Big Love: The GOP and the super-rich
Will Republicans buck anti-tax orthodoxy and strike a budget deal? Since election night, they have begun to utter the dreaded “r-word” (revenue). But they have insisted that those revenues come from reducing loopholes — not increasing rates.
Many argue that this stance reflects the power of Grover Norquist and his no-new-taxes pledge. Yet the pledge forbids not only raising rates but also raising revenue by reducing deductions. So why are such reductions O.K. while President Barack Obama’s call for higher marginal rates is not?
Perhaps because the president’s plan would ask far more from the wealthiest Americans. By insisting that rate increases are off the table, Republicans are retreating to a time-honored position: protecting the richest of the rich at the expense of not just the middle class but also affluent households below the top reaches of the income ladder.
To be sure, a deduction cap can be designed to get new revenues mostly from the super-rich. But there just aren’t enough loopholes at the very top to raise big money, especially if the tax break for charitable deductions is spared, as many Republicans (and Democrats) will likely demand.
To get anything close to the president’s target of $1.6 trillion in new revenues over 10 years, the bulk of the money raised by capping tax breaks has to come from those below the very top.
In contrast, the president’s proposal would raise most of its new revenue from the richest 1 percent (roughly 85 percent of the total revenue, excluding the estate tax changes) and especially the richest 0.1 percent (roughly half the total revenue).
The most progressive elements of the president’s proposals are getting the least attention: higher capital gains and dividend taxes for households with income in excess of $250,000; setting the top income tax rate against which people can claim itemized deductions at 28 percent; and a return to the 2009 estate tax parameters. It is these higher rates, especially on capital income, that account for the Obama plan’s progressivity.
Thus, by continuing to stand firm on higher rates, Republicans are trying to build a protective wall around the superrich — leaving the rest of Americans, including affluent Americans below the pinnacles of our economy, out in the cold.
This is hardly a new position for GOP leaders. Repeatedly over the past two decades, when forced to choose between the extremely rich and the modestly rich, Republicans have sided with the former. Since the early 1990s their tax plans have been designed like economic smart bombs that bypass the merely prosperous to deliver payloads of cash to the extremely wealthy.
Back when the Bush tax cuts were passed, for example, Democrats were willing to permanently spare all but a tiny sliver of the biggest of estates from taxation. Republicans said no. Such a compromise offered nothing useful to families like the Waltons, Kochs or Adelsons. So Republicans demanded total repeal — even if it couldn’t be locked in under the budget rules. Essentially, Republican leaders risked the tax gains of the vast majority of affluent Americans to obtain far bigger potential gains for the wealthiest.
Similarly, what did Republicans do after picking up seats in the 2002 midterm? Cut the dividend and capital gains taxes. As Vice President Dick Cheney said: “It’s our due.”
Every distributional analysis shows that these two cuts mostly help the richest of the rich. Indeed, it is mainly because of the special treatment of capital gains that the average federal income tax rate on the rich has declined so sharply since the 1990s.
From 1995 to 2007, the average rate paid by the top 400 taxpayers declined from 30 percent to 16.5 percent — a change worth $46 million per filer in 2007. Even after the downturn, taxes on the rich continued to fall, as the very rich received more and more of their income as capital gains. For households with income exceeding $10 million, according to new Internal Revenue Service data, the average income tax rate fell from 22.4 percent in 2009 to 20.7 percent in 2010.
Consider, these lower rates occurred alongside a stunning concentration of income not just among the rich as a whole but among the richest of the rich. Prior to the financial crisis in 2007, for example, the top 1 in 1,000 households (0.1 percent) were pulling down 1 in 8 dollars in our economy, compared with 1 in 37 dollars in 1974. About half that 2007 total went to the richest 1 in 10,000 households (0.01 percent) alone. Even the much-discussed top 1 percent did not experience anything like this leap in economic standing over recent decades.
The task now confronting politicians is not delivering payloads of cash but scrounging up funds to reduce the deficit. Yet once again, Republican negotiators seem keen on protecting those at the very top — even as public opinion shows strong support for the opposite approach. Republicans argue that the fortunate few “job creators” need super-low rates, because that’s what makes the rest of our economy grow.
But the evidence for this position is thin. When a recent Congressional Research Service report pointed out the lack of evidence that high-end tax cuts promote growth, the response from GOP leaders was predictable: They moved to squelch the report.
So we are now at an impasse. The Republican approach of higher revenues without higher rates inevitably means a far smaller hit for those at the very top.
Meanwhile, most Americans will pay a considerable price for the cuts in public programs that are sure to be part of any agreement. If Republicans have their way, those who have benefited the most from the sharp shift of economic rewards toward the top will not.
ILLUSTRATION: MATT MAHURIN
PHOTO (Insert): David Koch, executive vice president of Koch Industries, at the Economic Club of New York, December 10, 2012. REUTERS/Brendan McDermid