Category Archives: income tax

Passing the Tax Burden to Working Americans Via The Pass Through Loophole

Please excuse me while I jump up and down on this keyboard trying to flag attention to one of the most egregious GOP give-aways to the top 1% of American income earners.  It isn’t as though the Pass Through Loophole hasn’t garnered attention, it just doesn’t seem to have broken through the dismal cloud of information and misinformation about the GOP tax plan and into enough sunlight.

“The big one in the tax plan issued last week by the GOP and President Trump involves what’s known opaquely as “pass-through” business income. Even that term might have been too revealing, so the document the Republicans issued described it even more obscurely as a “tax rate structure for small businesses.” That’s also dishonest, however, because the businesses it affects are often nothing like “small.” [LAT]

There’s nothing new about legislative obfuscation of legislative intent — but this one is a major way to ease the burden on the 1% and put more pressure on the working and middle class Americans to make up the difference.   Here’s how it works:

“Pass-through” income is business income that’s reported to the IRS only by individual owners of, or partners in, the business. These businesses can be organized as partnerships, S-corporations, or sole proprietorships. They’re distinguished from C-corporations, which are almost always big businesses with public stockholders; C-corporations pay the corporate income tax, and the shareholders pay personal income tax on their dividends and capital gains.

In other words, if a business is a partnership, S-corporation, or a sole proprietorship it doesn’t pay corporate tax rates.  The income earned is reported by individuals.  Now, here’s how the Republican plan would specifically benefit the top 1%:

Currently, the top marginal individual rate is 39.6%; the new tax proposal would reduce the top rate on pass-through income to 25%. Pass-through income from an S-corporation, by the way, already is exempted from the Affordable Care Act surcharges that raised the top income tax rate on some high-income earners by as much as 4.7 percentage points.

So, if the business is an S-corporation, sole proprietorship, or partnership the tax rate is 25%.   Thus, if Desert Beacon were to become Desert Beacon LLC the income tax reduction would be from a maximum of 39.6% to 25%.   Now, who are those who tend to form the businesses which qualify for the LLC Loophole?

“Pass-through business income is substantially more concentrated among high-earners” than traditional business income, Treasury Department economist Michael Cooper and several colleagues observed in a 2015 paper. They also found that about one-fifth of it went to partners that were hard to identify, and 15% got sucked up into circles of partnership-owning partnerships, complicating IRS analyses.”

I sincerely hope the reader isn’t too surprised that these tax avoidance strategies are practiced mostly by high-earners.   Let’s take a closer look at the summary of that 2015 NBER paper:

Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980’s low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher. (emphasis added)

Therefore, if someone is trying to pass this off as a “middle class” tax cut, or a “small business” tax cut, the appropriate (and perhaps most polite) response is BALDERDASH.

It should come as no surprise that Kansas, under the spell of Brownback-ism, tried opening the LLC loophole as a way to “create jobs.”  It failed, and failed miserably.  Not only did the state find itself in a terrible revenue position, losing money for schools, transportation, and other government services, but it allowed high-income earners to stash more cash.  Case in point: KU basketball coach Bill Self was avoiding most Kansas income taxes on his $3 million salary by parking most of his earnings in an LLC.  Even some of the tax freeloaders were beginning to feel like tax freeloaders by late Summer 2016.  [see also NYT]

And, no one should suggest the amount of money lost because of the ‘reformed’ Kansas tax structure was negligible:

For fiscal year 2014, which ended on June 30, the state collected $330 million less in taxes than it had forecast, and $700 million less than it had collected in the prior year.  Those are big numbers in a state that spends about $6 billion annually from its general fund, and the revenue weakness led both Moody’s and Standard & Poor’s to cut Kansas’ credit rating this year. [NYT]

The situation hasn’t gotten any better.   There were promises made:

In 2012, Kansas Gov. Sam Brownback signed a bill that, among other things, substantially cut the state’s top tax rate and exempted “pass-through” business income from taxation (President Trump’s tax plan includes a similar loophole). The architects of Brownback’s plan predicted that it would provide an “immediate and lasting boost” to the state’s economy.

And promises not kept. The 2017 numbers are truly remarkable, and not in a good way:

Real GDP growth in Kansas since the fourth quarter of 2012 (Brownback’s cuts took effect in January 2013) has been relatively slow, at 6.1 percent through the third quarter of 2016. That’s about three-fourths of U.S. GDP growth over that same period (8.3 percent). A similar story holds for private employment growth: 5.0 percent in Kansas between December 2012 and March 2017, 9.1 percent in the U.S. overall. [WaPo]

The Kansas Legislature was so disappointed in the Great Brownback Experiment it voted to change the tax law — and the governor vetoed their bill.

“Unfortunately, that part of the plan — what Brownback called an economic “shot of adrenaline ” — hasn’t materialized. The state’s budget deficit ballooned to $350 million. And the small-business provision also created new ways for residents to avoid taxes, meaning more lost tax revenue and compliance headaches for the state.” [Time]

Just what we don’t need — lost tax revenue and compliance headaches.  The bottom line of this easy route to the bottom is that:

(1) Claims that pass through exemptions and tax cuts will create new revenue have already prove erroneous.  Witness what happened to Kansas.

(2) The loss of revenue from the pass through exemptions was serious and exacerbated an already tight budget situation.

(3) Claims that the tax ‘reform’ would help small middle class business owners proved elusive — the overwhelming numbers of those who benefited, and will benefit, were high income earners.

This would be a good time to contact Senator Dean Heller (R-NV) to let him know that no one is fooled by changing the name from “pass through” to “tax rate structure for small business;” it’s still a way to shift the burden of maintaining government services from high income earners to middle and working class Americans.   The Senator can be reached at 202-224-6244; 775-686-5770; or 702-388-6605.

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Filed under Economy, income tax, Politics, tax revenue, Taxation

Taxscam 101 Part One — Satisfy the 1% and Soak the Rest of Us

I think it’s safe to assume that Representative Mark Amodei (R-NV2) will be supporting the House Republican version of the Tax Cut Cut Cut… the last three words indicating what will happen for corporations, not what average Nevada income earners can expect from the proposal.  USA Today has a preliminary summation of some deductions INDIVIDUALS and FAMILIES won’t be able to use, that increase in the standard deduction is supposed to make up for this?   USA Today’s points are listed below, in red font.

Adoption: A tax credit worth up to $13,750 per child would end.  It’s a little hard to explain this one, given the GOP “pro-life” stance. It’s even harder to understand when the average cost for an adoption (2012-2013) was $39,996 using an adoption agency and $34,093 for an “independent” adoption. [AmAdopt]  Eliminating the tax credit to alleviate the impact of these expenses seems a strange way of encouraging couples to adopt children in need of permanent homes.

Alimony: To eliminate what Ways and Means Committee documents referred to as a “divorce subsidy,” alimony would no longer be deductible by the payor for decrees issued after 2017. Payments would be excluded from the recipient’s income.  I’m not at all certain that rebranding alimony as a “divorce subsidy” encourages support for single parents? This would also seem to make it all the more difficult for a parent to make child support payments?

Classroom costs: Teachers could no longer write off the cost of supplies they buy.  The reality is that not so long ago school districts kept supplies from pencils to facial tissues on hand; today these items (along with hand sanitizer) end up on lists of items parents are expected to purchase when the school year begins.  What isn’t subsidized by parents whose children are enrolled in cash strapped districts is usually purchased by teachers, to the tune of an average of $500 per teacher per year, with some teachers spending much more. [CNN money]  It’s been reasonably obvious Republicans aren’t great friends of public school teachers — but this suggestion is a direct slap at teacher’s own bank accounts.

College boosters: Sports fans would no longer be able to deduct 80% of the cost of donations to colleges if they are made only to become eligible to buy seats for games or get preferences such as prime parking spots.  The University of Minnesota isn’t sure what will happen to its program in light of this proposal, and universities in Nevada probably aren’t either.   UNLV and UNR both use booster donations to support their athletic scholarship funds. Perhaps lost in this controversial proposal is the notion that scholarship funds are, in most cases, not limited to a particular program but also support our “Olympic Sports.”  Donors to UNR and UNLV athletic funds might want to ask Representative Amodei why he might be in favor of this Republican plan.

Disaster losses: Currently, losses from theft or events such as flood, fire or tornado that exceed 10% of adjusted gross income are deductible. The bill would repeal that deduction, with one exception — disasters given special treatment by a prior act of Congress. A law enacted Sept. 29 increased the deduction for losses caused by Hurricanes Harvey, Irma and Maria, and it was sponsored by Rep. Kevin Brady, R-Texas. Brady, the chairman of the Ways and Means Committee, is also sponsoring the tax overhaul.  How interesting — the plan doesn’t affect those battered by “Harvey” in Texas — but Florida, Puerto Rico, and others it’s YOYO time as far as the Republicans are concerned.  Since when do we, as a nation, not give people a break when they’ve lost everything, or nearly everything in a natural disaster?

Employee achievement awards: Complicated rules that allowed some cash awards from employers to be tax-free to the worker would become taxable.  Another interesting point — corporations can expect a big tax cuts, but employees earning cash awards from those corporations would be required to pay taxes on these kinds of achievement awards.

Employer-provided housing: Rules allowing for some workers to get housing and meals tax-free from their employers would face a new cap of $50,000, and benefits would be phased out for those earning more than $120,000.  So, if the employer has you (and perhaps your family) parked in “West Moose Bay” where groceries have to be flown in, and “housing” is only provided by the corporation — the subsidy is taxable?  And we haven’t even mentioned that Section 1310 eliminates moving expenses. (pdf)

Home sale gains: Right now, the gain on the sale of a home is not taxable if it is under $500,000 for joint filers as long as the home was the owner’s primary residence for two of the previous five years. New rules would require a home to be the primary home for five of the past eight years to qualify, and the income exclusion would be phased out for taxpayers with incomes over $500,000.  I suppose we can kiss the Bush Administration’s emphasis on home ownership goodbye? Little wonder there’s opposition to this proposal from the housing industry — and from those who construct homes as well. There’s more from USA Today on the topic of housing at this link.

Major medical costs: The decision to eliminate the deduction for medical expenses exceeding 7.5% of adjusted gross income was one of the bill’s “tough calls,” Brady said Friday. “The call is this: Do we want a tax code that has special provisions that you may need once in your life, or do we want a tax code that lowers rates every year of your life?” he said.  This may take the prize for lame explanations — ever.  Consider for a moment the victims of the Las Vegas shooting, some of whom will be facing major medical expenses exceeding 7.5% of their AGI — not just now but for years to come.  The idea that we should eliminate affordable comprehensive health insurance is bad enough, but this notion is downright heinous.  And, this from those who want to cut Medicare and Medicaid?

And this isn’t all — there are more atrocities in the USA Today article, and more specifics in the Ways and Means Committee summary of the bill.  (pdf)

Not to put too fine a point to it, but this bill, which will most likely be supported by Representative Amodei, could have been drafted by accountants and tax lawyers for major corporations and the top 1% of American income owners — to be paid for by those who are working in everyday jobs, who have to move to find employment, who are adoptive parents, who are victims of natural disasters, who are facing major medical expenses…

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Filed under Amodei, income tax, Nevada politics, Politics, tax revenue, Taxation

Tax Cuts, Wages, and Promises, Promises, Promises

GD income wages salaries tax cuts 1980 2017

That Blue Line on the chart is FRED’s report of gross domestic income, in terms of compensation for employees (wages and salaries) from 1980 to the present.  One of the things to notice is that it keeps rising.  We can explain part of this by taking inflation into account, and some of the bumps and blips by noting that the shaded gray sections represent recessions.  But, it just keeps going up except for the Great Recession brought to us in the wake of the Housing Bubble/Wall Street Casino Crash, compliments of the Wall Street Casino.

Indeed, notice that increase in employees wages and salaries between 1990 and 2000, when the top marginal tax rate increased from 31% to 39.6%, the blue line keeps going upward.   If nothing else, the graphic above illustrates that anyone trying to convince us that increases or decreases in the top marginal rate for income tax payers correlate to increases or decreases in wage and salary compensation trends hasn’t been paying attention.

The Corporate Tax Wrinkle 

Okay, if one can’t make the case that tax cuts for the wealthy won’t “increase” the money in the pockets of middle income Americans, then there’s the Corporate Tax Wrinkle.  Thus, the White House is trying this line:

“The Council of Economic Advisers report argues that high corporate taxes hurt workers in the form of smaller paychecks and that worker incomes rise sharply when corporate rates fall. It points to “the deteriorating relationship between wages of American workers and U.S. corporate profits” and says, essentially, that high corporate taxes have encouraged companies to shift capital abroad rather than flow profits to workers through pay increases.”

Here’s the first problem — this statement assumes that high corporate taxes cause companies to “shift capital abroad.”  This conveniently ignores some other reasons corporations seek to invest overseas.  Let’s make a quick list: (1) There’s good old fashioned market seeking.  In this case the company is looking for new customers for its goods or services, and it may be that the domestic market is fairly well saturated so looking abroad makes perfect sense.  This is especially true for technology firms which often find that the smallest market needed to drive development is larger than some of the largest national markets.  (2)  Resource seeking.  Labor costs may be cheaper in another foreign market, or there may be quicker access to natural resources in a foreign location.  (3) Strategy.  Imagine that a corporation is looking to improve its distribution network, or to take advantage of new technologies; a company might decide to partner with a foreign corporation which specializes in some specific phase of production.  And then there are (4) Efficiency elements.  We can insert some common elements into this category like trade agreements which give an advantage to plant or service locations because of tariff agreements, or there could be currency exchange rate considerations involved.

Therefore, we can quickly see that the corporate tax environment is a part of the decision making process about shifting capital overseas, but it certainly isn’t the only factor, and it may not even be the most important one.  What the White House Wrinkle demands is that we believe if Congress reduces corporate taxes this will offset all the other other reasons a corporation may want to shift some of its operations overseas.  Frankly, this really isn’t rational.

And, then there’s the second problem —  hoarding.

“The cash held overseas by US firms has continued to grow at a rapid pace, rising to almost $2.5tn in 2015. The substantial tax bill most firms would face if they attempted to bring this cash home, however, means that it is still very unlikely to ever be repatriated under the current system.”

Gee, if we could “repatriate” all this money imagine the increase in wages!  Not. So. Fast. The firms stashing the most cash overseas are Apple, Microsoft, Cisco, Alphabet (Google), and Oracle. [MW]  Right off the bat we notice that these are all tech firms, and as mentioned above tech firms are constantly market and resource seeking — while a repatriation scheme may bring some of the cash home, there’s still a reason the firms may want to keep capital available for foreign operations; it wouldn’t matter what domestic tax system was in place.

Another point that should be made more often is that this money isn’t “trapped” overseas.   Where are these “deferred profits?

“A 2010 survey of 27 large U.S. multinationals found nearly half of their “overseas” tax-deferred profits were invested in U.S. assets, including U.S. dollars deposited in U.S. banks or invested in U.S. Treasury bonds or other U.S. government securities, securities and bonds issued by U.S. corporations, and U.S. mutual funds and stocks.”

What’s “trapped” are the tax payments due on the funds — not the funds themselves, 50% of which are already happily running along in the corporate revenue streams or “reinvested” in U.S. assets.   And if we could “bring home”  (or get out of the bank) the other half would this mean higher wages?  Remember, we tried this once before:

“In 2004, lawmakers allowed multinationals to repatriate more than $300 billion in profits at a greatly reduced tax rate. But independent studies largely conclude that firms used those profits to pay cash to shareholders, not to invest or create U.S. jobs. In fact, many firms laid off large numbers of U.S. workers even while reaping multi-billion-dollar tax cuts. Today, offshore profits are concentrated in a few large multinationals that have recently made record cash payouts to shareholders by buying back stock, showing that they already have enough cash on hand to make whatever investments they project would be profitable. Repatriated profits would likely similarly be paid out to shareholders, not invested.”

Who are those “buyback monsters” who’ve been demonstrating they already have enough cash on hand to make any investments they think might create even more profits?   Apple is one, then there’s Exxon Mobil, IBM, General Electric, Pfizer, and McDonald’s. [CNBC]  If Apple is one of the ‘monsters,’ then why would anyone believe that allowing the tech giant to “repatriate” more money at reduced tax rates would make them do anything other than what they’ve been doing — using the capital to buyback stock?  McDonald’s?  If they have enough cash on hand to indulge in financial engineering to increase their stock prices, what would make anyone believe they’d change midstream and start advocating for raising the minimum wage?

Mythological Means

It’s really hard to imagine where that $4,000 pay raise is supposed to come from if corporations are given more tax breaks.  There’s a question of the provenance of that $4,000 number in the first place, and in the second place it’s a dubious estimate at best.  We should also notice that the claim isn’t being framed in context; there may be some gains for employees BUT they are long term, certainly not short-term or annual gains. [FC]

“It’s important to note that any gain to workers would only come in the long term — over several years. Furthermore, most households would not see a gain as large as the “average” or mean figure, which is pulled up by very high incomes of a relative few. In 2016, the average household income was $83,143 as we’ve already noted, but the median or midpoint for household income was $59,039, meaning that half of all households received less.”  [FC]

This is another version of the old story:  The Sultan of Brunei walks into a room with nine members of the Little Sisters of the Poor and the average (mean) wage skyrockets.  Take that $4,000 figure with a couple of boxes of Morton’s Salt.

The Bottom Line 

So, what do we know?  We know that there’s no direct correlation between low top marginal rates for individual filers and wage increases.  We know that corporations make decisions about off shore operations for a variety of reasons, taxes being only part of the equation.  We know that corporations have several options for investing cash (foreign or domestic) only one of which — seemingly the least likely — is to pay increased wages and salaries.  We know that corporations use “financial engineering” to increase their stock value, or increase dividends to their shareholders.  We know that even accepting the 20-25% labor liability for corporate taxation the returns to labor are long (not short or annual) term benefits of little value in terms of household budgeting; it’s NOT like having any useful amount of “cash in your pocket.”

In short, we probably know what we’ve suspected all along.  The current Republican version of “tax reform” is simply a gift to corporations, extremely wealthy persons, and a nice gesture from the Haves to the Have Mores.

And for this we are to accept cuts in Medicare to the tune of $472.9 billion over the next ten years, between $1 and $1.5 trillion in cuts to Medicaid, cuts to food assistance programs, cuts to low income heating assistance programs, cuts to children’s health insurance, cuts to education, small business support, and Meals on Wheels….

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New Bull, Same Old Product: The Latest Incarnation of GOP Tax Cuts

For some reason, probably known but to the major donors of the Republican Party, “we” need a tax cut.  The rationale for this exercise echos the ubiquitous adolescent argument for automobile ownership — I need the car to go to work, I need to work to pay for the car.   In this instance, it’s argued that we need the tax cut to promote growth, and the growth to pay for the tax cut.  It’s the same old southbound product of a northbound male bovine we’ve heard so many times before.

Even the GOP assertions connect to this circuitous argument.  A tax cut, we are told, will promote economic growth — and Everyone will win.  Unfortunately, there’s no unanimous jury decision on this question.  First, there are some common methodological problems with altogether too many academic studies purporting to answer the question definitively.  Secondly, there are further issues intrinsic to discussion about how the tax cuts are to be offset.  Not all tax cut/reform proposals are created equal.

“The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.” [Gale, Brookings]

Therefore, if we step back and adopt the centrist conclusions of the Gale-Samwick Study quoted above, there appear to be some boxes to be checked off if the goal is to encourage long term economic growth, and one of those boxes calls for the avoidance of deficit financed tax cuts.

We are cautioned by Republican advocates that there are only two ways to reduce a federal deficit, either raise taxes or reduce spending.  The last iteration of a Republican tax cut, was not only deficit financed but the deficit was enhanced by the spending associated with the wars in Afghanistan and Iraq.  Since raising revenue by increasing taxation is anathema to Republican orthodoxy then there must be a reduction in spending.  Enter the proposals from the current Republicans to reduce Medicare spending by $472.9 billion over the next decade, and a further reduction of $1 to $1.5 trillion in cuts to the Medicaid program.

The current FY 2018 budget makes some assumptions which may be quickly frustrated. For example, the budget assumes no further military conflicts — the military expenditures assume readiness costs, not military operations; and, cuts to domestic expenditures  to a level not seen since the Hoover Administration.

If this sounds like the same old prescriptions from GOP decades past, there’s a reason for it which becomes obvious when the framework is examined.  What we have herein is NOT a new proposal for tax reform, but a recycling of ideas included in every recent Republican tax plan.

Cut the corporate tax rate from 35% to 20%.  As noted previously in this site,  there are several options available to corporations, none of which have anything to do with increasing employment or raising wages — share buybacks, dividend payments, mergers and acquisitions, corporate bonuses, management compensation, etc.  The GOP argument rests on the fluid assumption that corporations will reward the nation with more plant expansion, research and development, and rising wages — without a scintilla of proof this will actually happen.

The 25% (15%) pass through rate.  This purports to be a bonus for small businesses.  In the real world most small businesses are already paying this rate or rates even lower.  Consider the following evaluation of the Pass Through business:

“Finally, the top statutory rates and average effective rates mask substantial differences in what individual business owners pay in taxes. Most businesses are small, earn relatively modest income, and thus face relatively low bracket rates. As a result, more than 85 percent of pass-through businesses in 2014 faced a top rate of 25 percent or less; only 3 percent faced a marginal rate greater than 30 percent (Figure 6).[10] However, a much larger share of pass-through income does face high marginal income tax rates. Almost half of pass-through income in 2014 came from businesses with a top rate of at least 35 percent.  In other words, a small number of large pass-throughs are responsible for the vast majority of the sector’s tax burden.”  (emphasis added)

Consumer Warning: Beware of muddled conflation of pass through taxation with income from pass through businesses.  85% of small businesses are already paying low pass through rates, and the income is coming from a small number of very wealthy pass through businesses.  It doesn’t take too much imagination to figure out these are lobby shops, law firms, and other wealthy operations which bear little resemblance to small law offices and other independent businesses.

The Death Tax is Coming, The Death Tax is Coming.  I have no reason to believe that there won’t be one more “small business owner,” or one more family farmer, hauled into camera range at a GOP function who will have some tale of woe about inheritance taxation — or as I prefer to call it: The Paris Hilton Legacy Protection Act.   99.8% of all Americans don’t have to pay the estate tax, and such taxes as are paid are 40% of the excess above $5.45 million.   One other point might be made at this point, it’s not the heirs who pay the estate taxation if any is due — it’s the estate, via the executors.  But the major number here is 99.8%, the 99.8% of Americans who will see absolutely no benefit from this “tax cut” at all.

Eliminating the Alternative Minimum Tax, “which is intended to ensure that higher-income people who take large amounts of deductions and other tax breaks pay at least a minimum level of tax.”   Now, gee, if I could just see a certain President’s tax returns I could tell if he were liable for the AMT?  If I could be reassured that high profile NYC real estate developers, who take a spectacular range of deductions, might have to pay the Alternative Minimum Tax so they aren’t dodging their contributions almost entirely?  However, it’s been since May 20, 2014 since a certain presidential candidate said that if he decided to run for high office he’d release his tax returns — some 1,313 days ago…

In short, there’s nothing new here. It’s the same old south bound produce of a north bound bull.  Repackaged, with a new face in the Oval Office, and I remain convinced that two of our Congressional representatives, Senator Dean Heller and Representative Mark Amodei, will happily twist themselves into rhetorical knots trying to explain how cutting Medicare and Medicaid will benefit middle income Nevadans by pleasing the millionaires and billionaires among us.

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Filed under Amodei, Federal budget, Heller, income tax, Nevada politics, Politics, tax revenue, Taxation

Real Nevadans Real Numbers Real Income

The big push of the week appears to be that the Republicans have in mind a “middle class tax cut.”  Notice please that we’re not getting all that much in the way of “tax reform” but we are poised to get a deficit financed tax cut.  And, that WE part doesn’t actually include all that many people who file tax returns from Nevada.

Nevada by the Numbers:  2,940,058 Nevadans filed tax returns in 2015 (the last year for which statistics are available from the IRS.) 655,530 were individual tax returns and 440,130 were filed as joint returns.  There were 233,730 filed as Head of Household. 713,530 filers used paid preparers.  The number in that last category ranges from those who have extremely complicated filings to those of us who simply find it convenient to have someone else fill in the forms, or those who take advantage of tax prep companies who offer free filing services to those who don’t actually owe taxes or have small refunds due from the taxes they’ve already paid.

When we look at the adjusted gross incomes reported by Nevadans it may be useful to put the numbers in some context.  For example, the median income in Nevada is $51,847 and the per capita income is $26,541. The median value of a housing unit owned by the occupant is $173,700 and the median selected mortgage cost is $1,442 per month.  The median gross rent is reported as $973.00.  This gives us a preliminary picture of the 1,016,709 households in Nevada, and our population of 2,940,058.

1,350,730 Nevadans filed income tax returns in 2015.   27.21% of the Nevada filers reported adjusted gross income between $25,000 and $50,000.  13.5% of filers reported AGI between $50,000 and $75,000. 8.15% reported AGI between $75,000 and $100,000.  Another 10.22% reported an AGI between $100,000 and $200,000.  From this point on the percentage of filers by category drops, those reporting AGI between $200,000 and $500,000 were 2.48% of the filers; those reporting AGI between $500,000 and $1 million were 0.43%, and those reporting over $1 million AGI made up 0.26%.

The current (2017) tax brackets and explanations can be found compliments of the Tax Foundation in a convenient table form for single and joint filers. To make a long story a bit shorter, a person would have to have an AGI (adjusted gross income) of at least $191,650 if filing a single return to hit the 33% bracket, and $233,350 if filing a joint return.

The numbers indicate that 48.95% of those filing Federal income tax returns from Nevada are reporting below $100,000 in annual adjusted gross income.  Some of the 138,000 Nevada filings between $100,000 and $200,000 AGI may have been included in the bracket in which there is a $18,735.75 liability plus 28% of an excess over $91,900.  Fewer still would be in the 33% bracket with a liability of $46,643.75 plus 33% over $191,650.  Indeed, only 3.17% of Nevada returns reported AGI over $200,000 annually (35% and 39.6% brackets.)

Where’s the middle? Numbers are objective and instructive, but tax policy can get pretty emotional.   By the numbers a person earning about $52,000 per year in this state is in the “middle.”  Pew Research provides one of the more commonly accepted definitions of Middle Class, “2/3rds to 2 times the national median income for household size.”  In current parlance this would be in a range of $46,960 to $140,900.  If we compare this to the Nevadans filing tax returns in 2015 then 21.74% are in the $50,000 to $100,000 AGI range; some others will be in the $100,000 to $200,000 AGI range (10.22%.) Undifferentiated reporting with two sets of categorization make this a difficult call without being able to drill down into that latter classification of filers)  However, what these numbers do tell us is that to be considered a Middle Class Tax Cut the benefits should accrue to those earning between $46,960 (a little below the Nevada median earnings) and $140,900.

So, how does the current edition of the Republican tax plan fit into “the Middle.”

“Despite repeated promises from Republican lawmakers that the plan is designed to provide relief to the middle class, nearly 30 percent of taxpayers with incomes between $50,000 and $150,000 would see a tax increase, according to the study by the Urban-Brookings Tax Policy Center. The majority of households that made between $150,000 and $300,000 would see a tax increase.” [WaPo]

The report from which the Washington Post article is derived is more specific.

“In 2018, the average tax bill for all income groups would decline. Taxpayers in the bottom 95 percent of the income distribution would see average after-tax incomes increase between 0.5 and 1.2 percent. Taxpayers in the top 1 percent (incomes above $730,000), would receive about 50 percent of the total tax benefit; their after-tax income would increase an average of 8.5 percent. Between 2018 and 2027, the average tax cut as a share of after-tax income would fall for all income groups other than the top 1 percent. In 2027, taxpayers between the 80th and 95th percentiles of income (between about $150,000 and $300,000) would experience a slight tax increase on average.”

There’s something about an analysis from the Tax Foundation reporting that 50% of the total tax benefit going to the top 1% that doesn’t sound precisely like a “middle class tax break.”  In short, the analysis makes it seem much more likely that the plan would be far more beneficial for the Nevada income earners who report AGIs over $500,000 per year, a total of 9,290 filers out of 1,350,730 who filed tax returns.  This really isn’t a “middle class tax cut.” At least not in terms of the real Nevadans, who report their real incomes.

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Filed under Economy, income tax, Nevada economy, Nevada politics, nevada taxation, Politics, Taxation

Let’s Review and Make Some Conjectures

Senator McConnell couldn’t have made himself more clear to the Republican leadership — let’s please have less drama from the White House so we can get along with our agenda.  Less tactfully phrased, McConnell and his myrmidons such as Representative Mark Amodei (NV2) and Senator Heller (R-NV) isn’t going to do anything about the dolt in the Oval Office until after they get what they want.  They want two things: (1) to return the control of the health insurance market back to the insurance companies; and (2) to dismantle the financial and consumer protections enacted in the Dodd Frank Act, and the Sarbanes Oxley Act.  Not sure about this, then please consider the current push for the Choice Act:

“At a time when too many hard-working American families are still recovering from the devastating impact of the 2008 financial crash, deregulating Wall Street’s biggest firms again makes no sense. Yet the Financial CHOICE Act threatens to do exactly that.

It would allow the biggest Wall Street banks to opt-out of significant financial protection rules, while those banks that remain in the regulatory system would be blessed with watered down versions of once-tough protections, like living wills and stress tests. Perhaps most worryingly, the CHOICE Act would cripple two of the most important post-crash reforms: the Financial Stability and Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB).” [the Hill]

Review: The CFPB was the agency which brought to light, and then levied fines against Wells Fargo for egregious violations of their customers’ privacy and financial interests.  Little wonder the banks aren’t happy with those “bureaucrats.” Less wonder why the Republicans aren’t going to do anything about the President who had to fire his National Security Adviser — until the Choice Act is safely delivered to his desk.

We should also recall that the Republican version of the healthcare reform act is much less about health insurance reform than it is about bestowing tax cuts for the wealthiest among us, to the tune of close to $765 billion over the next ten years.  We can easily conjecture that the GOP will do nothing about the man in the office who fired the US Attorney in the Southern District of New York, and then the emissary from the Department of Justice who warned him about the dangers presented by the presence of General Flynn.  At least nothing will be done, until the Republicans can cut Medicaid to the barest of bones:

His (Trump’s) promise would be violated by House GOP bill, as it seeks to freeze Medicaid expansion money for states in 2020 by withhold funding at the enhanced match rate for any new enrollees after that point. Other beneficiaries are at risk with the more long-term transformation that program stands to undergo under the GOP bill. The legislation would overhaul the program—now an unlimited federal match rate—into a per capita cap system, meaning that states would get a fixed amount of funding per enrollee. The Congressional Budget Office, analyzing an initial version of the legislation, predicted out of the 24 million Americans who would lose coverage under the earlier GOP bill compared to current law, 14 million were due to its changes to Medicaid. [TPM]

Given there is no CBO scoring on the current edition, we can’t be certain that States like Nevada which expanded Medicaid enrollment in order to make health care access affordable, won’t be left in the lurch — Congressman Amodei’s tortured logic to the contrary.  So, nothing is likely to be done about the executive who fired the Director of the FBI who was supervising the investigation of Russian meddling in our elections (and possible Trump connections to that meddling) until Medicaid cuts are also tucked into the President’s portfolio for a signing ceremony.

When will Republicans address the Leaker-in-Chief’s discussions with the Russian visitors to the White House?  Probably not until the budget cuts to the Department of the Interior, the Environmental Protection Agency, Medicare, Health and Human Services, and the Department of Education come to fruition.  Do we have a situation in which the following is true?  If the Trumpian honeymoon isn’t over, it soon will be.

That sentiment was echoed by a prominent GOP consultant I spoke to who asked not to be named to offer a candid assessment of Trump and congressional Republicans.
“The question for Republicans is whether this is the straw that breaks the camel’s back,” said the source. “Forty percent approval is not the issue; an erratic, rudderless, leaderless White House is.” [CNN]

The camel’s back may not bend until the Republicans have seen their agenda realized, their Randian Dreams made true, and their Austerity Government imposed on the American people.   The damage of this administration and the Republicans in Congress who enable and excuse him is only starting to come to fruition.

 

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Filed under Amodei, Comey, conservatism, corporate taxes, financial regulation, Health Care, health insurance, Heller, income tax, McConnell, Medicaid, nevada health, Nevada politics, Politics, public health

That Changing Trump Tax Plan and the People Who Love It

 Trump Tax Plan It’s time to haul out the old Etch-A-Sketch template from the Romney campaign for another deployment in the Trump 2016 version – Trump has offered two tax policy proposals.  Neither one accomplishes much more than exacerbating the problems of the current tax code; in fact they’d both do more damage than good.  

Representative Joe Heck (R-NV3) candidate for the Nevada Senate seat and Danny Tarkanian, perpetual candidate and now a contestant for the 3rd Congressional District seat, have both endorsed Donald Trump as their choice for president, and here’s what they’re getting in the bargain.

A Tax Plan for the Top 0.1%

Bracketology: The Tax Policy Center analyzed the initial Trump Tax Proposal (December edition) and this release was followed by significant changes in the original proposal as of August 16, 2016.   And here comes the confusion:

“Trump’s original tax plan included defined brackets, which have since been removed from his campaign website. Trump’s standard deduction increase would make the first $25,000 in income tax-exempt. According to his original plan, the lowest bracket would then apply to all taxable income between $25,000 and $50,000 for single taxpayers, the middle tax rate would be assessed on income of $50,001 to $150,000 and the highest rate would apply to income above $150,000. For married couples, the income ranges would be double these amounts.”  [Motley Fool]

And now:

“As a practical matter, Trump’s plan features a sizable tax-free bracket. He wants to quadruple the standard deduction (currently $6,300) to $25,000 for single filers and $50,000 for joint filers. As a result, about half the population wouldn’t pay income tax.” [TaxAnalyst]

As everyone who has ever filed with the IRS knows full well, what a person actually pays is tax on the adjusted income – income after deductions. If we don’t know what the allowable deductions are then it’s almost impossible to discern what the tax proposal actually means for the average tax payer.  It also isn’t helpful that the ‘defined brackets’ have been removed from the policy section of the Trump info-site.  We can guess that the 12% rate goes for those with taxable incomes between $25,000 and $50,000; 25% for those with taxable income between $50,000 and $150,000; and, 33% for those with taxable income over $150,000.

Who plays in the Brackets?  Here comes the fun, and the way the Trump Tax Plan benefits the upper income earners.   We need to look at Trump’s “pass through entities.”   This is a loophole not only large enough to drive a tractor trailer through, but most of the freight cars on the Union Pacific as well.

“Trump would go one step further, creating an enormous tax loophole for the rich by applying his 15 percent corporate rate to “pass-through” entities as well. Pass-through entities are businesses whose income are not taxed at the corporate level, but rather passed through entirely to the businesses’ owners and then taxed at the owners’ individual income-tax levels. High-income households can easily avoid paying their full income tax bill by reclassifying their income as pass-through income. This loophole allows Trump to claim that he is closing the carried interest loophole, while actually lowering the rate that hedge fund managers would pay from 23.8 percent to 15 percent.”  [EPI]

In 2012 the state of Kansas under the direction of Governor Sam Brownback and a GOP controlled legislature enacted this loophole with disastrous budget results, because of  reduced taxation rates for LLC’s, S Corps, partnerships, farms, and sole proprietorships.

The normally extremely conservative Tax Foundation is not amused:

When the exemption was passed in 2012, it was projected that 191,000 entities would take advantage of the provision. As more and more people have realized the very sizeable tax advantage of being a pass-through entity in Kansas, that number ended up being 330,000 claimants, over 70 percent more than was anticipated.  It’s important to note here that while decreasing taxes is generally associated with greater economic growth, the pass-through carve out is primarily incentivizing tax avoidance, not job creation. [TaxFnd]  (emphasis added)

Thud.  That’s the sound of budget and revenue problems hitting the floor as a result of a ‘carve out’ for the top income earners disguised as a tax cut for small businesses.  Here’s a simple example. If I were earning $165,000 per year working for the Acme Explosives Company, I would ask my employer Wile E. Coyote to immediately re-hire me as an “independent contractor.”  I would re-create myself as an “S” corporation. Handy, since I live in Nevada which doesn’t have a personal income tax, and thus doesn’t recognize the federal S corporation election.  I file the paperwork, get my EIN number, pay some fees, and bingo! – I am taxed at the 15% rate rather than 33%.  There is obviously no job creation here – just a wonderful and perfectly legal way for me to reduce my “bracket” at the expense of those who don’t have the wherewithal to follow my shady example.

The Wichita Eagle editorial board summarizes:

“As part of the 2012 tax cuts, about 300,000 business owners in Kansas don’t have to pay state taxes on pass-through business income. Not only do many Kansas wage earners think this is unfair, so do some of the business owners receiving the tax break – especially when the state is facing serious budget problems.  The exemption is costing Kansas about $260 million a year in revenue. And contrary to what Gov. Sam Brownback promised, it hasn’t acted “like a shot of adrenaline into the heart of the Kansas economy.”

Trump, Tarkanian, and Heck would seemingly like to have Nevada and 48 other states go the way of Kansas?  Only if we’d like to raise tax avoidance and cheating to an art form.

Playing with Children:  Another element of the Trump Tax proposal is the child care tax deduction, and here too the top 1% fare very well thank you.   It’s important to remember at this point that the economic value of a tax deduction increases with the marginal rate of the payer. Or, the higher your tax bracket the more valuable the deduction – for child care.  The deduction is of no use whatsoever to someone already in the Zero bracket but is ever so helpful for those in the upper income levels.

Playing for the Children:  Mr. Trump is pleased to tell us that the Federal Estate Tax is a “horrible weapon which has destroyed many families…”  Not. So. Fast.  “Today’s estate tax is only imposed on less than 0.2 percent of households. Fewer than two estates in a thousand pay it. More than 2.5 million Americans die each year, but less than 5,000 estates were taxed in 2014. Only estates of $5.4 million or more must pay any estate tax at all.” [C&L]   Perhaps it is not too much to return to the appellation “The Paris Hilton Legacy Protection Act,” for this long sought GOP gift to the rich.

There are some serious questions which should be posed to Mr. Trump and his supporters like Mr. Tarkanian and Representative Heck:

#1.  What exactly are the specified brackets in the modified Trump tax policy proposal?  We can assume that the new rates apply to the old brackets but without clarification from the campaign there are significant questions about the revenue projections (or revenue deficit projections) which remain unanswered.  Do those brackets leave us with a revenue deficit of $3 trillion over ten years?  [Tax Analyst] If so, thus much for budget balancing and other forms of fiscal contortion.

#2. Does Trump mean to allow individuals to avail themselves of the Great Pass Through Tax Dodge?  If so, how does he intend to avoid what’s happened in Kansas?

#3. Does Trump intend to provide child care deductions for the rich while working families see none of the economic benefits of it?

#4. Do Mr. Trump, Mr. Tarkanian, and Representative Heck really mean to advocate for estate tax avoidance for those estates of $4.5 million or more? For less that 0.2% of the United States population?

We may have to wait for Trump Tax Policy 3.0 before these questions can be fully answered?

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Filed under Economy, Heck, income tax, Nevada politics, tax revenue, Taxation

Yes, We Could Be Having A Serious Deficit Reduction Discussion?

Tea Party FlagAt some point in the ongoing discussion about federal debts and budget deficits everyone needs to get serious.  Serious, that is, about doing that which will reduce our federal deficit spending.  Really serious, not as in “let’s wave a Debt Crisis Flag every three months to advance an agenda including the privatization of Social Security and the voucherization of the Medicare program.”

Let’s start with the obviousSocial Security doesn’t add a dime to the national debt.  If the words of a progressive blogger won’t suffice, how about listening to former President Ronald Reagan?  (video here)  So, discussing “reforms” to the self funded Social Security program as a means to reduce the national debt is extraneous to any serious deficit reduction discussion.

One way to approach the privatization of Social Security is to change the frame of reference, such as altering the connotation of “entitlement” from some earned benefit to which we are entitled because we paid for it, to one which has a tinge of “welfare” about it.  Social Security is not a welfare program — it is an earned benefit.  People who have paid into it all their working lives have every right to expect to be getting something back.  Social Security is not a retirement program.  It is a program which seeks to prevent abject poverty for elders.   Nothing in the Social Security program prevents anyone from maintaining a self-contributory retirement account of any shape or form.   Indeed, the benefits from Social Security are low enough that retirement to the Gated Golf Paradise Of Your Choice can only happen if you have a self-contributory retirement savings program. Anyone suggesting that “entitlements” such as Social Security “have to be reformed” to ease the burden on the federal debt (1) doesn’t have a clue what they are talking about, and (2) is regurgitating anti-safety net talking points from radicals who want to privatize all retirement income programs to the benefit of Wall Street investment firms.

Medicare does have some issues.  The first, and most readily apparent, is that the Medicare Part D (prescription drug) segment is, and always has been, underfunded.  However, the really big monster under the Medicare bed is the increasing cost of health care in America.  When private health care corporations started buying up religious organization/private, state, and locally supported hospitals the profit motive surged in the sector.  Health care must now generate a profit.  Savings, which were once achieved for the purpose of reducing costs for local tax payers or donors to religiously based institutions, now accrue to the corporate bottom line — not to taxpayers, donors, or patients.

The second factor is technology.  We do have the best medical treatment providers in the world.  However, best often translates into “most expensive.” We have all manner of devices and gadgets and equipment and gear to save or sustain lives.  Our hospitals take it as their mission to save or sustain life, which is all well and good until the emotional meets the economical.  There are “death panels” in this country, but they aren’t governmental — they are familial, with families making ‘end of life’ decisions which horrifically in some instances are based on what the family can afford.   Frankly speaking, we don’t do a very good job of educating our citizens about advance directives.  Some conservatives set up a howl when they noticed the Affordable Care Act provided for paying physicians or other medical professionals who provided ‘end of life’ counseling for their patients — however, a little counseling might go a long way toward reducing the anxiety of hospital personnel and the trepidations of family members.  It could also provide some savings in the long run.

Returning to the Big Problem — the Medicare Part D component; we knew in 2003 that the Part D segment would  cost approximately $534 billion.  [Foster pdf] Simply put, “the drug benefit had no dedicated financing, no offsets and no revenue-raisers; 100% of the cost simply added to the federal budget deficit,..” [Forbes]  The part about “dedicated financing” is important.  While the Social Security trust funds have dedicated financing (payroll taxes) there were no provisions to increase the revenues available to finance the Part D enhancement.   There is something unappealingly ironic about the current GOP insistence on “entitlement reform” because “Medicare is broken,” when it was the GOP majority in 2003 that Broke the Program.

Ways to ‘reform’ the Medicare program have been suggested which do not require “voucherizing” the entire thing and sending seniors back to pounding pavement in order to find affordable health insurance plans.  We could consider means testing for the prescription drug benefit.  We might take under advisement lifting the earnings cap for payroll taxes from the current $110,000 level and dedicating a portion of the revenues toward the Part D program.  We could allow the Department of Health and Human Services to negotiate for prescription drug prices the way the Veterans Administration bargains for prescription drugs for VA hospitals and clinics.

If we are REALLY REALLY SERIOUS about ‘reforming’ Medicare then it would be helpful to get past the silly voucherization proposals, referred to as “structural reform” in Speaker Boehner’s response to the President, [Boehner pdf]  and get to the core of what makes health care expensive — we could talk about health care cost containment, dedicated financing for Medicare, and lifting the earnings cap.   We might also want to take a deep breath and see if the Affordable Care Act’s provisions, such as eliminating tax payer subsidies for profitable private Medicare Advantage insurance policies, could achieve some savings over the next decade.

However, it’s getting relatively obvious that the Republicans aren’t terribly serious about deficit (debt) reduction when their offers are strictly ideological (privatize and voucherize) and the proposals don’t address the monster of their own creation — the lack of financing for Medicare Part D.

Buzz Words and Generalities.   Speaker Boehner is offering (pdf) “pro-growth tax reform that closes loopholes and deductions while lowering rates.”   This phrasing is coming perilously close to the older verbiage: Waste, Fraud, and Abuse.  As if we could make up any gaps in program funding by simply cutting out the WFA.  Most anti-tax advocates cite the WFA as some massive potential figure which if reduced could cure all our fiscal woes.  When pressed to provide total figures associated with the largely mythical WFA these advocates provide outlier examples of welfare fraud, some particularly egregious Pentagon payments to contractors, and perhaps a bit of information from Internet e-mail chain letters.  The WFA numbers have yet to yield up the level of financing needed to close budget gaps in the Pentagon or any other government activity.

The arithmetic from “loopholes and deductions” doesn’t add up either.  The same sort of fantastical thinking is required to equate the WFA savings and the L&D revenues.  These mythological creatures are based on the same gossamer upon which anti-tax advocates conjure up the notion that an inordinate amount of the U.S. budget is allocated to foreign aid.  The average American has come to believe that foreign aid takes up 10% of the federal budget, when if fact it consumes only 1%. [NYM]

The Republicans also appear to be consuming their own rhetoric on savings associated with reductions in federal employee compensation.

“Cutting pensions and benefits for government workers is popular, but once again most Americans overestimate how much that costs the government. On average, Americans think the federal government spent 10 percent of its 2010 budget on pensions and retiree benefits; the OMB figures indicate the real number is about 3.5 percent.” [CNN]

The moral of this story is that if the amounts of spending on pensions and benefits, or the amounts that can be retrieved by closing loopholes and eliminating deductions, are grossly inflated, then the resulting policy and budget decisions will be widely off the mark.

Unfortunately, the same type of ideologically based proposals which are the core of Speaker Boehner’s “structural reforms” i.e. voucherization and privatization of Medicare appear to inform his suggestions about federal employee compensation, and another favorite GOP target, SNAP (food stamps.)

The program is already under assault from all sides, considering the appropriations being entertained in the agriculture bill.

The Senate’s version of the farm bill would reduce overall funding by $23 billion, with a reduction in food stamps of $4.5 billion over five years. The House Agriculture Committee is proposing to cut funding by $35 billion — with nearly half the overall cut coming from reductions in food stamps by $16 billion over five years. [Atlantic]

But there’s a problem here.  Food stamps have a beneficial effect on the national economy.

“Those who believe in cutting SNAP funding as a cost-saving measure should know that food stamps boost the economy — not put a strain on it. Supporters of federal food benefits programs including President George W. Bush understood this, and proved the economic value of SNAP by sanctioning a USDA study that found that $1 in SNAP benefits generates $1.84 in gross domestic product (GDP). Mark Zandi, of Moody’s Economy.com, confirmed the economic boost in an independent study that found that every SNAP dollar spent generates $1.73 in real GDP increase. “Expanding food stamps,” the study read, “is the most effective way to prime the economy’s pump.” [Atlantic]

If the object of the game is to increase federal revenues by generating a higher GDP along the formula proposing that a growing economy produces jobs, and more jobs yield more taxable income, and more taxable income means more revenue — then the GOP has the SNAP portion of the argument exactly backwards.  They are proposing to cut a program which actually generates more economic growth.   If one seriously believes that economic growth means more revenue and hence less indebtedness, then one can’t seriously advocate cutting programs which elevate levels of economic growth.

All Pain and No Gain.  The two sides don’t seem to be speaking to the same fiscal slope, cliff, gully, whatever.  From the Republican perspective the damage to the economy might be done by The Specter of Rising Taxes.  Those legendary Job Creators — who are now seeing record corporate profits while wages continue to stagnate — might not invest, and hence there will be no economic growth.  This is fundamental Supply Side Hoax thinking.  That it has been, and still is, a hoax is demonstrated neatly by this graph from the Federal Reserve Bank of St. Louis:

Corporate Profits Low Wages

The blue line represents wages, the red line corporate profits.  If corporate well being were the driver of overall economic growth and  well being then why has the blue line been trending downward since 1970?  The answer is simplicity itself: Supply Side Economics is a Hoax of the First Water.

A deficit reduction plan predicated on ideology, urban legends, misunderstandings, and economic illiteracy isn’t SERIOUS.   That conclusion further advances the argument that the Republicans aren’t really serious about debt or deficit reduction, but merely see the issue as a flag to be waved in the van of their attack on the social safety net, a banner of privatization signaling their allegiance to Tea Party politics.

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Filed under Economy, Health Care, health insurance, income tax, Medicaid, Medicare, national debt, Social Security

Six Talking Points about Fiscal Cliffs and Austerity Bombs

Senate Majority Leader Harry Reid (D-NV) has a message for the middle class this morning:

“Nevadans and Americans across the country agree that we can strengthen the middle class by adopting a balanced fiscal policy that requires millionaires and billionaires to pay a little more. In July, the Senate passed a bill to cut taxes for the 98% of Americans and 97% of small businesses making less than $250,000. House Republicans should stop trying to protect the wealthiest Americans from contributing their fair share and pass this bill immediately. Middle class Americans will have more opportunities to succeed when we level the playing field and make tax policy fairer.”  Senator Harry Reid (D-NV) 11/19/12″  (emphasis added)

In order to effectively expound on this message it is necessary to plant oneself firmly in the Reality Based World, and to dismiss some common misconceptions being promoted by the plutocrats and their GOP allies.

#1.  When the GOP says “your taxes will be raised” they are not talking to 98% of the American public who earn less than $250,000 in adjusted gross income annually.  The Obama Administration’s proposal is to allow the Bush Tax cuts to expire on earnings above $250,000; and to KEEP the Bush era tax rates in place for those individuals earning less than $250,000 in adjusted gross income annually.

#2. When the GOP says taxes will increase on small businesses, they are including those 3% of “small businesses” which are lobby shops, major law firms, large hedge funds, etc.  They are NOT speaking of the 97% of American small businesses which are small partnerships, single proprietorships, or small corporations which constitute the backbone of the American economy.

#3. Social Security and Medicare are called “entitlements” because they are earned benefits, which individuals have paid for and therefore are entitlements. These programs are not the problem, they are simply the target of choice from the Republican leadership which wants to cut Social Security and privatize Medicare.   These programs have NO place in budget negotiations concerning the reduction of the federal debt.

#4.  The legislation to which Senator Reid refers is S. 3412.  The terms of which can be generally summarized as:

“The Senate bill (S. 3412), passed on July 25, 2012, would extend current tax rates for lower- and middle-income persons, would increase tax rates on higher-income persons, would extend for one year (through 2013) certain tax provisions that expire at the end of 2012, and would patch the alternative minimum tax for one year only (2012).” [source]

#5.  “Harry and Louise” style ads from the Edison Electrical Institute (DefendTheDividend) notwithstanding,  S. 3412 and the Obama Administration proposals are  NOT an attack on retirement savings.  Remember the threshold levels:  “Individuals with incomes above these threshold levels, would have some of their itemized deductions and personal exemptions limited by phase-outs, would have a 20% rate on dividends and long-term gains, and would face tax rates of 33%, 36% and 39.6%”  [source]  The current rate for investors is 15%.

Who would  be affected by the Obama Administration’s tax proposals on capital gains?  Information from the Tax Policy Center is helpful.

Things to note — there are NO changes for those individuals in the bottom four income quintiles.  Only those individuals who are in the TOP income brackets (the top quintile, especially those in the top 1% or the top 0.1%) would be affected by the proposed changes in tax treatment of dividends.

#6.  There is NO correlation between low tax rates and economic growth. The non-partisan Congressional Research Service came to this conclusion after studying data from the last 65 years.

“The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.”  [CRS pdf]

In short, the only economic feature impacted by a reduction in tax rates is income inequality.   Nothing says “Support The Plutocrats and Financialists” better than saying we can’t raise taxes on the top 2% without cutting earned benefit programs like Social Security and Medicare.

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Filed under Economy, income tax, national debt, Politics, Reid, tax revenue, Taxation

The Campaign for the Middle Class Isn’t Over

The candidates are no longer running ads, the campaigns have been shut down, BUT the campaign for the American Middle Class continues.  The next phase comes as the Congress debates how to reduce the national debt — brought to us by two wars fought “off the books,” ill considered tax rate reductions, and a nasty recession.  If the American Middle Class is to avoid the detonation of the Austerity Bomb (aka the Fiscal Cliff) then we need to:

(1) Let our Senators and Representatives know that without an increase in the tax rates for millionaires and billionaires the ARITHMETIC necessary to reduce the national debt doesn’t add up.

(2) Remind our Senators and Representatives that federal discretionary spending has already been cut by $840 billion to $916 billion over the next ten years [QS] in the Budget Control Act of 2011.

(3) Let our Senators and Representatives know that we understand merely closing a few loopholes in the tax code isn’t nearly enough to make a serious dent in the national debt.  If they are serious about debt reduction then “increasing revenues” can’t be a code phrase for “tinkering with deductions and loopholes.”

If millionaires and billionaires don’t want a national debt passed along to their children and grandchildren — it just might behoove them to help pay off some of it.

 

 

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Filed under Congress, Federal budget, income tax, national debt, Politics, Senate