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Owning Is Not More Productive Than Working

Mitt Romney pays a 15% tax rate.  He waves away any controversy over this low rate—which is lower than the rate paid by military service members who risk their lives for our way of life—by saying that it is so low because it is from capital gains.  That is, he pays taxes at a lower rate than ordinary people because he is an “owner”, not a “worker”.  And that’s an end to it—there is nothing more to see here, move along, move along.

Naturally, this raises the question (please forgive our impertinence) of why ownership income is favored over income from productive work.  The ownership class wants you to believe that their passive income is worth more to society because their past efforts “created jobs”, but we know that “job creators” don’t actually do that anymore.  So why do we still give them preferred tax treatment?

Why do we give the ownership class a free ride from paying their fair share for the social, legal, and physical infrastructure they needed to create (or inherit) their wealth in the first place?  Why do we subsidize them when they benefit, in absolute and relative terms, to an even greater degree from the security provided by our functioning government?

Income is income, right?  So why the inequity?  Romney and his ilk naturally expect us not to engage in “the politics of envy” and ask these questions.  But this is the perfect time for us to do so.  With the 99% in the streets and the 1% starting to shake in their boots, Romney provides us with the perfect foil.  He has only two possible answers to his income situation, which is pretty much the personal model for most of the 1%.  And both answers lead him down a dead end:

  1. It is capital gains, from the sale of an ownership interest.
  2. It is deferred income from work at Bain Capital.

We have already dealt with the first, but what of the second?  It actually raises the same question again, but will require a much more convoluted answer.  If it’s true that his income is from his prior “work” with Bain, then why is it treated as “capital gains”?  Work is work, right?  So income from management labor should be taxed at the same rate as the labor of his workers before he lays them off.  Which is it, capital gains or work income?  Why the difference in tax treatment?  Why the subsidy?

As I have pointed before, capital by itself, has no value.  A fallow plot of land or an empty factory creates nothing without human effort, which is called “labor”.  This means that, in the realm of human utility, labor is more valuable than capital.  While labor requires capital in order to be productive, there is absolutely no legitimate reason why capital should get preference in the American tax code.

In developing economies, there are legitimate reasons for government policies to foster capital formation and accumulation, so that public and private economic infrastructure can be created.  But the United States in not a developing economy—we are the world’s most advanced, and third-world economic policies are creating instability, both social and economic.

If the Democrats—or any actually progressive parties or organizations—have any sense at all this coming political season, this is the question around which all of their other questions will revolve.  It can be used to frame every issue from economic to social—and even to family values.

And let’s not forget that the cost of letting these individuals keep more of their unearned (and that is actually the technical word for it) income is increased public debt which everyone is responsible for.

We have yet to have an open discussion in America about the preferential tax treatment given to the ownership class.  They’re not “job creators”, a meme the 1% is desperately trying to rehabilitate, so we can no longer afford to protect them with the enforced decorum of not asking the obvious questions of fairness.

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One Response “Owning Is Not More Productive Than Working”

  1. Elaine Marie
    February 4, 2012 at 10:26 am

    Keep these coming! This preference for capital gains over labor income makes NO SENSE! Only wealthy people can manipulate their earnings into these preferred categories – and they do. Not only is the tax policy distrotionary and unfair, it’s inefficient. If we want to prefer capital, then by all means, use government money to build infrastructure – but paying rich folk to hold on tight doesn’t help anyone.

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About Gary S. Barkley