Press friends, if there’s one thing that shows how our system is set up to favor capital over labor, wealth over work, it’s the capital gains tax.
The tax rate on (held more than a year) investment income is 15 percent, which is just the fifth-highest tax rate on work income (out of six brackets), which tops out at 35 percent.
The Washington Post has a long, excellent look at the issue above the fold on page one of yesterday’s paper. Call the U.S. a plutocracy, and they’ll say you’re shrill. But do we even blink anymore when we read facts like these (emphasis mine)?
As a result of a pair of rate cuts, first under President Bill Clinton and then under Bush, most of the richest Americans pay lower overall tax rates than middle-class Americans do. And this is one reason the gap between the wealthy and the rest of the country is widening dramatically.
Most Americans depend on wages and salaries for their income, which is subject to a graduated tax so the big earners pay higher percentages. The capital gains tax turns that idea on its head, capping the rate at 15 percent for long-term investments. As a result, anyone making more than $34,500 a year in wages and salary is taxed at a higher rate than a billionaire is taxed on untold millions in capital gains.
What a country! What kind of logical gymnastics does it take to defend that kind of thing? More on that in a minute.
This particular piece is part of a Post series called Breakaway Wealth that explores what’s causing our growing inequality. In June, the paper kicked off the series with a good story showing how executive compensation is a leading contributor to the phenomenon.
Today’s piece is kind of a bookend to that. Not only are executives grossing far more pay on the front end, through things like stock options, but they’re also paying a far lower percentage out in taxes on that same income. That drives their net pay up exponentially, while median household income has fallen over the last thirteen years.
The 400 richest taxpayers in 2008 counted 60 percent of their income in the form of capital gains and 8 percent from salary and wages. The rest of the country reported 5 percent in capital gains and 72 percent in salary.
Daniel Indiviglio at The Atlantic says the Post gives “no credible evidence that” capital gains taxes contribute to inequality.
I don’t have any idea what he’s talking about. John Paulson made $5 billion in one year a while back, as much as 143,000 single people who made $35,000 each. If those poor saps get taxed more than a guy who makes 143,000 times as much as they do, that contributes to inequality, no?
Another way to put it: 13 percent of all capital gains went to the top .000001 percent of the population in 2008. These top 400 earners in the U.S. in 2008, the latest data available, made an average $270 million that year and paid an average federal income-tax rate of 18.1 percent.
Indiviglio rationalizes it this way:
But why have a relatively low capital gains tax rate? Doing so encourages investment. Obviously, the poor, along with everybody else, would benefit from investment and the growth that follows. If capital gains taxes are very high, then wealthy people would prefer to spend more of their money instead of investing it.
I’m sorry, but I just don’t accept that rich people are going to invest significantly less because of higher capital-gains taxes. When you’re rich, investing is what you do. You have way more than you can spend, so you sock it away so you can get even richer. If you invest a billion dollars and make another billion, you’ve still got $720 million more than you had to begin with, even with a hypothetical 28 percent (Reagan-Bush era) capital gains rate. And besides, if low capital gains taxes are supposed to spur investment (and job creation), where the hell has it been in the thirteen years since Clinton and Bush started slashing rates? No, Miami condo towers circa 2007 don’t count.
- 1
- 2
If capital formation and capital investment created jobs here in the U.S., they'd have an argument. But for the past 20-30 years, it's been much easier to make money by not creating jobs than by creating them. This is not primarily the fault of Reagan, Bush or Clinton. It's the way the economy evolved, with a hyper-reliance on (and messianic belief in) the power of software to "improve productivity," plus a concomitant dollop of fraud to make the books look like one's rosy projections said they would.
The low rates on capital gains just provide the financial getaway car to the scammers. If higher marginal rates really disincentivized the "work" these folks do, that would be a good thing.
#1 Posted by Edward Ericson Jr., CJR on Tue 13 Sep 2011 at 02:33 PM
Ryan beat his commie/liberal drum yet again!
What's wrong with inequality? HUH?
Inequality is a GOOD thing, if it comes about in free societies due to free markets. With equality, you get North Korea - equal helpings of misery for all. No hope, nothing to aspire to. The only way to make such a system work is at gunpoint.
(Of course in North Korea, Cuba and any other commie society that ever existed, you don't really have equality - the government big wigs and party leaders are always more equal than the mere citizens - and the inequality in these commie regimes comes not through freedom, but through oppression)
Inequality in a free society means that people who choose to work hard, innovate or save are rewarded, while those who who choose not to work, not to innovate or not to save are punished. Inequality (due to market forces) is a direct result of a free society. A reflection of choices made by free people.
What the Hell is wrong with that?
#2 Posted by padikiller, CJR on Tue 13 Sep 2011 at 03:32 PM
You truly believe that Paulson is worth 10,000 teachers?
Most "free" people do not understand the level inequality in the US today. And very few people support this level of inequality.
#3 Posted by Thalia, CJR on Tue 13 Sep 2011 at 03:57 PM
This country is not a commie/liberal country.
The American dream isn't about equality. It's about aspiration. And poll after poll clearly shows that the majority of Americans are against the commie/liberal agenda.
This is why the commie/liberals have to resort to undemocratic means to keep the Gravy Train going.
Like by:
Passing Obamacare without anyone actually reading it..
Leaving the state (Wisconsin) and hiding out in a motel in order to thwart the democratic process when the GOP governor and legislature stop the gravy flow.
Refusing to pass a federal budget for more than 2 years while Dems held a supermajority in both houses of Congress and while we had a Dem president.
Slashing tires, shooting out the windows of GOP congressman, intimidating voters, etc.
Dumping the responsibility of cutting spending on yet another "commission" etc.. etc.. etc.
If some guy can make what 10,000 teachers (or lawyers, or bankers, or candlestick makers) earn - good for him, as long as he does it legally. He'll spend or invest that money and create huge numbers of jobs with it. And some teacher (or lawyer, banker or candlestick maker) will aspire to a slice of the pie and compete for some of that money in a free market.
Nothing in history has elevated the human condition to the extent that capitalism has. PERIOD.
#4 Posted by padikiller, CJR on Tue 13 Sep 2011 at 04:15 PM
I suspect Ryan already knows this, but part of the reason lower-income Americans are often taxed overall at a higher rate than upper-income Americans, as he asserts, is that Social Security is highly regressive, as are state & local taxes.
The former is, of course, defended against all critics by CJR, and the latter have exploded over recent decades thanks to unfunded federal mandates and 'matching funds' (i.e., Medicare) and 'investments' that states were left having to maintain. The hardest lesson to teach the inside-the-box Left, stuck in their New Deal/Great Society mental framework of good guys vs. bad guys, is how much their own cherished programs have contributed to the very outcomes they decry. It's true of regulation, and it's also true of tax policy.
#5 Posted by Mark Richard, CJR on Tue 13 Sep 2011 at 04:56 PM
Inequality in a free society means that people who choose to work hard, innovate or save are rewarded, while those who who choose not to work, not to innovate or not to save are punished. Inequality (due to market forces) is a direct result of a free society. A reflection of choices made by free people.
As if the working poor don't work hard. Or deserve punishment.
As if the Wall Street types (who fleeced their shareholders, ruined their companies, and then demanded that the taxpayer save them) deserved saving.
Do you recall getting a choice in saving them? Bailouts were staggeringly unpopular - yet it was done. Wealth transfer to the oligarchs. That's the reality of what you call capitalism. Public wealth subsidizing private avarice and foolishness.
Paddi, you're such a tool.
#6 Posted by Devo, CJR on Wed 14 Sep 2011 at 05:40 PM
Bailouts aren't what I call anything but stupid.
Where did you get the silly notion that I support bailing out anyone or anything with tax money?
You don't know what you're talking about.
It is impossible to be involuntarily "poor" in this country - those who are unable to work are given SSI (cash) benefits, thereby automatically qualifying for food stamps, section 8 housing, and medicaid.
Crack money, steaks and Ho Ho's, a nice trailer, and full medical coverage... Oh, and in most states, you also get utility assistance and a free cell phone, too. All courtesy of the taxpayers..
When the biggest medical problems our "poor" face are obesity and substance abuse, it becomes instantly clear that being "poor" in America has no similarity to being actually, for-real poor...
#7 Posted by padikiller, CJR on Wed 14 Sep 2011 at 05:57 PM
Where did you get the idea I was accusing you of supporting these policies?
I was merely pointing out that this "free market" you claim to worship exists only in your mind. You're denouncing government intervention to help the poor and saying the market rewards work. There are millions of hard working poor Americans who watch their government subsidize Wall Street bonuses at insolvent banks- and those people know you're wrong.
But they're lazy and should get punished according to you. You assert this with a hand wave. Because everyone knows it's true.
But if someone should suggest wrongdoing or malefeasance by a Wall Street banker, you want names, dates and a video reel showing them doing it.
Interesting double standard there.
#8 Posted by Devo, CJR on Thu 15 Sep 2011 at 10:27 AM
"Paddi, you're such a tool."
HEY! That's my line
#9 Posted by Thimbles, CJR on Thu 15 Sep 2011 at 10:59 AM
Mark,
Either you didn't read the article, or you're an economic illiterate. For starters, we're not talking about entitlement programs, we're talking about wealth -- how much of the money you earn that you still have post-tax. The capital gains tax is lower than 5 of the 6 federal income tax brackets, and with most rich people declaring their income as capital gains instead of salary, they're able to keep a higher percentage of their income than low-income and middle-income people.
As for the entitlement programs that you bring up apropos of nothing, the issue isn't their cost, it's how they're funded. Since they were signed into law, the top income tax bracket and the capital gains tax have both been lowered by more than 50% by Republican administrations, in an attempt to defund and kill Social Security and Medicare, an attempt that so far has failed, but has had the side effect of fooling people like you into thinking that they're hopelessly unsustainable.
If you want to support a plutocracy, with one set of rules for the rich and another set for everyone else, that's your right. But you might rethink your decision when you end up in the gutter. Of course, by then it will be too late.
#10 Posted by Jeff T, CJR on Thu 15 Sep 2011 at 02:18 PM
You seem to imply that the "top 400 earners in the U.S." make up ".000001 percent of the population." .000001 percent = 1/100,000,000. One one-hundred-millionth of the U.S. population would be far less than 400 people. 400 people are far more than one-millionth of a percent of the world's population. You're off by two orders of magnitude, so .0001 percent, or 1/1,000,000 of the U.S. population.
#11 Posted by Waciuma, CJR on Fri 16 Sep 2011 at 02:31 AM