What are fair tax rates; Don't wait for the press to help you decide

Release of Romney's tax returns creates a good opportunity to ask fair and reasonable questions. His income is based on capital gains, stock dividends and interest, not a salary like most people. That kind of income is is subject to a 15% flat tax rate. Exactly what is the "best" tax rate for that kind of income? Why is that kind of income subject to a flat tax and not a progressive tax? Who decided on a flat tax for that kind of income? When did they decide that, i.e., have circumstances changed enough to make this something that needs to be revisited?

Flowers after a long harsh winter (nah, not really)

Alpine, California - February 2012

That's some of the context needed to reach an informed opinion about whether the 15% flat tax on non-salary income is good, bad or indifferent for the U.S. economy and the public interest in general. One thing is clear, that tax rate is very good for people who make money that way. Despite that, the question of how good, bad or neutral is it for everyone else remains unanswered.

The useless press

As usual, the mainstream press has elected to basically ignore the context needed for an informed decision on this issue. It is a reasonable guess that at least 80% of voters had little or no idea about this kind of income and had not thought much, or at all, about why things are the way they are. As is the case for most important issues, the press is basically useless in terms of informing the public.

The standard press story on this goes like this: "Romney made about $20 million in 2010 and paid about $3 million in taxes. It will be about the same for 2011. Regarding his taxes, Romney said: I paid 100% of my taxes. I know that the American people would not want a president who paid more than what they owed. Anyone who paid more would be a fool." That's one heck of a story. It says essentially nothing about anything. But, that's just our happy go lucky press. Out to lunch and loving it.

But while they are breathlessly telling us how much Romney makes per year, press thinking goes about like this: This story is really dull. It is not news because all of us in the press knew that Romney was rich, made his money form capital gains and the like and thus paid taxes at about a 15% rate. That's old news, but we spew it at the public again for the benefit of our ratings, er - wait, for the public's edification. Don't wanna be too cynical here - giggle.

Meanwhile, the public is left with almost no idea of what is really going on or why. The winners are clear but the losers, if any, are not. With that kind of feeble context, sound bites from spinning partisans ("its class warfare" or "its common sense to increase the tax rate", etc) actually sound like they might make sense because there is no context from which to evaluate anything anyone says about the situation.

Given their biases or beliefs, most members of the public will just probably decide about this in conformity to their beliefs. Most conservatives will dismiss calls to raise the 15% tax rate as class warfare. Most liberals will dismiss calls to leave the 15% tax rate alone as an unfair shifting of the overall tax burden to everyone who isn't rich. The problem is that there is no basis form which a rational, pragmatic, well-informed decision can be made. Not everyone who has significant capital gains or stock dividend income is rich.

None of the foregoing is a criticism of the 15% flat tax on capital gains. I (and most all of us regualr people) have insufficient information to come to a decision that a 15% flat tax is any better or worse than a progressive tax of some sort. That's not my fault. One cannot trust the spinners on the left or the right. The mainstream press is pretty much useless. Therefore, to come to an informed opinion, people need to do the research themselves. Most people simply will not do that for whatever reasons.

Despite the criticism of the mainstream press, there are some good press sources that do a better job of informing the public. For example, the Wall Street Journal ran an article today (Wed. Jan. 25, 2012, page A6; online version here) that added information to the standard empty press blither about Romney's tax situation, e.g., (i) Romney's charitable and state/local tax deductions were significant (about $2.5 million) and (ii) the effects of income on charitable giving despite high incomes is unclear (the data conflicts). But how many people use those 'better' sources compared to reliance on standard mainstream press blither? Probably not many.

Even the better sources aren't good enough to focus on providing the information needed to answer the key questions. The public still has to pick and collate the information from disparate sources, some of whom are unbiased and reliable and many of whom are not. Very vew people have the time and/or interest to do that. What we are left with is a whole lot of strongly held, but uninformed opnions. For the most part, public discourse stays mired in spin and propaganda. No wonder politics as usual has failed.