Tax Analysts Blog

Peggy Noonan and the Beleaguered 1 Percent

Posted on Jan 11, 2013

Peggy Noonan, former Reagan speechwriter and current Wall Street Journal columnist, thinks Republicans need to step up their game. Actually, her preferred metaphor has something to do with “pirate time,” which presumably implies political derring-do and all that.

Ultimately, however, what Noonan's really urging is a fundamental rethinking of the Republican brand. Or so she says. In fact, she clings to a good chunk of the old GOP brand – the part that worries touchingly about the hurt feelings and lightened wallets of poor working stiffs making a measly $400,000 a year.

The tax hikes approved earlier this month, Noonan writes, were “a blow to the gut” for this sad, beleaguered cohort. These are just regular folks, apparently, not self-indulgent fat cats: she calls them the “not-actually-rich-but-formally-declared-rich.”

Seriously? Under what skewed interpretation of income distribution data are we going to avoid calling these people rich? By most reckonings, $400,000 in annual income lands someone in the top 1 percent or so. That doesn't qualify as rich?

Let’s set aside the wisdom or fairness of raising taxes on this group of people. I’m just talking about reality here. By any measure – and I mean any measure – people making over $400k are very, very rich. Saying they aren't just perpetuates the worst elements of the current GOP brand – the part that makes Republicans seem like “lackeys of the rich” (Noonan’s terminology, not mine).

Noonan tells Republicans to “reorient yourselves.” Stealing a line from Democratic rhetoric, she urges the GOP to “declare for Main Street over Wall Street.” Call me crazy, but since when does someone making $400,000 a year qualify as "Main Street”?

To be fair, Noonan does break with GOP tax orthodoxy in some important ways. She somehow, sorta, kinda seems to endorse the late, soon-to-be-lamented payroll tax cut. Or at least she chortles over the blowback that Democrats will encounter when working Americans wake up to their smaller paychecks in this post-cliff world.

More important, Noonan urges Republicans to go after the carried interest tax preference. Apparently, some hedge fund manager somewhere did something mean to Noonan, because she gives these guys no quarter.

Which is all well and good – I agree that Republicans should oppose the preference for carried interest. But Noonan conspicuously refuses to carry the logic of her anti-Wall Street argument to the capital gains preference more generally. Fair enough. But in Noonan’s “pirate” world there would still be plenty of billionaires getting taxed at far lower rates than those poor working stiffs pulling in a measly half million a year.

Snarkiness aside, I don’t begrudge Noonan her fondness for the capital gains preference: there are plausible arguments to be made for it. Nor do I think her opposition to rate hikes on the rich is totally crazy. I disagree with her on both counts, but reasonable people can disagree about such things.

But what irritates me is the extent to which Noonan is still out of touch with reality when it comes to the Republican brand. As long as Republicans can't see that people making $400,000 a year are actually rich, they will have a hard time building a new constituency for their party. Which is a shame, because America needs a reasonable, realistic conservative party. Good things come from the interplay of two parties with distinct but not deranged agendas.

Unfortunately, the first step to getting that sort of conservative party is simply acknowledging some hard realities about the world we live in. Starting with who's rich, who isn’t, and what we should do (if anything) about that situation.

Read Comments (8)

Ray in MDJan 11, 2013

Rework the carried interest scam,get rid of PEP & PEASE but reduce the maximum
dollar level of itemized deductions to <$100K & restore a making work pay
credit with the proceeds. MWP was More progressive than Payroll Tax Credit
anyway.

vivian darkbloomJan 11, 2013

"Starting with who's rich, who isn’t, and what we should do (if anything) about
that situation."

I agree provided we amend that to read "who's rich, who isn't *and why* and
what we should do about that situation." And, for any rational policy maker
the "why" part has everything to do with "what we should do about the
situation".

As for the "as why" part, I submit that it has little to do with tax policy.
Those who are "not rich" are not in that position because they pay too much in
tax. And, those who are "rich" are not in the position because they pay too
little tax. Simply taking from those who are rich and giving to those who are
not rich is not a solution to the problem of disparity. And, to the extent the
answer does has to do with tax policy, I suspect that Mr. Thorndike is not
going to like the answer--or the solution. It has, more than anything, to do
with the fact that our tax system is not giving proper priority to the right
incentives, but that pales in comparison to how incentives are
counterproductive on the spending side.

Since Americans love sports and sports analogies, try this one. If Lebron
James is the best guy on your team, but the rest are lousy or just mediocre,
what should one do about it? Put ankle weights on Lebron? Or, do the things
necessary to ensure that the rest of the members of the team pick up their
game?

AMT buffJan 12, 2013

I have met several couples who make or have made more than $400k per year yet
whose money management is so poor that they have no assets to speak of. Taxing
those people more heavily might seem unfair, but it won't change their lives:
They will always spend their money until it's gone. These people are walking
illustrations of the income effect.

Most high-income people manage their money much better. Many of them have saved
enough to allow themselves to retire at any time. Increase their taxes too much
and that's exactly what they will do.

Income inequality stems from personality inequality. The tax system cannot
change it.

Mr. FJan 13, 2013

If you get $400K of dividend income you are very likely rich, but if like most
of these people you get $400K of wages you very likely pay $125K or more in
federal state and local income, property, payroll, sales, use and excise taxes,
plus full insurances costs and full college costs (and possibly tuition for
elementary and high school if you live in a large city) and sizable mortgage
payments, and you probably spent at least 15 years at lower wages working up to
this income with substantial sacrifice. So do the math and see that it takes
decades to get "rich". Perhaps Mr. Thorndike would like to comment on the
other drivers of income inequality, such as inability to form stable two parent
families and apply those cornball traditional values that prior generations
tried to teach us. Or perhaps he could address the dire consequences from 47
percent not paying income tax and therefore seemingly not caring about how much
money is spent in DC and the bottomless pit of debt.

ray in bowieJan 13, 2013

AMT buff:
"Income inequality stems from personality inequality. The tax system cannot
change it."
Yeah, taxing carried interest (mgmt fees) at 15% when other self-employed
persons are paying 40-50% FICA & Fed Income Tax on marginal income has no
effect on how investment banks now conduct and raid business and encourage
legally suppressing the wealthy's tax bill in favor of taxing the middle class.

Mr. F: "Stable two parent families" also used to be able to live on a primary
wage-earner's pay and not need to spend upwards of $200/wk for each child
requiring childcare.

edmund dantesJan 16, 2013

The fact that someone has $400k in income does not tell us anything about that
person's wealth, which is what most people mean when they talk about "the
rich." It might be a one-time windfall, for example. And $400k means very
different things on the coasts and in the rest of the country.

Although I think the tax hike will harm economic growth, the fact is most of
the people in that top income group voted for Obama, so I say give them the
taxes they asked for. I don't know why Republicans kept protecting them.

The reason millionaires and billionaires have low effective tax rates is only
partly due to the capital gains preference. The big enchilada, the real money,
is in tax-free muni bonds, which brings their tax rate all the way down to
zero. Notice how no one is even talking about that?

lucas rachubaJan 31, 2013

"But what irritates me..."

Really? Was there irritation driving this piece?

"As long as Republicans can't see that people making $400,000 a year are
actually rich"

Sure, if they have no family and live in Nevada - instead of the nuclear
family, the nuclear taxpayer? That's a propos "out of touch".

"Snarkiness aside"

Why stop now?

"Some hard realities about the world we live in. Starting with who's rich, who
isn’t, and what we should do (if anything) about that situation."

I can hear Messr. Thorndike's dependents sharpening his pitchforks for battle.
Some may read this and think we have the next Trotsky here - let's hope so.

lucas rachubaJan 31, 2013

@ray somewhere:

"Yeah, taxing carried interest (mgmt fees) at 15% when other self-employed
persons are paying 40-50% FICA & Fed Income Tax on marginal income has no
effect"

I assume you are advocating for a 15% (really 20% but maybe it took you two
weeks to type that email) rate for all income categories?

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