Beware the Widows and Orphans

Whenever a politician pulls at our heartstrings, to be generous to the widows and orphans, to act in relief of the poor and the suffering —- grab your wallet. If major events of the past and continuing appeals from the White House present an act of mercy for the widows and orphans, the odds are they are Robins Hood in reverse—- they are about to steal from the poor and give to the rich.

President Bush introduced “reform” of the tax code to lift the burden from the working poor. In truth, it was a multi-billion gift to the rich. When he proposed “progressive” indexing of Social Security to increase benefits for the poor, it was another con job. Economist-columnist Paul Krugman, wrote it was “a plan to slash middle-class benefits; the wealthy would barely feel a thing.”

Remember the crocodile tears shed in the Senate 20 years ago for the way the Internal Revenue Service brutalized small business owners and ordinary working people with rude threats of huge fines and even jail terms for faulty or missing tax payments? Auditors in the Internal Revenue Service were depicted as the Joe Sopranos of government, hounding down terrified John Q. Public by threats and intimidation?

All that propaganda worked.. The staffs and budgets of the Internal Revenue Service were slashed and so were the budgets of consumer-protection agencies like the Federal Trade Commission. More of the same was applied by political friends (and campaign beneficiaries) of the pharmaceutical industry who accused the Food and Drug Administration of being so slow in testing new drugs that people were suffering and dying while the National Institutes of Health were lollygagging in their work. Result? FDA was ordered to speed the testing and to reduce the records normally demanded from the pharmaceutical houses of the companies’ early test results of their biggest medicines.

Today, headlines tell us of medicines that were given approval and induced terrible side effects or worse. Side effects of Viox hidden for three years? If you subscribe to Dr. Sidney Wolfe’s Public Health Newsletter you will see in each edition chapter and verse of human cost of slippery promotion of medicines that the FDA had passed without full information from the corporation or taking the time to get authoritative results of their own.

The widows and orphans scam worked beyond the greedy dreams of the congressional con men. Last year, the IRS said they were so under-staffed that they could no longer do the normal examination of odd-looking tax returns of big corporations because those data were so complex and voluminous that the IRS, by now drastically understaffed, had to concentrate on the more simple middle-class and smaller tax payers’ returns.

One result has been that since 1993, the tax burden on the 400 highest-income Americans has been cut 40 percent and some of the richest executives defer paying taxes for years until they can stretch it out for fractions of what even the shrunken tax brackets call for. But Lord have mercy on the weekly wage earner whose annual W-2 form shows up at IRS with no matching tax payment.

There has even been a U.S. government subsidy for United States corporations who out source their work to cheap-labor foreign countries, as long as they let their incomes pile up abroad, in India, for example. And if Indians raise their rock bottom rates, the corporations can shift perhaps to Bangladesh with even lower paid workers. The last Congress refused to close the loophole by which giant United States corporations escaped U.S. taxes by having their nominal “headquarters” on remote islands most people have never heard of, that is, most people who are not in the most sophisticated accounting firms. Corporation X opens a storefront “headquarters” in distant places like tiny Vanuato in the South Seas which has little or no income tax. A single desk and clerk may be in the tiny island, but the rest of the corporation is in a massive Manhattan skyscraper.

Corporate executives for years could use their company jets to exotic vacation spots or favored foreign golf courses and charge themselves pocket change for the privilege. Non-rich stockholders should beware trying to do the same thing with their family vacations to the nearest lake, or taking a deduction for having to drive three hours to a construction job.

The grandfather of these endless permutations of using the Widows and Orphans technique to soak-the-poor and lavish-the-lucky-rich was Prop 13, the infamous California 1978 law that froze property taxes for those fortunate enough to have owned them that year, with only 2 percent added each year. Anyone buying a house thereafter paid taxes on the current market rate—- rates that having been skyrocketing as national urban house prices have tripled and quadrupled in the meantime. Prop 13 was designed by a small group whose goal was to shrink the state government to the advantage of the affluent and business.

At the time, I did a study of the treatment by the state newspapers of that revolutionary act. Overwhelmingly, Page One headlines and leading paragraphs told tale after tale of elderly couples and individuals in danger of losing their homes by foreclosure. Stories of real widows whose inherited ranches and gracious homes would be lost by high property taxes and force the poor owners to end up in rooming houses. The cases were often about genuine individuals and their real fears, but were the isolated mainstay of the horror stories in orations in the state legislature by the tax cutters.

The state’s biggest newspapers took part in the game. I studied the 30 largest dailies and day after day leading to the election. The Page One and headlines of the stories before the election were about the imminent loss of homes by widows and the poor. There was substantial opposition that cited real fears about the danger of losing the model California public school system (supported, like most public schools, mainly form property taxes). The opposition pointed to the cuts that would be needed in civic services like police and fire departments. But overwhelmingly, these were relegated to the inside pages and rebutted at once by those favoring Prop 13. (The major exception was the San Francisco Chronicle which from the start highlighted both the pros and cons and editorially noted the probable loss in education, fire and police protection.)

The worst predictions came to pass. The harsh realty emerged quickly. Up until then, California school children’s achievement test scores regularly ranked among the top two or three in the country. After Prop 13 passed, they dropped to among the bottom half dozen. When police precinct houses, fire stations, and libraries closed, there was a good deal of shock and wailing, but too many citizens had believed the promoters and newspaper headlines of Prop 13 that none of this would happen because –ever heard this before?– “it would only cut the fat and waste.”

Those who owned property before 1976 paid their small tax so long as they owned the building. California cities still are characterized in its neighborhoods of one house with the same owner since pre-Prop13 with a relatively tiny annual property tax, while next door a homeowner pays $10,000 a year more for a similar or more modest home.

Pre-Prop13, California had attracted high-paying industries because it had the best educated work force in the country. Ten years later too many cities and towns were desperate with poorly paid, uneducated workers, and the state has experienced steady tax increases (one of them, in 1991, $7 billion, the largest single tax increase of any state in the country).

Prop 13 started a national trend and has been a factor in the nation’s widening gap between its rich and its middle-class and poor. As though Proper 13 of the mid-1970s were an infectious disease, in the early 1980s, the federal government cut low-rent subsidies in half and suddenly — as though a curse from heaven — the country for the first time since the Great Depression had homeless families and individuals living in the streets.

So the next time, a politician is heard promoting an action speaking in tearful terms of the poor folk, you can probably make money betting that there is about to be proposed a tax plan that will take money from the poor and working people and give to the rich. Ask for all the numbers and look at the fine print when a politician starts talking about the widows and orphans.

Ben Bagdikian’s latest book is The New Media Monopoly.

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