Friday, January 4, 2013

Fiscal Cliff vs. Social Safety Net

Posted by Kim Klein

Around this time of year I write to, and hear from, a lot of people I would like to be in touch with more often. One such is a friend in Quebec who has two young children.  She recently lost her job and then her husband lost his job.  I wrote sympathizing with the financial stress they are under.  I wrote,  “Financial worry can be so corrosive.  I remember when I was starting my consulting practice, I went through a time of having almost no work and I wondered if I would wind up homeless.” 

She wrote back,  “Even though it has been tough, I must admit the thought of being homeless never crossed our minds even once. But the events of the past year sure made me appreciate our social safety net. You will appreciate the details in view of how this relates to the Commons:  apart from having full medical coverage for ourselves and both our children, we benefited from 55 weeks of leave for each kid (18 maternity, 5 paternity, and 32 parental - to be shared any way we liked).  We also benefited from employment insurance after losing our jobs. In the last three years that was a total of 159 weeks covering between 55 and 70% of at least one of our salaries.” 

For me, the most amazing part of her letter is the sentence, “the thought of being homeless never crossed our minds even once.”  I believe that if you talk to any American making less than $250,000 (which is 98% of us) you would be hard pressed to find someone who hasn’t, at some time, however briefly, wondered if she or he were going to be homeless.  Of course for most of us this is an irrational fear and time spent wondering if we will be homeless could be spent helping those who don’t need to wonder because they already are homeless.  But we hear too many stories, and as I have gotten older, I know personally many adults who are couch surfing, living in crowded conditions with parents or siblings, or even in one or two cases, living in their car temporarily.  Not yet homeless, but close enough. 

So today, as I returned to work, I couldn’t help but be nauseated by the outcome of the “fiscal cliff” debate.  The deal that just passed made the Bush tax cuts permanent for households making up to $450,000. This represents a $9,200 tax cut for people making more than $35,000 a month!  The even bigger giveaway was in the estate tax.  (I must digress and note that the spineless mainstream nonprofit sector was so busy fighting for the charitable tax deduction to stay at 35% instead of 28%, they just let the estate tax fight go.)

 As Los Angeles Times business columnist Michael Hiltzik explains:  “There's no purer giveaway to the wealthy than this. The final deal raises the tax to 40% from 35% on estates over $10 million. (That figure is for couples, whose estates are each entitled to a $5-million exemption upon their deaths.) The alternative was to return to 2009 law, which set the tax at 45% on couples' estates more than $7 million. Who pays the estate tax? In 2011, about 1,800 taxpayers died leaving estates of more than $10 million. Their average estate was somewhere from $30 million to $40 million. Their heirs cashed in on some of the most nimble tax planning on Earth: Although the statutory top rate was 35%, the average rate on estates of even $20 million-plus (the average gross value of which was $65 million) came to only 16.2%.”

I am glad I am in touch with my friend because I am reminded again that there are places, and they are not far away, where policies insure a soft landing on a strong safety net during hard times.  And I am determined the USA will someday be one of those places for people other than the top 2%.   

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