.R. 3684 passed the House the first time on July 1, 221 to 201 (with only two Republican Yea votes). The U.S. Senate took up the bill, revised it, and passed the revised version on August 10th, with a startling 69 to 30 vote, with 19 Republicans joining 50 Democrats and Independents. The revised bill was returned to the House for final approval. 

With 19 Republican Senators voting for the revised bill the media hailed the effort as “bipartisan”. Polling in early July confirmed that broad majorities of Americans were in favor of legislation to support the “hard” infrastructure funding in the bill that finally passed, so one might expect that many more House Republicans would make the final passage a “bipartisan” event on November 5. After all, in the Senate nearly 40% of Republican Senators voted for the revised bill. But no, the final House vote on the revised INVEST in America Act was 228 to 206, with only 11 more Republican votes over the original 2. To say this bill passed the House on a “bipartisan” vote would be a gross misrepresentation. 

whole lot of the INVEST in America Act is directed at rural communities, communities generally thought of as a mainstay of the Republican base. INVEST in America provides funds “$66 billion in passenger and freight rail improvements and $17 billion for ports and waterways, infrastructure fundamentally important to rural communities.” The law includes “$65 billion to expand broadband connectivity and affordability in low-access areas,” a rural internet program reminiscent of the rural electrification program of the 1930s that first brought electricity to rural households left behind by private utility companies. Then there is funding for water infrastructure maintenance, essential for western rural communities facing years long drought. 

McMorris Rodgers, one might think, would vote for such a bill and talk it up with her rural base. Instead, here is her statement (the bold is mine):

The Senate infrastructure bill and the massive tax and spending spree are not the will of the American people. The Democrats’ radical agenda to spend a reckless amount of money will raise costs and make it even harder for people to build a better life. It will lead to blackouts, unaffordable electricity bills, tax hikes, jobs destroyed, weak defenses against our adversaries like China and Russia, no hope to cure diseases, long lines of the sick begging the government for lifesaving treatments, and slashed funding for hospitals that are trying to care for our country’s most vulnerable patients. Is that the future we really want? It’s reckless. We should be working to address crises that are threatening our future like the chaos at the border, broken supply chains, surging costs, and record-high overdose deaths.

McMorris Rodgers lives in an alternative universe where money spent on sadly needed infrastructure maintenance and upgrades will “lead to blackouts…jobs destroyed…and weak defenses.” What is her solution to crumbling infrastructure? Privatizing roads and bridges and charging tolls? She’s been talking about rural broadband for years—and accomplishing nothing. Now she casts a Nay vote on a bill that proposes to expand rural broadband? She voted Yea on the “Tax Cuts and Jobs Act of 2017” inflating the deficit with tax giveaways to corporations and the wealthy. No worries about inflation there, I suppose, because the wealthy and the corporations simply banked the money instead of spending it back into the economy. Now she votes no on a bill to improve infrastructure for all of us. 

McMorris Rodgers’ Nay vote on the INVEST in America Act is one more declaration of Republican obstructionism and anti-government ideology. As long as CMR holds her office eastern Washington will remain poorly represented.

Fortunately, McMorris Rodgers already has a credible challenger in 2022. Natasha Hill is a young, extremely bright, well-spoken, locally-involved lawyer who recently served on the Spokane County Redistricting Commission. Remember that name—and get involved early. 

Keep to the high ground,

Jerry

Truth, Numbers, and Denominators

Proportional Thinking

We humans grow up on stories, not numbers. For most of us, language and literacy (the ability to read and write) comes fairly early. Numeracy (the ability to understand and work with numbers) comes later and to a lesser degree. We speak, tell stories, and read frequently, but how often are we called upon (or bother) to work out a percentage or think proportionally. Discomfort and unfamiliarity with numbers and math is corrosive, because it leaves us susceptible to people who lace their stories with numbers meant to impress, to shut down rational inquiry, but which are total BS. (For an example see the P.P.S. below.)

In the Saturday, November 6, Spokesman the front page article, “VANDALISM DOWN IN DOWNTOWN BUT BROKEN WINDOWS PERSIST” featured a dramatic photo of a shop-owner seen through a vandalized window. It is an odd juxtaposition, dramatic photography to tell us about a decrease in police calls downtown for “malicious mischief”. Here’s the article’s presentation of the numbers:

There were 491 malicious mischief incidents reported to police in 2020 between Jan. 1 and Sept. 13 and 448 during the same period this year, according to information provided by Spokane Police Department Officer Stephen Anderson, a department spokesperson.

There were 565 calls for service downtown related to malicious mischief in the entirety of 2019.

What shall we make of those numbers? In the eight and a half months (minus two days) between January 1 and September 13, 2020, for the downtown area there were 491 malicious mischief incidents reported to police. This year, 2021, during exactly the same 8.5 month period there were only 448 such reports. Let’s rejoice! But wait a minute. Let’s look at a monthly rate:

2020 491 / 8.5 = 57.8/month

2021 448 / 8.5 = 52.7/month

Now look at 2019’s 12 months of data (which, to make a comparison, assumes that the monthly frequency of malicious mischief reports is relatively constant within a given year—possibly an invalid assumption):

2019 565 / 12 = 47/month 

Whoa! Malicious mischief crime reports from downtown Spokane soared from a low of 47/month in 2019 to 58/month 2020 and only came down by half to 53/month in 2021! Panic! 

What the reader ought to take away is this: the treatment of numbers in this Spokesman article is shallow reporting. The counts presented are all relatively small numbers with a lot of variation. Extracting valid statistical meaning from such raw information requires looking for a trend in ten or twenty years of comparable data. Without such comprehensive analysis these numbers are of marginal use and are readily twisted to confirm whatever bias the reader already possesses.

A current national example of misuse of numbers is the incessant harping of the media on “President Biden’s 3.5 trillion dollar infrastructure bill” rather than calling it the “Build Back Better Act,” its official name. (A 1.2 trillion dollar piece of the Build Back Better Act was signed into law this week. The fate of the broader bill remains to be seen.) Oh my! 3.5 trillion! OMG, that’s a huge number! Panic! The media focuses us on that giant, incomprehensible number rather than on what the bill would do. Hardly ever are we reminded by the same media that blares “3.5 trillion dollar spending package” that the quoted number is the authorized spending played out over 10 years, or, on average, 350 billion dollars per year. Still a large number? Consider that number in the context of the entire U.S. economy quoted on a per year basis, the Gross National Product, the “total domestic and foreign output claimed by residents.” In round figures the GNP of the U.S. is 20 trillion dollars. In a given year the entire Biden proposal is 0.35 trillion/20 trillion = 0.0175, just 1.75% of the U.S. economy. Put in the context of the wages of an hourly employee making $15/hour (~$30,000/yr), 1.75% of the annual salary is $525. That’s still a significant number but it offers perspective. Biden’s full infrastructure bill would cover a host of initiatives that would help out the families of that hourly worker. 

When you see a large number quoted without contextual reference you ought to suspect a political agenda aimed at convincing voters of something. Republicans are great at this. For any bill that actually might help the common man the focus is on a large number cost, not what the bill does. When Republicans added trillions to the national debt with the 2017 “Tax Cuts and Jobs Act”, you rarely heard of those trillions—and when you did they were lost in dry discussions of “net economic effect”. The talking point that emerged from every Republican mouth around the “Tax Cuts and Jobs Act” spoke of “money in your pocket,” trusting that neither the media nor the general public would see the other side of the budget: a dollar given away in a tax cut is budgetarily equivalent to a dollar spent. 

News articles and politicians rarely offer context for incomprehensible numbers. Enhance your numeracy by looking up and memorizing a few relevant numbers for context. Think in proportions. Every weekday the Spokesman’s Covid page in the main section tells us the number of new cases of Covid reported in two counties, Spokane County, Washington, and Kootenai County, Idaho. Comparing the two numbers is meaningless without population numbers. Spokane County’s population (2020 estimate) is 528,000; Kootenai’s is 171,000. To compare case numbers sensibly, multiply Kootenai’s cases by 3. Last Friday, for instance, the raw numbers were Spokane 179, Kootenai 88. Multiply Kootenai’s 88 by 3 to get 264, the number of new cases Kootenai would have if it had the same population in which to spread. After adjusting for population the story is more in line with the prevalence of vaccination in these two adjacent counties. 

Dust off your numeracy. 

Jerry

P.S. Looking up population figures in wikipedia is enlightening. The population of the island nation of New Zealand, for instance, a nation that looms quite large in the minds of many English speakers, is only a little over 5 million, about the same as the population of South Carolina. The population of Canada is around 38 million, about the same as the population of California, our most populous state. The U.S. population is around 330 million, nearly ten times that of our northern neighbor. Memorizing a few numbers and comparisons like these provides a useful perspective in reading numbers in the news. 

P.P.S. Some presentations of numbers should set off alarm bells. “Sustainable Minimalists” is a moderately interesting podcast associated with a rather glitzy-looking website. The podcaster covers a variety of topics, but the episode that caught my ear was an interview with a very sincere and apparently well-informed man, Mr. R Blank, talking of the many dangers of human exposure to “EMF” (electromotive force) from all manner things in the modern world, for example, wifi, cell phones, and 5G. Had Mr. Blank assembled solid scientific evidence of this threat, evidence I had not yet heard of or was this another advertising rabbit hole? I had to know.

The podcast linked to R Blank’s website, “Shield Your Body (SYB).” On the website R Blank declares: “There are literally thousands of high-quality, peer-reviewed scientific studies linking EMF exposure with many negative health effects— cancer, infertility, melatonin suppression, blood brain barrier leakage, and many more.” Tellingly, Mr. Blank offers not a single a link to any study. There is no space limitation (as in a newspaper or a print ad) on a website, so why not offer links to some of the most convincing evidence? In another spot on the SYB website, apparently “thousands” didn’t sound impressive enough to Mr. Blank, so he makes it “TENS of thousands of different scientific studies demonstrating negative health effects from EMF radiation.” If a reader has dug into such a website and run onto this level of misuse of numbers, one’s bullshit alarm should be screaming. By then, the even mildly skeptical website visitor might have noticed that R Blank’s company is selling EMF-blocking Faraday cages and even EMF-blocking underwear to protect the believer from the supposed scary threat of EMF (electromotive force) pervading homes and offices. 

Anyone who has listened to the radio programs of conservative commentators like Rush Limbaugh or Dennis Prager or watched late night TV should be familiar with this infomercial style of advertising meant to gain the consumer’s confidence by posing as the possessor of special knowledge or insight, ramp up diffuse worry in the listener, and then sell something of dubious value to those taken in.

Wealth and Taxes

Not different rules, but rules only a few understand

Cathy McMorris Rodgers (U.S. Rep from Congressional District 5, eastern Washington) sold the all-Republican Tax Cuts and Jobs Act of 2017 to her voters by talking endlessly about “money in your pocket.” This pocket money phrase focused on the skimpy reductions of income tax rates on wages and salaries reportable on W-2s. These same tax rate reductions were scheduled to expire in 2025 (something she steadfastly avoided talking about). Publicly McMorris Rodgers and her fellow Republicans barely acknowledged the decrease in taxes on corporations, a decrease not set to expire. When pressed, Republicans defended these corporate tax cuts as necessary to attract jobs back to America. Republican propaganda-meisters understood that most people, once focused on their own finances, would ignore the details. 

The Tax Cuts and Jobs Act is immensely complex, with a plethora of other provisions, some of the expiring in the near future, that, understandably, hardly anyone noticed except those affected. 

One of those expiring provisions was a long sought goal of Republicans: raising the estate tax exemption. For years Republican propaganda focused disingenuously on the supposedly disastrous effect of estate taxes on passing the value of family farms to the next generation. Bolstered by this propaganda, Republicans had hoped to make their wealthy donors happy by abolishing estate taxes entirely. Unfortunately for them, on account of the constraints of the reconciliation process they had to settle on doubling the estate tax exemption (threshold) to an inflation-adjusted 11.7 million dollars (in 2021)—but to do even that they also had to let it expire and return to a 5.6 million exemption for the estates of those who die after January 1, 2026. 

Most Americans barely noticed the estate tax provisions, since very few will possess even the lower amount, a 5.6 million dollar estate, when they pass on. Those few who did notice the estate exemption changes probably felt good about saving the fabled family farms of Republican propagandists. It’s all about how things are framed. 

In 2019, after passage of the Tax Cuts and Jobs Act, only 4,100 of the 2,800,000 Americans who died that year reached the 11.7 million dollar estate threshold and had to file an estate tax return. That’s less than 1%, specifically, just 0.15% of estates. Of course, that 4,100 didn’t include those who managed to whittle down their estate values to below the 11.7 million dollar exemption using every arguably legal means to shield money from the tax collector. 

Most Americans, those of us who make an hourly wage or salary and receive a W-2 at the end of the year, don’t need to worry about strategies to keep their estate below either level of exemption. We don’t have the time or expertise to enter the arcane world of legal estate tax avoidance. Out of sight and out of mind. 

Let’s dream for a moment that we have an estate that might be worth 13.7 million dollars, 2 million more than the exemption, once we tally up a primary residence, a vacation home, rental properties, appreciated stocks and bonds and bank accounts. If that were the number at the time of our death, those extra 2 million dollars would require a payment of $745,800 due in estate tax. Fifty or sixty thousand dollars spent on the services of specialized tax attorneys and tax lawyers might save us ten times that amount if they could figure out legal angles to diminish the paper value of such an estate. 

First off, the value of real estate or a private business is always debatable to some degree. The “right” appraisals could help a lot. (You know you’ve entered a different world when an appraiser starts out by indicating that the value might be different depending on the purpose of the appraisal. You can’t do that with a bank account…) Then there are a variety of trusts, legal/financial vehicles that offer estate tax avoidance (and other) advantages in transferring wealth to heirs. 

Among the more arcane of these trust vehicles is something called a Grantor Retained Annuity Trust (GRAT). Let me walk you through this beauty as I best understand it. Let’s pretend we’re one of the super-wealthy with millions or billions of dollars more than the exemption, far more money than we need even for our lavish lifestyle. Imagine one chunk of that wealth consisting of stocks and bonds valued at 1 million dollars. Without some form of shielding, that value would require payment of $400,000 in estate taxes at the time we die. With the help of a tax lawyer we put that million dollars worth of stocks and bonds into a GRAT. This “Grantor Retained Annuity Trust” will pay us back $100,000 plus some small IRS-specified rate of interest each year for ten years, such that the original million plus its nominal interest all comes back to us over those ten years (that’s the “annuity” part). Paying a lawyer to set this up seems sort of expensively pointless, doesn’t it? But wait. If those stocks and bonds have been growing in value over those ten years in excess of the paltry IRS-specified interest rate (which seems likely based on years of recent stock market performance) after fully paying the annuity back to me there might be monetary value left in the GRAT. Here’s the trick: When the GRAT is set up an heir(s) is specified who, at the end of the term of the GRAT, will receive excess value remaining in the GRAT—and that value is free of gift and estate taxes. (For legal purposes, a GRAT, once established, exists outside of our estate.) If the value of the assets in the GRAT decreases (as they might have anyway were the assets outside the GRAT), then the value of the annuity is less and the heir gets no benefit. The estate tax utility of the GRAT is a bet on an overall increase in the value over the GRAT’s term. A properly executed GRAT is described as a “heads I win, tails we tie” proposition (minus the money paid to advisors for set up and maintenance of the trust). (Click that link for more detail and real-life examples.)

An ultra-wealthy person once said, “If you can put an accurate number on what you are worth, then you are not wealthy.” In the world of this sort of wealth values are slippery, and estate tax avoidance is a game played not by different rules but rules buried in the legal fine print only a few understand. The rest of us are busy with W-2s displaying fixed, unarguable sums subject to annual income tax. Meanwhile, the wealthy grow more wealth in bonds, stocks, business, and real estate, wealth mostly subject only to the lower capital gains tax rate—and subject to capital gains tax only when it is sold. The ultra-wealthy then pay accountants and lawyers to plot maneuvers that will pass along that wealth while avoiding estate taxes to the greatest degree possible under the interpretation of existing tax law. Meanwhile, the gap between the wealthy and the workaday world ever widens. 

Closing the GRAT loophole was just one of the reforms on the agendas of Bernie Sanders, Elizabeth Warren, and other progressives, agendas expressed in bills that not one Republican in Congress will vote for and of which most Republican voters (and a lot of Democrats) are oblivious. Many pin their hopes for redress on the words of a tax cheat who says that he, being rich himself, knows how to “fix” the loopholes and, instead, delivers the Tax Cuts and Jobs Act for himself and his rich buddies.

There is something very wrong with this picture. Getting it right will require changing the mindsets of many in both parties—and voting current Republicans out of office.

Keep to the high ground,

Jerry

Vote!

Ballots are due (or postmarked) by 8PM, Tuesday, tomorrow

NOTE: I plan to take a day off this coming Wednesday. Election results may not be final for days or weeks. 

POST: Since these elections mostly concern local races, depending on where you live your ballot will vary. It would be a major challenge to make recommendations in every race. This is where voters need to do some homework. My favorite positive source for voting advice in Washington is the Progressive Voters Guide:

https://progressivevotersguide.com/washington

My favorite inverse source, i.e. a guide to those for whom you really ought to think twice about voting for is WeBelieveWeVote:

Don’t take their front page recommendations at face value. Click the candidate, slide down the page, click Questionnaire, Survey Responses, read the survey and take note of the candidate’s level of agreement. Most of the questions have more to do with adherence to Republican talking points than they have to do with the Christian values with which I was brought up. In general, refusing to respond to WeBelieveWeVote’s litmus test survey should be viewed positively…

One specific race: 

Zack Zappone v. Mike Lish in Spokane City Council District 3 (NW): Have a look at this Rotary Club debate, the most telling moments of which start at 32:00:

https://www.facebook.com/watch/?v=1776422332745351&extid=CL-UNK-UNK-UNK-AN_GK0T-GK1C&ref=sharing

Although school board races and many city council races are supposedly non-partisan, the Republican Party is pushing a national strategy to take over school boards using bogus issues like “critical race theory” (which is not taught in K-12 schools), social and emotional learning, and opposition to mask and vaccine mandates. Watch for the buzzwords—and don’t vote for these people. Their motivation is not to help optimally run a school district, but rather to push an extremist agenda. 

Keep to the high ground,

Jerry