Tag Archives: Tax

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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No Way Out.

As I have been thinking about debt and assets and liabilities, it has occurred to me to take a look at one of the largest liabilities the US Federal government has been carrying and the demographic forces that are now bearing down hard on the ultimate payday, our social security system.

As we know, due to an almost laughable absence of leadership, the US government has not seriously addressed, nor even come close to figuring out a way to save its so-called “entitlement programs”, and is now facing a massive shortfall in revenue directed towards those programs, measured in the tens of trillions of dollars. By the way, I object vehemently to politicians’ insistence on referring to these earned benefit programs as “entitlement programs” implying that they are somehow gifts from the government. They were paid for in real cash over many years of employment by every retiree who now draws from the social security well.

This shortfall has occurred because of the same mentality that allowed our national debt to spiral out of control, that is the assumption that the future will always be larger than the past (future debt service will be handled by future borrowing and by the growth of our GDP, and future social security funding will come as the result of future taxes on and abundance of future workers, earning increasingly larger salaries over time). As we have seen with debt, this is a bad assumption.

Prayer will also not work, I am pretty sure.

This assumption creates a dependency upon a growing surplus of current and future workers, and their ever-increasing social security taxes when compared to current and future retirees. So, how’s that working out? In 1940, there were 42 workers per retiree. In 1950, the ratio was 16-to-1. In 2010, there were 2.8 workers per retiree, and within 40 years, it’s projected that there will be just two workers per retiree. At the present rate, as the population ages and life expectancies continue to rise, the system will not be able to sustain itself into the future without major reform. Where is that reform?

And to compound the problem even further, we have begun the great movement known as “the retirement of the baby boomers”. They number around 75 million, and over the next 20 years or so, they will be selling assets and drawing down social security benefits like nobody’s business. Setting aside the issue of who will buy boomer assets, there are insufficient funds in the social security programs to support such a rush on the reservoir. Add to that the fact that young people entering the workforce today are earning exactly what they would have been earning 12 years ago, we have another layer of pressure on the revenue side, and another example of bad assumptions.

Congress cannot keep denying cost of living increases to the social security system in the face of hard evidence to the contrary (see prior post on debt), and those future COLAs, if done properly, will add another 4-5% per year worth of pressure on the system.

So, how are boomers going to retire exactly? Who is going to pay for this impending onslaught of benefits our government is going to have to start forking over? And, how?

Without increasing the payroll tax rate by .5%, or increasing the cap on taxable earnings to 90%, or raising taxes on the actual benefits paid out by 10%, there is no answer. Even if we did all three of these, the impact would only be 72% of the shortfall in the next 10 years. After 10 years, even with these three measures, the impact would fall off to 23%, because the growth in the liability is like a hungry mythical beast, and without RADICAL reform and a BIG tax increase, we can never feed the beast; sort-of like our municipal and state pension obligations.

We have created an enormous burden on future generations of citizen workers, without even a hint of responsible governance or preventive legislation. Congressmen and women who presided over this mess will retire on comfortable and ridiculously generous Federal pensions with fully paid health care benefits, while the average, random Joe and Jane will be stuck holding this bag, with absolutely no hope of any way out. This is beyond shameful. This is criminal.


Too Bad Our Congress Isn’t This Smart.

My Buddy, Jerry Brown, is Smart to Compromise with Millionaire’s Tax Plan.

In recent weeks it was becoming increasingly clear that Governor Jerry Brown’s tax measure proposal was headed for defeat, because it included an unpopular sales tax hike. Numerous polls showed that it was trailing the rival Millionaire’s Tax — which proposed to only raise income taxes on the wealthy — by a substantial margin. Backers of the Millionaire’s Tax also had repeatedly — and rightly — rebuffed requests by Brown to drop their more popular measure in favor of his less popular one. So Brown, instead of pushing on with his doomed measure, decided to strike a deal with the sponsors of the Millionaire’s Tax and combine the two measures into one. It was a smart move.

There’s no doubt that the state’s beleaguered finances need a serious revenue boost. Budget cuts over the past few years have devastated funding for higher education, social services, state parks, and other important programs. The new compromise measure will bring in an estimated $9 billion annually if it passes.

Although Brown is already taking criticism from moderates — the Chroneditorial board today said that he “caved” — the deal makes sense politically. Tax measures are never easy to pass in California, and Democrats and progressives likely need a united front to be successful. Republicans were never going to endorse either tax measure, while infighting and competing measures threatened to divide traditional alliances on the left. For example, the California Federation of Teachers was backing the Millionaire’s Tax while the state’s other major teachers’ union, the California Teachers’ Association, was supporting Brown’s plan.Now, the two influential unions will be working together for the same proposal. In fact, virtually all the major unions in the state are expected to endorse the new tax measure. 

And while the new plan has flaws, the decision by the Millionaire’s Tax sponsors to strike a deal with Brown was understandable, too. With two measures instead of one, opponents of the Millionaire’s Tax — i.e. Big Business and the wealthy — would have likely spent heavily to defeat it. Unfortunately, negative advertising works all too well in this country, and as a result, the Millionaire’s tax — as popular as it was — probably faced a tough fight. As such, we may have been left with two losing tax measures: Brown’s less popular one, and a Millionaire’s Tax battered by a barrage of negative ads financed by the One Percent.

The rich, of course, will probably go after the compromise measure, too. But at least Democrats and progressives will be united in their fight to pass it. Brown’s position as governor also will help. Big Business may be reticent about directly taking on the new proposal out of fear of angering him — and then not getting what they want on other issues.

The new compromise measure, if it passes, will increase income taxes on the wealthy at a higher rate than what Brown had proposed. Individuals making more than $500,000 a year, and couples making more than $1 million, will see a 3-percent-tax hike, which is the same as what the Millionaire’s Tax proposed (the governor had proposed a 2-percent increase). The new measure also lowers Brown’s proposed sales tax increase from .5 percent to .25 percent. The Millionaire’s tax would have left sales taxes as is.

At the same time, the new measure would raise taxes by 1 percent on individuals who make more than $250,000 a year, and couples who make more than $500,000 (which is the same as what Brown originally proposed); and by 2 percent on individuals who make more than $500,000 a year, and couples who make more than $600,000 a year (Brown had originally proposed a 1.5 percent hike). The Millionaire’s Tax would have only increased taxes on incomes above $1 million. The compromise also discards the Millionaire’s Tax proposal to hike taxes by 5 percent on incomes above $3 million.

The main drawback, of course, to the compromise deal is the sales tax increase. Sales taxes are regressive because they impact low- and middle-income wage earners the most. They’re especially a bad idea in a state in which low-income people already pay a higher effective tax rate (10.2 percent) than the wealthy (7.4 percent), when considering all taxes.

Nonetheless, the prospect of a united, winning campaign to raise revenues and help avoid further devastating budget cuts outweighs the sales tax flaw in the compromise deal. Moreover, the compromise plan will still help level the tax playing field in California, because it will raise taxes much more on the One Percent than on the 99 Percent.