Tag Archives: estate tax

The Incredible Tax Bill

For once the President* found the precise word.  The recently enacted tax bill is incredible, and so is the President*.

There are some elements of the tax plan which, indeed, are genuinely incredible.  Here are a few —

 The tax plan is predicated on what amounts to economic mythology/ideology, and it is NOT grounded in empirical evidence.  Trickle Down economics is and has always been a theory in search of some evidence, and not a result of the collection and analysis of actual economic data.  The following summation is as good a point at any to discuss the reality of this manufactured ideology:

“The harsh reality is that while this story has been told for – sometimes very eloquently for 30 years, now – we can look back to President Reagan’s tax cuts in 1981. There’s never been a documented case in which it actually worked. The problem is that every time we’ve enacted tax cuts in the last 30 years that have been based on this premise, we’ve had to backpedal as a nation. We’ve had to undo them. Sometimes, as in the case of the Bush tax cuts of 2001, it’s taken a decade of pitched battle for Congress to realize in a bipartisan way that they really had just dug the hole too deep.”

The tax plan benefits approximately 83% of the nation’s income earners, and does little to help the remainder.

“By 2027, more than half of all Americans — 53 percent — would pay more in taxes under the tax bill agreed to by House and Senate Republicans, a new analysis by the Tax Policy Center finds. That year, 82.8 percent of the bill’s benefit would go to the top 1 percent, up from 62.1 under the Senate bill.”

And even in the first years of the bill’s implementation, when it’s an across-the-board tax cut, the benefits of the law would be heavily concentrated among the upper-middle and upper-class Americans, with nearly two-thirds of the benefit going to the richest fifth of Americans in 2018.”

Let’s get realistic about this point.  Nevada has a total population of 2,998,039; with a median home owner value of $191,600.  The median household income is $53,094.  The per capita income is $27,253.   We’ve covered Nevada tax filers previously, with the following result:

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%.

It doesn’t take any form of complicated arithmetic to discover that giving tax breaks to the top tier income tax filers doesn’t apply to all that many people in the state of  Nevada (or anywhere else for that matter.)  While the definition of  “middle class” seems to vary, the most commonly accepted definition by income asserts  it is  those households  earning between $46,960 and $140,900 annually.  Nevada’s median income ($53,094) fits within that range.   The majority of the benefits included in the current tax scheme do NOT accrue to the majority of Nevada’s income tax filers.

And then there’s the CBO analysis:

“According to the CBO’s calculations, individuals in every tax bracket below $75,000 will experience a year in which they record a net loss — meaning they’ll pay more in taxes, experience diminished services, or both — by 2027.  The lowest income groups will face significant overall losses, and those making between $10,000 and $20,000 a year will face the biggest losses. The CBO estimates that in 2027, taxpayers from this bracket will see an overall loss equivalent to $788.10.”

If ever there was an example of Reverse Robin Hood, this tax scheme would serve nicely.  This is a middle class tax cut only if the middle class is defined in extremely illogical ways — as if $250,000 AGI was anywhere in the “middle.”

The tax plan make corporate tax cuts permanent and individual/family tax cuts temporary.  This is a recipe for disaster in 2027 when someone is asked to pony up the difference between realistic spending and unrealistic assumptions about economic growth.

The tax plan is underpinned by the assumption corporate tax cuts will yield increased wages and increased employment.   A common Republican argument of the moment is that our recovery from the last recession was sluggish, and tax cuts would have made it better.  Another argument could as easily be made:  The recovery was not as robust as it could have been because Republicans refused to enact the kinds of stimulus spending that would have both improved our national infrastructure and boosted consumer expenditures.  Republicans screamed “deficit spending” and “national debt” to the heavens, a tune they now seem to have forgotten as they vote in favor of a $1.4 trillion deficit.

The tax scheme also ignore the obvious.  How many times in this modest little blog have we said: There is ONE and ONLY  ONE reason for any firm to hire anyone at any time — a business only hires personnel when the staffing levels are insufficient to meet the demand for goods or services with an acceptable level of customer/client satisfaction. Regular readers should be able to recite this from memory by now.

We’ve also mused about other ways corporations spend their windfalls — mergers and acquisitions, increased dividends, stock buy-backs, increased investment in financial revenue streams, etc.  It’s not like wage increases and plant expansion are the only options.  In fact, for corporations, especially those for whom  ‘shareholder value” is the driving focus, increasing wages and capital expenditures is the last likely option.  Shareholders are focused on getting a maximum return on their investments and this is not enhanced by increasing labor costs.

The tax plan is riddled with benefits for the wealthy that defy common sense.  For example: Carried interest, increasing the estate tax exemption (Fun Fact: Of the 5,460 estates slated to pay the estate tax this year only 80 of them are small businesses or farms.)  More examples?  There’s the alternative minimum tax which was enacted  to address a concern which may be resurrected by this tax bill:

“Congress enacted the AMT in 1969 amid widespread outrage that many wealthy people paid little or nothing to Washington thanks to clever use of loopholes. But because income thresholds for being subject to the tax weren’t indexed to inflation (until 2012, which didn’t make up for the decades of lost ground), many middle-class people got sucked into paying it. ”

The tax plan is only part of an overall plan to Kill The Beast.  Or, make government so small it could be drowned in a bathtub?  Those who aren’t convinced by now that the next move by this Norquistian Congress is to go after Social Security, Medicare, and Medicaid haven’t been listening to GOP leadership.   Expect the drumbeat of commentary on “entitlements” to increase by leaps and bounds — We have a Huge Deficit! (Which they created) and now We have to cut government spending.  Remember: They are called entitlements because you are entitled to the benefits you’ve been paying for with your payroll taxes all along.

Pro Tip:  This assessment of voters was made in 2006, and not all that much has changed since –

“Regular voters also are older than those who are not registered. More than four-in-ten of those ages 50 and older (42%) are regular voters, about double the proportion of 18-29 year-olds (22%). Among those between the ages of 30 and 49, more than a third (35%) reliably go to the polls ­ a fact that is consistent with previous research that found voting is a habit acquired with age.”

Now, who is most likely to be quite concerned with saving Social Security and Medicare? There’s a reason  Social Security and Medicare form the third rail of American politics.

A final point.  The Republicans have given away their cards.  When Democrats called for increased spending on health programs, Republicans pointed to the deficit. When Democrats called for increased infrastructure spending, Republicans pointed to the deficit.  Now, the deficit (all $1.4 trillion of it) is the responsibility of the Republicans.  They’ve given away the revenue.  Now the Democrats have the Tax the Corporations card in hand.  And who among the GOP wants to run on a platform of saving those cash-hoarding multi-national corporations?  Good luck with that.

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Filed under Economy, Nevada economy, Politics, Taxation

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

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

A Simple Question for Rep. Amodei

Amodei 3

Here’s a simple question for Representative Mark Amodei (R-NV2):  What have you done for us lately? And, please don’t try to tell me your vote to repeal the estate tax for the top income earners in the country is “doing something” for the remainder of working America.  Nevada representatives Amodei, Heck, and Hardy were pleased to vote for H.R. 1105, which is essentially a $269 Billion handout to the richest families in these United States.

First, if the country has $269 billion – with a B – to give up in revenue, then I’d really not like to hear any more from any of the three GOP representatives about “cutting the deficit,” or “balancing the budget,” because cutting revenue has the same effect as increasing the spending – it’s the arithmetic of the matter.

Secondly, labels are essentially useless. Calling the estate tax a “death tax” may do well in focus groups but if we’re serious about fiscal matters, and we ought to be, then we’re not taxing a person – we’re taxing the value of the estate left to the very select few.  The Paris Hilton Legacy Protection Act would be a far more enlightening label.

Is your “estate” worth more than $5.43 million?  Because that’s the size of the legacy which under the current system which is liable for taxation purposes.   And, spare me the “small business” and “family farm” arguments. Please.  As of the moment only 0.2% of Americans would owe any estate tax, meaning of course that the remaining 99.8% of Americans who may own family farms or small businesses are NOT liable for this tax.

“Only roughly 20 small business and small farm estates nationwide owed any estate tax in 2013, according to TPC.[10]  TPC’s analysis defined a small-business or small farm estate as one with more than half its value in a farm or business and with the farm or business assets valued at less than $5 million.  Furthermore, TPC estimates those roughly 20 estates owed just 4.9 percent of their value in tax, on average.[11]

These findings are consistent with a 2005 Congressional Budget Office (CBO) study finding that of the few farm and family business estates that would owe any estate tax under the rules scheduled for 2009, the overwhelming majority would have sufficient liquid assets (such as bank accounts, stocks, bonds, and insurance) in the estate to pay the tax without having to touch the farm or business.[12]  The current estate tax rules are even more generous.” [CBPP]

And then there’s the “taxed twice” argument, which doesn’t make any more sense in the real world than protecting those 20 business and farm estates nationwide – here’s the trick – most of the biggest estates consist of “unrealized capital gains” which have NEVER BEEN TAXED in the first place. [CBPP]

From this point forward, Representatives Hardy, Amodei, and Heck have no room to speak of the “income inequality gap” in the country.  They’ve just voted to increase the beast.  Again, it’s not even mathematics, it’s arithmetic. If the GOP wants to increase spending for its Pentagon projects then someone has to pay for that. At present discretionary spending in the federal budget amounts to about 29% of the total, and of that 29% some 65% is related to the U.S. military. [NPorg]  Thus, the increases sought for Defense Department spending, and the hole created by losing another $2.69 billion in revenue – to protect the 0.2% – has to be made up by the remaining 99.8%.

So, what have Representatives Heck, Hardy, and Amodei done for us (the 99.8%) lately?  Not to put too fine a point to it – they’ve just told us it’s up to us to make up that $269 billion handout to the ultra-rich, and accept that we “can’t afford” to feed children, the disabled, and the elderly, to promote agricultural development, to help provide housing for the nation, to guarantee student loans for middle income families, to promote and encourage industrial and manufacturing technologies…..  And, all to protect the precious 0.2%.

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Filed under Amodei, Heck, tax revenue, Taxation

My Country T’is All About Me: The Romney Tax Plan – Who In Nevada Would Benefit?

Background Information: Of the 1,263,928 individuals who filed tax returns for 2010 from Nevada 21,187 reported adjusted gross incomes of more than $200,000 but less than $500,000.  3,778 reported income between $500,000 and $1,000,000 and only 2,372 reported incomes above $1,000,000.  [SOI tax]  A home-made pie chart of the returns yields this:

For those who prefer numbers:  2.07% Nevadans reported little or no income; 38.84% reported adjusted gross incomes under $25,000; 27.39% reported AGI between $25,000 and $50,000.   13.61% reported AGI between $50,000 and $75,000 for 2010.   7.64% reported AGI between $75,000 and $100,000.  8.28% reported adjusted gross incomes between $100,000 and $200,000.   Now the percentages start to drop dramatically.

1.68% of Nevadans reported income ranging from $200,000 to $500,000; and, 0.30% had AGI’s in the $500,000 to $1,000,000 range.  Only 0.19% reported income above $1,000,000 in 2010.  [SOI IRS] 2.17% of total filers from Nevada were in the over $200,000 AGI categories.

The historical tables from the Internal Revenue Service don’t break out the numbers from the top 0.19% into millionaires and billionaires.    Please notice that we aren’t discussing the top 1% at this point, but the top 0.19% because those in the top 1% aren’t necessarily the same people who are enjoying the perks and benefits of tax breaks and havens of the ultra-rich.

“The top 1 percent includes people who made many hundreds of millions of dollars and perhaps some with incomes of more than $1 billion, official government data will show when it is released in two years.

Economically, those just entering the top 1 percent have nothing in common with those in the top tenth of the top 1 percent. Someone at the entry point for the top 1 percent would need 29 years to make $10 million, and more than 2,900 years to make $1 billion.

The point is that while all those in the top 1 percent are certainly well off, the vast majority still go to work every day.”  [Reuters 2011]

Thus in Nevada only 0.19% of all income earners in 2010 had income which put them in the “over $1,000,000” category, but it is entirely possible that many of these filers rely on income from medical practices, legal offices, or other remunerative employment which still doesn’t mean they have the luxury of sitting back and “clipping coupons.”   Nationwide, as of 2008 a person in the top 0.10% ($5.2 million and $7.5 million) could simply invest in the bond market and maintain an income categorized as within the top 1%. [Reuters] Between capital gains and carried interest these people are doing very well.

Capital Gains

“Income and wealth disparities  become even more  absurd  if we look at the top 0.1% of the nation’s earners– rather than the more common 1%. The top 0.1%–  about 315,000 individuals out of 315 million–  are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.” [Forbes]

And are these people the Job Creators? Probably not. An investment manager explains:

The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

Some will fall into the private equity category within the aforementioned “investment industry.”

Carried Away With Interest

Carried interest is defined asA share of any profits that the general partners of private equity and hedge funds receive as compensation, despite not contributing any initial funds. This method of compensation seeks to motivate the general partner (fund manager) to work toward improving the fund’s performance.”

We can combine the capital gains and the carried interest in this post because carried interest is classified as a capital gain and is taxed at the 15% rate.  A pertinent question might be raised here — if the whole purpose of the lower tax rate for carried interest is to encourage the hedge fund or private equity manager to “improve the fund’s performance,” then WHY do they need THAT much encouragement to do what they were supposed to do in the first place — increase the ‘value’ of the fund?
This situation is well past the “time and a half” for most worker’s extra efforts, and well beyond the Christmas Bonus in the secretarial pool.  It’s super-charged merit pay on steroids.  It’ s also very popular in some quarters.
So, what is the Romney campaign promising?  An across the board 20% cut in marginal rates, maintaining the current rates on interest, dividends and capital gains (15%), eliminating taxes on capital gains for those earning less than $200,000, and repealing the estate tax and the alternative minimum tax. [Romney]   How he intends to make up the revenue differences and not run up the deficit remains a mystery. [TPM]
Who benefits?  The Tax Policy Center runs the numbers on the 20% reductions:
Who benefits from low capital gains taxes?   The chart is going to look familiar:

How about the repeal of the estate tax?  Remember, the first $5.2 million in the estate is exempt.   This would save the top 0.1% a tidy $15 billion.  [CSM]  The latest figures from 2010 indicate that only 0.5% of estates in Nevada owed any federal estate tax. [CTJ pdf]

Cui Bono?

Beyond being a pig in a poke in which how all the generous tax cuts might be paid for remains something confined to former Governor Romney’s quiet rooms,  the Romney tax plan is of primary benefit to those 0.19% of Nevadans in the upper income brackets — and not really all that generous to the working members of that classification.   It is especially generous to those in the investment industry who are already doing quite well.  And, it would only benefit about 0.5% of the estates in Nevada.

The plan is an excellent illustration of the bespoke attitude of the top 1% of the top 1% wherein resides the “I got mine, now you try to get yours…” condescension toward the American middle class.

Read more:  Robert Lenzner, “The Top 0.1%,” Forbes, November, 2011.   G. William Domhoff,UCSC,  Who Rules America?, January 2012. G. William Domhoff, “Wealth, Income, and Power,” WRA, March 2012.   Katz & Louis, “…Carried Interest,” Bloomberg News, July 2012. Saez,”US top marginal rate,”  UC Berkley, tables (pdf)  Tax Policy Center, “20 Percent Reductions,” November, 2011.   Shalin, “Income Distribution in Nevada,” UNLV, 2011 (pdf)   Tax Policy Briefing Book, Tax Policy Center, “What is the effect of lower tax rates..,” June, 2011.   R. Williams, “Romney’s Tax Plan Really Does Favor The Rich,” Christian Science Monitor, January 2012.   Policy Basics, The Estate Tax, CBPP, June 2010.    Center for Tax Justice, 2011 Estate Tax by State, November 2011.

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Filed under Economy, Nevada economy, Romney, Taxation

Back Pages: Speaking of Taxes, A Retrospective

Since taxation appears to be a trending topic these days, here are some items from the DB Archive and other sources which might be useful in review:

On the elements of the current tax system that are contributing to the increasing gap between the ultra-rich and the American middle class, and other general discussions of taxation: “They Do Keep Trying,” October 28, 2011.  “What Wall Street Won,” October 5, 2011. “Reverse Robin Hood: GOP tax plans,” March 15, 2010.  “The Supply Side Hoax Redux,” July 15, 2011.  “Nanny Government for the Rich,” August 4, 2006.

See also: Brookings, Tax Policy Center, “Income tax paid at each tax rate 1958 to 2009,” October 12, 2011.  “Why some tax units pay no income tax,” July 27, 2011.  CAP, “Bush Tax cuts are the disaster that keeps on giving,” June 7, 2011.  EPI: “You can’t measure tax progressivity while ignoring income trends,” January 20, 2011. EPI: “Income inequality is a policy choice,” January 12, 2011.

On addressing the mythologies of the Flat Tax and other “simplification” schemes: “Beaten over the head by the Club for Growth,” May 27, 2010.

On the capital gains tax: “Republican Road Map for Billionaires,” March 1, 2010.  See also: CBPP, “Preference for Capital Gains doesn’t make sense,” January 23, 2011.

On the estate tax: “The Estate Tax and the Family Ranch,” August 15, 2006. “Magical Mark: The Estate Tax Scam,” July 16, 2011.  See also: CBPP  “Costly estate tax giveaway should expire in 2012,” June 3, 2011.  “Estate Tax cut a bitter pill to swallow,” December 8, 2010.  “Next Steps on the Estate Tax,” September 7, 2010.  “On estate tax, lawmakers party like its 2001,” May 13, 2010.

On taxation and small businesses: “Who really supports small business?” August 28, 2010.  See also: CAP, “Small Business owners are not millionaires,” October 20, 2011.

References on Republican taxation plans: Brookings, Tax Policy Center, “Santorum’s tax plan,” “The Romney tax plan.”  “Tax Proposals by Republican Presidential Candidates,” (distributional results)  Center on Budget and Policy Priorities, “Romney Budget would require massive cuts in non-defense programs,” January 23, 2011.  CTJ, “CTJ analysis shows Romney’s Plan would cut his own taxes in half,” January 19, 2011.  CTJ: “GOP presidential candidates tax plans favor richest 1%,” January 6, 2011.  EPI: “Romney’s Plan for the 1%,” January 6, 2011.


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Filed under tax revenue, Taxation

Magical Mark’s Old Economy: Amodei Releases Bushian Economics Ad

Nevada Congressional candidate Mark Amodei has released another relatively fact free ad in his bid to succeed appointed Senator Dean Heller in District 2, predictably he’s running “against Washington.”   The candidate offers us three easy solutions to our economic problems: lower taxes  on small businesses; cut regulations; and put “federal lands to work.”  This is as clear a restatement of Bushian Economics as we’re likely to find.

Once more: “Persistent belief in the magical thinking of Bushian Economics, in which de-regulation (in 2008 we saw where that got us), tax cuts (which exacerbated the federal deficit and the hyperconcentration of wealth in the Wall Street Casino without creating jobs), and privatizing (which didn’t do much of anything except make public services more expensive) — is tantamount to doing the same things over and over again, each time expecting different results.”

The Instant Tax Cut Solution

Tax cutting has been an article of faith for Republican candidates since the litany of the 1984 GOP platform.  It’s interesting that in the commercial message Mr. Amodei — now in a flannel shirt driving pickup truck — stresses cutting taxes for small businesses, but his web page list has little, if indeed anything to do with cutting tax liabilities for truly small firms.  [See Previous Post]

He would support making the Bush Tax Cuts permanentHow nice for the top 1% of American income earners, the prime beneficiaries of these cuts.  Small, independent, business owners making less than $250,000 annually do not get nearly the break that’s awarded the top 1%, much less approach the benefits which accrue to the top 1/2 of the top 1%.  Remember this graph?

What candidate Amodei is essentially saying is that we should make the Bush Tax Cuts permanent, so that the share of federal taxes paid by the middle class continues to increase.

He would support eliminating the federal estate tax.  We’ve covered this territory before as well.

“If we look at the Tax Policy Center’s evaluation of the situation as of 2011, they estimate that about 50 farms and businesses nationwide would be affected if the threshold remains at $5 million. (pdf) Who would seriously advocate losing tax revenue to the benefit of  no more than 50 small companies and farms nationwide?”

In short, what we have here is candidate Amodei’s firm pledge to advocate for the Paris Hilton Legacy Protection Act.

He would support continuing the deductions for multiple homes.   No one’s seriously proposing to eliminate the mortgage deduction for the family home, however only about 6% of Americans own a second home. [HomeIns]  Thus, if the mortgage deduction is allowed for vacation homes, then obviously the 94% of Americans trying to stay right side up in one home are still hefting more of the tax liability burden for the benefit of the top 6%.

He would reduce marginal tax rates for individuals and small businesses.  Why? If candidate Amodei truly believes that the federal deficit is a serious problem, and if we have the lowest overall tax burden since the 1950s, then why would we reduce marginal rates even further?  If candidate Amodei remains one of those devoted followers of Bushian economics and believes — all evidence to the contrary — that tax cuts generate revenue, then what he’s proposing is that we continue to do “more of the same” and to expect different results.

He would support a balanced budget amendment — no matter how deleterious this might be for national finances.   We’ve covered this territory before too, here and here.   If one were to draw a graph illustrating the relationship between economic literacy and support for balanced budget amendments we’d see an inverse proportionality — the higher the level of support for a BBA the lower the level of economic literacy.

The Bottom Line

Tax cuts, in se, do not generate revenue, they do not create jobs, they do not cause immediate increases in aggregate demand.  Only in the Land of Voodoo Economics, in the realm of the Supply Side Hoax, in the dreams of the Masters of the Universe and the Wall Street Wizards, are tax cuts the elixir which cures all ills.   We know better than to believe “snake oil” cures everything from male pattern baldness to malaria, it’s a credit to modern Republican advertising that some have come to believe that tax cuts have the same economic curative powers.

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Filed under Amodei, Nevada politics, Taxation