Taking the Republican Candidates to Task: (1) on Taxes
One consequence of the Republican Party’s current propensity to select its presidential nominee by the political equivalent of American Idol is that we are regularly exposed to sound-bite answers designed to differentiate one candidate from another. Both the brevity of the answers, and the enthusiasm for differentiation, come however at a cost. They obscure the degree to which the candidates share common positions; and they obscure the extent to which each candidate already has a well-developed policy package to offer to the American electorate.
Regardless of the impression left by the endless debates and the perennial campaigning, these candidates actually agree more than they disagree on the issues that matter most to them: taxation, regulation, and federal spending. They all want all three severely cut! Romney, Gingrich and Santorum share a common hostility to gay marriage and to a woman’s right to choose, even lately supporting new barriers to ease of access to contraception. Additionally, all the candidates advocate an end to bank regulation in its Dodd-Frank form, and the repeal of the Affordable Care Act; and all but Ron Paul offer basically the same critique of the Obama Administration’s foreign policy. They see it as weak, and insufficiently belligerent. Moreover, it is not just policy that they share. They also share silences and delusions. All of the men currently campaigning for the Republican presidential nomination say remarkably little about the home foreclosure crisis, beyond their willingness to see market forces enjoy full play; and all of them pretend that it is possible to prune federal spending heavily without eroding the already meager American welfare net, or without undermining the adequacy of pension provision for those not yet aged 55.
While the traveling Republican circus continues in its drawn-out pursuit of a winner, the policies which will be pursued by whichever Republican wins go largely unchallenged by a mainstream media preoccupied with the immediate details of the show. Yet the data to refute many of the policy claims made by the Republican presidential candidates already exists in abundance. So in a series of linked postings, of which this on taxation policy is the first, that data will be brought together in an organized and accessible form, hoping in that way to help tip the public conversation away from the beauty contest and towards its consequences.
Each of the main Republican contenders has a set of taxation proposals at the heart of his program – proposals united by two shared premises: that current taxation is too high, particularly on the rich and on corporate America; and that reducing the rate and volume of taxation will trigger renewed private sector investment and associated job growth.
Mitt Romney would make the Bush tax cuts permanent, eliminate taxes on long-term capital gains for those earning less than $200,000, and reduce corporation tax from 35% to 25%.
Newt Gingrich would make the Bush tax cuts permanent, or allow taxpayers to pay a flat 15% tax rate while paying no tax on capital gains and dividends, and cut the corporate tax to 12.5%.
Rick Santorum would make the Bush tax cuts permanent, cut the individual tax rates to just two (10% and 28%), reduce capital gains and dividends tax from 15% to 12%, and cut the corporate tax to 17.5% (and to zero for manufacturing industry).
Ron Paul would extend the 2001-10 tax cuts, eventually replace income tax with a flat tax, and cut the corporate tax to 15%.
So what could possibly be wrong with that? This much at least:
1) Current levels of personal taxation are not high by either historical or comparative standards. They have been higher in the U.S. in the past. They are lower in the U.S. now than in many of our major competitors; and neither here nor abroad did/do higher taxes correlate directly with poor economic performance. Just the reverse in fact. When the United States was creating more than twenty million new jobs in the 1990s, taxation was at the pre-Bush cut level; and as taxation went down in the eight years of the Bush II presidency, so too did the scale of job creation (not even four million overall). The result has been that now – amid the highest level and most prolonged period of unemployment that we have seen in the entire post-war period – the U.S. tax-take is actually at a 60 year low. The proportion of GDP flowing to the federal, state and local governments in the form of individual and corporate taxation (28.3% in 2007) is at its lowest for 40 years, and the federal tax-take part of that – at only 14.4% in 2011 – is at its lowest level since 1950. That 28.3% figure is far lower than its equivalent in more successful economies such as Norway (43.6%), Germany (36.2%) or Sweden (48.3%): indeed in 2007, only Mexico, South Korea and Turkey of the OECD countries had a lower government tax-take than we did. Many more highly-taxed economies are currently more successful than we are, no matter what Republicans candidates tell their party faithful about the poor economic performance of “socialist Europe”. Unemployment rates in Norway are currently 3.3%, in Germany 5.5%, and in Sweden 7.4%. Ours is still well over 8%. And per capita income in Norway – at $54,600 in January 2011 – outstripped per capita income here in the United States by over $5000. The low welfare economies of southern Europe are in crisis now – the Republicans are quite right about that – but the high welfare spending economies of the European north most definitely are not. They are currently outperforming us on growth rates and job protection: so much for the supposedly economic consequences of high taxation!
2) Taxation rates on the rich are not excessive. The actual tax-take from this economy’s very highest earners is certainly not as high as the official tax rates suggest, nor as those rates have been in the immediate past. The top tax rate in 1945 was 94%. It was still in the 90% range right through the fast-growing 1950s. Dropping the highest rate of income tax to 25%, as the Republican candidates now plan, would take it to its lowest level since 1931. Moreover, as Republican Senator Tom Coburn recently documented in detail, the rich have many tax loopholes and subsidies which they alone are well-placed to exploit – all of which serve to bring the real rate of income tax on the rich down far below the official figure. The super-rich rely far more than do ordinary Americans on income from capital gains, and that income is already taxed at a lower rate (currently 15%) than that on top rates of income (25% to 35%). Far from the U.S. tax code being particularly burdensome on the rich, it is actually progressive only for low-income earners: indeed the Congressional Research Service has recently calculated that “a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers,” and that “roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderate-income taxpayers.” Moreover, those at the very bottom of the American income distribution – those earning too little to pay income tax at all – still pay other forms of indirect taxation, such that the percentage of their income “lost” in tax is ultimately as great/greater than that “lost” by the very rich. All that in an economy and society in which income inequality is at historically high levels and is currently still increasing. Mitt Romney’s own personal tax record is illustrative of this set of general truths. The bulk of his income comes in the form of capital gains. Some of that capital is tucked away in tax havens abroad. That which is not so tucked away is taxed at the lower capital gains rate; and though the Governor did pay income tax on his speaking fees in 2011, those fees (at $374,327) were themselves more than seven times larger than the U.S median income! Whatever loads the American rich are currently carrying, a heavy tax burden is certainly not one of them.
3) Nor do U.S. corporations habitually pay the much cited 35% tax rate deemed by Republican politicians as the key to their current inability to generate employment. The data on this is clear and unambiguous. Two-thirds of all U.S. corporations currently pay no federal taxation at all. Bank of America, for example, has paid no federal taxation in the last two years, in spite of receiving from the federal government $1 billion in tax “benefits” and a huge TARP bailout. Indeed, the number of “U.S. corporations organized as nontaxable businesses has grown from about 24% in 1986 to about 69% as of 2008, according to the latest available IRS data.” Many large U.S. corporations go off-shore to avoid tax requirements here. Some even combine substantial profits with IRS rebates! The examples are legend: a rebate of $156 million in 2009 to Exxon Mobil, $4.1 billion to General Electric, $19 million to Chevron – all companies making healthy profits. Nor are their fellow corporations short of profits or indeed of cash,. On the contrary, they are unusually flush with both. “In the U.S. non-financial corporate sector…the balance sheet recession has long been over. Profit margins are at record levels thanks to savage labor shedding and companies are awash with cash.” What U.S. non-financial corporations are short of is a willingness to hire new staff; and that unwillingness – as a series of reports that take in small and medium size business as well as the large corporations – makes only too clear, is rooted not in any tax burden but in a lack of confidence by business owners that they will be able to sell any increased output they generate. Lack of demand from the bottom of the economy, not an excess of taxation at the top, is the current key block on a return to rapid economic growth and full employment.
The counter-argument to the candidates’ tax-cutting proposals should therefore be two fold. They and their supporters need to be told, first, that cutting taxes at this point in the economy’s fragile recovery is neither necessary nor desirable. They need to be told, second, that cutting taxes in the way they propose stands a fair chance of slowing down that recovery, by deepening still further the already excessive scale of income inequality in the United States. You don’t generate generalized prosperity by easing taxation on the rich and by pruning programs for the poor – trickle-down economics has a proven record of failure – yet benefiting the rich and hitting the poor is precisely what each of these candidates is planning to do. Each of their proposed tax packages is regressive. Each gives more to the rich than it gives to the poor.
Mitt Romney’s plan – the most moderate of the three – would give an extra $69 a year to anyone in the bottom 20% of income earners, and maybe save a middle-income American $1,400 a year; but it would save $146,000 a year for anyone in the top 1% of income earners.
Rick Santorum’s plan’s, by contrast, would give top income earners an extra $341,000 a year;
Newt Gingrich’s plan would give the top 1% a $422,000 tax cut;and though
Ron Paul is very difficult to pin down on this (he periodically talks of punishing those who got us into this mess) his proposed abolition of income tax would, if implemented, represent a huge reduction in the amount of taxation paid by those at the very top of the income ladder.
Moreover, each tax proposal currently on offer in the Republican presidential race would add significantly to the very federal deficit that the Republican Party claims to be so determined to lower. “Relative to the inadequate revenue levels collected by current tax policies,” as Andrew Fieldhouse has recently noted, the tax plans of the four remaining Republican presidential candidates “would lose between $180 billion and $900 billion in 2015 alone – or between 1.0 percent and 4.9 percent of GDP.” The Romney plan is the least damaging to existing tax revenue levels of the four currently on offer. Ron Paul’s plan, and that of Santorum, are the most damaging: with, as Fieldhouse correctly notes, Newt Gingrich giving “Santorum a run for his money with a tax plan that would lose $850 billion, or 4.6% of GDP.” And it is striking in this regard that the extreme concern that Republican presidential candidates purport to feel about the size of the federal deficit over the next decade has not yet persuaded any of them to support the abolition of the Bush-era tax cuts, even though it is those tax cuts which remain the key obstacle to any speedy return to fiscal sustainability. The full continuation over the next decade of the Bush tax cuts they so fiercely defend will not only reduce federal revenues by $3.8 trillion (a cut of 9.1%). The full continuation will also add to federal expenditures – at $657 billion, a 15.5% addition to the total cost of servicing overall federal debt.
All this tax largesse, while the four Republican contenders are simultaneously endorsing the full gambit of the budget proposals made by Congressional Republicans to reduce that deficit, not least those made by Paul Ryan. The Ryan budget passed by the Republican-controlled House in 2011 would have achieved its $6.2 trillion cuts in federal spending over a decade by phasing out Medicare as we know it in favor of a voucher scheme, gutting Medicaid spending by devolving it fully to the states, and obliterating a whole string of welfare agencies and programs that are vital to the social wage on which poor Americans rely to compensate for the inadequacy/absence of their private wage. The class politics of the Republican Party do not come much clearer than this: all four Republican presidential candidates opposing the termination of the Bush-era tax cuts that erode federal tax revenue while tolerating severe cuts in welfare programs on the expenditure side of the federal ledger. The Republicans favor one rule for the rich, evidently, and a quite different one for the poor!
No, the tax proposals of the Republican presidential candidates make no sense. They are personally self-serving and economically destabilizing. The contrast between the Obama proposal to tax millionaires (including himself) and the Romney/Gingrich proposals to reduce taxation on capital gains, including their own, could not be starker. “Vote for me, and give me another tax break,” might appeal to the most conservative amongst us. Let us just hope, however, that it will not appeal to the rest.
 The details are at http://www.taxpolicycenter.org/taxtopics/Analyzing-GOP-Tax-Plans.cfm
 MIT Joint Program on the Science and Policy of Global Change, Comparing Tax Rates, Technical Note No. 7, May 2006: available at globalchange.mit.edu/files/document/MITJPSPGC_TechNote7.pdf
 Center for American Progress, Ten Charts that Prove the United States is a Low-Tax Country, June 10, 2011: available at http://www.americanprogress.org/issues/2011/06/low_tax.html
 Tom Coburn, Subsidies of The Rich and Famous, November 2011: available at http://www.coburn.senate.gov/public/index.cfm/pressreleases?ContentRecord_id=f50198ef-6e15-4847-ab95-1b2bb57278c4
 “In 2011, the top 1 percent of households by cash income received a whopping 75.1 percent of the benefit from the preferential treatment of capital gains and dividends.” (Andrew Fieldhouse, The tax expenditure of the 1%, EPI, February 11, 2012) available at http://www.epi.org/blog/tax-expenditure-1-percent/
 Thomas L. Hungerford, An Analysis of the “Buffett Rule,” Congressional Research Service, October 7, 2011: available at http://iwsdocumentednewsdaily.blogspot.com/2011/10/iws-crs-analysis-of-buffet-rule-7.html
 Paul Krugman, ‘Taxes at the Top,” The New York Times, January 19, 2012: available at http://www.nytimes.com/2012/01/20/opinion/krugman-taxes-at-the-top.html
 See Lawrence Mishel and Josh Bivens, Occupy Wall Streeters Are Right About Skewed Economic Rewards in the United States, Economic Policy Institute Briefing Paper #331, October 26, 2011: available at http://www.epi.org/publication/bp331-occupy-wall-street ; and OECD, Society: Governments must tackle record gap between rich and poor, says OCED, December 6, 2011: available at http://www.oecd.org/document/40/0,3746,en_21571361_44315115_49166760_1_1_1_1,00.html
 See Eliot Spitzer, Pass the Romney Rule! The Philosophical, Economic and Political Case for Raising Capital Gains Tax, posted on Alternet.org, February 8, 2012: available at http://www.alternet.org/economy/154057/pass_the_romney_rule!_the_philosophical,_economic_and_political_case_for_raising_capital_gains_taxes/?page=entire
 Allison Kilkenny, 2/3rds of US Corporations Pay Zero Federal Taxes: US Uncut Movement Builds to Make Them Pay Up, posted on Alternet.org, March 27, 2011: available at http://www.alternet.org/economy/150387/2_3rds_of_us_corporations_pay_zero_federal_taxes%3A_us_uncut_movement_builds_to_make_them_pay_up/
 John D. McKinnon, “More Firms Enjoy Tax-Free Status,” The Wall Street Journal, January 10, 2012: available at http://www.ncpa.org/sub/dpd/index.php?Article_ID=21498
 Vanessa Houlder & Megan Murphy, “The billion-dollar break born by mistake,” The Financial Times, September 27, 2011: available at http://www.ft.com/intl/cms/s/0/69703dfe-e82e-11e0-9fc7-00144feab49a.html#axzz1mCFcPJTX
 See theChild, Daily Kos, Bernie Sanders on the Ten Worst Corporate Tax Avoiders, posted on Alternet.org, August 22, 2011: available at http://www.dailykos.com/story/2011/08/22/1009343/-Bernie-Sanders:-Guess-Which-10-Companies-Arent-Paying-Their-Share
 “According to tax-return data, nonfinancial corporations at the end of 2009 were hoarding more than $3 trillion in cash, a figure that has surely grown since.” (David Cay Johnston, “Taxing Times,”, The American Prospect, March 2012, p. 49.
 John Plender, ‘Don’t expect economic boost from cash-rich companies,” The Financial Times, January 3, 2012: available at http://www.ft.com/intl/cms/s/0/d7ff64c2-361f-11e1-9f98-00144feabdc0.html#axzz1mCFcPJTX
 “Poor sales is the top concern for small businesses, more than taxes and regulation,” (Martin Baily, The State of American Small Business, Brookings Institution,February 6, 2012: available at http://www.brookings.edu/testimony/2012/0201_small_business_baily.aspx
 “Tax Policy Center: Romney Plan Gives Wealthy Big Tax Cuts,” The Wall Street Journal, January 5, 2012: available at http://blogs.wsj.com/washwire/2012/01/05/tax-policy-center-romney-plan-gives-wealthy-big-tax-cuts/
The original report is at http://taxpolicycenter.org/taxtopics/Romney-plan.cfm
 Ezra Klein’s Wonkbook, February 2, 2012: available at http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-romneys-problem-isnt-his-gaffes-its-his-policies/2012/02/02/gIQA0WeBkQ_blog.html
 Andrew Fieldhouse, Massive tax cuts don’t square with professed concerns about public debt, Economic Policy Institute, February 4, 2012: available at http://www.epi.org/blog/massive-tax-cuts-public-debt/
 “The Center on Budget and Policy Priorities estimates that the Bush-era tax cuts, if continued, will together be the largest contributor to the deficit between 2009 and 2019.” (Andrew Fieldhouse, The Facts support Raising Revenues From The Highest-Income Households, Economic Policy Institute, Issue Brief#310, August 5, 2011) available at http://www.epi.org/publication/the_facts_support_raising_revenues_from_the_highest-income_households/
See also Michael Linden and Michael Ettlinger, The Bush Tax Cuts Are the Disaster that Keeps on Giving, Center for American Progress, June 7, 2011: available at http://www.americanprogress.org/issues/2011/06/bushtaxcuts_anniversary.html
 Andrew Fieldhouse, “Bush-era tax cuts remain the obstacle to fiscal sustainability,” Economic Policy Institute, posted February 4, 2012: available at http://www.epi.org/blog/bush-era-tax-cuts-obstacle-fiscal-sustainability/
 “In the past, Mr. Ryan has talked a good game about taking care of those in need. But as the Center on Budget and Public Policy points out, of the $4 trillion in spending cuts he proposes over the next decade, two-thirds involve cutting programs that mainly serve low-income Americans.” (Paul Krugman, “Ludicrous and Cruel,” The New York Times, April 8, 2011) available at http://www.nytimes.com/2011/04/08/opinion/08krugman.html
 Tanya Somanader, Newt Gingrich’s Tax Plan Gives Newt Gingrich a $540,000 Tax Break,” posted January 22, 2012: available at http://thinkprogress.org/economy/2012/01/20/408111/newt-gingrichs-tax-plan-gives-newt-gingrich-a-540000-tax-break/
David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.
He writes here in a personal capacity.