Romney's tax rate – well below what most middle-class Americans pay – is a timely reminder of growing inequality
So, now we know that the Republican race for the presidential nomination has boiled down to a race between the very rich "historian" (aka Washington lobbyist) Newt Gingrich and the even wealthier Mitt Romney, who does not appear to have a paid job or much earned income, but receives lots of unearned income from an earlier spree as what Rick Perry called a "vulture capitalist". The former Massachusetts governor released his tax returns Tuesday, which showed that he and his wife Ann paid $3m tax on unearned income of $21.7m in 2010 – a rate of only 13.9%.
He estimates he will pay $3.2m on income of $20.9m for 2011, implying a tax rate 15.4%, approximately the figure he revealed last week. It is increasingly looking like a major political mistake not to have released them earlier, especially given that, to this point, no obvious exploding bomb had been found in his record.
Romney's tax rate turned out to be around half the rate of tax paid by President Barack Obama, despite his income being much lower. The Obamas paid 26% tax on $1.8m in 2010, their tax return showed. Newt Gingrich, paid 31.6% on $3.16m earned jointly in 2010 with his third wife, Callista. During the televised GOP debate in Tampa Monday, Romney said: "I'm proud of the fact that I pay a lot of taxes." Not enough. Romney may be successful, as he claims, but he is the 0.01%.
The problem is that the rich have been getting richer but there has been little or no trickle-down to anyone else. Earlier this month, my old pal, labor economist Alan Krueger, who is chairman of Obama's Council of Economic Advisers made a speech on income inequality at the Center for American Progress. He noted that the share of all income accruing to the top 1% increased by 13.5 percentage points from 1979 to 2007, which is equivalent of shifting $1.1tn of annual income to the top 1% of families. The share of income going to the top 1% over this period "exceeds the total amount of income that the entire bottom 40% of households receives".
It isn't just the top 1% that have seen their income explode, as there has been a widening of inequality right across the earnings distribution. The growth in real after-tax incomes from 1979-2010, according to the non-partisan Congressional Budget Office, by quintile was as follows: lowest quintile +18%; 2nd quintile +28%; middle quintile +35%; fourth quintile +65% and top quintile +278%. Finally, and perhaps most worrying, is that, as inequality has increased, Krueger noted that year-to-year or generation-to-generation economic mobility has decreased. Krueger's conclusion:
"[The US] has reached the point that inequality in incomes is causing an unhealthy division in opportunities, and is a threat to our economic growth. Restoring a greater degree of fairness to the US job market would be good for businesses, good for the economy, and good for the country."
The whole idea that the rich get to keep the returns from their effort has always been based on the fact that approach is best for everyone else. That hypothesis is now in question.
One major factor that has contributed to the rise in income inequality has been the decline in union membership in the US, which fell from 20% of employees in 1983, to 12% in 2012. Union membership in the private sector is only 6.9% compared with 36% in the public sector. Overall, according to the most recent data from the Bureau of Labor Statistics (BLS), union members in the United States make $917 per week, compared with $717 for non-union workers or around 28%. Controlling for differences in characteristics such as education; location, age, race, gender and industry, union workers earn a differential of around 20% in both.
Republicans have not been content to see increases in earnings at the top end of the income distribution, but have increasingly focused their cross-hairs on union bargaining rights, particularly in four mid-west states of Iowa, Michigan, Ohio and Wisconsin. There was even an unsuccessful attempt to pass a "right to work" law in my home state of New Hampshire, which was vetoed by the Governor John Lynch – and the Republicans failed to garner enough votes to override the veto.
There has been the inevitable pushback. Ohio voters dealt a severe blow to the agenda of Governor John Kasich and other anti-union governors by voting to overturn Senate Bill 5 (SB5) by a 61% to 32 % margin. SB5 was a law that would severely limit collective bargaining rights for public employees and targets public employee wages and benefits as a means to balance the state's budget. Governor Scott Walker, who cut taxes on the rich and corporations and who has been criticized for alleged favoritism and patronage, took on the public sector unions in Wisconsin by removing some of their collective bargaining rights. This resulted in widespread protests in the state including the occupation of the state capital in Madison. At the end of last week, a petition containing more than a million signatures means that he will face a recall election, along with four state senators and the attorney general. This is well above the 540,208 needed, is 23% of the state's eligible voters and just below the 1.1m votes earned by Walker was elected with, and over three times the number of 355,000 union members in Wisconsin. An earlier recall election in 2011 saw two incumbent Republican state senators defeated by Democratic challengers.
So the battle is on. It has all the feelings of the opening declaration of class war.