“My View” from the June 8, 2012 edition of “Viewpoint with Eliot Spitzer.”
Here’s what we can say about the U.S. tax code: never have so many done so much for so few who need so little. Never have the wealthy gotten away so easily.
As David Cay Johnston just told us, in 2009 there were six families with incomes over $200 million a year who paid no taxes at all. And the average rate of the top 400 families, who averaged $200 million in income, is a mere 19.9 percent. That compares to the 35 percent paid by the average top-bracket taxpayers who earn something around $375,000 a year.
If you think this isn’t just unfair but also counterproductive — when we are running big deficits and can’t afford basic investments in education — join the club.
To clarify my conversation with Mr. Johnston, much of the advantage the wealthiest taxpayers get is a result of the fact that we tax capital gains — investment income — at 15 percent, but ordinary income at rates up to 35 percent. This loophole is the key reason Mitt Romney only pays about 15 percent of his income in taxes.
So here is a modest suggestion: eliminate the capital gains differential — tax all income the same way. This is hardly a radical idea. As you heard, Ronald Reagan supported it. And the bipartisan Bowles-Simpson commission did as well.
The argument rolled out by those against this is that we need to create an incentive to get people to invest and the lower tax rate is just what they need. But here is their problem: there is no evidence at all to support their view. None. They are simply wrong. Hence Reagan’s support for our view.
Those who take the other side are like the Russian economist who opposes an idea by saying it works in practice but it doesn’t work in theory.
Well, they are wrong in practice and theory.
And here is a little data point that proves it: even with all the incentives we have given to those who control capital, there is over $2 trillion sitting on the sidelines not invested. The so-called “job creators” haven’t created jobs. Instead, they’ve pocketed the cash. Why? Not because of the tax code, but because you don’t hire people to produce more widgets if nobody is buying them. This is a demand crisis. Demand drives investment, not the existence of a lower capital gains tax rate.
So let’s strike a blow for fairness and the economy — and eliminate the biggest gaping loophole in the tax code. Reagan, Bowles-Simpson and a lot of taxpayers would be happy.
That’s “My View.”