Rejecting tax breaks for the plutocrats: On the front page of last Monday’s Washington Post, Steven Mufson did a lengthy report about a key aspect of federal taxation.
On Nexis, the headline says this: “Tax policy feeds gap between rich, poor.”
Mufson’s report was long and strong. Early on, he said this:
MUFSON (9/12/11): For the very richest Americans, low tax rates on capital gains are better than any Christmas gift. As a result of a pair of rate cuts, first under President Bill Clinton and then under Bush, most of the richest Americans pay lower overall tax rates than middle-class Americans do. And this is one reason the gap between the wealthy and the rest of the country is widening dramatically.Mufson’s report ran almost 2500 words. Before long, he was offering information which fleshed out this admittedly clunky observation: “How the wealthiest Americans managed to get Congress to treat money made from investments differently from salaries or wages involved a variety of lobbyists, economists and lawmakers.”
The rates on capital gains—which include profits from the sale of stocks, bonds and real estate—should be a key point in negotiations over how to shrink the budget deficit, some lawmakers say.
Most Americans depend on wages and salaries for their income, which is subject to a graduated tax so the big earners pay higher percentages. The capital gains tax turns that idea on its head, capping the rate at 15 percent for long-term investments. As a result, anyone making more than $34,500 a year in wages and salary is taxed at a higher rate than a billionaire is taxed on untold millions in capital gains.
Mufson’s report deserved praise from progressives. But then, so did this editorial, which appeared in the August 24 Post.
In their informative piece, the editors supported Warren Buffett’s claim that the highest earners are getting indefensible tax breaks. On-line, their headline calls for “taxing the rich fairly.”
We thought the editors' piece was quite strong. Good lord! As they ended, they even took a shot at the “plutocrats:”
WASHINGTON POST EDITORIAL (8/24/11): Preferential treatment for capital gains is a tenet of Republican economic orthodoxy that has, alas, been adopted by Democrats in recent years on specious pro-growth grounds. Even President Obama favored a temporary zero capital-gains rate for small businesses, ostensibly as a job-creation measure. In fact, taxing capital gains more lightly than income earned through other means—e.g., work—promotes wasteful tax shelters and breaks such as the $1.5 billion-a-year “carried interest” provision for investment managers.The editorial made a lot of strong points. Mufson’s front-page news report was highly informative.
The 1986 tax reform closed the gap between capital gains and ordinary income, taxing both at a top rate of 28 percent. But subsequent legislation under both Republican and Democratic administrations, culminating in the tax cuts enacted under President George W. Bush, reopened it. This is one reason that the effective tax rate on the top 400 earners in the United States fell from 29.2 percent in 1992 to 21.5 percent in 2008, even as their income more than quintupled.
For Mr. Buffett, the solution is higher rates on both ordinary and investment income for all those earning $1 million a year, with an extra boost in rates for those making $10 million and up. That seems reasonable; but he isn’t precisely clear about how to do it. Unless you equalize the ordinary income and capital-gains rates, there would still be myriad ways for the rich to avoid taxes.
Congress should follow the precedent set by the 1986 reform: Tax all income at the same top rate. Wiping out other special breaks would yield even greater gains in revenue and equity. Indeed, expanding the tax base could yield more revenue at a relatively modest top rate. It might not have to be much more than the 29.2 percent top earners paid back in 1992. A fair, efficient system that raises more revenue than the current one is something all Americans—from plutocrats to the poverty-stricken—could support.
We liberals have made little attempt, in the past thirty years, to inform the public about matters like these. In recent weeks, the Post has been doing some very good work.
Granted, this is all happening thirty years late. But shouldn’t we stand up and praise the Post's efforts? Beyond that, shouldn’t we brainstorm about the best ways to transfer all this news to “the folks?”
Sometimes, it seems like we liberals don't enjoy speaking to all those crude, unwashed people!