“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
“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
“Americans Who Do Not Pay Taxes”: Isn’t Mitt Romney A Member Of The 47 Percent?
Mitt Romney, a son of privilege who used family connections and family advantages to accumulate a “vulture capitalist” fortune, and who now collects multimillion-dollar checks for doing absolutely nothing, claims to have identified 47 percent of Americans “who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them.”
Most of these people, Romney gripes, “pay no income tax.”
That, Romney suggests, makes them non-entities in his political calculus.
“My job is is not to worry about those people,” says Romney, who predicts all the “dependent” voters will back Barack Obama this year. “I’ll never convince them they should take personal responsibility and care for their lives.
But Romney should not be so dismissive of the tax-avoiding class. After all, he’s one of them.
The nonpartisan Tax Policy Center says roughly 46 percent of Americans paid no income tax for the last year where numbers are available, 2011. Slightly less than half of those who do not pay take advantage of tax breaks designed to ease the burden on elderly Americans who live on fixed incomes. Roughly a third of them do not pay because they are beneficiaries of tax credits designed to help the working poor and children to get by.
In other words, the Americans who do not pay taxes are, for the most part either low-income workers or retired low- or middle-income workers. They are not dodging tax responsibilities. They are filing forms and taking exemptions that were designed to relieve or eliminate tax burdens for those who are least able to pay.
The Tax Policy Center offers the example of a working couple making minimum wages who have two children and earn under $26,400 a year. Using standard deductions and specific exemptions designed for families in their circumstance, they can file a form that has a zero in the amount due column.
Tens of millions of American households—many of them our hardest-working citizens—find themselves in this category. Remember that, according to the Census Bureau, 46.2 million Americans lived in poverty in 2011.
Mitt Romney is not a member of this class of Americans. As a quarter-billionaire, he is part of a multi-generational elite—the most privileged 1 percent of the 1 percent—that has never ever had to worry about making ends meet at the end of the month.
But Mitt Romney has something in common with the working poor.
Like them, he benefits from federal programs that are designed to allow some Americans to avoid paying some or all of the taxes that would otherwise be due from them.
Roughly 13 percent of high-income Americans use itemized deductions—mortgage interest, health payments, or charitable contributions, education tax credits, or tax-exempt interest—to zero out their taxes.
Mitt Romney has not released the tax returns that his dad said a candidate for the presidency owes the American people—forms for the twelve years before their candidacy. So we do not know if he is an actual member of the 47 percent.
By Mitt Romney’s own admission, his accountants make sure that he does not “pay any more (taxes) than are legally due.”
All indications, from Romney and his campaign, are that he has taken full advantage of: tax exemptions, tax credits, tax havens and tax loopholes.
What sort of loopholes? We get an indication from documents filed by the firm that continued to stream money into Romney’s personal accounts long after he quit as a partner.
“The Bain documents posted [in August] show that Bain Capital will go to great lengths to help its partners and its investors avoid tax,” explained Rebecca Wilkins, senior counsel at Citizens for Tax Justice. “Beyond simply putting their funds offshore, the Bain private equity funds are using aggressive tax-planning techniques such as blocker corporations, equity swaps, alternative investment vehicles and management fee conversions.”
That’s how someone who makes tens of millions of dollars says he pays around 13 percent of his annual income into the US Treasury, as opposed to the top marginal tax rate of 35 percent. For 2011, he estimated that he would pay $3.2 million on income of $21 million.
If Mitt Romney had paid at the 35 percent rate that he is supposed to be paying at, the check he wrote would have been for $7.4 million.
So he avoided paying $4.2 million in taxes.
That’s the same as the total amount that—were they paying at the marginal rate that would apply to the working poor if there were no exemptions—would be paid by roughly 1,100 of the low-income families Mitt Romney dismisses as “dependent.”
At the very least, it would seem that Mitt Romney has earned honorary membership in the 47 percent.
By: John Nichols, The Nation, September 18, 2012
“The Real Awful Mitt Romney”: The Epitome Of Jawdroppingly Stupid Arrogant Privilege
If you thought Mitt Romney had a rotten summer—failing to project a more appealing image of himself and his policies, failing to pin the country’s economic woes on the president, failing to get even the tiniest bounce from his convention—the home stretch is shaping up even worse. Fast on the heels of his aggressively wrong-headed response to the embassy attack in Libya (which gets terrible reviews from most Americans), Mother Jones today released a bombshell video of Romney speaking way too candidly to a small group of well-heeled campaign contributors.
This is must-see footage—and even if you don’t want to see it, you won’t be able to help it over the next few days. These are words that will haunt Romney for the rest of the campaign—and the rest of his political career. He jokes that he’d have a better chance of being elected if he were of Mexican lineage; he insults Obama voters (and 47 percent of the country) in the most stereotypical and racially-tinged terms possible; he brags about sharing campaign consultants with Bibi Netanyahu; and he insists that Americans are, basically, too empty-headed to care about policy specifics. And this is only the first batch of videos to come; God only knows what else he might have let loose with.
We can’t sum it up better than David Corn, who got this “get” for MoJo: “With this crowd of fellow millionaires, he apparently felt free to utter what he really believes and would never dare say out in the open. He displayed a high degree of disgust for nearly half of his fellow citizens, lumping all Obama voters into a mass of shiftless moochers who don’t contribute much, if anything, to society, and he indicated that he viewed the election as a battle between strivers (such as himself and the donors before him) and parasitic free-riders who lack character, fortitude, and initiative. … These were sentiments not to be shared with the voters; it was inside information, available only to the select few who had paid for the privilege of experiencing the real Romney.”
Romney’s comments will inevitably be likened to Barack Obama’s infamous slur (also recorded in a private donor meeting) about white Pennsylvanians clinging to guns and religion. Both expressed the kind of disdain for their fellow Americans that no candidate should allow to escape his or her lips. But in terms of political impact, this is sure to play much worse. For one thing, that was April 2008, and this is mid-September 2012—leaving the candidate little time to recover. Another essential difference: Obama was well-liked and admired by the vast majority of Americans when he had his bigoted slip of the lip; Romney is already overwhelmingly disliked, even by many who plan to vote for him. Obama’s comments surprised people; Romney’s comments confirm what people already suspected about him. He comes across as the epitome of arrogant privilege.
There is no way that this glimpse into the “real Romney” won’t turn off a large majority of the country—including plenty of the same people of privilege he was speaking to in that room. Even if they agree with the candidate secretly, they will have some serious second thoughts: How could anyone running for president, for pete’s sake, be so breathtakingly, jaw-droppingly stupid as to utter such things aloud?
By: Bob Moser, The American Prospect, September 17, 2012
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