“A Tax System Tilted Toward The Rich”: Hitting Working Americans With Punishing Rates
Congress managed to pass a tax bill in December — a great relief to tax professionals like myself who are going to spend the next four months preparing returns for clients. But what our legislators didn’t do was address the fundamentally unfair way the United States taxes people who work for a living compared with people who live off of the earnings of their investments.
Our current system hits working Americans with punishing rates compared with what the investing classes are charged. A generation’s worth of legislative twists have left our tax code so warped that during the coming filing season, one married couple bringing in $150,000 in total income from two jobs could find itself paying almost three times as much in federal income taxes as another couple that is alike in every way — except for the source of its income.
The tax code started to tilt in the direction of favoring income from investments — or favoring the 1 percent, if you will — more than 20 years ago. In 1993, the year Bill Clinton took office, a married couple claiming the standard deduction — with no children, tax credits or other adjustments to income — and earning $75,000 apiece in wages, would have paid $35,650 in federal income taxes.
A similar couple, whose income came solely from long-term capital gains, would have gotten a small break thanks to what was then the 28 percent top rate on those gains. Their total tax bill, $34,158, would have been about $1,500 lower than that of the wage earners.
By 2000 — the year George W. Bush was first elected — the tax gap between wage earners and investors had already opened up. In that year, our two-wages couple would have paid $33,607 in taxes. They also would have paid that amount if all of their income had been from stock dividends; there was no preferential treatment for dividends at that point.
But the couple whose income came from long-term capital gains would have paid $23,025 in taxes — almost a third less.
Fast-forward to the 2014 tax season. Our two-income couple are still working full time to make the same $150,000 (not a farfetched scenario in our new-normal era of stagnant wages). After a decade’s worth of inflation adjustments to their tax bracket, their tax bill is now $24,138.
And the couple living off of their investments? Their tax bill — whether their money came from long-term capital gains or qualifying dividends — has been slashed to $8,385, or a little more than one-third of the tax load on wage earners.
Some of my clients who get their money from unearned income find this discrepancy unbelievable when they compare their federal taxes to their state bills. During this tax season, I know I will have clients — in California and Oregon, where I live — who will pay more in state income taxes than they do in federal taxes. I may even have some clients who will be stunned to learn that they face a four-figure state tax bill while paying exactly zero in federal income taxes for the year.
The reason: The federal code provides that there is no tax on capital gains or qualifying dividends for people in the 15 percent income tax bracket. That means that a Los Angeles married couple filing jointly for 2014 with $94,100 of adjusted gross income, all from long-term capital gains and qualifying dividends, would pay nothing — zero! — in federal income tax. But their California tax bill would be north of $3,000.
How did we get to this point? No legislator ever campaigned saying, “Tax laborers more than investors!” But several changes in the code since the early 1990s, including lowered tax rates on capital gains and lowered rates on qualified dividends, have conspired to produce that result. My high-income clients were dismayed last year by the new 3.8 percent net investment income tax, which applies to joint filers with modified adjusted gross incomes of more than $250,000 ($200,000 for singles), but that affects relatively few filers and, perversely enough, applies to non-tax-advantaged income such as rentals, as well as to dividends and long-term gains.
Neither political party gets sole credit or blame. President George W. Bush was most aggressive about pushing such tax changes, but breaks for unearned income were also passed and extended under both the Clinton and Obama administrations. Supporters argued that lower rates would benefit retirees living on fixed incomes and also spur investments. But the Center on Budget and Policy Priorities says that almost half of all long-term capital gains in 2012 went to the top 0.1 percent of households by income. For the nearly 60 percent of elderly filers who had incomes of less than $40,000 in 2011, the lower rates were worth less than $6 per household.
In 1924 — a different era to be sure — industrialist-robber baron-Treasury Secretary Andrew Mellon wrote in support of treating wages more favorably than investments. “The fairness of taxing more lightly income from wages, salaries or from investments is beyond question,” he wrote. “In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man’s life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy and the people whose income is derived from investments.”
Well, that’s certainly not going to happen any time soon. But leveling out the tax treatment of wages and investment incomes would increase both the perceived and actual fairness of the tax code. It would eliminate preferences that distort investment and financial planning decisions. A fairer code might also increase respect for the system and improve tax collection rates overall.
By: Joseph Anthony, The Los Angeles Times (TNS); The National Memo, December 31, 2014
“Ain’t Gonna Let Nobody Turn Me Round”: Beyond Selma – Writing The Next Chapter In American Civil Rights History
In November 2012, I worked with the Obama campaign’s anti-voter suppression efforts in Florida. I was shocked when I saw that voters in largely Hispanic and African-American areas were forced to wait hours and hours to vote by design. The state had cut early voting from 14 to 6 days and added 11 constitutional amendments to the ballot (some written out in full) to make it more time consuming to vote such that one legislator compared the ballot to the Book of Leviticus. I also was told authorities did not deploy all available ballot boxes.
Tasked with encouraging voters to wait for over 3 hours until 10:30 p.m. on a Saturday, I was struck with how little needed to be done. They knew why they were waiting and that only made them more determined to vote. I was reminded of the song “Ain’t Gonna Let Nobody Turn Me Round” and the voting rights marches in Selma during the Civil Rights era and thought how sad it is that here we stand nearly 50 years after Selma and African-Americans still had to fight for their right to vote.
The next year, the Supreme Court gutted the enforcement provisions of the Voting Rights Act that enabled the Justice Department to block discriminatory voting restrictions in Shelby County v Holder. The Act had been reauthorized in 2006 without a single vote of opposition in the Senate, but in the Obama-era a bill to revive the provisions got nowhere last year despite bipartisan support.
The struggle in Selma is now on movie screens across America for viewers to relive the brutality of Bloody Sunday and the ultimate triumphant march that drew Americans from all races and faiths from across the nation to take a stand for freedom and against bigotry and hate.
In March, however, the world’s attention will once again return to the Edmond Pettus Bridge for the 50th anniversary of Bloody Sunday. It will be a tempered celebration because it has been a difficult two years for race relations in America. Obama’s reelection victory unleashed a torrent of racist hate across social media, then came the killings of Treyvon Martin in Florida, Michael Brown in Missouri and Eric Garner in New York and the divisions their cases brought.
More importantly, throughout the period we have steadily moved backwards on voting rights as states across the south and elsewhere took advantage of the Shelby County decision to enact a number of restrictive voting measures that are designed to suppress the African-American vote.
I have one resolution for 2015 — I’m going to Selma.
As a child of Generation Jones, we always looked up to our Baby Boomer brethren who marched for civil rights when we had no need to for the victory had been won. That victory is in jeopardy. I’m going to Selma.
James Chaney, Andrew Goodman and Mickey Schwerner among others were killed for this most fundamental right — the right to vote. They cannot cry for justice, instead it is the duty of the living to do so for them. I’m going to Selma.
I do not expect a House of Representatives that has no shame over having a white supremacist in its leadership to listen to our pleas for action on voting rights legislation. I’m going to Selma.
Martin Luther King once said, “[h]istory will have to record that the greatest tragedy of this period of social transition was not the strident clamor of the bad people, but the appalling silence of the good people.” Similarly, Benjamin Franklin said that “[j]ustice will not be served until those who are as unaffected are as outraged as those who are.” I’m outraged and I’m going to Selma.
We are a generous nation that has come together to help those in need as we did after Katrina or to take a stand that we are one as we did after 9/11. The story of civil rights in America is not relegated to our history books or a movie but is still being written today. It is time to write the next chapter for civil rights in America. Once again we are called to take a stand for freedom and against bigotry and hate. I’m going to Selma.
By: Bennet Kelley, The Blog, The Huffington Post, December 31, 2014
“Damn Ebenezer Cheney!”: The Ghost Of Christmas Past
All the hullaballoo over the United States government’s’ use of torture as an officially-sanctioned intelligence gathering process was bad enough. It brought back memories of a shameful period in American history. But when Dick Cheney reappeared to defend the practice of torture, it was the worst specter of Christmas past. He managed to rekindle one of my few regrets in nine years working on the Hill. Damn Ebenezer Cheney!
My great remorse from that period is that a Democratic House majority passed on an opportunity for a little justice. In late 2008, after the election of Barack Obama but before his inauguration, a group of Democratic staffers quietly drafted a policy memo trying to convince our bosses to introduce a Motion of Censure against President George W. Bush, Vice President Dick Cheney, Secretary of Defense Donald Rumsfeld and assorted others in the Bush Administration for their decision to invade Iraq. That decision cost the lives of 4,500 Americans, hundreds of thousands of Iraqis and more than $1.5 trillion dollars. It threw the Middle East into what may be perpetual chaos. And, all of it was predicated on lies.
We tried to sell the idea of a Resolution of Censure — far short of impeachment and requiring only a majority vote in the House, but it never picked up any steam. Everyone, we were told, had pretty much turned the corner. Congress was occupied with getting ready for a new president and a new session. America was just plain “Bushed” by the events of the last Administration and simply wanted them all gone. Nothing happened.
So, as our memo predicted, “People who campaigned on accountability and said, ‘judge us by our performance,’ walked away from the most corrupt, inept, secretive and ideologically-driven White House in American history without ever once being held accountable.”
And only much later did it occur to me that we should have left President Bush out of it and pushed for the censure of the Cardinal Richelieu of the administration, Richard B. Cheney. No-one on earth could have had a problem with that. Cheney was so mean, even his friends didn’t like him.
The disappointment had faded a bit over time, but then the Dark Eminence of Iraq re-emerged, completely unrepentant, to defend the use of torture — even deny that waterboarding, starvation and anal feeding were torture, although the rest of the world is pretty clear about such practices. And, even though the United States prosecuted Japanese army officers for using identical tactics on U.S. military prisoners in the Philippines during World War II.
Cheney continues to insist that the U.S. gained valuable information from the use of torture, even though genuine intelligence professionals have revealed that any usable intel came before the waterboarding began. He continues to claim that waterboarding isn’t actually torture because the White House had a memo from its Attorney General’s Office attesting that whatever they wanted to do was pretty much okay. That memo, of course, was totally repudiated long ago.
But a stubborn refusal to admit any mistakes in judgment isn’t exactly new for Dick Cheney. He still insists that Saddam Hussein’s was in the process of developing WMD, including nuclear weapons, though the accusation has been thoroughly and authoritatively debunked. He still claims some sort of alliance existed between Saddam Hussein and al Qaeda without the slightest indication or evidence, and despite the fact that a pact between a Sunni Muslim dictator and a stateless Wahhabi jihadist organization would have defied all logic.
The saving grace is history. When the history of the Bush Administration is finally written, Cheney won’t be allowed to just sit and growl at anyone who questions anything he did or said. History will not be intimidated. History may tell us whether George W. Bush was complicit in some of the most tragic, ill-advised and downright shameful decisions of his administration, or simply oblivious. But it will be very clear about the role of Dick Cheney.
Merry Christmas, Dick.
By: David Helfert, Professor of Political Communication, Johns Hopkins University; The Blog, The Huffington Post, December 22, 2014
“Not Cowering Or Conceding”: President Obama Plays The Long Game
The media is settling on a new narrative about President Obama. It’s always interesting watching one after another join in that process. For example, Timothy Egan calls it Obama Unbound.
Perhaps the best thing to happen to him [Obama] was the crushing blow his party took in the midterm elections. Come January, Republicans will have their largest House majority in 84 years — since Herbert Hoover was president. Granted, no politician wants to join Hoover and history in the same sentence. But Obama is not cowering or conceding. He’s been liberated by defeat, becoming the president that many of his supporters hoped he would be.
He promised to be transformative. Instead, especially in the last two years, he’s been listless, passive, a spectator to his own presidency. Rather than setting things in motion, he reacted to events. Even Ebola, the great scare that prompted so much media hysteria it was awarded Lie of the Year by PolitiFact, was somehow his fault. No more. Of late, the president who has nothing to lose has discovered that his best friend is the future.
Glenn Thrush calls it Operation Revenge.
“He needs to run, to compete – or more to the point, he needs someone to run against,” a former top Obama adviser told me.
He’s got that now, in a Republican-controlled Capitol Hill. Obama, a political counterpuncher who often needs a slap in the face to wake up, got a gut-shot in November. The Democrats’ staggering loss in the midterms – like his disastrous performance in the first presidential debate against Mitt Romney in 2012 – seems to have jolted him to the realization that he’ll have to act boldly to preserve what he’d assumed was a settled legacy.
The trouble with this kind of analysis is that it is ahistorical. Every one of the things these pundits name as an example of the President’s newfound persona – executive actions on immigration, new EPA rules, climate change agreement with China, Russian sanctions, normalization of our relationship with Cuba – has been in the works for at least the last 1-2 years (during the time he was supposedly a listless, passive spectator). Back in January of this year, he announced his intention to implement the “pen and phone strategy” we’re all witnessing unfold.
President Barack Obama offered a brief preview Tuesday of his State of the Union address, telling his Cabinet that he won’t wait for Congress to act on key agenda items in 2014.
“I’ve got a pen, and I’ve got a phone,” he said at his first Cabinet meeting of the year. Outlining the strategy, Obama said he plans to use his pen to sign executive actions and his phone to convene outside groups in support of his agenda if Congress proves unable or unwilling to act on his priorities.
It’s true that President Obama might have a new lightness in his step. But that could just as well be because he’s finally off for a much-needed vacation in Hawaii with his family. Anyone who has really watched this President operate knows that he plays the long game. Here’s how Michelle Obama described that back in 2011.
Here’s the thing about my husband: even in the toughest moments, when it seems like all is lost, Barack Obama never loses sight of the end goal. He never lets himself get distracted by the chatter and the noise, even if it comes from some of his best supporters. He just keeps moving forward.
And in those moments when we’re all sweating it, when we’re worried that the bill won’t pass or the negotiation will fall through, Barack always reminds me that we’re playing a long game here. He reminds me that change is slow — it doesn’t happen overnight.
If we keep showing up, if we keep fighting the good fight and doing what we know is right, then eventually we will get there.
We always have.
By: Nancy LeTourneau, Political Animal, The Washington Monthly, 2014
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