WASHINGTON – The Republican Party’s tax reform proposal is a “moral abomination,” retired founder of investment management firm The Vanguard Group John C. Bogle said Tuesday, the same day the Senate Budget Committee voted to advance the bill.
The proposal, which House Speaker Paul Ryan (R-Wis.) vowed would slash the corporate tax rate from 35 percent to 20 percent, is also an “experiential abomination,” Bogle said at the Council on Foreign Relations.
Bogle, a Republican, pointed to soaring U.S. corporate profits and stagnating wages to justify his opposition to the tax overhaul. According to Trading Economics, U.S. corporate profits averaged $428.9 billion between 1950 and 2017, and rose to an all-time high of $1.74 trillion in the fourth quarter of 2014.
“And we’re thinking about giving relief to the corporations at the highest levels ever,” Bogle said. “Individual wages are at the lowest level in about 15 years as a percentage of GDP. So we’re helping the people that are doing very well and doing nothing for the people that are doing very badly.”
Bogle also argued that Republicans have exaggerated the corporate tax rate, and suggested that everyone knows the rate is closer to 20 percent for most businesses. He said the current rate is “very competitive” with the rest of the world.
The most egregious flaw, he continued, is that corporations are putting the interests of shareholders ahead of the “working stiffs” who keep the companies running.
“How did we ever get going down a track where the money people who earn by the sweat of their brow, more or less, are taxed at a higher rate than the money that people get dividends for which they do nothing?” Bogle asked. “It didn’t used to be that way.”
By contrast, Bogle pointed to the so-called unearned income tax, which reached a high of about 70 percent at the end of World War II and prevailed for nearly another decade. He admitted, however, that the unearned income tax was also “wrongheaded.”
“The worst part of it is that the companies are making so much money now that they don’t know what to do with it,” Bogle said. “I did write a book called Enough, not to be confused with the biography of Donald Trump recently written called Never Enough.”
Republicans have said that the tax plan would result in the repatriating of corporate profits that are currently parked overseas. Bogle admitted that this is one of the tough problems that lawmakers are trying to solve, but the wholesale reduction of corporate taxes is not the answer.
Bogle was asked during the discussion about the Dodd-Frank Wall Street Reform and Consumer Protection Act, a Wall Street reform bill that the Obama administration championed in response to the 2008 financial crisis. Republicans initially attempted to repeal the policy, but this week Federal Reserve Chairman nominee Jerome Powell called for a balance between retaining key financial measures and cutting red tape for small businesses.
While Bogle said that he finds regulations to be intrusive, bureaucratic and unevenly administered, the industry usually earns those regulations through bad acting. He regarded the proposal to repeal Dodd-Frank as “just plain crazy.”
“I’m not in favor of any vast overturning of Dodd-Frank,” he said. “I think on balance, (it’s) an excellent piece of legislation.”
Bogle was also asked for an opinion on Bitcoin, a digital currency that has skyrocketed in value and legitimacy. Unlike bonds and stocks, Bogle said, Bitcoin has no underlying rate of return, which is the same for gold.
“There is nothing to support Bitcoin except the hope that you will sell it to somebody for more than you paid for it. I think that’s a factually correct statement,” he said, while also pointing out that Bitcoin has been linked to money laundering schemes. “Avoid Bitcoin like the plague.”