Tax Policy

[G M]

http://hotair.com/archives/2012/11/13/just-so-were-clear-we-all-understand-these-tax-hikes-would-accomplish-zilch-right/

Just so we’re clear, we all understand these tax hikes would accomplish zilch, right?


posted at 2:41 pm on November 13, 2012 by Erika Johnsen
And I quote:

But as I’ve said before, we can’t just cut our way to prosperity. If we’re serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes. … That’s how we can reduce the deficit while still making the investments we need to build a strong middle class and a strong economy. …

Now, already, I’ve put forward a detailed plan that allows us to make these investments while reducing our deficit by $4 trillion over the next decade. I want to be clear: I’m not wedded to every detail of my plan. I’m open to compromise. I’m open to new ideas. I’m committed to solving our fiscal challenges.

But I refuse to accept any approach that isn’t balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me making over $250,000 aren’t asked to pay a dime more in taxes.
Yes, by all means, let’s be serious — and acknowledge that tax hikes on the wealthiest among us is not going to accomplish anything even remotely meaningful in terms of long-term deficit reduction. Talking about how expensive the two wars have been and ginning up populist resentments (Obama likes to add the “rich people like me” bit to fend off claims of class-warmongering, but the “fairness” implication is of course still there) while consistently failing to produce any concrete plans except on how the government can spend more money, is not a solution. The hit on economic growth that will come at the cost of steepening our already graduated income tax is a much less effective way of increasing revenue than the lowered taxes that would allow the economy to grow at a more robust rate and bring more people into the middle and upper tax brackets (and with the president’s proposed arrangements, we can count on more of the same economic stagnation that only adds people to the food stamp/unemployment benefits/etcetera welfare rolls and deepens our fiscal woe).

As Conn Carroll aptly reminds us, sure, the Congressional Budget Office has projected that allowing the Bush tax cuts to expire for the wealthy could bring in as much as $824 billion over ten years (which, given that it’s from the CBO, I’d wager is a somewhat rosy estimate). But when you put that in the context of, oh yeah, Obama’s been running up trillion-dollar deficits every year of his presidency, you can see what a hugely insurmountable problem this is.

I merely highlight this all again because this is what the lame-duck Congress that reconvened today has already started fighting about. President Obama can certainly talk a good game about being open to entitlement reform and compromise, rabble rabble rabble, but his declaration that “we cannot cut our way to prosperity” is just plain wrong. We can, and we should cut our way to prosperity — not because we want to take benefits away from people who currently need them, but because we want to create opportunities for people so that they don’t need those benefits anymore. This pattern of insanely frivolous government spending, as if the Obama administration somehow knows how to spend and allocate our money better than we do in bringing about economic growth, is not the answer.

But no matter, it’s all going to be pinned on those dastardly Republicans, no matter what happens. Oof.

[G M]

Wall Street Journal:  Obama Sets Steep Tax Target: President to Seek $1.6 Trillion More in Revenue, Double Level From 2011 Talks:

President Barack Obama will begin budget negotiations with congressional leaders Friday by calling for $1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011. ...

Kevin Smith, a spokesman for House Speaker John Boehner (R., Ohio), dismissed the president's opening position for the negotiations. He said Mr. Boehner's proposal to revamp the tax code and entitlement programs is "consistent with the president's call for a 'balanced' approach." ...

In negotiations between Messrs. Boehner and Obama in mid-2011, the two sides neared agreement on a plan to cut the deficit by $4 trillion over 10 years, including $800 billion in new revenue. The deal fell apart after Mr. Obama asked to raise the revenue component to $1.2 trillion, and to this day each side blames the other for the collapse. Based on that history, some senior GOP aides said they believed a likely compromise would call for about $1 trillion in new tax revenue, possibly from capping deductions for wealthier taxpayers.

[Crafty_Dog]

The President's Tax Math
We're beginning to think he wants to go over the cliff this year. .

'You know, the math tends not to work," declared President Obama at his Wednesday press conference, as part of his explanation for why closing tax loopholes for the wealthy wouldn't provide enough revenue for a budget deal. Ergo, he says, tax rates must go up immediately for those making more than $250,000 a year, even if this means sending the economy over the January 2013 tax cliff.

The President must be getting bad advice because his math is mistaken in two ways. He's wrong on the revenue arithmetic of limiting deductions, and he's also wrong in claiming that raising tax rates as he proposes would do much better.

Regarding deductions, we refer readers to an October 17 study, in which even the liberal economists at the Tax Policy Center report that capping all itemized deductions at $50,000 a year for each tax filer under current policy would yield $749 billion in extra revenue from 2013-2022.

Reducing the annual deduction cap to $25,000 would raise an additional $1.286 trillion over 10 years. Lower the cap still further to $17,000, as Mitt Romney once suggested during the campaign, and the revenue increase soars to $1.747 trillion by 2022. Our preference is that Republicans hold out to use this revenue to finance a reduction in tax rates as part of a larger tax reform, but similar math applies in any case.

It's important to note that these revenue estimates are based on static analysis, a Tax Policy Center specialty that doesn't consider changes in behavior. But then that's the same kind of static analysis that Mr. Obama is insisting on. It's important to note as well that these estimates apply to capping the itemized deductions of all taxpayers, not merely those who make more than $250,000.

But the liberal class warriors at the Tax Policy Center also did the math for the distribution tables for this deduction cap when they were trying to defeat Mr. Romney. And, lo, they found that the top quintile of income earners would pay 96.2% of the higher taxes if deductions were capped at $50,000. The top 1% of earners would pay 79.9% of the higher tax revenue from capping deductions, and the top 0.1% would pay no less than 48.4%.

In other words, the rich would still be soaked and the middle class would largely be spared. Is that enough tax fairness for you, Mr. President?

As for Mr. Obama's implication that higher tax rates will bring a revenue windfall, he is simply being disingenuous. The Joint Tax Committee's budget score of Mr. Obama's proposal to raise taxes on capital gains, dividends, and income above $200,000 while reinstating the PEP and Pease deduction phase-outs yields merely $823 billion over 10 years.

That's barely more than the $749 billion from capping deductions at $50,000 a year. And at an annual average of $82 billion a year in revenue, it's merely 7.5% of last year's $1.1 trillion federal budget deficit. And that's assuming no negative impact on revenues from slower economic growth due to higher tax rates on savings and investment. To borrow a phrase, "the math tends not to work."

All of which makes us wonder why Mr. Obama is so insistent on raising tax rates now, even if he can get nearly the same amount of revenue from reducing deductions. Here's one guess: He really doesn't care if there's a budget deal this year that avoids the tax cliff.

By taking an absolutist line, he's basically gambling that Republicans will be more reasonable than he is and will blink. But if they don't blink and we go over the cliff, from his point of view so what? Mr. Obama then has an excuse to blame Republicans if there's another recession. Meanwhile, he pockets the higher tax rates that take effect on January 1 anyway, and he can then negotiate a budget deal next year without having to make any tax concessions.

He pleases his left wing for which higher tax rates are a secular religion, while pinning one more defeat on Republicans. Lest you think this is a conservative fantasy, it's more or less the tax cliff strategy that Democratic Senator Patty Murray of Washington advocated on Sunday on ABC's "This Week" and that labor leaders lobbied for at the White House on Tuesday.

All of this also fits with Mr. Obama's latest line that any budget deal must raise taxes by $1.6 trillion, which is $800 billion more than he had privately agreed to with House Speaker John Boehner last year. It also fits with Mr. Obama's press conference remarks Wednesday in which he held out the vague promise of tax and entitlement reforms next year but pressed for immediate tax and spending increases this year. He's backing GOP leaders into a position they can't accept without a backbench revolt.

Meanwhile, in the real world, stocks took another dive on the President's remarks. The Dow fell 185 points, and it is now down 674 or 5% since Mr. Obama's re-election. The President is playing a game of political chicken with the economy.
=======================

WSJ: Tax the Young

By JOSEPH STERNBERG
My colleague Jason Riley noted yesterday that Mitt Romney scored terribly among voters aged 18-29—and the numbers are worse compared to previous Republican Presidential candidates. He's right to observe that in key respects, Republicans in general, and Mr. Romney in particular, had a serious messaging problem with that cohort. But there's one more point worth making about this demographic: In this cycle, "young people" consisted exclusively of folks who have never had to pay high tax rates.

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Supporters of President Obama at the White House on Election Night 2012.
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This year's 29-year-old voter was born in 1983. If he started work right out of college, he entered the work force in 2001; if she went to college, the soonest she started a full-time job was 2005. Voters younger than 29 have started working (those of them who can find jobs, anyway) even later. This means that at no time have these voters been working when the Bush tax rates were not in effect. No wonder they're enthusiastic about high government spending and not terribly concerned about that tax implications: They've never experienced the greedy hand of government reaching more deeply into their pockets.

This dynamic might help explain previous youth results for Republicans that were more favorable. A voter who was 29 years old in 2004 had been born in 1975, might have had early memories of sitting in her parents' car in a gas line, and, if a college grad, had entered the work force in 1997. At the older end of the 18-to-29 cohort in 2004, you had workers who had been in the labor force for about seven years, long enough to have started enjoying salary increases that brought those workers into tax brackets where the Bush tax cuts made a real difference.

As Jason notes, Ronald Reagan and George H.W. Bush both won the youth vote in 1984 and 1988, respectively. A 29-year-old in 1984 had been born in 1955 and came of working age in the depths of the Carter malaise. A 1988 29-year-old would have first hit the job market in 1982 or before, when tax rates were still higher and the economy in the pits, and would have seen the benefits both personally and broadly of the Reagan tax cuts.

This isn't to say that the youth vote is solely motivated by economic concerns—young people do tend to be more idealistic, after all. But it seems fair to say that this electoral cycle was marked by the participation of a fairly significant cohort of voters who think they know a lot about the benefits of government spending but have little experience of the costs associated with it. If there's a silver lining to any increase in tax rates as a result of fiscal cliff negotiations, is that Barack Obama's youth base will get a useful lesson in cause and effect.

[G M]

http://soaktherich.us/

If you win, please email the white house.

[DougMacG]

Is it counter-intuitive?  Why is this so hard to understand much less explain?
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Stephen Moore: Why Lower Tax Rates Are Good for Everyone
If we want millionaires to pay more taxes, then we need an economy where there are more millionaires.

By STEPHEN MOORE  (WSJ) 11/15/2012

President Obama on Wednesday announced that any budget deal must include $1.6 trillion from higher taxes. "When it comes to the top 2%," he said, "what I'm not going to do is to extend further a tax cut for folks who don't need it." He argued that we are never going to get anywhere near balancing the budget without more revenue from people earning above $250,000 a year.

He's probably right about that, though not in the way he intends. The country needs an economy that will create more of the "millionaires and billionaires" that Mr. Obama loves to excoriate, not more taxes from those who already exist. Total taxes paid by millionaires fell by almost $100 billion between 2007 and 2010, the last year with statistics available from the Internal Revenue Service. The drop resulted not from too-low tax rates, but from the severe recession and an anemic recovery since 2009 that thinned the ranks of the wealthy.
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Editorial board member Steve Moore on the GOP's stand-off with President Obama over raising taxes. Photo credit: Getty Images.

If Mr. Obama wants the Warren Buffetts and Justin Biebers to shoulder more of the nation's tax burden, he would do well to pay attention to the history of tax rates. Over the past century, lower rates have shifted the tax burden onto high-income earners and away from the middle class while maintaining the tax code's progressivity.

Let's start with the 1920s. All tax rates were cut during the Calvin Coolidge administration, including the top rate, which fell to 25% from the World War I high of 73%. Between 1923 and 1928, benefited by lower tax rates, the economy surged, raising incomes and living standards for the middle class. Tax collections in real terms nearly doubled—and the share of taxes paid by those who made more than $100,000 a year (more than $1 million today) increased to 51% from 28%.

The top tax rate rose to 63% in 1932, to 79% in 1936, and to 90% during World War II. The higher rates persisted after the war, and while the economy grew as the government's economic role ebbed, high rates generally helped to hold back the pace of growth.

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Tax rates weren't reduced much until the Kennedy administration. JFK cut rates by about 30% for every income group. He argued that the lower tax rates would "boost the economy, produce revenues, and achieve a future budget surplus." He even called lower rates "an investment in the future."

The Kennedy tax cut was enacted in 1964 (after JFK's assassination), lowering the highest tax rate to 70% from 91%. His prediction that the economy would surge was validated by rapid growth every year from 1965 through 1968. Tax collections grew by 8.6% per year and unemployment fell to 3.4%. "The unusual budget spectacle of sharply rising revenues following the biggest tax cut in history," announced a 1966 U.S. News and World Report article, "is beginning to astonish even those who pushed hardest for tax cuts in the first place."

Americans earning over $50,000 per year (the equivalent of about $250,000 today) increased their tax payments by nearly 40% after the rate cut, according to a report from the Joint Economic Committee of Congress. Their share of overall taxes paid rose to almost 15% in 1966 from 12% in 1963. Americans with an income of more than $1 million nearly doubled their tax payments to $603 million in 1965 from $311 million in 1962.

President Reagan cut all tax rates across the board in his first term, with the highest rate reduced to 50% from 70%. That was followed a few years later with the 1986 Tax Reform Act, which closed loopholes and lowered the top tax rate to 28%.

The economy soared in the 1980s and the unemployment rate plunged after the mini-depression of 1978-82. Tax rates fell but federal revenues rose to $1.032 trillion in 1990 from $517 billion in 1980.

Taxes paid by the wealthiest Americans facing the highest marginal tax rates increased every year during the 1980s expansion. Meanwhile, the share of total income taxes paid by the top 1% rose to 25% in 1990 from 18% in 1981. The wealthiest 5% of Americans saw their tax share rise to 44% from 35%. The surge in revenues was the result of prosperity that was largely spurred by tax-rate cuts. The increase in government deficits during that period, on the other hand, was due to higher federal spending.

In 2003, President George W. Bush signed legislation that cut the top income tax rate to 35% from 39.6% and cut taxes on capital gains, too. Federal tax revenues surged by a record $780 billion from 2003-07, when the housing bubble collapsed. And once again, the rich paid more tax, not less. The share of taxes paid by the top 1% rose to 41% in 2007 from 35% in 2003. Tax payments by millionaires doubled from 2003 to 2007 because there were more millionaires and their before-tax incomes rose rapidly.

It is also true that when Bill Clinton raised tax rates in the 1990s, the economy boomed and the share of taxes paid by the rich increased. But the otherwise depressive effect of higher tax rates was counteracted by the lighter burden of government on the private sector—federal spending declined to 18% of GDP in 2000 from 22% in 1993.

A cut in spending is the economic equivalent of a cut in taxes now, or later. This point is effectively conceded by Mr. Obama demanding that his spending and borrowing binge of the past four years must be paid for by a giant increase in taxes over the next decade.

Some liberals acknowledge these fiscal facts of life but argue that tax revenues from the wealthy increased simply because the rich got richer. And so they did. But the economic growth that was touched off by lower tax rates, particularly in the 1960s and 1980s, also benefited middle-class incomes and living standards. If Mr. Obama has his way and raises tax rates on upper-income groups, it will slow the economy, and everyone will lose.

[Crafty_Dog]

Grover Norquist: Washington Enemy No. 1 The man who enforces the no-new-taxes pledge is under fire like never before. Why he still expects Republicans will hold the line.
By STEPHEN MOORE
Washington

'No one is caving," Grover Norquist says emphatically and repeatedly when we meet this week in his office in the nation's capital. By "no one" he means congressional Republicans, and by "caving" he means surrendering to Barack Obama's call for tax increases. Republicans are facing an avalanche of pressure from the White House, the media and even many on Wall Street to abandon their antitax principles to avoid a "fiscal cliff."

Mr. Norquist, who runs the influential advocacy group Americans for Tax Reform, finds himself smack in the middle of the political fight in Washington over whether taxes will rise on investors and businesses next year, a move he believes would cripple the Republican Party and could plunge the economy into another recession.

He rattles off a list of reasons Republicans won't give in. If taxes rise on everyone next year because of a stalemate, he says, "who are you going to believe wants taxes to go up? Obama doesn't have credibility on keeping your taxes down; Republicans do."

And don't forget: "Nothing has changed on the chess board since Barack Obama agreed to extend all the Bush tax cuts two years ago. Exactly the same players. Republicans still control the House and Democrats still control the White House and the Senate." Then he delivers the clincher: "For 20 years Democrats have tried over and over to trick Republicans into breaking the pledge. It hasn't happened. This isn't my first rodeo."

I'm not nearly as optimistic that Republicans won't capitulate in the weeks ahead, but this is quintessential Grover, one of the few people in Washington known by friend and foe alike by his first name. In the 25 years I've known him, the man is always upbeat and the glass is always half full, even apparently now, following the GOP's demoralizing election defeat. He's forever plotting the next move or counteroffensive against "the other team," i.e., the Democrats.

His political leverage comes from his famous "taxpayer protection pledge," which asks politicians to promise they won't raise taxes. It has become GOP dogma since 1990, when George H.W. Bush broke his "read my lips" no-new-taxes promise and then lost his bid for a second term.

Mr. Norquist has spent his career making sure this mistake never happens again. He has been amazingly successful. Since 1993, there hasn't been a major tax increase in Washington with the exception of the 2010 ObamaCare law—which not a single Republican voted for. For 20 years, every Republican presidential nominee, most GOP governors, and almost all Republican Senate and House candidates have signed the pledge. He sees the pledge as embedded in the Republican brand: "It's a constant reminder to voters, 'Oh yeah, Republicans are the ones who won't raise my taxes.' "

The pressure on Republicans to repudiate this oath has never been as intense as it is now. Mr. Obama is claiming a voter mandate to raise taxes, while the media and liberals are declaring that the days of "Norquistism," as they derisively call it, are over. A New York Times story this week claimed that more Republicans are ready to violate the pledge. After the 2011 debt-ceiling debacle, the election losses and the prospect of getting blamed for going over the fiscal cliff, the conventional wisdom is that the GOP has no choice but to fold.

Mr. Norquist insists that this won't happen because Republicans who think Mr. Obama or Senate Majority Leader Harry Reid are ever going to agree to cut domestic spending or reform entitlements are "chasing imaginary unicorns."

The scare talk about financial Armageddon if Republicans won't raise taxes is "a completely invented crisis. Republicans can't allow themselves to be TARPed again," he warns. By this he means that the fiscal cliff is a replay of the tactic Washington and Wall Street used in late 2008 to bully Republicans into passing the $700 billion bank bailout.

"The world won't come to an end if this isn't resolved before January," Mr. Norquist says. Part one of his strategy is "for House Republicans to pass a bill now to extend all the tax cuts for everyone . . . so everyone knows that their tax bill won't be going up" in 2013.

Part two is for Republicans to demand that all negotiations with the White House take place in front of C-Span cameras. That makes sense because history proves that Republicans get snookered behind closed doors, and public negotiations allow voters to see what Democrats are really offering. He also wants any compromise to be available at least seven days before a House and Senate vote.

Mr. Norquist is unbending in his conviction that the only option for raising revenues and staying true to the pledge is through pro-growth reform. "Any deal now that closes loopholes," he figures, "is the destruction of tax reform." Why? Because "any dollar taken out of credits and deductions and then spent by Congress is not a dollar you can use for tax reform and cutting tax rates later."

I ask why the Democrats and the left are so obsessed with burying his tax pledge. Mr. Norquist replies that their main goal is not to lower the deficit or avoid a stock-market selloff. Rather, "Democrats want to spend and spend and spend. Obama did that with the stimulus, TARP II, ObamaCare. But they desperately need Republicans to validate that spending by raising taxes. Republicans could be counted on to do that when they were a minority party in the 1950s, '60s and '70s, and during two momentary lapses in 1982 and 1990." The Republicans became, as Jack Kemp used to put it, "the tax collectors for the welfare state."

Mr. Norquist adds that "even more than getting more revenues, they want Republican fingerprints on tax increases so they can smash Republicans in the next series of elections."


I remind Mr. Norquist that the election exit polls show that voters, for the first time in two decades, favor higher taxes on the rich. He winces at the mere suggestion but says that voters understand that their own taxes will increase as well. He paraphrases a 2011 Rasmussen poll question: "If they are going to raise taxes on the rich, do you believe, at the end of the day, they'll actually raise taxes on the middle class and you? Yes, 75%. So do you think voters really believe that they're dodging a bullet [by taxing the rich] or do they believe they're next?"

Mr. Norquist wants Republicans to reinforce this message, educating voters that higher taxes on the rich are "pure acts of symbolism." Democrats can't raise enough money to make even a dent in the deficit with their tax hike. The Obama budget "calls for $8 trillion of deficits, after he's extracted all these new taxes. This is why the Democrats will say, 'Oh, sorry, we didn't solve the problem, now we have to raise taxes on you.' "

How will they do that? Mr Norquist says that after Democrats get the tax hike on the rich, they'll go "straight toward an energy tax or a value-added tax." This is the only way "you get to a European size of government."

Are Republicans defecting from the taxpayer protection pledge? Sounding exasperated, he says, yes, a few are having "impure thoughts. But the media keeps interviewing the same five or so Republicans in Congress who want to cut a deal."

He notes that "every day last year the press was reporting some Republican who was willing to raise taxes in return for a hypothetical revamping of all our retirement programs. And for eight months, people like [Oklahoma GOP Sen. Tom] Coburn sat in rooms with [Illinois Democratic Sen. Richard] Durbin and what'd they find out? There was no spending restraint. There was no fundamental reform. And so even the ones who had impure thoughts about raising taxes in return for cuts got nowhere."

Have Republicans called to ask if they can break the pledge? "No, none," Mr. Norquist replies. He says 200 House Republicans have signed the pledge and at least 20 more have campaigned on not raising taxes. Of the three Senate Republicans who may vote for higher taxes—Lindsey Graham of South Carolina, Saxby Chambliss of Georgia and Tennessee's Lamar Alexander—all are up for re-election in 2014 and they "like being senators."

So what is the way out of this debt crisis? Mr. Norquist advises GOP leaders that the best outcome for 2013 is to "take the sequester." These are real across-the-board cuts of about $1.2 trillion over the next decade that start to take effect in January.

Many Republicans and military experts say the cuts could be catastrophic for national security. But Mr. Norquist agrees with the many House Republicans who say that "the only thing worse than sequester cuts is to not cut spending at all."

Will Republicans take the sequester? "I believe they will at the end of the day, though they should offer the defense secretary more flexibility in making the cuts," he says. "This is just much better than raising taxes." Then they should abide by the "Boehner rule"—as in House Speaker John Boehner—which requires that every dollar increase in the debt ceiling is accompanied by a dollar of spending cuts.

The question is whether any of this is politically realistic. Mr. Boehner has already put "revenues" on the table, presumably even if tax rates don't decline. Mr. Norquist says Republicans should tough it out even if it means going over the tax cliff, pass a bill one more time to extend current tax rates in January, and then Mr. Obama will be the one to bend and sign it.

But what if the president doesn't sign such a bill—and then blames Republicans for the fallout and demands that they pass a tax cut only for those below $250,000 in income? Would that violate the pledge? "That's not for me to decide," he replies. "Republicans will have to go to the American people and they will decide whether this was acceptable." He also adamantly denies wanting to go over the fiscal cliff. "If we do go over, it's the president's fault."

What is the political fallout if Republicans do break the pledge, which Mr. Norquist defines as voting for any net tax increase? He says the pledge is a commitment to the people of their district, state and country—not to him. If Republicans break their word, "They are saying, 'I was elected under false pretenses because I misled you about what I would do.'"


He then recites his favorite political story. "George Herbert Walker Bush managed the collapse of the Soviet Union, kicked Iraq out of Kuwait, had a 90% approval rating, however he agreed to a tax-increase deal [consisting of] two dollars of spending cuts for every one dollar of taxes. And he lost the presidency. Republicans who raise taxes have a hard time explaining to anybody other than a congenital Republican why you should elect them."

But Mr. Norquist is always happier talking about the carrot than the stick. "I feel very comfortable with where the Republican leaders are right now," he says. "We are infinitely stronger than we were two and four and 10 years ago as a Republican Party. We should be much more confident. We should emphasize growth and do a better job spreading the message to all voters. Explaining to people why tax increases are bad for the economy—that should be child's play."


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

[G M]

http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?_r=1&adxnnl=1&ref=opinion&adxnnlx=1353352104-jo1N6MA2hGfglRfi/5Zv2A&

Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”

Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.

[Crafty_Dog]

Indeed, notice that number, it is .01% i.e. 1/100 of the 1% that Baraq is going after.   In other words, Krugman is blowing right by the point at which those rates kick in.  Also noteworthy is that revenues went up under the Kennedy tax RATE cuts from those levels, as they did after the Reagan RATE cuts.

Also, there are a plethora of additional taxes that did not exist in Eisenhower's day.

[G M]

Hasn't Kalifornia taxed it'self into prosperity yet? We should all try it!

[DougMacG]

How about we first establish a MAXIMUM tax of all levels of government, federal, state and local, on any dollar income legally earned in the United States of America.

Secondly, let's pass the Buffet law retroactively and in its implementation prosecute this pretend policy expert for tax evasion.

We are no longer, FYI to Buffet, competing in a 1950s global economy.  .01% of the people paying the top rate, rounded, means that no one in their right mind paid those rates.  We have the highest corporate rates in the world.  Most personal rate analyses exclude that.

Buffet says investors won't pass up an investment because of a tax rate.  More relevant would be to measure what percent and total time and resources producers take away from productive activities to put into high marginal tax rate compliance and avoidance. 

The rate of new business startups is at a 40 year low, taking us back to the Jimmy Carter hangover.  Tax rates are only part of the war against business growth success.  We need far more, not fewer, businesses to start today, tomorrow and the next day and grow into billion dollar businesses, employing thousands and enriching people along the way.  Punishing wealth and achievement does what to further that aim?  NOTHING.
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http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html?ref=todayspaper

A Minimum Tax for the Wealthy
By WARREN E. BUFFETT
Published: November 25, 2012

SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.

And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.

The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.

This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.

Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.

Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

But the reform of such complexities should not promote delay in our correcting simple and expensive inequities. We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.

All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path. Nothing less is acceptable.

In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.

[G M]

"And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion"

Cool. So if we take all their assets, we'll cover federal spending this year!

[DougMacG]

"And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion"

Cool. So if we take all their assets, we'll cover federal spending this year!

The Chavez plan.  Don't think it wasn't considered.  I would say 5 months and change, one time only.  Then what?

Another measure might be to close all their businesses, cut off all their spending and investing, and see how that affects the incomes of Obama's class warrior voters.

[G M]

"And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion"

Cool. So if we take all their assets, we'll cover federal spending this year!

The Chavez plan.  Don't think it wasn't considered.  I would say 5 months and change, one time only.  Then what?

Another measure might be to close all their businesses, cut off all their spending and investing, and see how that affects the incomes of Obama's class warrior voters.

The big crash is the only thing that can penetrate the layers of stupid built up in this country.

[Crafty_Dog]

" The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust. , , , A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places."

Let's do a little casual math here.

Wealth increased 567%.  Assusming that income and gains increased similalry and combine that with tax rates dropping roughly 20%, then revenues to the Federal government from the wealthy increased roughly 80% of 467%, which is one heck of an increase.   

Sounds like a solution in search of a problem to me.

[Crafty_Dog]

The Foundation
"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." --John Marshall
Editorial Exegesis
 
Why is the answer so hard?

"One of the more amazing post-election spectacles is the media celebration of Republicans who say they're willing to repudiate their pledge against raising taxes. So the same folks who like to denounce politicians because they can't be trusted are now praising politicians who openly admit they can't be trusted. The spectacle is part of what is becoming a tripartisan ... attempt to stigmatize Grover Norquist as the source of all Beltway fiscal woes and gridlock. Mr. Norquist, who runs an outfit called Americans for Tax Reform, is the fellow who came up with the no-new-taxes pledge some 20 years ago. He tries to get politicians to sign it, and hundreds of Republicans have done so. He does not hold a gun to their heads. Grover's ... apparent crime against Washington is that he now actually wants to hold politicians to what they willingly signed. If enough Republicans will disavow their tax pledge, then the capital crowd can go about agreeing to a grand fiscal bargain that raises taxes, pretends to cut spending and avoids the January 1 fiscal crack-up that the politicians have set us up for. Voters are supposed to believe that only Grover stands in the way of this happy ever-after. ... The truth is that Mr. Norquist doesn't have such power. The voters do. Mr. Norquist merely had the wit to channel the electorate's limited government beliefs into a single-issue enforcement mechanism. ... The real problems are a political class that won't control its spending and economic policies that are retarding growth. That's where the GOP should keep its public focus. Mr. Norquist's tax pledge has been one of the few restraints over the years against those bad Beltway appetites. Democrats demonize Grover because they know this. They want to pit Mr. Norquist against other Republicans precisely so they can dispirit the tea party grass-roots and take away the tax issue as a GOP advantage. Republican voters know that elections have consequences and that Mitt Romney's defeat means there will be policy defeats too. But they will give the House and Senate GOP credit if it fights for its principles and drives a hard bargain." --The Wall Street Journal



"f the Democrats are really serious about soaking the rich, why don't they come out in favor of replacing the income tax -- which is basically a mechanism to prevent the upper-middle class from becoming wealthy -- with a wealth tax? Holders of great family fortunes can easily live off their inheritances, with no taxable 'income' whatsoever, but imagine if the Kennedys, the Rockefellers, and those who grabbed the swag by marrying the widow of a rich Republican senator, were forced to cough up a sizable percentage of their estates to the feds each year. Then you'd see real tax reform, and in a hurry." --columnist Michael Walsh

"[R]aising taxes would result in less economic activity, not more. Herein lies the key to understanding why the left wants higher taxes for 'the rich.' To the rich-should-pay-more crowd, the question of whether raising taxes hurts economic growth is less important than the issue of 'fairness.' ... Andy Stern, the former head of the Service Employees International Union, the fastest-growing American union, describes the economic philosophy of the left: If raising taxes on 'the rich' hurts the economy, that is an acceptable price. 'Western Europe,' says Stern, 'as much as we used to make fun of it, has made different trade-offs which may have ended with a little more unemployment but a lot more equality.' Any questions?" --columnist and radio talk-show host Larry Elder

"The Left misunderstands conservatives when it believes the argument over tax rates is an argument about greed -- that wealthier Americans simply want to grab all the money we can. In fact, many of the top 5 percent are among the most generous people in the world; they just tend to give their money to charities that actually produce results. Leaving aside -- for the moment -- the increasingly inverse correlation between taxation and individual liberty (a crucial consideration all its own), we conservatives look at the vast bureaucratic beast with a sense of utter futility. We opt out of government projects and seek personal independence in part because we see government fail time and again -- and not for lack of resources. For millions, government is less 'the thing we do together' than it is the 'monster inflicted upon us,' and the taxes we pay are less a contribution to the well-being of the community than a ransom payment to keep the monster away from our door." --columnist David French

[objectivist1]

Pro-Islamist Losing Grip on Republican Party

Arnold Ahlert - November 28, 2012 - www.radicalislam.org

Anti-tax promoter Grover Norquist is losing his vice-like grip on the Republican party. The head of Americans for Tax Reform, who as recently as last year counted 238 members of the House and 41 members of the Senate among those who had signed his anti-tax pledge, has seen those numbers decline to 217 in the House, one shy of the 218 needed for a majority, and 39 in the Senate.

Both totals represent an all-time low. Last Wednesday, Senator Saxby Chambliss (R-GA) disavowed his pledge not to raise taxes, even as he acknowledged doing so could hurt his reelection chances in 2014. ”I don’t worry about that because I care too much about my country,” he said. “I care a lot more about it than I do Grover Norquist.” Americans might not like seeing their taxes go up, but Grover Norquist’s fall from grace has its benefits: As he goes down, so goes his pro-Islamist agenda.

That agenda was laid bare by Rep. Frank Wolf (R-VA) in a speech on the House floor, October 4, 2011. “My conscience has compelled me to come to the floor today to voice concerns I have with the influence Grover Norquist, the president of Americans for Tax Reform, has on the political process in Washington,” said Wolf. “My issue is not with ATR’s goal of keeping taxes low ... My concern is with the other individuals, groups and causes with whom Mr. Norquist is associated that have nothing to do with keeping taxes low.”

Wolf mentioned Norquist’s “association and representation” of terrorist financier and vocal Hamas supporter Abdurahman Alamoudi and terrorist financier Sami Al-Arian.

In 2004, Alamoudi, one of the most prominent and influential Muslim Brothers in the United States, was sentenced to 23 years in prison for supporting terror. Alamoudi, a self-described supporter of Hamas and Hezbollah, had cultivated ties with the Clinton White House that eventually enabled him and his associates to select, train and certify Muslim chaplains for the U.S. military.

Fearing a loss by Al Gore in the 2000 presidential election, Alamoudi befriended Norquist to ensure his access to senior levels of the U.S. government would be maintained if Republicans took charge. He gave Norquist $20,000 to establish the Islamic Free Market Institute and Alamoudi’s longtime deputy, Khaled Saffuri, became the founding director.

Norquist and Saffuri eventually became an integral part of the Bush administration’s Muslim outreach efforts during the 2000 campaign, with Saffuri named as Muslim Outreach Coordinator. During that campaign, Bush was also introduced to Sami Al-Arian. In 2006, Al-Arian was sentenced to 57 months in prison after pleading guilty to conspiracy to provide support to the Palestinian Islamic Jihad (PIJ).

Wolf illuminated the bigger picture of that relationship, noting that Norquist was an “outspoken supporter of Al-Arian’s effort to end the use of classified evidence in terror trials.”

Al-Arian ran the National Coalition to Protect Political Freedom (NCPPF), and Norquist supported their efforts to weaken or repeal the Patriot Act as well, despite the terrorist atrocities perpetrated on 9/11.

Wolf also revealed that Norquist “was scheduled to lead a delegation to the White House on September 11, 2001, that included a convicted felon and some who would later be identified by federal law enforcement as suspected terrorist financiers.” One of the members of that delegation was Omar Ahmed, co-founder of the Council on American-Islamic Relations (CAIR). CAIR was named an un-indicted co-conspirator when the Holy Land Foundation was convicted of sending million of dollars in funding to Hamas and other Islamic terrorist organizations.


 
Another relationship Norquist cultivated was with Suhail Khan, who has ties to a variety of Islamist movements. Khan’s father, the late Mahboob Khan, was a member of the Muslim Brotherhood and one of the founders of the Muslim Students Association (MSA), whose anti-Semitic activities at American colleges has been documented on numerous occasions, including their latest attempt to organize a divestment campaign against Israel at the University of California, Irvine.

In 2007, Norquist promoted Suhail Khan’s candidacy for election to the American Conservative Union’s (ACU) board of directors. He was subsequently appointed. In 2012, at an irregular meeting of that organization, the board voted to dismiss accusations made against both Khan and Norquist by Frank Gaffney, head of the Center for Security Policy and a former defense official in the Reagan administration.

Gaffney has been hammered by the ACU and others for suggesting that the influence of the Muslim Brotherhood reached the highest levels of the U.S. government despite the reality that it was Gaffney who drew attention to Abdurahman Alamoudi and Sami Al-Arian, both of whom ended up as convicted felons for their terrorist activity. Yet it is Gaffney’s credibility that has been called into question for daring to draw attention to Norquist’s unseemly activity.

Wolf also pointed out that Norquist was “an outspoken advocate for moving Guantanamo Bay detainees to the United States,” and “led a public campaign to undermine Republican-led efforts to block the Obama Administration’s transfer of 9/11 mastermind Khaled Sheik Mohammed to New York City” in 2009.

In 2010, Norquist inserted himself into the Ground Zero Mosque controversy, which he characterized as a “Monica Lewinsky ploy,” distracting from the core Republican message heading into the 2010 elections. Yet according to Wolf, Norquist “used Americans for Tax Reform to circulate a petition in support of the ‘Ground Zero Mosque’” completely undermining his own contention that the issue was a distraction.

For years, Grover Norquist’s reputation as a staunch anti-tax advocate has overshadowed his dubious associations with Islamists, and anyone who has dared to criticize him for those associations has drawn rebuke from both sides of the aisle.

Thus, it is more than a little ironic that his ability to influence Republicans with respect to taxes is waning, even as Islamists, most notably Mohammed Morsi and the Muslim Brotherhood, who are attempting to establish a dictatorship in Egypt, are becoming ever more powerful.

Sen. Chambliss isn’t the only Republican distancing himself from Norquist. House Speaker John A. Boehner (R-OH) has referred to him as “some random person.” Sen. John McCain (R-AZ) noted that “fewer and fewer people are signing this, quote, pledge.” Sen. Tom Coburn (R-OK.) called the pledge a “tortured vision of tax purity.” House newcomer Rep. Ted Yoho, (R-FL), who declined to sign the pledge, was sarcastic. “I’ll pledge allegiance to the flag. I’ll pledge to be faithful to my wife,” he quipped.

Yet it was Rep. Peter King (R-NY) who best summed up the growing rebellion. “A pledge is good at the time you sign it,” he said. “In 1941, I would have voted to declare war on Japan. But each Congress is a new Congress. And I don’t think you can have a rule that you’re never going to raise taxes or that you’re never going to lower taxes. I don’t want to rule anything out.”

Republicans can resist raising taxes without signing a pledge should they choose to do so for the good of the nation. Yet without the pledge Grover Norquist has long wielded like a hammer, his leverage among Republicans is precipitously diminished. Considering his dubious ties to Islamists and their agenda, that’s more than a reasonable tradeoff.

Arnold Ahlert is a former NY Post op-ed columnist. He may be reached at atahlert@comcast.net

Copyright © 2009 Clarion Fund, Inc. All rights reserved.

[Crafty_Dog]

Costco's Dividend Tax Epiphany
Obama's fans in the 1% vote to beat Obama's tax increase..
 
When President Obama needed a business executive to come to his campaign defense, Jim Sinegal was there. The Costco COST -0.68%co-founder, director and former CEO even made a prime-time speech at the Democratic Party convention in Charlotte. So what a surprise this week to see that Mr. Sinegal and the rest of the Costco board voted to give themselves a special dividend to avoid Mr. Obama's looming tax increase. Is this what the President means by "tax fairness"?

Specifically, the giant retailer announced Wednesday that the company will pay a special dividend of $7 a share this month. That's a $3 billion Christmas gift for shareholders that will let them be taxed at the current dividend rate of 15%, rather than next year's rate of up to 43.4%—an increase to 39.6% as the Bush-era rates expire plus another 3.8% from the new ObamaCare surcharge.

Enlarge Image


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Associated Press
 
Vice President Joe Biden, left, standing next to Costco co-founder Jim Sinegal, right, in Washington on Thursday.
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More striking is that Costco also announced that it will borrow $3.5 billion to finance the special payout. Dividends are typically paid out of earnings, either current or accumulated. But so eager are the Costco executives to get out ahead of the tax man that they're taking on debt to do so.

Shareholders were happy as they bid up shares by more than 5% in two days. But the rating agencies were less thrilled, as Fitch downgraded Costco's credit to A+ from AA-. Standard & Poor's had been watching the company for a potential upgrade but pulled the watch on the borrowing news.

We think companies can do what they want with their cash, but it's certainly rare to see a public corporation weaken its balance sheet not for investment in the future but to make a one-time equity payout. It's a good illustration of the way that Federal Reserve Chairman Ben Bernanke's near-zero interest rates are combining with federal tax policy to distort business decisions.

One of the biggest dividend winners will be none other than Mr. Sinegal, who owns about two million shares, while his wife owns another 84,669. At $7 a share, the former CEO will take home roughly $14 million. At a 15% tax rate he'll get to keep nearly $12 million of that windfall, while at next year's rate of 43.4% he'd take home only about $8 million. That's a lot of extra cannoli.

This isn't exactly the tone of, er, shared sacrifice that Mr. Sinegal struck on stage in Charlotte. He described Mr. Obama as "a President making an economy built to last," adding that "for companies like Costco to invest, grow, hire and flourish, the conditions have to be right. That requires something from all of us." But apparently $4 million less from Mr. Sinegal.

By the way, the Costco board also includes at least two other prominent tub-thumpers for higher taxes— William Gates Sr. and Charles Munger. Mr. Gates, the father of Microsoft's MSFT -1.50%Bill Gates, has campaigned against repealing the death tax and led the fight to impose an income tax via referendum in Washington state in 2010. It lost. Mr. Munger is Warren Buffett's longtime Sancho Panza at Berkshire Hathaway BRKB -0.34%and has spoken approvingly of a value-added tax that would stick it to the middle class.

Costco's chief financial officer, Richard Galanti, confirms that every member of the board is also a shareholder. Based on the most recent publicly available data, they own more than 4.1 million shares and more than 1.3 million options to purchase additional shares. At $7 a share, the dividend will distribute roughly $29 million to the board, including Mr. Sinegal's $14 million—at a collective tax saving of about $8 million. Even more cannoli.

We emailed Mr. Sinegal for comment but didn't hear back. Mr. Galanti explained that while looming tax hikes are a factor in the December borrowing and payout, so are current low interest rates. Mr. Galanti adds that the company will still have a strong balance sheet and is increasing its capital expenditures and store openings this year.

As it happens, one of those new stores opened Thursday in Washington, D.C., and no less a political star than Joe Biden stopped by to join Mr. Sinegal and pose for photos as he did some Christmas shopping. It's nice to have friends in high places. We don't know if Mr. Biden is a Costco shareholder, but if he wants to get in on the special dividend there's still time before his confiscatory tax policy hits. The dividend is payable on December 18 to holders of record on December 10.

To sum up: Here we have people at the very top of the top 1% who preach about tax fairness voting to write themselves a huge dividend check to avoid the Obama tax increase they claim it is a public service to impose on middle-class Americans who work for 30 years and finally make $250,000 for a brief window in time.

If they had any shame, they'd send their entire windfall to the Treasury

[objectivist1]

How is Warren Buffett Wrong on Tax Hikes?

Heritage Foundation - November 30, 2012.

Let’s talk taxes. In a New York Times op-ed yesterday, famed investor and Berkshire Hathaway CEO Warren Buffett once again argued that the wealthy should be taxed more.

This isn’t the first time Buffett has made the case for higher taxes, and it’s not the first time he’s been wrong. Here are four reasons he is wrong to push for tax hikes.

1. Buffett says tax hikes won’t hurt jobs.

Fact: Tax hikes, especially those he espouses, hurt jobs.

Buffett cites periods when tax rates were high and says that “Under those burdensome rates,” employment “increased at a rapid clip.”

This country has an employment problem right now, and tax rates aren’t even as high as Buffett wants. The tax increases President Obama champions would hit small businesses that create jobs. According to Treasury figures, 1.2 million Americans who employ people are paying their taxes through the individual income tax, and they would be hit head-on. The amount that their taxes would go up could be roughly equivalent to one employee’s salary, meaning that’s one person they can’t hire in the new year. A study by Ernst and Young estimates that these tax hikes would kill 710,000 jobs.

2. Buffett says tax hikes won’t stop investors from investing.

Fact: Any time you tax something, you get less of it.

Buffett says: “So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if—gasp—capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.”

Let’s think about what taxes are intended to do. The cigarette tax is intended to curb smoking. Proponents of a carbon tax want to curb the amount of carbon emissions we are producing. In Washington, D.C., a plastic bag tax is intended to curb the number of plastic bags people use.

When you tax something more, people do less of it. This is how taxes work. It doesn’t change because the behavior being taxed is investing rather than smoking.

3. Buffett says the wealthy aren’t even paying a minimum tax.

Fact: We already have an Alternative Minimum Tax.

Buffett says, “We need Congress, right now, to enact a minimum tax on high incomes.”
We already have this. It’s called the Alternative Minimum Tax. As Heritage’s Curtis Dubay explains:

Congress passed the Alternative Minimum Tax (AMT) in the early 1970s to ensure that a few high-income taxpayers did not reduce their tax liability too much by taking advantage of all the deductions, exemptions, and credits Congress put in the tax code. But Congress did not index for inflation the income threshold over which families qualify for this extra tax. So now Congress must annually “patch” the AMT by raising the threshold to correct this mistake. Even with the patch, the AMT still ends up falling on almost 4 million taxpayers; Congress initially intended for it to hit only a few hundred.

The top 10 percent of earners in the United States already pay more than 70 percent of federal income taxes. To move forward in this debate, those who argue that we just need to “tax the rich” will have to get real. We can’t close the budget deficit by taxing the rich. Even though Buffett also claims…

4. Buffett says we need to raise taxes to bring in more revenue for the government.

Fact: The problem is government spending, not government revenue.

Buffett says, “Our government’s goal should be to bring in revenues of 18.5 percent of [gross domestic product] and spend about 21 percent of G.D.P.”
Revenues are lower now today than normal, not because of tax rates, but because of the slow-growing economy. As the economy recovers, so will revenues. And they will continue to grow as the economy thrives. Why? Because more people are investing, saving, working, and enjoying higher wages. The nifty little benefit for the government of a strong, growing economy is that people pay more in taxes.

But on to spending. The White House already estimates that federal spending will be 23.1 percent of GDP this year—well above Buffett’s target. But, unlike taxes—which will return to the historical levels Buffett aims for, spending will continue to spiral ever upwards. In 25 years, spending will be 35.7 percent of GDP. In 2025, the big three entitlements will gobble up a full 18.5 percent of GDP—the entire amount of revenue that Buffett would like to raise.

In Buffett’s world, then, after funding entitlements, that leaves only 2.5 percent of GDP for everything else (assuming that interest rates don’t go through the roof). The fact is that ever-growing entitlements have put spending on a trajectory toward a European-level implosion. If they are not reined in, taxes on everyone will have to rise perpetually just to keep pace.

While Warren Buffett is right about many things, he is wrong about tax hikes. Which leads us to the real questions: Why are we even talking about tax hikes? Where are the spending cuts?

[DougMacG]

What does Warren Buffet (and Barack Obama) say to THIS?

New data on tax hikes - from Britain: The tax went from 40% to 50% on millionaires in one year.  The total number of millionaire tax filers plunged 60% to 6,000 in 2010-2011, from 16,000 in 2009-2010.

(Next year we can post similar data for California.)

Mr. Buffet, incentives and disincentives matter!

Does this business genius ever advertise that his flagship Geico brings in more customers and more revenues because of higher prices ... in 15 minutes or less we'll raise your cost of car insurance?

http://online.wsj.com/article/SB10001424127887323751104578148820012847656.html?mod=WSJ_Opinion_AboveLEFTTop

Britain's Missing Millionaires
Income tax rates rise but revenues fall.

A funny thing often happens on the way to soaking the rich: They don't stick around for the bath. Take Britain, where Her Majesty's Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before.

That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown's government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010.

The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

The British press is abuzz with the notion that 10,000 millionaires left the country in the interim, and no doubt some did make for their chalets in Gstaad. Others may have brought forward more income in 2009-2010, knowing the higher rate was on its way. No doubt, too, the overall lousy economy took its toll.

Prime Minister David Cameron decided earlier this year to lower the 50% rate to 45%, meaning we may see at least some of the millionaires return to the U.K. But the figures are another reminder that incentives matter.

Politicians would love to lay the whole burden of their policies on a tiny minority of the rich, but you can't finance the welfare state on the shoulders of the 1%. That's something for the U.S. to remember as President Obama pretends he can fill a $1 trillion budget hole with tax hikes on "millionaires and billionaires."

[DougMacG]

One excerpt on taxes:

    RECOMMENDATION 2.1: ENACT FUNDAMENTAL TAX REFORM BY 2012 TO LOWER RATES, REDUCE DEFICITS, AND SIMPLIFY THE CODE. Eliminate all income tax expenditures [deductions and other tax preferences], dedicate a portion of the additional revenue to deficit reduction, and use the remaining revenue to lower rates and add back necessary expenditures and credits.

    A “zero plan” could reduce income tax rates to as low as 8%, 14%, and 23%. Even after adding back a number of larger tax expenditures, rates would still remain significantly lower than under current law.

Link again:  http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

Another clause:

2.2.2  Eliminate all tax expenditures for businesses. Corporate tax reform should eliminate special subsidies for different industries. By eliminating business tax expenditures – currently more than 75 – the corporate tax rate can be significantly reduced while contributing to deficit reduction. A lower overall tax rate will improve American business competitiveness. Abolishing special subsidies will also create an even playing field for all businesses instead of artificially picking winners and losers.

[G M]

I disagree. Give Buraq everything he asks for. Vote present.

[Crafty_Dog]

A good case certainly can be made for exactly that proposition.

Indeed, one need not go quite so far.  The Reps can give BO his tax rate increase on the rich with no strings attached, congratulate him on financing 8-9 days of govt (if the static revenue assumptions hold true, though the data out of the UK in recent days suggests strongly that they won't) and then demand from him a statement of what ratio of cuts to taxes he is willing to make before going into particulars-- the particulars being where Reps always get anally raped as the starvers of widows and children.

[G M]

The Looters and Moochers can't be bothered with details like that.

[DougMacG]

"Give Buraq everything he asks for. Vote present."

They can vote no on bad ideas.  They can go with stupidity about 2% up for income over a million and let those chips fall.  The GOP House IMO cannot cross the line very far to support what they do not support.  There is not much downside IMO for them using hard negotiations now at the fiscal cliff and during the debt ceiling crisis coming in only a month or two.  If spending cuts are not going to happen, then tax rates going up for everyone as a consequence.  Who is the party of bigger spending, bigger government, healthcare takeover and a bigger share of everyone's  income going to pay for the high cost of bigger and bigger government?  Not the GOP.  Especially not the Republican House if they passed a number of better options that died in the Dem Senate or on the President's desk. 

[G M]

Buraq wants the 'pubs to "make" him take us over the cliff. That's his best scenario. Defense gets gutted and taxes go up and republicans get all the blame.

[G M]

http://news.xinhuanet.com/english/china/2012-11/26/c_132000164.htm

Tax cut to benefit over 900,000 enterprises
 
English.news.cn   2012-11-26 19:45:00             
 
 
NANJING, Nov. 26 (Xinhua) -- China's new round of structural tax cutting is likely to benefit more than 900,000 enterprises nationwide, according to a working conference held here on Monday to discuss the country's piloting of replacing business tax with a value-added tax (VAT).

About 710,000 enterprises have been covered by the tax-cutting program, and another 200,000 will be included starting from Dec.1 this year, according to the meeting jointly held by the Ministry of Finance and the State Administration of Taxation.

Shanghai piloted the program on Jan. 1 this year in an effort to decrease the overall tax burden and boost the transportation and service sectors. The pilot was then expanded to provincial regions including Beijing, Guangdong and Zhejiang later this year.

Tianjin, Hubei, Zhejiang and Ningbo will also join the program from next month, under previous plans.

All the works are progressing in an orderly and effectively manner, and the performances of the launched pilot programs have exceeded previous expectations, said representatives at the conference.

The reform has effectively promoted the growth of tertiary industry, especially the service sector, and encouraged the development of small and micro-sized enterprises, those present at the meeting agreed.

In Shanghai, the tax cut has helped reduce enterprises' tax burdens by 22.5 billion yuan (3.57 billion U.S.dollars) in the first 10 months of this year, while in Beijing, the new measure has cut tax revenue by 2.5 billion yuan in two months.

At the meeting, Vice Finance Minister Wang Jun urged further work to ensure full success of the pilot programs, following the development blueprint mapped out at the recently concluded 18th National Congress of the Communist Party of China and related government meetings.

[objectivist1]

I wholeheartedly agree with G M.  Let Barack plunge us over the so-called cliff.  He's made it excruciatingly clear that is what he wants.  The Republicans ought to stand back and let him do it.  Yes - they will get blamed initially - but that will happen REGARDLESS.  So - better to stand on principle and NOT "negotiate" actual spending cuts that will NEVER - I repeat - NEVER happen with Democrat Party consent.  They have proven this for decades.  Caving in even a little at the top for the 1% of income earners is not acceptable in my book.  What good will it do? NONE - it's a class-warfare ploy which is ultimately corrosive to our society and our fiscal health.

As Rush Limbaugh commented on Friday - "This "fiscal cliff" is actual nirvana for liberal Democrats.  They get everything they want - higher taxes on everyone, massive defense cuts, and more money to buy votes with.  What's not to like?  Clearly the President isn't concerned about unemployment or a robust economy.  He's demonstrated that over the last four years beyond question."  Obama's goal (along with the Democrats) is to create as much government dependency as possible.  That is what they WANT to happen.  This is something even many conservative pundits - Charles Krauthammer among them - do NOT understand.  They insist on analyzing Obama's incentives/actions as though he actually wants to reduce unemployment and create growth in the economy.  He doesn't.  He is a Marxist.  

[Crafty_Dog]

This matter of massive defense cuts as part of the cliff is far too important to be forgotten in frustrated petulance. 

The Reps have utterly failed to have a sound bite answer to the sound bite question "What the hell is wrong to going back to the Clinton era tax rates?"   

[DougMacG]

This matter of massive defense cuts as part of the cliff is far too important to be forgotten in frustrated petulance...

The thing with the defense cuts is that Obama is President for the next 4 years.  Defense cuts weaken our country but we just did that anyway. 

A conservative view of defense is that we could be mean, scary, well-armed and still spend a lot less - through deterrence and more selective use of our forces.  I am more interventionist but the country right now is not.  Call it Iraq war fatigue. 

The Clinton mistake was to gut intelligence.  Gutting intelligence is stupid - no pun intended.

The other part of willingness to go over the fiscal cliff (back to tax policy themes) is that higher taxes is what people get for choosing to go down Obama Avenue.  Big government costs big money.  Not just for the guy behind the tree.  Big cradle to grave, life of Julia, government will cost you and your family big money and here is your new bill.

If Obama refuses to budge on the budget deal, R's can refuse to budge on debt ceiling appeasement.  Vote present - vote no.  They say default but I say it means an instantly balanced budget.  Bigger spending cuts than a libertarian-conservative's wildest dream.  And it will all be Obama's fault.

There go the Obama second term initiatives (and first term programs like Obamacare) right down the drain - QE3,4,5 and everything else.  He keeps Air Force One, the golf membership, Supreme Court appointments, and that's about it.

"The Reps have utterly failed to have a sound bite answer to the sound bite question, What the hell is wrong to going back to the Clinton era tax rates?"

Maybe so for them, but you and I have answered that. a) We aren't competing in a 1990's global economy anymore. b) There are many many many other new taxes. c) There are HUNDREDS OF THOUSANDS of new regulations that cripple production enacted since the 1990s that go beyond explicit taxation.  d) Doesn't it follow that we also could go back to Clinton Gingrich SPENDING LEVELS?!  The point of the fiscal cliff is the deficit and the deficit is ALL about spending.  Maybe Clinton (or Eisenhower) had spending levels right.

e) Posted earlier, Did ANYONE notice that the UK lost 60% of its millionaires in one year by bumping up the tax rate.  Static scoring is the biggest economic lie of our collective lifetimes.

Revenues to the US Treasury doubled in the 1980s when the top rate fell from 70% to 28% and the number of millionaires in the UK dropped by 60% in one year with falling revenues when the tax rate on millionaires went up 10%. 

Do retailers bring in more people and more revenue than ever before on Black Friday by raising prices or by having sales?  Ask them.

This should not be that hard to communicate.

[G M]

http://www.washingtonpost.com/blogs/the-fix/wp/2012/12/04/republicans-losing-blame-game-on-fiscal-cliff/?hpid=z1

Republicans losing blame game on fiscal cliff
Posted by Chris Cillizza, Aaron Blake and Sean Sullivan on December 4, 2012 at 7:00 am
 
A majority of Americans say that if the country goes over the fiscal cliff on Dec. 31, congressional Republicans should bear the brunt of the blame, according to a new Washington Post-Pew Research Center poll, the latest sign that the GOP faces a perilous path on the issue between now and the end of the year.

[DougMacG]

... congressional Republicans should bear the brunt of the blame, according to a new Washington Post-Pew Research Center poll...

If Republicans hold to their principals, they risk losing the House in 2014.  If they don't, they lose the House now.

[Crafty_Dog]

"This should not be that hard to communicate."

It isn't, which is why it is so infuriating that it isn't done. 

That it isn't done is precisely why Doug may well be right about Rep prospects.

[G M]

http://www.newgeography.com/content/003289-the-blue-state-suicide-pact

The Blue-State Suicide Pact
by Joel Kotkin 12/05/2012

With their enthusiastic backing of President Obama and the Democratic Party on Election Day, the bluest parts of America may have embraced a program utterly at odds with their economic self-interest. The almost uniform support of blue states’ congressional representatives for the administration’s campaign for tax “fairness” represents a kind of  bizarre economic suicide pact.

Any move to raise taxes on the rich — defined as households making over $250,000 annually — strikes directly at the economies of these states, which depend heavily on the earnings of high-income professionals, entrepreneurs and technical workers. In fact, when you examine which states, and metropolitan areas, have the highest concentrations of such people, it turns out they are overwhelmingly located in the bluest states and regions.

Ironically the new taxes will have relatively little effect on the detested Romney uber-class, who derive most of their income from capital gains,   taxed at a much lower rate. They also have access to all manner of offshore dodges. Nor will it have much impact on Silicon Valley millionaires and billionaires, or the Hollywood moguls and urban land speculators who constitute the Democratic Party’s “good rich,” and enjoy many of the same privileges as their wealthy conservative counterparts.

The people whose wallets will be drained in the new war on “the rich” are high-earning, but hardly plutocratic professionals like engineers, doctors, lawyers, small business owners and the like. Once seen as the bastion of the middle class, and exemplars of upward mobility, these people are emerging as the modern day “kulaks,” the affluent peasants ruthlessly targeted by Stalin in the early 1930s.

The ironic geography of the Democratic drive can be seen most clearly by examining the  distribution of the classes now targeted by the coming purge. The top 10 states with the largest percentage of “rich” households under the Obama formula include true blue bastions Washington, D.C., which has the highest concentration of big earners, Connecticut, New Jersey, Maryland, Massachusetts, New York, California and Hawaii. The only historic “swing state” in the top six is Virginia, due largely to the presence of the affluent suburbs of the capital. These same states, according to the Tax Foundation, would benefit the most from an extension of the much-lambasted Bush tax cuts.

The pattern of distribution of “the rich” is even more marked when we focus on metropolitan areas. Big metro areas supported Obama, particularly their core cities, by margins as high as four to one. Besides New York, the metro areas with the highest percentage of high-earning households include such lockstep blue cities as San Francisco, Washington, San Jose, Atlanta and Los Angeles.

The income tax hit may not be the only pain inflicted on these areas in the President’s drive for greater “fairness.” Moves to curb mortgage interest deductions for affluent households also would fall predominately on these same areas. The states with the highest listing prices — and the biggest mortgages on average – are the president’s home state of Hawaii, followed by the District of Columbia, New York, California and Connecticut. According to the Census Bureau and the Federal Housing Agency, median home values in California are 200% higher than the national median, and in New York they’re 150% higher; in contrast, red Texas’ prices are below the median.

The contrast in prices is even greater between metropolitan areas. The highest prices — and thus largest mortgages — are in the deep blue havens of San Francisco, New York and Los Angeles. If the mortgage interest deduction is capped for loans, say, over $300,000, homeowners in these cities will suffer far more than in key red state cities like Dallas or Houston, where homes are at least half the price.

The curbing of the mortgage interest deduction constitutes only one part of a broader effort to cut back on all itemized deductions. This would hit states with the highest rates of people taking such deductions: California, New York, the District of Columbia, Connecticut and New Jersey, according to the Wall Street Journal. In contrast, the states least vulnerable to this kind of leveling reform would be either red states such as Indiana, Alaska or Kentucky, or classic “swing” states such as Iowa and Ohio.

Of course, one can argue that these changes follow the precepts of social justice: Rich people and rich regions should pay more. Yet being “rich” means different things in different places, due to vast differences in costs of living. The cost of living   in New York and Los Angeles, for example, is so high that the adjusted value of salaries rank in the bottom fifth in the nation. In other words, a couple with two children with a $150,000 income in Austin or Raleigh may be, in terms of housing and personal consumption, far “richer” than one making twice that in New York or Los Angeles.

What would a big tax increase on the “rich” mean to the poor and working classes in these areas? To be sure, they may gain via taxpayer-funded transfer payments, but it’s doubtful that higher taxes will make their prospects for escaping poverty much brighter. For the most part, the economies of the key blue regions are very dependent on the earnings of the mass affluent class, and their spending is critical to overall growth. Singling out the affluent may also reduce the discretionary spending that drives employment in the personal services sector, retail and in such key fields as construction.

This prospect is troubling since many of these areas are already among the most unequal in America. In the expensive blue areas, the lower-income middle class population that would benefit from the Administration’s plan of  keeping the Bush rates for them is proportionally smaller, although  the numbers of the poor, who already pay little or nothing in income taxes, generally greater. Indeed, according to a recent Census analysis, the two places with the highest proportions of poor people are Washington, D.C., and California. By far the highest level of inequality among the country’s 25 most populous counties is in Manhattan.

Finally we have to consider the impact of the new tax rates on the fiscal health of these states. Four of the five states in the poorest shape fiscally, according to a recent survey by 24/7 Wall Street, all have congressional delegations dominated by Democrats — California, New Jersey, Rhode Island and Illinois (the one red state is Arizona). Slower economic growth brought about by higher taxes — compounded by high state taxes — is unlikely to make their situation any better.

So what can we expect to happen if the fiscal cliff appears, or if the President and his party get their taxes on the rich? One can expect a proportionally greater impact on citizens and the budgets of the already expensive, high-tax states, where the new kulak class is concentrated. It may also spark a greater migration of people and companies to less expensive, lower-tax areas.

Perhaps the greatest  irony in all this is that the Republicans, largely detested in the deep blue bastions, are the ones most likely to fall on their swords to maintain lower rates for the the  mass affluent class in the bluest states and metros. If they were something other than the stupid party, or perhaps a bit more cynical, they would respond to the President’s tax proposals by taking a line from their doddering cultural icon, Clint Eastwood: make my day.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

This piece originally appeared at Forbes.

[Crafty_Dog]

AT the moment my thinking is that the Reps should give BO the rates on the rich onw which he campaigned and won , , ,  and the static assumption 8-9 days of government that they will pay for.  Then have it out over the rest of it.



PS: I HATE HATE HATE the use of RED (the color for communists, socialists, and deficits around the world) as the color for the Rep Party.  How stupid of the Reps to let the Pravdas get away with this!!!

[DougMacG]

"AT the moment my thinking is that the Reps should give BO the rates on the rich on which he campaigned and won , , ,  and the static assumption 8-9 days of government that they will pay for.  Then have it out over the rest of it."

That makes some PR and conciliatory tone sense, is tempting, and is probably what Speaker Boehner is thinking, but... 

That 10% increase isn't the only increase coming.  You will be signing on with taking down the economy. 

Giving on that point does NOT make you more likely to win on the other points. 

By the same logic (on which he campaigned and won), each House Republican campaigned on the opposite - and won. If the President's win was on issues, specifically raising any tax rates, and not on personality, negative mudslinging etc., then where were his coat tails?

Congress is a competing, co-equal branch on these divided issues, not a cooperative branch. They are a check and a balance against all that he wants.  If the President was right, then fine, lesson learned, but each Republican House member knows better.  Rate hikes kill off growth and jobs.  Each needs to vote what they believe is the best interest of the country.  Each will face a worse electoral challenge if they don't.

The constitution gives appropriations and revenue raising authority first to the congress, if I understand it correctly.  The constitution, by my reading, defines the size and scope of government as the least of what the House, Senate, Executive and Judiciary can accept.  The President is in a stronger position only to the extent that he may be the only one with a spine. 

Tip O'Neill's members gave votes to Reagan tax cuts because either the individual representative or the constituents sided with Reagan, not out of deference to the national election.  Many of those districts I think were southern or rural and were becoming Democrat in name only.   Gingrich, just mentioned, shut down the government twice instead of playing nice and violating their principles.  They were reelected. 

[DougMacG]

The Internal Revenue Service has released new rules for investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law.

http://www.reuters.com/article/2012/12/03/us-usa-tax-irs-idUSBRE8B21HA20121203

The 3.8 percent surtax on investment income, meant to help pay for healthcare, goes into effect in 2013. It is the first surtax to be applied to capital gains and dividend income.

The tax affects only individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI.

The tax applies to a broad range of investment securities ranging from stocks and bonds to commodity securities and specialized derivatives.

The 159 pages of rules spell out when the tax applies to trusts and annuities, as well as to individual securities traders.

Released late on Friday, the new regulations include a 0.9 percent healthcare tax on wages for high-income individuals.

Both sets of rules will be published on Wednesday in the Federal Register.

The proposed rules are effective starting January 1. Before making the rules final, the IRS will take public comments and hold hearings in April.

Together, the two taxes are estimated to raise $317.7 billion over 10 years, according to a Joint Committee on Taxation analysis released in June.

To illustrate when the tax applies, the IRS offered an example of a taxpayer filing as a single individual who makes $180,000 in wage income plus $90,000 from investment income. The individual's modified adjusted gross income is $270,000.

The 3.8 percent tax applies to the $70,000, and the individual would pay $2,660 in surtaxes, the IRS said.

The IRS plans to release a new form for taxpayers to fill out for this tax when filing 2013 returns.

The new rules leave some questions unanswered, tax experts said. It was unclear how rental income will be treated under the new rules, said Michael Grace, managing director at Milbank, Tweed, Hadley & McCloy LLP law firm in Washington.

"The proposed regulations surely will increase tax compliance burdens for individuals," said Grace, a former IRS official. "There's clearly some drafting left to be done."

[DougMacG]

Reason Magazine calls this The Bush Tax Cut Issue in One Chart

Federal outlays and receipts in the last two years of the Clinton Administration, all eight years of George W. Bush and Barack Obama’s first term:



The tax cuts took effect in 2003.  The congress sworn to end them was sworn in Jan. 2007.  During that time, revenues exploded and deficits plummeted.

Spending marches upward no matter who is in office or how much money we take in.  Both revenues and spending are much worse in recession.  So to solve the budget shortfall, we choose to trigger another recession.

[objectivist1]

No ‘Fiscal Cliff’ Middle Ground

Posted By Arnold Ahlert On December 7, 2012 - www.frontpagemag.com

The latest machinations surrounding the so-called fiscal cliff, a combination of tax increases and spending cuts many economists insist would put the nation back into recession, continue. Ironically, the current impasse has far less to do with economic realities than ideological intransigence. The lion’s share of that intransigence belongs to the president, who has made it increasingly clear that any deal, even one that includes increased revenue, is DOA unless it includes higher taxes on the “rich.” Treasury Secretary Tim Geithner illuminated the administration’s position on Sunday. “There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up on the wealthiest Americans,” he said on NBC’s “Meet the Press.”

Yet on Monday, Republicans made an offer described as a “savvy tactical move,” or an effort to regain the high ground in the debate. House Speaker John Boehner (R-OH) sent a letter to the president that embraced many of the ideas put forward by Democrat Eskine Bowles, who was part of the Simpson-Bowles Commission put together in 2010 by Obama himself. It was an ostensible effort to rein in the nation’s burgeoning debt, currently standing at more than $16.2 trillion. The commission came up with a series of recommendations, including a cap on discretionary spending, some tax increases, and overall tax reform. It was subsequently rejected by the president, likely due to the reality that it recommended cutting individual tax rates to as low as 23 percent, and capping federal spending and revenue at 21 percent of GDP. It is the latter proposal that likely irked a president determined to maintain government spending and revenue at the current 24 percent of GDP, matched only by FDR during WWll.

The proposal offered by Boehner endorsed a 10-year plan, including $800 billion in new tax revenues, $600 billion in health savings, another $600 billion in a combination of “mandatory” and “discretionary” savings, and a revision of the Consumer Price Index (CPI) used to calculate future Social Security benefits that would save another $200 billion. Such savings total $2.2 trillion. It was a genuine compromise, as evidenced by the reality that it irritated many Republicans.

In his letter, Boehner explained the rationale for such a plan. After noting that the election essentially maintained the status quo of a Republican House, along with a Democratic Senate and presidency, Boehner contended that “the American people rightly expect both parties to come together on a fair middle ground and address the nation’s most pressing challenges.” He further emphasized that the plan Obama submitted to Congress last week was a re-hash of the president’s ”Plan for Economic Growth and Deficit Reduction,” submitted in September 2011. ”We cannot in good conscience agree to this approach, which is neither balanced nor realistic. If we were to take your Administration’s proposal at face value, then we would counter with the House-passed Budget Resolution [Paul Ryan's budget plan].”

Boehner then put the proverbial ball in the administration’s court. “This is by no means an adequate long-term solution, as resolving our fiscal crisis will require fundamental entitlement reform. Indeed the Bowles plan is the kind of imperfect but fair middle ground that allows us to avert the fiscal cliff without hurting our economy and destroying jobs. We believe it warrants immediate consideration.”

The administration did consider it — sort of. Senior administration officials contended the plan wasn’t serious enough to merit a counter-proposal. White House Communications Director Dan Pfeiffer claimed it “does not meet the test of balance. In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill.” He then reiterated the administration’s immutable demand. ”Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit,” he added. CNN then laid out the administration’s real aims: “Senior administration officials said they are confident the public will blame Republicans and not the president if the United States reaches the end of the year without a deal to avert the fiscal cliff.”

With ample assistance from the mainstream media, that is virtually certain. But such thinking reveals an almost unprecedented level of cynicism. In effect, administration officials have admitted that what benefits Democrats politically trumps what benefits the nation. So much so, they are willing to let the country slide back into recession, as long as Republicans get blamed for it.

In an interview with MSNBC’s Andrea Mitchell, Rep. Tom Price (R-GA) revealed the disingenuousness of the administration’s insistence that taxing the rich is a panacea. “The president’s plan to increase taxes on the upper two percent covers the spending by this federal government not for eight years, not for eight months, not for eight weeks but for eight days. Eight days only,” said Price. “It’s not a real solution. So, again, I’m puzzled by an administration that seems to be more interested in raising tax rates than in gaining economic vitality.”

Furthermore, a usually reliable media is not marching in lockstep with Democrats. Politico’s Ben White called the GOP’s proposal “significant,” noting that it is “less fanciful than the original administration request, which included phony savings (the war wind-downs), a gratuitous fork-in-the-eye (unlimited debt ceiling authority) and some new stimulus (just to make GOP blood boil and warm liberal hearts).” Bloomberg’s Josh Barro also saw the cynicism expressed by the aforementioned senior officials, contending that “if the White House really is willing to risk an austerity crisis unless it gets its way on an unrelated policy matter — then the Obama Administration is as irresponsible as it often accuses Republicans of being.”

The Washington Post’s Robert Samuels laid it out even better. “Put Social Security on the table — clearly and irrevocably,” he writes. “Protecting retiree benefits is the left’s political equivalent of the right’s ‘no new taxes’ pledge. Congressional Republicans are abandoning their untenable position. Now it is time for President Obama and congressional Democrats to do the same. As long as they don’t, they aren’t bargaining in good faith, or in the national interest.”

Even Erskin Bowles, who insisted that the GOP plan was not representative of his efforts, or those of the Simpson-Bowles plan, called for compromise. ”Every offer put forward brings us closer to a deal, but to reach an agreement, it will be necessary for both sides to move beyond their opening positions and reach agreement on a comprehensive plan which avoids the fiscal cliff and puts the debt on a clear downward path relative to the economy,” he said in a statement.

The Congressional Budget Office (CBO) offers a sobering look as to why such an agreement is necessary. In 2012, non-interest federal spending totaled $3.25 trillion. $762 billion was for Social Security, $469 billion for Medicare, $251 billion for Medicaid, and $651 billion for defense. These expenditures account for 66 percent of the federal budget. Since the federal government borrows forty cents of every dollar it spends, America is already in the red financing just these four programs – and that’s before the bulk of the Baby Boomer generation retires, driving at least three of these costs far higher.

Interest payments on America’s outstanding debt are also part of the mix. In 2012 that payment was $359 billion, financed at record low interest rates of approximately 2.8 percent. The Federal Reserve claims it will keep interest rates at near-zero until 2014. Based on current rates of spending, the national debt will likely approach $20 trillion by then. If interest rates return to a historical average of 4 percent, a staggering $800 billion will be needed just to pay the interest on that debt. There is also the “unfunded obligations” problem. Unfunded obligations are promises the government has made to such entities as seniors, veterans and retired employees. By 2011, America’s unfunded obligations totaled $61.6 trillion.

In short, the idea that “taxing the rich” is a make or break part of any deal — even as entitlement reform remains off the table — borders on insanity.

Yet two realities are readily apparent. First, that insanity is ideologically driven. This was made clear during the 2008 Democratic primary debates, when ABC’s Charlie Gibson asked the president why he supported an increase in the capital gains tax rate, given a historical record that repeatedly shows the government losing revenue as a result. ”Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness,” he answered. This goes a long way towards explaining why the president would rather kill a deal than accept tax reform as a viable alternative for raising revenue.

If such “fairness” precipitates a recession–or worse–in 2013, due to an inability to reach a compromise? As long as Republicans get blamed, all is well. That Democrats as a party, or the president as an individual, see themselves as the ultimate arbiters of fairness–for the entire nation–demonstrates a breathtaking level of arrogance.

Second, whether they realize it or not, it is this combination of arrogance and fiscal irresponsibility that Americans re-empowered on November 6. Despite an election that reinforced the status quo, Obama and Democrats believe they were given a mandate, and that Republicans are nothing more than an inconvenient impediment in their efforts to transform the nation into a Euro-style welfare state, even if another recession is necessary to do so.

Finally, Americans need to realize that President Obama’s campaign pledge to raise taxes on “millionaires and billionaires” is really targeting individuals making $200K, and families making $250K — right now. Since that additional revenue would only run the government for eight days, the public might want to consider what other sources of revenue the president and his party will subsequently target. That is worth remembering when the definition of millionaires and billionaires is “revised” once again. Perhaps in the not-too-distant future, anyone earning $150K — or less — will be surprised find themselves on the “wrong” side of the Democrats’ never-ending class warfare campaign. They shouldn’t be. To paraphrase Willie Sutton, the middle class will be the next target because, “that’s where the money is.”

[objectivist1]

I support Rand Paul's plan here 100%.  Republicans need to realize they are being played for fools (as always) and grow a set of gonads.  Sadly, I don't think John Boehner has any intention of doing this.  He's too busy spouting meaningless rhetoric while he caves in to every Democrat wet dream.  Sickening.

www.realclearpolitics.com/video/2012/12/06/sen_rand_paul_we_should_let_dems_raise_taxes_and_then_let_them_own_it.html

[Crafty_Dog]

Let's bring the tax policy issues of the most recent entries on Media Matters over to here.

[G M]

"By mid- 1955, the country had pulled out of the previous year's recession and gross national product was growing at a rate of 7.6 percent. The boom was so great that the budget for 1956 predicted a surplus of $4.1 billion. With the surges in production and the economy, the 1950s is often recognized as the decade that eliminated poverty for the great majority of Americans"  (http://homepages.gac.edu/~jcullip/workexamples/mea.html).

How is that possible since the tax rates in the 1950's were the highest in history:
http://www.ntu.org/tax-basics/history-of-federal-individual-1.html

**As a history professor, can you think of any reason why things might be different now as opposed to 1955 on a geopolitical and economic basis?
Taxes didn't seem to kill the economy then. Taxes didn't seem to kill the inventive spirit of America then. Taxes didn't seem to lead unpatriotic people to relocate then.

**Ah, so if you wish to deprive the Looters and Moochers of your property, then you are unpatriotic? Interesting definition.

[G M]

http://online.wsj.com/article/SB10001424127887324705104578151601554982808.html

Peter Schiff: The Fantasy of a 91% Top Income Tax Rate
A liberal article of faith that confiscatory taxes fed the postwar boom turns out to be an Edsel of an economic idea

By PETER SCHIFF
Democratic Party leaders, President Obama in particular, are forever telling the country that wealthy Americans are taxed at too low a rate and pay too little in taxes. The need to correct this seeming injustice is framed not simply in terms of fairness. Higher tax rates on the wealthy, we're told, would help balance the budget, allow for more "investment" in America's future and foster better economic growth for all. In support of this claim, like-minded liberal pundits point out that in the 1950s, when America's economic might was at its zenith, the rich faced tax rates as high as 91%.

True enough, the top marginal income-tax rate in the 1950s was much higher than today's top rate of 35%—but the share of income paid by the wealthiest Americans has essentially remained flat since then.

In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.

So if the top marginal tax rate has fallen to 35% from 91%, how in the world has the tax burden on the wealthy remained roughly the same? Two factors are responsible. Lower- and middle-income workers now bear a significantly lighter burden than in the past. And the confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today.

In 1958, an 81% marginal tax rate applied to incomes above $1.08 million, and the 91% rate kicked in at $3.08 million. These figures are in unadjusted 1958 dollars and correspond today to nominal income levels that are at least 10 times higher. That year, according to Internal Revenue Service records, just 236 of the nation's 45.6 million tax filers had any income that was taxed at 81% or higher. (The published IRS data do not reveal how many of these were subject to the 91% rate.)

Enlarge Image

CloseCorbis
 .In 1958, approximately 28,600 filers (0.06% of all taxpayers) earned the $93,168 or more needed to face marginal rates as high as 30%. These Americans—genuinely wealthy by the standards of the day—paid 5.9% of all income taxes. And now? In 2010, 3.9 million taxpayers (2.75% of all taxpayers) were subjected to rates that were 33% or higher. These Americans—many of whom would hardly call themselves wealthy—reported an adjusted gross income of $209,000 or higher, and they paid 49.7% of all income taxes.

In contrast, the share of taxes paid by the bottom two-thirds of taxpayers has fallen dramatically over the same period. In 1958, these Americans accounted for 41.3% of adjusted gross income and paid 29% of all federal taxes. By 2010, their share of adjusted gross income had fallen to 22.5%. But their share of taxes paid fell far more dramatically—to 6.7%. The 77% decline represents the single biggest difference in the way the tax burden is shared in this country since the late 1950s.

The changes came about not so much by movements in rates but by the addition of tax credits for the poor and the elimination of exemptions for the wealthy. In 1958, even the lowest-tier filers, which included everyone making up to $5,000 annually, were subjected to an effective 20% rate. Today, almost half of all tax filers have no income-tax liability whatsoever, and many "taxpayers" actually get a net refund from the government. Those nostalgic for 1950s-era "tax fairness" should bear this in mind.

The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today. Tax shelters were widespread, and not just for the superrich. The working wealthy—including doctors, lawyers, business owners and executives—were versed in the art of creating losses to lower their tax exposure.

For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership. Huge numbers of professionals signed up for all kinds of money-losing schemes. Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.

Those 1950s gambits lowered tax liabilities but dissuaded individuals from engaging in the more beneficial activities of increasing their incomes and expanding their businesses. As a result, they were a net drag on the economy. When Ronald Reagan finally lowered rates in the 1980s, he did so in exchange for scrapping uneconomical deductions. When business owners stopped trying to figure out how to lose money, the economy boomed.

It's hard to determine how much otherwise taxable income disappeared through tax shelters in the 1950s. As a result, direct comparisons between the 1950s and now are difficult. However, it is worth noting that from 1958 to 2010, the taxes paid by the top 3% of earners, as a percentage of total personal income (which can't be reduced by shelters), increased to 3.96% from 2.72%, while the percentage paid by the bottom two-thirds of filers fell to 0.51% in 2010 from 2.7%. This starker division of relative tax burdens can be explained by the inability of upper-income groups to shelter income.

It is a testament to the shallow nature of the national economic conversation that higher tax rates can be justified by reference to a fantasy—a 91% marginal rate that hardly any top earners paid.

In reality, tax policies that diminish the incentives and capacities of innovators, business owners and investors will not spur economic improvement. Such policies will, however, satisfy the instincts of those who want to "stick it to the rich." Never mind that the rich have already been stuck fairly well.

Mr. Schiff is the author of "The Real Crash: America's Coming Bankruptcy" (St. Martin's Press, 2012) and host of the daily radio program "The Peter Schiff Show."

[Crafty_Dog]

GM:  Hat tip for an excellent pertinent find in response to BD's reference to the rates of the Eisenhower era.

I would add the matter of tax shelters as well.  The higher the rate the more they make sense, hence when the Reagan rate cuts kicked in the number of "millionaires" increased dramatically.  "Increasing concentration of wealth!" screamed the progressives. No, you fiscal illiterates, the wealth came out of hiding in the shelters because they no longer made sense and allowed itself to be taxed.

[G M]

BD,

What was JFK's position on taxes? Why?

[Crafty_Dog]

See my post from 11/2011 from this thread:


CW: 

Thank you for your question.

I think it was Cong. Dirk Evertson or Cong Wilbur Mills (1960s?) who said "Don't tax you.  Don't tax me.  Tax that fellow behind the tree."

My knowledge in this area is given a boost by the fact that my step father made a goodly amount of money syndicating real estate tax shelters in the 1960s and 1970s.  His business model was destroyed by the Reagan tax rate cuts  of 1980-82.

The politician says to the poor ”Vote for me and I will tax the rich.”

To the rich he says “Don’t worry, it is all a charade.  Give me money and support and I will provide shelters and loopholes for you.”

To the special interests he says “Give me money and support and I will funnel rich people’s money into your hands.”


I will use the 90% rate from 1950s that you cite.  (President JFK proved the Laffer Curve before it had a name by increasing revenues by cutting the rate from 90 to 70%.  Reagan took it down from there.)

The numbers are greatly simplified so as to clarify the concepts involved.

The first thing to understand, is that at a 90% tax rate, the income earner keeps 10 cents. 

The next thing to understand is the concept of “non-cash expenses”-- for example, depreciation on a building.  It requires no outlay of money, but is considered a cost.   Thus under a 90% tax rate regime, a dollar of depreciation puts 90 cents of TAX FREE CASH into the hand of the taxpayer.   Reflect upon this.

With this in mind, lets run through a hypothetical.

Lets say normally a building is given by the tax code 20 years to depreciate.  Thus for a $10M building the depreciation (on a “straight line basis”)  is $500K per year.  If rents equal costs (mortgages, insurance, electricity, upkeep, employees, etc.) i.e. if the building is cash flow breakeven, for the 90% bracket taxpayer the building yields $450 per year because the building is counted as a “loss” of $500k..   (.90 X $500K=$450K).  With me so far?  If the taxpayer has bought the building with $1M (i.e. 10% down) he is out of pocket $100M (remember the IRS would have gotten $900k of the $1M) and he is getting to keep $450K tax free!  Minus the $100K investment, in the first year he has $350K.  In subsequent years, this goes up to $450 because he only had to make the down payment on the building one time.

Pretty bitchin’, yes?  Isn’t it great sockin’ it to the 1%?

Now Congress gets into the act and says “We need to create more housing for the poor!  Vote for us!  Give us money!”   Then they create ACCELERATED DEPRECIATION for projects that meet the specified criteria.  Naturally the criteria tend to be strongly influenced by who is donating money to them.

AD came in various forms such as “double declining balance”, “sum of the years” digits, etc.  Basically this means more depreciation in the early years, less depreciation in the later years.

For simplicity sake, let us assume that the early years yield double the depreciation of straight line depreciation (and this was roughly the case).   Thus in the first year, the “loss”  (remember, this is a non-cash loss) would be $1M and thus instead of $350K more, the taxpayer has $750K more cash in his pocket! ($350+$450=$750K).  However due to the depreciation formula this $750 goes down a bit each year.

So what happens next?

Why he sells his building to someone else and buys another building and starts all over again in the sweet spot of the accelerated depreciation curve!!!  The person who sold him the building does likewise!!!

But that’s not all!!!  If it makes sense for them to do so (and this will be a function of the capital gains rate in relation to the income tax rate) they get to defer the gain on the sale of the building through Section 1031 (reduction of basis in the new building by the amount of the deferred gain)!!!

Isn’t taxing the rich to pay their fair share fun?

But “Wait!” you say “We must stop this!”

Best to batten down the hatches for the squalls of how mean and cold-hearted you are for opposing public-private partnerships on behalf of the poor (for whom the housing in question was “built”.

Don’t tax you.  Don’t tax me.  Tax that fellow behind the tree.

[DougMacG]

This is roughly what I was going to write to add to Crafty's story but it was already posted by GM in the Peter Schiff piece:

"For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership."

That's right.  Rich people knew how to take 'losses' that weren't cash losses and then keep all of what they made.  What a sick, unproductive game it was.  If the economy was good then, think how much better it could have been with an undistorted playing field.

The smartest guy from my class was a Yale trained lawyer who ended up working in employee benefit law for a utility company.  No offense to him and his choice to be able to go home at a good hour and be with his kids growing up but what a loss to America that so many of the best and the brightest are out working in tax code and regulation compliance instead of inventing, innovating, creating, producing curing diseases and all of that.  Why is there a law about employee benefits? Shouldn't it be legal to hire with them or without them? Why is it in the tax code?  Why are there 18 pages in federal regulations just defining a full time employee?  Why is it any of their business if you are full time or not? They should only have a right to tax a dollar of income at the going rate and otherwise let you be.  That is not how it is.

The cost of the tax isn't the tax.  It is the compliance time and cost too.  It is the loss of productive activities from this whole industry set up to comply and to get around it.  Worst of all it is the loss of the productive activities that never occur because of the excessive taxes or the excessive regulations.  Because these costs are impossible to measure does not mean they don't exist, aren't huge and threatening to our economic survival and well-being.  Besides the time the rich spend darting and weaving, 36% of our workforce doesn't even work.  How heavy a load is that for the remaining workers to carry?  Could there be a less efficient system?  Yes.  We are working on that right now.

[DougMacG]

One other very important point:

If a lower rate like a 28% tax rate yields the same amount of revenue as a 90% tax rate, which one resulted in a larger national income?

Think about it - and do the math.

National income times the tax rate equals revenues to the Treasury, if income were really taxed at that rate.

Let's simplify and say a 90% tax rate brought in a trillion in revenues.   The national income would only be 1.11 trillion at that level of taxation.

Now assume we lowered the rate to 28% and still were able bring in a trillion in revenues.   That could come true only if income grew by three and half times.  In this extreme example, take home income grows by 25-fold.  Yet that is what the experts say is true.  In many cases the lower rate brings in more revenue, but worst case we keep getting roughly the same revenue result no matter whether the tax rates is at 70%, 90% or 28%.  If so, lock in the lower rate, and keep the change!

When candidate Obama admitted that dramatically higher capital gains rate won't bring in more revenues, he was admitting that the amount of capital gain income earned in the country would fall precipitously because of his spiteful tax rate hike.

Is this idiocy or is it treason?

[bigdog]

GM: Of course I can think of differences. So, then, are you suggesting that there is more to initiative than taxes? And, yet, sometimes you seem to make it that simple. Unless of course it doesn't suit you. Or to revenue? Or to loopholes? I can't tell.

"John Kennedy was no Ronald Reagan on taxes, despite what some conservatives might claim": http://www.usnews.com/opinion/articles/2011/01/26/the-myth-of-jfk-as-supply-side-tax-cutter. Make you address all the part of JFK's taxing views, not just the cherry picked ones.


"The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today. Tax shelters were widespread, and not just for the superrich. The working wealthy—including doctors, lawyers, business owners and executives—were versed in the art of creating losses to lower their tax exposure." So Romney, to choose but one famous recent example, had never heard of exemptions and deductions while he was paying taxes?

Doug: "It is the compliance time and cost too." I would have zero issue with flat taxes with clearly spelled out rules. I didn't know that was what we were talking about though.

Math? Now I am now a history professor.


Some quotes suggesting another view (JKR!!!)...

When there is an income tax, the just man will pay more and the unjust less on the same amount of income.
 Plato

I pay a lot of tax, and I feel, one of the reasons I stay and pay why I'm not based in Monaco... I think my country helped me.
 J. K. Rowling

"Taxes are the price we pay for civilization." O.W. Holmes

[DougMacG]

Thanks Bigdog for challenging people here.  Good points made.  That said, I found the US News/Robert Schlesinger piece more muddled and cherry picked than the cherry picking he tries to refute.  Yes all these Presidents at different times speak out of different sides of their mouths.  As Schlesinger knows, they also speak through different speechwriters and audiences, as well as to different circumstances.

Schlesinger writes, perhaps in jest: "But if ever advocating a tax cut makes someone a supply-sider, then JFK joins the ranks of other conservative economists like Bill Clinton and Barack Obama (the tax cuts in the stimulus package, for example, were arguably the largest in history)".

The first part is a farce, he shows no awareness of a distinction between demand side and supply side thinking or policies.  The difference may be subtle, but supply side policies aim at getting people to produce more and demand side policies aim at getting people to consume more.  Obama's tax cut was explicitly demand side and he has been anti-production on so many other policies.  JFK was eloquent on the supply side.  All policies admittedly have an effect on both supply and demand.

Maybe JFK said privately to my old Prof Walter Heller that spending was what JFK wanted and the supply side tax cuts were Heller's, but publicly the supply side view is his, including spending restraint.  What he would do in today's circumstance is unknown, but what he said here is not:
[youtube]http://www.youtube.com/watch?v=qmHdqWPB_S8[/youtube]
"It is a paradoxical truth that tax rates are too high today and tax revenues are too low - and the soundest way to raise revenues in the long run is to cut rates now.''
http://www.nytimes.com/1984/09/18/business/rationale-for-kennedy-s-tax-cut.html

Today we don't have marginal rates of 91% that apply to incomes over $30 million, but we have combined rates coming that are over 50, 60, 70% and apply to a wide range of people.  The tax burden on the economy is higher today IMO.


It is good that JK Rowling is appreciative of what she received when in need and willing to give back in such large amounts.  That does not mean the policy was helpful to the budget or economy of Britain.  They repealed half the increase so someone must believe it they went too far.

Bigdog wrote: "I would have zero issue with flat taxes with clearly spelled out rules."

The beer summit, conducted long distance, has resulted in extraordinary agreement!  

[DougMacG]

Peter Ferrara at Forbes following the discussion on the forum and filling in more details:

http://www.forbes.com/sites/peterferrara/2012/12/06/why-america-is-going-to-miss-the-bush-tax-cuts/

Why America Is Going To Miss The Bush Tax Cuts

President Obama seems to have a strategy to terminate all of the Bush tax cuts, not just those for “the rich,” as he has been saying since 2008.  He is offering the Republicans exactly zero concessions in the “fiscal cliff” negotiations.  No spending cuts, no entitlement reform, no compromise on the rates.  It is entirely my way or the highway, and if the Republicans refuse to do everything exactly as he demands, he will let the Bush tax cuts expire entirely, for the middle class and working people as well as the upper incomes, and blame the Republicans for refusing to go along with him, and for the economic results.

It is a cynical game worthy of an undeveloped, third world country, not the United States of America.  But this is just one more reason, with many more to come, for the American people to regret the mistake they made on Election Day.

Because so many major media institutions, like the New York Times and the Washington Post, have been so duplicitous and dishonest in discussing the Bush tax cuts, most Americans don’t know much about them, even though they have been living with them for 10 years or more now.  Indeed, most of what they think they know is not true.  But the American people will understand them better, when they see what life is like without them.

President Bush and his Congressional Republican majorities at the time cut taxes for everyone in the 2001 and 2003 tax cuts.  Indeed, they cut more for lower and middle income taxpayers than they did for “the rich,” as Obama calls the nation’s job creators, investors, and successful small businesses.  The top tax rate was cut by only 13%, while the lowest rate was cut by one-third, 33%.

According to official IRS data, the top 1% of income earners paid $84 billion more in federal income taxes in 2007 than in 2000 before the Bush tax cuts were passed, 23% more.  The share of total federal income taxes paid by the top 1% rose from 37% in 2000, before the Bush tax cuts, to 40% in 2007, after the tax cuts.

In contrast, the bottom half of income earners paid $6 billion less in federal income taxes in 2007 than in 2000, a decline of 16%.  The share of federal income taxes paid by the bottom 50% declined from 3.9% in 2000 to 2.9% in 2007.

The Bush tax cuts also included a doubling of the child tax credit from $500 per child to $1,000 per child.  Because of that, and the 33% cut in the bottom tax rate, nearly 8 million more people dropped off the federal income tax rolls entirely, paying zero federal income taxes.  Indeed, under the Bush tax cuts, the bottom 40% of all income earners not only paid no federal income taxes, as a group on net.  By 2009, they were being paid cash by the IRS equal to 10% of all federal income taxes.

These Bush tax cuts did not explode the deficit, as Obama and his echo chamber have alleged.  By 2007, the deficit was down to $160 billion, less than 15% of Obama’s deficits today.  Total federal revenues soared from $793.7 billion in 2003, when the last of the Bush tax cuts were enacted, to $1.16 trillion in 2007, a 47% increase.  Capital gains revenues had doubled by 2005, despite the 25% capital gains rate cut adopted in 2003.  Federal revenues rose to 18.5% of GDP by 2007, above the long term, postwar, historical average over the prior 60 years.  CBO was projecting surpluses to return indefinitely in 2012 through the end of its projection period in 2018.

Bush did increase federal spending as a percent of GDP by one-seventh, erasing the federal spending cuts enacted by the Republican Congressional majorities in the 1990s.  But even with that, deficits during the Bush years averaged just 2% of GDP, one-third less than the average over the prior 50 years.  President Obama’s deficits have averaged 5 times as much, at 9.1% of GDP.

The proof is in the pudding over the Bush tax cuts.  They were followed by a record 52 straight months of job creation, producing 8 million new jobs, with the unemployment rate falling to 4.4%.  Business investment spending, which had declined for 9 straight quarters, reversed and increased 6.7% per quarter, producing all those new jobs.

Because of that increased investment, labor productivity soared by 2.5% annually from 2003 to 2007, higher than the averages of the 1970s, 1980s, and 1990s.  As a result, real after tax income per capita increased by more than 11%.

Manufacturing output soared to its highest level in 20 years.  The stock market revived, creating almost $7 trillion in new shareholder wealth.  From 2003 to 2007, the S&P 500 almost doubled.   After the Bush tax cuts started in 2001, quickly ending the 2001 recession, the economy continued to grow for another 73 months.  From 2000 to 2007, real GDP grew by more than 17%, meaning an additional $2.1 trillion for the American people.

This was mostly the opposite of what President Obama has produced, with his neo-Marxist Obamanomics, particularly unemployment more than twice as high, declining middle class incomes, soaring poverty, weak job growth, stagnant stock market values, collapsing business investment, and negligible growth in GDP.

Of course, the Bush tax cut boom was ended by the 2008 financial crisis.  But as discussed in many previous columns, that was caused by the excessive overregulation of President Clinton’s home ownership promotion policies, creating the subprime mortgage market and the housing bubble, and by President Bush’s cheap dollar monetary policies.  Obama’s foolish argument that the Bush tax cuts caused the 2008-2009 recession is so dishonest that abusive propaganda alone should disqualify him from office.

Obama’s gleeful termination of the Bush tax cuts will produce just the opposite results of those tax cuts.  The combination of all the tax rate increases, along with Obama’s abusive overregulation, and the Fed’s continued mischief, will throw the economy back into recession next year.  Unemployment will soar back into double digits, breaking the post depression record of 10.8%.  The deficit will soar to over $2 trillion, setting new all time world records.  The national debt as a percent of GDP will gallop past Greece.

Middle class incomes will plummet further.  Poverty will soar to new all time records.

We can’t afford the Bush tax cuts, as Obama says?  We can’t afford to terminate them.  Over the past 45 years, every time the capital gains tax rate has been increased, capital gains revenues have declined rather than increased.  Obama’s nearly 60% increase in that rate will have the same effect.  After the Bush cut in taxes on dividends, dividends paid soared, and so did taxes paid on those dividends.  Obama’s near tripling of that tax will have the opposite effect as well.  Indeed, if the economy declines back into renewed recession, total federal revenues will decline rather than increase.

Obama’s ploy of blaming all of this on the Republicans will not work this time.  The public knows the Bush tax cuts were adopted into law by the Republicans, with complete Republican control of Congress and the White House at the time.  It will be too obvious that it took President Obama and his new neo-Marxist Democrat Party to let them expire.

Enjoy the new Obama recession.  You and your neighbors voted for it.