“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
“A Luxury Reserved For The Wealthy”: Taxes Are Not A Charitable Donation
Almost all federal taxpayers who itemize their charitable deductions on their returns deduct the full amount, in order to keep their tax burden as low as possible. Mitt Romney didn’t do that in 2011, according to tax returns released today, leaving $1.8 million un-deducted so he could tell voters he paid a federal tax rate of at least 13 percent. That’s a luxury reserved only for wealthy politicians who can afford to pay an extra few hundred thousand for image purposes.
But one unfortunate line on a memo from Mr. Romney’s lawyer, accompanying the tax returns, suggests that Mr. Romney really doesn’t see much difference between giving to charity and giving to the government.
“Over the entire 20-year period, the total federal and state taxes owed plus the total charitable donations deducted represented 38.49% of total AGI,” the memo said, referring to Mr. Romney’s adjusted gross income. In his mind, apparently, you can just add up the two figures into a new hybrid column, perhaps called, Total Obligation to Society, and make yourself look even more generous.
It doesn’t work that way, however; charity and taxes cannot be conflated to make it sound like you are “giving away” a larger portion of your income than you are. Conservatives can hate paying taxes, and Mr. Romney in particular appears to hate having tax money spent on the “dependent class,” but that doesn’t make the government a charity.
Taxes represent the obligations citizens have to each other and to society, fostering physical safety with defense and law enforcement spending, economic safety with public works, and personal welfare for the needy. Charity is entirely voluntary, even for those who, like Mr. Romney, are asked by their religious authorities to tithe a fixed portion of their income. Those donations play a vital role in every American community, but they can never take the place of a firm government safety net, as much as they are preferred by the right to taxes.
One would think that someone running to be the government’s chief executive would be proud to make tax payments, and would not try to reduce them through exotic foreign tax shelters and an outsized IRA, as Mr. Romney has done for years. But the announcement today that he had deliberately “overpaid” his taxes was grudging and entirely for show. He overpaid them only so that he couldn’t be accused of paying far less before the election.
Despite his accountant’s statement today that he had never paid less than 13.66 percent of his income in taxes over the last 20 years (a level that would make many middle-class taxpayers jealous), it is still an assertion that has not been backed up by the release of actual tax returns for that period. For all the highly trumpeted discretionary donations he has made, Mr. Romney apparently still doesn’t want the public to see how assiduously he has worked to lower his most important social obligation.
By: David Firestone, The New York Times, September 21, 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
“Delusional Supporters”: Mitt Romney Has Almost Certainly Not “Already Paid Taxes On His Ordinary Income”
You can’t write about tax rates these days without getting shelled by those who feel their favorite Presidential candidate is being attacked by whatever you say.
That’s too bad, because it hinders the ability to have a reasoned discussion about taxes, which is a discussion this country desperately needs to have.
(Almost no non-partisan economist thinks our budget deficit can be solved by cutting spending alone. Taxes will almost certainly eventually have to go up. The question is by how much and on who and when. And that’s a debate we need to have in as cool-headed a way as possible.)
Anyway, anytime one points out that Mitt Romney pays a very low tax rate for a citizen who makes as much money has he does, one quickly hears from Romney supporters who say, effectively, the following:
You idiot. Don’t you understand the difference between taxes on “ordinary income” and taxes on “capital gains”? Mitt Romney already paid taxes on his ordinary income–at normal ordinary income rates! Now you want to tax him twice–by making him pay the same taxes on his capital gains!!!
(Some Mitt Romney supporters are much more polite when making this argument, which is much appreciated.)
To answer the question, yes, I do understand the difference between taxes on ordinary income and taxes on capital gains. And I understand the rationale for having the two tax rates be different (to provide an incentive for investors to risk their capital and thus help build businesses that employ people). And I actually agree with that rationale. I don’t think we can afford to have the difference between the two tax rates be as big as it is, but I agree with the rationale.
But here’s the thing…
Romney’s supporters are almost certainly wrong when they assert that Romney “already paid taxes on his ordinary income” and that now he’s just risking his “capital.”
This is because Mitt Romney has almost certainly taken advantage of one of the most outrageous tax loopholes in our entire tax code: The “carried interest” tax exemption.
This loophole allows money managers to structure the performance fees they are paid as “capital gains” instead of as ordinary income.
The loophole therefore allows money managers to avoid paying ordinary income taxes on their performance fees and then make much bigger bets than they would be able to make if they actually had to pay taxes on their earnings. When the money managers use very sophisticated tax shelters, it also allows them to defer paying taxes for years (if not decades)–and then only pay low long-term capital gains rates instead of ordinary income rates.
Although we don’t know for certain that that’s what Mitt Romney has done (because he won’t release his tax returns), it seems highly likely that this is what he has done. And, in fact, the obvious unfairness of this tax loophole seems like one big reason he won’t release his returns.
To be clear:
Taking advantage of the “carried interest” tax loophole is not illegal or wrong. Romney has done what any smart tax-minimizing person in his position would have done.
But the loophole itself is outrageous.
And the existence of the loophole means that Mitt Romney has almost certainly not “already paid taxes on his ordinary income.”
Rather, Mitt Romney has probably figured out ways to make sure that many of the fees he was paid for managing clients’ money at Bain were directed into future Bain investments before he paid taxes on them. These Bain investment then presumably did extraordinarily well, and Romney’s pre-tax ordinary income compounded tax free. And now, presumably, Romney is paying himself “dividends” or “long-term capital gains distributions” out of these Bain funds, which means that not only his original fee income but his pre-tax investment gains are being taxed at vastly lower long-term capital gains tax rates.
If Mitt Romney had actually paid ordinary income taxes on his fee income and then bet his after-tax income on future Bain investments, those who support today’s low rates on long-term capital gains would be justified in saying this is perfectly defensible, fair, and acceptable.
But Romney almost certainly didn’t.
Rather, Romney almost certainly took advantage of an outrageous tax loophole to take home tens or hundreds of millions more dollars than he would have if he had paid ordinary income tax rates.
So the Mitt Romney supporters who suggest that he paid these rates, unfortunately, appear to be delusional.
By: Henry Blodgett, Business Insider, August 17, 2012
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