Tuesday, December 13, 2011

Newt Gingrich's economic plan

I hope I didn't give the wrong impression earlier, that the only reason to dislike Newt Gingrich is because he has the moral sense and the ethical sense of a toad.

No, those are just minor details, interesting mostly because he's running as this great "family values" supporter, defending America from, you know, gay marriage and freedom of religion. Well, the Republican base just eats this stuff up.

But if you really want to know why Gingrich would be such a disaster, check out this Yahoo News article about his economic plan, which he released last May, when no one paid much attention because they didn't think that even the Republicans would be dumb enough to nominate him.

But that was then and this is now. Right now, Newt Gingrich is the front-runner - pretty much by default, as Republicans ran out of other anyone-but-Romney candidates. So lets look at some of the features of his economic plan.

1. Gingrich wants to eliminate the tax on capital gains. Guess who that would benefit the most? (Hint: it's not you.) Yup, the rich - and especially the super-rich - tend to make most of their income as capital gains.

One of the reasons the rich pay a lower tax rate than you do is because capital gains are currently taxed at a maximum of 15%. It used to be half the tax you pay on wages, but that wasn't a big enough break for the super-rich, so it was changed to a flat 15% some time ago.

But even that is too much for Newt. He wants the rich to pay no taxes on capital gains. And not just capital gains, either:
The move would be a boon to the managers of private equity funds--one of Wall Street's most lucrative financial structures. Private-equity managers make around one-third of their money from the firm's profits, which are reported as "carried interest," meaning they count as capital gains.

"Carried interest" isn't really capital gains, but that's how it's considered for taxes. It's this enormous loophole specifically designed to benefit billionaire hedge fund managers. (When Barack Obama suggested closing this loophole, one hedge fund manager compared it to Hitler's invasion of Poland. Coincidentally, that was the same guy who threw himself a $3 million birthday party in 2007.)

Just for the record, I live on investments, myself, so I take advantage of the very low rates on capital gains. If I had to work for a living, I'd pay a lot more in taxes. But even though I benefit personally, I don't think this is right.

Also, note that any investments you have in an IRA or 401-k will not get the benefit of low capital gains rates. Sorry, but when you retire and start removing that money, it will be fully taxed at normal rates. Well, it's your own fault. You should have been born rich.

2.  But that's clearly not enough benefit for the wealthy. Gingrich also proposes slashing corporate tax rates from 35% to 12.5%. Note that corporations don't actually pay 35% now, since there are abundant deductions and other tax loopholes. Many profitable corporations pay no federal tax at all, or even a negative tax rate, with the federal government actually paying them.

On paper, America has one of the higher corporate tax rates in the world. But if you look at what corporations actually pay, it's one of the lowest. And who benefits from low corporate taxes? Who owns most of the stock in American corporations? Yeah, overwhelmingly, it's the wealthy.

3. Gingrich proposes an option where Americans can pay their current tax rate or else a flat tax of 15%. This will overwhelmingly benefit high earners. Presumably, if they're paying zero on capital gains, wealthy investors won't need this. But CEOs who are taking home a salary of a million dollars a year would benefit hugely.

Obviously, a flat tax has the poor and the middle class paying at least as much as the wealthy are  paying (often more, depending on how much of the latter's income comes from capital gains). So this benefits those wealthy who are too dumb or too lazy to take advantage of the other perks Gingrich plans to give them.

And note that none of these things will bring in as much money as the current system, so the federal deficit will skyrocket.

Also, although Gingrich suggests that this will simplify tax preparation, the reality is just the reverse. Most of us would have to calculate our taxes both ways, just to see which one saved us the most money. So you get a giveaway to the rich combined with making your taxes even harder to figure out. Nice, huh?

4. This isn't in the Yahoo article, but it's on Gingrich's own website. Apparently, all these giveaways to the rich aren't enough, so Newt also proposes ending the estate tax! Yes, it's not just a matter of helping today's rich, but he also wants to create a hereditary aristocracy in America.

Now, if your father was a billionaire, or your grandfather, or your great-grandfather, or... well, any of your ancestors, none of your inheritance will be taxed and you'll never have to work a day in your life yourself. And you can pass that down to your kids, too.

Of course, since you'll be living on investment income and the capital gains tax rate will be zero, it will be pretty easy to hang on to that money, too, and to grow it. Oh, did I say you? Sorry, no. Unless you were lucky enough to be born rich,... well, someone has to pay taxes, right? Guess who that's going to be?

5. But at least maybe you'll have a job, right? No, I'm real sorry about that, too, but Gingrich plans to end that part of the Fed's duties:
The Federal Reserve has two tasks under the law: to keep inflation low, and to achieve maximum employment. Gingrich wants to end that "dual mandate," so that the central bank would focus solely on inflation.

You see, the rich don't need jobs. It's just little people like you who need jobs. So why would we want the Federal Reserve worrying about jobs? Honestly, sometimes you people just don't make any sense.

6. Are you starting to get the idea? Do you see why Newt's moral and ethical lapses really don't matter at all? Do you worry about a mosquito bite when a pride of lions is eating you alive?

Here's another Gingrich plan: he wants to repeal the Dodd-Frank financial reform law, "an effort to tighten regulation of Wall Street in the wake of the financial crisis." Don't you understand that banks don't need regulation? Don't you know that they'll just naturally do the right thing?

Hmm,... do you think maybe we've heard that before, like during the Bush administration, before the Wall Street meltdown that required American taxpayers to bail out those very same banks? Well, you don't think they'd make that same mistake again, do you, just because we stopped regulating them this time?

7. There are other things on Gingrich's website as well, like making the Bush tax cuts for the wealthy permanent. (Haven't the "job creators" done such a great job so far with their windfall? Don't you like the way the economy has been booming the past ten years?) But considering all the rest of this stuff, that's hardly worth mentioning.

Do you see why I don't think that Newt Gingrich's moral and ethical flaws matter in the slightest? His economic plan would be such a disaster for our country that his unsavory character would be the least of our problems.

1 comment:

Jim Harris said...

Republicans have been having a wet dream to get rid of capital gains for years.

This is a great post, Bill. It lays out exactly what the Republicans want. My question is why do we let them get away with it.

Essentially the rich are like kudzu that wants to cover ever dollar in America.