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“The Wealthy, And Everyone Else”: Big Tax Bills For The Poor, Tiny Ones For The Rich

American politics are dominated by those with money. As such, America’s tax debate is dominated by voices that insist the rich are unduly persecuted by high taxes and that low-income folks are living the high life. Indeed, a new survey by the Pew Research Center recently found that the most financially secure Americans believe “poor people today have it easy.”

The rich are certainly entitled to their own opinions — but, as the old saying goes, nobody is entitled to their own facts. With that in mind, here’s a set of tax facts that’s worth considering: Middle- and low-income Americans are facing far higher state and local tax rates than the wealthy. In all, a comprehensive analysis by the nonpartisan Institute on Taxation and Economic Policy finds that the poorest 20 percent of households pay on average more than twice the effective state and local tax rate (10.9 percent) as the richest 1 percent of taxpayers (5.4 percent).

ITEP researchers say the incongruity derives from state and local governments’ reliance on sales, excise and property taxes rather than on more progressively structured income taxes that increase rates on higher earnings. They argue that the tax disconnect is helping create the largest wealth gap between the rich and middle class in American history.

“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” Matt Gardner, executive director of ITEP, said. “Upside-down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

The 10 states with the largest gap between tax rates on the rich and poor are a politically and geographically diverse group — from traditional Republican bastions such as Texas and Arizona to Democratic strongholds such as Illinois and Washington.

The latter state, reports ITEP, is the most regressive of all. Four years after billionaire moguls such as Amazon’s Jeff Bezos and Microsoft’s Steve Ballmer funded a campaign to defeat an income tax ballot measure, Washington now makes low-income families pay seven times the effective tax rate that the rich pay. That’s right, those in the poorest 20 percent of Washington households pay on average 16.8 percent of their income in state and local taxes, while Washington’s 1-percenters pay just 2.4 percent of their income. Like many of the other regressive tax states, Washington imposes no personal income tax all.

“The problem with our state tax systems is that we are asking far more of those who can afford the least,” concludes ITEM’s state director Wiehe.

By contrast, the states identified as having the smallest gap in effective tax rates are California, Delaware, Minnesota, Oregon and Vermont — all Democratic strongholds and all relying more heavily on progressively structured income taxes. Montana is the only Republican-leaning state ITEP researchers identify among the states with the least regressive tax rates.

Of course, if you aren’t poor, you may be reading this and thinking that these trends have no real-world impact on your life. But think again: In September, Standard & Poor’s released a study showing that increasing economic inequality hurts economic growth and subsequently reduces public revenue. As important, the report found that the correlation between high inequality and low economic growth was highest in states that relied most heavily on regressive levies such as sales taxes.

In other words, regressive state and local tax policies don’t just harm the poor — they end up harming entire economies. So if altruism doesn’t prompt you to care about unfair tax rates and economic inequality, then it seems self-interest should.

 

By: David Sirota, Senior Writer at The International Business Times; The National Meno, January 23, 2015

January 24, 2015 Posted by | Middle Class, Plutocrats, Taxes | , , , , , , | Leave a comment

“Bold Moves”: Obama’s State Of The Union Address Offered An Ambitious Vision To Address Income Inequality

I don’t know what President Barack Obama is eating, drinking or smoking these days but someone should give some of it to every Democrat in Congress. Since the midterm election debacle, the president has unleashed enough bold policy initiatives to choke a horse. Some progressives wonder why it took so long for the president to push a populist agenda. My take is that late is better than never.

Last night in his State of the Union speech, the chief executive proposed a version of the “Robin Hood” tax which would provide tax credits and tax cuts to struggling middle-class families at the expense of the wealthy Americans who have reaped most of the benefits of the economic recovery. Previously the president signed a presidential memorandum that would provide federal employees access to paid sick leave to care for a new child and proposed a program that would allow students to attend two years of community college, tuition free.

In addition to his initiatives to combat income inequality, the president took executive action that eased deportation for undocumented immigrants and opened the door for diplomatic and economic relations with Cuba.

But Obama’s tax proposal is a turning point in recent American political history. He has boldly gone where no Democratic president of this generation has gone before. Since the days of Ronald Reagan, Democrats have been on the defensive on tax issues. Republican presidents have proposed tax cuts for wealthy Americans, and Democrats simply reacted and tried to mitigate the damage to working families. Last night the president played offense and proposed tax credits and tax cuts that will help hard-working, middle-class families finally get a piece of the economic recovery.

This is how the president framed the issue last night. “Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?” Americans are concerned about income inequality. In a new Washington Post-ABC News poll, a majority of people said the income gap between rich and poor is a major problem.

Republicans predictably lambasted the president’s proposal. But the president’s initiative placed the burden on congressional Republicans to explain why they won’t cut taxes for middle-class families. Most congressional Democrats favor the idea of middle-class tax relief. But even some of those Democrats are not enthusiastic since they know the proposal will die a quick death on Capitol Hill. Nevertheless, Obama is looking at the big picture, which is the need to rise above the debate on the federal budget deficit and discuss taxes in terms favorable to working families and his party.

The best thing about the president’s activism is that his job rating has increased significantly while he has been laying it out on the line for the last two months. The Washington Post-ABC News poll also shows that for the first time in a long time, there are more Americans who approve (50 percent) of the president’s performance than there are who disapprove (44 percent).

Obama used his State of the Union address to create an environment for a serious national discussion of the pernicious effects of income inequality. Occupy Wall Street put the income equity problem on the table, and last night the president made it the main course. The president may have created his legacy last night.

 

By: Brad Bannon, U. S. News and World Report, January 21, 2015

January 23, 2015 Posted by | Economic Inequality, Middle Class, State of the Union | , , , , , , , , , | Leave a comment

“Republican Fear Campaign Running Out Of Steam”: Obama Dares GOP To Help The Middle Class In His State Of The Union

Can you remember a time when the political zeitgeist has ping-ponged the way ours has in just two months? The day after last November’s election, Barack Obama was finished. Now, two positive jobs reports and a 60-odd-cent-per-gallon drop in gasoline prices later, he’s the president again. And the Republicans have just taken power and have run Congress for only two weeks, but suddenly they’re kind of on the defensive.

Of course this isn’t to say that Obama is going to get a single plank of the ambitious agenda he laid out in the State of the Union Address through Congress. The Republicans still hold those cards.

But what’s happened in the last couple of months, and what Obama seized effectively with this speech, is this. The mood has changed. The public is open to ideas it wasn’t open to a year ago; even two months ago.

Politics in this country is really about only one thing at a time, and that one thing favors one party or the other. In 1981 and for a few years thereafter, it was about how oppressive the federal government was. Advantage Republicans. For a short time in the late 1980s, it was about how we’d vanquished the Soviet Union (and won a little side war). Advantage Republicans.

For a while in the 1990s, it was about building a future-oriented economy. Advantage Democrats. After 9/11, it was about security. Advantage Republicans. And so on. It’s a little more complicated than this, because thrown into these cycles we have the scandals and the social changes that all have some impact on how people think about things, but basically, this is how American politics rolls: We go through these eras, and the eras make the majority of people decide that one party or the other is better equipped to do something about the challenges.

And now, we seem to be—seem to be—entering an era in which the chief debate is going to be about expanding prosperity downward from the people who’ve enjoyed the lion’s share of the prosperity of the last 30 years. Not positive about that. But that’s the smell. Look at all those minimum-wage initiatives that passed on ballots last November, passed even by a comparatively conservative electorate. Look at Mitt Romney talking empathetically in recent days about the people he didn’t seem to care much about in 2012. Something has turned.

Obama has helped turn it—with a few speeches over the years, and certainly with some of his policies, like health care, which he defended in an impressively in-your-face way in this speech. But even a president can’t turn it himself. He needs luck. And finally he’s had some—the gas prices, the energy explosion, the jobs reports, all of them culminating in a sunnier public mood.

All that adds up to an atmosphere in which a majority of Americans are finally starting to add two and two and get four. The Republicans didn’t give them much. The Great Recession, most notably. Obama, to most of them, still hasn’t given them all that much either, but at least we’re out of that mess and things are finally looking up.

And when things are looking up, people are less anxious, and they can start thinking about things like free community college. In lousy economic times, free community college sounds to your average person like a bunch of airy-fairy liberal nonsense. Like something they’re going to be stuck paying for. In better economic times, it sounds to your average person like a not-half-bad idea, and something they or someone they know might even benefit from.

It’s all public psychology. We liberals have a hard time accepting this. That’s because of Keynes. Keynes, see, has taught us the concept of counter-cyclical investment: that when the economy is in dire straits, that is exactly when the government should be spending a boatload of money. It makes economic sense, to people who read a lot. But to average people, it doesn’t make any common sense. Common sense tells average people that when the economy is in dire straits, you tighten your belt and spend less. This is right for a family, but wrong for a government, which is the opposite of a family, economically speaking. And Lord did it infuriate liberals when Obama himself played into it. He gave these speeches—what, 2010, maybe—when he likened the government to a family sitting around the kitchen table deciding what expenses it needed to cut out.

No! Wrong, wrong, wrong, in economic terms. But in real-life political terms, he was right at least insofar as you can’t get people to think about longer-term economic goals when they’re out of a job, or underemployed. But once that’s turned, you can.

That is what’s turning now—not turned, but turning. And that is what is about to make our political conversation be about this new one thing: sharing the prosperity. The speech was not a great speech, a speech for the ages; but it did understand that, and it did tap into that. People are now willing to start thinking about longer-term economic goals. A quickie CNN poll found that the speech was extremely well-received: 51 percent very positive, 30 percent somewhat positive, only 18 percent negative.

That really should worry Republicans, no matter how many seats they have in Congress. Our politics is becoming about one big thing on which the Republicans have nothing to say. Actually, they do have something to say, and it’s “No!” They looked ridiculous, sitting on their hands, refusing to applaud simple and obvious things that have 60, 65 percent public support. I have a feeling more such moments await them.

 

By: Michael Tomasky, The Daily Beast, January 21, 2015

January 22, 2015 Posted by | Economy, Middle Class, Republicans, State of the Union | , , , , , , , | Leave a comment

“This Isn’t The Debate Republicans Want To Have”: Republicans Befuddled By Obama Plan To Cut Middle-Class Taxes

Even President Obama’s most fervent opponents must acknowledge that he’s getting quite good at putting them on the defensive. Facing a Republican Congress and with only two years remaining in his presidency, he seems to come up with a new idea every couple of weeks to drive them up a wall. So he certainly wasn’t going to let the State of the Union address go by without using the opportunity — days of pre- and post-speech commentary, plus an audience in the tens of millions — to its utmost.

At Tuesday’s speech, Obama will announce a series of proposals meant to aid middle class and poor Americans and address inequality, most particularly an increase in the child care credit and a $500 tax credit for working couples (here’s the White House’s fact sheet on the proposals). To pay for it, investment and inheritance taxes on the wealthy would be increased and some loopholes that small numbers of the super-rich (like one Willard Romney) exploit will be closed. While the SOTU is often the occasion for dramatic announcements that are soon forgotten, this one lands in the center a debate that is looking like it will shape the upcoming presidential race. Naturally, Republicans are not pleased.

But if you listen carefully to what they’re saying, you’ll notice that they are barely mentioning the proposals for middle-class tax breaks which are supposed to be the whole purpose of this initiative; instead, all their focus is on the increases America’s noble job creators would have to endure in order to pay for it.

“Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” said Orrin Hatch. “More Washington tax hikes and spending is the same, old top-down approach we’ve come to expect from President Obama that hasn’t worked,” said John Boehner’s spokesperson. “This is not a serious proposal,” said Paul Ryan’s flak. “We lift families up and grow the economy with a simpler, flatter tax code, not big tax increases to pay for more Washington spending.” For the record, a “flatter” tax system means either the poor paying more or the rich paying less, though Republicans never say which they prefer.

Marco Rubio was on the same page. “Raising taxes on people that are successful is not going to make people that are struggling more successful,” he said on Face the Nation. “The good news about free enterprise is that everyone can succeed without punishing anyone.” That was about as close as any Republican came to actually talking about the tax cuts Obama is proposing (though this National Review editorial does discuss them, by arguing that it’s an attack on motherhood). That’s probably because Republicans been in favor of ideas like them in the recent past.

While Obama does want to provide new funds to make community college free to anyone who wants it, most of his proposals in this round use the tax code to help people of modest means, which is exactly what Republicans usually suggest when they’re forced to come up with an idea to help the poor or middle class. Since they believe that government programs to help ordinary people are useless almost by definition, the only way to give anyone a hand is with a tax cut. And yes, the hand they usually extend is toward the wealthy, whose burdens are so crushing that justice demands that lawmakers not rest until they can be afforded relief. But tax cuts are so magical they can help anyone, which is why Republicans been in favor of expanding the Earned Income Tax Credit and the child care tax credit before.

But paying for it by increasing investment and inheritance taxes on the wealthy, like Obama is proposing? Not on your life.

One thing’s for sure: as the economy improves, both parties are now being forced to address the underlying issues of stagnant wages and inequality that have been an anchor around ordinary people’s lives for the last few decades. It’s fair to say this isn’t the debate Republicans want to have, and it’s easy to mock them for their insistence that they’re really the party with something to offer the middle class and the poor. But it’s a lot more productive to just take them at their word and see what they actually propose to do.

So Mitt Romney says he has cast off his previous contempt for those of modest means and now wants to focus his 2016 presidential campaign on the issue of poverty? All right — what are his ideas? If they’re actually worthwhile, he should get whatever credit he’s due. If it’s more trickle-down policies and stern lectures about bootstrap-pulling, then we’ll know nothing has changed.

You can argue — and many will — that it’s pointless for Obama to introduce significant policy proposals like this when he knows they couldn’t make it through the Republican Congress. But what alternative does he have? He could suggest only Republican ideas, but he wouldn’t be much of a Democratic president if he did that. Or he could offer nothing at all, and then everyone would criticize him for giving up on achieving anything in his last two years. If nothing else, putting these proposals forward can start a discussion that might bear legislative fruit later on. Major policy changes sometimes take years to accomplish, so it’s never too early to start. And if Republicans have better ideas, let’s hear them.

 

By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line, The Washington Post, January 19, 2015

January 20, 2015 Posted by | Middle Class, Republicans, Tax Cuts | , , , , , , , | Leave a comment

“Who Gets Overtime Pay”: The Next Policy To Help The Middle Class That Republicans Will Oppose

Lately, Democrats have been searching for new ways to appeal to working class and middle class voters on economic issues. They know their basic economic perspective is popular, but they worry that the few specific policies they advocate, like increasing the minimum wage, don’t touch enough people’s lives. They also worry about being seen as advocates for the poor but not the middle class. So they’re looking for ideas.

But there’s one policy change already in the pipeline that looks as though it could be the next big Democratic economic push. It’s got everything: the potential to affect millions, guaranteed opposition from business groups, and the specter of another executive action from President Obama. That last point means that the change can be made as soon as the administration wants, and that Republicans will be apoplectic when it happens.

It’s about who gets overtime pay, which has all but disappeared from American workers’ paychecks. But maybe not for long.

A little background: Under the Fair Labor Standards Act, workers are supposed to be paid overtime (time and a half) if they work more than 40 hours a week. That doesn’t apply to executives and managers, or workers whose salaries exceed a certain threshold. The threshold is what’s at issue; it has only been raised once since 1975. The current threshold is $455 a week, or $23,660 a year — under the poverty level for a family of four. If you make more than that, you’re ineligible for overtime pay. Today only around one in ten American workers is eligible for overtime pay, compared to 65 percent of workers who were covered in 1975.

So what some are proposing is to raise the threshold back to something like what it used to be. Raising it to what it was in 1975, adjusted for inflation, would mean a level of $984 a week, or $51,168 per year, which is close to the median family income. According to the Economic Policy Institute, at that level over six million Americans would become eligible for overtime pay. Raise it a bit higher and you could cover millions more.

This March, President Obama instructed the Labor Department to reexamine the rules and propose a revision, and the department’s decision should be coming some time soon. And an organized campaign to promote it looks to be developing. Today in The Hill there’s an op-ed arguing for changing the overtime rules by Nick Hanauer, a liberal billionaire venture capitalist who could become an important figure in the economic arguments we have over the next few years. Unlike many other major political funders like the Koch brothers, Hanauer doesn’t just give other people money — he’s putting himself out as an advocate.

Many people first heard of Hanauer a few months ago when he wrote an open letter addressed to “my fellow filthy rich,” challenging the notion that the wealthy got where they are because of their unusual virtue and telling them that they had to start working to combat inequality in America). It looks like Hanauer wants to be a player in this debate, and he has the money to make an impact.

So don’t be surprised if a lot of elected Democrats suddenly start talking about overtime rules. This issue is more than an arcane piece of labor law. It gets to the heart of the insecurity and dissatisfaction Americans feel with their economic lives and prospects. It’s been repeated to the point of cliché that Americans feel like they’re working harder but not getting ahead. The lack of overtime is one key reason why. It’s one thing to work 50 or 60 hours a week and know that it means you’ll have extra money in your pocket. But if your boss tells you to come in on Saturday to finish up those TPS reports and you get nothing from it, it’s hard not to feel powerless and exploited.

For Democrats looking for specific policy moves that will demonstrate their desire to help middle-class Americans, the overtime pay issue looks like an excellent candidate, not only because it would mean more money for regular people but also because it would push the dynamics of power, compensation, and dignity a little bit back in the direction of workers.

Republicans will argue that raising the threshold infringes on the prerogatives of business owners, and that Obama is a tyrant for using the regulatory process to make the change. But I’m guessing Democrats would be happy to have that debate, so they can show that they’re trying to help the middle class. And at the end of the debate, the administration can issue the rules, and there’s nothing Republicans will be able to do to stop it.

 

By: Paul Waldman, Contributing Editor, The American Prospect; The Plum Line, The Washington Post, December 18, 2014

December 21, 2014 Posted by | Economic Inequality, Middle Class, Overtime Pay | , , , , , , | Leave a comment

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