By James Kwak
After David Brooks last year, now it’s James Stewart who has fallen for Paul Ryan’s rugged good looks. He attempts to defend Ryan’s tax proposals against charges that they favor the rich:
“To me it sounds like a proposal to raise [the wealthy’s] taxes by depriving them of cherished ‘loopholes,’ to use the proposal’s word. . . .
“There’s no getting around the fact that a 25 percent rate on the top earners would nearly double Mr. Romney’s effective rate and more than double it for the 101 of the top 400 taxpayers who pay less than 10 percent, assuming the loopholes are indeed closed.”
Stewart is at least smart enough to realize that a 25 percent rate is only a tax increase if you eliminate preferences for investment income (capital gains and dividends, currently taxed at a maximum rate of 15 percent):
“Despite Mr. Ryan’s reluctance to specify which tax preferences might have to be curtailed or eliminated, there’s no mystery as to what they would have to be. Looking only at the returns of the top 400 taxpayers, the biggest loophole they exploit by far is the preferential tax rate on capital gains, carried interest and dividend income.”
So give Stewart credit for knowing the basics of tax policy. But he is basically assuming that Ryan must be proposing to eliminate those preferences: “there’s no mystery as to what they would have to be.”
Only they aren’t. Stewart quotes directly from the FY 2012 budget resolution authored by Ryan’s Budget Committee. But apparently he didn’t notice this passage:
“Raising taxes on capital is another idea that purports to affect the wealthy but actually hurts all participants in the economy. Mainstream economics, not to mention common sense, teaches that raising taxes on any activity generally results in less of it. Economics and common sense also teach that the size of a nation’s capital stock – the pool of saved money available for investment and job creation – has an effect on employment, productivity, and wages. Tax reform should promote savings and investment because more savings and more investment mean a larger stock of capital available for job creation.”
In other words, taxes on capital gains should not be increased, but if anything should be lowered.
Stewart assumes that Ryan wants to raise capital gains taxes because that’s the only way to justify a 25 percent top rate as anything other than a massive giveaway to the rich. But Ryan himself has said he doesn’t want to raise capital gains taxes.* It really is a massive giveaway to the rich. The reason Ryan won’t specify the “loopholes” he wants to close is that he can’t: if he made a list of tax expenditures to eliminate but didn’t touch the preferences for investment income, it would be patently obvious that he is waging class warfare on behalf of the 1%.
Like David Brooks before him, Stewart has fallen into the trap of believing that Paul Ryan is something other than a charlatan and a political hack. There are real tax reform proposals out there, like Domenici-Rivlin, which would cut the top rate to 27% but tax capital gains as ordinary income). I don’t agree with Domenici-Rivlin because I think now, with looming structural deficits ahead, is not the time to cut tax rates. (In White House Burning, we propose to reduce or eliminate preferences for investment income, mortgage interest, sales of homes, employer-provided health care, charitable contributions, state and local taxes, and state and local bonds, among others.)
But Domenici-Rivlin is at least worth discussing. Paul Ryan’s “proposal” is simply a transparent assault on ordinary Americans on behalf of the rich.
* How Stewart missed this is baffling, since the passage I quote is from page 51, and Stewart quotes directly from page 50.
The Baseline Scenario 
I haven’t read WH Burning, yet. But, I would agree with the proposals you listed.
I did just finish Michael Lewis’s “Boomerang”, which I thought was very good, especially the last chapter.
One thing that is being forgotten about capital gains taxes is how raising them for everyone hurts people below a certain income threshold. My wife and I are retired and living on the income of investments. We have some we have held for a long time and would like to liquidate but even the 15% tax would be a pretty big hit for us. Our annual income is in the $35-40 thousand range with taxable income somewhat less. I would totally support raising the capital gains taxes on people whose incomes exceed a certain amount, say $250,000 because they are the ones that benefit most from the low rate and need it the least.
We on the other hand need to have access to those investments to help cover medical costs and other unexpected expenses but a blanket increase on all capital gains incomes would be a double hit to us because we not only lose equity but also get hit with a high tax bill if we have to sell enough to cover unexpected or uncovered medical expenses or other unforeseen expenses.
An intelligent debate about tax rates on investments has to acknowledge that there is a large segment of the population that isn’t wealthy that relies on money put away for retirement who would be hurt by your proposals and not really helped by Ryan’s. In your case I think it is just careless thinking, in Ryan’s case he’s shilling for the wealthy.
If you’re going to defend those of us in lower income brackets please understand that we don’t all earn that income outside of the investment arena. If you want to tax the rich by all means tax the rich but please, remember the rest of us.
paddler, fortunately for you, you and your wife are in the 15% tax bracket with plenty of head room before getting to 25%. The tax rate on long term capital gains for those in the 15% bracket or lower is 0%, so you would not have to pay any tax on your gains.
Gotta ask, how much LESS do folks realistically think they can pay in taxes and still live in anything resembling a society?
In all sincerity, congrats that you have spent your life accumulating wealth that you can now draw upon when you need it for medical and living expenses. Why wouldn’t you expect to provide the government with tax revenues from that investment income? Heck, why wouldn’t you _demand_ the opportunity to contribute back into the coffers to ensure that your and your spouse’s elder years will be good ones?
Like it or not, friend, your country (and that includes your federal and state governments) provided the culture that allowed you to save money, make investments, and retire. Now it’s your duty to give back so that the next generation of citizens have similar opportunities. Asking you to pay, say, a third of that investment income to the government that enabled you to live safely and comfortably is hardly excessive.
So now what, the BUSH TAX CUTS aren’t going to expire – again?
I don’t like the sentence, “Like David Brooks before him, Stewart has fallen into the trap of believing that Paul Ryan is something other than a charlatan and a political hack.” It implies that both Brooks and Stewart are speaking in good faith, that they actually believe what they say they believe, and I don’t think that’s the case. I think they pretty openly play for Team Republican, and therefore feel perfectly free to lie about everything all the time. I think they would be a better fit for Fox News or the Washington Post than for the NYT, although the Grey Lady is pretty right-wing nowadays.
James, there’s a very simple solution that would benefit everyone except CPAs: index capital gains for inflation, and tax them as ordinary income. We want people to make long-term investments. This would be an inducement to do so.
Dividends should be treated as an expense. They are a way for a corporation to raise capital, just like debt. The income from them should be treated as ordinary income.
Same for carried interest.
Thank you so much for this! I was wondering just the same when I saw Ryan’s very stylish picture with a very supportive article on the NYT.com home page.
The Times seems to be generally in a swoon about the latest “conservative” star. For two if not three weeks in a row, Santorum was front and center on the Sunday NYT front page. They seem to save their “tough” reporting for Obama.
Why discussions on income and capital taxes, and none about wealth taxes? The majority of my wealth is in residential real estate. I am taxed one percent per year. This is in addition to capital gains and income taxes on these same investments. Small businesses are similarly taxed on their wealth. Automobile taxes are also wealth based. The one percent only have a tiny fraction of their wealth taxed in a similar fashion. Why isn’t the conversation about a “flat tax on wealth” of say one-half percent a year?
Only the middle classes pay wealth taxes and the rich want it to stay that way.
James, taking less of something from someone is not giving – it’s taking less.
Yours,
G. Orwell
i personally think paul ryan and his budget is a bit safe with the wealthy still protected.Look at Australia with the wealthy Australians being targeted ( http://www.australianbusinesstimes.com/
) even though they are in a mining boom. The tax laws need drastic changing for sure
Thanks
jeff
Let the market decide how much to consume, to invest, and in what. How about a constitutional amendment that prevents discrimination in taxes – tax law would only discern on level of income and not source of income, deductions would be limited too. That should get Congress out of writing tax law for lobbyists. It might get Libertarian support.
A way to raise support for not discriminating by income type could be a quid pro quo of repealing the unpopular alternative minimum tax (and as suggested, treat dividends as a business expense). The AMT is shifting the tax burden of high asset individuals onto the many more high income wage earners. If the AMT payers understood this, they might not support the lower capital gains and inheritance rates.
I look forward to reading your book.
From the Ryan budget, quoted above: “Mainstream economics, not to mention common sense, teaches that raising taxes on any activity generally results in less of it. ”
Actually, common sense, if not mainstream economics, says that there has never been and never will be a rich guy who won’t go for the chance at more money, no matter how it’s taxed. Can anyone point to wealthy investors who took all their marbles and went home during the ’50s when the top marginal tax rate was around 90%?
I can understand taxing capital gains at a (very) small discount to recognize the inherent risks of investment. Likewise, the retired who are on fixed incomes or those below a particular income level (say, $250K) should not have to be taxed at the same rate as millionaires. That, after all, would be the hallmark of any tair and progressive tax system.
But I’d really like to see someone debunk the central claim of Republicans that higher taxes will make investors, businessmen and entrepreneurs suddenly decide that making more money is not worth the trouble. If the investment is right and business is strong, no one will walk away from the action just because the tax rate is higher.
I totally agree that gay guys are worldwide culture and style leaders, but please, James, let’s not mix things up and blame the mindless followers of Republican voodoo economics on Ryan’s “rugged good looks!”
The only reason that I can see for lower taxes on capital gains is inflation. The longer the period, the more the gain is affected by inflation and inflation is not real gain.
Ryan would have us (the rubes, to him) believe that a 1% tax, or a 1% increase in a tax, is a significant drag on whatever activity is taxed. The implication is that there is a straight-line graph of increased taxation v. reduction of activity. And he knows damn well that this is not so.
I remember well when I started working in a technical occupation after years of struggling to get by on restaurant salaries. I immediately started working less, then a lot less, as my income rose and I went not higher tax brackets. Except that that is not true, I worked harder and longer at these jobs than I ever did in a restaurant. Ryan is full of shit and shills for his backers. And I don’t buy the Ayn Rand true believer crap. He knows he’s full of shit.
@Russell, “…Only the middle classes pay wealth taxes and the rich want it to stay that way….”
By doing this, the most fundamental aspect of human nature is being thwarted – the RIGHT to make our lives less miserable through HONEST WORK. No one gave these cretins PERMISSION to act as a predatory hyena cabal in the hard-earned institution that DEFINES civilization – a *government*.
Vote the freekin’ monsters out, and if they won’t go – like Scott Walker – then show up en masse in the street and escort him to the edge of town.
“…I totally agree that gay guys are worldwide culture and style leaders…”
Duly noted and a lot of women are re-evaluating their *qualifications* as *culture* leaders after noting their deafening SILENCE during the merciless hysteria launched against woman’s health care in this campaign year…yup, hard times define who *friends* really are…
The NY Times is an integral and important cog in the propaganda Wurlitzer orchestrated by supra-governmental agencies like CIA (see its’ webpage about CIA being an independent agency…..truer words were never spoken). This need not take the form of a giant conspiracy, either, according to investigative journalist Russ Baker.
Russ Baker explains all it takes is a mindset, and the rest is fairly perfunctory and rote.
In my 20’s, from the Times I believed I was getting “news”; in my 40’s all my super-fine antennae began detecting flies in the punch bowl; the leadup to Iraq confirmed my worst suspicions. It’s now reached the nadir of kitty box liner, since the neocon crazy faction is so apparent throughout the paper.
So, Kwak, that the once-decently readable NY Times has morphed into something horrendous, even given my sister’s defiance of the Science and Arts pages still managing to salvage the rest of the mess. The latest mess is the complete botching of the violence in Syria, no surprise there.
Pau Ryan speaks with a forked tongue, and his blather about cutting goodies with parallel rate increases is DIAMETRICALLY OPPOSED by the Koch boys, who own Ryan like most people own a box of Annie’s Cheddar Bunnies.
For a more enjoyable web access, I suggest the LA Times, even for east coasters….but forget the NY Times, it’s verily a poison pawn on so many levels.
David Brooks didn’t fall for anything. Brooks is a charlatan and political hack himself.
This is Mark Steyn’s cut on where America is going, Paul Ryan’s
budget and an interesting perspective on attempting to budget forecast
for the future:
http://www.nationalreview.com/author/200428/latest
“…Yet it’s widely agreed that Ryan’s plan is about as far as you can push it while retaining minimal political viability. A second-term Obama would roar full throttle to the cliff edge, while a President Romney would be unlikely to do much more than ease off to third gear. At this point, it’s traditional for pundits to warn that if we don’t change course we’re going to wind up like Greece….. But these comparisons tend to understate the insolvency of America, failing as they do to take into account state and municipal debts and public pension liabilities. When Morgan Stanley ran those numbers in 2009, the debt-to-revenue ratio in Greece was 312 percent; in the United States it was 358 percent. If Greece has been knocking back the ouzo, we’re face down in the vat. …”
I kinda like the broad overview Steyn brings to his thinking and the wit he brings to his writing. ….Lady in Red
“Economics and common sense also teach that the size of a nation’s capital stock – the pool of saved money available for investment and job creation”
Another guy who doesn’t understand the difference between real and financial capital. Woe is us!
No way to pay back the TOXIC derivatives that got put into *commercial* banks accounts – face the FACTS.
They leveraged 100 to 1 to bankrupt town and state budgets by throwing everybody out on the streets after taking all the payments and downpayments and TAXES paid over years – meaning that $$$$ PAID into mortgages by the stupid schmucks who *failed* at homeownership – did not even buy them a piece of the house – if 40% was paid into the total before they went into the wood chipper as an unclean and unwanted *worker* and were foreclosed upon, do they get to collect 40% of the rent?
And PULEEZE don’t bring up the sub-prime monkey see monkey do white trash arm of the whole MESS – the rot was at the TOP and trickled down to the *enronista* arm of the *service economy*….
This was the biggest rip-off in the history of the world and trust me, it has a very FINITE life span left…capitalism where YOUR money does not buy you anything – no ownership rights – because some master of the universe – at 100 to 1 leverage – just used YOUR *savings* to wipe you off the economic map…
Just the facts, Ma’am….
Yup, USA sure is a *safer* place now, more *moral*, healthy, and reaching full potential within this economy – trot in the multi-trillion $$$$ created Jem’Hadar to *go syria* on anyone who *sees* otherwise…
Some countries would not exist (GREECE is not one of them, btw) if there was a halt to GLOBAL Ponzi schemes – trying to convince USA that it’s us – yeah, good luck with that head game…
paddler: a change to tax capital gains as ordinary income would not hurt you much, assuming that your current income is interest and dividends, which are already pretty much counted like ordinary income.
There is a certain amount of a need to protect people from having to pay income tax on the inflation on the value of their home when they sell it. If I’ve got an asset that I had to pay for over 30 years, and its value has kept up with inflation for 30 years, and I want to sell it to buy an asset of comparable value, I’m going to take an enormous hit for the cost basis adjustment. On the other hand, it probably makes more sense to have a generic mechanism for making or avoiding cost basis adjustments if you tax capital gains as ordinary income; adjusting the investments in your retirement portfolio shouldn’t mean that you pay all of the taxes then, rather than as you get the money out.
“…Like David Brooks before him, Stewart has fallen into the trap of believing that Paul Ryan is something other than a charlatan and a political hack….”
Wouldn’t such a realization by Brooks raise the possibility of his having a similar, but ego-shattering, realization upon catching his own reflection in a mirror?
@Woop – only a man who actually likes women, in general, knows how to cut through a lot of her sturm und drang with subtle, I’m-with-you humour
“….Annie’s Cheddar Bunnies…”
:-))
From wiki – “…Sturm und Drang (German pronunciation: [ˈʃtʊʁm ʊnt ˈdʁaŋ], conventionally translated as “Storm and Stress”[1]) is a proto-Romantic movement in German literature and music taking place from the late 1760s through the early 1780s, in which individual subjectivity and, in particular, extremes of emotion were given free expression in reaction to the perceived constraints of rationalism imposed by the Enlightenment and associated aesthetic movements….”
And they’re going to pump and dump Annie’s stock – go figure…then *short* it, then the vulture’s come in to creatively destroy it – pretty much the history of anything *organic*, so far…
All *isms* fall apart when confronted with the FACT that every human being has the right to make their lives less miserable through HONEST WORK.
Slamming down the financial security and future of the *middle class* below the global war lords, drug lords and slave lords is iniquity. A clear cause for a Just War….