Friday, January 27, 2012

The Rich Among Us

Presidential candidate Mitt Romney released his tax returns earlier this week.  In 2010, the former Massachusetts governor paid a tax rate of less than 14% despite making more than $20 million.

No one, I believe, has suggested that Romney did anything wrong.  Indeed, Floyd Norris in this morning's New York Times wrote that he probably paid too much taxes based on the current tax code:

But what really stands out is the mind-numbing complexity of tax laws, and about how hard it seems to have been for even the high-priced help Mr. Romney can afford to get things right. 

In one case, the trustee for one of the Romney trusts sent two letters to the Internal Revenue Service electing to use an apparently irrelevant section of the tax code, and in the process misstated the facts involved. 

That mistake did not affect the taxes owed, but another error was more significant. It appears that the return filed by that trust overstated capital gains realized by nearly $300,000, causing Mr. Romney and his wife to pay about $44,000 more in taxes than they owed.

As someone who still does his own taxes - albeit with the massive assistance of TurboTax - I can feel Governor Romney's pain when it comes to figuring out today's tax code.

I will leave it to you to decide whether it is "fair" that someone making millions of dollars a year pays taxes at a lower rate than most working Americans. Romney and other rich Americans are merely following the laws passed by Congress, which over the last few decades have nearly always focused on lowering taxes for the wealthiest Americans.

Tax rate aside, however, there is the question whether our societal values are skewed too far to people that know how to "work the system", as Warren Buffett was quoted earlier this week in an article that appeared on Bloomberg:

“It’s the wrong policy to have,” Buffett told Bloomberg Television’s Betty Liu in an interview today. “He’s not going to pay more than the law requires, and I don’t fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that’s about half what the average person in my office pays.” ...

“He makes his money the same way I make my money,” said Buffett, 81. “He makes money by moving around big bucks, not by straining his back or going to work and cleaning toilets or whatever it may be. He makes it shoving around money.”

There have been other periods in our country's history when the wealthiest citizens were not so prized by the nation.  John Rockefeller, Henry Ford and Andrew Carnegie were envied for their wealth, but few really looked to them as role models.

The highest marginal tax rate in the 1950's - under a Republican president - was 90%, yet I can find little evidence that anyone found this progressive tax code all that unfair (or that economic growth was stifled in any way).

I think that one reason the ultra-wealthy among us remain iconic figures is that fact that they do not flaunt their riches in the same fashion as in earlier times.

Buffett, for example, still lives in the house he bought in Omaha in 1957. Steve Jobs of Apple lived modestly by all accounts, preferring a Zen-like existence which included few material possessions.  Others still are working despite having more money than they could possibly ever need, most recently Mark Zuckerberg of Facebook.

Then there's Bill Gates, the richest American who ever lived who has created the largest philanthropic organization ever existed.  Gates has been in Europe this week, and there was a good article about him in London Telegraph.

As the article notes, despite his vast riches:

Bill Gates has frugal tastes. Asked to name his luxuries, he lists DVDs, books and takeaway burgers. It is hard, however, to think that any fast-food outlet would get rich on Gates’s custom. During a long list of engagements beginning well before dawn, he consumes nothing but cans of diet cola. 
For America’s wealthiest citizen, austerity is relative. The retinue of staff and the private jet hint at a fortune said to be approaching £40 billion. As he told pupils at a south London school he visited this week: “If I hadn’t given my money away, I’d have had more than anyone else on the planet. Ninety-nine per cent of it will go.”
It will be interesting to read years from now how history views our society's attitude towards the rich among us.  But what is striking to me is that a time when real income for most Americans have been stagnant that no one begrudges the kudos that go towards the wealthiest.