What’s Obama thinking with tax hikes on the rich?
Thanksgiving is over, and the fiscal cliff is back on the table. Here in Georgia, Sen. Saxby Chambliss’s public feud with tax-pledge champion Grover Norquist made headlines and ramped up speculation about which Georgia Republican(s) might challenge our senior senator when he’s up for re-election in 2014.
But if there’s going to be a deal on taxes and spending before we start going over the cliff in January, our newly re-elected president will play the most prominent role. I’ve previously written about how the GOP-led House might try to maneuver with Obama. Now Greg Mankiw, a Harvard economist and former adviser to both George W. Bush and Mitt Romney, uses an op-ed in the New York Times to imagine how the president’s internal debate might be going from two perspectives: the committed liberal his critics contend he is, and the pragmatic moderate his supporters believe him to be.
The entire article is interesting and worth a read, but I’m going to highlight one section that isn’t getting much attention in the discussion of how taxes might be reformed:
MOD: According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we’d raise $749 billion in tax revenue over 10 years. And 96.2 percent of the extra revenue would come from the top fifth of taxpayers, with 79.9 percent from the top 1 percent.
LIB: I have a couple of concerns about that.
MOD: What?
LIB: First, if you limit deductions, people in high-tax states will be hit particularly hard, because state and local taxes are deductible.
MOD: Isn’t that fair? I don’t see why states and towns that choose to have very high taxes should be subsidized by everyone else.
LIB: These states generally have liberal agendas, which I want to encourage, not penalize. And many of them, like New York and California, vote Democratic. After they helped us win such a great victory, I don’t think we should be asking our allies to bear a disproportionate share of the burden. (Emphases and links original.)
Some context: In February, the Congressional Budget Office estimated that the deduction for state and local taxes represents about 0.3 percent of gross domestic product per year. Only four deductions were larger. In a $16 trillion-a-year economy, 0.3 percent equals $48 billion.
– By Kyle Wingfield
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271 comments Add your comment
Scrivener
November 26th, 2012
2:20 pm
“This is precisely what’s wrong with the tax code. I’m hardly a simpleton, but I’m confused as to why capital gains are considered less income than income derived from labor.”
Don’t sell yourself short; maybe you are a simpleton after all. Capital gains are made with money that has already been taxed and is produced when someone takes a risk with a particular business model which frequently becomes a benefit to the economy.
Hopeful
November 26th, 2012
2:20 pm
Help our soldiers
John
November 26th, 2012
2:20 pm
“Fair” is just a code word for socialism, my family comes from Soviet Union and that’s how they started that over there, it was not “fair” that the landowners were rich and the peasants were poor…80 years and 40 million deaths later we saw that was a mistake. Life is not fair, those who are smarter, faster and work more get more, this was the case for 1000s of years and will be for 1000s more…everything else is a ruse to get simpletons to rallys and polls.
SBinF
November 26th, 2012
2:20 pm
“Like I said you need to hire an accountant to show you how to reduce your tax burden. If you owned a home and had a child then you would not be paying more then Romney. Since you have no other expenses then you should have tons of money invested in the stock market so your gains are being taxed at the same rate as Romney’s and your income is being taxed at a lower rate then Romney’s income was taxed at.”
Goodness, you certainly do presume to know a lot about my financial profile. I’m solidly middle class, not rich. I don’t have “tons of money” to invest in the stock market. I am vested in a 401K to which I contribute monthly. If only I had “tons of money!”
Don Abernethy
November 26th, 2012
2:22 pm
What is he thinking? More money means more golf trips and family vacations to exotic locations on his Air Force 1.
SBinF
November 26th, 2012
2:22 pm
“Everyone that is retired and is living off their 401K and SS. Just like Romney is retired.”
That doesn’t answer the question. The 401k plan has only been around for 30 years or so, which means that most retired people are not yet retirees who derive income from a 401k.
Interested Observer
November 26th, 2012
2:22 pm
John @2:12. You’re misinformed.
First, withdrawals from 401(k)s are taxed at earned income rates, not at capital gains rates.
Also, in 2013, the highest rate on capital gains (which does not apply to 401(k)s) would be 20 percent if the Bush tax cuts expire, not 30 percent, as you falsely assert.
I suggest that you get your facts straight before calling people who disagree with you “simpletons.”
John
November 26th, 2012
2:23 pm
Scrivener thank you for the lesson, but I think its falling on deaf ears. this is not a good sell for someone who is poor and is looking to lash out at someone who has more. they dont want to hear about income from labor which was taxed at 35%+ already being invested into the market then gains on top of that being taxed AGAIN (and then AGAIN when you die). this is all too complex, its much too easier to “blame the rich” and get the simpletons to rallys and polls.
SBinF
November 26th, 2012
2:23 pm
“Don’t sell yourself short; maybe you are a simpleton after all. Capital gains are made with money that has already been taxed and is produced when someone takes a risk with a particular business model which frequently becomes a benefit to the economy.”
I take your hackneyed point, but it’s still income. By your logic, if the money has already been taxed, why not set the capital gains tax rate at 0%?
Scrivener
November 26th, 2012
2:23 pm
I heard someone say recently about the new iPhone: “Are you spending hundreds of dollars on a new iPhone or are you spending your hundreds of dollars investing in Apple.” SBinF, maybe if you followed this philosophy of investing even small amounts, you’d develop a good stock portfolio over time. Then you could be one of the people you like to hate.
curious
November 26th, 2012
2:25 pm
Weren’t the Bush tax cuts enacted to give back the Clinton surplus to the taxpayers?
Since that tax cut succeded beyond Bush’s wildest dream, maybe it’s time to go back to that program that gave us a surplus.
Scrivener
November 26th, 2012
2:26 pm
“By your logic, if the money has already been taxed, why not set the capital gains tax rate at 0%?”
Bingo!! You’d go a long way towards stimulating investment and thus the economy. But you’d get a lot of wealth envy folks mad at you, too, so you might have a problem getting re-elected.
Thomas Heyward Jr
November 26th, 2012
2:26 pm
Washington will continue to steal your wealth.
The Centralized Government of the USSR proved that it’s fake authority was able to confiscate 95% of all individual wealth………Considering the American tax slave/worker…….the moochers still have about 25% more to loot.
Barney Frank, Saxby Chambliss, and their state-sponsored Kyle Wingfelds will NOT go down as easily as one thinks.
.
They will continue to seize more of your wealth,
as long as you let them.
SBinF
November 26th, 2012
2:27 pm
“Bingo!! You’d go a long way towards stimulating investment and thus the economy. But you’d get a lot of wealth envy folks mad at you, too, so you might have a problem getting re-elected.”
Didn’t Romney and Ryan run on the Ryan budget, which would effectively set the capital gains tax rate at 0% or close to it? How well did that work out for them?
Oh right…it’s because all of us takers voted for Obama to receive our handout.
Kyle Wingfield
November 26th, 2012
2:31 pm
Interested @ 2:11: If compliance with the mandate is voluntary — i.e., anyone has the ability and freedom to buy health insurance or not — why was a massive reform of health insurance considered a national emergency?
southpaw
November 26th, 2012
2:32 pm
Here’s an idea for a tax increase that both sides should like. What we need to start doing is measure tax increases the same way we measure budget cuts! Let me illustrate how to do that in 3 easy steps.
1. Start with a tax rate (for example, the current 35%) on rich people.
2. Plan to reduce the rate to, let’s say, 25%.
3. Change the plan. Instead of reducing the rate to 25%, reduce it to, let’s say, 33% instead.
Presto! The tax rate has been changed from 25% to 33%–and the rich will pay 8% more in tax. They probably won’t even notice, because it will look to them like a 2% decrease in their rates. And then, Obama/Reid/Pelosi can say that they increased taxes on the rich by 8%, and it will be just as truthful as the talk we keep hearing about spending cuts. Is this a win-win or what?
John
November 26th, 2012
2:32 pm
Interested Observer, perhaps an afternoon on investopedia will do you some good. 401k withdrawals are taxed as income if you take out prior to turning 65. Additionally there are two cap gains rates (15 and 20), one is for long term tax lots and another for short term. I was not saying they are 30%, but people here saying “fair share blah blah blah” their suggestion is to match income tax rates which essentially means that if you invest in the market then your money would be taxed twice, once when you earn it from paycheck and then again when you invest.
John
November 26th, 2012
2:33 pm
curious, before you hail Clinton as economic genius please remember that he presided over a .COM boom which did not happen due to his policies. he was simply lucky…
Interested Observer
November 26th, 2012
2:33 pm
RE: “Capital gains are made with money that has already been taxed…”
True. Also, earned income (income from work) is made with money that has already been taxed. The sources of our paychecks are investments and/or sales, and investors and customers ostensibly paid taxes on that money before they invested or purchased our goods and services.
So tell me again why capital gains should receive special tax treatment.
Jefferson
November 26th, 2012
2:34 pm
Romney lost on the simpletons that are being left behind, j.
Kyle Wingfield
November 26th, 2012
2:35 pm
SBinF @ 2:10: Start with double taxation of investment income, then move on to the fact that capital is much more mobile than labor. Next, consider that capital gains don’t have to be realized in the year in which they’re made, meaning it’s often preferable from a revenue standpoint to keep rates lower and encourage investors to cash them in and pay taxes rather than sitting on them and not paying taxes. (This is exactly what happened after Clinton and the GOP Congress cut the capital gains rate.)
JamVet
November 26th, 2012
2:35 pm
Good work, Republicans!
Your hysterical trickle down message that the struggling super-wealthy in this country need YOUR protection is really resonating with middle class Americans!
Who have endured flat-lined incomes for four straight decades while the plutocrats have enjoyed explosive gains in wealth.
Occupy that. And keep on losing in November.
The answer (to the question of what has gone so wrong in this country) is there is too much power and too much wealth in too few hands and the few control our government and the few create the problems and the injustices for the many and have less and less interest in doing anything about it because they can get away with it. ~Ralph Nader 1996
Jefferson
November 26th, 2012
2:35 pm
Grownups crying like babes is all I see here.
John
November 26th, 2012
2:35 pm
SBinF, it did not work for Romney and Ryan because they were speaking to the working people who actually want to work and make money. Obama’s base is not interested in jobs or God forbid investment. All they want is handouts…that’s why it did not work for them. Obama gave expanded welfare, amnesty to illegals and Stimulus to unions…presto releection.
td
November 26th, 2012
2:36 pm
SBinF
November 26th, 2012
2:20 pm
If you are “firmly” middleclass and do not have a house, not married and have no children, then you have disposable income or are really wasting a great deal of money. So sad.
SBinF
November 26th, 2012
2:38 pm
“SBinF, it did not work for Romney and Ryan because they were speaking to the working people who actually want to work and make money.”
I work and make money. What am I, chopped liver?
SBinF
November 26th, 2012
2:38 pm
And correct me if I’m wrong…I usually fall asleep during the yearly benefits seminar, but aren’t 401k withdrawals taxed as ordinary income, and not capital gains?
iggy
November 26th, 2012
2:40 pm
Obama is finished. He enjoyed the campaign, won a second term and that gonna be about it. He doesnt want to be President, he like Ted Kennedy, just doesnt want anyone else being President.
4 more years of canned teleprompter reading, lackluster initiatives, sticking it to the working man and giving freebies to the lazy. That about sums it up.
SBinF
November 26th, 2012
2:41 pm
Kyle, as someone has already pointed out, by that definition of ‘double taxation’, all income has been taxed before. How do we reconcile this fact? If capital gains is untouchable, the top rates are untouchable, what’s left?
Interested Observer
November 26th, 2012
2:43 pm
John,
Wikipedia isn’t my favorite source, but for the record, it doesn’t say what you said it says: “In any event any amounts are subject to normal taxation as ordinary income.” http://en.wikipedia.org/wiki/401%28k%29#Withdrawal_of_funds
401(k) withdrawals are ALWAYS taxed at ordinary income tax rates, regardless of age.
iggy
November 26th, 2012
2:43 pm
“presided over a .COM boom which did not happen due to his policies. he was simply lucky…”
Ive tried to maked exactly that point to a friend of mine yet she refuses to acknowledge same. I guess she is to dumb or to drunk to understand….lol.
Interested Observer
November 26th, 2012
2:46 pm
RE: “Start with double taxation of investment income,…”
Kyle @2:35,
As I explained at 2:33, earned income (actually all income) is double taxed. So that’s no reason to give investment income special tax treatment.
JamVet
November 26th, 2012
2:50 pm
…sticking it to the working man…
Yep, igs.
Like I’ve said since early 2008, he is just another Republican-lite.
Long Live the American Plutocracy.
MANGLER
November 26th, 2012
2:50 pm
I received an additional tax bill from one of the States that I paid tax to for last year. I followed the tables and instructions and paid that amount. Now I’m told that table was inaccurate and I owed a different amount, and am being penalized on top of it because apparently I just shoulda known better. And I have an EZ type filing. Can we work on simplifying the tax process? I see no reason that the tax code should be as thick as the National Electric Code.
Auntie Christ
November 26th, 2012
2:54 pm
.Kyle Wingfield
November 26th, 2012
1:57 pm
Auntie @ 1:28: If all these urban centers, which all happen to vote overwhelmingly for liberals, are all running up these costs (and the taxes to pay for them) for the reasons you suggest, why do you insist on calling it a “conservative agenda”? Why are all these liberals enacting this conservative agenda?
You and mankiw imply that the higher tax rates in the highly urban/blue states is a result of a ‘liberal agenda.’ My point was to show how you are distorting facts. The higher taxes are a result of providing a more amenable business climate, a major objective of the conservative agenda, not the result of a ‘liberal agenda.’ If ‘liberals’ like Christy and Bloomberg share this viewpoint, then we welcome their participation. Paying for the improvements does not cause liberals apoplexy as it does the cons. We recognize that a functioning society/government must be paid for, and idiotic pledges to eschew paying for it are destructive. Anyone who thinks otherwise is a gullible dupe
Kyle Wingfield
November 26th, 2012
2:56 pm
No, SBinF, what Interested did was to make the same apples vs. oranges mistake he accused me of earlier. I am referring to corporate taxes, which are levied after labor income but before dividends are paid. The dividend is the distribution of post-tax income. That’s why we talk about double taxation.
If we were to follow Interested’s alleged logic about the taxes paid by the consumer before doing business with the company, we would eliminate all taxes.
Kyle Wingfield
November 26th, 2012
3:00 pm
John Q @ 2:38: Ask the wealthy how supportive they are of increasing their effective tax rate (rather than their marginal tax rate), by closing loopholes and raising rates, and I suspect the level of support and outspokenness would diminish quickly.
I suspect what many of them support is the raising of rates, to make them look good, while keeping or even expanding loopholes so that they don’t actually pay more. For an explanation of why Warren Buffett specifically is being disingenuous, see this other piece by Mankiw.
SBinF
November 26th, 2012
3:00 pm
I might be willing to concede the point if not for the many corporations who employ masses of tax attorneys to seek every way possible to…..avoid paying corporate taxes.
fauxsoup
November 26th, 2012
3:01 pm
Most of the “1%” earn their “income” primarily through capital gains. The quotes are because capital gains are not treated as income. Capital gains are exempt from payroll taxes (Social Security, Medicare, Medicaid). The effective tax rate for long-term capital gains is 15%.
The equivalent 15% tax (sans payroll taxes) is paid on incomes from $8,701 to $35,350. When you include payroll taxes, that becomes roughly 23%.
Think about that.
A wealthy investor sitting around collecting cash pays a lower tax rate than someone making $35,000 per year BEFORE DEDUCTIONS.
And republicans actually want to lower the capital gains rate.
It’s funny, because they assume the only solution to a slow economy is lower tax rates (despite historical evidence definitively proving that lowering rates doesn’t improve economic conditions, but I digress). This shows a complete misunderstanding of what makes our economy so strong to begin with: our demand.
If we put corporate tax rates back at 90%, wealthy people would still come here to invest. Why? Because they can’t pass up the amount of demand we have, no matter how small the margin they’re making on it is. Can they move manufacturing overseas? Sure. But they can’t put a dent in our wealth like that, nor can they make use of the most skilled labor force the world has ever seen. These are important attributes because of the scared voice in the head of the investory: “If I don’t do it, someone else will, and they’ll be richer for it”
iggy
November 26th, 2012
3:04 pm
fauxsoup
November 26th, 2012
3:01 pm
And hows that ozone layer working out for ya?
JDW
November 26th, 2012
3:07 pm
@jconservative …1:11
I agree with and support every word of that!
JamVet
November 26th, 2012
3:12 pm
In 1986 Ronald Reagan agreed to tax capital gains and dividends at the same rate as labor in exchange for reduced marginal rates.
But then he was a quasi-commie, punish the wealthy advocate for the takers in this country, huh REAL conservatives?
independent thinker
November 26th, 2012
3:13 pm
How about taxing all the money the 1% have hidden in the Caymans? How hard is that? It will only increase if the 1% get a tax hike. That’s why W was down there Nov. 2 doing a top secret $4,000 a person speech on how to avoid taxes and regulation by investing in the Caymans. I suggest Obama hire Romney and W to figure out how to keep the 1% from hiding money offshore, shipping jobs overseas and not using their investments to create jobs. Maybe they could also figure out how to get more veterans hired. I am sure Bill Clinton would love to have them invest a few million in his global initiative for that purpose. They would work well together and improve the sorry image of the GOP. Get Grover on board too!
Interested Observer
November 26th, 2012
3:14 pm
RE: “The dividend is the distribution of post-tax income. That’s why we talk about double taxation.”
Yes, Kyle. And a paycheck is a “distribution of post-tax income.” That’s why taxing earned income is also double taxation.
Actually, if you were to follow my logic, we would not give investment income special tax treatment; capital gains and dividends would be taxed as ordinary income. Apples and apples.
iggy
November 26th, 2012
3:15 pm
With regard to taxes, it doesnt matter what they do because everyone except the Lazy is gonna get a good screwing.
stands for decibels
November 26th, 2012
3:16 pm
Ask the wealthy how supportive they are of increasing their effective tax rate (rather than their marginal tax rate), by closing loopholes and raising rates, and I suspect the level of support and outspokenness would diminish quickly.
well of course. Probably because these wealthy folks assume that with a few winks and nods those loopholes will be back again in short order.
Linda
November 26th, 2012
3:16 pm
This is what Obama is thinking.
My adm. added $1.7 T to the natl. debt in the fiscal year that ended 9/10, another $1.2 T to the one that ended 9/11 & another $1.4 T that ended 9/12. Heck, we added $93.2 B just in one day, on 10/1/12, the highest amt. in history, more than was added between 7/4/1776 & 10/31/1942! This $75 B in tax revenues are nothing more than a drop in the ocean. It has nothing to do with the budget deficit, let alone the natl. debt We haven’t even passed a budget in 3 years. Mine was voted down in the Senate 99-0 & in the House 414-0.
I said that raising taxes would hurt the economy & the economy is worse now than when I said that, but we gotta be FAIR. We gotta target small businesses & folks that invest in the economy, just to be FAIR. We gotta get voters confused between income, which is taxed, & wealth, which is not taxed. We gotta get voters convinced that families who earn $250 K always have a higher net worth than families who earn $100K, regardless of where they live, & that high earners are just plain evil.
We gotta get rid of loopholes, formerly called deductions, to further impede the housing recovery & to prevent charitable deductions.
We gotta make folks forget that the Bush tax cuts caused the unemployment rates to plummet, the economy to soar & the tax revenues to skyrocket.
Piece of cake!
JDW
November 26th, 2012
3:17 pm
“Capital gains are made with money that has already been taxed and is produced when someone takes a risk with a particular business model which frequently becomes a benefit to the economy.”
Which is why the orginal amount of the investment is not taxed…only the new profit or capital gain. As Kyle points out earlier Dividends are a different story and should be paid with pretax money. In either case the tax rates paid by the successful investor should mirror the earned income rates UNLESS said investments are truly longterm i.e. 5+ years when the should recieve a discount for investing in our growth.
stands for decibels
November 26th, 2012
3:18 pm
Having read “Linda”’s nonsense @ 3.16:
I am not one of those people who worries about a “debt crisis”.
When you can get people to lend you trillions of dollars for essentially zero percent interest (ok, it goes alllll the way up to about 1 percent if you leave it in Tbills for seven years), you’re not in a flippin’ “debt crisis.”
Interested Observer
November 26th, 2012
3:24 pm
With regard to your previous point, Kyle, you made a distinction between post-tax distribution of corporate income and post-tax distribution of individual income. I’m not sure why that should matter since double taxation is double taxation. Anyway, that argument is very convenient in the context of this discussion, but quickly abandoned when conservatives use the same double taxation argument to justify eliminating inheritance taxes.
In fact, all taxable income is double taxed, and Republicans are simply making that argument, as needed, to eliminate taxes that they don’t like–taxes on income categories that primarily benefit the wealthiest among us.