Eric Lotke, research director for the Campaign for America’s Future [CAF], co-authored the “Gilded Age Taxation” report, released on April 14. It discusses what the tax increases are really about. The CAF “is the strategy center for the progressive movement,” according to the website. Lotke, who opposes the Tax Day tea parties, spoke to Capitol Weekly about the importance of this report and what it means to the American public.
Capitol Weekly: Can you explain what shows in this report?
Eric Lotke: This report quantifies what people already know, that there is something unfair going on. That wages are flat. Real wages actually are lower now than they were in 1997. That is, working class wages adjusted for inflation. But top end wages, the top one percent, are going through the roof. So the top is getting richer and richer, and the working people are struggling to stay even. The famous irony is Warren Buffet, the investor, who pays lower taxes than his receptionist.
CW: With taxes in mind, what kind of messages are these Tax Day tea parties conveying to the American public?
EL: My message is that this is unfair. I think that with the Tax Day people, they got manipulated. Those tea parties are subsidized events by the top end rich people. If you go to their websites then you will see what their solutions are really. Their solutions are to lower the estate tax for millionaires. That’s not what people are upset about, and that’s not what I’m upset about. Tax parties are really just another example of regular working people getting manipulated by rich people, who are laughing all the way to the bank.
CW: How do you plan to help people to see what really is the message from these tea parties?
EL: All we can do is tell the truth. Look, the income in inequality is rising. The top end taxes are dropping. I was talking to a small business owner, an older man. He said, “Back when my tax rates where high, why would I pay myself a lot of money, because I would just have to turn it over to the government. So, I put the money in the business. I grew the business. That was how I got the growth 20 years ago. I left the money in the business. Why should I pay myself if I didn’t get to keep it?” Nowadays, it’s like an act of charity to keep the money in the business because I can pay myself and keep it. That’s not how it’s supposed to work.
CW: The report mentions that there are a significant number of loopholes that the higher end receives that the lower end does not ever see. So what are some of those loopholes that the high end receives?
EL: My favorite is the carried interest exception. This is what the hedge fund manager loophole is. [A hedge fund manager] earn[s] [his/her] living as a percent of every transaction. So that when you buy a stock you get a percent. When you sell the stock you get a percent. If the stock appreciates, you get a percent. If the stock depreciates you don’t lose anything. The salary is $100,000 dollars, $200,000…but what you are bringing home at the end of the day is tens of millions of dollars from your transaction cuts. The income is taxed as income. Capital gains are also taxed. Fifteen percent is your basic capital gains tax. So, under the carried interest exception, all of that money he is making at his work is taxed as capital gains at 15 percent tax rate…but that 100,000 is taxed as salary at the 35 percent tax rate.
CW: So, how do the amounts of loopholes in tax breaks compare between the higher end and the lower end.
EL: Are you getting a carried interest exception loophole? Do you have a tax shelter in the Cayman Islands? It turns out that you don’t get your salary. It turns out your salary goes into a holding company incorporated in the Cayman Islands, where there is no tax liability. Then, the holding company reimburses you for that $100,000. You’re not doing that. They are, and they didn’t used to.
CW: What seems to be changing this pattern in these tax practices?
EL: There are more loopholes every year. They keep on adding more loopholes and they keep reducing the enforcement of the laws there are. Congress changes laws. The business practices change. So that it became ethically normal to create tax shelters in the Cayman Islands. According to the GAO [U.S. Government Accountability Office]…the Bank of America, who is getting TARP [Troubled Assets Relief Program] money, has 115 off shore tax havens, 59 of them in the Cayman Islands.
CW: What are some of the polices that CAF would like to see changed?
EL: We would like to see those top tax brackets returned to the Clinton era, not these Bush tax cuts – from 39 percent to 35 percent. That hedge fund manager loophole, it’s their job. It’s their work. It should be treated as income. It should be taxed as work. Several items like that are simple that could change immediately. But, there are rich people that want to keep them the way they are. They even paid for those tea parties.