I was listening to the Slate Political Gabfest and they were discussing the reaction when Mitt Romney released his tax returns. Romney has been reluctant to do so, and after a lot of pressure from Newt Gingrich during the current Presidential Primaries, he finally opened up the books and revealed that he made $20 million dollars last year and paid around 13% in taxes. The top rate for people in this range is supposed to be 35%, and at the $20 million income level, the tax should be 34.9%. Mitt Romney's special tax break cut his taxes by 62.8% or $4.4 million.
They made the comparison that most people at much lower incomes pay a much higher rate and John Dickerson asked if we are supposed to be enraged because Mitt's taxes were too low or because everyone else's were too high. That was a big government/budget/taxation in general question, but what was of interest to me what what he said next.
He asked if it was ludicrous that we have a tax structure that favors capital gains and investment. I saw a recent piece on the Daily Show by Jon Stewart that showed that the tax shelter for venture capital firms (like Mitt Romney's former firm, Bain Capital) fought for and got a special tax exemption for their people at the 15% rate. If true, that's a example of an interest group lobbying the government and getting a special exemption to help themselves get richer. The average person does not have anyone looking out for them to this degree. Of course, the Daily Show went on to show Mitt Romney giving a campaign speech where he said that everyone should pay some taxes. He's saying that people that are exempt from income taxes because their income is so low (poor people) should have to pay more taxes, when he himself is rich beyond most of these people's wildest dreams and he has worked hard to pay less taxes.
The point I was getting to was that tax codes have been to a certain degree the government's attempt at social engineering. There are some good arguments for social engineering through the tax code. If you believe that home ownership is good because it is a cornerstone of the American Dream or maybe a good economic engine for the country, then you are justified in lobbying for a tax exemption for home ownership. So, let's assume that someone has the argument that people that are "investing" (in other words, buying stock, presumably to invest in corporations and companies) are helping the country. They are saying that this activity is noble, drives the economy, and should be rewarded.
I would probably have agreed with that position many years ago, but let's look at what we get for this "investment". The financial meltdown of 2008 was engineered by "investors" playing with other people's money in speculative complex financial instruments, all the while lobbying to be exempt from government regulation. So you can point to an enormous recent example of how the investment class of people have not helped the economy, in fact they did such enormous harm that they had to be bailed out lest the entire world's economy get sucked into their slip stream as they sank beneath the financial waters. So, in other words, the debt generated from their greedy miscalculations is now on the backs of the rest of us (our taxes, our debt) after they were bailed out by the government. This does not seem to me to be the kind of thing they should be rewarded for. In fact, you could ask why no one is being punished for this. Unless you call record bonuses some perverse kind of punishment.
My concern is that these "investors", even in times when things are working right, are not helping our American Companies to be healthy. Stock investment's influence on corporate decision making is at best a burden and at worst an exercise in short term thinking. Stock holders believe that their imposition of fiduciary responsibility (the obligation of a company to do whatever it takes to make a profit for their shareholders) is not only justified to insure profits, but also that this is a healthy standard for a company to be held to. The problem is that stocks are rated on a quarterly basis, and what is good for a company in the short term is not good for the company in the long term. It's very healthy in the short term to lay everyone off, thus saving on payroll, or to cut R&D, thus cutting expenses. However, a company that whittles its staff down to the point where they cannot deliver when they are asked to produce something will not remain viable in the long term. A company that will not invest in ideas and learning, or bother to test products for the future, will not have a future.
I'm all for rewarding people who save and invest in industry here in the U.S., but the responsibility of a company should be to insure that they will be around for many years, not generate a quick profit today at the expense of burning through a company's assets and capabilities and leaving a worthless hulk behind.
We have a word for this kind of behavior, when one entity sucks the life out of another, killing it in the process: Parasitism. When we allow investors to treat our American companies as carcasses they can bleed dry, and then pay as little taxes as possible to the government that sustains and serves the country, then why are we surprised when the country begins to resemble the companies that these parasites have sucked dry?
