Mitt Romney’s newly released tax returns, showing that he paid taxes in 2010 at a rate of just 13.9 percent on income of $21.6 million, should provide ammunition for President Barack Obama’s newly rediscovered populism. Obama is on record supporting a “Buffett Rule,” that the boss should pay at least the same tax rate as the help.
In the watered down economic dialogue of 2012, a flat tax rate rather pitifully passes for the progressive position. Not so long ago, progressives were of the view that the more money you made, the higher your rate should be. The tax schedule should be, well, progressive. The original presidential sponsor of this concept was that Bolshevik, Theodore Roosevelt.
That view of progressive taxation was widely held and was public policy in America, until the supply-side revolution of the Reagan era and its claim that lower taxes on dividends, interest, and capital gains would reward, and hence promote, investment and growth. Unfortunately for the theory, taxes, savings, investment, and growth were all higher in the golden postwar era of progressive taxation.
But the policy lives on. And Romney, as beneficiary of the supply-side mythology, gets to pay taxes at a rate of just 15 percent, because most of his income is from capital. If it had been in the form of salary, he would have paid 35 percent. His effective rate falls even further thanks to his charitable deductions.
By contrast, the typical worker pays a higher income-tax rate and payroll taxes on top of that. Since payroll taxes are collected on only the first $107,000 of wage and salary income, Romney’s effective payroll tax rate is close to zero, while the typical worker is socked for nearly 8 percent on top of income taxes.
Romney also benefits from the fact that his deferred income as a former partner in Bain Capital is sheltered from taxation in multiple ways. Bain gets to deduct the interest costs on its highly leveraged buyouts, and then its investors have their profits taxed at capital-gains rates rather than as ordinary income.
Romney, in short, is the poster child for everything that is outrageous about both the American tax system and the way that financial engineers get very wealthy at the expense of regular people who are over-taxed when they are working and then disposed of when they prove inconvenient.
In many ways, the tax returns released by Newt Gingrich, which in turn compelled Romney to release his, are at least as instructive as Romney’s. Gingrich made a cool $3.16 million in 2010, not quite in Romney’s league, but enough to put him in the top one-tenth of the one percent.
Gingrich made his millions—more than $100 million in a decade according to The Washington Post—as an inside influence peddler. Through his “Center for Health Transformation,” he was paid lavishly for making connections between the health industrial complex and key legislators. And in his role as “historian” for Freddie Mac, he helped that agency work its Republican contacts. Gingrich, at least, paid taxes at a rate of about 31 percent.
So we have one Republican candidate that represents everything wrong with the financialized business culture and its tax favoritism, and another who epitomizes how leading Republicans service that business culture as power brokers.
Ideally, as the contest drags on, Gingrich will keep savaging Romney’s faux-business acumen and his low taxes; and Romney will keep exposing Gingrich as the cynical insider power broker posing as the outsider candidate of change.
Better yet, the next big primary is in Florida, ground zero of the subprime collapse, a catastrophe for ordinary people created by the corrupt rendezvous of the power-broker culture and the financial-engineer culture.
If we had a Democratic president who was a robust progressive, he would be going to town on the Republican role as defender of a corrupt business elite and a tax system that rewards paper shufflers and punishes productive workers.
But Obama himself has been just enough in bed with Wall Street that the clarity of the story gets blurred. His political handlers may be calling for more populism, but not his major donors. As Gingrich and Romney go for each other’s throats, Obama’s people are frantically trying to close a deal between state attorneys general and bankers, in which future banker liability is curtailed in exchange for a token contribution toward mortgage relief.
In this ideological confusion, voters don’t know quite whom to blame, and the Republican fake populism impresses many. The New York Times, reporting on attitudes of Florida voters, quotes a voter named Carlos Triana, who is furious at the housing implosion, as saying, “I can’t explain the housing crisis, but I know if the economy was better, everything would be better.” Triana plans to vote for Mitt Romney and low taxes, job-displacements courtesy of Bain, notwithstanding. Other frustrated social conservatives will vote for Gingrich, giving him a pass on the cynical influence peddling and the serial adultery.
Seldom have Democrats had more vulnerable Republicans to epitomize how the GOP harms the average person. Tonight, in the State of the Union address, we will see whether Barack Obama can find a robust progressive message or just a set of slogans reserved for emergency use in election years.