Phillip Swagel, assistant treasury secretary for economic policy, spoke yesterday to the National Association of Publicly Traded Partnerships and, according to BNA RealTime, repeated two of the mantras of the tax-cuts-for-capital club.
first, Swagel urged the party line on low taxes on capital gains to encourage savings and "to remove a bias away from capital income". The usual argument for there existing a "bias" is that the US system has a corporate tax, so that a tax on capital invested in corporations is a "double tax" on the holders of the corporate interests. Fact is, of course, that many corporations pay no tax at all on their income, as a result of a combination of agressive tax planning and legislated corporate welfare, including the "paper" deductions created by the many Bush accelerated write-offs for investments. Furthermore, there is not much support for the notion that shareholders bear the corporate tax- studies show a minimal effective tax difference for investments held through corporations and other investments. So with the very low preferential tax rate for capital gains, the very low tax on dividends paid to shareholders, and the very low effective tax rate for corporations, talk about a bias against capital in our system is mostly hot air. In fact, with the significant preference for capital gains and the regressive nature of the payroll taxes, among other features, our overall system is really biased in favor of taxpayers who have mostly capital income and against taxpayers who have mostly wage income. Since the latter group of ordinary salaried workers make up the majority of taxpayers, the system is biased in favor of the elite at the top of the income distribution who aren't paying their real share of the tax burden.
Second, Swagel repeated the fearmongering on Social Security that is becoming so common that it reminds me of the talk about weapons of mass destruction before Bush undertook his preemptive attack on Iraq. Swagel warned that "entitlement spending must be dealt with", again according to the BNA report. Now, interestingly, this is a statement that leaves out one entire side of the equation by suggesting that it is the "entitlements" that are the problem. Remember that we created Social Security as a safety net to ensure that elderly and disabled Americans would not be thrust on meager private charity for their subsistence. The vast majority of Americans are still very much in favor of maintaining the kind of social net that Social Security and Medicare provides. And the projected shortfalls of both systems, though large, may not even materialize, if the trustees' conservative projections prove too conservative. A small shift in the economy can make enormous differences in predictions about funds available in 20 or 30 years. Furthermore, we can (and should, in my opinion) take reasonable and fair steps now to ensure that there will not be a problem in addressing these needs in the future--by removing the cap on payroll taxation, and changing it from payroll to an income basis (and so including capital gains).
One can expect this kind of rhetoric to continue, however, at least through the election. Americans are not very well educated about taxes, and it is terribly easy to distort a tax statistic or present information selectively to support the conclusion desired. Sometimes it happens by mistake, but frequently it is associated with an attempt to push a particular policy perspective. We need straight talk about taxes and our social net, not fearmongering, but we are not likely to get it.
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