Tax Policy

[G M]

http://www.heritage.org/research/reports/2007/01/~/media/Images/Reports/2007/bg2001/chart2_lg.ashx

Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.

As previously stated, whether a tax cut pays for itself depends on how much people alter their behavior in response to the policy. Investors have been shown to be the most sensitive to tax policy, because capital gains tax cuts encourage enough new investment to more than offset the lower tax rate.

In 2003, capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent. Rather than expand by 36 percent from the current $50 billion level to $68 billion in 2006 as the CBO projected before the tax cut, capital gains revenues more than doubled to $103 billion.[10] (See Chart 2.) Past capital gains tax cuts have shown similar results.

So, if the Laffer Curve didn't work in the case above, what was the mechanism that made the reduction in tax rates bring in more revenue? Who you gonna believe, the economic theorists or your own lyin' eyes? 

[JDN]

Frankly, I am against "sin taxes".  Where do we stop?  I smoke cigars, just had a beer, but I'm thin. Maybe we should tax obese people?  Sounds fair to me!  (not really).

CA is not looking to make a great profit on tobacco products; rather they want you to quit.  I'm sure, since most tobacco products are bought in a local store, that revenue
equals or exceeds collection cost.

Changing the subject, a little, I find taxes on a fixed product, tobacco, gasoline, etc. to be different than income taxes.  Expensive enough, I will give up my cigar at the end
of the day, or maybe even drive less, but I can't give up my job, i.e. I will pay income taxes.  What is my choice?

As a side note, no denying CA does have a horrific budget problem; but Jerry Brown doesn't seem to be doing a bad job so far.  But then what do I know; I didn't think Arnold was
that bad either (remember he was a Republican); it was the legislature that couldn't get it together.   People need to come to the table
and solve the problem; forget their partisan bickering.  I miss the old days; lots of cigars, booze, dark rooms; Republicans and Democrats horse trading, but eventually
finding a solution.  Now they just talk a lot and do nothing...

As to your most recent post, tax evasion is always profitable if you don't get caught.  So is robbing a bank.

It's hard to keep up with your posts.  I admit you are fast!
I repeat, almost no economist believes that lowering tax rates boosts revenue.  These are not ivory tower theorists, many work for banks or mutual funds, etc.
It just doesn't work; sorry....

[G M]

Frankly, I am against "sin taxes".  Where do we stop?  I smoke cigars, just had a beer, but I'm thin. Maybe we should tax obese people?  Sounds fair to me!  (not really).

Can you imagine what a logistical nightmare it would be to try such a thing? Only a police state like the NorKs could attempt such a thing and their citizens are too busy starving to death to stand in line to be measured.

[G M]

http://www.heritage.org/research/reports/2007/01/~/media/Images/Reports/2007/bg2001/chart2_lg.ashx

Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.

As previously stated, whether a tax cut pays for itself depends on how much people alter their behavior in response to the policy. Investors have been shown to be the most sensitive to tax policy, because capital gains tax cuts encourage enough new investment to more than offset the lower tax rate.

In 2003, capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent. Rather than expand by 36 percent from the current $50 billion level to $68 billion in 2006 as the CBO projected before the tax cut, capital gains revenues more than doubled to $103 billion.[10] (See Chart 2.) Past capital gains tax cuts have shown similar results.

So, if the Laffer Curve didn't work in the case above, what was the mechanism that made the reduction in tax rates bring in more revenue? Who you gonna believe, the economic theorists or your own lyin' eyes? 

I repeat, almost no economist believes that lowering tax rates boosts revenue.  These are not ivory tower theorists, many work for banks or mutual funds, etc.
It just doesn't work; sorry.... If it doesn't work, what happened above and every other time in US history where reduced tax rates have increased actual revenues collected?

[G M]

The state of New Mexico seems to think so. Are they wrong?

http://www.nmfilm.com/locals/downloads/nmfilmCreditImpactAnalysis.pdf

Executive Summary
New Mexico has provided tax incentives to film productions since the film production tax credit
was adopted in 2002. The program has attracted more than 115 major film productions to New
Mexico since its adoption in 2002, including 22 films that were assisted through the State
Investment Council’s loan participation program. In 2007, 30 films were produced in New
Mexico generating $253 million of spending benefiting the New Mexico economy and generating
higher state and local tax collections. This study presents the estimated economic and fiscal
impact of the film production tax credit program.
• The benefits of New Mexico’s film production tax credit program extend beyond the direct
and indirect economic impacts of film production activities qualifying for tax credits. In
addition to the film spending, New Mexico’s economy also benefits from capital investment
to support the film industry’s growth in the state and additional film-related tourism.
• Film production activities in New Mexico created 2,220 direct jobs in 2007. This
employment impact includes approximately 1,670 below the line employees earning
$49,500 annually and 550 actors, directors, and producers working in New Mexico. These
2,220 direct jobs created 1,609 additional jobs in other industries, resulting in a total
employment impact of 3,829 jobs.
• Film-related capital expenditures and projected film tourism spending attributable to 2007
productions generated an estimated 3,769 direct jobs and 1,612 indirect jobs, resulting in
5,380 total jobs attributable to capital expenditures and film tourism.
• Combining the 2,220 direct jobs from film productions with the 3,769 jobs from capital
expenditures and film tourism results in 5,989 total direct jobs attributable to the film
production tax credit. These direct jobs create a total of 3,221 indirect jobs, resulting in a
total employment impact of nearly 9,210 jobs.
• The economic activity created by the film production tax credit program also results in higher
state and local tax collections. State tax collections resulting from film production activities
in 2007 totaled $22.6 million. Additional state tax impacts from capital expenditures in 2007
and film tourism during 2008-2011 are estimated to total $21.5 million in 2007 dollars,
resulting in a total state tax impact of $44.1 million.
• Film production expenditures in 2007 qualified for $49.4 million of state film production tax
credits to be paid in 2008. Expressed in 2007 dollars, these film credits total $47.1 million.
Based on the 2007 value of present and future year tax receipts and the 2007 value of state
film production tax credits, the program earns $0.94 in additional tax revenue for each $1.00
that is paid out in incentives. Local governments in New Mexico earn $0.56 for each dollar
of state credits, resulting in combined state and local tax collections of $1.50 for each $1.00
of state credits.

[G M]

[youtube]http://www.youtube.com/watch?v=fmuTTeESEs4[/youtube]


http://www.youtube.com/watch?v=fmuTTeESEs4

Note: Many places have massive amounts of natural resources, yet are dirt poor. Mexico and sub-sarahan Africa spring to mind. Why?

[JDN]

I finished my beer; I'm now working on the wine.  So bear with me.   

Perhaps we agree; I mean I agree if you lower taxes, therefore more people will probably smoke, so yes you will raise revenue.
Lower taxes on gasoline, more people will buy gas guzzlers.
Probably if you lowed the tax, i.e. the price on my favorite Scotch I might buy more.
And this has what to do with Federal Income tax?

And if you lower taxes for film production, more people might shoot in your state.  My neighbor in
in the semiconductor business.  I suppose if New Mexico lowered taxes for all semi conductor businesses,
he too would move.  Heck, I bet all his competitors would move as well.  New Mexico would love it.  CA
might hate them....  CA looses revenue.  It's a zero sum game. 

But I thought we were talking about FEDERAL Taxes?  One for all....
Your analogy is not applicable.

As a side note, I am usually against industry specific or corporate specific tax incentives.  They seem to come back and bite you
in the end.

PPS Gosh you post fast; you even delete fast!     I'm glad you figured out I was joking about a fat tax?

As for your second post since I've been typing, I don't know a thing about sub sahara Africa, but I attribute Mexico's problems to exactly what
CCP has been saying; no middle class. They have a small, but very wealthy class, and a huge poor class. Something's wrong. 
And lowering taxes for the rich will not solve the problem.  They already pay minimal tax.

[G M]

"Perhaps we agree; I mean I agree if you lower taxes, therefore more people will probably smoke, so yes you will raise revenue."

I doubt there are many people who would start smoking if there was a meaningful reduction in tobacco taxes. What would happen is you would reduce the incentive to seek black market sources for the tobacco products for those currently consuming tobacco. This would then increase legitimate tax revenue and reduce the profit potential for black marketeers.

[G M]

"Lower taxes on gasoline, more people will buy gas guzzlers."

Maybe. More people might travel, airlines would be able to reduce fares, more business activity might spur more hiring, transportation costs for consumer goods would fall, allowing the poorest in society to enjoys a higher standard of living.

[G M]

Probably if you lowed the tax, i.e. the price on my favorite Scotch I might buy more.
And this has what to do with Federal Income tax?

The more Scotch you buy, the more economic activity there is as people exchange goods, which offers the potential for growth, which means the potential for more new jobs to be created. How does this apply to federal income taxes? Just as "sin taxes" reduce your desire/ability to purchase "sinful" things, income taxes discourage income, especially among the wealthy. Why care if the wealthy get hammered by taxes if you aren't wealthy? Because they create jobs for the not-wealthy. Either directly though hiring employees and patronizing businesses that cater to them or by investments (Most rich people don't keep their money in huge vaults and swim through it like Scrooge McDuck, they have the money in banks and investments that again create jobs for the rest of us).

[G M]

In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.

[Crafty_Dog]

JDN:

If I understand you correctly, you are saying that people/business can and will respond to differences in state tax policies, but that this does not apply to federal taxes because federal taxes reach everywhere?

If this is what you are saying I would point out that businesses can and do leave/invest elsewhere quite regularly, and given that the US now has the highest (or second after Japan?) business corp rates in the world (perhaps excluding third world irrelevancies) as we discuss this they are investing/creating jobs etc. elsewhere instead of here.

[JDN]

Businesses can and do invest elsewhere, but few companies are leaving America to set up and HQ somewhere else.  However, they will move between states, change locations in a heartbeat for the
right incentive, be it a zoning, building, tax, or whatever incentive is foolishly offered.  Why not, as long as they are they are still in the United States of America?

Yes, we do have a high gross corporate tax rate, but thanks to generous adjustments and deductions, few if any pay the maximum.  Look at GE.

As we have discussed in other posts, the supposed gross tax rate among the affluent and knowledgable rarely reflects their final rate paid; that's why top lawyers and
accountants are paid so well.

[G M]

"However, they will move between states, change locations in a heartbeat for the
right incentive, be it a zoning, building, tax, or whatever incentive is foolishly offered."

Why is it foolish for NM to get films made in NM by offering incentives, as an example?

[DougMacG]

JDN: "It's a zero sum game."

Of course that is not true. From the example it assumes a producer would produce the same amount in the high tax state as he would under lower disincentive conditions.  Simply not true.

One consideration you might add to your thinking also is velocity of money and the affect increasing it has on GDP, employment, revenues, etc.  Right now is the model for an economy producing at a standstill.  Companies already laid off everyone they can do without and look at uncertainty in every direction and just freeze on the idea of new expansions.  Change that to an environment where optimism and confidence In the case of capital gains, lower taxation per gain or per transaction allows capital to move more freely to its most valuable use.  That makes labor more productive, not just capital.  It also increases tax revenues.

For CCP and JDN, I would replace 'trickle down' visualization of the economy with a vision or model of 'interconnectness'.  Not quite as catchy for a straw man, but far more accurate.  Let's say we are a small business selling a piece of productivity enhancing business equipment and have identified 5000 customers and prospects in my area where we are trying to make inroads.  Now let's say pro-growth business conditions improve as greater optimism, incentive and confidence sets in  for all the companies buying from us or that we are trying to sell to, the rising tide.  How does that affect our business?  The answer is that it helps us far more than just the minor change in our own tax rate, and that is because of the interconnectedness with all the other players now performing better.  It isn't trickle down, which is a mockery for the false idea that money will just fall on your head in a better economy.  You still have to hustle and innovate, persuade and produce and win sales and keep delivery promises etc, but the point is that if we will be selling to a more active and prosperous customer population.  There is a multiplier effect that goes far beyond our own tax rate.

Or take the opposite direction.  We promise all investors that any gains made in the future will be taxed at a higher rate tomorrow and we won't tell you what that rate is so that you can't make plans or best/worst case analysis with any confidence.  We ban production of energy etc, over-regulate, and watch everything from manufacturing to tourism to beer prices suffer.  If the policies hurt our customer base, they hurt us.  Disincentives and uncertainty slow the movement of money, hurt sales and diminish the  revenues to the Treasury.
-----

Looking forward to those examples of pro-growth policies failing to grow the economy.  

I think you have the tax rate vs. revenue argument exactly upside down.  What economists have said is that we seem to take in the same percentage of revenues to the Treasury (something like 18% of GDP) no matter what the marginal rates are.  If that is true, why shouldn't we choose the lowest marginal rates that can still get us to that same percentage, and maximize GDP and revenues to the Treasury?  Meanwhile, we could pass a constitutional amendment limiting all federal spending to the known limitations of the taxation people will pay and end the deficits, if that was what anybody wanted.
-----

Crafty,  Japan lowered its corporate tax rate on April 1, 2011 to 36%, and corporations in the US also get taxed at the state level for a combined average of 40%.  If the argument is that everyone gets around the high rate, why the mindset of keeping the highest rate, forcing businesses to dodge and dance instead of produce full speed ahead and pay a reasonable and certain tax.

I wonder what portion of the smartest brainpower in GE much less America as a whole are dedicated to weaving a business plan through our ever-changing and worsening tax and regulatory schemes?  The defensive strategies are a huge cost on the economy not measured in the actual tax collected.  I wonder what amazing things would be accomplished if those resources were turned toward innovative and productive purposes.

[ccp]

Doug,

Your examples are somewhat hard for me to understand in real terms.  Please don't misundertand me.  I am for growth.  I am for laying off the successful.  I do not want to increase taxes in anyway for the successful.  I do want the lower end to pay something.  Even if $100 a year. 

I want to stop the endless doles and nanny state stuff now.

Your arguments whether correct or not are not going to be understood or believed by those in the middle.  Even I here on this board find the numbers mindboggling and convoluted.

I want what you want.  GM and Republicans in general.  But the game at the top is rigged.  Not fair.  But rigged.  It always will be.  Money can buy anything and anybody.  I learned and watched this first hand.  Our leaders have to raise phenomenal amounts of cash.  Of course they can all be bribed.  And most probably are.  This will never change.  But we need regulations that exist to be *enforced* to everyone equally.  And I do not believe they are.  No one on Main street does.  A Republican with a real mouthpiece with a vision of real justice and opportunity for all with minimal but necessary regulatory oversight (that is not does not get rigged) and free markets, low taxation - this is a winner strategy.

If we cut taxes for all at the top, middle and limit or eliminate all deductions, so that people wind up paying less net taxes I think is a winner.  For those free loaders (I know this is a totally politically incorrect description - some are truly needy but many ARE free loaders) at the bottom they either don't vote or will always vote for the Dem0crats so make them pay a nominal sum to the treasury like the rest of us.  They cannot just sit there and vote for others to pay up while they take home cash.

I hope this helps explain my vision.  I hear my middle class, many blue collar class patients come in every day.  It is a mixed bag of opinions but I really think many are not for bigger government but they don't want to be taken advantage of by the rich.  And if anyone does not think the rich are taking advantage of us then I think they are  niave (which I know you are not).

I am really worried as are all Republicans that Bamster could carry the day again in 2012.  I know it is early.  But I don not know if any in the field on the right have a message that will pick up "market share" from those who are always the ones who decide elections - the independents.   That is what I am trying to do.  Tailor the message to appeal to those in the middle as well as to those on the right.

The fact that Bamster is even still in the game in the polls tells me we need a better message.  This guy should be at rock bottom in the polls.  He is showing us the door to ruin. 

[G M]

ccp,

What of the idea of adopting Hong Kong's tax system? 200 pages vs. our tax laws and rules that no one can agree on interpreting correctly.

[ccp]

"What of the idea of adopting Hong Kong's tax system? 200 pages vs. our tax laws and rules that no one can agree on interpreting correctly."

GM,

Yes, absolutely!  I think it is doable if everyone can see they would be better off.

I admit the mortage deduction and charitable deductions would be tough sell. 

But even these should be done away with.

Why are taxpayers indirectly subsidizing the charitable contributions of others?

If tax rates are lowered enough I think this could be "sold".

[G M]

Earlier this week the Heritage Foundation, along with the Wall Street Journal, released its 17th annual economic freedom index. Hong Kong, once again, ranked number one. The United States, however, slid down to number nine. So what’s Hong Kong doing right?
 
According to Anthony Kim, a policy analyst at the Center for International Trade and Economics at Heritage, the difference between the U.S. and Hong Kong lies in tax rates, spending, free trade, and regulatory burdens.
 
The late economist Milton Friedman supposedly once described Hong Kong as the world’s greatest experiment in laissez-faire capitalism. The city state, technically a special administration region of China, has the sixth-largest stock exchange in the world, has almost no public debt, and has a Gross Domestic Product (GDP) that grows just about every year.
 
That’s a far cry from the U.S. economy today.
 
Hong Kong’s corporate tax rate, at 16.5 percent, is among the lowest in the world. The U.S. has a tax system that goes as high as 35 percent, and according to Kim, it’s been that high for at least a decade, even though average rates for the 20 largest economies in the world is 27 percent.
 
“U.S. tax rates are increasingly uncompetitive compared to other countries,” Kim told The Daily Caller. “The U.S. corporate tax rate is roughly double that of Hong Kong, but we collect less as a percentage of GDP than Hong Kong.” (Hey JDN, it looks like Hong Kong doesn't know that "the experts" say the Laffer Curve doesn't work. Magic!)
 
Kim also said Hong Kong’s tax system is more transparent, and the low rate provides “better incentives for long-term investment.”
 
In Hong Kong, it’s easier to start a business because there’s less regulatory uncertainty — and fewer regulations overall. The U.S. is hemorrhaging businesses overseas, which Kim attributes that to “ongoing regulator changes that hurts investment.”
 
“Hong Kong is free from those uncertainties,” said Kim. “Their regulatory process is very straightforward.” Those uncertainties, said Kim, are cause by ongoing regulatory changes as a result of the stimulus spending, health-care reform, and the Dodd-Frank Act.  The regulations that resulted from Dodd-Frank, in fact, are still being written.
 
The two countries also responded differently to the global financial collapse. Because of Hong Kong’s devotion to non-interventionist economic policies, the city state largely did nothing and let the market correct itself.
 
The U.S. not only bailed out automakers and banks, but it spent billions of dollars on a stimulus package, then Congress passed an overhaul of the financial system with Dodd-Frank.
 
Then there is the lack of leadership on free trade. The U.S. still has yet to ratify three pending free-trade agreements with Colombia, Panama and South Korea.
 
So what should the U.S. do in the coming year to increase its standing in the economic freedom index? According to Kim, Congress needs to tackle timely tax reform, cut down on the ongoing regulatory uncertainty, and rein in government spending.
 
“We have to tame government spending in an urgent and effective way,” he told TheDC. “If we don’t, the U.S. could fall farther behind.”
 
“This is not just a political point, this is an economic reality” Kim added.


Read more: http://dailycaller.com/2011/01/16/why-chinese-controlled-hong-kong-beats-the-united-states-on-economic-freedom/

[Crafty_Dog]

JDN:

I understand that many businesses do not actually pay the top rate (hat tip to Doug for pointing out the matter of State corporate tax rates on top of federal corp tax rates-- I had missed this in my thinking) but what I think you miss is that this is precisely how fascist economics works-- the state directs privately owned means of production.  The economy becomes increasingly less free and less efficient and the political culture more corrupt as businesses buy politicians and politicians extort and blackmail businesses.

[DougMacG]

CCP, I am with you 100% in the proposal to remove all tax credits and all deductions that are direct, legitimate business expenses incurred to produce the revenue, and we should reduce the rates accordingly - personal and corporate.  There should be no social engineering whatsoever in the tax code.  In this time of deficits, debts, dollar crisis and 3 wars, not counting a potential world war with China or Russia, our system raising federal revenues shouldn't look like a grocery store coupon book.  Limit spending to the amount we collect and them let the people argue within a constitutional framework what programs and projects to fund at what level.

I hear you when you complain about rich having disproportionate power with certain things.  The only solution I know is to simply move the system away from being for sale and negotiable toward dispensing special favors, and toward a system of equal protection where all private enterprises in all industries are treated evenly by a limited government.  We aren't exactly headed in that direction.

Where I don't follow you and where you don't follow the left and won't vote with them is that there is no way prevent obscene amounts of income and obscene uses of wealth at the top without messing up the system, the incentives and mechanisms for producing wealth.  Instead  am willing to concede that what they make is none of my business as long as it is all legally earned and taxed the same as mine and I see you as still struggling to find a harmless way of 'solving' that.

I understand that my descriptions of the mechanisms of a free market are difficult to write and clumsy to read. Very few have the ability to articulate economic freedom with a broad brush.  Reagan had that ability and Marco Rubio seems to have it.  Whether we follow it completely or are not able to articulate it, there is a central denial on the other side that individual freedom is not preferable to central planning and control, even though it works every time and every place that it is tried.  When we hear from the bully pulpit that we need to do something, people need to remember where in our system things get done.  The great advances don't come from congressional staffers or the bowels of the bureaucracies.
---

Another attempt at an example: Let's say you are a family physician in a private market (I know, it's purely hypothetical!).  Maybe you make more in income than many of your patients or maybe you don't, but let's say we implement a set of policies that benefits all of your patients financially.  My point is that  helps your business, by far more than just the change to your own tax rate. You will be better able to sell your services, more people can afford you and your collection rate should improve etc.  From the boost in business and income and take home earnings, you buy better equipment etc. for the office and invest and spend more on your own, energizing back the population that energized your practice - the great, interconnected circle of economic life.  That is not trickle down; it is more like trickle up and back and all the way through in every direction touching everyone whose economic activities touch yours.  The lying left contend that only the rich benefit from across the board improvements, but increased activity and prosperity benefits everyone who is participating.  I don't know how to explain it any better, but will keep trying.

You aren't worth a fixed value as a service provider, it depends on the economic health of the people who need and procure your services.  If your patients are average typical in the Republic of the Congo (the worst business climate and poorest country), your income for servicing that market with the same training, skills and hard work would likely be 1/1000th of what it is where you are now based on their ability to pay, and your tax contribution to the Treasury would be roughly a thousand times lower as well, no matter the rate.

It is not tax rates alone, it is the whole package of unleashing the freedom to conduct and expand a business and to pursue and keep a reward for doing that.

[ccp]

Doug,  I think I am close to making my position clear and perhaps you, GM, and others can see how I think restructuring the Repubs/tea party message can help gain voter "market share".


"I hear you when you complain about rich having disproportionate power with certain things.  The only solution I know is to simply move the system away from being for sale and negotiable toward dispensing special favors, and toward a system of equal protection where all private enterprises in all industries are treated evenly by a limited government.  We aren't exactly headed in that direction."

The Tea Party is emphasizing limited government.  But they are not emphasizing the system for sale, special favors, equal protection.
And that in a nutshell IS the problem as I see it.

"Where I don't follow you and where you don't follow the left and won't vote with them is that there is no way prevent obscene amounts of income and obscene uses of wealth at the top without messing up the system, the incentives and mechanisms for producing wealth."

I am not against obscene amounts of wealth.  As Reagan said (and was derided by the libs for saying) one of the great things about America is one CAN get rich!  I agree with this.  I do not begrudge those who are a success.  Good for them - if they obtain it honestly.  I cannot quite begrudge them for gaming the system.  What I do begrudge is that the system can be gamed.  That politicians cannot it seems stop this so the wealthy make their wealth honestly and reasonable fairly and not by cheating, lying, stealing, tricking, bribing, extorting, etc.

I am convinced if we can get a candidate to address this philosophy - we can drive Bamster and his crazy backers out of town.

I guess one analogy is every election cycle we here about the candidate who is the outsider who is going to clean up Washington.
Yet we all know it never happens.  I was impressed by Newt speaking about the bankers and the bail out government pols and beaurocrats needing to be investigated.  I as equally impressed by hearing Spitzer (who as those on this board know I generally have a distaste for) discuss how Goldman Sachs ripped everyone off during the financial crises and how the evidence is really quite compelling and convicning but he admits the JD will not go near them because of their wealth and political influence.

If this kind of crap could at least be addressed, and a real man (Schwartenegger), or real girl (Palin) would run on this promise I really think those getting squeezed in the middle (most of us) would jump on board. 

The suspicion is still the cans are the party for the rich and the crats are the party of poo'.  Just speaking about free markets but not admitting or recognizing they are not totally free is met with disbelief and a grimace to those of us who are old enough to know better. 

[Crafty_Dog]

Unless I am missing something, there is a pears and apples problem comparing the 62% and the 70% number of the pre-Reagan years in that the former includes other taxes and the latter does not, but the fundamental point about the cumulative effect of the various taxes, current and proposed, in the present environment is profound.


By STEPHEN MOORE
Media reports in recent weeks say that Senate Democrats are considering a 3% surtax on income over $1 million to raise federal revenues. This would come on top of the higher income tax rates that President Obama has already proposed through the cancellation of the Bush era tax-rate reductions.

If the Democrats' millionaire surtax were to happen—and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year—this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That's more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s.

Here's the math behind that depressing calculation. Today's top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.

View Full Image

Images.com/Corbis
 .But payroll taxes, which are income taxes on wages and salaries, must also be included in the equation. So we have to add about 2.5 percentage points for the payroll tax for Medicare (employee and employer share after business deductions), which was applied to all income without a ceiling in 1993 as part of the Clinton tax hike. I am including in this analysis the employer share of all payroll taxes because it is a direct tax on a worker's salary and most economists agree that though employers are responsible for collecting this tax, it is ultimately borne by the employee. That brings the tax rate to 47%.

Then last year, as part of the down payment for ObamaCare, Congress snuck in an extra 0.9% Medicare surtax on "high-income earners," meaning any individual earning more than $200,000 or couples earning more than $250,000. This brings the total tax rate to 47.9%.

But that's not all. Several weeks ago, Mr. Obama raised the possibility of eliminating the income ceiling on the Social Security tax, now capped at $106,800 of earnings a year. (Never mind that the program was designed to operate as an insurance system, with each individual's payment tied to the benefits paid out at retirement.) Subjecting all wage and salary income to Social Security taxes would add roughly 10.1 percentage points to the top tax rate. This takes the grand total tax rate on each additional dollar earned in America to about 58%.

Then we have to factor in state income taxes, which on average add after the deductions from the federal income tax roughly another four percentage points to the tax burden. So now on average we are at a tax rate of close to 62%.

Democrats have repeatedly stated they only intend to restore the tax rates that existed during the Clinton years. But after all these taxes on the "rich," we're headed back to the taxes that prevailed under Jimmy Carter, when the highest tax rate was 70%.

Taxes on investment income are also headed way up. Suspending the Bush tax cuts, which is favored by nearly every congressional Democrat, plus a 3.8% investment tax in the ObamaCare bill (which starts in 2014) brings the capital gains tax rate to 23.8% from 15%. The dividend tax would potentially climb to 45% from the current rate of 15%.

Now let's consider how our tax system today compares with the system that was in place in the late 1980s—when the deficit was only about one-quarter as large as a share of GDP as it is now. After the landmark Tax Reform Act of 1986, which closed special-interest loopholes in exchange for top marginal rates of 28%, the highest combined federal-state marginal tax rate was about 33%. Now we may be headed to 62%. You don't have to be Jack Kemp or Arthur Laffer to understand that a 29 percentage point rise in top marginal rates would make America a highly uncompetitive place.

What is particularly worrisome about this trend is the deterioration of the U.S. tax position relative to the rest of our economic rivals. In 1990, the highest individual income tax rate of our major economic trading partners was 51%, while the U.S. was much lower at 33%. It's no wonder that during the 1980s and '90s the U.S. created more than twice as many new jobs as Japan and Western Europe combined.

It's true that the economy was able to absorb the Bush 41 and Clinton tax hikes and still grow at a very rapid pace. But what the soak-the-rich lobby ignores is how different the world is today versus the early 1990s. According to the Organization for Economic Cooperation and Development, over the past two decades the average highest tax rate among the 20 major industrial nations has fallen to about 45%. Yet the highest U.S. tax rate would rise to more than 48% under the Obama/Democratic tax hikes. To make matters worse, if we include the average personal income tax rates of developing countries like India and China, the average tax rate around the world is closer to 30%, according to a new study by KPMG.

What all this means is that in the late 1980s, the U.S. was nearly the lowest taxed nation in the world, and a quarter century later we're nearly the highest.

Despite all of this, the refrain from Treasury Secretary Tim Geithner and most of the Democrats in Congress is our fiscal mess is a result of "tax cuts for the rich." When? Where? Who? The Tax Foundation recently noted that in 2009 the U.S. collected a higher share of income and payroll taxes (45%) from the richest 10% of tax filers than any other nation, including such socialist welfare states as Sweden (27%), France (28%) and Germany (31%). And this was before the rate hikes that Democrats are now endorsing.

Perhaps there can still be a happy ending to this sad tale of U.S. decline. If there were ever a right time to trade in the junk heap of our federal tax code for a pro-growth Steve Forbes-style flat tax, now's the time.

Mr. Moore is a member of the The Journal's editorial board.

[DougMacG]

Crafty,  Your discrepancy point is right, but so is this point of yours: "the fundamental point about the cumulative effect of the various taxes, current and proposed, in the present environment is profound."

First off, I think the regulatory environment is even worse than the taxes coming, but let's stay with taxes here.  The pre-Reagan / Stagflation top tax rate was 70% federal PLUS the state rates.  Almost no one paid at that rate as they would rather sit on their cash, adjust behavior, buy munis or buy gold, rather than give most of all gains to the government.

Stephen Moore in the piece shows how the federal rate under existing proposals will hit 58% (not 62% or 70%), then he figures 4% for the average state and local tax rates.  You and I live in places where 4% doesn't come close to covering the highest state tax rates that are coming.  Here we are having the same surcharge the rich argument simultaneous with the federal argument so that combined figure will easily get to 70% if the tax hikers prevail at both levels.

Still we are comparing an apple with ...most of an apple.  We are not at Jimmy Carter's 70% federal tax rate,  but we also aren't competing in a 1970s global economy either. These rates coming might be more harmful than Carter's rates were then. Capital and labor are for more mobile today.  Jobs and plants pick up and move often and easily, and tax rates elsewhere have gotten far more competitive in response to the Reagan revolution.

Not lecturing to you Crafty who already knows all this, but to anyone who will listen... 70% tax either for total rate or at the federal level alone is a major disincentive to produce.  Robert Mundell, architect of the Reagan plan, called the existing marginal tax rates then: "asphyxiating" (to kill or make unconscious through inadequate oxygen).  Maybe worse now.  Think of it as a tax per mile for driving.  The exact rate doesn't matter after you get past the point where nobody is going anywhere.

I mentioned previously a friend who has started 3 successful companies from scratch and sold the latest one, with a thousand employees, for an amazing sum recently.  We were having the tax-the-rich conversation with friends who also know him while our new governor is trying to put another 3% surcharge onto the rich at the state level.  One friend (not even a liberal) said, what the hell difference does it make to so and so if he has to pay a little more (while sitting on untold millions)(the focus is always on the difference, not the total).  I said back that while he is pointing to the direct tax cost, he is ignoring the much more damaging disincentive effect.  There aren't that many people who are ready, willing andable to build a new thousand person, billion dollar company from scratch, and everyone there knows this guy is capable of it and young enough to do it again.  Why would he and why should he do it again as we throw ever increasing barriers, roadblocks and regulations at him and then, if it should succeed in spite of all that, we let him keep very little of the reward for the capital risked and the enormous burden undertaken.  At some point in the disincentives of taxation and regulation he will choose the status quo and make do very comfortably with what he has, as most investors are already doing.  Who loses in that scenario?  Not him, he is set.  Who loses is the next thousand people whose jobs never get created and the chain affect that has on our region and on our economy with each of those people who would have lived more affluently, spent more, hired their own help and invested more in the economy.

I don't know how to get this through the resistance of a liberal, a moderate or even about half of the conservatives, but you can not design a tax on the rich that is not a tax on yourself, on your own family and neighbors and on the economy as a whole.  It is all interconnected. That tax on the rich is really levied on all of us, not just the rich, and the damage is impossible to measure when the effect of it is to cause something extremely positive not to happen that otherwise would have occurred, including amazing wealth creation and thousands of jobs in one case and literally tens of millions of jobs across the economy.

[Crafty_Dog]

Exactly so.

BTW Hillary's amazing futures trading profits  were a commodity straddle scheme which made sense only under the 70% rates of the late 70s.  When rates came down under Reagan to 30% major amounts of money that had been hiding in tax shelters (real estate with accelerated depreciation was ideal for this) no longer had reason to do so and allowed itself to be exposed to taxation.  This led to an amazing statistical increase in the numbers of millionaires which liberals decried as an increasing concentration of wealth  when really it meant a higher taxation on the cash flow previously hidden by the non-cash expenditures of accelerated depreciation.

[Crafty_Dog]

I can't access the whole piece from where I am, but this sentence posits the apparent cognitive dissonance rather pithiy:



Tim Pawlenty's call for an economic-growth plan built on tax cuts has raised concerns among Republicans in Congress who worry the presidential candidate's message could muddy their immediate quest to slash spending and curb the deficit.

[DougMacG]

Here is more of what Crafty posted.  I would like to come back to this to discuss.  I watched Chris Wallace grill him today.  He might as well have gone on Bill Maher's show to explain it.

I would ask his opponents like Obama how they will balance the budget without growing the economy, or how they will grow the economy without improving the investment/employment climate.  We can argue over the details, but something like this or at least part way in this direction will be required to snap out our current morass.  Pundits can't seem to say the word, but he is mostly trying to cut double and quadruple taxation.

http://online.wsj.com/article/SB10001424052702304778304576377852605207830.html?mod=googlenews_wsj

Tim Pawlenty's call for an economic-growth plan built on tax cuts has raised concerns among Republicans in Congress who worry the presidential candidate's message could muddy their immediate quest to slash spending and curb the deficit.

The proposal from the former Minnesota governor, put forth Tuesday in Chicago, comes as Republicans and Democrats in Congress battle over ways to slash the federal deficit as part of a deal to raise the national debt limit. The Treasury says it will run out of ways to stave off a default Aug. 2.

That standoff has focused attention on cutting government spending, with some Democrats saying higher taxes are needed. Less immediately germane, Republicans say, are immediate calls for steep tax cuts.

Tim Pawlenty's call for steep tax cuts is causing unease among Republican Party lawmakers in Congress whose most immediate interest is focusing on deficit-cutting negotiations with the White House. Neil King explains.

Mr. Pawlenty's proposal "is different from where most of us are focusing our attention now," said freshman Utah Sen. Mike Lee. "We see this as a spending problem, not a revenue problem."

Mr. Lee, who said he applauded the spirit of the Pawlenty plan, cautioned against pushing deep tax cuts "in the midst of a significant economic downturn."

The lukewarm response to Mr. Pawlenty's plan stems as much from differing immediate priorities as significant policy splits, with 2012 candidates seeking to lay out a long-range philosophy while lawmakers tackle budget talks with the White House.

Pawlenty spokesman Alex Conant said the governor has proposed a long-term plan, not one designed to address the immediate fight over the debt ceiling.

Democrats, including aides to President Barack Obama, blasted the plan as unrealistic and called it a reprise of the Bush-era tax cuts that swelled the deficit but did little to create jobs or boost growth.

Mr. Pawlenty won praise from some conservatives with his plan to cut corporate and individual taxes and permanently end capital-gains taxes and taxes on savings and inheritances. The plan envisions average annual economic growth of 5% over 10 years, compared with 1.7% during the past decade and 3.42% during the 1990s.

Under current projections, Pawlenty aides say, tax cuts would reduce federal revenue by $2 trillion over 10 years. But Mr. Pawlenty envisions largely unspecified spending cuts of at least double that sum, and a balanced budget within a decade.

Rep. Paul Ryan (R., Wis.), the House Budget Committee chairman, has led a House GOP push for 25% top tax rates. He said he was "excited" that Republican presidential candidates were taking up the cause. Even the bipartisan fiscal commission appointed by President Obama last year recommended top rates as low as the mid-20s, Mr. Ryan said.

"What is happening is a center-right coalition is developing here, joined by moderate Democrats, and it's calling for lower rates…and a broader base," Mr. Ryan said. "I'm a party to that, I agree with that."

If Republicans can succeed in taking back the Senate and the White House, "I think we'll get that," he added.

Other Republicans gave the plan qualified praise, while also expressing worries about diverging from a sharp anti-spending, anti-deficit platform going into the 2012 election. The GOP regained control of the House last year on promises to curb government spending and amid dire warnings over the swelling national debt.

Sen. Lindsey Graham of South Carolina said he supported "entrepreneurial tax plans" like the Pawlenty proposal, but added: "If you don't have some spending [control] mechanism, it's not going to work."

Sen. Orrin Hatch of Utah, the top Republican on the Finance Committee, called the plan "feasible," but said "we'd have to do a lot of other things as well." Mr. Pawlenty wants all corporate taxes slashed to 15%, from 35% now. Sen. Hatch said 25% is "probably more achievable."

Douglas Holtz-Eakin, a former director of the Congressional Budget Office and former adviser to John McCain's 2008 presidential campaign, said his biggest concern with the Pawlenty plan was its suggestion that 5% growth is possible for a decade.

"Five percent for 10 years is just outside the realm of historical experience," he said. "Ambitious is the least of the words…to describe it."

The 5% growth figure is aspirational but not out of reach, said Mr. Conant, the Pawlenty spokesman.

[G M]

http://taxprof.typepad.com/taxprof_blog/2011/06/zelinsky-nys-.html

Zelinsky: New York's Irrational Income Taxation of Nonresidents
Edward A. Zelinsky (Cardozo), NY’s Irrational Income Taxation of Nonresidents: The Barker Decision (Oxford University Press Blog):
 
As a law professor, I routinely commute from my home in New Haven, Connecticut to Manhattan where I teach my classes at the Cardozo Law School of Yeshiva University. On most days when I don’t teach, I work at home. Modern technology (e.g., the internet, email, legal databases like Lexis and Westlaw) allows me to research and write at my residence in Connecticut while staying in touch electronically with my Cardozo students and colleagues. Given its obvious benefits, such “telecommuting” is blossoming.
 
On days when telecommuting nonresidents like me work at our out-of-state homes, New York takes the irrational position that we are really working in the Empire State, though in fact we are outside New York’s borders. By the legal fiction known as the “convenience of the employer” doctrine, New York assesses income taxes for nonresident telecommuters’ work-at-home days – even though we do not set foot in New York on those out-of-state days. New York’s convenience of the employer doctrine typically results in double taxation on the days nonresident telecommuters work at their out-of-state homes.
 
When I challenged New York’s convenience of the employer rule as unconstitutional, I found myself in a prolonged and public controversy over New York’s irrational taxation of nonresident telecommuters. I ultimately lost my case in New York’s highest court.
 
John J. Barker of New Canaan, Connecticut now finds himself enmeshed in an equally convoluted controversy about New York’s self-destructive tax policies vis-a-vis nonresidents of the Empire State. Mr. Barker was an investment manager who commuted regularly from his home in New Canaan to his office in Manhattan. ... New York concedes that the Barkers were domiciled in Connecticut from 2002 through 2004. Nevertheless, New York insists that the Barkers were New York residents and owe a second, New York income tax on their investment income by virtue of the modest beach house the Barkers owned in Napeague, New York. The Barkers used this house for short, sporadic vacations. In 2002, for example, the Barkers used their small New York beach house five times for a total of only nineteen days. ...

[Crafty_Dog]

Herman Cain was interviewd this weekend on the WSJ Editorial Report (or something like that) on FOX.

A VERY strong interview.  The man owns the topic on a level I have not before seen.

[DougMacG]

"The man owns the topic on a level I have not before seen."

Did he make a convincing case, in a climate of 48% Obama support and 53 Dem Senators that we are on the verge of getting 80% for REPEALING the income tax altogether by constitutional amendment - in time to save the republic? 

Currently we are arguing to the point of almost civil war over when the rich should be raised from 35% to 39% and you believe we can get 80% support for zero direct tax on all income earned by the rich? 

Another candidate just suggested ending a couple examples of double taxation on certain incomes and the world of centric politics and punditry has gone berserk.
----------------------------------
http://online.wsj.com/article/SB10001424052702303848104576381912799752004.html?mod=WSJ_Opinion_RIGHTBelowPepperandSalt
 Gigot: Welcome to "The Journal Editorial Report." I'm Paul Gigot.

First up this week, the FAIR Tax. It's the proposal to replace all federal taxes, including income and payroll taxes, with a 23% national sales tax. Presidential candidates have run on it and lost in the past, most notably Gov. Mike Huckabee in 2008. And this time around, it's businessman Herman Cain who has picked up the FAIR Tax issue.

I spoke to Cain earlier this week and asked the GOP hopeful if he really thinks he can win the nomination by proposing a 23% tax on everything that Americans buy.

Cain: The answer is yes, for the following reasons. First of all, it replaces the federal income tax. It replaces the FICA tax that's currently being taken out. And we'll still raise the same amount of money. Secondly, the FAIR Tax moves taxation from a decision by the government on your income to a decision made by the consumer based upon that purchase behavior. And so that's one of the big advantages. Now, the other big advantage is that we'll raise the same amount of revenue with that 23%, because the consumption base is bigger than the income base.

Gigot: But the Bush tax commission, when they looked at it--

Cain: Yes.

Gigot: --in the last decade, said actually, the tax rate you'd have to have to raise the same amount of revenue is probably about 34%.

Cain: That's because they changed the assumptions in the bill. Here's what they did: They went back and tried to create a hybrid of trying to save the mortgage interest deduction because they think that that's like, you know, a pacifier for consumers. No.

Gigot: And you'd get rid of that? Get rid of all of it?

Cain: All of that would be gone. So you--and they changed the assumptions,. That's why they came up with that number. That's why they--because they tried to create a hybrid. If you look at HR 25 and go by the assumptions--

Gigot: That's the proposal in the House.

Cain: That's the proposal in the House. It's been introduced there since 1999, and it's still there. Look at what's in the actual legislation, and don't change the rules. The 23% would raise the same amount of money.

Gigot: But here's the problem a lot of conservatives have, which is a political problem. You've got the 16th Amendment, which said you could have the income tax.

Cain: Yes.

Gigot: In order to get rid of the income tax, you probably have to repeal the 16th Amendment.

Cain: Correct.

Gigot: So if you offer a national sales tax without repealing the 16th Amendment, aren't you going to get both?

Cain: No. In the legislation there is a clause that says that the FAIR Tax cannot go into effect until the 16th Amendment is repealed. So that puts pressure on the states and on Congress to repeal the 16th Amendment before the FAIR Tax, the national consumption tax, can go into affect.

Gigot: What makes you think that the American public is ready to hear a candidate, support a candidate, who supports what, let's face it, is a very radical change? Because you throw it the entire tax system. When other Republican candidates at the federal level, like Jim DeMint in South Carolina--

Cain: Right.

Gigot: --or certain Congress--congressional candidates have supported it, the Democrats have gone after it and said, "They want to raise the price of everything you buy--your home, your car--by 23%," and it's hurt them. How would you counter that argument?

Cain: The difference is, I can defend all of the lies, all of the misperceptions and all of the distortions about the FAIR Tax, and I'm willing to take that battle on. That's the reason why. Because what has happened--it does get demagogued. But then when you explain to the American people that it not only eliminates the withholding tax for both FICA as well as the payroll tax, but that it also eliminates the IRS and the costs that we have there, it--we will only need to spend 10% of what we spend on the IRS--you know, those people that abuse us and harass us?

Gigot: Right.

Cain: Well, they go away. They have to find new jobs. And trust me, they're smart enough to find new jobs.

Gigot: I guess the other concern that people have is, if you impose a tax that size on everything you buy, a lot of people are going to say, "You know what, I don't want to pay another 23%, 25% on my car."

Cain: It's--

Gigot: "Let's do it on the black market." And you drive a lot of those sales underground, and you'll still need somebody like the IRS for enforcement, won't you?

Cain: No. Here's why. First of all, the 23% is on new goods. So it's not on used cars and used homes or used goods. Yes, but you're going to pay it on everything else. Now, it could cause some people to try and buy it on the black market to get around it.

Gigot: Sure.

Cain: What's happening today? We have probably more underground activity going on today because illegals, who do everything on a cash basis, they are not paying taxes. People who come here to visit and do Christmas shopping from overseas, they are not paying any taxes. You've got the illegal activity that goes on in this country, that's money being left on the table.

And here's one of the big ones right here. What we spend collectively just to comply and file with the current tax code: $430 billion a year. That works out to the cost--to pay a dollar in taxes, that works out, according to analysis by Art Laffer, 30 cents to pay that dollar. The American people could keep that 30 cents.

Gigot: But Art Laffer long believed in a flatter system, a flat tax.

Cain: Yes, yes.

Gigot: A lot of Republicans have proposed that in the past, and some are now. Why--and, you know, go for, say, a top rate of 25% and then a lower rate, say, of 10%. You could fiddle with the rates, but something like that. Why not play it more politically safe and go for that, because you don't have to make the case that you have to repeal the 16th Amendment, which you know is very, very difficult to do?

Cain: The reason is, if you go with something that's still going to be taxed on income and you keep the 16th Amendment, the bureaucrats and politicians can't help themselves, it's going to grow back again. Remember, Reagan reduced down the number of brackets and all of that. Look what it did. It grew right back. Why?

Gigot: But couldn't you also raise--the politicians will raise the size of the sales tax.

Cain: Yes. That's a possibility, but here is the safeguard. In the legislation, HR 25, it requires a supermajority vote of the United States Senate in order to raise it. And I think if they tried to do that and sneak it past the American people, they won't be able to sneak it past, so that's another safeguard. The American people would know. Right now, Paul, lobbyists are able to get tax favors in the bills, and the American people never know about it. The current tax code allows politicians to select winners and losers. We need to get rid of that. And once we get rid of the tax code, we're going to eliminate 50% of the lobbyists who are trying to get those favors in the tax code.

Gigot: And you think you can sell this to the Republican primary electorate when Mike Huckabee couldn't do it successfully in 2008. He ran on the FAIR Tax.

Cain: Yes, he did.

Gigot: And he didn't win the nomination.

Cain: Here's the difference.

Gigot: Why is it going to be different?

Cain: Here's the difference. First of all, this is Herman Cain. All right, let's start there. I'm proposing a two-phase boost to our economy. Phase 1 is what we need to do to get things going while I educate and inform the public about the nuances and the advantages of the FAIR Tax. I'm not going to try to do that right away. Phase 1--

Gigot: Will be a tax cut.

Cain: --will be tax cuts. It'll be suspending the tax on foreign profits. It'll be a real payroll tax holiday. And then make those--make those--other than the tax holiday, make them permanent so we can remove this uncertainty. So we'll do that in order to boost the economy and then educate the public.

[Crafty_Dog]

Thank you for the transcript Doug.

IMH one of the things we need to look for in a candidate is the ability to stay calm, affable, unflappable, and centered when tornados of calumny are aimed at him/her while expressing in pithy distilled simplicity the reasons for what he/she is saying.

In his demeanor I saw the potential for this in Cain durng this interview.  The point is not the polling numbers right now.  The point is the man has the courage to stand by his convictions and IMHO to bring many people over to his side and earn the respect of nearly all in so doing    In contrast, I think Romney's make-up is to whither under hateful race and class warfare of the progressives and their running dogs in the Pravdas 

This is a man who has the courage to be a black Tea Partier.  This is a man who has the courage to take on the liberal fascists to their faces, with a smile:
==============

Gigot: What makes you think that the American public is ready to hear a candidate, support a candidate, who supports what, let's face it, is a very radical change? Because you throw it the entire tax system. When other Republican candidates at the federal level, like Jim DeMint in South Carolina--

Cain: Right.

Gigot: --or certain Congress--congressional candidates have supported it, the Democrats have gone after it and said, "They want to raise the price of everything you buy--your home, your car--by 23%," and it's hurt them. How would you counter that argument?

Cain: The difference is, I can defend all of the lies, all of the misperceptions and all of the distortions about the FAIR Tax, and I'm willing to take that battle on. That's the reason why. Because what has happened--it does get demagogued. But then when you explain to the American people that it not only eliminates the withholding tax for both FICA as well as the payroll tax, but that it also eliminates the IRS and the costs that we have there, it--we will only need to spend 10% of what we spend on the IRS--you know, those people that abuse us and harass us?


, , ,

Gigot: And you think you can sell this to the Republican primary electorate when Mike Huckabee couldn't do it successfully in 2008. He ran on the FAIR Tax.

Cain: Yes, he did.

Gigot: And he didn't win the nomination.

Cain: Here's the difference.

Gigot: Why is it going to be different?

Cain: Here's the difference. First of all, this is Herman Cain.
==========

Reagan had a calm center.  Maybe Herman Cain does too.

[G M]

I like people in leadership positions that have real life experience, including having made hard decisions and struggling through tough times. Everything I know about Cain says this is true of him. I very much doubt he's got any c*ck pics floating around the net, which is a plus as well. Bolton would fill the foreign policy gap he's demonstrated.

[Crafty_Dog]

As much as I like reading and listening to Bolton, he completely lacks in political experience-- including experience in persuading folks of his hard lines views without falling into the warmonger traps of the Pravdas.

[G M]

As much as I like reading and listening to Bolton, he completely lacks in political experience-- including experience in persuading folks of his hard lines views without falling into the warmonger traps of the Pravdas.

I don't know that "warmonger" has much sting in the wake of the left's newfound love of targeted assasination and kinetic military activity.

[Crafty_Dog]

Unemployment insurance is primarily the charge of state governments, but lately it has developed into an unhealthy relationship with Washington that has become unaffordable. To restore some balance, Republicans in Congress are proposing to give states more flexibility in how they spend federal unemployment dollars. Democrats call the plan an end to federal unemployment subsidies as most people know them. If only.

In the 1930s the federal government established a loose framework for jobless insurance that gives states leeway to determine their own tax rates, eligibility and benefits. Most states provide 26 weeks of benefits, which are funded by state payroll taxes on employers. During periods of high unemployment, states are required by federal law to extend benefits by another 13 weeks. The federal government typically funds half of these extended benefits.

As part of the 2009 stimulus bill—the source of so much fiscal mayhem—Congress agreed to subsidize all 13 weeks of extended benefits and gave states $7 billion to expand their eligibility. That was a Faustian bargain because states will have to pay more benefits over the long run for all of the new individuals that they've added to their rolls.

Congress has since funded an additional 60 weeks of "emergency" benefits, for a total of 99 weeks. The most Congress had previously extended benefits was up to 33 weeks during the early 1990s. The catch is that states now can't reduce their weekly benefit amounts or eligibility. So the only real options for states whose unemployment trust funds are running dry is to take out loans or raise taxes on employers. Roughly 30 states have done the former, but the way that the unemployment system works has made higher taxes nearly inevitable.

If states don't pay down the principal on their loans within about two years of their loan's origination—which is this year for most states—the system requires the feds to raise employer payroll taxes by 0.3% each year that a state's loan is left outstanding. Employers in 22 states will likely see their taxes rise this year, which means less incentive to hire even as the jobless rate is still 9.1%.

That's where the GOP's Jobs Act would help. The bill would let states use the remaining $31 billion of the $56 billion in unemployment benefits that Congress appropriated last year for other purposes like paying off their federal loans or reducing employer taxes. Imagine that—a jobs bill that actually promotes jobs. States with high unemployment could continue to spend the funds on benefits, but they would no longer be required to do so.

Meanwhile, more evidence has arrived that jobless subsidies are a disincentive work. A recent report by Chicago Federal Reserve economists Luojia Hu and Shani Schechter indicates that benefit extensions account for a roughly 1% increase in the unemployment rate. They calculate that between 10% and 25% of the recent decline in unemployment is due to people exhausting their benefits. Allowing the extended emergency benefits to expire, they conclude, could help reverse their adverse effects on employment.

The jobless subsidies for this year have already been appropriated, so the best Republicans can do is let extended benefits sunset at the end of this year and let states put the appropriated money to more productive uses. Then get on with the task of stopping job-killing government policies.

[Crafty_Dog]

WSJ

By ALAN REYNOLDS
The intelligentsia of the Democratic Party is growing increasingly enthusiastic about raising the highest federal income tax rates to 70% or more. Former Labor Secretary Robert Reich took the lead in February, proposing on his blog "a 70 percent marginal tax rate on the rich." After all, he noted, "between the late 1940s and 1980 America's highest marginal rate averaged above 70 percent. Under Republican President Dwight Eisenhower it was 91 percent. Not until the 1980s did Ronald Reagan slash it to 28 percent."

That helped set the stage for Rep. Jan Schakowsky (D., Ill.) and nine other House members to introduce the Fairness in Taxation Act in March. That bill would add five tax brackets between 45% and 49% on incomes above $1 million and tax capital gains and dividends at those same high rates. The academic left of the Democratic Party finds this much too timid, and would rather see income tax rates on the "rich" at Mr. Reich's suggested levels—or higher.

This new fascination with tax rates of 70% or more is ostensibly intended to raise gobs of new revenue, so federal spending could supposedly remain well above 24% of gross domestic product (GDP) rather than be scaled back toward the 19% average of 1997-2007.

View Full Image
...All this nostalgia about the good old days of 70% tax rates makes it sound as though only the highest incomes would face higher tax rates. In reality, there were a dozen tax rates between 48% and 70% during the 1970s. Moreover—and this is what Mr. Reich and his friends always fail to mention—the individual income tax actually brought in less revenue when the highest tax rate was 70% to 91% than it did when the highest tax rate was 28%.

When the highest tax rate ranged from 91% to 92% (1951-63), even the lowest rate was quite high—20% or 22%. As the nearby chart shows, however, those super-high tax rates at all income levels brought in revenue of only 7.7% of GDP, according to U.S. budget historical data.

President John F. Kennedy's across-the-board tax cuts reduced the lowest and highest tax rates to 14% and 70% respectively after 1964, yet revenues (after excluding the 5%-10% surtaxes of 1969-70) rose to 8% of GDP. President Reagan's across-the-board tax cuts further reduced the lowest and highest tax rates to 11% and 50%, yet revenues rose again to 8.3% of GDP. The 1986 tax reform slashed the top tax rate to 28%, yet revenues dipped trivially to 8.1% of GDP.

What about those increases in top tax rates in 1990 and 1993? The top statutory rate was raised to 31% in 1991, but it was really closer to 35% because exemptions and deductions were phased-out as incomes increased. The economy quickly slipped into recession—as it did during the surtaxes of 1969-70 and the "bracket creep" of 1980-81, which pushed many middle-income families into higher tax brackets. Revenues fell to 7.8% of GDP.

The 1993 law added two higher tax brackets and, importantly, raised the taxable portion of Social Security benefits to 85% from 50%. At just 8% of GDP, however, individual income tax receipts were surprisingly low during President Bill Clinton's first term.

The Internet/telecom boom of 1998-2000 was the only time individual income tax revenues remained higher than 9% of GDP for more than one year without the economy slipping into recession (as it did when the tax topped 9% in 1969, 1981 and 2001).

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Getty Images
 
Former Labor Secretary Robert Reich
.But that was an unrepeatable windfall resulting from the quintupling of Nasdaq stocks—combined with (1) the proliferation of nonqualified stock options that have since been thwarted by the Financial Accounting Standards Board, and (2) the 1997 cut in the capital gains tax to 20%. Realized capital gains rose to 4.6% of GDP from 1997 to 2002—up from 2.5% of GDP from 1987 to 1996 when the capital gains tax was 28%.

Suppose the Congress let all of the Bush tax cuts expire in 2013, which is the current trajectory. That would bring us back to the tax regime of 1993-96 when the individual income tax brought in no more revenue (8% of GDP) than it did in 2006-08 (8.1% of GDP).

It is true that President Obama proposes raising the capital gains tax to 23.8%, which could raise more revenue than the 28% rate of 1993-96. But a 23.8% tax on capital gains and dividends would nevertheless be high enough to depress stock prices and related tax revenues.

Still, pundits cling to the myth that lower tax rates mean lower revenues. "You do probably get a modest boost to GDP from tax cuts," concedes the Atlantic's Megan McCardle. "But you also get falling tax revenue. It can't be said too often—and there you are, I've said it again."

Yet the chart nearby clearly shows that reductions in U.S. marginal tax rates did not cause "falling tax revenue." It is not necessary to argue that tax rate reduction paid for itself by increasing economic growth. Lowering top marginal tax rates in stages from 91% to 28% paid for itself regardless of what happened to GDP.

It is particularly remarkable that individual tax revenues did not fall as a percentage of GDP because changes in tax law, most notably those of 1986 and 2003, greatly expanded refundable tax credits, personal exemptions and standard deductions. As a result, the Joint Committee on Taxation recently reported that 51% of Americans no longer pay federal income tax.

Since the era of 70% tax rates, the U.S. income tax system has become far more "progressive." Congressional Budget Office estimates show that from 1979 to 2007 average income tax rates fell by 110% to minus 0.4% from 4.1% for the second-poorest quintile of taxpayers. Average tax rates fell by 56% for the middle quintile and 39% for the fourth, but only 8% at the top. Despite these massive tax cuts for the bottom 80%, overall federal revenues were the same 18.5% share of GDP in 2007 as they were in 1979 and individual tax revenues were nearly the same—8.7% of GDP in 1979 versus 8.4% in 2007.

In short, reductions in top tax rates under Presidents Kennedy and Reagan, and reductions in capital gains tax rates under Presidents Clinton and George W. Bush, not only "paid for themselves" but also provided enough extra revenue to finance negative income taxes for the bottom 40% and record-low income taxes at middle incomes.

Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press 2006).

[DougMacG]

Kudos to Crafty for posting the Alan Reynolds piece.  I was too busy during the week to go through it carefully. This is a very significant piece IMO. I would like to draw attention to the points made.  Economic writing backed up with convincing numeric and mathematical evidence doesn't easily write or read well.  I would ask people to go slowly and more than once through the key points, because you are being told or implied the opposite by most of the people who govern us.

Seems that Reynolds does more research and posts less often than most.  The details of his work I find to be very original and always worthwhile.   

In this case, he is understating his case.  He is saying besides the growth in GDP, the lowering of rates over the 60 year period studied did not cost the Treasury revenue.

Think about it this way, if tax rates were 90% and people effectively were paying 7.7%, no one hardly was paying 90%.  If rates were dropped to about 10% across the board no exceptions, maybe people would willingly pay 10% - and run with it.

Again: http://online.wsj.com/article/SB10001424052702304259304576375951025762400.html?mod=djemEditorialPage_h



...
"Since the era of 70% tax rates, the U.S. income tax system has become far more "progressive." Congressional Budget Office estimates show that:

 - From 1979 to 2007 average income tax rates fell by 110% to minus 0.4% from 4.1% for the second-poorest quintile of taxpayers.

 - Average tax rates fell by 56% for the middle quintile and 39% for the fourth,

 - Only fell 8% at the top.

(This does not match what class warfare and disparity alarmists are telling you!)

Despite these massive tax cuts for the bottom 80%, overall federal revenues were the same 18.5% share of GDP in 2007 as they were in 1979 and individual tax revenues were nearly the same—8.7% of GDP in 1979 versus 8.4% in 2007. "

'Read it all'

[Crafty_Dog]

President Obama was right about his audacity, if not always the hope. Six months after he agreed to a bipartisan extension of current tax rates, he is now insisting on tax increases as part of the debt-ceiling talks. At his press conference yesterday he repeated this demand, as well as his recent talking point that taxes are lower than they've been in generations. Let's examine that claim because it explains Washington's real revenue problem—slow economic growth.

Mr. Obama has a point that tax receipts are near historic lows, but the cause isn't tax rates that are too low. As the nearby table shows, as recently as 2007 the current tax structure raised 18.5% of GDP in revenue, which is slightly above the modern historical average. Even in 2008, when the economy grew not at all, federal tax receipts still came in at 17.5% of the economy.

Today's revenue problem is the result of the mediocre economic recovery. Tax collections in 2009 fell below 15% of GDP, the lowest level since 1950. But remarkably, tax receipts stayed that low even in the recovery year of 2010. So far this fiscal year tax receipts are growing at a healthy 10% clip, so the Congressional Budget Office (CBO) January estimate of 14.8% of GDP is probably low. We suspect revenues will be closer to 16%, but even that would be the weakest revenue rebound from any recession in 50 years, and far below the average tax take since 1970 of 18.2%.

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...But what about the liberal claim, repeated constantly, that the Bush tax cuts of 2001 and 2003 caused today's deficits? CBO has shown this to be demonstrably false. On May 12, the budget arm of Congress examined the changes in its baseline projections from 2001 through 2011. In 2001, it had predicted a surplus in 2011 of $889 billion. Instead, it expects a deficit of $1.4 trillion.

What explains that $2.29 trillion budget reversal? Well, the direct revenue loss from the combination of the 2001 and 2003 Bush tax cuts contributed roughly $216 billion, or only about 9.5% of the $2.29 trillion. And keep in mind that even this low figure is based on a static revenue model that assumes almost no gains from faster economic growth.

After the Bush investment tax cuts of 2003, tax revenues were $786 billion higher in 2007 ($2.568 trillion) than they were in 2003 ($1.782 trillion), the biggest four-year increase in U.S. history. So as flawed as it is, the current tax code with a top personal income tax rate of 35% is clearly capable of generating big revenue gains.

CBO's data show that by far the biggest change in its deficit forecast is the spending bonanza, with outlays in 2011 that are $1.135 trillion higher than the budget office estimated a decade ago. One-third of that is higher interest payments on the national debt, notwithstanding record low interest rates. But $523 billion is due to domestic spending increases, including defense, education, Medicaid and the Obama stimulus. Mr. Bush's Medicare drug plan accounts for $53 billion of this unanticipated spending in 2011.

The other big revenue reductions come from the "temporary" tax changes of the Obama stimulus and 2010 bipartisan tax deal. CBO says the December tax deal—which includes the one-year payroll tax cut and the annual fix on the alternative minimum tax—will reduce revenues by $196 billion this year. The temporary speedup in business expensing will cost another $55 billion.

Related Video
 Editorial Board Member Steve Moore on the president's press conference.
..The payroll tax cut was sold in the name of stimulating growth and hiring, yet the economy has grown more slowly this year than in last year's fourth quarter. As we've long argued, the "temporary, targeted and timely" tax cuts favored by Keynesians and the White House don't do much for growth because they don't permanently change incentives to save and invest. Mr. Obama was hawking more of those yesterday, even as he wants to raise taxes overall.

Republicans—notably George W. Bush in 2001 and 2008—have sometimes fallen for this same tax cut gimmickry. But perhaps they're learning their lesson. Republicans have reacted with little enthusiasm to the White House trial balloon to extend the payroll tax cuts for another year. The lesson is that when it comes to growth, not all tax cuts are created equal. The tax cuts with the biggest bang for the buck are permanent, take effect immediately, and hit at the next dollar of marginal income.

All of which makes the White House debt-ceiling strategy a policy contradiction. On the one hand, Mr. Obama is saying Republicans must agree to raise taxes on business and high incomes, though he knows even many Democrats won't vote for that. On the other hand, Mr. Obama says he wants another payroll tax cut because he is worried about slow growth.

Even orthodox Keynesian policy doesn't recommend a tax increase with growth under 2% and the jobless rate at 9.1%. The White House game here can only be an attempt to see if he can use the prospect of a debt-limit financial panic to scare Republicans into voting to raise taxes. We doubt the GOP is this dumb.

Republicans should stick to their plan of insisting on spending cuts in return for a debt-ceiling vote. Every dollar in lower spending means one less dollar taken from the private economy in borrowing or future tax increases. As for revenues, they will increase when the economy shakes its lethargy caused by Mr. Obama's policies. A tax increase won't help growth—or revenues.

[DougMacG]

Paraphrasing Sec. Geithner, we NEED to increase the burden on businesses who hire.  Otherwise that burden would fall onto our lean, already cash-strapped federal government.  "There is really no alternative to doing it."

http://dogbrothers.com/phpBB2/index.php?topic=2123.msg51038#msg51038  (Decline and Fall thread)
http://www.youtube.com/watch?feature=player_embedded&v=H4bYNkXu5qs#at=14

[DougMacG]

This will never fly, but at least someone out there (Steven Hayward) poses the question about raises taxes on those in this country who are not paying their fair share:

"if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly."

Is There a Conservative Case for Higher Taxes?
http://www.powerlineblog.com/archives/2011/07/is-there-conservative-case-for-higher-taxes.php

No doubt this will set off an explosion of indignation, but my answer to the question posed here is—Yes.  (I can hear it now: What!  Are you trying to get yourself kicked off Power Line?)

Maybe it will help if I qualify this by saying that I think taxes should be raised sharply on the middle class and the poor, many of whom currently pay almost no federal income tax at all, while cutting the capital gains tax, the corporate income tax, and the highest marginal income tax rates.  Feel a little better?  I thought not.

But here’s the case: one problem with our current tax policy is that at the moment the American people as a whole are receiving a dollar of government for the price of only 60 cents.  (I don’t say a “dollar’s worth of government,” but let’s leave that snark for another time.)  Any time you can get a dollar of something at a 40 percent discount, you are going to demand more of it.  My theory is simple: if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly.

There’s corollary point to this.  Back in the Reagan years, there was a vigorous internal debate about whether to resist tax increases because “starving the beast” would hold down spending.  But evidence is now in: this strategy doesn’t work.  My witness on this point is the Cato Institute’s chairman, William Niskanen (who was chairman of Reagan’s Council of Economic Advisers at one point, and a person whose libertarian credentials are hard to beat). Niskanen noted this striking finding in a Cato Policy Report a while ago:

    In a professional paper published in 2002, I presented evidence that the relative level of federal spending over the period 1981 through 2000 was coincident with the relative level of the federal tax burden in the opposite direction; in other words, there was a strong negative relation between the relative level of federal spending and tax revenues.  Controlling for the unemployment rate, federal spending increased by about one-half percent of GDP for each one percentage point decline in the relative level of federal tax revenues. . . One implication of this relation is that a tax increase may be the most effective policy to reduce the relative level of federal spending.

Other economists have reached the same conclusion.  In other words, if you want to limit government spending, instead of starving the beast, serve the check.  (Well, I can hear everyone now, there’s goes your invitation to Grover Norquist’s Wednesday meetings! True that.)  Right now the anti-tax bias of the right has the effect of shifting costs onto future generations who do not vote in today’s elections, and enables liberals to defend against spending restraints very cheaply.  Time to end the free ride.

A debate on how to raise taxes might actually be fun to have with liberals, because their only idea—eat tax the rich—doesn’t produce anywhere near enough revenue to fund their programs.  Of course, the “tax the rich” slogan is just a cover so they can raise taxes on everyone, but why not smoke them out on this by agreeing?

But more to the point, the argument should be cast in terms of a creating pro-growth tax reform.  Froma Harrop of the Providence Journal has a typically idiotic column out today saying Americans want higher taxes.  It is not even worth the bother of debunking.  There is one highly useable sentence in it: “Today, high-tax Sweden has only 7 percent unemployment, while ours is 9 percent. How come? Before the 2008 economic meltdown, Sweden prudently maintained a budget surplus equal to 3.6 percent of its economy.”  Never mind that Sweden isn’t exactly putting its shoulder to the wheel in the fight against terrorists (or anything else), and just focus your mind on one fact: yes, it is a high tax country, but its corporate income tax rate is one-third lower than the U.S. rate (26% for Sweden; 39% for the U.S.).  So, my opening bid is—yes. By all means let’s emulate Sweden’s tax rates, starting with a one-third cut in our corporate income tax rate, and a hike in middle class income tax rates.  Deal?   I didn’t think so.

[Crafty_Dog]

If Democrats think it is a national priority to raise taxes to lower the deficit, why don't they take a stand in the Senate and do it?

Democrats hold a 53-47 majority in the Senate, so Majority Leader Harry Reid shouldn't need a single Republican vote to move his tax agenda forward. A budget resolution requires only 51 votes, which means Democrats could vote today to pass a budget resolution on a $1 trillion tax increase as President Obama has endorsed, or the $2 trillion that Senate Budget Chairman Kent Conrad has proposed.

Instead, Mr. Reid continues to put any Democratic budget with tax increases in the deep freeze even as the party keeps saying the polls show that Americans support a tax hike as part of a debt plan. Why not go for it?

The answer is Senator Reid can't rally his own caucus to get anywhere near 51 votes for a big tax increase. Even as President Obama and Mr. Reid continue to push for a closed-door bipartisan agreement to raise taxes, the only bipartisan consensus in the Senate on taxes right now is . . . against raising them. Here's a sampling:

Ben Nelson of Nebraska, up for re-election in November 2012: "Raising taxes at a time when our economy remains fragile takes us in the wrong direction." He adds: "If we start with plans to raise taxes, pretty soon spending cuts will fall by the wayside."

Joe Manchin of West Virginia, also up for re-election next year, told us: "Make no mistake, I don't believe in tax hikes, I believe in tax fairness." This means closing "unnecessary loopholes."

Virginia's Jim Webb, who is retiring at the end of next year: "During my time in the Senate, I have consistently opposed the notion of increasing revenues through raising taxes on ordinary, earned income—those amounts, whether large or small, that Americans take home as part of their every-day work and their basic compensation packages." He said he advocates raising taxes "by other means," including "ending costly subsidies and tax loopholes or by adjusting such measures as capital gains."

Joe Lieberman, the independent from Connecticut, told the Connecticut Mirror he has a lot of "unanswered questions" about the Democratic budget plan, and that the $2 trillion to come from tax hikes could be too "high" for him to accept. "For 50% to come from tax increases is a lot."

Specific tax-hike proposals also hit a wall of opposition in the Democratic caucus. An increase on the oil and gas industry, a top priority for the White House, has firm opposition from three energy-state Democrats—Mary Landrieu of Louisiana, Mark Begich of Alaska and Mr. Nelson of Nebraska. Ms. Landrieu cites bipartisan opposition to the idea.

Bill Nelson of Florida and Mr. Begich have expressed reservations about another populist Democratic revenue raiser: a millionaire surtax.

One of the most unjustified tax loopholes is the ethanol subsidy. But 13 Senate Democrats voted against a measure earlier this year to kill it, including Iowa liberal Tom Harkin.

The White House and Harry Reid may think Americans favor reducing debt with a big tax increase. But first they need to convince the antitax Democrats in their own caucus.

[JDN]

Voters overwhelmingly appear to favor raising some taxes as part of a deal to raise the debt ceiling, two new polls show.

"voters, 67% to 25%, prefer a deficit-reduction deal that includes both spending cuts and higher taxes on the wealthy  and corporations rather than only cuts spending."

http://blogs.wsj.com/washwire/2011/07/14/polls-voters-want-debt-limit-deal-to-cut-spending-and-raise-taxes/

[DougMacG]

JDN, I have seen those polls go both ways depending on how asked.  Also those national polls don't help Ben Nelson in Nebraska, etc. 

More importantly, do YOU want tax rate increases (on job creators) with the spending cuts.  Are higher taxes than we have now really balanced policy or centrism?

[DougMacG]

Assuming our shutdown ending deal goes through in MN without the new Gov's increases, the resulting combined tax rate will be 66% instead of 69%.  You can keep 34 cents on your next dollar earned with the government's current blessing.  If you spend it that is another 7% so you're down to keeping/spending 27 cents?

The calculation on the federal side 58% come from Steven Hayes of the WSJ and they include the cut expirations coming as well the increases already passed in Obamacare: http://online.wsj.com/article/SB10001424052702304066504576343611464445594.html

There are other taxes as well.  My property taxes alone are already greater than my take-home income.

If you push-polled with taxes already going to 62%, corporate rates highest in the world and unemployment caused by overtaxing and over-regulating, you will not get 67% support for more tax hike support - in Nebraska, IMO.

People who want BIG tax increases are already getting their way.  No need to ask again and no need to vote again.

[JDN]

Actually Doug, I do want slightly higher taxes on the very wealthy.  I"m not wealthy by any means, but I have friends who are and even they don't seem to object.  Further,
I think some deductions favored by the rich should go by the wayside.  I suppose that is a tax increase too.  However, I truly don't think (maybe I am wrong) that raising
rates 2% or something on those making above $250K, taking away the deduction for private jets, deductions for second homes, heck, there are a lot of deductions that
should be taken away - including in my opinion the mortgage deduction above $500K and these will all raise revenue, without noticeably impact the work force.

Frankly, I truly doubt in the long run if this would affect jobs at all.  Those who are rich and are working hard and hiring people; well I doubt if 2% or so will make a difference.  And for
those rich sitting at home clipping coupons and/or are supported by their investments and therefore who really don't create many jobs, well, it won't make much difference to them either.

From what I've read, Obama will not be raising, actually he will be lowering taxes on the middle class - the group that as a country I am most worried about.

And in exchange for small tax increases and elimination of deductions, there will be significant and necessary cuts in the budget.  I personally think this two pronged approach, as I think most
Americans do, is the best approach to solving the problem.

[DougMacG]

Thanks JDN. Oddly most of my liberal friends are rich too.  Poor people are too busy to concoct serious class warfare arguments. The damage done by marginal rates is to the want-to-be-rich people more than to the already-rich.  Our Dem Gov. is rich (from a successful Republican family) married a Rockefeller (now divorced), keeps his trust fund in South Dakota (no income tax), got his biggest contribution from the ex-wife (not a Minnesotan) and favors big surcharges on the rich, on their incomes and on their homes.  Meanwhile he has no clue how wealth is created or how damn tough it was to build a retail chain that is now Macy's here, Target and the world's (former) best seller of books. (My uncle ran their company when the adults determined there weren't any more competent family members to take over.)

Yes you (and I) have friends that are rich and liberal and being rich and liberal today means saying you are willing to pay higher taxes.  Do they really mean higher than 58% + 9.3% state (Calif), double taxed on corporate income components plus sales tax, property tax and on and on?  Marginal rates already to be greater than 70% and still want higher?  Do they show any other behaviors, sending extra money to the government (keep the change, lol), not taking advantage of moves, deductions, preferences available  to indicate they want to pay more than they do now?  - I didn't think so.

It's all rhetorical.  People like that, your friends and mine, are people I seek to defeat not persuade.  I favor efficient taxation, not punitive, redistributive or emotional taxation. 

On the other point, that small tax rate increases don't affect business openings, hirings, expansions... it is empirically false whether you feel that way or not.  The increase you mention is small, but it is on top of everything else in terms of other taxes, strangulating regs and other costs driven up by overblown government policies.  Yes, it ALL matters.

The idea of slimming down on deductions only pulls even more money out of the private economy - a contractionary policy - unless that is combined with using the loophole closures to lower the marginal rates - the primary disincentive to produce.

Most of those alleged "loopholes" like corp jet owners are proposing to take away 5 year depreciations and make them 7 year when the incentive in the first place was part of Obama's big stimulus. Big f'ing deal.  The change would have no real affect on those who already have their jet and deducted it, but would kill those who play a part in building jets.  We've tried stuff like that before.  The right answer is to depreciate the jet by the amount that it depreciated (imagine that?) which like a car is a huge amount the moment you drive it off the showroom floor. Don't they have a Kelley Blue Book for aircraft?  Another way is cash basis accounting.  Deduct the expense, then 1099 the income when you sell.  The only rationale in the current or proposed plan is demagoguery-based depreciation.  Why is 7 years right and 5 years wrong.  It is all arbitrary and the same people that did it blame me for supporting a rich guy who takes a deduction that THEY concocted in government-based economics.  If the tax rate wasn't astronomical, the depreciation schedule wouldn't be so crucial.

[JDN]

Hey Doug, a lot of my conservative friends are rich too.  Not just my liberal friends.   I'm the only "poor" one in the group.

Just a few thoughts; while it's nice to have a personal "conversation" I think my points (and yours) apply in general.

You reference the tax rates.  My best friend, he's English/Welsh (now American) is actually quite conservative.  Cambridge graduate, a partner for years at PWC, an entrepreneur, he is quite financially comfortable.  We had this discussion a few weeks ago over beer after golf.  He suggested a small increase
is not a big deal.  Further, regarding your high tax rates quote (you have posted before on this issue), my accountant friend laughed; his quote was "who pays that?"  My friend was in charge of entertainment accounting (now that's creative) so it seems everyone showed a "loss" on the books; for many years although it's a hit move/tv show.  "It's all a number's game.  My point is I really don't worry about the "big boys"; it's the middle class that is important to me.  Let me repeat this mantra, "it's the middle class that's important."

A long time ago I lived for a year in London.  Taxes were absurd at that time.  But the true "players" didn't care.  They literally deducted everything. Or they did deals in cash or offshore.  Again, the middle class filing the short form are the only ones who suffer.

As far as eliminating deductions and lowering the tax rate, I see no problem.  It's just that I hate favoritism; especially for the rich who don't need it,
but usually get it.  They don't want an "efficient" tax system because they can beat the current system.  Personally, I agree with you; accounting is all smoke and mirrors.

So don't worry about the truly rich; liberal or conservative; they always find a way to take care of themselves.

[Crafty_Dog]

"Further, regarding your high tax rates quote , , , my accountant friend laughed; his quote was "who pays that?""

JDN, I think you miss a key point here.  OF COURSE few people actually pay that!!!  The reason is that they jump through the tax code's inducements to invest in the places to which the government wishes them to invest a.k.a. their special interest friends.  THIS is one of the meanings of "public-private partnership" so often blathered about.  This is one of the faces of economic fascism. 

The net result is malinvestment and is an insidious and invidious destructive force acting upon the American economy.

[G M]

JDN,

I'm not worried that Warren Buffet will have to sell plasma to scrape by or that'll I'll see Bill Gates with a "will work for food" sign at a freeway overpass. When they get hit, they cut jobs for the "little people". Remember when the dems wanted to sock it to the yacht owners? Well, the rich still buy yachts, but the dems managed to kill off family owned ship building businesses in New England.

Obama's jihad on private planes and other new taxes would provide a whopping 10 days of tax revenue for the federal gov't. At the expense of how many jobs in the private sector?

[Crafty_Dog]

By MICHAEL J. BOSKIN
President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic "recovery" appearing more and more elusive, his timing couldn't be worse.

Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon.

The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers' share is ultimately shifted to workers in the form of lower wages.

But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.)

So, for a family in high-cost California taxed at the top federal rate, the expiration of the Bush tax cuts in 2013, the 0.9% increase in payroll taxes to fund ObamaCare, and the president's proposal to eventually uncap Social Security payroll taxes would lift its combined marginal tax rate to a stunning 58.4%.

But wait, things get worse. As Milton Friedman taught decades ago, the true burden on taxpayers today is government spending; government borrowing requires future interest payments out of future taxes. To cover the Congressional Budget Office projection of Mr. Obama's $841 billion deficit in 2016 requires a 31.7% increase in all income tax rates (and that's assuming the Social Security income cap is removed). This raises the top rate to 52.2% and brings the total combined marginal tax rate to 68.8%. Government, in short, would take over two-thirds of any incremental earnings.

Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050. And that's before accounting for the Laffer effect, likely future interest costs, state deficits and the rising ratio of voters receiving government payments to those paying income taxes.

It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO's projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages. At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.

Nobody—rich, middle-income or poor—can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States—a permanent difference many times the temporary decline in the recent recession and anemic recovery.

Some argue the U.S. economy can easily bear higher pre-Reagan tax rates. They point to the 1930s-1950s, when top marginal rates were between 79% and 94%, or the Carter-era 1970s, when the top rate was about 70%. But those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today.

There were also greater opportunities for sheltering income from the income tax. The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.

There is only one solution to this growth-destroying, confiscatory tax-rate future: Control spending growth, especially of entitlements. Meaningful tax reform—not with higher rates as Mr. Obama proposes, but with lower rates on a broader base of economic activity and people—can be an especially effective complement to spending control. But without increased spending discipline, even the best tax reforms are doomed to be undone.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.