After a lively class discussion regarding Wynton Marsalis' "Supercapitalism" and the idea of American society as a construction, I heard a fascinating piece on the radio about current Republican frontrunner Mitt Romney and his father, George, the former governor of Michigan.
While the younger Romney has recently received quite a bit of attention over his current tax rate (13.9%), it's instructive to consider why his rate is what it is, and how our government can often pick winners and losers simply by constructing policies, laws, and regulations that reward some Americans and shortchange others.
For example, although Mitt has publicly released one year of his tax returns, his father, in an effort to be completely transparent, released twelve years of records, giving us an insight on how tax policies change over time. I have to say I was a bit shocked to discover that George Romney paid anywhere from two to three times the tax rate of his son, topping out at 44% (back in 1963).
Why was this the case?
Be patient with me here. One reason is a difference in what is called the "top marginal tax rate". In the 1950s, the tax rate was as high as 91%, while by the Lyndon Johnson 1960s, it had dropped to 70%. By the 1970s, it was 50%, and under Reagan in the 1980s, it was set just under 30%.
Yet another reason has to do with how people earn their income. While most Americans draw their income from a paycheck, far fewer citizens (like Mitt Romney) earn money primarily via investments ("capital gains"). The latter source of income has also seen a major change in how it is taxed by the IRS. At one point in our history, regular income tax rates and capital gains tax rates were equal, but no longer: today, the latter is taxed at just half of the top marginal tax rate (15% vs 30%).
Are you still with me after all of that economic blather? Why does the government construct policies that reward some hard-working Americans over others? Does that seem democratic to you?