In Defense of Romney

In my last post entitled "Congress and the Public - Kudos to Sarah Palin," which was distributed on Friday the 13^th, I addressed three issues: the huge amount of money influencing, one might say controlling, our public servants; the lies that dominate our public discourse, so as to bring government into greater disrepute; and the insider trading that is prevalent in Congress.

Paul Negri of Clifton, NJ expressed the view that what is behind the money cursing through our political, and indeed our economic system, and is the reason for scandals such as the insider trading in Congress is “greed and opportunism, (and that these) to a greater or lesser degree, are part of human nature, … and develop more in those who have, through circumstance, the best access to ways and means to self-advancement. The question is how do we push the equation to the lesser, rather than the greater, degree?”

I think the answer has to be through effective legislation, which in our present system can only be brought about by the use of money in the cause of fighting the misuse of money, at least until such a time, when money does not dominate our public discourse. One example that illustrates this, is the Gay Marriage issue in NY. Gay Marriage was legalized recently in New York because some courageous Republicans broke party ranks, and supported its legalization. As a result the Conservative Party of New York State threatened to withhold from them their endorsement and the considerable amount of money that goes with it. Now backers of Gay Marriage have countered by promising to offset the withdrawal of money by their own financial contributions. See here. Something similar can be done with respect to insider trading in Congress. Single issue campaigns are always more effective than broad ideological ones, and here it might be possible to draw money from all sides of the political spectrum, demanding of our law makers that they sign a pledge to support a bill drafted by the organization along the lines of the Palin recommendations.

But greed is not always bad. There is little doubt that greed is what drives our capitalist system, and it does not inevitably lead to the destructive greed of a Gordon Gekko in the movie “Wall Street.” But that is why we need laws and regulations. Left unchecked the engine of creation becomes an engine of destruction. The entrepreneur, while lauding competition, hates competition and seeks monopoly, which is why we have anti trust laws that have not been enforced adequately lately. The investor while lauding good research, seeks a leg up, by seeking or selling insider information, which is why we have laws against that, which have not been enforced until lately.

The banks seek to exploit their credit card customers, making them think that they can spend more than they make, and encouraging them to pay back tiny installments, so that they run up their interest debt at outrageously high interest, and then if they overlook one monthly payment hit them with even higher interest rates and penalties, so that their debt often ends up a multiple of their original one, and then using their money clout in Congress to deny them that, which every business has available, i.e. bankruptcy protection and also using its financial clout to prevent the capping of interest rates from becoming usurious. Even the Mafia never charged more. See here and here.

But what Mitt Romney did at Bain Capital is quintessentially good, beneficial capitalism. It is the essence of “Creative Destruction” so ably described by Joseph Schumpeter, the conservative Austrian economist. See here. Its essence is that inefficient entities must be made efficient or be eliminated, and in the long run the economy as whole will benefit, and while some jobs may be lost in the process, in the long run more will be created. It is ironic that the Right, which claims to be the apostle of free enterprise, should attack Romney for practicing the essence of Capitalism. But I guess the saying that “all is fair in love and war” applies! Is it inter-party war?

What has come out of this, however, is that it illustrates just how unfair our tax system is. The Republican Party has long argued that our “graduated tax system is unfair” in that it taxes the rich more than those with small, or at least much smaller incomes. But what we are seeing is that the system is indeed unfair, it taxes the rich at a rate that is barely distinguishable from the rate applied to much smaller incomes. Romney has now admitted that even though his income is in the millions annually, his tax rate is close to 15%. See here.

I wonder how many of my readers have an effective tax rate of 15%! When Warren Buffett caused a sensation by declaring that his secretary paid taxes at a higher rate than he did, the Right Wing blogosphere went wild with denunciations, and they all stayed on message. One even had a headline, “AP fact check: Secretaries don’t pay more taxes than their bosses," except when the article is accessed no reference to an AP fact check can be found. What percentage of their “income” the rich pay in taxes depends on how “income” is defined. Is it “earned income”, is it “taxable income” or is it total income the way most people would define it?

What causes this anomaly is that as people go up the income ladder more and more of their income comes from capital gains income and dividends. Thus the top 1% of earners on average get 43.4 % of their total income from Capital Gains, Interest and Dividends compared to the next highest quintile who only get 21.4% of their income from Capital Gains, Interest and Dividends, and the lowest quintile only get 1.3% of their income from Capital Gains, Interest and Dividends. The result is that the top 1% who make an average annual income of $1,873,000 pay an effective Income and Payroll tax rate of 20.6% (a lot more than Romney pays) as compared to the top 20% who make a fraction of that at $264,700 (which puts them in the upper middle class) pay almost the same tax rate at 20.1%. See here.

This is neither fair nor sensible. No tax reform, no matter how much the tax is graduated, can deal with this unfair anomaly, unless all types of income is taxed the same. In a country that prides itself on its Puritan work ethic, the discrimination against those who earn their income by working, as opposed to those who earn it by investing, is difficult to understand, and even more difficult to justify. This is even more evident when we consider that most of the rich started out in life with a substantial inheritance, which they could then use to generate more capital and it is further aggravated by our tax law, which forgives even capital gains taxes on inherited stock or other appreciated assets. See here, which is well worth reading.

Romney claims that, “What I got from my parents when they passed away I gave away to charity and to my kids. And so what I’ve earned has been earned through my education, my values, living in the greatest country in the world, through some luck and through hard work.”

Even if that is true, and the reader will forgive me if I am skeptical, he at the very least got an education that most people can only dream of. How often can the child of a blue-collar worker possibly obtain such an education? How likely is a child of a blue collar, or even of the average white collar worker, going to afford a pre-school education beginning at the age of two at $20,000 a year, giving that child a jump by the time it starts grade school. Then when public school begins, how likely is it that it can afford private school at more than the $20,000 mentioned? And even if a “Romney” goes to a public school, you can be sure that it will be an excellent one. On the other hand, with our system, where schools are frequently financed by local property taxes, the schools in a well to do neighborhood will be properly financed, while those in a disadvantaged area will never have what they need to support a first class education. And how many, with all these obstacles will get to, and through college, with their even greater financial burden. Some will. I did. But I would not have made it through college and eventually law school if my college had not been tuition free, something that has long since passed from the scene. 

But none of this should disqualify Romney, except that he is an exponent of this system and an exponent of making it even more unfair.

But most of all I object to his inauthenticity. His father must be turning in his grave, for that former Governor of Michigan, and once Presidential aspirant, put the greatest value on authenticity. See here.

Phoniness is not leadership. Opportunism is a serious character flaw. Inauthenticity is, or should be, disqualifying.

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