A Matter Of Fairness-- Taxation

With Obama finally getting rid of deadweight like Rahm Emanuel and Larry Summers, he'll have an opportunity to move his Administration in a less corporate, Big Business-friendly direction and more towards... well towards what he campaigned on in 2008. The best-- like in "no bullshit/let's roll up our sleeves and get the job done"-- cabinet pick he made so far was his Secretary of Labor, Hilda Solis. Labor Secretary was also one of President Clinton's best cabinet picks and although Wall Street banksters would probably be unappreciative, it would be an amazing move for the American people in President Obama was to take Clinton's former Secretary of Labor, Robert Reich, and give him the job Summers performed so poorly at, director of the National Economic Council.

Unlike Summers (and Geithner) Reich's concerns are with ordinary working people, the backbone of what has made America a great country. Making life ab-fab for the financial predators has never been one of his motivations in life. On Friday he posted an insightful article on his blog I've been meaning to work into something. Having failed to do so, let me just parts of it with you while it's still fresh in my mind.

The super-rich got even wealthier this year, and yet most of them are paying even fewer taxes to support the eduction, job training, and job creation of the rest of us... For example, Charles and David Koch, the energy magnates who are pouring vast sums of money into Republican coffers and sponsoring tea partiers all over America, each gained $5.5 billion of wealth over the past year. Each is now worth $21.5 billion.

...From another survey we learn that the 25 top hedge-fund managers got an average of $1 billion each, but paid an average of 17 percent in taxes (because so much of their income is considered capital gains, taxed at 15 percent thanks to the Bush tax cuts).

The rest of America got poorer, of course. The number in poverty rose to a post-war high. The median wage continues to deteriorate. And some 20 million Americans don’t have work. 

Only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm-- the late 1920s, and the era of the robber barons in the 1880s. 
And yet the Bush tax cuts of 2001 and 2003, which conferred almost all their benefits on the rich, continue.

Democrats have decided to delay voting on whether to extend them for the top 2 percent of Americans or for the bottom 98 percent until after the mid-term elections. 

Democrats have thereby given up a defining issue that could have enabled them to show the big story of the last three decades-- the accumulation of almost all the gain from economic growth at the top-- and to make a start at reversing it. 

When will they ever learn?

When indeed? Even Boehner-- albeit for all the wrong reasons-- called the punt the "most irresponsible thing that I have seen since I have been in Washington, D.C." (And he's been hanging around in DC, building Boehnerland, for two decades.) I doubt Boehner reads Tax.com-- or much of anything that doesn't amount to ideological rightist talking points-- but David Cay Johnson asked, and answers, a question all legislators should be looking at now: How Did the Bush Tax Cuts Work Out for the Economy?

The 2008 income tax data are now in, so we can assess the fulfillment of the Republican promise that tax cuts would produce widespread prosperity by looking at all the years of the George W. Bush presidency.

Just as they did in 2000, the Republicans are running this year on an economic platform of tax cuts, especially making the tax cuts permanent for the richest among us. So how did the tax cuts work out? My analysis of the new data, with all figures in 2008 dollars:

Total income was $2.74 trillion less during the eight Bush years than if incomes had stayed at 2000 levels.

...Average incomes fell. Average taxpayer income was down $3,512, or 5.7 percent, in 2008 compared with 2000, President Bush's own benchmark year for his promises of prosperity through tax cuts.

Had incomes stayed at 2000 levels, the average taxpayer would have earned almost $21,000 more over those eight years. That's almost $50 per week.

Richard Thaler, a distinguished theorist in behavioral finance is a professor of economics and behavioral science at the University of Chicago. In his column yesterday in the NY Times Business Section is makes it crystal clear that the one thing the very richest Americans don't need is another $700 billion in tax cuts, a cut that is the basis of the GOP/Blue Dog push to prevent a vote on middle class tax cuts.

President Obama has proposed retaining the current rates on incomes up to $200,000 for individuals and $250,000 for couples. Under this plan, everyone would receive a tax “cut” relative to the rates in effect in the Clinton era. For a family with a $250,000 income or more, the cut would be about $6,000, because its first $250,000 of income would be subject to the current, lower rate. But such families would have a higher bill than they do now.

With the exception of the House minority leader, John Boehner, the Republican leadership has drawn a line in the sand, saying it will oppose Mr. Obama’s bill unless all taxpayers remain at current rates. Although it wouldn’t put it this way, the Republican position is, in effect, that if the rich can’t share in the bounty, rates should rise for everyone.

They offer three arguments to support their view.

The first is that it is folly to raise taxes in a weak economy. There is some merit to this argument, of course, but economic policy is always about trade-offs.

Tax cuts are one of many ways to stimulate the economy. Building infrastructure, for example, is another. We have to choose. And if the primary goal is stimulating the economy, tax breaks to the rich are simply not cost-effective. Numerous studies have shown that the poor spend nearly all of their income, while the rich save a significant amount of theirs.

The second argument is that not extending the tax cuts to high-income earners would impose an excessive burden on small businesses. Here, however, we fall into a statistical morass. The administration points out that only 3 percent of all businesses earn enough to have to pay any additional tax. But Republicans reply that those 3 percent of businesses earn 47 percent of the income from this entire sector, meaning that the higher taxes would apply to the bulk of small-business income.

Which is the most relevant number?

To understand these statistics, we need to know how small business is defined. The data come from tax returns, and the definition of a “small” business is one that is organized so that all the profits pass through to the owners, who then report these profits as income on their personal tax returns.

Partnerships and firms structured as S corporations are examples. This category can include businesses as diverse as barbershops, car washes, hedge funds and law firms. Goldman Sachs was in this category before it became a public company. And the fact that 3 percent of the businesses earn nearly half of the money is precisely what many people are concerned about: growing income inequality.

Which brings us to the third argument. Conservatives say that to do anything other than extending tax cuts to everyone would amount to “class warfare.”

The best response to that notion comes from Warren E. Buffett: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

Thomas Piketty and Emmanuel Saez, two academic economists, provide data to back up Mr. Buffett’s view. They show that the proportion of income earned by the top 1 percent of American families was about 10 percent of the national total from 1945 to 1979. Since 1980, that share has doubled, reaching about 20 percent in 2008-- or more, if capital gains are included.

The growth rate has been even faster for the ultrarich-- those in the top one-hundredth of 1 percent in income.

Other segments of society, meanwhile, are losing out, with their share of the total declining, and their real incomes remaining stagnant.

And what about incentives? Will the owners of the profitable small businesses work less hard, or hire fewer people, if their own after-tax income falls? This is a much-researched question, and the weight of current evidence suggests that we shouldn’t expect significant real reductions in economic activity if rates change in the range under discussion.

...The question comes down to whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living. Demanding that the rich get a tax cut as a condition for tax relief for others is simply elitist. Tea Partiers, take note.

When will, indeed, will we ever learn? Sheldon Whitehouse and Dick Durbin certainly have (watch):