President Obama and Mitt Romney love to talk about tax rates on ordinary income, but they never mention the most hideous unfairness of the tax system. Rich people like the Romneys get their effective tax rates into the low teens because most of their income is isn’t treated as ordinary income. Their special income is taxed at lower marginal rates.
A married cardiologist making $400K pays the top marginal tax rate, 35%. The hedge fund billionaire John Paulson pays 15%, if that, on his billions of income due to the carried interest exception. Mitt Romney pays 13% thanks in large part to the low rate on capital gain income. The creepy Walton heirs pay 15% on their Walmart dividend income. That is unjust, but we can’t talk about that, because it would hurt the tender feelings of the rich.
Obama pretends he is acting boldly by ending the Bush tax cuts for the rich. That might help some merely wealthy people, like the cardiologist, but it is irrelevant to the really rich. The carried interest remains for the hedge fund billionaires, the capital gains tax will still be Romney’s little tax playground, and there are billions in other tax avoidance schemes available to them that aren’t there for people like that cardiologist. Romney is even worse. He plans to cut taxes on any ordinary income rich people can’t convert to one of the better kinds of income.
Richard Thaler, an economist at the University of Chicago, offered what he calls his Reagan 28 Plan, because it’s simple enough for Reagan to remember. Well, he says it’s because Reagan proposed something similar once upon a time. Here’s the basic idea:
For this discussion, let’s define a household as rich if its income exceeds $1 million a year. In fact, my plan applies only to the income such households earn above that threshold. And I can state my idea in just one sentence: All income above $1 million a year for a household will be taxed at 28 percent. There are no deductions, and all income, including capital gains and dividends, is included.
Even Reagan could grasp that one. Romney and Obama could, but they won’t. Their big donors would go nuts. The most important thing to the rich is making sure the money their money makes is taxed at rates lower than other people’s hard-earned money. The oligarchs put their money where their finances are, and if either candidate threatened their special deals, they would no doubt go Galt.
No one could expect anything else from a member of the oligarchy like Romney, but what excuse does Obama have? He recently announced that he has some 3.1 million small donors. What the hell is he doing for them? How is he representing their interests on these taxation issues? I’ll tell you: he promises to cut their Social Security benefits using the chained CPI, as he has been saying and FDL has been reporting for a long time. Matt Stoller points us to this from Obama’s website. Screw those 3.1 million small donors. Obama has a legacy to create, a Grand Bargain to protect the rich from the poors. This is a top down campaign. You can’t even make your point of view known through the Obama website.
That insulation is perfectly consistent with the approach of the Obama Administration. They know best. They long ago threw whatever’s left of the left overboard. On civil liberties and war issues, Obama has embraced the disgusting practices of the repulsive Bush administration. On economic issues, he governs exactly where Hank Paulsen, Bush’s Treasury Secretary, was: protect the financial sector at all costs; protect the greedy criminals from prosecution; foam the runway with the financial lives of millions of Americans. Belatedly and grudgingly he supported the Consumer Financial Protection Board and some issues important to the LGBT community, but in neither case has he led. It isn’t just that he doesn’t adopt liberal positions. He never hears them. He only listens to the ideas of conventional politicians and conventional thinkers from the center and the right. You can’t name a single person in the Administration who is an unabashed leftist.
Obama thinks this is a center right nation, so he ignores liberals and leftists. He does not seek our support, and he ignores our issues. He doesn’t care that we are dispirited and utterly uninterested in supporting him. It is irrelevant to him that the liberal/left is the source of the energy and ideas for the Democratic Party. We’ll see if he can get elected without active support from what people used to call the base of the Democratic Party. If he is re-elected, we will be even easier to ignore, and it will be easy for him to repay his small donors with gradual destruction of Social Security and Medicare.