“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
“Under The Money Tree”: Corporations Aren’t The Only Ones Benefiting From Low Corporate Taxes
If you are Exxon Mobil, Verizon or General Electric, chances are filing taxes over the past few years has been significantly less painful than for the average American.
And Sunlight Foundation senior fellow Lee Drutman says that’s because everyday Americans don’t have lobbyists on the hill fighting for them.
“If you think you wound up paying too much in taxes this year, maybe you ought to hire a lobbyist or two or 20,” Drutman writes in a recent report. A Sunlight Foundation study shows that of the country’s 200 largest corporations, the eight companies that dished out the most money for lobbying on Capitol Hill between 2007 and 2010 saw major savings in corporate taxes. Six of the companies even saw a more than 7 percent drop in their tax rate over the years.
AT&T for example, a company that spent more than $70 million on federal lobbying saw a 40.4 percent decrease in their rate, a more than $7 billion savings on corporate taxes. Northrop Grumman’s tax rate also decreased from nearly 33 percent to just over 20 percent after they doled out $57 million for lobbyists to pitch their causes on Capitol Hill.
All together the “Big Eight” paid $540 million for federal lobbying and saved over $11 billion in taxes. Drutman estimates the return on investment to be roughly 2,000 percent.
With all of the changes in tax code, it’s easy to see how companies can save so much in just a few years.
“In 2005, the President’s Advisory Panel on Tax Reform counted approximately 15,000 separate changes to the tax code since 1986,” Drutman said.
And the CCH Standard Federal Tax Reporter, the country’s written tax code document, has more than doubled from 33,000 pages in the mid-1980s to more than 72,000 pages today.
However, corporations are not the only ones benefiting from low corporate taxes.
Drutman says that congressmen who sit on the House Ways and Means Committee, the congressional arm in control of tax regulation, receive about $250,000 more in fundraising contributions than their fellow lawmakers.
“Being on Ways and Means is like having Christmas every day,” says Jeffrey Berry, a political science professor at Tufts University and expert on influence in politics. “They barely have to raise any money. It rains down upon them. They are standing under the money tree.”
By: Lauren Fox, Washington Whispers, U. S. News and World report, April 17, 2012
“A Huge Benefit For The Rich”: Warren Buffett Is Right
The revelation that Mitt Romney received an income of $21 million in 2010 and paid just 13.9 percent of that in federal income taxes has highlighted an enormous problem in our tax code. Income from investments (or income that is manipulated to appear to come from investments) is taxed at lower rates than income from work. And this is a huge benefit for the rich.
Technically, the breaks that Romney enjoys are available to anyone with investment income, but the vast majority of this type of income goes to the rich. We recently calculated that about a third of taxpayers with incomes exceeding $10 million get the majority of their income from investments and consequently pay an average effective tax rate of 15.3 percent.
We then looked at taxpayers with incomes between $60,000 and $65,000 and found that just over 2 percent get the majority of their incomes from investments. In fact, over 90 percent of the $60,000-$65,000 group get less than a tenth of their income from investments, and consequently pay an average effective tax rate of 21.3 percent. That’s a higher effective tax rate than those multimillionaires who get most of their income from investments.
How do multimillionaires justify their low effective tax rates? Many, like Warren Buffett, admit that there is no justification at all, and have asked the president and Congress to reform the tax code. Buffett finds it offensive that he pays federal taxes at a lower effective rate than his secretary does.
Others argue that special breaks for investment income are necessary to encourage investment. This is absurd, given that people with money invest in order to profit and that is motivation enough. But this argument is even more absurd in the case of wealthy fund managers like Romney, who use a loophole to characterize even their income from work as investment income to enjoy the lower tax rates. (This is the loophole for “carried interest.”)
Still others, including Romney himself, argue that much of their income represents corporate profits that have already been subject to the corporate income tax of 35 percent before they were paid out as stock dividends. This is nonsense. At least a third of Romney’s income took the form of “carried interest,” which is actually compensation for his work in managing other people’s money, and this is certainly not corporate profits.
Even in the unlikely event that all of the rest of Romney’s income did come from corporate stock dividends or gains on the sales of those stocks, there’s no reason to think that the corporations involved paid 35 percent of their profits in corporate income taxes. We recently studied most of the Fortune 500 corporations that have been profitable for each of the last three years and found that their average effective tax rate over the three-year period was just 18.5 percent. Thirty of these companies paid nothing at all.
Warren Buffett is right. People like him, and Mitt Romney, should pay more to support the society that made their fabulous fortunes possible.
By: Scott Wamhoff, Legislative Director of Citizens for Tax Justice, Published in U. S. News and World Report, January 31, 2012
Cutting Taxes For The Rich Never Ends Well
You can call it 9-9-9, the Perry two-step, or a national sales tax. But the various flat tax plans being proposed by Republican candidates, right-wing think tanks, and media commentators share some common characteristics that should worry most middle-class Americans.
The basic notion behind a flat tax is to eliminate the current system of six tax brackets—in which people with higher incomes pay higher tax rates—with a single uniform rate. Most flat tax proposals also eliminate most or all of the deductions and credits in the current code—such as the mortgage interest deduction, the deduction for charitable giving, and hundreds of lesser-used preferences.
The flat tax is certainly a good deal for high-income individuals. Although they might not get to deduct mortgage interest payments on their vacation homes, those with high incomes more than make up for it in the lower, “flatter” rate. For example, under a 20 percent flat tax (similar to the one proposed by Rick Perry), the top 1 percent would see an average tax cut of over $200,000.
If the rich are paying less, you can probably guess who would pay more: low- and moderate-income families. For example, under the Cain 9-9-9 plan, 90 percent of filers with incomes between $40,000 and $50,000 would see a tax increase averaging about $4,000. (The Perry plan gives taxpayers an option of staying in the current system—so it’s unlikely anyone would choose the flat tax option if it means higher taxes. Since low- and moderate-income taxpayers would see an increase under the 20 percent plan, the final result of the Perry plan would be the introduction of an exclusive tax code designed for the high-income individuals, while the rest of us get to keep the old clunker. See who would choose which plan.)
Because flat tax proposals lower rates at the top, and because the top is where an increasing share of income is being concentrated, they also tend to bring in significantly less revenue than the current tax code, resulting in higher deficits, fewer public investments, and pressure to cut programs like Social Security and Medicare.
Proponents of the flat tax argue that lower rates on the rich (or the “job-creators” as some are now calling them) and on income derived from stocks and bonds will boost economic growth and job creation. However, this trickle-down theory has been tried and failed: Bush-era policies moved the tax code in this direction, but the “boom” of the 2000s was the worst on record since at least the 1950s.
Tax cuts for the rich and a higher debt for everyone else? We’ve seen that movie before, and it doesn’t end well.
By: John Irons, Research and Policy Director, Economic Policy Institute; Published in U. S. News and World Report, November 1, 2011
It’s Not About Job Creation Stupid!: I Am A Job Creator Who Creates No Jobs
I am a job creator.
I am not a job creator in the sense that I actually create jobs. I have never knowingly created a job, and my long-term business plan, approved unanimously by my board of directors, does not call for the creation of a single one.
But I am a job creator in the sense Republicans mean when they say “don’t tax our job creators more” (House budget committee Chairman Paul Ryan) or “we cannot increase taxes on the job creators” (House Speaker John A. Boehner). This is because, in the eyes of the government, I am a small business — and, as the House Republicans liketosay, “small businesses are the job creators.”
Like the overwhelming majority of small businesses, I am a one-man operation. And, like most small businesses, I would not hire anybody even if the government dropped my tax rate to zero.
According to Small Business Administration statistics, based on 2009 Census data, 21.1 million of the 27 million small businesses in the United States are “non-employer firms,” which have no workers other than the owner. Of those, 18.7 million are “sole proprietors,” 950,000 are partnerships and 1.4 million are corporations, like me.
When lawmakers talk about small businesses as the engine of growth, they bring to mind entrepreneurs building start-ups from their garages. But when officials talk about protecting the “job creators” from tax hikes, they are mostly protecting a bunch of doctors, lawyers, freelancers, contractors and the like.
On the advice of my accountants, I formed a “C corporation,” which means that, as a legal entity, I am pretty much the same as General Motors and Google. But I run a lean operation. While my business, Ink-Stained Inc., produces the occasional book, TV appearance and speech, it is probably not going to win any best-practices awards.
Disagreement is rare during board meetings at Ink-Stained Inc. world headquarters (my house), because I am the chairman, chief executive, president, treasurer, secretary, chief technology officer and mail-room clerk. Occasionally board members complain about environmental regulations, not because these regulations affect us but because that is what we have heard corporations are supposed to do.
We administer a modest pension plan for our sole employee, and we reimburse a few health-care expenses. We have big, professional-looking checks, and we attempt to keep our accounts balanced, although our chief financial officer (also me) is a lagging performer. We once considered hiring our wife as a consultant to help us organize our finances, but the HR department was unable to come to terms with her. We have so far repelled all attempts at unionization.
I should add that I am in no danger of being caught in the net of President Obama’s proposed millionaires’ tax. I pay the accountants a few thousand dollars, and they make sure I am not paying more in taxes than I should be. (Note to the IRS: They do this in ways that are conservative, entirely above-board and so innocuous that they should not attract your interest in the slightest.)
While there is something absurd about being a one-man corporation, it’s a rational response to an irrational tax code. If lawmakers got serious about tax reform that removed loopholes, the money spent on accountants and actuaries (valuable though they are) could instead be used to grow the economy or to pay the federal debt. But that’s a matter for another day.
At the moment, the Ink-Stained Inc. case study, should the Harvard Business School wish to study it, is a reminder to be skeptical of the “job creator” argument in the tax debate. “It’s a good example of the murkiness of what we mean by small business and the connection to jobs,” William Gale, co-director of the Urban Institute and Brookings Institution’s Tax Policy Center, told me. “There’s sort of this notion of small-business innovation and job creation that just doesn’t necessarily hold.”
That’s even more so with Obama’s “Buffett Rule,” under which millionaires would have to pay a higher tax rate than a typical middle-class worker. As a practical matter, most already do. Gale said the rule would raise the taxes on only a few thousand people, perhaps as few as 1,000.
In a nation of more than 300 million, that’s not going to make a dent in job creation. Even the data analysts at Ink-Stained Inc. could figure out that one — that is, if we had any data analysts.
By: Dana Milbank, Opinion Writer, The Washington Post, September 21, 2011
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