Saturday, 4 February 2012
Romney - Tax Rates & Faith
In many ways Republican contender Mitt Romney reminds me of our current Prime Minister John Key. Romney may be many times wealthier than Key (Key however is a big fish in the New Zealand pond), but like Key he made his money trading. And as we know wealthy people must know about business and job creation? Like Key he has been a beneficiary of tax cuts to the rich. These tax cuts, often funded by massive state borrowing have seen a growing decline in real wages for ordinary people, while at the same time the super wealthy have seen their wealth dramatically increase. The logic behind this rising inequality is the belief that the super rich are drivers of growth.
Under reforms made by President George W. Bush, dividends, capital gains and other returns on investments Romney made as head of Bain Capital are subject to a marginal rate of 15 %, compared to 35 % for regular income above US$379,150. After Warren Buffett, the billionaire investor, complained that he paid a lower tax rate than his secretary, a so-called ‘‘Buffett Rule’’, closing the loophole, was proposed last year by President Barack Obama but is opposed by Republicans, including Romney.
In any event the incredibly wealthy Romney could potentially be a leader of the most powerful nation in the West. He is a devout Mormon and as such believes the following: The Book of Mormon is considered by the Church of Jesus Christ of Latter Day Saints to be a divinely inspired book of equal value to the Bible. Joseph Smith, founder of Mormonism, claimed that he was directed by an Angel to a hill near his home in which he found golden tablets containing the full text of the book. With the plates he found two objects called the Urim and Thummim which appear to have been like a pair of magical spectacles, which enabled him to translate the ancient writing on the gold tablets. Unfortunately, but conveniently for Smith after he finished his translation, he had to return both the spectacles and the plates to the Angel, so there is zip physical evidence that they ever existed. Incidentally while America may have been the birthplace of Joseph Smith, it was also the birthplace of P.T. Barnum, who is credited with saying, "There's a sucker born every minute."
While Romney's Mormonism may be weird and does suggest that if one believes that one could believe anything, what causes more concern is his belief as an article of capitalist faith that if taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we "know" to be true are wrong. For the larger part of human history, for example, people believed that the sun circled the Earth with the earth being at the centre of the universe. It doesn’t, and it isn't. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
You might be a very successful venture capitalist and help start a dozen companies and hire hundreds of staff. But if no one can afford to buy what you have to sell, your business will soon fail and all those jobs will evaporate.
You see ultimately rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the relationship between customers and businesses. Only consumers can set in motion the environment that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than Mitt Romney will ever will be.
True, one cannot have a dynamic and growing capitalist economy without entrepreneurs and investors. But without consumers, you can’t have entrepreneurs and investors. And the more we have consumers with lots of disposable income, the better businesses will do.
That’s why our current policies appear flawed. As in New Zealand we see in America the middle class defending a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation. In the meanwhile while most of us are getting squeezed the rich get richer.
Since 1980, the share of the United States income for those in the top 0.1 percent has increased 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In Romney's case, that meant that last year, he paid around a 15 percent rate on his eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough of the superrich to power our economies. The annual earnings of people like Romney are hundreds, if not thousands, of times greater than those of the average American, but he does not buy hundreds or thousands of times more stuff. His family may own 15 cars, but you can be sure he won't own several thousand. He might own many trousers and shirts and may well buy more every years and like everyone else, he may go out to eat occasionally with friends and family. The point being no matter how someone who is extremely wealthy, like Romney, spends their money they can never do do in a way that creates a significant lift in job creation.
Ultimately wealthy businesspeople don’t create jobs. Middle-class consumers do, and when they thrive businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich. Yet Key and Romney favour a system that cements their own wealth at the expense of the majority. They do this as a concomitant of their belief that they alongside other members of the wealthy elite are the drivers of growth. In doing this they have forgotten that capitalists without customers are out of business.
To my mind while Romney may believe in some weird space Jesus and follow a religion founded by a snake oil salesman, it is more worrying that he believes that by virtue of being mega rich he should enjoy a favoured tax status compared with ordinary people. The issue here is not class envy, hating a rich person because they are rich, but class interests – cementing the advantages of the privileged over the rest. The problem is not personal, it's systemic. In the current climate, politics in the West appears largely controlled by wealthy people in business who decide which wealthy people in power they would like to tell poor people what they can't have because times are hard. While at the same time cementing class privilege for the wealthy because they are after all - the job creators, when this is patently not the case .