Paul Roderick Gregory
Tax policy should be serious business carried out by serious politicians using real facts and figures. This is why we have the Library of Congress and the Congressional Budget Office, among other expert institutions.
How can we take Congress seriously when the Senate Majority Leader, Harry Reid, makes patently inaccurate, outrageous and bizarre claims on an important tax-policy issue without any heads being turned? I guess this is what we have come to expect of Congress. No wonder citizens with favorable opinions of Congress are as rare as unicorns, to borrow a phrase.
Harry Reid’s statement on December 6 on his proposed 1.9 percent surtax on million-dollar incomes has kicked up some dust. Here is his statement:
“Millionaire job creators are like unicorns. They’re impossible to find, and they don’t exist… Only a tiny fraction of people making more than a million dollars, probably less than 1 percent, are small business owners. And only a tiny fraction of that tiny fraction are traditional job creators…Most of these businesses are hedge fund managers or wealthy lawyers. They don’t do much hiring and they don’t need tax breaks.”
Taking their cue, National Public Radio launched a search for one millionaire job creator. They triumphantly announced:
“NPR requested help from numerous Republican congressional offices, including House and Senate leadership. They were unable to produce a single millionaire job creator for us to interview.”
Were it not for Google, I would have accepted Harry Reid’s unicorn story and NPR’s confirmation. Unlike Harry Reid’s office, I went to the IRS’s Table 1.4 “Sources of income, adjustments, and tax size of adjusted gross income, 2009” to check things out. (I summarize my sources in a separate blog posting). Here is what I found:
There are 236,883 tax filers with incomes of a million dollars or more. By Harry Reid’s count, only one percent, or 2,361 of them, are business owners, and a tiny fraction of them create jobs. I do not know what Harry means when he says “a tiny fraction of a tiny fraction.” If we let 5 percent represent Harry’s “tiny fraction,” we are left with 118 businesses owners who earn a million or more and create jobs. Yes, they are only slightly less rare than unicorns, if Harry is to be believed.
This leaves 236,765 million-dollar-plus tax payers, most of whom are “hedge fund managers and wealthy lawyers” who “don’t create jobs and don’t need tax breaks.”
My Google search for Harry Reid’s quarter million hedge fund managers and wealthy lawyers came up empty handed. I could identify at most sixteen thousand “wealthy lawyers and hedge fund managers,” not Harry Reid’s quarter million.
Well, Harry Reid’s numbers leave much to be desired, but maybe he is right that millionaire business owners do not create jobs.
What does the IRS have to say about this? Millionaire tax filers earn a total taxable income of $623 billion, on which they pay the highest average rate (30 percent) of any tax bracket. (Either Warren Buffet’s secretary has an incompetent tax accountant or Buffet has some pretty juicy tax breaks. I think the latter is more likely). A 1.9 percent tax surcharge on million-dollar-earners would yield $11 billion, assuming those shifty millionaires take no evasive action to avoid the tax.
Millionaire tax filers earn $221 billion – almost a quarter of a trillion — from business and professions, partnerships, and S-corporations. This is puzzling: If Harry Reid’s figure is correct (2,361 millionaire businesses), then the average millionaire-owned business earns almost a hundred million dollars, and all, except 118 of them, do this without hiring anyone. These super heroes do their own typing, selling, drafting. public relations, building, and manufacturing. They do not need employees. Remarkable!
Millionaire tax filers earn almost a quarter trillion dollars from their businesses. They must hire hundreds of thousands of employees to do so.
There are a trivial number of millionaire hedge-fund managers and wealthy lawyers (who, according to Harry, do not hire anyone and don’t need tax breaks). The millionaire tax surcharge is not aimed at them, but at the tens of thousands of millionaire business owners.
A 1.9 percent surcharge on millionaires would raise at most eleven billion dollars. By today’s standards, this is chump change, within the federal budget’s rounding error.
The millionaire’s tax is not about balancing the budget. It is about gaining political advantage through the use of envy and greed (two of the seven deadly sins).
Why would Harry Reid tell such whoppers, which are so easily disproved?
Ryan Streeter has hit the nail on the head. He writes that even bearded Occupy Wall Street misfits understand the difference between “earned” and “unearned” success. Those who earn success by creating value honestly are the true heroes in our economy. They should be lauded rather than targeted. Bill Gates and Steve Jobs are heroes. Bernie Madoff and, now it seems, John Corzine are not, and everyone, irrespective of their political leanings, understands this.
Reid, in his clumsy way, is trying to portray Republicans as the party of dishonest millionaires, who have not earned their wealth, have not created jobs, detract rather than create value, and refuse to pay their fair share. Such class warfare will be the anchor of the Democrat election playbook.