While conservatives (and many financial elites) attack progressives for harboring resentment against the wealthy, the chairman of the Senate Finance Committee today reminded us that conservatives harbor their own resentments against the people Mitt Romney infamously labeled “the 47 percent … who are dependent upon government” and who “pay no income tax.”
Chairman Sen. Orrin Hatch (R-Utah) let fly an echo of that sentiment in the midst of his opening statement for a hearing on the topic of “fairness in taxation.” It was a particularly tone-deaf statement coming at the same time the Democrats on the committee, led by Sen. Ron Wyden (D-Ore.), released a report on six ways wealthy people game the tax code to avoid paying billions in taxes.
Hatch acknowledged that since Congress last successfully tackled broad tax reform, in 1986, “our tax code has become riddled with credits, deductions, exclusions and exemptions, many of which serve to benefit certain taxpayers at the expense of others.”
He added that a “fairer tax code” would lower tax rates at the same time it eliminates many of these exemptions used by the wealthiest taxpayers. But he didn’t stop there. He turned his attention to working people and, wagging a rhetorical finger, said, “Fairness also means that, to the extent reasonably possible, Americans should make some contributions for the benefits they receive from the government. … The current situation – where nearly half the country is effectively shielded from the cost of funding the federal government – deserves some attention in tax reform.”
That “nearly half” that Hatch was referring to was actually just over 43 percent in 2013, according to the Brookings/Urban Institute Tax Policy Center. Who are these people? A 2011 Tax Policy Center study points out that half the people in this group simply don’t earn enough income to be taxed. The other half are able to eliminate their tax liability or claim tax credits because they are elderly, have children, are claiming education deductions or have a large amount of typical tax deductions used by working people, such as for mortgage interest, medical expenses, or charitable contributions.
These people are taking advantage of provisions in the tax code that exist because policymakers did not think that low-income people and senior citizens should be taxed further into poverty, or because policymakers wanted to encourage – or at least not discourage – buying a home, raising children, or going to college.
The everybody-should-pay-taxes conservative trope has reared its head before. “Taxing the poor has become a badge of honor among conservatives,” Robert Borosage wrote in 2012, citing a series of comments from conservative leaders, including Sen. Marco Rubio (R-Fla.), who is exploring a bid for the presidency. “We don’t have enough people paying taxes in this country,” Rubio said then – meaning people at the lower end of the income scale.
Noteworthy, then, is the sound of crickets on the Republican side of the aisle when Wyden issued a new report that didn’t focus on struggling households claiming tax deductions or credits designed to give them a little extra support but big-money people playing high-stakes shenanigans with the tax code.
Some of the terms for these schemes used in the Wyden report sound like words you’d associate with a laundry room – “collar,” “basket option,” “wash sale.” And, indeed, these are ways wealthy people can in a sense launder their financial activities to wash away their tax liabilities. Unlike the tax deductions and credits that lower-income people take advantage of, though, these provisions provide no essential benefit for the economy. In fact, these schemes do serious economic harm.
“Many taxpayers use these sophisticated transactions to cut the taxes they could owe in half, often paying effective rates far lower than people who earn a regular paycheck,” the report said.
These schemes reflect the way the wealthy and corporations have been able to rig the economy in their favor at the expense of working people. The result, as economist Heather Boushey of the Washington Center for Equitable Growth explained, is that in an environment in which the top 1 percent of earners have monopolized virtually all of the income gains of the past few years, “the inequality of incomes after taxation has increased more than the inequality of incomes before taxation.”
It bears repeating: Beware of a conservative who talks about cutting taxes and getting government off your back. That knife the conservative is holding may not be for cutting your taxes, and the promise to get government off your back could be intended to make it easier for you to get stabbed.