The Bubbles Caused by High Taxation

Brian Domitrovic for Forbes discusses how capital went on strike in the 1970s because of a clutch of onerous tax increases starting in 1969, and was diverted instead to a bunch of "inert stuff" like gold, oil and land, causing unemployment to rise: 

The rich spent the 1970s trying to figure out how to hide their money. ...

The 1970s were the first heyday of “alternative investments.” Gold, oil, land, straddles, these exotica had been the preserve of a small group of specialists before 1969, when high earners got hit with a triple tax increase. The top capital gains rate got upped to an effective 49%, there was an income-tax surcharge, and the millionaire’s minimum tax (the AMT monster of today) began. This is not to mention “bracket creep,” whereby real tax rates go up with every increase in the price level. For the record, inflation was 200% from 1969 to 1982.

In this environment, the rich simply stopped what they were doing and focused all attention on preserving capital and avoiding confiscatory rates. ...

Read the whole thing here.

"The Tax Code is 10 Times Longer Than the Bible, Without the Good News"

So says Republican Representative Dave Camp of Michigan, and George Will approves, here, especially with the additional observation that it is not right that the bottom two income quintiles pay no taxes whatsoever, and receive direct cash payments in the form of refundable tax credits.

Real conservatives agree: everyone needs to have skin in the game.

Rush's Brain Goes on Vacation Early

Today he's said the SPENDING in the $857 billion bill extending the Bush TAX rates for two years was minimal, and that the majority of it, $700 some billion, had to do only with the tax rates.

Pure rubbish.

A lazy, over-generalized point showing yet again lack of show prep, and an effort to co-opt the outrage and the influence of the Tea Party, which Rush is trying to steer toward establishment politics to prevent it from exploding into a genuine third party movement.

The tax rates, extended for two years, will cost just over $207 billion, not $700+ billion. The rest is all tax credits, fixing the Alternative Minimum Tax yet once again, and a host of other goodies handed out via the tax code in order to mask what's really going on: the rich and the poor getting special favors through the tax code at the expense of the chumps in the middle who must pay and pay and pay.

Wake up Rush, you dunderhead.

Here's a table breaking it all down.

Tax 'Em All: Let God Sort 'Em Out

People who claim, like Rush Limbaugh, that no one is undertaxed in this country don't know what they are talking about. Both the rich and the poor are undertaxed. Here is why.

For tax year 2008, IRS figures show that the top half of the country, over 69 million tax returns, contributed in excess of 97 percent of the tax revenue, $1.004 trillion. The bottom half, over 69 million returns, contributed less than 3 percent of the revenue, $27.9 billion, a staggeringly small sum by comparison.

The effective tax rate on the top half was 13.66 percent, on the bottom half just 2.6 percent.

It seems self-evident that the poorer half of the country escaped a lot of taxation, but how?

For one thing, George Bush's creation of the 10% tax bracket in 2001 reduced federal tax revenues from payers in the 10 percent bracket by $42 billion per year. For another, the Earned Income Tax Credit diverts away even more money, now approaching $50 billion per year. These credits wipe out any federal income taxes qualifying filers may owe, and actually reimburse many of them for the payroll taxes they pay, so that many actually have a negative tax rate. This is using the tax code to provide what amount to direct welfare payments, stimulus spending, whatever you want to call it. But it sure isn't "taxes."

But the poorest Americans are not the only beneficiaries.

These credits also percolate far up through the income quintiles. And none penetrate as high as the child tax credit does, relieving the middle classes of taxes to the point that many people in the middle quintile earning between $38,551 and $61,801 also pay little to no federal income tax at all. Created under Newt Gingrich and Bill Clinton and expanded under George Bush, this credit now reduces federal revenues by $143.4 billion per year. People even in the top income quintile, making in excess of $100,000 a year, can qualify for this credit, which also directly reduces their tax bill, and government revenues.

Taken together, the 10% bracket, the EITC and the Child Tax Credit help taxpayers to be sure, but at a cost of nearly $2.4 trillion over ten years to the federal government.

Compare that with the big tax break the top earners in the country enjoy because the payroll tax cap is set at $106,800. Everything they earn after that escapes the 6.2 percent tax. The annual cost of that is now $130 billion, or $1.3 trillion over a decade. The denizens of the top 25 percent of taxpayers, who earn 68 percent of the total adjusted gross income in this country, will doubtless complain that they already contribute 86 percent of the tax revenue.

But the result is that a narrower and narrower band of taxpayers in the fourth quintile (those making between $61,802 and $100,000 per year) and in the top half of the middle quintile (about $52,000 to $61,800), gets squeezed with responsibility for income and payroll taxes without enjoying the relief provided to their poorer fellows who pay very little in taxes, or their richer ones who can afford them.

A ladder needs rungs on it to get from the bottom to the top and back down again, and ours in the upper half are getting worn out.

Extension of Bush Tax Rates Now Goes to US House

The Senate passed the extension of the Bush tax rates, which will last for two years only and is adorned with billions in new spending which we cannot afford, 81-19. Here are the nineteen no votes, a photograph of left and right in the current Senate:

Democrats:

Jeff Bingaman (D-NM)

Dorgan (D-ND)

Russ Feingold (D-WI)

Kirsten Gillibrand (D-NY)

Kay Hagan (D-NC)

Tom Harkin (D-IA)

Frank Lautenberg (D-NJ)

Pat Leahy (D-VT)

Carl Levin (D-MI)

Jeff Merkley (D-OR)

Mark Udall (D-CO)

Udall (D-NM)

Wyden (D-OR)

Republicans:

Tom Coburn (R-OK)

Jim DeMint (R-SC)

John Ensign (R-NV)

Jeff Sessions (R-AL)

Voinovich (R-OH)

Independents:

Bernie Sanders (I-VT)

Senate Votes For "Almost All" of the Bush Tax Cuts

So says TheHill.com, here:

"The package extends almost all of the Bush tax cuts . . .."

The devil is in the details, and I smell a devil.

Judge Objects to Obamacare Bait and Switch: The Mandate Became a Tax

From Peter Wehner at Commentary Magazine:

Judge Hudson writes, “Despite pre-enactment representations to the contrary by the Executive and Legislative branches, the Secretary now argues that the Minimum Essential Coverage Provision is, in essence, a ‘tax penalty.’”

That’s a polite way of saying that the Obama administration willfully misled the public during the health-care debate. In fact, President Obama repeatedly denied that the mandate was a tax — but now, in order to pass constitutional muster, his administration is insisting it is. I urge you to watch ... [w]hen ... Obama scolds Stephanopoulos. “That’s not true, George,” the president says. “[It] is absolutely not a tax increase.”

Now the president and his administration are arguing exactly the opposite.

This is a deeply cynical maneuver on the part of the man who promised to put an end to cynical political acts. Like so much of what Obama said, this promise was fraudulent.

The complete entry is here, with links.

4 of 6 Current Tax Rates Already Do Not Apply to 80% of the Country

Per the US Census, all US households divide into five groups of equal size along these income lines for 2009:

1) $0 to $20,453

2) $20,454 to $38,550

3) $38,551 to $61, 801

4) $61,802 to $100,000

5) over $100,000 (the top 5% make in excess of $180,000).

Current tax brackets are concentrated on the fifth group, the over $100,000 set, so that the top four of the six brackets affect the top 20% of earners in the population the most:

10% for adjusted gross incomes $0 to $16,750

15% on AGIs to $68,000

25% on AGIs to $137,300

28% on AGIs to $209,250

33% on AGIs to $373,650

35% on AGIs above $373,650.

The result is that 60% of the country is responsible for very little tax revenue, and the expansion of various credits like the Child Tax Credit and the Earned Income Credit have meant that an increasingly large percentage of the population is paying no tax at all.

For the 2008 tax year the Tax Foundation reported here that 36% of filers paid no tax at all:

Nonpaying status used to be a sure sign of poverty or near-poverty, but Congress and the President have changed the tax laws to pull much of the middle class into the growing pool of nonpayers. The income level at which a typical family of four will owe no income taxes has risen rapidly, now topping $51,000. 

As a result, recently released IRS data for the 2008 tax year show that a record 51.6 million filers had no income tax obligation. That means more than 36 percent of all Americans who filed a tax return for 2008 were nonpayers, raising serious doubts about the ability of the income tax system to continue funding the federal government's ballooning expenditures. 

The situation worsened dramatically in 2009, to 47%, according to the Tax Policy Center in this AP story: 

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization. ...The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation. ...The number of households that don't pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery. 

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center. 

In other words, the tax code under George Bush and the Republicans in 2001 and 2003 became an instrument of liberal social policy, providing massive social spending on America's middle and lower classes. Combined with George Bush's massive hand out to the elderly in the form of drugs for seniors you now understand why liberals hate George Bush so much: because he out-liberaled the liberals. 

And don't expect to hear about it from Rush Limbaugh. He thinks there isn't anyone in the country who is undertaxed. 

If there were really any conservatives left in the country, they'd be calling for a complete end to these subsidies because they represent government spending which we cannot afford, and for a broader tax base which embodied every American's patriotic duty to contribute to the general welfare. 

A real conservative would equate exempting low incomes from taxation with the practice of exempting high incomes from taxation. The "refund" checks which "the poor" receive from the government when they file their taxes are no different from the exemption the rich receive when payroll taxes are not collected on income above $106,500. The former are justified as offsets of the payroll taxes the poor pay, the latter as exemptions from contributions the rich would never live to recoup. Everyone in a narrower and narrower middle pays and pays those taxes, year in and year out, to benefit the poor and the elderly. It is unsustainable.

The Religious Origins of the Income Tax's "Standard Deduction"

The standard deduction was designed to make it easier for people to claim their charitable contributions, without itemizing them. Note how the standard deduction early on was fixed at 10% of annual income, the common tithe prescribed in the Bible, not to exceed $500 (the median income in 1944 was less than $2,400):

Almost from its inception in 1913, the federal income tax has allowed taxpayers to subtract from their taxable income amounts spent for particular uses. For example, beginning in 1917, taxpayers could deduct donations made to charitable causes. To claim the deduction, taxpayers had to itemize their allowable expenditures. That itemization imposed a burden on taxpayers, but relatively few people were affected because only about 5 percent of households had to file tax returns.

World War II dramatically increased the reach of the income tax: by 1944, nearly three-fourths of households had to pay the tax. With that expansion came concern about the complexity of tax filing. To simplify tax returns, in 1944 the Congress created the standard deduction, then equal to 10 percent of a taxpayer's annual income, up to a maximum of $500. Taxpayers could select the standard deduction as an alternative to itemizing their expenditures on specific activities, reducing their taxes as if they had made that level of deductible expenditures but without having to comply with recordkeeping and reporting requirements. By taking the standard deduction, people are generally claiming deductions that are greater than their actual expenditures would have been if they had itemized.


Obviously the government made a concession to the entire population, Christian or not, and allowed everyone to deduct their "tithe," whether they made it or not.

Now if we could just get government to take no more, and no less, than 10% from everyone, on everything. The government would have plenty of money, and so would we.

Let me channel my inner Santelli: "President Obama, are you listening?"

So let it be written. So let it be done.

More here.

Why Rush Limbaugh Can't Tell The Truth About Income Taxes

Rush claims no one in America is undertaxed.

He doesn't want to mention, of course, that nearly half of America doesn't pay income taxes.

And why don't they pay taxes? Because that's been the goal of Republican tax policy since the 90s:

"The dramatic increase in the number of people who owed no income taxes since the mid-90s was driven almost entirely by the creation and expansion of the per-child tax credit, a policy driven by the Right."

-- Keith Hennessey, April 15, 2010, here

The Democrats hate Republicans as much as they do because Newt Gingrich and George Bush out-liberaled the liberals. How dare they!

If You Want Fewer Poor People in America, Tax Them Already!

Here's Rush Limbaugh, with his whole brain tied behind his back, today:

"Nobody in this society is undertaxed, so why applaud an extension of tax rates? Where are the cuts?" -Rush

When nearly half the population pays no income taxes at all, you cannot say no one is undertaxed. All of them are undertaxed, by definition.

The poor have a responsibility to contribute to the general welfare no less than the rich do, so for them to pay no taxes means they are not doing their fair share, and are in no way equal to everyone who does pay taxes. They are AINOs, Americans in Name Only, who pay no taxes. Just ask Joe "It's Time to be Patriotic, Time to be Part of the Deal" Biden.

If there were any conservatives left in this country, they would be calling for taxes on the poor, to reduce their surplus population.

Wake up Rush, before conservatives start calling you a big fat idiot.

The Tax Elephant in the Room: The Poor Don't Pay Their Fair Share

Once again, the Republicans are about to blow it.

What's needed for the country right now, attempting to leave politics out of the discussion for a moment, is a tax system which is reasonably fair and predictable for the long haul. But what we've got, thanks to George W. Bush, is an unfair system which is deliberately gamed at the extremes, at the expense of the middle. And extending it for another two years just kicks that can of crap down the road.

Under it, nearly half of Americans, those at the low end, pay no federal income tax whatsoever, and millions of them actually get subsidies through the tax code in the form of a big fat "refund" check when they paid no taxes in the first place. These were expanded under Bush, and are defended as offsets of payroll taxes. Do the poor really need yet another offset, in the form of a temporary reduction in the payroll tax rate, especially considering that Social Security is an unfunded liability which is going broke fast?

Compared to the rates they replaced under Clinton, Bush's rates on everyone but the rich are projected to cost the treasury something like $3 trillion going forward, while only an additional $700 billion in tax loss expenditures are predicted to be forfeited from the well to do. Yet the Democrats characterize this as tax cuts for the rich. In point of fact, it's been massive tax cuts for everyone else, especially for the poorest, in the form of subsidies like the Earned Income Credit, the Child Tax Credit, and the creation of the lowest 10% bracket.

Those at the high end, people making in excess of about $106,000, get a huge payroll tax break of their own. They pay zero in payroll taxes above that ceiling at the same time that they pay the vast majority of federal income taxes with a top rate around 35%.

People who've lived a little remember when the poorest among us had one income tax rate, 15%, and the richest another, 28%. What makes those rates in principle unfair now?

Under them today's poorer Americans might actually pay some taxes for a change. And don't they have a responsibility to do so? Didn't Joe Biden tell us paying taxes was the patriotic thing to do? Back in the day the Senator's son got the deferment while the white trash got his ass shot off in Vietnam. Now the "deferment" goes to both the poor and the rich.

Wealthier Americans would see a decline in the rate of the federal tax they paid, that is true. But a broad-based single higher rate on income could be paired with an increase on the payroll tax cap. Why should people who make millions pay no Social Security tax on that income? Social Security is a regressive tax because it taxes the poor end the most and not the rich end. By distributing its pain on everyone equally maybe we would actually have an incentive going forward to put that boondoggle on a more solid footing once and for all, along with the rest of government.

To which end, Republicans should not compromise with the devil. If he won't bow and extend the Bush tax rates, and only the rates, permanently, then Republicans should let them expire. At least the rich will pay a little more, and the rest of us a lot more, and especially the poor. And Obama will get the blame.

Is Ron Paul the Republicans' Dennis Kucinich?

He was one of just three Republicans in the US House to vote with the Democrats today to send a bill to the Senate which extends the Bush tax cuts only to those making less than $250,000/$200,000.

Can't wait to hear from Dennis Ron the chapter and verse from the US Constitution which allowed him to vote Yea on a tax increase for only "wealthy" Americans.

TheHill.com reports here the independent Democrats who voted against Pelosi's class-warfare tax increase bill on the "rich":

Here are the Democrats who voted against the bill (nine of whom lost their reelection bids):

Rep. Brian Baird (Wash.)

Rep. Dan Boren (Okla.)

Rep. Kathy Dahlkemper (Pa.)

Rep. Artur Davis (Ala.)

Rep. Lloyd Doggett (Texas)

Rep. Stephanie Herseth Sandlin (S.D.) 

Rep. Ron Klein (Fla.)

Rep. Jim Matheson (Utah)

Rep. Mike McIntyre (N.C.)

Rep. Mike McMahon (N.Y.)

Rep. Jerry McNerney (Calif.)

Rep. Walt Minnick (Idaho)

Rep. Gwen Moore (Wis.)

Rep. Jim Moran (Va.) 

Rep. Collin Peterson (Minn.)

Rep. Earl Pomeroy (N.D.) 

Rep. Bobby Scott (Va.)

Rep. Gene Taylor (Miss.)

Rep. Mike Thompson (Calif.)

Rep. Pete Visclosky (Ind.)

Among the brave above who were re-elected to return next year I count Dan Boren, Lloyd Doggett, Jim Matheson, Mike McIntyre, Jerry McNerney, Gwen Moore, Jim Moran, Collin Peterson, Bobby Scott, Mike Thompson, and Pete Visclosky. 

Why couldn't the three Republicans have been more like these eleven Democrats and voted No?

Libertarians are nuts.

Unemployment Tab to Date is $319 Billion

The cost of unemployment benefits already paid over the last three years has soared to $319 billion, according to this story from CNNMoney.com, $109 billion of which has been federally funded borrowed, and $41 billion of which to date the states have had to borrow from the feds.

Employers face $26 billion in new taxes by 2015 to replenish and pay back the depleted and borrowed funds, which represents an increase of 68% from the $38 billion businesses paid in 2009.

Another reason jobs are in short supply.

Third Party Candidates in Colorado Senate Race Hand Victory to Democrat Bennet

Where the difference between the Democrat winning and the Republican losing was only 16,000 votes.

The Independent Reform candidate, a self-described social liberal and economic conservative, in other words a libertarian, siphoned off 18,000 votes. A non-originalist crank, he thought two bad innovations of the past have been good for the country, as in this:

The graduated income tax and direct election of senators were originally third party ideas adopted by the major parties to win back votes.

The Libertarian Party candidate in the race bled off 21,000 votes.

Two unaffiliated candidates trying to capitalize on opposition to bailouts and ineffective stimulus spending siphoned off another 16,000 between them. One was a dope advocate who subsequently took credit for stopping the election of the Republican Buck.

That's 55,000 votes on the more or less economic right to the environmentalist wacko Greens on the left who bled off 36,000 votes of their own.

Stronger candidates from the two major parties admittedly would have reduced this hemorrhaging. On the right, however, it's evidence of the voters' justifiable distrust of the Republican commitment to economic conservatism. 

Selling Gold? You'll Pay the IRS at 28%, not 15%

Paul Sullivan reminds us here of a little appreciated drawback to investing in gold:

And even if you invest in gold through an E.T.F. — as opposed to buying bullion — it has two significant costs. The first is that it does not pay a dividend, so there will not be a stream of income from it.

Selling it is easy, particularly with an E.T.F., but this leads to the second problem: gold is taxed at a much higher capital-gains rate. The Internal Revenue Service considers it a collectible and taxes gains at a rate of 28 percent, as opposed to the 15 percent capital gains tax for other securities. This means gold has to appreciate more than other securities to make up for a tax rate on gains that is almost double.

Daniel Gross: "To Spend Money We Don't Have is Vital"

Ah, no, but for some Americans there is no choice.

Daniel Gross for The New York Times here protests that he's witnessed a "frugality" kick twice in America and has lived to see us shake it off both times. He points to signs which he thinks show that Americans may be doing that once again because total debt is up, and boy is he happy about it.

What he won't say honestly, however, is that total debt continues its inexorable rise because while consumers have in fact cut back, government has stepped into the breach to make up for it. A good little Keynesian that Daniel Gross.

Unfortunately, it's the poorest Americans who are spending more, and it's because they must.

Sara Murray for The Wall Street Journal here points out that for the poorest quintile, spending rose 5.6% in 2009 from 2007 while experiencing at the same time a 5.5% drop in their after-tax income. Food spending alone for this group went up 15.4% in 2009 from 2007, because of rising prices. To make ends meet, they are using up what little savings they have left, and . . . tapping credit!

Meanwhile the middle quintile's spending in 2009 is down 3.5% from 2008, and 3.1% from 2007. Overall, Americans are spending 2.8% less in 2009 than in 2008, including the rich.

Many of these statistics are "firsts". And if the Bush tax cuts are allowed to expire, another first will be inflicted on the poorest Americans by benevolent, compassionate liberalism: a 50% tax increase when the 10% bracket disappears and reverts to 15%.

Gridlock, Despite Democrat Control of Everything!

No budget, no tax bill, no jobs, no more!

OBAMA LIED TO THE AMERICAN PEOPLE ABOUT THE HEALTHCARE BILL

The New York Times must be desperate to sell newspapers because it is almost reporting that Obama lied when he said the fine which will be levied on people who do not purchase health insurance is not a tax:

When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”

Read the rest for yourself, here.

BUSH SUBSIDIZED THE POOREST AMERICANS AND CUT THEIR TAXES 33%

Because George Bush was a flaming socialist. The left hated him as they did not because of the Iraq war but because he out-performed them as a liberal. And if Obama lets the Bush tax cuts expire, the poorest Americans will lose their subsidies and their taxes will go up 50%, and Obama will become a conservative and all will be well with the world!

In 2000, the top 60 percent of taxpayers paid 100 percent of all income taxes.

The bottom 40 percent collectively paid no income taxes.

Lawmakers writing the 2001 tax cuts faced quite a challenge in giving the bulk of the income tax savings to a population that was already paying no income taxes.

Rather than exclude these Americans, lawmakers used the tax code to subsidize them. (Some economists would say this made that group's collective tax burden negative.)

First, lawmakers lowered the initial tax brackets from 15 percent to 10 percent and then expanded the refundable child tax credit, which, along with the refundable earned income tax credit (EITC), reduced the typical low-income tax burden to well below zero.

As a result, the US Treasury now mails tax "refunds" to a large proportion of these Americans that exceed the amounts of tax that they actually paid.

All in all, the number of tax filers with zero or negative income tax liability rose from 30 million to 40 million, or about 30 percent of all tax filers.

The remaining 70 percent of tax filers received lower income tax rates, lower investment taxes, and lower estate taxes from the 2001 legislation.

Consequently, from 2000 to 2004, the share of all individual income taxes paid by the bottom 40 percent dropped from zero percent to minus 4 percent, meaning that the average family in those quintiles received a subsidy from the IRS.

By contrast, the share paid by the top quintile of households (by income) increased from 81 percent to 85 percent.

Expanding the data to include all federal taxes, the share paid by the top quintile edged up from 66.6 percent in 2000 to 67.1 percent in 2004, while the bottom 40 percent's share dipped from 5.9 percent to 5.4 percent.

Clearly, the tax cuts have led to the rich shouldering more of the income tax burden and the poor shouldering less.


Read the rest from Brian Riedl, here.