Op-Eds Speaking Truth to the Powers-That-Be

It’s not the 47%, Mr. Romney. Wealthfare Recipients Take Far More from the Government

Mr. Romney’s “47%” jab that there are the bums and shirkers that cannot be turned to his selfish world-view has filled both airwaves and ink with comment, but it’s not the news. What Mr. Romney forgets, and the mainstream media neglects to mention, is that he and the richest Americans are the biggest of the welfare queens out there.

Who takes money from the government? Not 47%. It’s pretty much 100%. We all use “free” services of the government at one point or another in our lives, from a vaccination to trash collection on a city street to the rescue boat that saved your kid from drowning.

It’s the 3% though, those who make over $200,000 a year in that mythical Romney “middle” class, who receive the single biggest form of wealthfare in the United States:

The entitlement known as the capital gains tax.

Here is how the game works, in English: Capital gains are generally taxed at a preferential rate in comparison to ordinary income like your pay check. Payroll incurs far higher tax rates, withholding, and set asides for Medicare and Social Security.

When a stock, bond, or mutual fund is ultimately sold, a capital gains tax is paid.  If you sell in less than a year, your capital gain is taxed at roughly the same rate as what the wealthy would pay in federal income tax, 33%, less the Medicare and Social Security payments, of course.  If the asset is sold, however, after longer than a year, that capital gain is taxed at only 15%.

Which takes what a wealthy person in a 35% tax bracket would pay and adjusts it down to 15%, about what a person making up to $35,350 a year pays.

But wait! There’s a secret: Shhhh… Actually, the well-heeled pay even less.

The federal government gives investors a bonus.  They are allowed to deduct 100% of their losses in bad stock market investments against their gains.

Let’s say Mitt Romney bought 1,000 shares of two stocks, American Lie Detector (ALD) at $10 and Big Tool Enterprises (BTE) at $10. So he has $10,000 of each. $20,000 total.

BTE doubles in value to $20/share in two years.  He sells for $20,000 gross. His capital gain then, on the stock, is $10,000, the profit that he made on his $10K over the two years.

The other stock, ALD, tanks in the two years. Mr. Romney sells it for $5/share, half of what he paid, leaving just $5,000 of his original  $10,000 capital investment.

Mr. Romney’s tax return, if we could actually see it, would show a capital gain of just $5,000, not $10,000.  Why?

The government allows investors to offset 100% of their losses against gains before calculating the tax due.

Instead of paying $1,500 capital gains tax on his gain in BTE, Mr. Romney only pays a $750.00  capital gains tax on the 5,000 that remains between his big gain and his big loss.

But that’s not all!  

Wealthfare gets even better.  The IRS allows carry over of losses in capital gains to future years.

Let’s say a President Mitt Romney let General Motors die. You were holding on to $200K worth of GM stock that was wiped out, but you had $100K  in capital gains on your other investments.  Not only would your capital gains tax for that year be $0, but the IRS allows you to carry forward the other $100K worth of your loss that you couldn’t use this year for use against future income in the next couple of years!

By contrast, if you went into a non-Wall Street casino, say in Vegas,  and gambled $10,000, and you made $300 the first day but you lost $9,700 the second, you could only report, for tax purposes, $300 of that loss. [1]

But wait! There’s more!

Unless you blew an audit, capital gains taxes aren’t subject to withholding.  If you won a prize like a car, you would be subject to a 25% tax and withholding of that tax by the payer of your winnings.

Congressional Republicans under George H.W. Bush passed a 53% reduction in capital gains in the 1990s. That wealthfare was supposed to trickle down to the masses in the form of greater purchasing power by the wealthy and stimulate the economy.  Like all trickle-down, it failed. [5]

Starting with the 2012 fiscal year, capital gains taxes will rise to 20% under a new law signed by President Obama, which closes this loophole a bit.  They drop only if you hold the asset for 10 years, which encourages investment, not  “day trader” speculation. Historically, that is still well below the 28% rate which capital gains income sources were taxed at for many years.

But wait!  There’s more!

Estate taxes and trusts are another big part of government wealthfare.

Steve Jobs was worth about $6.7B at his death.[2] Estate taxes for anyone who died in 2011 don’t start at the federal level until someone leaves more than $5,000,000 behind. Mr. Jobs estate would be valued around $6.2B at the time of his death for the purposes of estate tax.

If the tax system was straightforward, Mr. Jobs would owe $155,800 in initial taxation, and then 35% of $6.2B, or $2.17B of additional estate tax upon his death.  The government never sees a penny of that, though. [2]

If you have a spouse, or charitable foundations, the tax doesn’t really apply.  The money is passed on to the surviving spouse, usually sheltered 100% by a living trust, or to a charitable lead trust for a surviving spouse or a single person who wants to “take it with them”when they go by setting up trusts that pay out to their pet causes long after the wealthy have departed this world.

Corporations may not be people, but a trust is considered to be one.  They even call them “living trusts.”  They shuffle money from the deceased husband or wife to the surviving spouse and children, sheltering every last penny from IRS estate taxes.

If the rich don’t have family, or don’t like them, they can put the money into the hands of a charitable trust that can dole it out for causes as noble as curing cancer, to ignoble ones like the Coors Castle Rock Foundation, which funds the Tea Party and other far Right movements.

But wait!  There’s more!

Being paid by using stock options, not salary, as their primary income, is yet more wealthfare.

Executives like minimal salary and big stock options. Why?

Stock options from an employer give the recipient the right to buy a specific number of shares of that company’s stock over a time period and at a price that the company specifies,  usually at a discount to the “street” value of the stock.

In English: Stock A sells for a street price of $10.00/share.  The options are priced out at $7.00/share.

It’s a way of rewarding employees and board directors for actual performance, an encouragement to keep shareholder value high so options holders can cash in bigger on their work, and avoiding larger payroll and income taxes.

Executives don’t have to take their money for a while, either. Options are good for a period of time, often as much as ten years.  You don’t pay a dime of tax on this potential money until you exercise them to buy stock.

In 2001, Steve Jobs was granted stock options in the amount of 7.5 million shares of Apple with an exercise price of $18.30.  If he had taken the money at the time as payroll instead, he would have had an income that year of $137.25M. He took $1.00 instead, and his health benefits.

Mr. Jobs was given these options in 2001. Let’s say that he waited a few years to unload them, in December of 2009. The closing share price averaged $198.95 that month.

Now Mr. Jobs goes to “exercise” the option to buy the stock at that street price, buying $198.95 shares with his $18.30/share options.  He would just hold on to the stock for a year and then sell them, at which point he would have netted about $1.36B on the deal.

Now if Mr. Jobs took that as ordinary income, like your pay check, he would have paid $516.8M dollars in income tax. He also would have been subject to payroll taxes as well, and he would have paid into the Medicare and Social Security systems.

Since he gets the long-term capital gains tax though, not salary, Mr. Jobs would have only paid 15%, or $204M, less than half of that.  With other creative accounting, and carry-over losses, it might even be less than that, possibly zero.

But wait! That’s not all!

Corporations get huge government wealthfare.

  • Big Pharma writes off $70B-$135B in annual Research & Development costs to Uncle Sam, plus they even get an extra cushy advertising tax break of $4.7B a year that other businesses don’t. [3]
  • Big Oil, one of the most profitable businesses in the world, received $20.5B  in tax breaks in 2011.[4]
  • Agriculture gets $20.4B in subsidies, the majority of which goes to larger agribusiness farms. [5]
  • Other corporate welfare in the form of tax breaks and outright grants to American companies runs around $100B a year.
  • Deferred taxes for income from overseas costs at least $34B a year in tax revenues, as most corporations leave the money overseas indefinitely to avoid the tax.
  • Of the trillions that we spent on the Iraq and and Afghan wars, American corporations backed up to the government trough to the tune of trillions. At least $35-60B was lost in private contractor waste and fraud.[7]

Where, one wonders, would Mr. Romney place the $607B in Small Business Administration (SBA) loans? Freeloaders? Government-addicted loafers?

Mr. Romney has proposed even more wealthcare for the wealthy in what  calls his “Impossible Tax Promise

“Romney has failed to produce evidence that what he promises is possible. And we judge that the weight of evidence and expert opinion is clear — it’s not possible.”

Republicans sell a notion that these very rich work for it, while the poor idly loaf.  If you’ve met a few of the idle rich, you know where most of the loafing gets done.  They rail at the evils of social spending and government dependence.

Sure, social spending is on the rise: The Baby Boom is aging. More people are retiring, and there are fewer of us supporting them.  We knew that.

Yet over the last few decades, Republicans have been posturing not to save Social Security and Medicare, but, just like their attack on the Post Office, to gut them by underfunding them, then railing at the “government” whose policies the GOP channeled that deficit, mostly out to pay current bills and buy a war or two.

In a United States with a $15.09T gross domestic product (GDP) the only reason we could not meet those obligations would be because enough politically powerful people have the money to derail our obligations to those who’ve stopped working, and to the working poor.

What the modern Republicans are telling you, in their Randian selfishness, is that people who worked all of their lives, and paid into the system, shouldn’t get the benefits that they deserve.

They are telling the working poor that a company like Exxon needs another few billion in tax subsidies worse than your baby needs milk, or a loaf of bread, or a head-start meal at school so they can, perhaps, achieve and take the next generation out of poverty.

Wealthfare has been on the rise for 35 years, culminating in the orgy of greed that was the George W. Bush era.

Forget the 47%. What do we do with the upper 3% who are so very wealthy, to remind them that with great opportunity, power and privilege comes immense responsibility to the rest of our citizens?  More than 60% of Republicans used to believe that. Today social responsibility polls in the low 40’s with the “new” GOP.

As Mr. Obama pointed out rightfully, none of us really get there alone, in spite of the Republican’s vanishing understanding of American civics.

Sadly, the last laugh may be on us if we don’t get rid of the Teahadis in Congress and keep Mr. Romney out of the White House.

My shiny two.

About Brian Ross

Brian Ross is a writer, screenwriter, political satirist, documentarian, filmmaker and chef. Ad hoc, ad loc, quid pro quo... so little time. So much to know!

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