Friday, March 6, 2009

Responsibility and the Rich



Republicans of a certain stripe must be tone deaf to the reality of responsibility in government and business. The wealthiest in any society enjoys certain privileges because they also have certain responsibilities. This has been the case since there were aristocracies and nobilities. Unfortunately, human nature being the way it is, most privileged peers are also irresponsible rascals unless they are held accountable by their subjects, in other words, their constituents. It is why democracy works. The past eight years in the Bush administration is sufficient proof that Reagonomics as it was postulated by W leads only to chaos, not trickle down wealth and prosperity for everyone. Recession have many causes, but when money is locked into the numbered accounts of the rich and super rich, instead of circulating in the economy increasing productivity, there is little the government can do to grease the wheel of economic activities.

Julius Caesar and all the other great Caesars of Rome regularly donate to build public works, from public buildings to roads and harbours, to stimulate the economy. The wealthy in the past have also likewise donated to build major public institutions, such as Carnegie University, etc. Warren Buffett and Bill Gates have done great work in the charitable activities, as are many other wealthy individuals. However, the scale of the new economy, running at trillions of dollars, dwarf by comparison the charitable works of the wealthiest 5%.

The taxes introduced by President Obama's budget is merely equalizing the disparity between the rich and the poor. Clearly demonstrated in this article, the 3% increase in marginal rate, on taxable income above $250,000 is insignificant compared to the total income, much less the total net worth of the wealthiest 5% in the richest nation in the history of the world.

For all the noises being made in the media, either the rich are shirking their fair share of responsibility in paying for the society that has given them so much prosperity, or the entourage of the wealthy, as often the case, trying to curry favors by voicing what they believe their patrons would like to hear.

In any case, these irresponsible voices should take heed the lessons of history. Injustice cannot prevail. You can fool some of the people...not all of the people all of the time.

And to think, if all those making over $300,000 in taxable income, instead of whining and crying about the extra $2,000 of taxes that they will pay, would go out and do what Danny Cottrell did in Brewton, Alabama. If these rich people would take $16,000 in $2 and give to twenty or thirty people who work for them everyday, and tell them to go spend it in businesses to stimulate the economy, the economy will be booming in no time.


To hear conservatives tell it, you'd think mobs of shiftless welfare moms were marauding through the streets of Greenwich and Palm Springs, lynching bankers and hedge-fund managers, stringing up shopkeepers, and herding lawyers into internment camps. President Obama and his budgeteers, they say, have declared war on the rich.

On Tuesday, Washington Post columnist (and former Bush speechwriter) Michael Gersonargued in an op-ed that "Obama chose a time of recession to propose a massive increase in progressivity—a 10-year, trillion-dollar haul from the rich, already being punished by the stock market collapse and the housing market decline." The plans are so radical, "there will not be enough wealthy people left to bleed." CNBC's Larry Kudlowwrote that "Obama is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds." Other segments on the financial news network warn of a tax on the rich, a war on the wealthy. My personal favorite was a piece from, which had to be rewritten and reposted because the original was so poorly done. (The revised version isn't much better.) It quotes a dentist who is contemplating reducing "her income from her current $320,000 to under $250,000 by having her dental hygienist work fewer days and by treating fewer patients. [That way, she] would avoid paying higher taxes on the $70,000 that would be subject to increased taxation if Obama's proposal is signed into law."

It's hard to overstate how absurd these claims are. First, let's talk about the "massive increase in progressivity" that Gerson deplores. It consists largely (but not exclusively) of returning marginal tax rates to their levels of 2001, before Gerson and the epically incompetent Bush administration of which he was a part got their hands on the reins of power. Obama wants to let marginal rates for families with taxable income (not total income, but taxable income) of more than $250,000 revert from 33 percent to 36 percent, and to let the top rate—currently 35 percent on family income above $357,000—revert to 39 percent. (Here are the current tax tables.) There's also talk of capping—not eliminating, but capping—deductions on charitable giving and mortgage interest.

Obama's proposals don't mean the government would steal every penny you make above the $250,000 threshold, or that making more than $250,000 would somehow subject all of your income to higher taxes. Rather, you'd pay 36 cents to the government in income taxes on every dollar over the threshold, rather than 33 cents.

Second, this return to 2001's tax rates was actually part of the Bush tax plan. The Republicans who controlled the White House and the Republicans who controlled the Congress earlier this decade decreed that all the tax cuts they passed would sunset in 2010. They put in this sunset provision to hide the long-term fiscal costs of the cuts. The Bush team and congressional supporters had seven years to manage fiscal affairs in such a way that they would be able to extend the tax cuts in 2010. But they screwed it up. Instead of controlling spending and aligning tax revenues with outlays, the Bush administration and its congressional allies ramped up spending massively—on two wars, on a prescription drug benefit for Medicare, on earmarks, etc. Oh, and along the way, they so miserably mismanaged oversight of Wall Street and the financial sector that it required the passage of a hugely expensive bailout. Even before the passage of the TARP, the prospect of extending all the Bush tax cuts was a nonstarter. Once Bush signed the $700 billion bailout measure into law, extending tax cuts was really a nonstarter. The national debt nearly doubled during the Bush years. So if you want to blame someone for raising taxes back to where they were in 2001, don't blame Obama. Blame Bush, his feckless Office of Management and Budget directors, his economic advisers, and congressional appropriators like Trent Lott and Tom DeLay.

Third, we know from recent experience that marginal tax rates of 36 percent and 39 percent aren't wealth killers. I was around in the 1990s, when tax rates were at that level, and when capital gains and dividend taxes were significantly higher than they are today. And I seem to remember that we had a stock market boom, a broad rise in incomes (with the wealthy benefitting handily), and strong economic growth.

Fourth, we also know from recent experience that lower marginal rates on income taxes, and lower rates on capital gains and dividends, aren't necessarily wealth producers. The Bush years, which had lower marginal rates and capital gains taxes, were a fiasco. In fact, if you tally up the vast destruction of wealth in the late Bush years—caused by foolish hedge funds, investment banks, and other financial services companies, it seems like the wealthy have in fact been waging war on one another.

Finally, there has been a near total absence of discussion of what higher rates will mean in the real world. Say you're a CNBC anchor, or a Washington Post columnist with a seat at the Council on Foreign Relations, or a dentist, and you managed to cobble together $350,000 a year in income. You're doing quite well. If you subtract deductions for state and property taxes, mortgage interest and charitable deductions, and other deductions, the amount on which tax rates are calculated might total $300,000. What would happen if the marginal rate on the portion of your income above $250,000 were to rise from 33 percent to 36 percent? Under the old regime, you'd pay $16,500 in federal taxes on that amount. Under the new one, you'd pay $18,000. The difference is $1,500 per year, or $4.10 per day. Obviously, the numbers rise as you make more. But is $4.10 a day bleeding the rich, a war on the wealthy, a killer of innovation and enterprise? That dentist eager to slash her income from $320,000 to $250,000 would avoid the pain of paying an extra $2,100 in federal taxes. But she'd also deprive herself of an additional $70,000 in income!

Can she, or we, really be that stupid?

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