THE BLOG
08/31/2015 08:03 pm ET Updated Dec 06, 2017

Trump More Progressive Than Democrats on Warren Buffett Problem

ASSOCIATED PRESS

Donald Trump made a rather startling proposal last week out on the campaign trail, but few in the media noticed. Perhaps this was due to the fact that Trump says so many startling things that the media can be excused for not paying attention to all of them. Perhaps it was because it wasn't as incendiary as many other Trump campaign promises. But for whatever reason, his words merit a lot more attention than they're so far getting, especially from all the Democratic presidential candidates. Because, as things stand, Trump is now more progressive on this particular issue than the entire slate of Democrats.

Don't believe me? Here is what Donald Trump had to say on one particular facet of the income inequality issue. When asked how he would revise the tax code, Trump answered:

I would change it. I would simplify it. I would take carried interest out, and I would let people making hundreds of millions of dollars a year pay some tax, because right now they are paying very little tax and I think it's outrageous. I want to lower taxes for the middle class.

He was then asked whether this would mean he'd be raising taxes on himself. Trump responded:

That's right. That's right. I'm OK with it. You've seen my statements, I do very well, I don't mind paying some taxes. The middle class is getting clobbered in this country. You know the middle class built this country, not the hedge fund guys, but I know people in hedge funds that pay almost nothing and it's ridiculous, OK?

It really pains me to say it, but Donald Trump is right.

For a long time now, many Democrats have been demagoguing an issue that they refuse to address politically, which they could do by supporting a policy which would actually fix the problem. They love to complain about the problem while campaigning, but fixing it is seen as too tough a lift when they have to vote on tax policies. It's usually known as the "Warren Buffett problem" (although the specific "hedge fund guys and the carried interest loophole" problem is kind of a subset of it). Properly stated (echoing the words of countless Democratic candidates): "It's a problem in this country when Warren Buffett pays a lower income tax rate than his secretary does."

What it boils down to is this: some rich people make most (or all) of their money just trading stocks and playing the market. The income tax code treats this money differently than any other money people make. While pretty much any way of making money (working for a salary, selling stuff on eBay, whatever) is treated as "income," profits made from playing the market are treated as "capital gains." Capital gains are taxed at a much lower rate than all the other forms of making money that are available. The highest tax rate for income is just shy of 40 percent. The highest tax rate for capital gains is 20 percent. This is one big reason why people like Mitt Romney can get away with making tens of millions of dollars a year and only paying 14 percent of it on their income tax forms. This is why Warren Buffett pays a lower tax rate than his secretary.

As anyone can plainly see, this is both patently unfair and also a big contributor to the entire problem of income inequality. Hedge funds are merely the most egregious examples of it, as they aren't paid "income" but rather share in "profits," thereby avoiding the normal tax rates firefighters and nurses and secretaries have to pay. The only way to make this fair would be to tax capital gains exactly the same as every other kind of income. Period. No loopholes, no special treatment. Income equals income, dollar for dollar.

This is seen as some sort of radical, wild-eyed proposal in Washington. Rich folks have cut a gigantic loophole out for the way they make their money, and they are going to fight to keep that loophole. Normally, Republicans are the ground forces in this fight, and use any hint of a suggestion of changing this situation as "raising taxes" or "a huge tax hike" and all the rest of that song.

The problem, though, has been that Republicans have so successfully pushed their anti-tax agenda that most Democratic politicians quake in fear of the suggestion of raising any taxes, ever, on anything. They know full well that Republicans will beat them over the head with a metaphorical club if they even hint that they're for raising taxes in any circumstance.

Democrats, in this case, love to complain about the problem without ever truly getting behind the glaringly obvious fix to the problem. Don't want Buffett's secretary to pay a higher rate than his or her boss? Then make him pay the same tax rates off the same tax tables for every dollar he makes! It isn't exactly rocket science.

And yet, there is a profound silence on the problem from the Democratic presidential campaign trail. Hillary Clinton is one of those who love to cite the Buffett problem in speeches, but she has nothing on her campaign's website on the subject of hedge fund managers or carried interest. She has a rather vague promise to make the wealthy pay "their fair share" in taxes, without getting specific. As for capital gains tax rates, she has proposed a tweak in what constitutes long-term versus short-term capital gains, but nothing which directly attacks the Buffett problem. Neither does Martin O'Malley. Even Democratic Socialist Bernie Sanders does not address the issue directly on his campaign site. Sanders would tax certain Wall Street transactions at very low rates (half a percent, for example), but he doesn't directly address the hedge fund problem. Now, to be fair, I should state that I haven't personally read or listened to every speech every candidate has made, so perhaps the issue has been addressed by one or more of them during the campaign. Even so, the issue doesn't seem to be important enough to include on any of their campaign website's "issues" pages -- at least not directly -- meaning it's not all that high-priority for any of them, even if they do support changing the system.

Democrats are doing one of two things, and neither one of them is very impressive. Democratic presidential candidates are either so scared of being called a tax-raiser by Republicans that they do not support changing the problem at all, or they are secretly for changing it but don't want to say that on the campaign trail in fear of being beaten up by Republicans over the issue. As I said, neither one is exactly a profile in political courage.

The only candidate in the 2016 race who is strongly supporting changing this unfair system (at least for the hedge fund managers) is none other than Donald Trump. He's staked out a position that is now to the left of Hillary Clinton and even Bernie Sanders. This should be seen as a problem by Democrats, and it should be getting more attention from the media. Income inequality is at least partially caused by allowing extremely wealthy people to pay half the tax rate everyone else does. As Donald Trump says, "it's ridiculous, OK?" And it's even more ridiculous that Trump's out there championing the issue while the Democratic candidates are keeping quiet about it.

 

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