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How Romney would screw the ordinary rich.
The
Mitt Romney campaign has pledged that its tax plans—mainly cuts to the
top income-tax rate combined with the elimination of loopholes and
deductions—won’t reduce the tax burden on “the rich.” But who are the
rich? Take a closer look and you see that even if the plan works exactly
as advertised, Romney would transfer the tax burden from the plutocrats
to the orthodontists.
You
see, the top 1 percent has its own top 1 percent—the richest of the
rich—and those lucky enough to count themselves within its ranks would
be the big winners from a cut in the top rate of income tax to 28
percent—and they’d be even bigger winners from Romney’s proposal to
extend indefinitely the present 15 percent rate on capital gains and
dividends.
Meanwhile
the lower 99 percent of the top 1 percent—and the next 2 percent after
them—will lose much more from the removal of the tax deductions than
they will gain from lower rates.
Just
ask Jeff Johnson, a successful businessman in a family-owned company in
the D.C. area. He’s no Occupy Wall Street type. He’s as vexed by the
many lower-income Americans who pay no income taxes at all as he is by
the ultra-rich few who pay 15 percent rates or less. He agrees with
President Obama: somebody has to pay for the roads and bridges that make
America successful. But he wants to know why so much of the cost falls
on him and people like him: not the fabulously wealthy but the ordinary
rich. “Why am I slaving away at W-2 wages?” Johnson wonders. “The
ultra-wealthy don’t care about W-2 wages. They’re working for stock
appreciation, distributions, and so on.”
“People
who are multimillionaires or billionaires have enormous numbers of
things at their disposal, within the law” to avoid tax, says Mike L.,
who works for a mid-size software company that bought the small company
he started with some friends. But such techniques for tax avoidance are
not practical for people like him.
It’s no surprise that President Obama wants to raise the taxes of people like Mike L. and Jeff Johnson.
Here’s what you may not know.
Romney
adviser Martin Feldstein, one of America’s most distinguished tax
economists, recently crunched the numbers of the Romney tax plan in The Wall Street Journal.
Against those who claim that Romney’s tax plan is arithmetically
impossible, Feldstein argues it could be done. All it would take is a 30
percent -reduction in the tax deductions available to everybody
reporting taxable income of more than $100,000.
In
other words, a big tax cut of greatest value to those earning more than
$500,000 a year (the people who pay the top rate on the majority of
their income) will be offset by a tax increase that will fall most
heavily on those who earn between $100,000 and $300,000 of taxable
income.
People
in the $100,000–$300,000 group are likely to think of themselves as
“middle class.” They’re wrong about that: $100,000 of adjusted gross
income puts you into the top 20 percent of taxpayers; at $300,000, you
are richer than 98 percent of your fellow Americans. You might call
people in the $100,000–$300,000 range the “lower upper class.”
When
Mitt Romney talks of capping itemized deductions at $17,000 to finance a
cut in the top rate of federal income tax to 28 percent, he is talking
about paying for a tax cut for the Porsche customer with a tax increase
on the Porsche salesman. Both may be “rich” from the point of view of
the typical American worker. But they are not rich in anything like the
same way.
This
doesn’t mean that we have to defend every deduction in the tax code.
Gradually phasing out the mortgage-interest deduction would be a good
idea on its own merits, encouraging Americans to spend less on their
houses and save more in financial assets. But it does mean that we have
to be more attuned to the huge internal differences within the American
upper class.
A
congressional staffer friend once joked that Congress spends its days
“arbitrating differences between the merely affluent and the genuinely
wealthy.” That may have once been true. But in recent years the merely
affluent have begun to wonder if Washington has gamed the system to make
their lives more difficult while showering perks on the genuinely
wealthy.
Mike L., the software engineer, says that this country has never resented the successful.
That’s
true. But nowadays it sometimes seems that the very most successful
resent everybody else—starting first with the people occupying the rungs
of the ladder immediately below their own.
President
Obama and Senate Democrats have been trying to implement the Buffett
rule, a minimum tax on millionaires, which would remedy the problem of
millionaires being able to pay lower tax rates than middle class
families. One state lawmaker in Iowa thinks his state needs its own
version — the Branstad rule — after Gov. Terry Branstad (R-IA)