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Have the Super-Rich Seceded from the United States?

It was in 1993, during congressional deliberation over the North American Free Trade Agreement. I was having lunch with a staffer for one of the rare Republican members of Congress who opposed the policy of so-called free trade. I distinctly remember something my colleague said: “The rich elites of this country have far more in common with their counterparts in London, Paris, and Tokyo than with their own fellow American citizens.”

That was just the beginning of the period when the realities of outsourced manufacturing, financialization of the economy, and growing income disparity started to seep into the public consciousness, so at the time it seemed like a striking and novel statement.

At the end of the cold war many writers predicted the decline of the traditional nation state. Some looked at the demise of the Soviet Union and foresaw the territorial state breaking up into statelets of different ethnic, religious, or economic compositions. This happened in the Balkans, former Czechoslovakia, and Sudan. Others, like Chuck Spinney, predicted a weakening of the state due to the rise of Fourth Generation Warfare, and the inability of national armies to adapt to it. The quagmires of Iraq and Afghanistan lend credence to that theory. There have been hundreds of books about globalization and how it would break down borders. But I am unaware of a well-developed theory from that time about how the super-rich and the corporations they run would secede from the nation state.

I do not mean secession in terms of physical withdrawal from the territory of the state, although that happens occasionally. It means a withdrawal into enclaves, a sort of internal immigration, whereby the rich disconnect themselves from the civic life of the nation and from any concern about its well-being except as a place to extract loot. Our plutocracy now lives like the British in colonial India: in the place and ruling it, but not of it. If one can afford private security, public safety is of no concern; if one owns a Gulfstream jet, crumbling bridges cause less apprehension – and viable public transportation doesn’t even show up on the radar screen. With private doctors on call, who cares about Medicare?

To some degree the rich have always secluded themselves from the gaze of the common herd; for example, their habit for centuries has been to send their offspring to private schools. But now this habit is exacerbated by the plutocracy’s palpable animosity towards public education and public educators, as Michael Bloomberg has demonstrated. To the extent public education “reform” is popular among billionaires and their tax-exempt foundations, one suspects it is as a lever to divert the more than one-half trillion dollars in federal, state, and local education dollars into private hands, meaning themselves and their friends. A century ago, at least we got some attractive public libraries out of Andrew Carnegie. Noblesse oblige like Carnegie’s is presently lacking among our seceding plutocracy.

In both world wars, even a Harvard man or a New York socialite might know the weight of an army pack. Now the military is for suckers from the laboring classes whose subprime mortgages you just sliced into CDOs and sold to gullible investors in order to buy your second Bentley or rustle up the cash to employ Rod Stewart to perform at your birthday party. Courtesy of Matt Taibbi, we learn that the sentiment among the super-rich towards the rest of America is often one of contempt rather than noblesse; Bernard Marcus, co-founder of Home Depot, says about the views of the 99 percent: “Who gives a crap about some imbecile?”

Steven Schwarzman, the hedge fund billionaire CEO of the Blackstone Group who hired Rod Stewart for his $5-million birthday party, believes it is the rabble who are socially irresponsible. Speaking about low-income citizens who pay no income tax, he says: “You have to have skin in the game. I’m not saying how much people should do. But we should all be part of the system.” But millions of Americans who do not pay federal income taxes pay federal payroll taxes. These taxes are regressive, and the dirty little secret is that over the last several decades they have made up a greater and greater share of federal revenues. In 1950, payroll and other federal retirement contributions constituted 10.9 percent of all federal revenues; by 2007, the last “normal” economic year before federal revenues began falling, they made up 33.9 percent. By contrast, corporate income taxes were 26.4 percent of federal revenues in 1950; by 2007 they had fallen to 14.4 percent. Who has skin in the game now?

As is well known by now, Schwarzman benefits from the “Buffett Rule:” financial sharks typically take their compensation in the form of capital gains rather than salaries, thus knocking down their income tax rate from 35 percent to 15 percent. But that’s not the only way Mr. Skin-in-the-Game benefits: the 6.2-percent Social Security tax and the 1.45-percent Medicare tax apply only to wages and salaries, not capital gains distributions. Accordingly, Schwarzman is stiffing the system in two ways: not only is his income tax rate less than half the top marginal rate, he is shorting the Social Security system that others of his billionaire colleagues like Pete Peterson say is unsustainable and needs to be cut.

This lack of skin in the game may explain why Willard Mitt Romney is so coy about releasing his income tax returns. It would also make sense for someone with $264 million in net worth to joke that he is “unemployed,” as if he were some jobless sheet metal worker in Youngstown, when he is really saying in code that his income stream is not a salary subject to payroll deduction. The chances are good that his effective rate for both federal income and payroll taxes is lower than that of many a wage slave.

The real joke is on the rest of us. After the biggest financial meltdown in 80 years – a meltdown caused by the type of rogue financial manipulation that Romney embodies – and a consequent long, steep drop in the American standard of living, who is the putative front-runner for one of the only two parties allowed to be competitive in American politics? None other than Mitt Romney, the man who says corporations are people. Opposing him, or someone like him, will be the incumbent president, Barack Obama, who will raise up to a billion dollars to compete in the campaign. Much of that loot will come from the same corporations, hedge fund managers, merger and acquisition specialists, and leveraged buyout artists the president will denounce in pro forma fashion during the campaign.

The super-rich have seceded from America even as their grip on its control mechanisms has tightened.

MIKE LOFGREN retired in June 2011 after 28 years as a Congressional staffer. He served 16 years as a professional staff member on the Republican staff of the House and Senate Budget Committees.

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