Tom Keane

The Tax Code Fight

Obama should have proposed closing loopholes, not making more

“ASKING A billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.’’

So said President Obama in this week’s State of the Union speech. The billionaire in question was Warren Buffett, and his secretary, Debbie Bosanek, sat with Michelle Obama as the president delivered his remarks.

More than common sense, the notion that Bosanek - presumably earning more modest secretarial wages - pays more than a man earning millions is outrageous. Outrageous if true, that is. But Buffett says in 2010 he paid $6.9 million in federal taxes. It’s a safe bet Bosanek paid far, far less.

Obama’s statement, an attention grabber, was a piece of rhetorical overreach. Elsewhere, the president made clear his concern was tax rates, not tax amounts. Ordinary incomes (such as salaries) are taxed from 10 percent to as high as 35 percent (for amounts in excess of $388,350). But taxes on capital gains (the likely source of Buffet’s income) are usually around 15 percent.

Is that as bad as Obama makes it out to be?

Since we haven’t seen Bosanek and Buffett’s returns, it’s not even clear she paid a higher rate of taxes than her boss. An analysis prepared by the Tax Policy Center, a think tank, pointed out that the top 20 percent of income earners pay, on average, 25.5 percent of their incomes to the feds (including income and payroll taxes). Those in the middle bracket average 14 percent. In other words, if Bosanek indeed had paid a higher rate, she would be the exception, not the rule.

Note to Obama speechwriters: 25 is bigger than 14.

At the heart of Obama’s disgruntlement is that the government taxes capital gains at a lower rate than ordinary income. Even the rich get treated differently. A professional hockey player making $10 million a year would find most of his income taxed at 35 percent. An investor making the same amount would pay just 15 percent. Rather than shunning a visit to the White House, perhaps Tim Thomas should be protesting outside Mitt Romney’s home in Belmont.

Those who support lower rates for capital gains argue that those gains are derived from corporate profits, which are themselves already subject to corporate income taxes. The lower rate, they say, is an offset for what amounts to double taxation. More importantly - and this was an argument voiced frequently by Republicans and Democrats such as the late Paul Tsongas - the lower tax rate encourages people to make risky investments, which in turn spur the growth of the economy.

In other words, the rationale for the lower rate is to get people to change their behavior in ways politicians think desirable. That’s the same rationale that underlies all of the other deductions, exclusions, credits and the like that one finds in the tax code.

In fact, most of these loopholes don’t accomplish much; there is, for instance, little evidence lower capital gains rates have spurred more investment (an argument Buffett himself makes). But more broadly, tax policy should be “neutral’’ – it shouldn’t try to distinguish between differing kinds of economic activity, favoring some over others. That should be the job of a free market, not politicians.

But the tax code is anything but neutral. All of the varying exceptions we have built into it have made it horrendously complex and, inevitably, create bizarre loopholes (such as hedge fund managers being able to treat ordinary income as capital gains). It is also the reason Americans collectively spend an estimated 6.1 billion hours yearly preparing their tax returns, a fruitless drag on the economy.

It would have been terrific if the point of Obama’s claim about billionaires and secretaries had been that the code should be simplified, eliminating loopholes and treating all income the same. Far from it though. In his speech, the president proposed even more loopholes: breaks for companies than shun overseas operations, increased deductions for high-tech manufacturers, a bigger tuition tax credit, and new clean-energy tax credits.

Doubtless, all worthy goals. But their effect ultimately will be to increase further the difference in the amount of taxes some pay versus others. Obama is right. Taxes should be fairer. But by larding the tax code with even more complexity, all he’ll be doing is making it worse than ever.

Originally published in the Boston Globe on January 28, 2012.

Republicans against capitalism

IT SEEMS the level of vitriol rises with every election cycle, and this year’s Republican nominating contest is no exception. Maybe that’s simply because there is so much fodder. It’s hard to resist mocking a morality-preaching candidate accused of sexual harassment, or another who denounces Washington while making millions as a lobbyist.

Still, little compares to the venomous attacks that are now targeting Mitt Romney’s tenure at Bain Capital. Supporters of Newt Gingrich released “King of Bain,’’ a 28-minute video trashing Romney for destroying jobs, businesses, and communities. Rick Perry called the former Massachusetts governor a “vulture capitalist.’’ Jon Huntsman said, “Romney enjoys firing people.’’ Even Sarah Palin — how can we miss her when she won’t go away? — jumped into the anti-Bain Capital fray.

What made these critiques so remarkable wasn’t that they were untrue, but rather their source. If there is any myth that Republicans like to ascribe to themselves, it is that they are the unwavering advocates of the free market. But here were leaders of the GOP ripping into Romney for — horrors! — being a capitalist. Karl Marx himself would have been proud.

How could this have happened? Part of the answer is that the GOP has never been as pro-capitalist as it might like to think. It was Richard Nixon, remember, who instituted national wage controls, a move as deeply anti-free-market as one could ever imagine. It’s probably more correct to think of Republicans as pro-business, which often just means supporting the status quo. Capitalists, particularly the brand typified by private-equity firms such as Bain Capital, make their living out of upending that status quo.

Moreover, most of the current Republican presidential field has no real understanding of what capitalism means. Except for Romney and (arguably) Huntsman, none has a business background. To them free markets are more a talking point, and one imagines their vision of capitalism to be some hardy entrepreneur up at 4 a.m. selling fresh-baked bread from a cheery store in a quaint small town.

Shopkeepers are an important part of the economic firmament, but the real stuff of capitalism is the “creative destruction’’ of unceasing competition and constant innovation. The “destruction’’ part of that oft-used term - meaning failing industries and companies - is something politicians of any stripe are, understandably, loath to embrace.

Did Romney actually end up creating jobs while at Bain Capital? He says it’s a net 100,000, and he may be right. By other measures, though, the numbers could be entirely different. Consider Staples, a well-known Bain Capital investment that is a key part of Romney’s claim to boosting employment. But Staples in turn bankrupted small stationery shops and office supply stores across the country. Livelihoods were lost; employees were fired. Its success came at a high cost to those against whom it competed.

So would we be better off if Staples had never been created? Not at all. Staples succeeded because it was able to deliver wanted products to consumers more cheaply and more effectively. At the macroeconomic level, it improved productivity, a very good thing which in the long-run that should create more wealth and more jobs. Still, try explaining that to the owners of shuttered stationery stores.

In fact, “jobs created’’ is probably the wrong measure of Romney’s success at Bain Capital. In the economic scheme of things, Bain Capital’s purpose was to allocate capital efficiently. Romney’s experience there may have given him insight into how government can best create the conditions necessary to promote a strong national economy. But it’s incorrect to think of him in the narrowest sense as a “job creator.’’

There’s been much pushback to the attacks on Bain Capital and the rumor is that Gingrich and others are now backing off. That’s not necessarily good for Romney. As the nominee, he would undoubtedly face exactly the same hits from Democrats. The current onslaught made for a good dress rehearsal.

Then too, the questions raised about Bain Capital suggest that a healthy discussion about capitalism might well be a valuable thing for the country itself to have. As much benefit as unfettered capitalism can bring, it also causes tremendous pain. There is a tension between keeping markets free and providing individuals with protection and a safety net. It’s worth debating how we can achieve both.

Originally published in the Boston Globe on January 14, 2012.

 

Mishandling the Murray mess

It’s not ‘time to move on’ — it’s time to investigate

LAST SUMMER, the think tank MassINC released a poll revealing that almost 40 percent of Massachusetts voters consider corruption in politics to be widespread. To that substantial, cynical minority, nearly all politicians are venal, unprincipled, and in it for themselves. It’s a worrisome attitude, speaking to a lack of faith in government. Sure, a majority polled still thought those who populate the State House are, with notable exceptions, basically well-meaning and honest. But this week, their confidence was likely shaken.

The reason for that is the bizarre saga of Lieutenant Governor Tim Murray’s auto accident on Nov. 2.

When it first occurred, Murray’s accident seemed a simple thing. He had, he said, woken up before sunrise and decided to take a drive, both to pick up coffee and survey damage from the Halloween snowstorm that had swept through the region. Although traveling at a safe speed, at one point his car skidded on black ice and went tumbling off Route 190. He had been wearing a seat belt, the airbags had deployed, and while the state-owned vehicle was totaled, he was fine - not even needing a trip to the hospital. He immediately asked for a sobriety test from the state troopers who showed up. And to bolster his account of things, one investigating trooper slipped on some black ice while down the road another car went careening after hitting some ice.

It could have happened to anyone, I thought, and when people began raising doubts, I was dismissive. Granted, the tale about surveying storm damage when it’s dark outside did have an odd ring to it, but Murray’s larger point - he liked to go driving alone just to clear his head - struck home. (I, too, enjoy being by myself when in the car; I always win every argument.) The demands by the Globe and the Herald for the release of information from the vehicle’s “black box’’ data recorder seemed overreaching, as did the Herald’s further appeal for the information when the public records request was rebuffed. I remember thinking how awful it was that trust had eroded to such a degree that the first reaction of some was to instantly assume that, if a politician had been involved, then something untoward was going on.

Except, of course, that the doubters were right. When the black box was finally released, it turned out Murray hadn’t skidded on black ice. Instead of traveling at the speed limit, he’d gone as fast as 108 mph. He hadn’t even been wearing a seat belt, and State Police suggested the cause of the accident was he’d fallen asleep. Murray now says that’s the real story, but this time the questions from posters on blogs and comments sections seem more credible. What was Murray really doing out on the road so early? Was he surveying damage or was he coming home from somewhere else? Were others involved? Was he texting? Did he really pass a sobriety test? Were the State Police - so very hesitant to release the black box - covering for him? And also, does he make it a habit not to wear a seat belt?

Shortly after the black box data was released, Governor Deval Patrick said, “I know this man. I care about him.’’ Then, he added, “Now it is time to move on.’’

One can admire the human concern. But politically, Patrick’s attitude is tin-eared, feeding into the worldview of those who believe politicians protect their own. Three years ago, the state watched aghast as legislators voted Sal DiMasi speaker of the House, even as they knew he was about to be indicted. Last week’s events felt like déjà vu, with politicians unaware of how their actions undermine the confidence of ordinary citizens. Apologies, governor, but it is, decidedly, not “time to move on.’’ It is time to investigate, not avoid. Rather than continuing a slow, reluctant drip of information, it is time to kick off a process that is bold, transparent, and independent. Someone, somewhere - a legislative committee, the attorney general, perhaps the feds - needs to stand up and take on this task. Otherwise, the ranks of the cynics will only grow.

Originally published in the Boston Globe on January 8, 2012.

Nancy Brennan’s work on Greenway really started paying off

At times “teetering,” the park project hits a spectacular a tipping point.

WHEN SHE WAS HIRED IN 2005 as executive director of the Rose Fitzgerald Kennedy Greenway, Nancy Brennan was charged not just with making a park out of the mile-and-a-half ribbon of bald urban land left by the dismantling of the Central Artery. She was also asked to create an artery for the city, one that would energize Boston’s waterfront and downtown neighborhoods and tie the two together. Extravagant plans – for a YMCA, an indoor arboretum, an arts and culture center – were weighed but all collapsed. Brennan had been tasked by the nonprofit Greenway Conservancy – which would in 2009 inherit management of the land from the Turnpike Authority – to raise $20 million to kick off the park and to establish relationships with private donors, which she did in less than two years. But then financial markets collapsed and the country sank into recession. At times, it seemed the project was “teetering,” Brennan recalls. Some argued that the wall of the Central Artery had been replaced with a pointless, empty, grassy moat.

Suddenly and quite spectacularly, however, the park hit a tipping point last summer. The number of people using the Greenway jumped 70 percent from 2010, and even the most casual visitor could sense the heightened energy. Instead of focusing on anything grandiose, Brennan oversaw the planning and implementation of myriad small improvements: free Wi-Fi, food trucks and carts, a carousel, tables and chairs, farmers’ markets, outdoor art, extensive plantings. The individual parcels that make up the park were shaped into destinations of their own, each with a unique character, ranging from contemplative to active. It was a winning formula.

Brennan had worked in museums for most of her career (she came to the Conservancy from the top spot at Plimoth Plantation, and before that ran museums in Bermuda and Baltimore); the Greenway was a different kind of challenge, a part of a living city, a place that’s always in flux. At the moment she’s enthusing over a new carousel coming in 2013 (designed for the Greenway after long consultations with a critical constituency: children) and a just-begun planning process for adding more public art. Soon, Brennan believes, the Greenway will be as beloved as the Common, Esplanade, or Public Garden. And last year, it became clear that the space has a pulse: from pleasure to protest, from children dancing in its fountains to campers occupying Dewey Square.

Originally published in the Boston Globe Magazine on January 1, 2012, as part of the Magazine's "Bostonians of the Year" issue.