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THE 19 PERCENT SUBMISSION! Do the super-rich really pay 19 percent? Let’s look at a famous submission: // link // print // previous // next //
WEDNESDAY, NOVEMBER 24, 2004

THE 19 PERCENT SUBMISSION: Can it really be true? Do the top fifth of earners really pay only 19 percent of their income in taxes? And how can that be the case if yesterday’s e-mailer ($260,000 in income) was shelling out 38 percent? Several e-mailers addressed the question, with one saying we were on the right track in the point we mentioned yesterday (see THE DAILY HOWLER, 11/23/04). And guess which super-rich public figure he cited as a potent example?
E-MAIL: As a faithful reader of your column and someone who knows a fair amount about the super rich's taxes (unfortunately from professional as opposed to personal experience), I immensely enjoyed David Cay Johnson’s book when I read it last year and am very happy to see you hyping it. From the perspective of someone in the professional tax world, it does have some flaws...but as a general rule it is on the money. In terms of today's e-mailer and his tax bill, your conclusion is definitely right about the merely well-off subsidizing the super-rich. Consider the case of Teresa Heinz (I use her only because her tax bill was well publicized, not because I feel there is anything wrong or unethical with respect to her actions). She was attacked by the GOP for paying only 11 percent in taxes last year. Of course, as an immensely rich person she has invested most of her assets in municipal bonds (no taxes there) and dividend paying stocks (15 percent tax rate thanks to GWB). Add in tens of millions in charitable deductions and it’s quite easy to see how someone like Teresa is subject to such a low tax rate. Of course, if I had hours I could explain how the super-rich real estate types often pay negative tax rates or how large holders of public stocks pay zero, but the general theme is the same.
According to the mailer, “a complicated tax code, a massive economy and clever financial strategizing” have been “working together to ensure that massive wealth is protected.” That’s the claim Johnston makes in his stinging book, Perfectly Legal.

For the record, our e-mailer was slightly off on the rate of tax paid. Here’s the report in the New York Times written by—who else—David Cay Johnston:

JOHNSTON (10/17/04): Teresa Heinz Kerry reported income of just over $5 million last year, slightly more than half of it from investments in tax-exempt municipal and state bonds, her 2003 income tax return shows, confirming her status as the wealthiest spouse of any major party nominee in United States history...

The two-page document...showed total income of $5,073,554 last year. Her primary source of income was the tax-exempt bonds, investments that generally produce a lower interest rate, but those in the highest tax brackets can often pocket more cash if they choose municipals.

Ms. Heinz Kerry paid a federal tax of $628,401, which is 12.3 percent of her total income and 27.4 percent of her adjusted gross income.

She was a big beneficiary of the reductions in tax rates on dividends and capital gains that have been enacted under President Bush. She collected more than $2.2 million in dividends, all of which qualified for the new 15 percent tax rate, saving her $440,000, compared with the 35 percent rate that previously applied to dividends for those with million dollar-plus incomes.

Heinz Kerry’s federal tax submission was 12.3 percent of total income. Her state taxes (see below) brought her submission closer to 15 percent.

The Washington Post account (derived from the AP) helped stress a point made in Perfectly Legal—much of the income of the super-rich is free from taxation:

WASHINGTON POST (10/17/04): Teresa Heinz Kerry, the wife of Democratic presidential nominee John F. Kerry, had taxable income of nearly $2.3 million in 2003 and paid a federal and state tax bill of close to $800,000, according to two pages of tax forms released by the Kerry campaign yesterday.

Heinz Kerry, who has an estimated worth of $750 million and indicated her profession as “philanthropist” on her tax return, reported receiving $2.78 million in nontaxable interest income from state, municipal and public-entity bonds.

As our e-mailer notes, there was nothing “wrong or unethical” in Heinz Kerry’s conduct. But this example may help show how the top fifth only pay 19 percent of their income in overall taxes, as opposed to the 18 percent paid by the bottom fifth. Johnston’s take on this, as quoted last Friday: “What this means is that the entire tax system at all levels amounts to a flat tax, one that is crushing the poor and one that does not extract the harsh levies [on high earners] so often cited by politicians who owe their allegiance to the political donor class.”

Let’s return to our basic point. Despite the “flatness” of current tax burdens, President Bush is going to try to lower taxes on the super-rich even farther. This has always been his agenda. But very few citizens understand the shape of their current tax system, and this year we really must insist that our press corps lay out basic facts.

By the way: Over the course of the past several decades, the Washington Post has been owned by a super-rich family whose interests advance when the voting public is ignorant of its tax system. But then, come to think of it, the New York Times is owned by a rich family too.

VOTED ONTO THE ISLAND: For ourselves, we first heard the good news last summer, tipped off by a superlative scribe whose name would simply rock your world. But now that the news has appeared in print, readers are asking us to share it. And so we will: Another member of NBC’s Irish-Catholic “mafia” has been voted onto the island! Carol Beggy handled the honors in yesterday’s Boston Globe:

BEGGY (11/23/04): WATER VIEWS What with Natalie Jacobson, Pat O'Brien, Bob Arnott, Tim Russert, and The New York Times's COO Janet Robinson already on the island, Nantucket's become quite the in spot for media types. The newest members of the club are Chris Matthews and his TV anchor wife, Kathleen, who just bought a place for $4.35 million. The couple are introduced to the neighbors in the latest issue of the Nantucket Times—they're on the cover of Bruce Percelay's mag.
Last June, we enjoyed a few solid laughs when Russert, one of the Nantucket Squires, wrote a book devoted to telling the public how poor and humble he actually is (see THE DAILY HOWLER, 6/28/04, providing links to our four-part report). In the process, we even quoted an earlier profile which showed the depth of NBC’s penetration of that Bay State retreat. “Russert is part of the Nantucket NBC crowd, one of the cliques that fuels the isle's social engine,” Sallie Brady wrote in the Washingtonian. “It was Jack Welch, the story goes, the 20-year chairman and CEO of NBC’s parent company, General Electric, who drew network folk to Nantucket.” And that wasn’t all, Brady fearlessly reported. “Russert’s boss, NBC CEO Bob Wright, is also on the scene,” she said. Now, Matthews has joined the rest of the swells out on the wind-swept preserve.

For the record, NBC swells who summer south of Hyannis also gain from Bush’s tax cuts. And uh-oh! They also gain when land-based rubes fail to grasp the shape of our flattened tax system. Result? As they plan shows from their sun-splashed estates, it may not occur to these scribes to note the shape of that flattened system. That’s why you may have to insist in the months ahead that they let folks in Buffalo know.

THE WORLD’S OLDEST DEDUCTION: Wisdom says to let it go, but the discussion is too intriguing to drop. In recent days, pundits have buzzed with new complaints about those Monday Night Football dissenters. On Monday, a New York Times article offered a murky claim; even though “red state” voters pimped “moral values,” they still like to watch Desperate Housewives! And you can guess what that makes them—Big Hypocrites! One day later, Newsweek’s Marc Peyser laid down the rap on Countdown:

OLBERMANN (11/23/04): What is this? Do as I preach, not as I watch?

PEYSER: Absolutely! It is easy to go out there and say you believe in moral values and you even vote in a way that you think pretends that you do. In the comfort of your own home, you can watch anything you want. I think there are plenty of people in this country, who when asked by a pollster, are moral values important to you, they`ll say yes but they still want to watch the hot chicks on Sunday night.

What a bunch of big-time phonies! Out in the red states, voters were saying they loved “moral values.” But they were watching Desperate Housewives all the same!

But let’s take a look at the numbers. The normal audience for Desperate Housewives is 20-25 million people. But uh-oh! In the last election, many more people actually voted, 118 million in all; about 20 million of them were Bush voters who said they voted on “moral values.” Is there any reason to assume that these two groups overlap in some major way? That the people who actually watch Desperate Housewives are the same folks who vote “moral values?” We can think of no reason to make this assumption, but pundit types have been eager to go there. But then, as long-time pundit-watchers will know, this is a Standard Press Corps Script. The public says they hate smutty shows—but the public loves to watch them!! Pundits never tire of this silly tale. But they never offer evidence showing that the two subsets of the public are in fact one and the same.

But then, it’s a basic strategy of the human mind—painting those with different values as hypocrites. Sunday night, we noticed the trope when we watched the amazingly creepy 1959 film, Gidget, in which the non-conformist surf leader, Kahoona, turns out to be a Big Hypocrite in the end. (This frees Sandra Dee and James Darren to return to lives based on conventional values.) But then, this strategy never grows old. On Monday morning, Jonathan Alter worked the theme in reverse—against people who hold more traditional values—when he appeared on Imus:

ALTER (11/22/04): I focused on this kind of Fiesta of Hypocrisy. This whole thing was full of hypocrisy on every side.
Except on Alter’s side, of course. Alter trashed ABC and the NFL for playing dumb about their tangy promo. But why were complaining parents Big Hypocrites too? Alter offered the Standard Deduction:
ALTER (11/22/04): Then you’ve got the viewers who are hugely hypocritical. They’re complaining about sex on TV, and of course they’re the ones who are watching it.
But how did he know that those who complain also watch sex shows on TV? Pundits never explain that point. Moments later, Alter pushed his claim harder:
ALTER (11/22/04): Look, I wasn’t particularly offended by it, my kids weren’t offended by it, but I thought there was a lesson in this for John Kerry, of all people, and it’s another example of one of the reasons why he lost, which is that people feel that they want the president to be on their side when it comes to what they call this kind of cultural pollution or garbage coming into their homes. And even though they’re Big Hypocrites about it because when the kids go to bed they’re dialing up the porno or whatever they do, presidential candidates—and you’ll see this in the next election—they’ll have to at least make a gesture toward understanding how parents feel besieged in the war that they feel they’re having with popular culture for their own kids.
You’ll see this in the next election? You saw this in the ’92, ’96, and 2000 elections, in all of which Dems won the popular vote. But why on earth would Alter assume that complaining parents “dial up the porno” as soon as they get the kids off to bed? The assumption is rooted in standard intolerance; all Dem politicians, including Kerry, know not to make such absurd, hurtful statements. But major scribes love to voice such claims, claims based on the world’s oldest deduction: If they don’t agree with me, they’re Big Hypocrites. The deduction gave Gidget its happy ending—and it gave Alter, one of our brightest pundits, a silly, hurtful moment on Imus. French-looking pols never say such odd things—but as we’ve seen again and again in the past week, they’re de rigeur in the Big Press.

TURKEY DAY SPORTS SECTION: We wanted to give this topic more space, but let’s just ask the Kevin Drums to adopt the cause of Arizona State, this year’s most abused college football team. The Sun Devils are ranked eighth in the nation by the six BCS computers—but they’re inexcusably ranked 18th and 20th in the AP and USA Today human polls. Indeed, they’re even ranked several spots behind Iowa, with whom they share a two-loss season—and who they clobbered, 44-7, on the field of play in September. Which team has played a tougher schedule? According to USA Today’s Sagarin computer, ASU has played the nation’s second-toughest sked, Iowa the 35th best. (Put it another way: ASU has played four of the current AP Top 25; Iowa has only played three.) Meanwhile, why is Wisconsin ranked ahead of ASU? The Badgers have played only one ranked team—Iowa—which beat them to a pulp last Saturday. But then, the week before, they got blasted by unranked Michigan State, too. But so what? Despite back-to-back blow-out defeats, the myopic pollsters still have the Badgers ranked ahead of Arizona State, a team which simply has to have the nation’s worst PR department.

Pac-10 fans will be thankful if Southern Cal beats Note Dame this weekend. In the meantime, a member school is being jobbed. It happens to some Pac-10 team every year. Let’s bang the drum-sticks this week where the need is the greatest.

CORRECTION: Oops! ASU has gone above Wisconsin in the AP poll (ASU 18, Wisconsin 20). The other human poll, the ESPN/USA Today coaches poll, still has the Badgers ranked higher (Wisconsin 18, ASU 20). Iowa is 14 and 12 in the two polls. ASU blasted them, 44-7. Readers, where's the justice?