Public Nuisance

Random commentary and senseless acts of blogging.

The first Republican president once said, "While the people retain their virtue and their vigilance, no administration by any extreme of wickedness or folly can seriously injure the government in the short space of four years." If Mr. Lincoln could see what's happened in these last three-and-a-half years, he might hedge a little on that statement.
-Ronald Reagan

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Thursday, May 22, 2003
Taxing Issues

Calpundit asked what taxes would be low enough to satisfy wealthy Bush supporters. John Cole responded by asking at what point taxes would be high enough to satisfy liberals. What these are both missing is that Bush's tax cuts, while they have had a relatively modest impact on most, are clearly designed to eliminate federal taxation of the very rich and are coming quite close to doing so. Already they have guaranteed, if the various cuts with different sunset provisions become permanent, that it will be almost impossible for the very rich to pay higher proportional taxes than lower middle class workers.

The key point here is that real wealth in this society doesn't come from income, but from equity ownership. There are a few freak cases, Barry Bonds or Ray Romano, who make $20 million or more a year in earned income, but they're exceptional. All billionaires, and most multi-millionaires, are essentially stockholders.

Stocks aren't taxed at all when they go up in value. There are three points at which taxes capture some portion of the wealth that stockholders own:

  • Sale Capital gains taxes are assessed on the sale of stock. Currently these are 21%, already a lower amount than most workers pay - taxes on earned income generally total out at roughly 30% or more. The most recent bill cuts this down to 15%. Payroll taxes, even at the minimum wage, are 15.3%, so that would mean that billionaires selling off stock would pay a lower portion of their earnings in taxes than workers, even workers who are poor enough to pay no income taxes at all. This isn't low enough for Republicans, who have consistently said they believe in no capital gains taxes at all.
  • Dividends The main proposal that Bush has been pushing for this year is to make these untaxed. Dividends are paid to equity holders, giving them a small portion of their assets back in immediate income. Most workers now own stock, so most receive dividends, but it is an insignificant amount for the majority. Since they receive no important income from dividends, most would get no important tax benefits from untaxed dividends. But for the extremely wealthy, untaxed dividends can be a huge boon - particularly for the substantial number whose wealth comes from businesses that they own controlling interest in. They can give themselves any income they desire out of the business, all tax free.
  • Estate Tax There is already a way out of ever paying capital gains if you are a Bill Gates or Larry Ellison who has made billions in them. Simply hold the stock until you die, then your heirs will never have to pay the capital gains. Under old law, they still had to pay estate taxes, which were in theory, though rarely in practice, higher. But Bush has eliminated the estate tax. So now the heirs can inherit the whole bundle, with no taxes to pay.

This means in essence that Bush's program is to create a new class of equity aristocrats who will never have to pay taxes on any significant portion of their wealth, and then be able to pass it on to their children in a similarly untouched state. So while John Cole is whining piteously, "And if we take nine out of ten dollars from this millionaire, and there are still sick people and still poor people, should the millionaire still feel guilty?", he is impressively disconnected from the real issue.

In general, it is quite striking how disconnected many conservatives are from reality. In both John's comments and the vast comment section on Calpundit, you can find numerous conservatives complaining about how liberals want to take their money. To the few of those conservatives who will read this post, let me put this more bluntly than politely: you are a mark. Have you noticed that your side has been dominant for most of the past 20+ years? Have you noticed that they have passed loads of tax cuts, yet your tax burden doesn't seem to be going down? Have you noticed - will you ever notice - that it's a feature, not a bug? The massive tax cuts for the very rich leave no room for anything but token benefits for the middle class, but one Republican strategist even admitted a few years ago the Republicans wouldn't really cut middle class taxes meaningfully even if they somehow could. It's in their interest to keep gouging middle class taxpayers, because those who feel their taxes are too high are more likely to vote Republican.

Bush, like Reagan, has passed massive tax cuts while increasing spending. Reagan cut progressive taxes, especially rates for the highest brackets, then followed up with a very substantial increase in withholding taxes, the most regressive tax. Bush is cutting estate taxes, dividends taxes, capital gains taxes, and high bracket rates, massive cuts that will save millions and even billions for a few of the very wealthy. In addition, he is tossing in tokens such as an increase in child allowances which will mean a few hundred dollars a year for those middle class voters dumb enough to believe he will help them. The largest surplus in history turned almost immediately into the largest deficit in history, which was running at about $1 bn a day before the last set of tax cuts came through. Inevitably, at some point the bill will come due and there will be hefty new taxes to bring the budget back towards balance. Those taxes will take away all the benefits that middle class payers received from the Bush tax cuts, and perhaps far more. Your taxes will rise again, the Republicans will blame 'tax and spend liberals' again, and you will probably believe them again and vote for them yet again. To paraphrase Barnum, there's a Republican born every minute.