Pundits are understandably fixating on Mitt Romney’s admission Tuesday that the tax rate on his income is “probably closer to the 15 percent rate” and that the over $370,000 he made in speaker’s fees last year was “not very much” of his income.
Much of the coverage has, I think, been misguided. For example, on NPR’s “The Takeaway” Wednesday morning, the anchor said Romney has been criticized for only paying 15 percent. I can’t speak for others, but I don’t think that’s the problem. No one I've heard has argued that Romney did anything wrong or illegal. No one is suggesting these are ill-gotten gains.
The point is one of economic justice.
The question is not “Is Romney doing something wrong?” but “Is this the right policy?” Romney simply presents a particularly stark example of the policy. And he happens to be running for president.
This is a man who, as he jokingly put it, is “unemployed.” He has been running for president for the last 5 years, but his investment income last year was somewhere between $5.5 and $37.3 million. (Some reports state that he receives $26 million a year from Bain, even though he has not worked there in over a decade.)
As Romney explained, “my income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual.” In short, Romney’s money is making money, and that gets taxed at the lower, 15 percent rate.
According to our tax laws, such income—that which comes not from work but investment—gets preferred treatment in our tax code. Should it?
The standard defense of that policy is a practical one: if we want to encourage investment, we should tax income on investment at a lower rate, thus producing more investment and (hopefully) more economic activity.
The objection, on the other hand, is moral: is it right for government to give preferential treatment to income that comes not from daily labor but from the inherent advantage that accrues to those who already have money?
This is an old question in American politics. Since the earliest days of the republic, Americans have debated the relative virtues of various means of making a living, and whether government policy should prefer one over another.
Andrew Jackson is perhaps the best example of an American president with a clear, unequivocal preference on that score. Newt Gingrich got boisterous applause from the South Carolina debate audience the other night when he said that Old Hickory’s attitude toward enemies of the US was “Kill them!” Had he cited Jackson’s attitudes toward workers, I suspect he would have gotten a rather different response.
Shortly after leaving office, Jackson wrote that unless “labor prospers, commerce and manufacturers must languish and the country be distressed. This is a government of the people, for their happiness and prosperity, and not for the sake of a few, at the expense of the many.” For Jackson, it was clear: the well-being of workers was paramount.
Jackson had a life-long disdain for people (especially bankers) who made money with money (though he was not above some land speculation himself), and for government policies that rewarded them:
It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes…. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and more powerful, the humble members of society—the farmers, mechanics, and laborers—who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.It is this question that we should be discussing: what economic policies produce justice? Newt Gingrich inadvertently began such a discussion with his attacks on Romney’s time at Bain. He has now backed off, due to the nearly unanimous condemnation of the GOP establishment, and switched to the evidently more "respectable" racial dog whistles.
This one form of income, capital gains, disproportionately benefits the wealthiest Americans. Alec MacGillis notes in The New Republic: “Half of all capital gains in the past 30 years have been claimed by the top tenth of a percent of taxpayers. (No, that's not a typo.)” Is this not an example of a law that undertakes to add an artificial distinction that makes the rich richer?
By shutting down any such debate in the primaries, the Republican Party in all likelihood is ceding this ground to President Obama in the fall campaign. They are poised to nominate a man who says, with all sincerity, that over $370,000 a year in speaking fees is “not very much” income, who proposes to lower the tax on that income from 35 percent to 25 percent, all while keeping the tax on his millions in investment income at 15 percent.
As I wrote last August, during the kerfuffle over Mitt’s new house: “the problem is not that Romney is rich. It is that he is rich and advocates policies that primarily advance the interests of the rich.”
Not only does Romney not have a good answer to the question of whether it is right to treat capital gains differently from earned income, he does not even understand the question. In his world, no one would even ask it. It is just as perplexing to him as the questions about Bain’s business tactics. Both seem self-evidently good to him, and people who challenge his views are merely envious.
Such an opponent might tempt Obama, who has already tried to claim the memory of the Republican Progressive Theodore Roosevelt, to channel Andrew Jackson, too.
As the first Democratic president, Jackson praised the “labouring classes” for taking “a noble stand against the corrupt money power.” In that, Jackson saw “ample proof that the peoples [sic] eyes are opening to the corruption of the times—the danger of their liberties from the mony [sic] power, and their determination to resist it…. Fear not, the people may be deluded for a moment, but cannot be corrupted.”
Romney, in his words, in his business record, and in his policy proposals, is emerging as the modern-day embodiment of the money power, leaving the "humble members of society" ripe for the electoral picking.