The Way It Is – April 2011
Taxes
by Marvin Miller
We think more about taxes in April than in other months.
Leona Helmsley, the hotel owner, was quoted as saying something like “Only little people pay taxes.” There’s a lot of truth in that. Investor Warren Buffett said his tax rate is lower than his secretary’s. That’s because the monumental U.S. tax code consists mostly of loopholes for various kinds of investors.
Last December the President said that he, and by implication the country, was being held hostage by the minority in the Senate. The demand of the minority concerned taxes. They wanted the tax cut, enacted years earlier, with an expiration date of 2010 to make the deficit forecast smaller (dishonestly, because Congress knew when enacting it that when the expiration date approached the pressure to extend the cut would be irresistible), to be extended not only for the 98% of the people who need the money, but also for the top 2% who don’t. The minority got their way. The legislation that passed kept the tax cut for the top 2%. It also increased taxes for some people at the low end of the income distribution by eliminating the “Making Work Pay” credit. Meanwhile the Medicare tax (“premium”) for people on Medicare who don’t get their Medicare tax withheld from Social Security checks went up from $110.50 to $115.40 per month. The legislation also reduced the estate tax rate, allowing vast fortunes to build up over generations.
Here’s a quote from the book Family of Secrets, a book about the Bush family which shows some of the connections between business, politics, the CIA, and educational institutions:
According to the in-house history of Dresser (a company in which George H. W. Bush’s father Senator Prescott Bush was involved–MM) one of the company’s bolder moves was a then-innovative tax strategy that involved a separate company in the tiny European principality of Liechtenstein. “A considerable (benefit) was the fact that no American taxes had to be paid on international earnings until the money was returned to the United States.” That is, if the money was ever returned to the United States.
Currently capital gains, money that people get by buying something and selling it later for more than they paid for it, are taxed at a lower rate than wages, money that people get in exchange for work that they do. The ethics of such a difference deserves critical consideration, though it doesn’t get it. In addition, managers of hedge funds, enterprises whose business is gambling on various kinds of financial paper, benefit from a special rule which taxes their income at the lower capital gains rate rather than as ordinary income like wages and Social Security benefits.
The 2010 Form 1040 instruction book tells us that 4% of the Federal government’s income comes from the corporation tax. In 2000 it was 10%, and it was still more in earlier years. Now the President wants to reduce the corparate tax rate, in exchange for elimination of some loopholes. If history predicts the future, there will be a “compromise” which lowers the corporate tax rate and leaves the loopholes present, or removes some while others are enacted.
Like all legislation, tax laws are made by legislators. It’s no surprise that they favor those who finance elections. The tax structure raises questions about how democratic our supposed democracy is.