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
JDW
November 26th, 2012
3:26 pm
@SFD…but, but, but GREECE ARGUGGGHHHH…
stands for decibels
November 26th, 2012
3:27 pm
JDW @ 3.26, did you actually laugh (as I did) when Mittens played the Greece card in his debate?
fauxsoup
November 26th, 2012
3:28 pm
“Citizen A CHOOSES to drop out of school (already paid by the taxpayers) and proceeds to make 20k a year……his fair share according to the left is $0…….”
His fair share is $0 because 100% of his income is going to support his livelihood. There’s no saving money on $20k per year in this day and age. Personally, I pay $12,000 per year in rent alone, and I’m not exactly living in the best apartment. If I was only making $20,000 per year, most of my income would consumed by rent, and the rest would be divided between gas and food… whichever I chose that week.
“Citizen B CHOOSES to get a graduate degree, incur the cost of same, and gets a job making 300k…….his fair share? As freakin much as the guy that chose to pay the $0 can get from him…….”
His fair share at the current tax rate is 28%, or $28,000 per $100,000, or $84,000. That leaves him with $216,000. (note: he would actually pay less than this, because the top rate only applies to the earned income ABOVE $200,000, meaning only $100,000 of his salary is actually eligible for the 28% rate, but let’s make this a worst-case-scenario)
Suppose he owned a $1,000,000 home on a 30 year mortgage with TERRIBLE credit (7% apr) and only paid a 5% down-payment. What would his monthly payment be? $7,362. 0% down payment? $7,694. Let’s call it $8,000. $216,000 – $8,000 = $204,000.
Do you see the difference?
Citizen A is paying a 0% rate, but at least 50% of his after-tax income is dedicated to the roof over his head, and the rest to the other elements of survival (food, water, essential transportation).
Citizen B is paying a 28% rate, but only 4% of his after-tax income is dedicated to the roof over his head. Less than 10% ($20,000) is probably dedicated to the other elements of survival (food, water, essential transportation (so no, does not include his second or third sports cars)). The remaining 86% of his after-tax income is for whatever he wants.
So pardon if I’m not scared by the “horror” stories of upper-middle-class Americans paying over 50% of their income in taxes. Excuse me if I’m not sympathetic to Citizen B’s complaints about not being able to afford his yacht until NEXT YEAR because I want to make sure Citizen A has food for his or her family.
Please, by all means complain that Citizen A made the wrong choices. You’re right about that. I just don’t accept your solution of letting his family suffer for it.
Oh, and by the way, most of the people working those $20k-per-year jobs aren’t there because they chose to be. Most of those people are there because they had no other options. But please feel free to demonize the have-nots, because if that’s your position then I’m eagerly awaiting the day the chips hit the floor for you, and you’ve got no other choice but to take a crummy job that doesn’t cover your mortgage, your car payment, or your health care.
Kyle Wingfield
November 26th, 2012
3:29 pm
Interested: Except a paycheck isn’t post-tax.
Kyle Wingfield
November 26th, 2012
3:31 pm
JamVet: Let’s not pretend the tax situation in this country is the same as it was in 1986. Different circumstances lead to different decisions.
Kyle Wingfield
November 26th, 2012
3:32 pm
Interested @ 3:24: I can’t tell if you’re being obtuse on purpose or just don’t understand what I’m arguing.
JamVet
November 26th, 2012
3:33 pm
Kyle, I’m all ears!
Was closing tax loopholes a great idea back then, but not now?
fauxsoup
November 26th, 2012
3:33 pm
Kyle: A paycheck is post federal tax. Any further taxes applied are state and/or local taxes, and useless to account for when discussing federal deficit (except as they apply to federal tax deductions).
But nice attempt at changing the subject.
Kyle Wingfield
November 26th, 2012
3:36 pm
JamVet: You’ve read enough of my blog to know that I’m all for closing loopholes, as was done in 1986. But what was the top tax rate then? And what is it now?
Kyle Wingfield
November 26th, 2012
3:37 pm
faux: I’m talking about corporate taxes.
fauxsoup
November 26th, 2012
3:38 pm
Furthermore, there’s nothing wrong with taxing dividends twice.
Dividend payouts occur when the company chooses to pay its excess cash to its owners (shareholders) instead of reinvesting that money. I don’t see anything wrong about making it more cost-effective to reinvest money rather than pay it out to shareholders.
Interested Observer
November 26th, 2012
3:42 pm
RE: “Except a paycheck isn’t post-tax. I can’t tell if you’re being obtuse on purpose or just don’t understand what I’m arguing.”
Actually, Kyle, on the issue of being obtuse, I was about to say the same thing to you.
Yet again, a paycheck is post-tax in the same way that a dividend distribution is post-tax–it’s just that the previously taxed entities are different (individuals vs. corporations). It seems to me this distinction serves a political purpose only and is quickly abandoned when the subject of inheritance taxes comes up.
JamVet
November 26th, 2012
3:44 pm
Kyle, did I not write that he lowered the marginal rates?
My point is that his reform bill eliminated or reduced many tax breaks and shelters, such that high-income tax filers who had previously paid very little, if anything, ended up with bigger tax bills.
I asked why it was a good idea then, but not now.
I ask again.
Kyle Wingfield
November 26th, 2012
3:48 pm
JamVet: No, that’s not what you asked.
John
November 26th, 2012
3:51 pm
Interested Observer @3:24 you hit the nail on the head, paycheck taxation is double only that the employer is not taxed again, but rather the employee gets taxes since he just received the check. Hence this is NOT double taxation because there are two different parties here. Income gains are double taxation because its the same individual who just paid taxes on his paycheck and is buying IBM stock with his NET cash.
Kyle Wingfield
November 26th, 2012
3:52 pm
Interested @ 3:42: No, I really don’t think you understand the argument.
A company earns revenue by selling its products and/or services. It is taxed on this revenue — but only after subtracting expenses including, most relevant to this discussion, labor. So, wages are paid pre-corporate tax. Dividends, which are distributions of (some of) what’s left over after taxes are paid, are paid post-corporate tax. That’s why we say they are doubly taxed whereas wages are not.
The taxes paid on money before it is paid to the company for its goods/services are immaterial to the distinction between labor and investment earnings. After all, they would have been paid already either way. The distinction is with the corporate tax treatment of labor vs. dividends.
John
November 26th, 2012
3:53 pm
fauxsoup @3:28, so you think Citizen B who spend a lot of time and money educating himself so he can better provide for himself and his family OWES something to Citizen A who did not bother with any of it?
Hillbilly D
November 26th, 2012
3:53 pm
Capital gains are made with money that has already been taxed
Not exactly. Taxes have been paid on the money you already earned to make the investment. Let’s say you invest $100K. You’ve already paid income tax on that $100K. Let’s say, just for good round numbers, you make 5% on that investment. That’s a $5K increase. The capital gains you pay is on that $5K gain, not the total $105K that you now have. That’s why it’s called a capital gains tax, because it’s a tax on the gain and only on the gain, not the money invested.
JamVet
November 26th, 2012
3:55 pm
JamVet: Was closing tax loopholes a great idea back then, but not now?
Then…
JamVet; My point is that his reform bill eliminated or reduced many tax breaks and shelters, such that high-income tax filers who had previously paid very little, if anything, ended up with bigger tax bills.
I asked why it was a good idea then, but not now.
I ask again.
Then…
KW: JamVet: No, that’s not what you asked.
Can someone help me out here?!
John
November 26th, 2012
3:56 pm
Bottom line is simple, Obama gave out handouts to his preferred groups and now needs to pay for that somehow. That’s all this is about, there is nothing fair about taxing working people more when there are LARGE segments of the population who pay nothing. Additionally
-food stamps buy only basic food, not 40s and Slim Jims
-drug testings for all welfare recipients
-nothing at all for illegals
that’s a good start.
stands for decibels
November 26th, 2012
3:56 pm
something to Citizen A who did not bother with any of it?
I do so love the presumption that people who wind up working for crummy sub-par salaries not only “deserve” it because of their “bad choices,” but also that these people working these jobs are somehow “leeches” because 47% or whatever.
Did it ever occur to any-a’-yuz that maybe that 20K/year guy is earning 20K/year in that particular gig because our country allows artificial downward pressure on wages by deliberately maintaining high unemployment rates in the name of “austerity?”
(yeah, I know, crazy talk.)
/drive-by
Kyle Wingfield
November 26th, 2012
4:00 pm
Sure, JamVet, I’ll help you out. This is what I was responding to:
“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?”
And as I said in my initial response, conditions were different then. I’ll expound on that now:
Reducing the top marginal tax rate to 28% from 50% (with just one other tax bracket — almost a flat tax) while closing loopholes was arguably worth raising the capital gains tax rate to the income tax for wages. I don’t think the same holds true today, when we are talking about 35% vs. 39.6%.
John
November 26th, 2012
4:00 pm
stands for decibels, please dont waste our time with these sob stories. My family came here from Soviet Union 20 years ago with no English, no relatives and $1500 in our pockets. Now we are living the American dream so these sob stories about people stuck in 20k jobs are falling on deaf ears. If that person was not on the street corner in the 80s with a boombox instead of going to school then just maybe they can have a decent job too. If you have no skills and dont know how to do anything then you should not complain that 20k is your salary ceiling.
Madmax
November 26th, 2012
4:03 pm
If the fiscal cliff is dumb, and it was approved by Congress and the president, what gives us any reason to think that they could come up with anything better this time around? Didn’t the same idiots who gave us the fiscal cliff get elected back in for the most part? We still have Obama in the WH, we still have a Democratic Senate and a Republican House. Did they suddenly take a smart pill?
JDW
November 26th, 2012
4:05 pm
@SFD…Yes I did laugh at Mittens on Greece…I also got a real kick out of a supposedly serious Presidential Candidate that went abroad and got the Brits in a snit…how hard can it be to go to London and not step in it?
Bob
November 26th, 2012
4:10 pm
Kyle, I was for the increase in the tax rate for the rich but I recognize that your solution of the $50K cap on deductions makes even more sense. The numbers may be suspect but if the increase in revenue is over $20 billion/year I am all for it. I believe it is “more fair” and will help, but not completely, balance out the winners and losers in our tax system.
getalife
November 26th, 2012
4:11 pm
I will go with Buffett on this one.
They don’t need your help cons.
They will be fine.
1961_Xer
November 26th, 2012
4:12 pm
Its time to give the libs their tax increase on the rich.
Next year, when the tax increase fails to make any dent in any budget anywhere, they will come back for another…. and then people can see their agenda. The populist mantra for taxing the wealthy to solve all of our problems only works once before everyone sees the truth. Had Republicans capitulated 2 years ago, the American people would have been able to see through the populist/divisive campaign and disregard it. Instead, it became “bigger than life”, and Romney was the one-percenter that a populist campaign loved to hate.
Sometimes, you have to let a plan fail spectacularly. THEN you can say, “I told you so”.
getalife
November 26th, 2012
4:13 pm
We are focusing on the middle class instead of the wealthy.
The American people did that.
Hillbilly D
November 26th, 2012
4:18 pm
Buffet’s a hypocrite.
http://capoliticalnews.com/2012/03/12/buffetmunger-company-sued-by-irs-for-366-million-in-back-taxes/
Hillbilly D
November 26th, 2012
4:18 pm
And
http://www.huffingtonpost.com/2011/08/29/warren-buffett-taxes-berkshire-hathaway_n_941099.html
md
November 26th, 2012
4:22 pm
“Fair share=the same rate we pay.”
Hmmm…..roughly 50% pay zero in income taxes. Fair by that definition would be no one pays income taxes.
Sure you want to go that route?
Lynnie Gal
November 26th, 2012
4:25 pm
Raise the tax RATES and loopholes on the wealthiest, and leave the middle class tax deductions alone.
As far as those “moochers” in blue states that wouldn’t want to surrender their local/state tax deduction, who are the real “moochers” when it comes to contributing to the Federal government? It’s the red states that take the $$$ from the feds, not the blue states. That’s why this whole succession fiasco is so hilarious! Red states can’t afford a dog catcher for their state without help from the Federal government.
Linda
November 26th, 2012
4:28 pm
It’s very apparent that the Democrats’ goal is to raise taxes on the middle class, i.e. to allow the Bush tax cuts to expire all the way across the board on everyone.
The Democrats could have extended all the tax cuts on everyone except the top 2 tax brackets at any time prior to Jan., 2011, while they had a majority AND THEY DIDN’T.
Raising the top 2 tax brackets DOES NOTHING except allow the fed. govt. to operate about 8 1/2 days per year.
The fiscal cliff is the ultimate dream of the progressives.
Interested Observer
November 26th, 2012
4:29 pm
RE: “The distinction is with the corporate tax treatment of labor vs. dividends.”
Kyle @3:52,
I understand your argument completely. Frankly, I think that you’re confusing yourself.
Anyway, as I tried to explain above, the distinction that you’re making is a distinction without a difference. If one believes that double taxation is bad, then the only form of taxation that one can support is a federal retail sales tax for new goods and/or services only, no income taxes allowed (of course, the sales tax would have to be extraordinarily high in order to be revenue neutral). The income tax structure, on the other hand, double taxes everybody (workers, corporations, heirs, investors,…) since income, generally, is taxed as it passes from one entity to the next.
I’m not opposed to an income tax structure or the double taxation on my paycheck, investment income, or inheritances (I’ve received income from all three sources). That’s how, regardless of income source, we all spread and share the burden of taxation. The alternative that conservatives propose is to give people who benefit mostly from investments and inheritances a free ride and, instead, place most or all of the burden on people whose primary source of income is labor.
Stephenson Billings
November 26th, 2012
4:31 pm
The Millionaires Who Pay the Highest Tax Rate
“According to new data from the IRS, people who make $1 million or more had an average tax rate of 20.4 percent in 2010. Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8 percent, while those who made between $50,000 and $100,000 paid 7.7 percent. Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits.
Put another way, millionaires pay a rate that’s more than four times that of the middle class.”
http://www.cnbc.com/id/49939444
md
November 26th, 2012
4:32 pm
“Please, by all means complain that Citizen A made the wrong choices. You’re right about that. I just don’t accept your solution of letting his family suffer for it.
Oh, and by the way, most of the people working those $20k-per-year jobs aren’t there because they chose to be. Most of those people are there because they had no other options. But please feel free to demonize the have-nots, because if that’s your position then I’m eagerly awaiting the day the chips hit the floor for you, and you’ve got no other choice but to take a crummy job that doesn’t cover your mortgage, your car payment, or your health care.”
For starters, I WAS there, and it was I that had to make the choices to get out of the situation, no one else.
As for me allowing him to suffer, again WRONG……HE is allowing himself to suffer by CHOOSING to opt out of the opportunity program ALREADY provided. But your attempt at playing the guilt card as an excuse for his choices doesn’t faze me……..you are more than welcome to feel guilty for his choices if you so choose though.
The POINT, is choices DO play a part in the equation, so to use some arbitrary definition of “fair” based on one solitary component is a bunch of bs……….
md
November 26th, 2012
4:36 pm
As for the hypocrite Buffet that talks the talk but doesn’t walk the walk, not only does he alter the tax due through dividend distribution, but he also pays himself a salary of only 100k per year, thus requiring himself to pay much less tax on ordinary income………..and the tools look up to him as a symbol of what we all should be doing.
If we all played that game, there would be very little tax being collected from the captains of industry…….as it is, Buffet is the one doing the most damage.
RGB
November 26th, 2012
4:36 pm
Obama and the libs are eating the seed corn necessary for the economy to recover. But that’s OK with them since their foremost objective is to plunge our economy and way of life into something from which it will never recover. Only when the economic destruction of the country is assured will these godless miscreants rest.
md
November 26th, 2012
4:43 pm
And those laughing about Greece might want to remember that greece didn’t get there over night…..to think we can’t get there too would be a mistake.
Jefferson
November 26th, 2012
4:45 pm
Its not what you pay, its what you have left. Rates need to increase on top income and cap gains. Wake up and pay the bills.
Hillbilly D
November 26th, 2012
4:51 pm
There can’t be a top without a bottom and there can’t be a bottom without a top. There’ll always be a top and there’ll always be a bottom. It’s always been that way and that’s never going to change. Not everybody can choose to be at the top. There’s always going to be winners and losers.
I’ve said this before, I think the thing to do is tax all forms of income the same, no subsidies, no breaks, no deductions. Two people make ‘X” amount of dollars, they both pay the same tax, no matter how they did it.
A change like that can’t be made overnight and would have to be phased in over many years but the sooner you start, the sooner you get finished. Do I think that will ever happen? No. Too many people, from all across the spectrum, with their hand in the cookie jar.
nathan's political arsonist
November 26th, 2012
4:56 pm
Only when the economic destruction of the country is assured will these godless miscreants rest.
RBG – you are one disturbed, but entertaining, dude
curious
November 26th, 2012
4:57 pm
Citizen A is putting all his money back into the economy, while Citizen is only putting a portion of his back. Citizen B needs to buy more stuff and American-made at that.
If Obama and unions were the cause of Hostess’ demise, why are companies looking to buy it?
Linda
November 26th, 2012
4:57 pm
The economy needs to improve to create jobs to produce more tax revenues, but Obama & the Democrats have already spent the tax revenues from the new jobs that they said would be created by stimulating the economy, but which new jobs were never created because Obama & the Democrats increased the federal debt by $6 T which caused the economy to further weaken.
Oh, well.
Step two is to produce more tax revenues from the old tax payers, i.e. those who still have jobs, specifically those who actually create the most jobs in the US, the small business owners, i.e. the employers. What could possibly go wrong?
Banderson
November 26th, 2012
4:58 pm
Everybody knows that an extra 4 cents from each dollar over $250,000 isn’t going to hurt the wealthy and it’s only going to make a small dent in the deficit. It’s largely symbolic to give them cover for maing some spending cuts as well.
getalife
November 26th, 2012
5:04 pm
Our President won so yes they are going to raise taxes on your precious wealthy that does not need any help and he wants another tax cut for the middle class that could use a break.
It is up to congress to do their job and pass our President’s plan.
CC
November 26th, 2012
5:07 pm
John@2:35 pm:
“Obama gave expanded welfare, amnesty to illegals and Stimulus to unions…presto releection.”
Jon, matbe you should add one more category: simpletons who work and pay taxes also voted for Obama . . .
md
November 26th, 2012
5:11 pm
“If Obama and unions were the cause of Hostess’ demise, why are companies looking to buy it?”
Several reasons, the brand is already well known hence the cost savings of building the brand and they evidently plan to make them in a cost friendly environment.
If it costs $2 to make a $1 twinkie, it won’t much matter who makes them as they won’t be in business very long.
Oronjello
November 26th, 2012
5:17 pm
Do the people advocating for higher tax rates for the wealthy not understand that most of the cost is simply passed along to someone else, trickle down style?
If you increase the income taxes of, say, the CEO of Delta Airlines the board just increases his compensation to cover it and the difference gets tacked onto your next plane ticket. Ditto your dentist, lawyer or most other professionals, they just adjust their fee.
The resentful moocher class may get a warm rush from thinking their one-percenter overlords are paying higher taxes but they’re too stupid to realize they’re the ones actually paying.