February 22, 2010--The Very, Very Rich
What's wrong with this scenario and why isn't this on the front page?
I know, I know, Tiger Woods finally spoke, and we need to read all about that. Then there's that Militia guy who crashed his plane into the IRS building in Austin. This got us halfway through the weekend and all along, of course, there's been much to delight in coming from the Olympics in Vancouver.
OK, I get it, if in our current entertainment-saturated era you can't put it above the fold and sell papers, than how about at least placing it below?
The "it" in this case is a report, buried in the business section of the New York Times (linked below), about how much America's top-earners earned in 2007, the latest year from which data are available.
Take a guess. How much on average did our 400 wealthiest families report to the IRS? $50 million? $100 million? Not even close. All right then, a quarter of a billion? Wrong again and this time by $95 million.
They each earned, again on average, a cool $345 million. In the aggregate the top-earning 400 took in a total of $138 billion, substantially up from the year before when they earned "only" $105 billion. This was 31 percent more than the year before and well above the rate of inflation, as if inflation means anything to these folks. Do they care what a gallon of gas costs or an average house or a face-lift?
And after taxes they had a lot left over to do whatever they wished. I won’t lure you again into guessing what percentage of their income they paid in taxes. But do at least take one guess. The top marginal tax rate for income in 2007 was 35 percent so a guess of, say, 30 percent probably wouldn’t be too far off the mark. Right? Since they do have the money to hire good accountants.
Well, no. They paid the federal government about half that amount—just 16.6 percent. They pocketed the rest.
This low rate suggests they stashed almost all of their money in passive investments such as stocks and bonds so they could take full advantage of the fact that the capital gains tax rate that year on stock growth and dividends was only 15 percent. It had been lowered to that rate in 2003 as part of the tax cuts enacted by Congress during George W. Bush’s presidency.
The justification for this cut, as well as for other forms of tax reductions for America’s richest citizens, and we are hearing it right now from Republicans, is that by allowing the “most productive” to keep more of “their” money they will use that retained money to invest in ways to create jobs. This in turn will not just put more people to work but also increase national income so that we will be able to reduce our debt. This plus spending cuts such as eliminating the Department of Education and the IRS is pretty much the current economic recovery program advocated by the GOP.
It is easy to test this trickle-down assertion.
There have been three major tax cuts since 1982, the second year of the Reagan administration. In that year the massive Economic Recovery Tax Act (Kemp-Roth) was passed by Congress and signed into law by President Reagan, and then the following year there were further tax decreases embedded in the Tax Equity and Fiscal Responsibility Act. Note the clever, and deceptive, official names of these bills—they neither led to an economic recovery nor was there anything much about equity or responsibility in either of them.
In fact, by the time Ronald Reagan left office the national debt had ballooned by 189 percent! The largest percentage increase in the national debt in all of American history.
When I point this out to Republican friends, they tell me this is because Congress did not reign in spending. All right, let’s assume that Reagan could have gotten his way and eliminated the Department of Education. This would have meant that he would have piled up a national deficit increase of about 185 percent. And that is only if he eliminated student loans as well as Ed Department bureaucrats.
During his own presidential campaign in 1980, when he was challenging Ronald Reagan for the Republican nomination, it was George H. W. Bush who called this Voodoo Economics. This was unfair to the tradition of Voodoo but, since he meant it as a slur, was ironically accurate. Later that year he became Reagan’s vice president, but Bush’s characterization of Reagan domestic policy was not a bad description of the myths that lay behind and attempted to rationalize Reaganomics.
How then did the even larger tax cuts enacted during the administration of George W. Bush affect the nation’s economic well-being? Again, as with Reagan there were two tax cuts and again those who disproportionately benefited were the wealthiest Americans. The cuts passed by Congress (take note by Reconciliation, in order to avoid a Democratic filibuster!) reduced the top marginal tax rate from 39.6 percent, where it was set by the Clinton administration, to only 35 percent.
With this 35 percent rate, how then did those who earned $345 million each in 2007 manage to pay only 16.6 percent in taxes? That is because the second of the Bush tax cuts in 2003 cut the capital gains rate from 20 to 15 percent.
And how did the nation as a whole fare during the eight years of the second Bush administration? Just looking around at unemployment rates and home foreclosures provides that answer.
Also, calculating the amount of debt amassed during the Bush presidency gives a further lie to trickle-down. He comes in second only to Reagan when looking at the percentage increase in the national debt. As noted, Regan increased it by 189 percent while Bush saw the debt increase by 89 percent.
To put these whopping increases into recent historical perspective, recall that during the three presidencies that immediately preceded and followed Reagan, the debt increased but at much, much slower rates—during the otherwise failed presidency of Jimmy Carter the debt rose 42 percent; during the first Bush presidency it increased 55 percent; and during the Clinton years, when he was allegedly preoccupied with other matters, it increased by just 36 percent over eight years.
One thing, by the way, characterized all three of these presidencies, one Republican and two Democrat: taxes were increased slightly and during the Clinton years. at least, we had an economic boom.
So perhaps Obama is right. Maybe the top 400 earners and the others making a quarter of a million dollars or more a year should, to quote Obama, “pay a little more.” It’s hard from history to make the case that this wouldn’t be a good thing for the country.
But when I point this history out to Republican friends I get back only silence. Especially when raising any questions about their great hero, Ronald Reagan. He did many good things, but for the economy he was a disaster.
I know, I know, Tiger Woods finally spoke, and we need to read all about that. Then there's that Militia guy who crashed his plane into the IRS building in Austin. This got us halfway through the weekend and all along, of course, there's been much to delight in coming from the Olympics in Vancouver.
OK, I get it, if in our current entertainment-saturated era you can't put it above the fold and sell papers, than how about at least placing it below?
The "it" in this case is a report, buried in the business section of the New York Times (linked below), about how much America's top-earners earned in 2007, the latest year from which data are available.
Take a guess. How much on average did our 400 wealthiest families report to the IRS? $50 million? $100 million? Not even close. All right then, a quarter of a billion? Wrong again and this time by $95 million.
They each earned, again on average, a cool $345 million. In the aggregate the top-earning 400 took in a total of $138 billion, substantially up from the year before when they earned "only" $105 billion. This was 31 percent more than the year before and well above the rate of inflation, as if inflation means anything to these folks. Do they care what a gallon of gas costs or an average house or a face-lift?
And after taxes they had a lot left over to do whatever they wished. I won’t lure you again into guessing what percentage of their income they paid in taxes. But do at least take one guess. The top marginal tax rate for income in 2007 was 35 percent so a guess of, say, 30 percent probably wouldn’t be too far off the mark. Right? Since they do have the money to hire good accountants.
Well, no. They paid the federal government about half that amount—just 16.6 percent. They pocketed the rest.
This low rate suggests they stashed almost all of their money in passive investments such as stocks and bonds so they could take full advantage of the fact that the capital gains tax rate that year on stock growth and dividends was only 15 percent. It had been lowered to that rate in 2003 as part of the tax cuts enacted by Congress during George W. Bush’s presidency.
The justification for this cut, as well as for other forms of tax reductions for America’s richest citizens, and we are hearing it right now from Republicans, is that by allowing the “most productive” to keep more of “their” money they will use that retained money to invest in ways to create jobs. This in turn will not just put more people to work but also increase national income so that we will be able to reduce our debt. This plus spending cuts such as eliminating the Department of Education and the IRS is pretty much the current economic recovery program advocated by the GOP.
It is easy to test this trickle-down assertion.
There have been three major tax cuts since 1982, the second year of the Reagan administration. In that year the massive Economic Recovery Tax Act (Kemp-Roth) was passed by Congress and signed into law by President Reagan, and then the following year there were further tax decreases embedded in the Tax Equity and Fiscal Responsibility Act. Note the clever, and deceptive, official names of these bills—they neither led to an economic recovery nor was there anything much about equity or responsibility in either of them.
In fact, by the time Ronald Reagan left office the national debt had ballooned by 189 percent! The largest percentage increase in the national debt in all of American history.
When I point this out to Republican friends, they tell me this is because Congress did not reign in spending. All right, let’s assume that Reagan could have gotten his way and eliminated the Department of Education. This would have meant that he would have piled up a national deficit increase of about 185 percent. And that is only if he eliminated student loans as well as Ed Department bureaucrats.
During his own presidential campaign in 1980, when he was challenging Ronald Reagan for the Republican nomination, it was George H. W. Bush who called this Voodoo Economics. This was unfair to the tradition of Voodoo but, since he meant it as a slur, was ironically accurate. Later that year he became Reagan’s vice president, but Bush’s characterization of Reagan domestic policy was not a bad description of the myths that lay behind and attempted to rationalize Reaganomics.
How then did the even larger tax cuts enacted during the administration of George W. Bush affect the nation’s economic well-being? Again, as with Reagan there were two tax cuts and again those who disproportionately benefited were the wealthiest Americans. The cuts passed by Congress (take note by Reconciliation, in order to avoid a Democratic filibuster!) reduced the top marginal tax rate from 39.6 percent, where it was set by the Clinton administration, to only 35 percent.
With this 35 percent rate, how then did those who earned $345 million each in 2007 manage to pay only 16.6 percent in taxes? That is because the second of the Bush tax cuts in 2003 cut the capital gains rate from 20 to 15 percent.
And how did the nation as a whole fare during the eight years of the second Bush administration? Just looking around at unemployment rates and home foreclosures provides that answer.
Also, calculating the amount of debt amassed during the Bush presidency gives a further lie to trickle-down. He comes in second only to Reagan when looking at the percentage increase in the national debt. As noted, Regan increased it by 189 percent while Bush saw the debt increase by 89 percent.
To put these whopping increases into recent historical perspective, recall that during the three presidencies that immediately preceded and followed Reagan, the debt increased but at much, much slower rates—during the otherwise failed presidency of Jimmy Carter the debt rose 42 percent; during the first Bush presidency it increased 55 percent; and during the Clinton years, when he was allegedly preoccupied with other matters, it increased by just 36 percent over eight years.
One thing, by the way, characterized all three of these presidencies, one Republican and two Democrat: taxes were increased slightly and during the Clinton years. at least, we had an economic boom.
So perhaps Obama is right. Maybe the top 400 earners and the others making a quarter of a million dollars or more a year should, to quote Obama, “pay a little more.” It’s hard from history to make the case that this wouldn’t be a good thing for the country.
But when I point this history out to Republican friends I get back only silence. Especially when raising any questions about their great hero, Ronald Reagan. He did many good things, but for the economy he was a disaster.
posted by Steven Zwerling at
6:13 AM
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