Tag Archives: Income

New Tax Burden: Pay For The Rich!

 

The Brookings Institution has analyzed the new tax system overhaul that Mitt Romney has proposed and concluded that it would give big tax cuts to high-income households and increase the tax burden for middle- and lower-income households

Because Romney has yet to propose an actual tax plan, the researchers modeled a revenue-neutral income tax change that incorporates some of Mr. Romney’s proposals, which include lowering marginal tax rates, eliminating both the alternative minimum tax and taxation of investment income of most taxpayers, eliminating the estate tax and repealing the additional high-income taxes passed with the Affordable Care Act.

All by themselves, these cuts to personal income and estate taxes would reduce total tax revenue by $360 billion in 2015 relative to what is expected of current policy, according to the Brookings scholars.

Mr. Romney has said that his plan will include offsets to the revenue losses from his proposed lower tax rates, although he has not specified what kinds of policies would offset those cuts (that is, how he would come up with an additional $360 billion to offset the lost $360 billion in tax revenue).

Ann thinks this is funny.

The Brookings analysis assumes that those offsets would be achieved chiefly through reducing or altogether eliminating other tax breaks — like the mortgage interest tax deduction or the child tax credit — and does not factor in spending cuts as a means to offset lost tax revenue.

But even if all possible loopholes for households earning more than $200,000 were eliminated, this group would still be a net gainer under Mr. Romney’s plan, since the marginal tax rate decreases and other changes lop off so much of its tax burden.

As a result, middle- and lower-income households — the 95 percent of the population earning less than about $200,000 annually — would have to make up the difference.

“It is not possible to design a revenue-neutral plan that does not reduce average tax burdens and the share of taxes paid by high-income taxpayers under the conditions described above, even when we try to make the plan as progressive as possible,” write the study’s authors, Samuel Brown, William Gale and Adam Looney.

If the elimination of tax breaks starts with those affecting the top earners, the authors estimate, those earning under $200,000 a year will see their cash income fall by about 1.2 percent, as shown in the chart below. The very top earners — those earning more than $1 million a year — will by contrast see their cash income rise by 4.1 percent.

This analysis assumes that base-broadening -- eliminate of tax expenditures -- occurs “starting at the top” so that tax preferences are reduced or eliminated first for high-income taxpayers in order to make the resulting plan as progressive as possible.

This analysis assumes that base-broadening — elimination of tax expenditures — occurs “starting at the top” so that tax preferences are reduced or eliminated first for high-income taxpayers to make the resulting plan as progressive as possible.

Mitt Romney looked out the window as he chatted with the traveling press corps aboard his campaign's charter plane on Monday.

And still, all of the guys in the top 2-3% make out, while the rest of us get screwed as usual. Don’t vote for Mitt. Please.

 

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Taking a Closer Look at Economic Insecurity.

Over the past few years Scott Winship has made a career out of scolding liberals for exaggerating the recent growth of economic insecurity, and I’ve learned a lot by reading his critiques. But I find that I always have a problem with his pieces: he simply pushes back too hard in the opposite direction. If there are different measures of some variable, he always picks the one that minimizes the problem. If there are alternate explanations for a trend, ditto. If different datasets say different things, ditto again. The right answer is always the one that makes the problem look the smallest.

I was reminded of this today while reading “Bogeyman Economics,” a long piece in National Interest whose takeaway is that a careful examination of the data suggests that economic insecurity hasn’t risen much at all in recent years. But Winship’s thumb is invariably on the scale. In his look at income volatility, for example, he reviews some valuable criticisms of previous research. But he also dismisses the use of an alternate dataset without offering much of an explanation and insists that a proper look at the data — which measures the portion of working-age adults who experience a 25% year-to-year income decline — suggests very little change over the years. But look at his own chart:

 

 

The number of families with big income drops has “increased only slightly,” he says, and even accounting for cyclical fluctuations “the claims of dramatically increased volatility simply don’t stand up.” But a simple look at the data says different. I added the green line going roughly through the middle of the data, and it shows the number of at-risk families rising from about 8% to 12%. That’s a 50% increase, which is significant by any measure. What’s more, if you look at the trend line going through the peaks, which correspond to economic recessions, the increase is even greater. In other words, the impact of recessions has become larger and larger over the past four decades — exactly the concern of those who write about economic insecurity.

Other examples litter the piece. Maybe some of the income drops in the chart above are voluntary, he suggests, without presenting any evidence that voluntary income losses have risen. He calls a joblessness increase of 3% to 6% between 1968 and 2007 “modest,” even though it represents a doubling. Long-term unemployment is up a lot, he concedes, but hey — it’s a small number of people in absolute terms. Really? A 2% bankruptcy rate per year — up nearly 10x since 1980 — isn’t very much. (And we should be suspicious of the number anyway, though Winship provides no data to suggest why.) Credit card debt has doubled, but that’s OK because it’s only among a minority of Americans. The ranks of those without health insurance has gone up by 12 million, but it’s a small worry because it represents an increase of only 4 percentage points (which looks small on a chart that goes from 0 to 100). And throughout it all, virtually every statistic is tied to medians, even though we should expect that income insecurity has probably grown the most in the bottom third or fourth of the population.

I get what Winship is doing. He believes that horror stories of increased economic insecurity have been exaggerated for political effect, so he’s fighting back. And he makes some good points along the way. But, his evidence is so obviously cherry picked that I never know what to trust and what not to trust. After all, in a rich country, economic insecurity will never affect more than a smallish portion of the country, which means that even substantial changes can almost always be dismissed as modest in absolute terms. (A 20% increase in a quarter of the population, for example, nets out to an overall increase of only 5%.) By this measure, a rise in unemployment from 6% to 10% — which only affects 4% of the population — is hardly worth noticing. But as we all know, this is actually a sign of a deep and major recession. And, we are no longer a rich country.

“If we are to effectively confront the fiscal and economic challenges of the 21st century,” Winship concludes, “we will need to begin by seeing things as they really are.” I agree. But that goes for both sides. A fair look at the data is fine, but not one that seems to bend over backward time after time to minimize long-term trends that suggest very real problems and very real distress.