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Income Distribution

Deconstructing the Paul Ryan Sound Bite

Research & Commentary
May 07, 2011

by Sam Pizzigati

Real policy wonks bore people. The phony wonk from Wisconsin now driving Congress seduces, with a patter that leaves our wealthy almost completely disappeared.

Rep. Paul Ryan from Wisconsin revels in his rep, inside the beltway, as America’s ultimate conservative policy “wonk.” He plays the part well. He knows his lines. He can rattle off, at the drop of a hat, a stream of stats that make his rich people-friendly budget nostrums seem eminently reasonable — and good for us all.

Last month, for instance, Ryan smoothly dispatched an angry constituent who dared challenge the tax-no-rich federal budget plan that has made the Wisconsin lawmaker a right-wing hero.

That constituent, speaking at one of Ryan’s back-home town hall meetings, had just finished noting he saw “nothing wrong with taxing the top.” Ryan saw his opening — and pounced.

“We do tax the top,” Ryan earnestly responded. “Let’s remember, most of our jobs come from successful small businesses. Two-thirds of our jobs do.”

“You got to remember,” he went on, “businesses pay taxes individually. So when you raise their tax rates to 44.8 percent, which is what the President is proposing, I would just fundamentally disagree. That is going to hurt job creation.”

For Ryan, a perfect sound bite. He touched, in a matter of seconds, all the bases that make up the case against raising taxes on the rich.

The wealthy, that case goes, already pay taxes aplenty. As hard-working — and mostly small — businesspeople, they can’t afford to pay more. And if you try to make them, they won’t be able to create jobs.

Make-believe “wonks” as smooth as Paul Ryan can make this stream of half-truths and misdirects seem almost plausible. But we can, if we slow the stream down, expose the folly — and greed — behind it.

Do we in the United States, for starters, already “tax the top,” as Ryan rushes to claim? Not at anywhere near the rates we once taxed it.

Taxpayers at America’s tippy top — the taxpayers who report the nation’s 400 highest incomes — have actually seen the share of their total income that they pay in federal income tax drop a stunning two-thirds, from 51.2 percent of their income in 1955 to 16.6 percent in 2007, the most recent year with stats.

How about Ryan’s claim that the President is proposing to up the tax rate on the affluent all the way up to “44.8 percent”? Not even close. Ryan here is blurring the distinction between the top “marginal” income tax rate and a taxpayer’s overall tax liability, from all federal taxes, on total income.

Our federal tax code currently sports a top marginal rate of 35 percent, down from 91 percent in the 1950s and early 1960s. President Obama does indeed want to raise our 35 percent top rate, to 39.6 percent. But this top marginal rate only applies to income over a set threshold, now $379,150, not total income.

Americans also pay a federal payroll tax for Medicare. Last year, in the health care reform act, Congress made a major move toward ending the free ride this payroll tax has given America’s most affluent.

Wealthy Americans will soon have to pay a 3.8 percent Medicare surtax on any income over $250,000 they make from their investments. Until now, none of this investment income has faced any Medicare payroll tax at all.

The health care reform act, on top of this surtax, sets in place a 0.9 percent payroll tax on wage income over $250,000. Paycheck income over $250,000 has also gone untaxed, at payroll tax time, until now.

Rep. Ryan, to get to the “44.8 percent” tax rate he wants us to think that small businesspeople could soon face, has mixed all these income and payroll tax rates together, a blatantly bogus exercise.

Most small businesspeople simply don’t make anywhere near $379,150, let alone $250,000. A Case Western Reserve analysis last November, working from IRS data, put the small business income average at just over $100,000.

But Paul Ryan, to smudge our economic picture, has to ignore another reality as well. He has to ignore a whopping loophole for America’s rich that sits right at the heart of the U.S. tax code: the preferential treatment for capital gains.

The really big money America’s rich make today doesn’t come from “creating jobs.” The big money comes from “capital gains,” the profits the rich make wheeling and dealing on stocks and other assets.

Most all these profits, under current law, face only a 15 percent tax. The White House wants to raise this rate, but just to 20 percent. For most of the 20th century, the capital gains rate ran at least 25 percent. And in some of those years capital gains received no special tax break at all.

Few average Americans make much money off capital gains. And few small businesspeople do either. Small businesspeople make their money when customers in their communities have jobs and money to spend.

These small businesspeople will not benefit from Paul Ryan’s budget plan, as enacted earlier this spring by the House of Representatives. The plan, the Center for Budget and Policy Priorities explains, would force mammoth federal spending cuts to pay for equally mammoth tax cuts — for America’s rich.

These spending cuts would then rapidly translate into job and pay cuts for local public employees and other workers — and fewer local customers for small businesses.

Ryan’s budget plan, to be sure, has no chance of passing the Senate, at least not as is. But Ryan’s “wonky” sound bites have distorted the federal budget debate. They’ve helped shove what we need — substantially higher taxes on the rich — off the political table. We need to get them back on.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.

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