“Tax-Payer Financed Capitalism”: The Great American Tax Debate Misses The Point
Casting the tax debate as an argument in which liberals want to use the tax system to reduce income inequality after the fact by taxing the wealthy at higher rates than middle and lower income classes, while conservatives favor flat taxes that tax rich and poor at the same rate, misses the main point. Deregulation of the financial system over the last 35 years and tax preferences that benefit corporations and wealthy individuals have done much to increase the before-tax incomes of the top 1 percent. An army of tax accountants, many of them recruited from the IRS, has figured out how to push the envelope on tax avoidance for the big businesses and wealthy individuals that can afford their high-priced services. For these folks, tax accounting has been transformed from a service that makes sure that required taxes are paid to a profit center that manipulates the tax code to generate huge returns at the expense of the tax-paying public. Increasingly what we see in the United States is the growing importance of tax-payer financed capitalism.
There is no economic reason that the debt taken on by corporations should be treated differently in the tax code from the equity invested by shareholders, but it is. Corporations get to deduct the interest paid on debt from their earnings, thus reducing the corporate income tax they have to pay. The tax code also provides an incentive for private equity firms, which plan to hold companies they acquire for their portfolios for just a few years, to load these companies with debt. In good times, this greatly increases the returns to investors. In poor economic conditions, this greatly increases the risk of financial distress and even bankruptcy, and imposes great costs on workers, creditors and communities. For investors with a time horizon measured in years and not decades, this is a risk worth taking for the promise of higher returns.
Tax preferences mean that income from owning stock is taxed at a far lower rate than income from working—a point made by Warren Buffet who famously pointed out that his secretary pays a higher tax rate than he does. The fiction that bonuses earned by partners in private equity and hedge fund firms is ‘carried interest’ that should be taxed at the lower rate on earnings from owning stock, rather than at the higher rate on ordinary income that ordinary workers and managers pay on their bonuses, boosts the income and wealth of these already wealthy economic players.
The use of aggressive tax avoidance schemes is rampant among big businesses and wealthy individuals. Setting up a subsidiary that lives in a file drawer in a tax haven and owns the company’s intellectual property and collects the royalties on it, or that owns the loans the company has made and collects the interest, allows financial institutions, pharmaceutical companies, and IT companies to park their profits outside the United States and defer taxes on this income indefinitely while waiting for a tax holiday to bring their profits home. Setting up so-called blocker corporations in offshore tax havens to launder taxable income for foreigners and pension funds, and turn it into nontaxable income is another favorite scheme.
Tax preferences and tax loop holes enrich the already wealthy and increase their incomes while starving the country of much needed tax revenue. The meaning of this rise in tax-payer financed capitalism is that the rest of us must either pay higher taxes or do without necessary services.
By: Eileen Appelbaum, U. S. News and World Report, September 19, 2012
“The Real Moochers”: Obama Supporters Subsidize Romney Supporters With Their Taxes
In a video posted yesterday, Mitt Romney slammed the people who support President Obama, saying they are most likely “dependent on government.” Romney’s comments were recorded as he spoke at to an exclusive group of donors at a private meeting. Obama’s fans think of themselves as “victims,” he said. They believe they are “entitled to healthcare, to food, to housing, to you name it.” He added, “My job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.”
Many on both left and right have criticized Romney for his lack of empathy and rejection of the social contract. However, it’s easy to understand why Romney might view America this way. After all, Republicans supposedly represent those with more money, and Democrats supposedly represent those with less—sometimes much less. It’s plausible that Romney’s supporters would pick up the tab (through their taxes) for social programs that benefit Obama’s supporters. For the same reason, it’s plausible that Red states would subsidize Blue states, and Red counties would subsidize Blue counties where the poor people live.
But, although it’s plausible, it’s completely wrong. When Romney says his job isn’t to care about those who depend on government for healthcare, food, and housing, he’s talking about his base. Across America, Obama’s supporters actually subsidize Romney’s supporters.
Blue States Subsidize Red States
Studies show that states that elect Democrats contribute the most in federal taxes relative to what they consume in government services. Conversely, many states that elect Republicans contribute the least in taxes relative to the services they consume. This is true even though many Democratic states contain large, poor, urban populations of color.
Here’s the evidence: The 10 “Tax Producing States” listed below, left, contribute the most in tax revenues relative to the services they consume. They usually vote Democratic. The ten “Tax Dependent States” listed below consume the most in government services relative to the taxes they pay. And they usually vote Republican. (Each state’s name is shown in blue if voters there lean toward Obama, and red if they lean toward Romney, as per Nate Silver’s 538 blog.)
More detailed analysis confirms this pattern. Even the libertarians at the journal Reason acknowledge this so-called “Red/Blue Paradox.”
Blue Counties Subsidize Red Counties
The same imbalance prevails within states, at the county level. The Blue counties contribute the most state taxes relative to the services they consume. The Red counties consume the most services relative to the taxes they pay. For example, a recent study documented the pattern in Washington state. King County, the solidly-Democratic county that surrounds Seattle, provides “nearly 42% of the state’s tax revenues, yet receives only 25% of the money spend from Washington’s general fund.” Conversely, five counties that require the most in services relative to the taxes they pay are largely Republican.
California shows a similar pattern. Republican Modoc and Tulare Counties consume the most in taxpayer-funded services from the state on a per-capita basis. Says San Francisco Chronicle writer Kevin Fagan: “The prevailing attitude among the right-wing ranchers and modern hippies who define Modoc County is of fierce self-reliance—but more people here than just about anywhere else depend on welfare checks of some kind to get by.” In contrast, famously liberal San Francisco and Marin Counties generate the most tax revenues for the state on a per capita basis.
Why Red States Need Blue State’s Tax Dollars
Why do people in Red states and counties resent government spending so passionately even as they need so much of it? The central problem is poverty. Many of the residents of these counties are poor. They are ill-prepared to make a decent living no matter how hard they tug on their own bootstraps. For example, in California’s conservative Modoc county only 12 percent of adults over 25 have a bachelor’s degree. Nearly 20 percent live below the poverty line. Many Modoc residents can’t afford to send their children to college. They need government programs to survive, let alone improve their financial outlook.
Without government support it’s hard to see a way to break the cycle of poverty and dependence. At least so far, the formula of small government, limited services, low investment, and low taxes that conservative states have implemented for themselves hasn’t helped their economies much. (See my earlier column.)
This situation would be funny if it weren’t so tragic. When a tax protester yelled “Keep your goddamn government hands off my Medicare” many scoffed at that one person’s ignorance. But most Americans who rail against taxes and the size of government are profoundly unaware that taxes they hate fund the programs they want and need. And they are unaware that the states and counties inhabited by “welfare queens” and “freeloading illegals” are actually sending them the money that keeps them fed, cared for, and educated.
Put It to a Vote
Let’s put the question of a tax rates to a national referendum and see what Americans really want. Allow voters in each county to decide whether to keep their state and federal taxes at their current level or to lower them. The catch is this: If you vote to lower your taxes then your county or state can’t take out any more money than it puts in. Perhaps this would make everyone happy. Red counties would get the lower taxes and vastly reduced services they want. And people in Blue counties (once they stop trying to give their money to people who don’t want to receive it) would keep more of their hard-earned cash, and enjoy vastly better-funded local services. Let’s give it a try.
By: David Brodwin, U. S. News and World Report, September 18, 2012
“Atop The Class Structure”: Does Boca Raton Mitt Romney Dislike America?
The most incisive reaction to Mitt Romney’s disparaging comments about 47 percent of us came from a conservative friend who e-mailed: “If I were you, I’d wonder why Romney hates America so much.”
A bit strong, perhaps. But the more you think about what Romney said, the more you wonder how he really feels about the country he wants to lead.
What kind of nation are we if nearly half of us are lazy, self-indulgent moochers who will never be persuaded to mend our ways? “I’ll never convince them they should take personal responsibility and care for their lives,” Romney said, thus writing off a huge share of our citizenry.
From his perch high atop the class structure, Romney offered an analysis of political motivations that even Marxists would regard as excessively materialistic. He speaks as if hardworking parents who seek government help to provide health care for their kids are irresponsible, that students who get government aid to attend community colleges are not trying to “care for their lives.” Has he never spoken with busboys and waitresses, hospital workers and janitors who make too little to pay income taxes but work their hearts out to “take personal responsibility”?
In defending himself on Fox News on Tuesday, Romney only deepened his difficulty. “I think a society based upon a government-centered nation where government plays a larger and larger role, redistributes money, that’s the wrong course for America,” he said.
Put aside that if President Obama wanted a “government-centered nation,” the stock market wouldn’t have doubled, making many in Romney’s Boca Raton, Fla., audience richer. In his impatience with those he accuses of casting themselves as “victims,” Romney misses the real story of government in the lives of most Americans. So often, we combine our own exertions with a little assistance along the way — the GI Bill, student loans, Social Security survivors’ benefits, public education — to become self-sufficient and independent.
And Romney said not a word about all the redistribution upward in a tax code that favors investment over labor income. That’s why Romney pays federal taxes at a much lower rate than do many in middle class — and why, given his stress on the importance of paying income taxes, he might usefully release a few more of his own tax returns.
Romney’s comments, which were caught in a video obtained and published online by Mother Jones magazine, have been widely compared to Obama’s private 2008 comment about working-class people who “cling to guns or religion.” I disliked that line, and as a churchgoing supporter of gun control, I always bristle at the too-easy conflation some liberals make of “God” and “guns.” But Obama’s defenders have been correct in noting that he got a big thing right that Romney got wrong: Most of Obama’s observations were empathetic toward blue-collar Americans who “feel so betrayed by government.” His whole point was the need to reach out to, not write off, a constituency that had not embraced him.
Many have already written wisely about how Romney’s original statement got the facts wrong, notably about how many Americans actually pay federal taxes and how a large share of those who don’t are retired.
But here’s the most important point Romney got wrong: Among the wealthy nations, it’s difficult to find one where people work harder than the United States. In a 2005 New Yorker article (written before the downturn), James Surowiecki noted that, compared with Europeans, “more people work in America, and since they work so many more hours, Americans create more wealth.” Yes, the riches enjoyed by the folks at that Boca Raton fundraiser were made possible in significant part by the strenuous efforts of proud, self-sufficient people, including many in the 47 percent.
Romney misses something else about America: We do believe in a certain amount of “redistribution” toward those in need. We have always rejected what one of our leaders called a “destructive mind-set,” which he defined as “the idea that if government would only get out of our way, all our problems would be solved,” an approach with “no nobler purpose than ‘Leave us alone.’ ”
That would be George W. Bush in 1999, as my colleague Michael Gerson reminded us the other day. Bush added: “Yet this is not who we are as Americans. We have always found our better selves in sympathy and generosity, both in our lives and in our laws. . . . Our national character shines in our compassion.”
Yes, it does, even if the Boca Raton Mitt Romney seems not to appreciate that about us, either.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, September 19, 2012
“Mitt’s Moochers”: The Dangerous Lie His Funders Love To Hear
Mitt Romney got some unwanted attention early this year when he flatly stated, “I’m not concerned about the very poor.” When challenged on this remark he assured Americans that the safety net for the very poor was a given, safe from any budget and tax code tinkering in Washington. This was a sinister explanation since Romney’s tax and spending plan — or as much of it as can be deciphered — calls for further tax cuts for the wealthy at the expense of social services that he claimed were safe.
Now, we see that it’s not just the “very poor” who don’t merit Romney’s “concern.” At the now-infamous $50,000-a-plate fundraiser in Florida, Romney wrote off the concerns of the 47 percent of Americans who don’t owe federal income taxes, saying that half of Americans are “dependent on government,” “believe that they are the victims,” and have the gall to “believe that they are entitled to health care, to food, to housing, to you name it.”
That 47 percent includes families and individuals with low incomes — about 23 percent of taxpayers, according to the Tax Policy Center. It also includes those for whom tax credits for children and working families have eliminated tax burdens — about 7 percent. It also includes seniors who have left the workforce — about 10 percent. Over half of the 47 percent pay federal payroll taxes. All are subject to state and local taxes, many of which, like sales taxes, are more regressive than federal taxes. (And if we ever see more Romney tax returns, we may find some years when the Romney’s were in that entitled 47 percent.)
As conservative writer Reihan Salam points out in the National Review, policies like the Child Tax Credit and the Earned Income Tax Credit — responsible for much of this tax relief for working families — were conservative ideas meant to reduce the “dependency” that Romney so reviles, by “encourag[ing] people get on the first rungs of the jobs ladder, and to become less dependent over time.”
Romney was telling the well-heeled guests at this fundraising dinner that these people — middle-class parents, low-income workers, the unemployed, the elderly — aren’t interested in working hard despite the fact that most of them report to the IRS each year that they work quite a lot. This isn’t just tin-eared politics. Like Romney’s comments on the “very poor,” it represents a profound misunderstanding of how Americans’ lives work and how his policies would affect those lives.
But even talking about the “47 percent versus the 53 percent” belies the fact that nobody in America is free from at least some government “dependency.” We all rely on roads, hospitals, schools, firefighters, police officers, and our military — even Mitt Romney and his $50,000-a-plate friends. Romney himself has relied on the government’s safety net for businesses, securing a federal bailout for Bain & Company. Nobody succeeds without some help from a stable, functional government. That’s what President Obama was saying when his “you didn’t build that” comments were taken out of context.
Romney was clearly telling his funders a fantasy story that they love to hear. But that story is a lie, and we shouldn’t accept it from someone who could become a president representing 100 percent of the American people.
By: Michael B. Keegan, The Hufffington Post Blog, September 19, 2012
“Out Of Their Minds”: Senate Republicans Kill Veterans’ Jobs Bill
With a major national election just seven weeks away, senators would have to be out of their minds to reject a jobs bill for U.S. military veterans, right?
Veterans won’t be getting a new, billion-dollar jobs program, not from this Senate. Republicans on Wednesday afternoon blocked a vote on the Veterans Job Corps Bill after Jeff Sessions of Alabama raised a point of order — he said the bill violated a cap on spending agreed to by Congress last year.
The bill’s sponsor, Patty Murray of Washington, said that shouldn’t matter, since the bill’s cost was fully offset by new revenues. She said Mr. Sessions and his party colleagues had been furiously generating excuses to oppose the bill, and were now exploiting a technicality to deny thousands of veterans a shot at getting hired as police officers, firefighters and parks workers, among other things.
The bill needed 60 votes to advance. The final tally was 58 to 40, and all 40 opponents of the proposal were Republicans.
As proposals go, this should have been a no-brainer. The Veterans Job Corps Act of 2012, sponsored by Sen. Patty Murray (D-Wash.), sought to lower unemployment among military veterans, giving grants to federal, state, and local agencies, which in turn would hire veterans — giving priority to those who served on or after 9/11 — to work as first-responders and in conservation jobs at national parks.
The bill was fully paid for, and entirely bipartisan — Sen. Richard Burr (R-N.C.) had his own set of ideas for the bill, and Murray incorporated all of them into her legislation.
And yet, all but five Senate Republicans voted to kill it anyway, 48 days before a national election. Even Burr sided with his party to defeat the bill, and it was filled with his provisions.
A New York Times editorial added the other day, “It makes sense for the 99 percent of Americans to find new ways to pay their debt to the 1 percent who serve in uniform. To most people, Senator Murray’s bill would seem like one decent way to do that. But not if you’re one of those Republicans in Washington who thinks it’s more important in an election year to deny Democrats a success or accomplishment of any kind.”
By: Steve Benen, The Maddow Blog, September 19, 2012
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