Big Love: The GOP and the super-rich

By Jacob Hacker and Paul Pierson
December 12, 2012

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

 

 

 

 

 

8 comments

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Time for the Republican Party to go, no doubt. They have little to offer the 90% whose votes they must con to remain in office.

It is amazing that people who seem to really believe in fiscal responsibility can seem to really believe that draining the blood out of the vast majority of Americans while enriching the already fabulously wealthy can bring a healthy economy. And at the same time permit and actually encourage the paying off of Government officials — i.e. bribery. Bribes are simply no different whether their source is named Kennedy or Capone. And they ultimately have the same purpose, which is most certainly not to benefit the public.

The problem is not just one political party, but with systemic bribery and corruption of public officials and judges. We also need to eject foreign agents (e.g. AIPAC) and all corporations from our politics, and with severe penalties enforceable by ordinary citizens.

Posted by usagadfly | Report as abusive

The problem with reducing loopholes is that the tax lawers for the very wealthy will have the most input on what gets eliminated and what doesn’t and that imlementation could just introduce new loopholes for them to take advantage of while losing the old ones.
The bottom line is that the middle class and the lower wealth rung will be the ones who get hit by the loophole reductions and the top .01% will be able to offset them by other accounting tricks.

Revenues like an alternative minimum tax or raising the rates on short term capital gains and counting carried interest or non-cash pay for executives salary as income and not as capital gains, on the other hand, are very real and almost impossible to avoid paying without breaking the law by hiding income or fraud.

We don’t have to raise the highest tax rate at all to accomplish a fairer tax system. We just need to ensure that higher income individuals are following the same rules as everyone else who makes enough to pay taxes does. We don’t want to persecute the rich. We only want to hold them accountable to the same rules as middle class working people so everyone pays their fair share as a percentage of income. That isn’t happening now with the wealthy paying a much smaller percentage of their incomes than most of the rest of us.

Most of our GDP is driven by consumer spending, so we are the job creators as much or more so than the rich who claim that as their right to pay less taxes.

Posted by mikemm | Report as abusive

“most Americans will pay a considerable price for the cuts in public programs that are sure to be part of any agreement”. Yeah, right… We sure benefit greatly from those valuable “public programs”. Another great commentary from the Daily Worker, err Reuters.

Posted by mstamper | Report as abusive

the ultimate goal of the gop is and has always been to eliminate taxation on the wealthy and large corporations, and to eliminate all social programs. all else is smoke and mirrors, designed to placate those the gop needs to keep in the camp to get elected. they do this by attracting various hate groups that make up their support base.
@mstamper – i suspect you have many family members who have benefited and are currently benefiting from social security, medicaire and medicaid, along with many other social programs – heck, some day you’ll benefit from them too, whether you want to admit to that or not. i love hearing some friends on the right brag about the ultra low health care premiums they pay on veteran or disability health benefits, and then i mention that those are a form of universal healthcare. at that point it’s the deer in the headlight syndrome and their brains turn to mush, muttering some right wing jibberish.

Posted by jcfl | Report as abusive

The comment, “— leaving the rest of Americans, including affluent Americans below the pinnacles of our economy, out in the cold.” implies that somehow because the 1% wouldn’t pay the rest of us would have to pay. Perhaps some of us 99% are of the opinion that some of it shouldn’t BE paid for. Yes, please cut! Mandatory defense cuts? YES! End a war? Yes, please, I’ll take two. Allow market pressure to drive demand for green products rather than having the government artificially increase the costs of non-green. YES! I just want the government to GOVERN, not meddle in every aspect of our lives. Notice, I didn’t talk about cutting ANY social program. I want what I’ve paid into Social Security as much as anyone. But then, I’ve been paying in since I was 12.

Posted by bluewater23000 | Report as abusive

So many Americans still think they can also have it all, and are happy to allow the rich to continue to take more than their fair share and not fair tax rates… because they too want to become just as greedy and be the real “takers” of society.

They are the ones who are ‘supporting” the gop wholeheartedly in this endeavor,even though they will never have the means to become rich legally, nor super rich. It is as though they have lost a grip on reality. (The remarks by Romney and those who favoured and protected Romney brought this home. “You are all just jealous… leave them alone,” etc…)

But the last thing the super rich want is some nouveau riche bum thinking he is at all like them… of bluer blood and silver spoonfed! You are the working class who serve them and they will continue to ensure it is kept that way.

They will stifle growth and horde as they have always done… write laws to have congress sign… and do their best to cut regulations and not pay their share of taxes. (Shoot, even the hypocrite Buffet just protected a friend by locking in their 15% tax rate on captial gains)

Few very rich trickle anything beneath them or provide growth. They and TBTF investment banks help feed the economic downturns however, just as they did in the last great depression.

Even reminding such a person who protects the extremely wealthy that a rich person just paid 10 times more for a painting than he would make in his lifetime didn’t give him a new perspective. Pipe dreams are alive and well…and so it seems the huge divide.

At least here in Canada our regulations have thus far protected a large portion of the middle class. Yours is dwindling and hemorrhaging and perhaps most do not even seem to know it or care, as their pipe dreams of “opportunities” keep them delusional.

Posted by youniquelikeme | Report as abusive

My wife and I make just over 250,000 and i’m proud to be in the “super rich” category. It’s great to be in the “club” with Warren Buffett, Bill Gates and the Koch brothers. We go to all the same clubs and enjoy yachting and jeting about to make all the social scenes. YEAH RIGHT – Come on people, I’m doing ok but I’m nowhere near super rich. I can afford a yard man but if the government takes much more I guess I’ll have to go back to doing it myself. Good luck economy. BUT WAIT – we could go over the cliff and then the govt would be cut and everyones taxes would go up – I’d still have to fire the yard man but at least I would know that I wasan’t alone in my misery. So Obama, be an ass and wreck the trillion dollar economy over 80 billion in taxes on us super rich!

Posted by zotdoc | Report as abusive

Inner satisfaction is probably the only genuine measure of “wealth,” given one has the means, even very modest means, to live in peace and good health. Making a contribution — whether through inovation like a Gates or through art, music, good cooking and community kindness — lasts, grows, is reflected back through relationships. The drive for competative wealth-gathering (and keeping) is just a weak person’s way to try to gain something by kidding themselves that satisfactions WILL follow, eventually. Do you think Mitt or the Kochs’ bask in the warm glow of lives finely lived & shared? As our Canadian friend (@youniquelikeme) puts it, “pipe dreams live on.”

Posted by shastakath | Report as abusive