Kevin Brady’s misleading Wall St. Journal op-ed
by Linda Beale
Kevin Brady’s misleading Wall St. Journal op-ed
Today’s Wall Street Journal (May 6) features an op-ed by Kevin Brady, right-wing Texas Republican who chairs the notorious “Joint Economic Committee” that has been a notorious producer of anti-tax propaganda-driven studies over the years of Republican hegemony in the House. See “Tax Reform Needs Accurate Tax Tables”, Wall Street Journal (May 6, 2013), at A15.
The op-ed spends a lot of time denouncing information about tax rates. It suggests that the entire US tax system is far too progressive in nature, because “one of the most salient characteristics of the U.S. tax code [is] the decreasing share of taxes paid by the bottom 50% of taxapyers and the increasing share of taxes paid by the upper 1%.” Of course, Brady mentions nothing about the accelerated growth of inequality of income in that same period, resulting in the upper 1% controlling so much more of the U.S.’s wealth and income compared to that bottom 50%. In fact, the upper group pays less than it should given the enormously increased bite of wealth and income, a fact that Brady conveniently overlooks.
The op-ed also talks only about the income tax rates, thus appearing to suggest that the income tax is the only relevant portion of the U.S. tax system and that rates, rather than base, are the most significant factor. In fact, there are a range of taxes–income, estate, payroll, excise/sales taxes. Regrettably, the income, estate and payroll taxes are much too lenient on the highest paid groups.
The shrinking of the income tax rate structure (from many different rate levels in the 1970s to our minimal group of rate brackets today) is highly favorable to the highest income group. The rate levels off at less than half a million, while the highest paid CEOs are making 20-30 or 40 million a year. As a result, those in the top 1%–and especially those in the top part of that 1%–are taxed at the same rates as people who make a “mere” $400,000 a year. Further, the base on which that rate is applied to determine tax liability is notoriously laden with tax expenditures that primarily benefit that same group at the top, beginning with the charitable deduction for non-taxed appreciation and continuing through Roth IRAs/ IRAs /generous pension plans to too-high mortgage interest deductions and others. Only those in the top 30% even bother with itemizing deductions. And among those, it is those at the top who garner the enormous benefits of deductions from those tax expenditure provisions.
The estate tax is similarly designed to provide special benefits to the wealthy–from the lack of a progressive rate structure that ensures that the wealthiest tycoons who’ve amassed fortunes from loopholes like the carried interest provision will pay peanuts on an estate hardly taxed during their lifetimes, to the various gimmicks for evading and deferring estate taxes– including various kinds of trusts,”family” partnerships and irrational “discounts.
On the other hand, the sales tax is a mere gnat for the wealthy while its expansion cuts into essential living expenses for the growing legions of the poor and nearly poor. The payroll taxes for the working poor and the middle class take a significant bite out of their labor’s rewards, while the wealthy CEOs and directors pay Social Security only on a miniscule portion of their wage income.
But Brady’s most misleading statements are those that repeat the tax-cutting mantra that the GOP has pushed for well-nigh four decades now, beginnning before Reagan but put into overdrive during the George W. Bush administration–the idea that tax cuts stimulate economic growth, and especially that tax cuts on the capital income of the wealthy will stimulate growth, create jobs, and increase wages for the majority of Americans who are not wealthy. Here’s what Brady says (notice how the statement presupposes the truth of his claim):
The most important defect of tax-distribution tables is that they cannot help one to assess how proposed tax changes will affect economic growth.
Suppose Congress eliminated the double taxation of capital income by doing away with taxes on capital gains and dividends at the individual level. Current tax distribution tables would depict this change as a reduction in progressivity due to the large share of capital gains and dividends attributable to the top income quintile.
But doing away with taxes on capital gains and dividends would significantly lower the after-tax cost of capital for new business investment in buildings equipment and software. New business investment increases the demand for and productivity of labor, driving real wages higher.
For households in the bottom 50% of the income distribution, the benefits are significant but indirect–more jobs at higher real wages. Id.
The fact is, we have been following this agenda of reducing taxes on capital income for decades. The result has been an unprecedented growth in inequality and the continuing decline of wages for the vast majority of Americans who work for their income. The right’s “philosophy” of low taxes on capital and high taxes on labor doesn’t work and never will. Brady doesn’t appear to much care –his arguments seem designed to justify the right’s continuing push for policies that create an oligarchic elite served by an increasingly indebted worker class with few employment rights as the courts favor Big Business over the people this country was founded to protect. Brady’s op-ed, in other words, is just another volley in the right’s class warfare against American workers.
cross posted with ataxingmatter
While I agree that taxes on “the rich” are too low… as long as “the deficit” is a primary factor in politics… it is misleading to complain that the rich pay too little payroll tax.
The payroll tax is an insurance premium designed to help the poor… and to prevent the worst poverty in old age. The “rich” pay more than the poor in terms of what they get back. In fact it is the “more” that the rich pay that makes the insurance work so “the poor” can get a pension that is “more than they paid for.”
MIndlessly talking about Social Security as if it were, or ought to be, welfare is going to help the really bad guys to destroy it.
Unfortunately, mindlessly is all we can expect from “experts” today, whether on the right or the left.
I just took the liberty of reformatting the three-paragraph quote into an indent, to make Linda’s piece as easy to read here as it deserves to be, and as it is on her own blog,
What bothers me most about stuff like that op-ed piece is that misrepresents ideology as fact. For households in the bottom 50% of the income distribution, the benefits are significant but indirect–more jobs at higher real wages? Really? Really? And the evidence for this, what, exactly?
Should say, “… is that it misrepresents …”
I agree that the taxes on the 1% are too low. So how does the GOP pull it off? By definition the other 99% should benefit if taxes increase on the 1%. I think the answer is in the GOP’s call for “expanding the base” A lot of people do not pay income taxes and Coberly is exactly right in suggesting that we do the right wing a favor when we point out the disproportionate amount of payroll taxes paid by those with lower income. My own view is that too many people do not realize that their lives would be better if the rich paid more taxes precisely because they do not pay income taxes. If the right wing succeeds in imposing income taxes on the bottom 50% in income I suspect that that will lead to taxes going up on the well to do. Look at how Dumbya’s tax cuts ultimately played out. We returned to the Clinton era rates only on incomes of over $400K. Do you think if Obama had not made the deal with the devil in 2010 and all of Dumbya’s tax cuts had expired that we would not have had a great deal more pressure to raise rates on the wealthy/ Certainly you would not have had the GOP holding the economy hostage with the need for reducing deficits.My conservative friends always think they pay too much in taxes because of the poor–in fact to the extent they pay too much in taxes it is because the rich do not pay their fair share.
thank you. I agree with you, I think. The rich need to pay more taxes. In honesty if nothing else. And because of “the deficit.”
The “middle” needs to pay more taxes, for mental hygiene if nothing else, and because it would make it politically possible to raise taxes on “the rich.”
And even the poor poor could pay little more in taxes… again for mental hygiene. I did not agree with Mitt Romney when he said “47% of the people think of themselves as victims and don’t want to take responsibility for themselves.” But when I read the “progressive” blogs I can see where he got the idea.
All of that is perhaps politics and hand waving. But the “fact” that Social Security works BECAUSE it is not welfare is of crucial importance. The insane right (not “the rich”) talk as though Social Security were welfare so they can stampede the people into cutting it. And the mindless left call for Social Security to become welfare even while “defending” it by saying “the workers paid for it themselves.”
The fact (note lack of quotes) is that the workers can continue to pay for their own Social Security… as their parents and grandparents did… simply by raising their own tax the equivalent of eighty cents per week per year until the demographics stablilize…. that meansuntil the tax rate catches up with increasing life expectancy and, yes, lower increases in workers wages.
That “workers wages” may be the core problem, but it’s pretty damn stupid to destroy Social Security, which works, and which was invented to give people something to live on during hard times… to destroy it while waiting for Godot to fix the wage problem.
The politics of this ought to be pretty obvious, even to those “progressives” who think the way to improve the lives of the poor is to “protest” and call for “tax the rich”…
as long as the rich think that SS is welfare and that they are paying for it, they are going to try to cut it. they are certainly not going to volunteer to pay for it. and if the unlikely happened and you did “scrap the cap” the rich would then “own” Social Security, which would then be welfare just like Pete Peterson always said, and it would be cut and cut and cut until it no longer functioned as meaningful retirement insurance.
FDR created Social Security to be NOT welfare exactly for this reason. FDR was a good deal smarter than the current “defenders of Social Security,” who are locked into a welfare mindset. the fact that Social Security as NOT welfare has been the best anti poverty program ever invented is completely wasted on them. they cannot rest until “the rich pay for it.”
and i got through this whole rant without casting contempt on those who learned about “progressive taxation” as sophomores and now think they have said something clever when they call Social Security a “regressive tax, regressive tax, regressive t..”. And don’t even get the point when I say “the payroll tax is not a tax.”
I am with you Coberly and agree with everything you say about social security and the politics of it. The facts are that Romney was right when he said that the only way to fix the deficits is to grow the economy. The problem is that capitalists do not want to grow the economy–they are making profits hand over fist and as long as the unemployment rate remains high they do not have to share those profits with labor. It is exactly what happened with “free trade” which freshman in economics learn benefits both countries, but which in practice has meant that the capitalists have taken all the benefits and used it to cut labor’s share of the domestic economy’s profits as well. Indeed despite all the wailing on the fringe right, I fully expect that immigration reform will pass not because of the GOP/Dems politics but because it helps keep up the supply of labor willing to work for low wages that can not be outsourced to Asia. Lets have an honest debate about fair rates of income taxes rather than whining about social security. Indeed the way social security comes into play is that the capitalists no longer provide their workers with pensions so social security becomes more important. Not only to the elderly but to the young people who are not rich and whose best chance of earning a living is if all the baby boomers do not cease spending money on turning 65.
just thought i should admit that i bought the “free trade” argument in freshman economics. the demonstration was so neat.
i never thought about it until after NAFTA. then i did think about it and realized i had been had.
i suspect my experience is not unusual: innocent freshman sold a cute argument. never thinks about it for years and years, and votes without thinking.
sadly, i think for many people that’s the end of the story. of course my ending might even be more sad: not only was i wrong, but i know i was wrong, and now i am looking at the world my not-thinking helped to create.
Heh indeed. for conservatives it is an article of faith that low taxes on the rich cause high growth. The complete absense of evidence for this claim has not and will not cause them to doubt it.
In fact top marginal tax rates are positively correlated with growth in the set of countries for which they are available (in the Picketty Saez data set).
for what it’s worth, I agree that “low taxes on the rich” (who else?) does not cause high growth. but every time i propose raising taxes to lower the debt i get screamed at by right and left.