The Grand Republican Strategy: We Win, You Pay!

On a recent trip to London, I got into a conversation with a wealthy oil and gas investor about climate change. He didn’t disagree we need to shift from fossil fuels to renewable energy, he said. His job is to make sure the lights in our homes still turn on while we make the transition.

Fair enough, I said. Would you support a carbon tax or a cap-and-trade program to speed up the transition?

“Sure,” he said, to my surprise, without hesitation. “As long as the revenue is spent on new technologies, and not given away to poor people.”

Ah. There’s always a catch.

At first, I thought it was a strange caveat, especially since we’d just got done talking about income inequality, an issue that he seemed quite concerned about. It wasn’t until I saw the Republican presidential hopefuls unveil their new economic plans that it all made sense:

I really want to do the right thing, he’s saying, as long as I don’t have to pay for it.

Carbon Tax BurdenThe reason for his concern, by the way, is that poor people have to spend a higher percentage of their income on oil and gas than rich people, so the burden of a carbon tax or a cap-and-trade program would fall the hardest on them. Many people think that’s unfair since (a) they’re already strapped for cash and (b) they’re not the ones profiting from all the carbon emissions. So progressive proposals usually include a rebate of some sort to ease their cost.

Our friend the oil-and-gas investor would rather give that money to — surprise, surprise — corporate America.

This, I realized, is the grand strategy of the new “reformocon” movement in the Republican party. No longer can a Republican run for president without admitting that the government must do something about our nation’s most pressing problems — but neither can he ask his friends in the One Percent to pay for it. Thus is born a new slogan: We win, you pay!

Mike Lee and Marco Rubio, two of the leading reformocons in the Senate, put this strategy to the test earlier this month when they released an ambitious tax plan centered around an expansion of the Child Tax Credit for middle-income households. Sounds great, right? Rather than cutting government spending for the middle class, these Republicans want to spend more. Heaven knows they could use it, after decades of dismal income growth. But who will pay for it?

Certainly not the rich. The Lee-Rubio plan eliminates taxes on investments, where they get most of their income, and it lowers the corporate tax rate and the income tax rate for the top bracket. Add it all up, and it turns out to be an enormous tax cut for the wealthiest Americans and barely any relief for everyone else.

Republican Budget CutsAnd what happens when all these tax cuts increase the budget deficit by $400 billion a year? Well, if recent history is any indicator, these same Republicans will scream “Crisis!” and demand spending cuts. If you’re wondering where those cuts will come from, look no further than the latest Republican budget, which gets two-thirds of its cuts from programs that help low- and moderate-income households. It scorches their budgets by 40 percent!

So, who will pay for the reformocons’ new plans? You know who.

No sooner had the ink dried on Marco Rubio’s deceptive debut than his presidential competitor Jeb Bush announced, in a speech about income inequality, that he would abolish the federal minimum wage.

Among the reformocon movement, Jeb Bush is not alone in this desire. You may wonder how they can expand the Child Tax Credit in one breath and abolish the minimum wage in the next, since the two policies are basically intended to help the same people?

It’s very simple really, once you understand the “we win, you pay” principle. Wages are paid by corporations. Tax credits are paid by…well, you just saw who, and it ain’t the corporations.

So, for the reformocons: Tax credits, good. Wages, bad.

The most egregious example of this strategy is our first official presidential candidate, Ted Cruz, who’s advocating a “flat tax,” charging the same rate to everyone, regardless of their income. For that to work, he’d have to raise taxes significantly on most Americans in order to cut them significantly for the richest Americans because the only way to raise the same amount of revenue is to find a rate somewhere in the middle of what the two groups pay now. It’s basic arithmetic.

But you never hear the reformocons talk about arithmetic in their speeches. They talk about inequality and upward mobility and the American middle class. They talk about all sorts of expensive new plans, and they never mention that there’s a catch.

They can’t mention the catch because it undermines the entire point of their reforms. If they win, you pay. And if you pay, they’re not helping you after all.

So, who are they helping? You know who.

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This op-ed was originally published in the Huffington Post.

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.

Why #SCOTUS Upheld #ObamaCare

In celebration of the Supreme Court’s historic decision to uphold the individual mandate of the Affordable Care Act, we reproduce an excerpt from Chief Justice John Roberts’s opinion on behalf of the majority:

Under the mandate, if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS when he pays his taxes. That, according to the Government, means the mandate can be regarded as establishing a condition—not owning health insurance—that triggers a tax—the required payment to the IRS. Under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes, like buying gasoline or earning income. And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax.

The exaction the Affordable Care Act imposes on those without health insurance looks like a tax in many respects. The “[s]hared responsibility payment,” as the statute entitles it, is paid into the Treasury by “taxpayer[s]” when they file their tax returns. It does not apply to individuals who do not pay federal income taxes because their household income is less than the filing threshold in the Internal Revenue Code. For taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status. The requirement to pay is found in the Internal Revenue Code and enforced by the IRS, which—as we previously explained—must assess and collect it “in the same manner as taxes.” This process yields the essential feature of any tax: it produces at least some revenue for the Government.

We have similarly held that exactions not labeled taxes nonetheless were authorized by Congress’s power to tax. In the License Tax Cases, for example, we held that federal licenses to sell liquor and lottery tickets—for which the licensee had to pay a fee—could be sustained as exercises of the taxing power. And in New York v. United States we upheld as a tax a “surcharge” on out-of-state nuclear waste shipments, a portion of which was paid to the Federal Treasury. We thus ask whether the shared responsibility payment falls within Congress’s taxing power, “[d]isregarding the designation of the exaction, and viewing its substance and application.” (United States v. Constantine). [Other examples include:] Quill Corp. v. North Dakota (“[M]agic words or labels” should not “disable an otherwise constitutional levy”); Nelson v. Sears, Roebuck & Co. (“In passing on the constitutionality of a tax law, we are concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it”); United States v. Sotelo (“That the funds due are referred to as a ‘penalty’…does not alter their essential character as taxes”).

Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new. Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods in order to foster the growth of domestic industry. Today, federal and state taxes can compose more than half the retail price of cigarettes, not just to raise more money, but to encourage people to quit smoking. And we have upheld such obviously regulatory measures as taxes on selling marijuana and sawed-off shotguns. Indeed, “[e]very tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed.” That [the law] seeks to shape decisions about whether to buy health insurance does not mean that it cannot be a valid exercise of the taxing power.

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.

The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.

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This excerpt has been lightly edited to make it more readable to a lay audience.

You Haven’t Heard the Last of the Buffett Rule

A battle is coming. A battle for America’s future. A battle for her soul.

The opening salvo came earlier this week when the Buffett Rule died in the Senate at the hands of a corrupt minority who refused to even let it come to a vote.

The Buffett Rule was advertised as a minimum tax rate of 30 percent for households earning more than $1 million a year, but that’s not quite right. The minimum rate actually started much lower for those earning $1 million and gradually increased to 30 percent for those earning at least $2 million.

The Buffett Rule would have raised $16 billion per year over the next decade — a measly 1.2 percent of this year’s budget deficit.

Thus it was not a solution. It was a shot across the bow, a warm up for the decision we will face in November, a test run for the expiration of the Bush tax cuts in December. It was the beginning of a battle to reclaim this country as a democracy for the 100 percent, rather than a plutocracy for the 1 percent. A beginning, not an end.

For if there’s one thing the government desperately needs, it’s tax revenue.

Relative to the size of the economy, the federal government is collecting less tax revenue than it has since the Great Depression, less than any of the other wealthy “G-7” countries, and way below the average for so-called industrialized countries.

The average family of four is paying less of its income in taxes than at any time from 1955 to 2006. The richest 1 percent have seen their average tax rates fall even farther, from 58 percent in the 1950s, to 35 percent in the 1970s, to 29 percent in the 1990s, to 23 percent today. Corporations, which are supposed to pay a top statutory tax rate of 35 percent, actually pay only 12.1 percent of their profits in taxes, the lowest since 1972.

Any way you measure it, taxes are low. (And, let’s not forget, the economy performed better when they were higher.)

So it should not come as a surprise that the federal government will only receive $2.5 trillion in tax revenue to pay for $3.8 trillion in spending this year, leaving a deficit of $1.3 trillion.

If this is a major problem — and the majority of politicians on both sides of the aisle agree that it is — then, as a matter of simple arithmetic, we must raise taxes or face draconian spending cuts. Since Republicans are so insistent on cutting taxes and thus increasing the deficit, they have chosen the latter course of action.

A couple weeks ago, I pointed out that it was unfair, unwise, and unusually cruel to force this kind of pain on low-income Americans, who would bear 62 percent of the burden under Paul Ryan’s latest budget proposal. Several readers replied that it’s unfortunate but necessary.

Is it necessary to slash taxes drastically for the rich? Is it necessary to leave the capital gains exemption intact? Is it necessary to increase defense spending? Is it necessary to foist hundreds of billions of dollars of subsidies on American corporations and the richest 1 percent?

None of these things are necessary. In fact, they are all counterproductive and quite dangerous if it is necessary to reduce the budget deficit. Yet we can find them all in the House Republicans’ budget.

What we don’t find in that budget is more tax revenue.

It is a mathematical fact that we can reduce the budget deficit by hundreds of billions of dollars simply by returning to the tax code that we used to have two or three decades ago — when, by the way, the economy was growing faster, wages were rising faster, and income inequality was lower.

It is also a mathematical fact that the top 1 percent captured 93 percent of the income gains in 2010. The recession has done all that the recession can do. The plutocracy is back.

It is up to us to wrest control of this country back from the grips of concentrated wealth and corruption. It will take time. It will take guts. But mark my words: The Buffett Rule will be back. And next time, it will be a heck of a lot bigger than $16 billion.

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