300 Spartan Hoplites Saved Greek Democracy But Will 400 American Billionaires Destroy Ours?

Whether Huntsman was the one who revealed that multimillionaire GOP tax cheat Mitt Romney paid no taxes at all for years, what we do know for sure is that for the years he did pay something his rate was 13.9%, considerably less than the 35% the very rich are supposed to pay. And that doesn't count his non-taxable income-- nor the money he had stashed away in foreign accounts of dubious legality-- which probably accounted for more than half his wealth.

When Eisenhower, the last mainstream Republican president, was in office, the marginal tax rate on incomes over $400,000 was 92% and capital gains was taxed at 25%. In 1954 Eisenhower reduced the marginal rate to something Republicans felt was more fair… 91%. His greatest accomplishment-- aside from keeping the U.S. out of wars-- was the building of the Interstate Highway System, judged so not just by historians but by Eisenhower himself. Although his 1952 landslide gave Republicans control of both houses of Congress, they made no moves to reduce taxes beyond the modest 1% reduction for top payers. While Ike was in the White House the economy expanded and the Dow more than doubled.

JFK kept the top rate but LBJ made the effective top tax rate 75.25%, a gigantic tax cut for the very wealthy and Nixon kept that rate, while raising the capital gains rate to 36.5%. At that time Mitt's father, George Romney, ran for president and released his tax returns, showing a $2,972,923.58 income during 1966 and a total of $1,099,555.18, a very different story than the one his son's taxes told.

Ford's brief presidency saw no changes in the marginal rates but did see capital gains go up to 39.875%, the peak, as it turned out, which helps explain why the rich have gotten much much richer since the end of the Ford presidency. The decrease in capital gains taxes began under Jimmy Carter, decreasing by over 10 points to 28%. This just whetted the appetites and the greed of the very rich for more and bigger cuts. Reagan was glad to oblige. He slashed the top marginal rates from around 70% to just 28%, the seed for economic catastrophe and endlessly unbalanced budgets. George H.W. Bush tried to undo some of the damage Reagan's tax cutting had done and rates increased slightly. Clinton kept the marginal rate for top earners basically the same as Reagan and decreased the capital gains tax by 8 points.

Then came George W. Bush (or, more to the point, Dick Cheney, who was in charge of the economy). The rate for top earners sunk to 15.35% and the capital gains tax was pushed down to 15%, exploding the deficit and sending the U.S. economy careening towards the disaster that ended the 8 catastrophic Bush-Cheney years. Obama kept the unsustainable Bush tax cuts for the rich. according to James Stewart's widely discussed NY Times piece over the weekend, High Income, Low Taxes And Never A Bad Year, the rich just keep on getting richer and richer under the tax policies they pay for with their campaign contributions. "The fortunate 400 people with the highest adjusted gross incomes," he wrote, "still made, on average, $202 million each in 2009, according to Internal Revenue Service data. And this doesn’t even count income that doesn’t show up as adjusted gross income, such as tax-exempt interest." And for many rich people that tax-exempt interest is over half their income.

Yet the top 400 paid an average federal income tax rate of less than 20 percent, far lower than the top rate of 35 percent then in effect.

They also paid a lower rate than the top 1 percent, which were people with adjusted gross incomes in 2009 of at least $344,000. These affluent but hardly superrich taxpayers paid on average just over 24 percent of their adjusted gross income in federal income tax. Even the top 0.01 percent, people earning at least $1.4 million, paid 24 percent.



“The top 400 have enormously high incomes even after the dip,” said Leonard E. Burman, director of the nonpartisan Tax Policy Center and a professor of public policy at the Maxwell School at Syracuse University. “It’s still over $200 million each. And yet they’re still paying at a lower rate.”

Even in a bad year like 2009, the federal tax code at the very top is regressive, not progressive.

Of course, the top 400 are a tiny fraction of the overall population (there were over 140 million returns filed in 2009). But I’ve always found them to be a useful window to the otherwise hidden world of the ultrarich. And if the tax code is perceived as unfair to the wealthiest citizens, is it any wonder that there’s widespread resentment at lower rungs of the prosperity ladder?

It may seem surprising that some of the country’s richest people had a banner year in the depths of the recent recession, but recall that 2009 was a year that Wall Street paid itself big bonuses even after taking billions in government rescue money. And while the stock market bottomed in March of that year, it went on to rack up impressive gains. These were especially favorable conditions for nimble hedge fund managers.

…Among those at the top of the rankings that year were David Tepper, founder of Appaloosa Management, who earned an estimated $4 billion; George Soros, who earned $3.3 billion; James Simons of Renaissance Technologies, who made $2.5 billion; and John Paulson, at $2.3 billion, who famously bet against mortgage-backed securities and cashed in on the housing collapse.

Most of the income of hedge fund and other managers of investment partnerships-- so-called carried interest-- is treated as capital gains rather than earned income, and is taxed at a low preferential rate, which was 15 percent in 2009. This much-criticized loophole has survived repeated attempts to remove it, and was left untouched by the Obama administration’s 2009 tax increases.

The success of hedge fund managers as well as others who bet on both market declines and gains may help explain why members of the top 400 still managed to report average net capital gains of over $92 million in 2009. That was significantly lower than the peak year of 2007, when net capital gains for the top 400 averaged $228.5 million. Still, it represented 46 percent of their income, which is much higher than for most people.

This tiny sliver of taxpayers accounted for an astounding 16 percent of all capital gains in 2009, the highest percentage by far since the statistics started to be compiled in 1992.

…Dividend income for the superrich also hit a record in 2009, at an average of $10.6 million each, which accounted for 13 percent of the top 400’s total adjusted gross income. With interest rates hitting new lows, many superrich people apparently shifted more of their assets to stocks paying higher dividends. Dividend income is also taxed at a preferential rate.

“They’re still paying much lower rates because their income is dominated by capital gains and dividends,” said Edward Kleinbard, a professor at the University of Southern California School of Law and a former chief of staff for Congress’s Joint Committee on Taxation. “As long as those forms of income are taxed at a preferential rate, the rich are going to benefit the most.”

It remains a pillar of Republican orthodoxy that taxes on unearned income, especially capital gains, should be low, or even eliminated. But it was Ronald Reagan who as president championed taxing capital gains at the same rate as earned income. This was a crucial part of his 1986 tax reform, which lowered overall rates by broadening the tax base.

“Capital gains have taken on a totemic significance to the Republicans,” said Professor Kleinbard. “But they’re just another way that you earn a return by investing capital in productive activity. There’s nothing magical about capital gains from an economic point of view.”

…Representative Dave Camp, Republican of Michigan, and Senator Max Baucus, Democrat of Montana, have been working on a much-anticipated bipartisan approach to tax reform, and the House Budget Committee chairman Paul Ryan has said, “They agree on the fundamental principles: Broaden the base, lower the rates and simplify the code.”

Last week, the Democratic Party's version of Sheldon Adelson, Haim Saban, hosted a $15,000 a plate lunch for Democratic presidential contender Hillary Clinton at his 23,000 square foot mansion in Beverly Hills. Not even counting the$10 million check Saban wrote to the Clinton Library, he's given over $12 million to Democratic Party candidates. He's worth something in the neighborhood of $3.5 billion-- and without that nice tax code both parties champion, that would have never happened. There were no billionaires when Eisenhower was president. It was mathematically impossible. And it was good for democracy and good for America.

After examining the voting records of freshmen Democrats-- not Republicans who are owned lock-stock-and-barrel by the plutocrats-- but Democrats who are supposed to be serving the interests of working families and the middle class, we have a list of the 13 freshmen-- a baker's dozen-- who have been the most slavish adherents class warriors on behalf of the rich for this session of Congress. This is what the DCCC gave us last year-- and this is in order, worst first:

• Sean Patrick Maloney (New Dem-NY)
• Patrick Murphy (New Dem-FL)
• Pete Gallego (New Dem/Blue Dog-TX)
• Kyrsten Sinema (New Dem-AZ)
• Raul Ruiz (D-CA)
• John Delaney (New Dem-MD)
• Cheri Bustos (D-IL)
• Scott Peters (New Dem-CA)
• Ami Bera (New Dem-CA)
• Bill Foster (New Dem-IL)
• Ann Kuster (New Dem-NH)
• Joe Garcia (New Dem-FL)
• Brad Schneider (New Dem-IL)