By James Kwak
“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.