Ronald Reagan 28, George W. Bush 15!

WEDNESDAY, JANUARY 18, 2012

Plutocracy down through the years: Mitt Romney says his effective federal tax rate is close to 15 percent.

That means he pays roughly 15 percent of his income in combined federal income and payroll taxes. Our side is going to wail about that. But upon reflection, this is a fact about the federal tax system more than it is about Romney.

How can people of such wealth pay so little in federal taxes? In this morning’s New York Times, David Kocieniewski tells the familiar story:
KOCIENIEWSKI (1/18/12): The effective federal income tax rate paid by the wealthiest Americans has dropped significantly during the last several decades, largely because of tax cuts on investment income.

The last major overhaul of the tax code, signed by President Ronald Reagan in 1986, set tax rates on capital gains at the same level as the rates on ordinary income like salaries and wages, with both topping out at 28 percent. But that link was uncoupled by his successor, President George Bush, and the rates on capital gains were reduced by President Bill Clinton. President George W. Bush then lowered the rates on capital gains and dividends to a high of 15 percent—less than half the 35 percent top rate on ordinary income.
Under the GOP’s sainted Reagan, wealthy people paid 28 percent on capital gains; that matched the top rate on salaries and wages. But a quarter century later, the rate on capital gains stands at 15 percent—and the top rate on salaries and wages has risen to 35! Since Romney gains his income the old-fashioned way, he pays around 15 percent.

Our side is going to wail about this, but it isn’t mainly a fact about Romney. Kocieniewski recalls the complaint of one of our own side’s new saints:
KOCIENIEWSKI: One outspoken critic has been Warren E. Buffett, a billionaire himself. Mr. Buffett stirred debate about the issue last year when he wrote an opinion article for The New York Times stating that the low rates for investment income had allowed him to pay only about 17 percent of his income in federal taxes, less than the effective rate paid by his secretary or any of the other 19 workers in his office.
Liberals salute Buffett for speaking out—but in practice, he is paying the same low rates paid by Candidate Romney. That’s the rate these men are required to pay under our plutocrat-friendly tax laws. And yes, the changes in those laws have helped those who need help the least:

“Between 1985 and 2008, the wealthiest 400 Americans saw the percentage of their income paid in federal income taxes drop from 29 percent to 18 percent,” Kocieniewski writes. He notes that this drop in effective tax rate has been caused, in large part, by the change in these laws.

It has been a good era for plutocrats! Romney’s tax rate provides a new way to explain this situation to voters. Most likely, our side will screech and wail about his vile ways—and do little more. The chance to create a larger understanding may get lost in the partisan clatter.

Almost everything does.

One final question: Why do Warren Buffett’s employees pay a higher tax rate than he does? In an accompanying report by Nicholas Confessore, a graphic shows that people in the middle income quintile pay an effective federal tax rate of 12.7 percent on average. People in the fourth quintile—average income, $94,100—pay an effective federal tax rate of 15.7 percent.

Why do Buffett’s employees pay more than he does? If Buffett pays around 17 percent, why the heck is his secretary paying more?

In a political culture defined by partisan yelling, have you ever seen anyone help you understand that?

In our view: In our view, Confessore’s front-page report includes several bits of anti-Romney snark, including one bit of snark which appears quite early on. Can you spot these pieces of snark? Do you think they qualify as news? Do you think they should be in a news report?

We don’t. But this is easier, and more fun, than it would be to report Romney’s conduct at Bain, which the Times still hasn’t much done.

Have you seen Rachel complain about that? No—and you never will. You are hustled right to the ends of the earth. For one result, just check the scoreboard:

Ronald Reagan 28, George W. Bush 15

4 comments:

  1. Bob, after Reagan "fixed" Social Security, I checked my payroll deductions.
    They regularly came to 23% if Gross income.
    Yes, I got a few hundred bucks refunded from Fed and state, but the state burden was only 10% of the fed.
    That tells me I was taxed at a minimum of 21%. That was the minimum!
    This agrees with CBO figures of fed, state local of 23.2%. (1999-2004)
    CBO figures for 2007 show middle quintile pay 14.3% of all federal taxes.
    4th quintile pay 17.4%. Maybe Warren's secretary is compensated the same as his accountants. (It could happen.)
    Now, if the lions share of Mitt's income was carried interest at %15, and he "gave away" his niggling $274,000 speaker fees, and his niggling book income of somewhere between $100,00 and $1,000,000 (what's in a number anyway), he could get some whopping deductions.

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  2. "Effective Federal tax rate" is not the best way to compare income quintiles. What you need to look at is the "marginal" tax rate -- the maximum rate each earner is paying on the last portion of his income, and at which every dollar earned thereafter is taxed.

    So, for example, the first $10K or so an unmarried tax payer earns is exempt from Federal tax altogether. The next few thousand is taxed at 10%. Tranches after that that are taxed at 15%, 25%, 28% and going up to 35%.

    So it's conceivable that a Buffett secretary earning $50K doesn't pay a much higher "effective" rate than Buffett (when calculated on the basis of her *entire* income), but her marginal rate will be 25% under current law -- meaning every dollar she earns over $33,000 will be taxed at 25% -- far higher than Buffett's marginal rate. If she earns over about $67K, her rate rises to 28% of every dollar over $67K.

    Also, she'll be paying about 7% (14%, if you count her employer's contribution) on her entire income in SS taxes -- which Buffett (if he takes no salary) won't be paying at all.

    So her marginal rate is up to 35%-37, compared to Buffett's (or Romney's ) 15%. And, of course, her base salary is much lower than theirs -- these taxes reduce her disposal income far, far more than they do Buffett's or Romeny's.

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    1. Thank you for pointing out the issue of federal marginal tax rates. Many people don't understand how they work, but it's the case that many middle-class people (i.e., earning under $150,000/year but above $47,000/yr or whatever the cutoff is) with or without spouses and children are paying effective federal marginal tax rates that are in effect higher than Buffett's and many millionaires or billionaires whose salaries are paid by various kinds of capital gains.

      Since as you note the less income you have the more higher rates will take effect the amount of money you have to work with, we are in essence subsidizing the rich and penalizing everyone else!

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  3. And let us not forget the cap on the Social Security payroll tax. Someone in Romney's bracket will only pay $6,826.20 in 2012, and that is a reduction from the former tax rate.

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