“Redistributing Wealth Upward”: Changing The Rules, Republicans Have Robbed The Middle To Give To The Rich
Which is the more redistributionist of our two parties? In recent decades, as Republicans have devoted themselves with laser-like intensity to redistributing America’s wealth and income upward, the evidence suggests the answer is the GOP.
The most obvious way that Republicans have robbed from the middle to give to the rich has been the changes they wrought in the tax code — reducing income taxes for the wealthy in the Reagan and George W. Bush tax cuts, and cutting the tax rate on capital gains to less than half the rate on the top income of upper-middle-class employees.
The less widely understood way that Republicans have helped redistribute wealth to the already wealthy is by changing the rules. Markets don’t function without rules, and the rules that Republican policymakers have made since Ronald Reagan became president have consistently depressed the share of the nation’s income that the middle class can claim.
Part of the intellectual sleight-of-hand that Republicans employ in discussions of redistribution is to reserve that term solely for government intervention in the market that redistributes income downward. But markets redistribute wealth continuously. In recent decades, markets have redistributed wealth from manufacturing to finance, from Main Street to Wall Street, from workers to shareholders. Rules made by “pro-market” governments (including those of “pro-market” Democrats) have enabled these epochal shifts. Free trade with China helped hollow out manufacturing; the failure to regulate finance enabled Wall Street to swell; the opposition to labor’s efforts to reestablish an even playing field during organizing campaigns has all but eliminated collective bargaining in the private sector.
The conservative counter to such liberal cavils is to assert that the market increases wealth, which will eventually descend on everyone as the gentle rains from heaven. Decrying such Keynesian notions as unions or federally established minimum wages, hedge fund guru Andy Kessler recently argued in the Wall Street Journal that “it is workers’ productivity that drives long-term wage gains, not workers’ wages that drive growth.”
But Kessler assumes — and this is the very essence of the “trickle-down” argument — that workers reap the rewards of productivity gains. Believing and asserting that requires either ignorance or willful denial of economic history. The only time in U.S. history when workers substantially benefited from productivity gains was the three decades that followed World War II, when median household income and productivity gains both increased by 102 percent. Not coincidentally, that was also the only period of genuine union power in U.S. history, and the time when the tax code was at its most progressive. During the past quarter-century, as progressivity was lessened and unions diminished, all productivity gains have gone to the wealthiest 10 percent, according to research published by the National Bureau of Economic Research. In 1955, at the height of union strength, the wealthiest 10 percent received 33 percent of the nation’s personal income. In 2007, they received 50 percent, Economic Policy Institute data show.
If that’s not redistribution, I don’t know what is.
The problem is not just that everyone but the wealthy is claiming a smaller share of the nation’s income; the absolute amount of income they’re getting is declining as well. Median household income has dropped to the levels of the mid-1990s, according to Pew analysis of census data, while the income of the 400 wealthiest Americans rose by a tidy $200 billion last year, according to data released this month by Forbes magazine.
If that’s not redistribution, I don’t know what is.
Indeed, the United States has experienced an upward redistribution so profound that it affects far more than incomes. Whole sectors of the economy and regions of the country have been decimated by these economic changes. The descent in all manner of social indexes is most apparent among poorly educated whites. Conservative commentator Charles Murray has documented in his new book the decline in marriage rates and family stability within the white working class. And now, as the New York Times’ Sabrina Tavernise has reported, that decline includes longevity as well. While other Americans’ life expectancy has advanced, the life expectancy of whites without high school diplomas has declined since 1990 — by three years among men and five years among women.
The market is not just redistributing income in the United States, then. It is redistributing life.
So, which party can claim credit for this — the real redistribution this nation has experienced over the past 30 years? Many Democrats have been complicit in this calamity by their indifference to the consequences of deregulation and trade. But the trophy for promoting the policies that have redistributed wealth, family stability and longevity upward goes to the Republicans, whose standard-bearers are championing even more radical versions of these policies today.
A pro-life party? More like its opposite.
By: Harold Meyerson, Opinion Writer, The Washington Post, September 24, 2012
“A Ridiculous Argument”: The GOP’s Emergency-Room Argument Never Dies
CBS’s “60 Minutes” ran fairly long interviews last night with both President Obama and Mitt Romney, and the latter made some news with answers on tax policy. While they’re likely to have a political impact, substantively, the Republican’s answers on health care were even more striking.
Following up on Friday’s release of 2011 tax returns, Scott Pelley asked whether it’s fair that Romney pays a lower federal income tax rate than “the guy who makes $50,000.” The Republican conceded it’s a “low rate,” but nevertheless said it’s fair — the reduced rate is the “right way to encourage economic growth — to get people to invest, to start businesses, to put people to work.”
This is no small admission. The multi-millionaire candidate pays a lower tax rate than most of the middle class — and the rate would have been even lower had Romney not artificially inflated it purely for political reasons — and if elected, he’ll fight to keep it that way.
But this exchange on health care struck me as every bit as interesting.
Pelley: Does the government have a responsibility to provide health care to the 50 million Americans who don’t have it today?
Romney: Well, we do provide care for people who don’t have insurance, people — we — if someone has a heart attack, they don’t sit in their apartment and die. We pick them up in an ambulance, and take them to the hospital, and give them care. And different states have different ways of providing for that care.
Pelley: That’s the most expensive way to do it.
Romney: Well the–
Pelley: In an emergency room.
When it comes to health care policy, this might be one of the more important moments of the presidential race. Romney doesn’t believe the United States has a responsibility to provide health care coverage to its own citizens — the Republican Party is the only major political party in any democracy on the planet to hold this position — but he does see emergency rooms as an avenue for caring for the uninsured.
And as a policy matter, that’s deeply absurd.
Long time readers may recall this is a long-time focus of mine, but so long as it keeps coming up, it’s worth setting the record straight from time to time.
It’s true that under the preferred Republican system — American health care before the Affordable Care Act passed — if you’re uninsured and get sick, there are public hospitals that will treat you. As Romney noted on camera, if you have a heart attack, you can call 911 and medical professionals will come get you and give you care.
But it’s extremely expensive to treat patients this way, and it would be far cheaper, and more medically effective, to pay for preventative care so that people don’t have to wait for a medical emergency to seek treatment.
For that matter, when sick people with no insurance go to the E.R. for care, they often can’t pay their bills. Since hospitals can’t treat sick patients for free, the bills can still bankrupt those who get sick, and the costs are still passed on to everyone else.
In other words, it’s the most inefficient system of socialized medicine ever devised.
And in the bigger picture, it’s worse than that. For those with chronic ailments, this position is a pathetic joke — is anyone going to stop by the emergency room for chemotherapy or diabetes treatments?
Romney’s argument isn’t a responsible approach to American health care in the 21st century; Romney’s argument is ridiculous.
By: Steve Benen, The Maddow Blog, September 24, 2012
“Days Late, Dollars Short”: Mitt Romney’s Tax Returns Still Incomplete
After months of withering attacks, Mitt Romney has finally (sort of) lifted the veil of secrecy around his personal finances. At 3 pm, his campaign released his full 2011 tax return and a summary from PriceWaterhouseCooper of his tax filings over twenty years, from 1990–2009.
The bottom line: as everyone suspected, Romney pays a lower tax rate than the typical middle-class family—and he seems to have purposely engineered a higher rate for himself for optical reasons. Moreover, by only summarizing the past twenty years of returns, there’s a lot we don’t know.
Here’s a look at what we learned so far—check back for updates.
2011 returns
The top-line takeaway from the returns isn’t particularly good—his 2011 tax rate was 14.1 percent, below the effective tax rate for most Americans despite Romney’s vast wealth. (The middle 20 percent of households paid a 16 percent federal income tax rate in 2010). Most of Romney’s income is from capital gains, which is taxed at a lower rate than income—and Obama wants to change that and raise the rate, while Romney does not.
The returns are sure to underscore the absurdity of someone who made $13,696,951 last year, as Romney did, paying a lower tax rate than, say, a plumber in Memphis.
Additionally, by the campaign’s own admission, Romney purposely did not deduct all of his charitable giving—claiming only $2.25 million out of about $4 million—to make his rate “conform to the Governor’s statement in August…that he paid at least 13% in income taxes in each of the last 10 years.” If he did the deductions in full, he would have paid around 9 percent. (By Romney’s own standard, this disqualifies him: he said on the trail that “frankly if I had paid more than are legally due I don’t think I’d be qualified to become president. I’d think people would want me to follow the law and pay only what the tax code requires).
So here’s a guy who made over $13 million last year, paying a lower tax rate than most Americans, and purposely paying more to the IRS so as not to seem too rich. If this is what Romney’s campaign wanted to change the conversation to, they must have been really unhappy with what it was.
The 1990–2009 Summary
Romney’s trustee, Brad Malt, has a summary of the summary on the campaign website. (Note that Malt oversees Romney’s supposedly blind trust, which makes it interesting he’s also serving a campaign function here). It says:
- In each year during the entire 20-year period period, the Romneys owed both state and federal income taxes.
- Over the entire 20-year period period, the average annual effective federal tax rate was 20.20%.
- Over the entire 20-year period period, the lowest annual effective federal personal tax rate was 13.66%.
- Over the entire 20-year period period, the Romneys gave to charity an average of 13.45% of their adjusted gross income.
This is a really sneaky maneuver. The tax rate averages out to a semi-respectable 20.20 percent, but what does that really tell us? It’s still possible that in really high-earning years, Romney paid an absurdly low tax rate. If he paid a normal rate in lower-earning years, it could still produce that average.
And if Romney did pay really low rates during high-income years, what mechanisms did he use? What sort of tax shelters might he have employed? We don’t know that either, and aren’t likely to find out unless Romney releases the actual returns—something he required of all his potential vice-presidental nominees.
By: George Zornick, The Nation, September 21, 2012
“Redistribution Fallacy”: Desperate Times Make Desperate Measures Appealing
Desperate times make desperate measures appealing. The Romney campaign and its allies, sensing lasting damage from their candidate’s dismissal of 47 percent of the voters, including swaths of likely Republican votes, has decided use this as a teaching moment. Exhibit A is a 1998 video of Barack Obama that is worth a look. The Romney campaign has focused on the part where Obama says, “I actually believe in redistribution, at least at a certain level to make sure that everybody’s got a shot.” (The context in which he makes that conclusion is interesting because it shows, unlike Romney, a consistent philosophy that believes government, despite its considerable flaws, can be a catalyst for opportunity.)
Some Republicans believe the way to defeat Obama is to convince people that he is a socialist, in contrast to Romney, who believes in free enterprise and individual initiative. Ezra Klein has already pointed out the fallacy here: Romney believes in redistribution himself through his support of food stamps and other social programs. But while Mr. Klein comes at redistribution from top to bottom, I would come from the opposite direction: Mitt Romney supports the massive wealth transfer that has been enabled by government policies — most notably the tax code — and that has been accelerating over the past three decades and has always grown more under Republican administrations. Indeed, Romney’s economic plan is based on further tax cuts for the wealthiest Americans.
Barack Obama wants this debate, and my impression is he will win it. He can whipsaw Romney from bottom to top. “Which redistribution programs do you want to get rid of, Mr. Romney? Social security, Medicare, aid to veterans? Many of those people are in your 47%. And how many more tax cuts do you think the wealthy need? How low should their tax rates go? You talk about half the population as if they are just dependents, and you talk about the wealthy as needing more support, but I never hear you talking about what I think this race is all about: the middle class.”
By: Carter Eskew, The Insiders, The Washington Post, September 20, 2012
“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
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