And so it begins. Recent comments made by Hillary Clinton suggest she is laying groundwork regarding her campaign pledge to be the people’s champion when she said in Iowa, “there’s something wrong when hedge fund managers pay less in taxes than nurses or the truckers I saw on I-80” as the Scooby Van made its way west from New York to the Hawkeye state.
Mrs. Clinton’s sweeping comment fails to incorporate important key facts. The mean annual wage for a truck driver is $41,930 and, assuming a worst tax case scenario, he is single with no eligible deductions. Based on the current progressive income tax formula, this truck driver would pay $6,338.75 in Federal Income Tax for wages earned in 2014. This translates to an effective rate of about 15.1 percent of his total income; a rate 49 basis points lower than the 20 percent rate Mrs. Clinton finds so egregious for top earning hedge fund managers.
More to the Point
Consider the tax burden shouldered by David Tepper of Appaloosa Management. Mr. Tepper’s estimated 2009 income was $4 billion. Had that $4 billion been earned in 2014, Mr. Tepper would have paid 20 percent ($800 million) in Federal capital gains tax, about 126,208 times the amount of tax paid by the truck driver.
Contrast this to Mrs. Clinton’s comment about the nation’s CEOs in which she states, “There’s something wrong when CEOs make 300 times more than the American worker” but, at the same time she finds nothing wrong with a single individual paying 126,208 times the taxes of a truck driver.
To be sure, Tepper would not be agreeable to trading paychecks with our imaginary trucker any more than the trucker would accept Tepper’s tax obligation but, the point of this exercise is to illustrate the dangers of painting important and complex economic issues with too broad a brush. A shallow analysis of our tax code benefits no one. CEOs and hedge fund managers are no more or less villainous than our imaginary truck driver.
People in Glass Houses
Mrs. Clinton is a woman of considerable intellect and would be better served by a fact-based discussion of tax code reforms. We strive to be a nation that offers equal opportunity but, we must recognize that equal opportunity rarely translates into equal outcomes.
The Clinton campaign is, after all, funded in part by some of the very CEOs whose financial success she demeans and her own son-in-law is a hedge fund manager. Biting the hand that feeds you and throwing stones in your own house may not be the prudent path to follow.
No voter would argue the merits of equal opportunity for all. That is the promise of our founders. Equal outcomes, however, cannot be guaranteed unless they come at the expense of others.
The remedy lies in reforming the tax code in a manner that mandates every corporation and individual to pay their fair share. Casting the country’s CEOs and hedge fund managers as villains will not be a successful agent for change.
