Amidst all the buzz about Mitt Romney’s tax returns, I’ve been struck by an obvious — at least to me — gap in all the discussions:
—OF COURSE Mitt Romney played the tax code to enhance his wealth. That’s what all rich people do.
Think about it. The tax code is riven with loopholes, the vast majority of which benefit businesses and better off people. Whether it’s depreciation allowances for purchases, or treating investment income as “capital gains” rather than ordinary income, or allowing you to write off the costs of maintaining a horse declared to be an investment (to the tune of $77,000 one year in Ann Romney’s case), the simple truth is that these kinds of loopholes (or incentives, if you wish) are only available to people who make enough money for them to matter. The rest of us simply can’t take advantage of them because we don’t make enough money.
Now don’t get me wrong: this is legal. It’s not someone’s “fault” they used the rules to their advantage. While it is certainly true that people like Mitt Romney have worked hard to infuse the tax code with loopholes (or incentives) that benefit them, it is also true that it is legal for Mitt Romney to do what he has done…. Even if it seems he is now embarrassed by his machinations, or doesn’t want to explain his taxes.
But here’s the thing: THE TAX CODE HAS LOTS OF BENEFITS FOR MIDDLE CLASS PEOPLE, TOO. I get to write off my mortgage interest and property taxes. Employers get to write off the cost of providing us with insurance off their taxes, thus subsidizing employer-sponsored healthcare. Middle class persons are far more likely to take road trips across public roads and send their children to public universities — which are still, although to a lessening extent — supported by tax dollars. I get to write off miles and expenses for business trips. For example, when I lived in London while on sabbatical, it turned out the federal tax code allowed me to write off $91 A DAY for living expenses as well as the whole cost ($3200 a month! of my St. John’s Wood flat (just behind Abbey Road Studios). (Thanks, by the way: had I known that in advance of my trip I might have not lived like a graduate student.)
Really, the only people in society the tax code doesn’t subsidize is the poor — basically because they don’t have enough money to do any of the things that one can get a subsidy for. Poor people receive benefits, of course, or at least they can, but these rarely add up to much. And since sales and sin taxes are wildly regressive, they really get screwed by the tax code, not subsidized by it — a few tax credits notwithstanding.
Basically, you need to think of it this way: the rich get VAST subsidies in the tax code. The middle class gets SOME subsidies in the tax code. The poor get basically NO subsidies in the tax code.
Which is why if you’re serious about tax reform, you need to do three things: 1) set a minimum below which no one/family will ever pay income taxes, adjusted over time for inflation; 2) eliminate ALL exemptions and exceptions from the tax code, from capital gains to mortgage interest to health care to depreciation; and 3) set graduated, simple rates so the tax code remains progressive.
Everything else is nibbling at the edges. You should stop worrying about the obvious: that Mitt Romney played the tax code and got richer doing it. Instead, you need to focus on the problem: a tax code that is fundamentally rigged in favor of Mitt Romney and his fellow wealthy people first, the middle class second, and the poor last of all.