Saying nothing about the quality of the candidate himself, I'm increasingly struck by the economic issues the Mitt Romney brings to the table. Because of his professional background, in no small part amplified by the caustic primary debates (and OWS, and partisan dysfunction, and more), the national echo chamber is filled with debates about the bloated income share of the top 1%, the favorable tax treatment of investment income over paychecks, and whether debt-leveraged private equity firms actually add net value to the economy.
In this regard, I wanted to return to one of the points I made here yesterday: the increase in the use of "pass-through" income. One reason multi-millionaire investors like Gov. Romney face 15% tax rates is because they engage in corporate activities but avoid corporate taxes. They do so by taking advantage of policy changes that have made it easier to pass capital gains through the corporation to their personal income, where, in the case of private equity managers, they tap a double loophole. First, capital gains are taxed at less than half the rate of normal income, and second, even though these gains are really earnings for the fund managers, they get to claim them as capital gains (this is the notorious "carried interest" loophole).
As my Center on Budget and Policy Priorities colleagues Chuck Marr and Brian Highsmith wrote here:
Although businesses operating through C corporations [standard corporations] are subject to corporate taxes, the capital income of non-incorporated businesses is "passed through" to the business owners. These owners benefit from the same tax deductions and credits as do corporations, but are taxed only at the individual level. Over the past half century, and particularly during the 1980s and 1990s, states and the federal government significantly expanded the legal benefits of pass-through entities. These changes have made it easier for firms to operate through such legal structures as S corporations, partnerships, limited liability companies, and sole proprietorships -- while also benefiting from limited liability and other provisions that formerly were available only to corporations.
As you see in the figure, the share of receipts passed through to non-incorporated business has almost tripled since 1980s, up from 13% to 35%.
Source: IRS, (h/t: BH)
Moreover, it's a good example of what happens when you open up these loopholes. The elasticities attached to changes in tax rates are wildly exaggerated by conservatives and trickle downers who argue that the slightest increase will end the economy while any decrease will trigger boom times. The evidence belies their view in terms of jobs, investments, and growth.
But when it comes to sheltering your income (e.g., passing through corporate income to the personal side to tap loopholes like carried interest), how you structure your investment vehicles, your preference for debt over equity financing (debt financing is very much favored by the tax code) -- there you see very significant responses.
The question is, as posed above, does any of this add value -- real value -- to the economy beyond further enriching the rich? It's not a simple question and the answer is probably less obvious than it sounds. There are unquestionably examples of private equity firms that have taken over companies and discovered new efficiencies.
But neither is it a coincidence that the ascendency of this type of economic activity and the policies that support it have occurred during a period of sharply increasing inequality, weak job creation, and stagnant incomes for the middle class.
These are the type of dots we need to keep connecting as this debate progresses and we can thank the former MA governor and his opponents for introducing them so effectively.
The vast majority of the income is generated from activity that serves no real economic purpose.
The value of the OTC derivative market is roughly $600 trillion, 50 times the world's annual GDP. This is where much of the income, gains, etc. of hedge funds, pension funds, investment banks comes from. It's raw financial speculation, bets on other bets that serve no economic purpose. However, it does make the 1% vastly richer.
e.g.
Food prices rose 17.2% in 2009 and 26.5% in 2011. Primarily from index fund speculation, which brings no new investment to increase output of capacity, i.e. no economic purpose. http://www.srfood.org/images/stories/pdf/otherdocuments/20102309_briefing_note_02_en_ok.pdf
Food is but one example, currency, oil, minerals etc. all are part of the shuffling of wealth from hand to hand, sans any economic purpose.
Jeff Madrick: [the former economics columnist NYT]
http://www.abc.net.au/pm/content/2011/s3332160.htm
""I hope the American establishment has the courage to ask one fundamental question; what is Wall Street for? What are they supposed to do?
Do we need a Wall Street that takes 40 per cent of American profits? No way. Let's rethink that. But the American establishment seems anyway afraid to ask that question and we have to start asking that.""
And yet, because of his campaign, he may be more responsible than anybody else if the voters start pushing Congress to increase it.
But we also ought to separate out the distinction between capital gains and wages and salaries. The test ought to be the income we receive. If we receive income from having invested money in a company, or having income (wages) as a result of investing our labor, or knowledge, etc., to a corporation, these should both be taxed at the same rate. The guy who sweats on a construction crew should not be taxed at a higher rate than the guy sititng on a beach while his money is donated to the corporation in return for a return on that donation should pay as income taxes. This would simplify the tax structure, and equalize the way we value contribution to our society. People whose family assets allow generations to live off investments, I believe, should not be rated as more valuable than the labor of joe-sixpack, working in hospitals, etc.
Pr chris
We know that the tax code has been perverted since Reaganomics. Yet no one demands the repeal of Reaganomics.
We are barely able to get support for taxing capital gains the same as ordinary income, despite the fact that is a one line bill that could be passed on a voice vote.
The problem is we have a handful of people who see it our way in Congress, while more than half of them are millionaires who wouldn't vote to end their parking privileges, much less double their taxes.
Just like Dylan Ratigan's repeal of Citizen's United, there is no way across the finish line.
Until OWS.
OWS changed the discussion. OWS will change the Congress.
As said by Will Rogers "Representatives should be changed like underwear, and for the same reasons".
Until the people paying the bills (we-the-people) demand improved efficiencies, lower costs and improved quality it will never happen, just ask the American auto industry circa early 1980's.
Lots of manufacturing is very low margin over several levels. It also pushes companies to do thing internally instead of outsourcing. Fewer, larger, more vertically integrated companies.
I mean ... how does a community organizer carry greater qualifications to deal with significant problems.
I'm NOT a Mitt fan in the least. But I can appreciate what he could bring to the table in 2013 that we do not have now. The man clearly is certainly more qualified than what we have now.
Newt is an idea man, but not really of executive experience. Again, he was a legislator. While he is at least as intelligent as our President, that does not translate to being more qualified. The question is whether Newt would exercise more wisdom than the alternative.
To summarize: if the choice was between Mitt, Newt, or the President, I'd have to give the advantage to Romney.
How does a 3% annual tax sound to you?
Regarding the capital gains rate, there are millions of citizens including most retirees that depend on their dividends to make it on through.
- Smaller Budget + Increased Revenues is the definition of a balanced budget
- a budget is balanced when current expenditures are equal to receipts.
- 11yrs since 1st Bush Tax cut, how can you possibly attack the current POTUS for economic failure without acknowloging the failure of current policy still in effect created by previous POTUS? BHO didn't undermine progress made by Bush tax cuts, that progress doesn't exist. GIVE ME ONE REASON TO NOT END THAT POLICY
- The Bush Tax cuts were not designed to grow the economy... It was all a scam or they were and obviously are still really foolish to believe so. Any "liberal" economics book, a.k.a. economic book says job growth requires demand for services & products (supply side is null without demand side). Call it socialism, people must have money & spend to create demand. These tax cuts are the socialism you despise only into the pockets of those who will not use and do not need them. Taking the kids to Australia with your tax cut doesn't add to demand or help anything. BRING BACK THE STIMULUS, it pays for itself.
- You CAN'T have an argument with current economic policy without admitting to this. Any bi-partisan progress begins & ends here. Get on board...
Bush 1, Clinton and Bush 2, have nibbled around the edges up and down by at most 3%. Clearly these piddly little changes hvae not negated the overall negative impact that Reagan's voodoo economics has had on the American Middle Class these past 30 years.
I think there's a clear and straightforward solution to the "carried interest" issue. Simply let anyone who has investments pay the 13.9% rate that Romney does. What is it about the wealthy that bestows them with the tax break? Of course, think of the outcry from the lawyers and accountants who would lose their jobs if the tax code was made more simple and....dare I say fair in this regard.
Mitt won't be passing along a family farm or business, the two reasons why the Republicans say we can't tax inheritance. Because they claim it will hurt the small business owner (if that small business happens to be Apple) or the family farm (if that farm happens to be located in downtown NYC).
When really the Republicans just want to perpetuate the aristocracy in America today because they don't believe in making the rich earn their way, just the poor.
Already a fan. Fav'd.