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Financial Elites Get the Most Help of All

Lew Daly

Mitt Romney’s complaint that nearly half of us are untaxed government dependents, poisoning the country with an “entitlement” mentality, is the strangest yet to emerge from the twisted moral universe of America’s most government-dependent class, the financial elite.

As my colleague David Callahan noted in an earlier post, most of the people who don’t pay federal income taxes are either elderly, unemployed, in school, disabled, or earning too little to owe income taxes after taking their allowable tax deductions. Not everyone in America is a healthy, out-of-school, working-age person with a job, and surely low-earners no less than higher-earners are smart to take advantage of the deductions and credits legally available to them -- breaks that the GOP once supported. As the New York Times noted yesterday

For a long time, cutting taxes for the poor was a major emphasis of the Republican Party. One reason that many poor people no longer pay federal income taxes is that they qualify for credits such as the earned-income tax credit, which has its roots in conservative thinking and has long been supported by members of both parties as a way to help the poor without increasing welfare payments or raising the minimum wage.   

But even his confusion on tax policy cannot top the irony that Romney himself earned no wages and paid virtually no income tax over the last two years, and probably in other years as well (as strongly suggested, at least, by his refusal to release any further tax returns). In 2011, his estimated return showed a total income of nearly $21 million dollars, almost all from investments, and a tax bill of $3.2 million, for an effective federal tax rate of about 14 percent. While the moral point that Warren Buffett has made about wealthy investors being taxed at a lower marginal rate than their secretaries is not as troubling as it seems when you look at effective tax rates, nevertheless, for households in the middle quintile of the income distribution, with an average income of $65,000, the total effective federal tax rate, including payroll taxes, is about the same as Romney's, roughly 15 percent. What else but “entitlement” for the rich can justify taxing middle-class earners and millionaire investors at the same effective rate?

The charge of “dependency” is doubly rich when it comes from members of the investor class, who surely benefited, more than most Americans, from the government’s massive rescue of the financial system. TARP spending and the Fannie and Freddie bailouts together totalled $600 billion as of September 2012, and then there were the far more significant actions of the Federal Reserve -- a cumulative $29 trillion in lending and asset purchases, according to the most thorough study of Federal Reserve data accessed under the Freedom of Information Act. The Fed's ongoing commitment to lending money to banks virtually for free -- so-called ZIRP, or Zero Interest Rate Policy -- has been a massive boon to the financial class, even as low-income seniors who live off their savings have gotten clobbered.  

Who are the real government dependents of this era? If median net worth fell by 40 percent in the financial crisis and its aftermath, it’s safe to assume that many capital earners would have lost much more or gone broke in the absence of government action. But when you think you’re “doing God’s work,” as Goldman Sachs chairman Lloyd Blankfein memorably put it, it’s probably hard to see what most of the rest of us see in this light: tax-privileged, bailed-out investors back on top, playing the victim to get even more.