SALON

Taxes

Monday, Feb 9, 2004 9:00 PM UTC

“Perfectly Legal” by David Cay Johnston

A Pulitzer-winning New York Times reporter argues that the rich have ruthlessly rigged the tax system against the rest of us. Aren't you shocked?

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In 1913, the year the United States created the federal income tax, a small company near Chicago, CCH Inc., published a handy little volume documenting every tax regulation newly on the books. At 400 pages, the “Standard Federal Tax Reporter” wasn’t exactly a brisk read, but CCH’s publishing decision proved prescient. Federal taxes, it turned out, were an idea with permanence; the U.S. tax code, in all its future labyrinthine intricacies, would be a growth industry. In the 91 years since it was first published, CCH’s “Tax Reporter,” now the tax accountant’s Bible, has expanded nearly exponentially by the divine right of Congress; the 2003 volume outlining every tax rule in the land drones on for 45 times the length of the Good Book — almost 55,000 pages.

David Cay Johnston, the New York Times’ chief correspondent in the tax world, is fascinated and reviled by the people who live their lives in the thicket of regulations outlined in these 55,000 pages. Since the mid-1990s, when he took up his post, Johnston has been covering (or, better, uncovering) the mostly shameless, though often brilliant, antics of the leading experts in tax arcana — the nation’s elite accountants and lawyers who seek novel methods for their clients to avoid, if not evade, taxes. Now, in “Perfectly Legal,” his new book on taxes, Johnston paints a picture of a system that is, he writes, fundamentally “rigged to benefit the super rich.” For people wealthy enough to hire experts well versed in the thousands of pages of tax rules, life in America can be fabulous, Johnston writes. But the rest of us are “being duped into supplementing the incomes and extravagant lifestyles of the rich and powerful.”

In his work for the Times, Johnston, who won a Pulitzer in 2001, has cultivated a reputation for being the kind of reporter unafraid to speak truth to power. He is diligent, persistent, and has a network of sources deep in government and in the corporate world. Every couple of months, one of his masterworks of reporting — detailing some elaborate new corporate tax avoidance scheme, say, or revealing that the IRS audits more poor people than wealthy people — will land on the front page, causing hundreds on Wall Street to reach for the Maalox. Johnston’s work often alerts the government to the new schemes the rich are using to avoid paying taxes. In 2002, for instance, he discovered that a growing number of wealthy people were using loopholes in the laws governing the taxes on life insurance plans to pass tens or even hundreds of millions of dollars to their heirs, tax-free. Two weeks after Johnston reported the plan, the Bush administration shut it down.

Alas, “Perfectly Legal” is nothing like Johnston’s measured, balanced newspaper reports. Instead, the book is a populist screed — which, by itself, wouldn’t kill the pleasure, except that this is a screed we’ve all heard more eloquently elsewhere. When it comes to writing on corporate and conservative efforts to harness the economic engine of America for their own ends, Paul Krugman, the Princeton economist and Times columnist, is pithier and less confounding than Johnston; for all his faults, Michael Moore’s take on economic policy is at least (sometimes) funny. Johnston is erratic. “Perfectly Legal” is a puzzling book, at times serious and moralistic, at others sarcastic. Its main fault, though, is perhaps the most damning sin for any commercial book about the tax system — it’s just plain boring.

Johnston’s chief narrative device is the list; though he embellishes his prose with a smattering of what newspaper reporters might dismissively call “color,” his chapters tell no coherent story, and are merely enumerations of the sneaky tax tricks rich people try to pull. As a writer, Johnston is drawn to easy stereotypes. In “Perfectly Legal” a corporate executive is not just a man looking to make a lot of money, he’s elitist to the core, a man who never shakes hands “with anyone who got grease on theirs.” Blue-collar workers, meanwhile, are timid, obsequious, angelic creatures, the kind of people who wipe their hands clean when they get their “one big chance … to meet the boss.” The rich want money for Lexuses and yachts, the poor people want it for clothes and food. Those in the middle class — or, as Johnston refers to them, “you” — just want to make “ends meet.” It is possible to write about money matters with more deftness, to capture in the text the kind of real-life complexities that account for 55,000 pages of tax rules; William Greider did so in “Secrets of the Temple,” his magisterial account of the Federal Reserve Board under Paul Volcker, and Johnston clearly has the journalistic prowess to do something as ambitious on taxes. Instead, what Johnston intends with “Perfectly Legal” is a call to arms. “It is my hope,” he writes in the introduction, “that the truths revealed in this book will serve as a wake-up call to everyone who believes as much as I do in the principles our country was founded on.”

So will “Perfectly Legal” wake anybody up? Parts of it may, but it’s hard to imagine this book prompting a reformation in tax policy. One problem is that to casual students of economic affairs — who are the only people likely to read this book — much of what Johnston discloses is already known. He does a couple of lengthy takeouts on the wealth gap (the fact that the rich keep getting “fabulously richer,” and that, in the past three decades, the average middle-class wage has increased by a paltry $90 a year), but these feel like recycled Krugman lines. Johnston’s prose is laden with statistics, and though some of those stats are astonishing (for example, the richest 13,000 households in the country own about 5.1 percent of the nation’s wealth), there is a dearth of explanation for how, and why, things got to be this way.

Johnston is best when he focuses on some of the least known and most egregious perks for the wealthy hidden in the tax code. There is an engaging section on the loopholes business executives use to get great deals on corporate jets. “Under the rules set by Congress,” Johnston writes, “flying in the luxury of the company’s Boeing 737 Business Jet is often cheaper than the middle seat in coach on a commercial airliner.” Under the tax rules, executives pay nothing to use a company’s corporate jet, even if they use it for pleasure (which Johnston says is not an uncommon practice). Instead, the executive pays only income taxes on the cost of the trip — something like $500 for a flight from New York to Paris, for example. But such a trip would cost a company’s shareholders at least $30,000, and since those shareholders get to deduct these expenses from their tax returns, “all taxpayers pick up 35 percent of the true costs,” Johnston writes. Taxpayers, then, pay at least 10 times as much for the executive’s personal trip as he does himself.

Johnston reports that when Congress devised these rules in the 1980s, some lawmakers warned that executives would abuse them. But powerful Republicans, including Bob Dole, argued that “flying in a corporate jet was less fancy than flying in first class,” Johnston writes. On the floor of the Senate, Steven Douglass Symms, Idaho’s Republican senator, proclaimed that business jets were pretty ghetto: “We talk about the lavish comfort of flying in corporate jets,” Symms said, “however, I think sometimes we should remember that some of these corporate jets, such as one I am familiar with in Idaho that a food processing company owns, will barely seat eight people.”

It’s astounding that lawmakers have so blatantly defended the privileges of the wealthy; it’s more astounding, though, that the public barely reacts to such news — and that, indeed, the federal government is now run by Republicans whose entire domestic agenda consists only of wet kisses to the wealthy. Why have average Americans stood idly by while the rich got enormously richer? This question pops up throughout “Perfectly Legal,” and Johnston provides only a throwaway answer. The news media, he says, haven’t reported on how rich America’s wealthy people really are, and how they use their power and influence to shape public policy. Now, Johnston, if you recall, is a reporter at the New York Times — if the media’s really partly at fault for rising inequality, is he willing to shoulder some of the blame?

To be fair, Johnston is probably right that the media has something to do with this, but I suspect he’s got the link backward: The problem is not that the press lacks the hunger to go after the rich (as Johnston’s work proves, the press does a pretty good job of reporting on rich people’s excesses). The problem is the people; we lack the drive to go after the rich, and that accounts for the current media and political atmosphere. This is a pretty straightforward observation — when was the last time a presidential candidate ran successfully on a populist platform? (Al Gore doesn’t count) — but Johnston barely addresses it.

The problem, I suspect, is the 55,000 pages. Taxes are — perhaps necessarily — a complicated business, and politicians can skillfully hide huge breaks to the rich in tax packages that appear to provide much-needed help to the poor and the middle class. George W. Bush, of course, has elevated this deception to a high art. His last tax cut, which provided hundreds of billions for the wealthy, also almost fully erased the income tax bill for a family of four. You can try to tell the electorate that it’s being screwed, but you’ll do so at your peril.

Johnston touches on the difficulty of explaining taxes to the masses. In his chapter on the estate tax, he does note that even though the tax applies only to the extremely rich, a majority of Americans supported its repeal, many under the false assumption that they’d have to pay it when they died. (Support for the abolition increased when Republicans, on the advice of pollster Frank Luntz, began calling it the “death tax.”) This is an amazing statistic; it explains why even some members of the Congressional Black Caucus, who represent almost nobody who would ever have to pay the estate tax, supported its repeal.

Johnston says that simplifying the tax code is the only way out of this mess. Complexity “benefits the rich,” he writes, “the well advised and the well connected.” He’s right, and overhauling taxes would be a nice idea (one that, incidentally, many conservatives have been advocating for a long time). But there are huge vested interests in the current system, and unless there’s a political will to take on taxes, wholesale reform is never going to happen.

What we need, really, is a gifted populist politician who can cut through the thousands of pages of tax rules to let people know that the game is rigged. And, who knows, maybe we’ll get one of those in the next election. Sen. John Edwards, who can’t go a minute without noting that his father was a mill worker, has been getting good marks for his “two Americas” stump speech, and Howard Dean, who has raised millions from small-time contributors, is certainly well positioned to make the flawed tax system a primary part of a race against Bush. Even front-runner John Kerry, millionaire husband to a ketchup-fortune widow, could at least potentially fight Bush on this issue.

Whether the public will respond by demanding to soak the rich, though, is anybody’s guess.

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society. More Farhad Manjoo.

Wednesday, May 2, 2012 5:00 PM UTC

Kansas’ nasty new tax plan

Here's how it works when conservatives control everything: The wealthy get coddled and the poor get a bum's rush

By

Kansas is special. In most American states in which Republicans control the state legislature, the GOP busies itself with redistricting efforts designed to minimize the chances of Democratic electoral success. But in Kansas, the fight is over new districts cooked up to get rid of moderate Republicans. Similarly, nearly all Republican-dominated states are working hard to limit the ability of women to get abortions, but only in Kansas will you hear a state legislator compare rape to a flat tire.

Something is clearly the matter with Kansas, so it may be it’s not the wisest idea to go overboard extrapolating from the state’s behavior to potential developments on the national scene. On the other hand, if you’re wondering what complete Republican control of the U.S. government at the federal level would look like, Kansas does offer some clues.

Take taxes, for example. Last week, Kansas House and Senate negotiators agreed on a new tax plan that will sharply cut income taxes for wealthy state residents while at the same time raising taxes on the poor. The result, predictably, will be a shortfall in state revenue that will undoubtedly force additional cuts to state services.

The Center on Budget and Policy Priorities provides the analysis, but you don’t have to trust the left-leaning think tank for the spin. A newly formed group of retired Kansas Republican legislators are also declaring that enough is enough. The bottom line is this: If you’re wealthy enough and smart enough to structure your business affairs correctly, you can avoid both corporate taxes and income taxes. But if you’re poor, you will have to choose between whether you qualify for the Earned Income Tax Credit, or a state-funded rebate on sales taxes charged on groceries. One or the other! Not both! Because if there is a tax loophole that favors working-class Americans, we’d better close it!

The details are different, but the basic outline is similar to the ideas codified in Paul Ryan’s Mitt Romney-endorsed budget: We’ll pay for tax cuts for the wealthy by cutting services that help the poor. Romney might not be as conservative as Kansas Gov. Sam Brownback, but when the bills passed by a GOP-controlled Legislature start arriving on his desk, his response will be identical: He’ll sign it.

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Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Tuesday, Apr 24, 2012 11:35 AM UTC

A radical tax solution

The "centrist" Simpson-Bowles plan concedes too much to conservatives. What America needs is a consumption tax

By Alan Simpson (Credit: AP/Evan Vucci)

Nobody can complain that ideas are missing from the debate about American tax policy, which will heat up as the 2013 expiration of the Bush tax cuts approaches. There are plenty of competing ideas for tax reform. Unfortunately, most of the ideas are misguided.  America needs radical tax reform — but of a kind different from the conventional proposals offered by the center, right and left.

The dominant approach to tax reform is considered to be “centrist” and symbolized by, among others, the Simpson-Bowles plan.

In what is advertised as a grand bargain between the right and the left, tax rates will be lowered, to appease conservatives, in return for closing many tax expenditures or “loopholes” (for some reason this is presented as a concession to liberals). Revenue that would otherwise be sheltered from taxation by the abolished loopholes would, to some degree, raise overall federal revenue collection, even with lower rates.

Allegedly centrist tax reform plans like Simpson-Bowles are presented by the media as nonpartisan compromises by serious, thoughtful, public-spirited experts willing to speak truth to selfish special interests. In reality the Simpson-Bowles plan and similar schemes  are best described as center-right. Generally these plans call not only for closing loopholes that disproportionately benefit the rich, like the home mortgage interest deduction, but also for cutting essential government benefits for the middle class, like Social Security and Medicare.

Alan Simpson famously mocked Social Security as “a milk cow with 310 million tits.”

The bargain at the core of plans like Bowles-Simpson — lowering income tax rates while reducing tax expenditures — isn’t a genuine bargain at all. If it is a good idea to raise needed revenue by closing loopholes while lowering income tax rates, why not raise even more revenue by closing loopholes without lowering income tax rates?  This kind of “grand bargain” is not based on give-and-take among two sides equally flexible and willing to bargain. Instead, it requires the center and the left to engage in unilateral surrender to extortion by the uncompromising right.

If Simpson-Bowles represents the center-right in the tax debate, the radical right is represented by flax-tax plans like the “Fair Tax” that would replace most or all federal taxes with a single national consumption tax with a single rate. A national consumption tax ought to play a role in federal tax reform — but as an addition to the mix of taxes, not as a replacement for all other taxes. A single flat tax would be extremely regressive, dramatically shifting the burden of taxation from the rich to the middle class and the poor.

Compared to the center-right and the far right, the American left has been relatively uninterested in devising plans for tax reform.  One reason is the justified focus of liberals on what the political scientist Jacob Hacker calls “pre-distribution,” like the growing pre-tax inequality highlighted by the Occupy Wall Street movement. Another factor is undoubtedly the fact that, unlike many conservatives, progressives do not believe that tax policy is all-important for economic growth, to the exclusion of other factors, like public investment, trade policy, energy policy and education. To the extent that there is a consensus on tax reform among American progressives, it would seem to combine higher taxes on the rich with more tax breaks for the middle class as well as the poor — the “Buffett Rule” (a minimum tax on millionaires) plus an expansion of the earned income tax credit, for example.

Unfortunately, when it comes to taxes, many American progressives think with their hearts, rather than with their heads. They want a welfare state on a European scale, but ignore the fact that European social democracies do not rely for revenue primarily on steep income taxes. Instead, the most generous European welfare states derive their funding from three kinds of taxes:  income taxes, payroll taxes and a consumption tax, the value-added tax (VAT). In contrast, the U.S. federal government derives its revenue chiefly from only two taxes:  the personal income tax and the payroll tax. In the U.S., consumption taxes are used by state and local governments but not by the federal government.

Michael Graetz of Columbia Law School points out that “the United States is a relatively low-tax country, but not with respect to income taxes … We typically collect about 12 percent of GDP in corporate and individual income taxes, while the OECD nations average about 13 percent. The biggest difference is that most other nations rely much more heavily on consumption taxes than we do: 11 percent of GDP in the OECD compared to about 5 percent in the United States. Indeed, we are the only OECD nation that does not impose a national level tax on sales of goods and services.”

This raises the possibility of a fourth option for American tax reform, distinct from the phony centrism of Simpson-Bowles (closing loopholes while lowering rates for the rich and cutting entitlements for the majority), radical conservatism (the single flat tax) and conventional progressivism (relying for more revenue chiefly on higher personal income taxes combined with bigger tax credits). The fourth option would reject the goal of revenue neutrality and acknowledge that, in a nation with an aging population, federal taxes can and should be permanently increased to pay for Social Security, Medicare and Medicaid. (These, like the rest of the American healthcare sector,  need to be made solvent by price reduction and price regulation, not rationing). Much or most of the needed additional revenue should come from the adoption by the federal government of a VAT.  A federal VAT’s revenues could be shared with state and local governments, partly replacing existing sales taxes.

This approach to radical tax reform could take more liberal or more conservative forms.   In a 2002 article and a 2007 book,  Michael Graetz has proposed one version, a “competitive tax plan” (CTP), which the Urban Institute recently analyzed.

The Graetz plan would use the revenues from a VAT to eliminate income taxes on Americans who make less than $100,000 a year.  It would also lower payroll taxes, by means of payroll tax rebates that would offset the regressiveness of the VAT.  As the tax expert Bruce Bartlett notes, the Graetz plan would eliminate popular support for income tax expenditures by eliminating income taxes on most of the middle class:  “The important thing is the basic idea of avoiding a frontal assault on tax expenditures that is likely to make trench warfare seem tame by comparison and instead just make them irrelevant to the vast majority of Americans.” A VAT can also be used to cut corporate income taxes that discourage production in the U.S., an option that the Urban Institute and the New America Foundation’s Economic Growth Program analyzed in a 2010 study.

The Graetz plan is revenue neutral but it could be tweaked to raise more revenue overall or to be more progressive. Any plan that attempts to compensate for the regressive nature of a VAT by means of credits or rebates for working Americans that would be administered through the payroll tax would necessarily reduce payroll tax revenues for Social Security, Medicare and Medicaid. But that is a point in its favor. In a society in which more and more of the gains from economic growth are going to capital, rather than labor, it makes sense to shift from a system in which social insurance relies solely on payroll taxes to a new system in which it relies on a mix of payroll taxes and higher taxes on the consumption or non-wage income of the rich. Medicare has always been funded in part by payroll taxes and general revenues. Funding Social Security by general revenues or other dedicated taxes, in addition to payroll taxes, might permit not only income taxes but also payroll taxes to be permanently reduced for the majority of working Americans.

This approach to tax reform should appeal to progressives and genuine centrists for another reason. It would almost certainly doom the conservative project of replacing public social insurance programs with tax credits or private accounts subsidized through personal income tax expenditures, because only affluent Americans would pay income taxes and middle-class voters would no longer enjoy the benefits of those programs. Tax reform that limited income taxation to the affluent few could thus build support for the replacement of the unfair and inefficient private welfare state run through the IRS — a system that includes 401Ks, IRAs and tax credits for employer and individual health insurance — with a simpler, cheaper, more efficient system of public provision or public utility regulation in the fields of retirement security and healthcare.

Conservative Democrats and moderately conservative Republicans, masquerading as “bipartisan centrists,” have signaled that following this fall’s election they plan to push for the passage of tax reform along the lines of the Simpson-Bowles proposal in the lame duck Congress. But the American people deserve, and the American economy needs, a better option for tax reform than the pseudo-centrist proposal of further lowering tax rates on the rich while eliminating or capping tax expenditures.  Something along the lines of the Graetz plan that would use a federal VAT to cut both federal income taxes and payroll taxes for the working majority of Americans while providing adequate revenue for a twenty-first-century government is the truly radical tax reform that America needs.

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Michael Lind’s new book, "Land of Promise: An Economic History of the United States", will be published in April and can be pre-ordered at Amazon.com. More Michael Lind.

Monday, Apr 16, 2012 6:27 PM UTC

Scrap the lotto

Politicians encourage irresponsible gambling in order to avoid facing America's desperate need to raise taxes

By (Credit: AP/Paul Sakuma)

In the days following the historic Mega Millions lottery, there’s been no shortage of drama. Rather than capping off a crescendo of excitement, the drawing ignited an explosion of who-won-it speculation. News organizations breathlessly reported the stories of false victors, lost tickets and state officials envisioning a revenue windfall from possible winners in their income-tax jurisdiction. Almost completely ignored in the hysteria was any examination of America’s problematic obsession with lottery mania.

The word “obsession” is no overstatement. According to the Consumer Federation of America, one in five Americans believes playing the lottery is the best way to secure his or her long-term financial future. The nation is so devoted to this form of gambling, in fact, that ABC News reports a boom in lottery ticket sales even during a recession. That translates to a record $50 billion spent on lottery tickets every year.

At that level of spending, the lottery is being seen as an investment and the trouble is that from a financial standpoint, it’s the worst kind of risk to take, because the chances of a return are so slim. Buying a lottery ticket isn’t like purchasing a volatile stock or even like playing the slot machines — both of which provide a comparatively reasonable chance of occasionally winning. On the contrary, most lotteries give you odds that are quite literally worse than your chances of being hit by lightning. Considering that, using one’s dwindling income on lottery tickets is a near guarantee to make one’s economic situation far worse – and according to estimates, that chunk is a troublingly large share of income for those who can least afford it.

Cornell University’s Garrick Blalock explains the trend by noting “that when people are feeling desperate, they are more likely to stop by the gas station and buy five lottery tickets, hoping they get a big windfall.” It’s a wholly irrational hope, of course. But at an individual level, at least the initial impulse to buy into the jackpot fantasy is vaguely understandable – we are, after all, hard-wired to believe such fantasies, especially in a media environment that tells us our wildest dreams are just a single wager away.

What’s far less rational — and far more disturbing — is the decision by governments to encourage those destructive impulses.

The whole point of republican democracy is for deliberative representative bodies to make considered policy decisions – and not to succumb to reflex. Yet, according to Bloomberg News, our legislatures are “redoubling” their sponsorship and promotion of lotteries, knowing full well they exact a hidden levy on so many citizens.

Why? As with so many public policy issues, it all goes back to the demonization of taxes. Rather than level with the public about what kind of tax rates are needed to fund the basic services, politicians would rather try to raise revenues through fees on voluntary acts — in this case, the buying of lottery tickets.

While such a tactic circumvents the typical scorched-earth fights over raising traditional taxes, it creates two problems: 1) states aren’t able to raise enough money to fund services from lotteries, whose revenues are inconsistent, and 2) the lottery revenues they do generate are tied up in illogical funding schemes — the kind that force everything from schools to open space preservation programs to veterans benefits to rely on compulsive gamblers playing games of chance.

Under what public-policy logic does that make any sense? None — and no matter how many millions of dollars the next overhyped lottery promises to raise, that fundamental truth will not change. Pretending it will only further weaves gambling pathologies into our culture, puts off a long-overdue discussion of taxes — and makes addressing genuine budget crises that much more difficult.

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David Sirota

David Sirota is a best-selling author of the new book "Back to Our Future: How the 1980s Explain the World We Live In Now." He hosts the morning show on AM760 in Colorado. E-mail him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com. More David Sirota.

Thursday, Apr 12, 2012 8:29 PM UTC

Obama’s new Wall Street foes

Former allies are turning on the president now that he wants to close gaping tax loopholes for the 1 percent

By and President Barack Obama speaks in the Eisenhower Executive Office Building across from the White House in Washington, Wednesday, April 4, 2012, before he signed the Stop Trading on Congressional Knowledge (STOCK) Act. (AP Photo/Charles Dharapak)(Credit: AP)

Benjamin Franklin, who used his many talents to become a wealthy man, famously said that the only things certain in life are death and taxes.  But if you’re a corporate CEO in America today, even they can be put on the back burner – death held at bay by the best medical care money can buy and the latest in surgical and life extension techniques, taxes conveniently shunted aside courtesy of loopholes, overseas investment and governments that conveniently look the other way.

In a story headlined, “For Big Companies, Life Is Good,” the Wall Street Journal reports that big American companies have emerged from the deepest recession since World War II more profitable than ever: flush with cash, less burdened by debt, and with a greater share of the country’s income. But, the paper notes, “Many of the 1.1 million jobs the big companies added since 2007 were outside the U.S. So, too, was much of the $1.2 trillion added to corporate treasuries.”

To add to this embarrassment of riches, the consumer group Citizens for Tax Justice reports that more than two dozen major corporations  — including GE, Boeing, Mattel and Verizon — paid no federal taxes between 2008 and 2011. They got a corporate tax break that was broadly supported by Republicans and Democrats alike.

Corporate taxes today are at a 40-year-low — even as the executive suites at big corporations have become throne rooms where the crown jewels wind up in the personal vault of the CEO.

Then look at this report in The New York Times: Last year, among the 100 best-paid CEOs, the median income was more than 14 million, compared with the average annual American salary of $45,230. Combined, this happy hundred executives pulled down more than two billion dollars.

What’s more, according to the Times “… these CEO’s might seem like pikers. Top hedge fund managers collectively earned $14.4 billion last year.”  No wonder some of them are fighting to kill a provision in the recent Dodd-Frank reform law that would require disclosing the ratio of CEO pay to the median pay of their employees. One never wishes to upset the help, you know. It can lead to unrest.

That’s Wall Street — the metaphorical bestiary of the financial universe.  But there’s nothing metaphorical about the earnings of hedge fund tigers, private equity lions, and the top dogs at those big banks that were bailed out by tax dollars after they helped chase our economy off a cliff.

So what do these big moneyed nabobs have to complain about? Why are they whining about reform? And why are they funneling cash to super PACs aimed at bringing down Barack Obama, who many of them supported four years ago?

Because, writes Alec MacGillis in The New Republic — the president wants to raise their taxes. That’s right — while ordinary Americans are taxed at a top rate of 35 percent on their income, Congress allows hedge fund and private equity tycoons to pay only pay 15 percent of their compensation. The president wants them to pay more; still at a rate below what you might pay, and for that he’s being accused of – hold onto your combat helmets –  “class warfare.”  One Wall Street Midas, once an Obama fan, now his foe, told MacGillis that by making the rich a primary target, Obama is “[expletive deleted] on people who are successful.”

And can you believe this? Two years ago, when President Obama first tried to close that gaping loophole in our tax code, Stephen Schwarzman, who runs the Blackstone Group, the world’s largest private equity fund, compared the President’s action to Hitler’s invasion of Poland.

That’s the same Stephen Schwarzman whose agents in 2006 launched a predatory raid on a travel company in Colorado. His fund bought it, laid off 841 employees, and recouped its entire investment in just seven months – one of the quickest returns on capital ever for such a deal.

To celebrate his 60th birthday Mr. Schwarzman rented the Park Avenue Armory here in New York at a cost of $3 million, including a gospel choir led by Patti LaBelle that serenaded him with “He’s Got the Whole World in His Hands.” Does he ever — his net worth is estimated at nearly $5 billion. Last year alone Schwarzman took home over $213 million in pay and dividends, a third more than 2010. Now he’s fundraising for Mitt Romney, who, like him, made his bundle on leveraged buyouts that left many American workers up the creek.

To add insult to injury, average taxpayers even help subsidize the private jet travel of the rich. On the Times’ DealBook blog, mergers and acquisitions expert Steven Davidoff writes, “If an outside security consultant determines that executives need a private jet and other services for their safety, the Internal Revenue Service cuts corporate chieftains a break. In such cases, the chief executive will pay a reduced tax bill or sometimes no tax at all.”

Are the CEOs really in danger? No, says Davidoff, “It’s a common corporate tax trick.”

Talk about your friendly skies. No wonder the people with money and influence don’t feel connected to the rest of the population. It’s as if they live in a foreign country at the top of the world, like their own private Switzerland, at heights so rarefied they can’t imagine life down below.

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Bill Moyers is managing editor of the new weekly public affairs program, "Moyers & Company," airing on public television. Check local airtimes or comment at www.BillMoyers.com. More Bill Moyers.

Michael Winship is senior writing fellow at Demos and a senior writer of the new series, Moyers & Company, airing on public television. More Michael Winship.

Wednesday, Apr 11, 2012 4:25 PM UTC

The Buffett rule, explained

Obama's plan to tax the rich won't become law any time soon, but will still play a major role in the campaign

By President Obama shakes hands with supporters after speaking about tax fairness and the economy in Boca Raton, Florida, on Tuesday. (Credit: Reuters/Kevin Lamarque)

1) What is the Buffett rule?

Inspired by financier Warren Buffett’s revelation that his secretary paid a higher percentage of her income taxes than he did, the Buffett rule is a change in the tax code designed to ensure that the wealthiest Americans do not pay a lower share of their income in taxes than members of the middle class. According to a report released by the White House on Tuesday, 22,000 American households made more than $1 million in 2009 but paid a tax rate of less than 15 percent.

2) How is that possible?

Income generated from capital gains and dividends is taxed at a lower rate than wages and salary. The wealthiest Americans earn considerable income from their return on such investments.

3) How would the Buffett rule work?

By changing the tax code. The Paying A Fair Share Act of 2012 would create “a minimum effective tax rate for high-income taxpayers.” Regardless of whether their income derived from long-term capital gains, dividends, wages or salary, Americans earning over $2 million a year would be required to pay a tax rate equal to 30 percent of their total income. Americans earning between $1 million and $2 million would pay a graduated rate approaching 30 percent.

4) What impact would the Buffett rule have on the nation’s finances?

Trifling. Estimates of how much tax revenue would be generated by the Buffett rule range from $47 billion up to $160 billion over 10 years. Letting the Bush tax cuts on Americans earning over $250,000 a year expire would, in contrast, raise $800 billion over the next10 years.

5) What are the downsides of the Buffett rule?

From a progressive perspective, the downside is that the measure will not raise enough revenue to make a meaningful difference in the federal budget; the Buffett rule, in other words, won’t solve the problem of paying for increasing Medicare costs. Conservatives argue that higher taxes on the wealthy will depress investment and thus hurt job creation, but the evidence for that assertion is weak.

6) What are the chances that the Buffett rule will become law?

Zero. The Senate is scheduled to vote on the Paying A Fair Share Act of 2012 next week, but Democrats will be unable to reach the 60 votes necessary to break an inevitable Republican filibuster.

7) So what’s the point?

President Obama’s push for the Buffett rule is a strategic campaign move designed to capitalize on populist resentment generated by growing income inequality in America and to draw a sharp contrast between himself and Republican presidential candidate Mitt Romney, who only paid 14 percent of his income as taxes in 2010, on income of $42 million. It’s politics, pure and simple.

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Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

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