NYT Op-Eds

Two New York Times op-eds on Tuesday ended on very good points.  David Brooks lamented the Republican party's focus only on economic conservatism, to the neglect of more traditional conservative ideas.  He closed by saying:

Conservatism has lost the balance between economic and traditional conservatism. The Republican Party has abandoned half of its intellectual ammunition. It appeals to people as potential business owners, but not as parents, neighbors and citizens.

On the same page, Joe Nocera commented on the Forbes 400 list of the richest individuals.  He supported my concern about the capital gains tax as welfare for billionaires.  He said:

The American dream exists not because of the capital gains differential but in spite of it. It is the tax break that most glaringly exists to benefit the wealthy. If you have any doubts about that, all you need to do is read the latest Forbes 400.
 

Romney's Taxes

Romney's release of 2011 taxes and an accountants' statement don't do him many favors.  They do show that he paid taxes in all previous years, contrary to Sen. Reid's claim.  Otherwise, he does not do much to support America.  He paid very low taxes.  Andrea Mitchell noted that the summary of 20 years of prior taxes look higher because the tax rates were higher in previous years.  I was surprised to find the best listing of prior year tax rates in Forbes. 

For much of that 20 year period the top tax rate for salaried income was over 40% and the maximum capital gains tax rate was over 20%.  For 2011 the rates were 37% and 15%.  The table shows how much taxes on rich taxpayers have gone down.  When you look at Federal payroll taxes (for Social Security and Medicare) and state income taxes, sales taxes, and property taxes, the formerly "progressive" tax rates where rich pay higher taxes than the poor, have become "regressive" taxes that fall more heavily on the poor.  Romney's claim that 47% of potential taxpayers pay no taxes, ignores all taxes except federal income taxes. 

If Romney were a loyal, patriotic American earning as much as he does, he should pay something on the order of 30% of his income in federal taxes, not less than 15%. 

Romney and other Republican tax bashers say capital gains taxes have to be low, because they experience double taxation.  Their companies pay tax, and they get their investment income only after the companies are taxed.  But if the companies paid no taxes, workers salaries could be higher, too.  Why don't salaried workers get a double taxation break?  In addition, capital gains taxes are paid only after an asset is sold.  Therefore, many wealthy individuals have the earnings tax free for years. 

For example, if you buy some stock for $100, and it goes up $50 the first year.  You have made $50, but you pay no tax on it, because you don't sell it.  The next year, if the stock goes up another 50%, you make $75, but you pay no tax on that $75, plus you have made money on ALL of the profit you made the first year, because that profit was not taxed.  A salaried worker pays taxes on all of his income in the year he makes it; there is no benefit from compound interest, i.e., interest on the prior years' interest.  On the other hand, a rich person can hold a profitable asset for many years without paying any taxes on it, earning profit on the earlier profit that was not taxed.  Then when he sells it, he pays much lower taxes than someone who works for a living.  Basically the government gives him an interest free loan of the taxes due each year until he sells the asset.  Who's the "welfare queen" in this picture? 

It doesn't seem fair to me.  It's a good deal, but it's not fair. 

Year	Top Regular Rates			Max. Capital Gains Rate	Capital Gains Taxation Notes
	Wages & Other Earned Income	Unearned Income Except Cap Gains	Above Joint Taxable Income of
1916	15%	15%	$2,000,000	15%	Realized gains taxed same as other income
1917	67%	67%	$2,000,000	67%
1918	77%	77%	$1,000,000	77%
1919-21	73%	73%	$1,000,000	73%
1922	58%	58%	$200,000	12.50%	Maximum rate
1923	43.50%	43.50%	$200,000	12.50%
1924	46%	46%	$500,000	12.50%
1925-28	25%	25%	$100,000	12.50%
1929	24%	24%	$100,000	12.50%
1930-31	25%	25%	$100,000	12.50%
1932-33	63%	63%	$1,000,000	12.50%
1934-35	63%	63%	$1,000,000	31.50%	Sliding exclusion of 70%>10yrs 0% <1 small="small" yr.="yr.">
1936-37	78%	78%	$2,000,000	39%
1938-40	78%	78%	$2,000,000	30%	Excl. 50%>2yrs; 67% 18-24mo; 0%<18mo 30="30" ax="ax" small="small">
1941	80%	80%	$2,000,000	30%
1942-43	88%	88%	$200,000	25%	Exclusion 50% > 6 months; 25% maximum
1944-45	94%	94%	$200,000	25%
1946-47	86.50%	86.50%	$200,000	25%
1948-49	82.10%	82.10%	$200,000	25%
1950	84.40%	84.40%	$200,000	25%
51-64	91%	91%	$200,000	25%
64-67	70%	70%	$200,000	25%
1968	75.30%	75.30%	$200,000	26.90%	Transition
1969	77%	77%	$200,000	27.50%
1970	50%	70%	$200,000	32.30%
1971	50%	70%	$200,000	34.30%
1972-75	50%	70%	$200,000	36.50%	50% exclusion - minimum tax effects
1976-77	50%	70%	$203,200	39.90%
1978	50%	70%	$203,200	39%
1979-80	50%	70%	$215,400	28%	60% exclusion
1981	50%	70%	$215,400	23.70%	50% or 60% exclusion
1982-86	50%	50%	$215,400	20%	60% exclusion
1987	38.50%	38.50%	$192,930	28%	Maximum rate
1988-90*	28%/33%	28%/33%	*	28%/33%	Realized gains taxed same as other income
1991-92	31.90%	31.90%	$82,150	28.90%	Maximum rate
1993-96	43.70%	40.80%	$250,000	29.20%
1997-2000	43.70%	40.80%	$275,000	21.20%
2001	43.20%	40.30%	$297,350	21.20%
2002	42.70%	39.80%	$307,050	21.20%	18% top capital gains rate in rare cases
2003-05	39.00%	36.10%	$311,950	16.10%	Reduced maximum rate which also applied to dividends
2006-07	38.60%	35.70%	$336,550	15.70%
2008-09	38.30%	35.40%	$357,700	15.40%
2010-12	37.90%	35.00%	$373,650	15%
2013-on	44.60%	44.60%	$396,100	25%	21.2% income tax plus 3.8% Medicare tax; also on dividends

Concern about Military is about Contractors

With the approach to the "fiscal cliff," there is a lot of talk about the desire to avoid cutting the Defense budget.  On its face, this appears to be concern about the fighting men and women in Afghanistan and other dangerous places, but it's really concern about defense contractors.  I don't think the Republicans really care about the people serving in the military.  Very few Republicans (or Democrats) in the House or Senate served in the military.  But they do care about their contributions from defense contractors, and about jobs in plants in their home districts.  Because of their concern about their home districts, the government had to change the whole procedure it uses to close military bases, because if handled the normal way, no base would ever be closed.  It's almost the same thing with defense contractors; every congressman wants to funnel money home to his defense contractor.  Hence, the frequent congressional mandates to build weapons systems that the Pentagon doesn't want. 

So, I am not too concerned about all the furor about saving the Defense Department budget; it's really about saving elections for incumbent congressmen and senators.  The bottom line on jobs is serious, but why should we be more concerned about keeping jobs at defense plants than anywhere else?  We need more jobs in computer companies, too, in airlines, everywhere.  Why should defense contractors get special consideration?  Because they give lots of money to the reelection campaigns of people in Congress.  It's all about the money, not about patriotism. 

Sleaze on Wall Street

I was struck reading Michael Lewis' book Boomerang about how sleazy Wall Street salesmen are.  Basically they are worse than used car salesmen, but are selling stuff worth billions.  Lewis says one of the main problems the Germans ran into during the 2008 economic crisis was that they believed the salesmen.  He says reports a conversation with Dirk Rothig, a German banker, talking about the German Landesbanks:

"The people in these banks were never spoiled by any Wall Street salesmen.  Now there is someone with a platinum American Express credit card who can take them to the Grand Prix in Monaco....  He has no limit....  All of a sudden a very smart guy from Merrill Lynch shows up and starts to pay a lot of attention to you.  They thought, 'Oh he just like me!'"

At bottom, he [Rothig]  says, the Germans were blind to the possibility that the Americans were playing the game by something other than official rules.  The Germans took the rules at their face value; they looked into the history of triple-A-rated bonds and accepted the official story that triple-A-rated bonds were completely risk-free. 

It's a shame that America has become such a corrupt country, while the Germans seemed to have maintained their moral standards.  Perhaps their terrible failings during World War II have made them more moral today, while our relatively easy course through WW II made us less concerned about our morals.  In particular Wall Street appears to have become a snake pit that has attracted some of the lowest types of humanity.