Billionaire Stephen Schwarzman, Poster Child For Tax Loopholes, Says Poor People Lack ‘Skin In The Game’ On Taxes

Our guest blogger is Seth Hanlon, Director of Fiscal Reform at the Center for American Progress Action Fund.

One of Mitt Romney top fundraisers and fellow 1-percenter Stephen Schwarzman was recently on television questioning the civic involvement of nearly half of Americans. Asked on Bloomberg TV whether he would be willing to pay higher taxes to help solve the country’s fiscal challenges, the billionaire Schwarzman responded by pointing at the approximately 45 percent of households who will not owe income taxes this year (an abnormally high number due to the recession) and said:

You have to have skin in the game….The issue is the concept that we’re all in this together, solving problems together…. The concept that half of the public isn’t involved with the income tax system is somewhat odd, and I’m not saying how much people should do, but we should all be part of the system.

This “skin in the game” myth, which implies that people who don’t owe federal income tax in a given year don’t contribute to the public good, is both factually misleading and fundamentally insulting. And it’s particularly offensive coming from a guy who’s been the most zealous defender of a loophole that allows billionaires like him to pay a lower federal tax rate than many middle-class workers.

First, all Americans pay taxes. The “tax system” Schwarzman refers to includes federal payroll taxes and state and local sales taxes, which claim a bigger share of income from those in the middle and bottom than from those at the top. All told, even the very poorest quintile pays about a sixth of their modest incomes in taxes. These other, more regressive taxes may not be noticeable to billionaires like Schwarzman, but the fact that everyone pays them shows that we are all already “part of the system.”

Moreover, it’s likely that many families won’t owe federal income tax this year precisely because they have too much skin in the game. Among the major reasons a household might not owe income taxes:

– They worked (paying both income and payroll taxes) for years or even decades but lost their jobs in the Great Recession and saw their incomes fall under the low thresholds where the income tax kicks in.

– They worked their whole lives (again, paying taxes on their wages) but are now retired and rely principally on Social Security benefits, which are mostly untaxed.

– They are students and their income-earning years are mostly ahead of them.

– They work at low-paying jobs while raising children, and qualify for the Earned Income Tax Credit. (Tax data shows that most EITC recipients only claim the credit for short periods; on net, recipients pay hundreds of billions in federal income tax over time.)

What’s particularly galling is to hear Schwarzman, of all people, sermonize about how low-income people need to pay higher income taxes to prove that they have skin in the game. Schwarzman, co-founder of the Blackstone Group private equity firm, is the most zealous defender — and probably one of the biggest beneficiaries — of the “carried interest” tax loophole.

This loophole allows some of the world’s richest people, among them private equity and hedge fund managers, to treat the bulk of their income as capital gains. That means most of their income is taxed at less than half the top income tax rate, and exempt from payroll taxes to boot.

Schwarzman in 2010 infamously compared President Obama’s proposal to close the carried interest loophole to Hitler’s invasion of Poland, and declared of his industry’s lobbying efforts, “It’s a war.” The proposal was defeated in Congress.

If he’s really in the spirit of “solving problems together,” Schwarzman should stop repeating myths about less fortunate Americans not having skin in the game, and spend some time thinking about whether billionaires like him really need or deserve special tax breaks.