The World That Mitt Romney Wants to Build…for the One Percent

“A gaffe is when a politician tells the truth — some obvious truth he isn’t supposed to say.” — Michael Kinsley

Mitt Romney really stepped in it this time. His only saving grace is that no one noticed…yet.

In a recent interview with Fortune magazine, Romney indicated that, under his tax plan, “high-income people would continue to pay the same share of the tax burden that they do today.”

This quote doesn’t sound like a gaffe until you put it together with the rest of Romney’s promises. Under his tax plan, those “high-income people” would face much lower tax rates.

This seemed odd to me. The same tax burden with lower rates? Wouldn’t that mean they’d have to earn a heck of a lot more money before taxes?

As it turns out, yes. Yes, they would.

If Romney gets his way, the top 1 percent will pay an average federal tax rate of 22.5 percent, down from the 28.3 percent rate they paid in 2007. The average federal tax rate for the nation as a whole will fall from 19.9 percent to 17.4 percent. (This is assuming Romney doesn’t eliminate a bunch of deductions and credits, in which case most people’s tax rate would actually go up and the number I’m about to report would be worse. I’m giving Romney the benefit of the doubt here.)

In 2007, the top 1 percent paid 26.2 percent of the nation’s taxes. In order to maintain that share of the tax burden, as Romney suggested in his interview, the top 1 percent would have to earn 33.9 percent of the nation’s pretax income.

33.9 percent. One in three dollars of our nation’s output will go into the pockets of the richest 1 percent. To put that into context, in 2007, the top 1 percent pocketed 18.7 percent of pretax income. In 1979, they earned 8.9 percent.

Let’s take Romney at his word. Let’s try to imagine what the world will look like if the top 1 percent earns 33.9 percent of pretax income.

In order to earn that much income, CEO compensation will soar. The financial sector will probably double its share of corporate profits. Leveraged buyouts and other short-term gimmicks will become more prevalent, and many more manufacturing jobs will disappear, replaced by low-wage, no-benefit service jobsif they’re replaced at all. Wages for the average worker will decline relative to inflation. Most households will have to work more hours just to maintain their standard of living, but even that won’t be enough. Households will sink deeper in debt just to stay afloat. As a result, financial crises will become more frequent and more prolonged. Wall Street will thrive, creating ever more complex financial securities that prey on ever more naïve borrowers.

That’s another thing: Lack of education. Well, you can expect poverty to go up, and therefore students’ test scores will go down. But don’t expect the government to pick up the slack with more funding because the top 1 percent is no friend to high public education spendingor food stamps or Medicaid or pretty much anything that would help poor kids.

And in a world where they’re earning one-third of the nation’s income, the top 1 percent is going to have twice the influence they currently have in Congress. So you can expect plenty of corporate subsidies, especially for Big Oil. Forget about clean energy. We’ll import all that stuff from China. You see, the 1 percent doesn’t like to nurture new industries when they threaten the old monopolies.

Of course, not everyone in the 1 percent thinks or acts the same. They’re a diverse and brilliant and, in many ways, admirable bunch. But 1 percent of the population should not control one-third of the economy, no matter how impressive they may be.

You may think I’m an alarmist. Surely the future won’t be that bad.

Well, guess what: Everything I just described has been happening for the past three decades. And it all happened while the 1 percent doubled its share of pretax income.

Welcome to the future. How do you like it so far?

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This op-ed was published in today’s South Florida Sun-Sentinel.

Outsourcing Isn’t an Excuse to Abandon the Working Class

Barack Obama and Mitt Romney agree on one thing: Outsourcing is a problem.

Of course, they disagree on who’s to blame. To Obama, it’s private equity firms like Romney’s Bain Capital. To Romney, it’s deficit spending like Obama’s 2009 fiscal stimulus.

(As I pointed out two weeks ago, there’s plenty of evidence that the 2009 stimulus created millions of jobs right here in America. But never mind.)

“Countries around the world are…giving their workers and companies every advantage possible,” says Obama, but “we can win that competition.”

On Romney’s website, you can find the same language. He says our tax code “needs to be more competitive and business friendly.” We need to create a “level playing field for American products in foreign markets.”

This rhetoric is more dangerous than it seems.

It’s true that many of our exports are at a disadvantage. In countries that we trade with, the average manufacturing wage is 65 percent of the American average. In Mexico, manufacturing workers earn 11 percent of what their U.S. counterparts make. In China, they earn 3 percent.

So, the question is: Just how “level” does Mitt Romney want the “playing field” to be?

When it comes to outsourcing, Romney has a solution, but he won’t say it…because you won’t like it: The easiest way to create a “level playing field” is to lower American wages.

The dirty secret about Republican economics is that it’s all about cheap labor.

While most of the industrialized world (and much of the developing world) has experienced rising real wages in the past thirty years, American wages have stagnated.

Union membership has plummeted. The minimum wage has failed to keep up with inflation. Taxes and regulations that previously restricted the rich from siphoning the wealth of the middle class have been eviscerated.

In short, Mitt Romney’s game plan has already been put to the test.

We were told that it was a new era. We were told that we needed to sacrifice our job security, our wage increases, our retirement benefits — all in the name of globalization. We were told that America couldn’t compete with those costs around its neck. We were told that the manufacturing sector was deadweight. We were told that the working class was pulling us down. We were promised a better world filled with high-tech jobs and rapid innovation, low taxes and rising asset prices, cheap imports and even cheaper investments.

We did everything we were told. We gave up our protections and our power. And, in return, we got lower economic growth, higher inequality, productivity growth that went almost entirely to the top 1 percent, and — irony of all ironies — even bigger trade deficits.

All that cheap labor didn’t make us “competitive” after all.

All it did was line corporate coffers with more profits than ever before.

But not everyone made that mistake. According to the conservative Heritage Foundation, U.S. tax revenue is currently 27 percent of GDP. In Denmark, it’s a whopping 49 percent. They have the world’s highest minimum wage and arguably the lowest level of income inequality. Yet their unemployment rate (7.7 percent) is currently lower than ours (8.1 percent), and their economy grew at the same rate as ours from 1979 to 2007.

For another comparison, look at Sweden, where tax revenue is 48 percent of GDP. They consistently battle Denmark for the world’s lowest level of income inequality, yet they’re also ranked as the second most competitive country in the world (after Switzerland). Their unemployment rate (7.8 percent) is also lower than ours, and their economy grew faster than ours from 1979 to 2007.

Needless to say, unions are more prevalent and powerful in both of these countries than in the U.S. But arguably the most heavily unionized country is Germany, where employee representatives sit on corporate boards and have a say in industry-wide decisions. Germany’s unemployment rate (5.6 percent) is way lower than ours, and they boast a large trade surplus.

Clearly, we can raise wages and compete in the global economy at the same time. We don’t need a “level playing field” to beat outsourcing. We just need a proactive government.

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This op-ed was published in today’s South Florida Sun-Sentinel.

Putting the Spotlight on the Covert Subsidy of Wall Street

Wall Street is back in the news.

They went away for awhile, taking a backseat to gas prices and budget proposals. They preferred it that way. They make more money when no one’s paying attention.

But when you’re too big to fail, you’re too big to hide.

First, there was the announcement that JP Morgan had lost at least $2 billion in derivatives trading. Then came the Obama campaign’s attacks on Mitt Romney’s record of cutting jobs at Bain Capital, followed by the unlikely retort by Cory Booker, the Democratic Mayor of Newark, New Jersey.

But it is not enough to ask what good Wall Street does. We must go one step further: Is Wall Street so valuable — is its output so beneficial — that we must subsidize it?

In the wake of the worst financial crisis since the Great Depression, it’s hard to make that case. But that hasn’t stopped the government from giving Wall Street a bonus on top of every dollar they earn.

They don’t call it a “bonus,” but that’s what it is. Wall Street pays a lower tax rate — 15 percent — on every investment it cashes in than it would pay if that money were taxed like ordinary income. This “capital gains tax rate” is the lowest it’s been since the Great Depression.

When George W. Bush got Congress to lower this rate from 20 percent to 15 percent in 2003, it was supposed to encourage people to save and invest more, thus increasing future economic growth.

But nothing of the sort happened.

“I have worked with investors for 60 years,” said Warren Buffet, “and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain.”

Capital gains taxes have been falling for twenty years, from 28 percent in 1987 to 15 percent in 2007, yet the saving rate has plummeted over those same years.

In fact, the years following the 2003 tax cut were part of the most dismal economic expansion in postwar history. Output growth, job creation, poverty reduction, and investment were all below average, if not all-time lows.

Clearly, low capital gains taxes did not lead to the prosperity that was promised.

This conclusion isn’t restricted to one decade. From 1950 to 2011, the capital gains tax rate has been positively correlated with economic growth, meaning higher taxes have been associated with faster growth. Even when you compare economic growth occurring several years after the tax rate changed, there’s still no significant negative relationship.

Yet this tax break persists, costing the government $100 billion every year (when combined with the loss from the same low tax rate applied to corporate dividends).

Where does this $100 billion go?

$70 billion of it goes to the richest 5 percent of households. Half of all capital gains income goes to the top 0.1 percent of households. That means that a mere 114,000 households receive a $50 billion subsidy from the government every year.

And it would be so easy to fix. Here’s how it would work…

If you’re in the bottom 20 percent, you’d pay an extra $1.

That’s right. Just one dollar.

If you’re in the next 20 percent, you’d pay $2. Seriously. Only two dollars.

If you’re in the middle 20 percent, you’d pay $6. That’s it. The average American, the precious middle class, would pay only six more dollars.

If you’re in the next 20 percent, you’d pay $30. On a six-figure salary, I think you can afford to give up thirty bucks.

And those are just the average tax increases. Of those bottom 80 percent of households, 9 in 10 would experience no tax increase whatsoever.

Cory Booker says this debate is a “distraction,” but nothing could be further from the truth — $100 billion is too big to ignore. The spotlight is back where it belongs. This time, let’s keep it there.

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This op-ed was published in yesterday’s South Florida Sun-Sentinel.

Where Have All the Swift Boaters Gone?

by Norman Horowitz

In consideration of the grief that the Right gave John Kerry concerning his military service, I offer the following:

Mitt Romney has never served in the military.

Before joining college, Romney had received a deferment from the draft as a Mormon ‘minister of religion’ for the duration of his missionary work in France, which lasted two and a half years. At the time, there was an agreement of sorts between the church and the Selective Service allowing exemptions from the draft for missionaries. Before and after his missionary deferment, Romney also received nearly three years of deferments for his academic studies.

In April 1965, Romney registered with the Selective Service but was not considered readily available for military service until December 1970. When he became eligible for military service in 1970, he drew a high number in the annual draft lottery and at that time no one drawing higher than 195 was drafted.

I can only wonder if Romney became a missionary in France in order to avoid military service.

I have never heard a peep from anyone about this.

NOT ONE SINGLE WORD!

I must ask those from the Right: What did you all have to say when the Swift Boat people tried to vilify a genuine American war hero John Kerry? And what are you now saying about Mitt Romney who, though he probably didn’t break any law, managed to avoid military service?

I have no problem that Romney did what he did. However: Where have the Swift Boaters gone?

Quote of the Day: Matt Taibbi

Advocating the turning over of Social Security management to Wall Street after the 2008 crash is a little like asking Paris Hilton to pilot Air Force One, or tabbing Charlie Sheen to manage the inventory of a hospital pharmacy — completely nuts, but to David Brooks, that makes Mitt Romney the “serious” candidate.

— Matt Taibbi (Rolling Stone)