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“The Tax Rates That Don’t Cause Bernie Sanders To ‘Flinch'”: About As Radical As Republican Plans To Slash Taxes On The Wealthy

Sen. Bernie Sanders (I-Vt.) is many things, but subtle isn’t one of them. Take a look at these comments the Democratic presidential candidate made to CNBC about higher taxes on the wealthiest Americans.

“These people are so greedy, they’re so out of touch with reality,” he said. “They think they own the world…. I’m sorry to have to tell them, they live in the United States, they benefit from the United States, we have kids who are hungry in this country. We have people who are working two, three, four jobs, who can’t send their kids to college.

“Sorry, you’re all going to have to pay your fair share of taxes,” he asserted. “If my memory is correct, when radical socialist Dwight D. Eisenhower was president, the highest marginal tax rate was something like 90 percent.”

That last part is true, by the way. In the 1950s, when Republicans were far more interested in deficit reduction than tax breaks, Eisenhower was committed to helping pay off World War II-era debts. He kept Roosevelt’s 90% top marginal rate in place, and the post-war economy boomed anyway. (It wasn’t until JFK in 1961 that Washington approved a “peace dividend,” and even then, some Republicans of the era balked, still preferring to focus on the debt, not tax breaks.)

But Sanders’ support for similar rates is so far from mainstream norms that his comments strike much of the political world as somehow bizarre. The New York Times noted with incredulity that the Vermont senator “doesn’t flinch over returning to the 90 percent personal income tax rates of the 1950s for top earners.”

Over at Salon, it led Simon Maloy to raise a good point: “We’ve become so accustomed to historically low rates of taxation for the wealthy that when someone like Sanders comes along and says the rich can and should pay a far higher rate, people assume he’s out to lunch.”

The flip side to the dynamic is that while reporters and pundits raise their eyebrows at the notion of dramatically increasing the tax burden on the wealthy, absurd and irresponsible tax cuts for top earners are now just assumed to be a given when it comes to Republican policymaking. Several current Republican candidates for the presidency have laid out plans that would eliminate capital gains taxes and the estate tax while cutting the top income tax rate. […]

The thrust of GOP policymaking is to redirect an even greater share of the nation’s wealth to the already engorged few sitting at the top of the income ladder. Sanders is proposing instead that we funnel some of that wealth away from the rich and toward the middle class. And while we’re supposed to “flinch” at a high rate of taxation for income, a zero percent rate on investments is taken in stride.

I think that’s right. Sanders’ position is clearly far from the traditional menu of tax-policy options, so far that he practically sounds like a visitor from another country (if not another planet). We’re accustomed to hearing national figures talk about raising taxes on the rich a little; we’re not accustomed to hearing them talk about raising taxes on the rich a lot.

But what Sanders is proposing is about as radical as Republican plans to slash taxes on the wealthy by hundreds of billions of dollars. It just seems more extreme because our expectations have begun to adapt to a ridiculous GOP wish list that we’re confronted with all the time.

 

By: Steve Benen, The Maddow Blog, May 28, 2015

May 29, 2015 Posted by | Bernie Sanders, Marginal Tax Rates, Tax Rates | , , , , , | 1 Comment

“A Tax System Tilted Toward The Rich”: Hitting Working Americans With Punishing Rates

Congress managed to pass a tax bill in December — a great relief to tax professionals like myself who are going to spend the next four months preparing returns for clients. But what our legislators didn’t do was address the fundamentally unfair way the United States taxes people who work for a living compared with people who live off of the earnings of their investments.

Our current system hits working Americans with punishing rates compared with what the investing classes are charged. A generation’s worth of legislative twists have left our tax code so warped that during the coming filing season, one married couple bringing in $150,000 in total income from two jobs could find itself paying almost three times as much in federal income taxes as another couple that is alike in every way — except for the source of its income.

The tax code started to tilt in the direction of favoring income from investments — or favoring the 1 percent, if you will — more than 20 years ago. In 1993, the year Bill Clinton took office, a married couple claiming the standard deduction — with no children, tax credits or other adjustments to income — and earning $75,000 apiece in wages, would have paid $35,650 in federal income taxes.

A similar couple, whose income came solely from long-term capital gains, would have gotten a small break thanks to what was then the 28 percent top rate on those gains. Their total tax bill, $34,158, would have been about $1,500 lower than that of the wage earners.

By 2000 — the year George W. Bush was first elected — the tax gap between wage earners and investors had already opened up. In that year, our two-wages couple would have paid $33,607 in taxes. They also would have paid that amount if all of their income had been from stock dividends; there was no preferential treatment for dividends at that point.

But the couple whose income came from long-term capital gains would have paid $23,025 in taxes — almost a third less.

Fast-forward to the 2014 tax season. Our two-income couple are still working full time to make the same $150,000 (not a farfetched scenario in our new-normal era of stagnant wages). After a decade’s worth of inflation adjustments to their tax bracket, their tax bill is now $24,138.

And the couple living off of their investments? Their tax bill — whether their money came from long-term capital gains or qualifying dividends — has been slashed to $8,385, or a little more than one-third of the tax load on wage earners.

Some of my clients who get their money from unearned income find this discrepancy unbelievable when they compare their federal taxes to their state bills. During this tax season, I know I will have clients — in California and Oregon, where I live — who will pay more in state income taxes than they do in federal taxes. I may even have some clients who will be stunned to learn that they face a four-figure state tax bill while paying exactly zero in federal income taxes for the year.

The reason: The federal code provides that there is no tax on capital gains or qualifying dividends for people in the 15 percent income tax bracket. That means that a Los Angeles married couple filing jointly for 2014 with $94,100 of adjusted gross income, all from long-term capital gains and qualifying dividends, would pay nothing — zero! — in federal income tax. But their California tax bill would be north of $3,000.

How did we get to this point? No legislator ever campaigned saying, “Tax laborers more than investors!” But several changes in the code since the early 1990s, including lowered tax rates on capital gains and lowered rates on qualified dividends, have conspired to produce that result. My high-income clients were dismayed last year by the new 3.8 percent net investment income tax, which applies to joint filers with modified adjusted gross incomes of more than $250,000 ($200,000 for singles), but that affects relatively few filers and, perversely enough, applies to non-tax-advantaged income such as rentals, as well as to dividends and long-term gains.

Neither political party gets sole credit or blame. President George W. Bush was most aggressive about pushing such tax changes, but breaks for unearned income were also passed and extended under both the Clinton and Obama administrations. Supporters argued that lower rates would benefit retirees living on fixed incomes and also spur investments. But the Center on Budget and Policy Priorities says that almost half of all long-term capital gains in 2012 went to the top 0.1 percent of households by income. For the nearly 60 percent of elderly filers who had incomes of less than $40,000 in 2011, the lower rates were worth less than $6 per household.

In 1924 — a different era to be sure — industrialist-robber baron-Treasury Secretary Andrew Mellon wrote in support of treating wages more favorably than investments. “The fairness of taxing more lightly income from wages, salaries or from investments is beyond question,” he wrote. “In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man’s life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy and the people whose income is derived from investments.”

Well, that’s certainly not going to happen any time soon. But leveling out the tax treatment of wages and investment incomes would increase both the perceived and actual fairness of the tax code. It would eliminate preferences that distort investment and financial planning decisions. A fairer code might also increase respect for the system and improve tax collection rates overall.

 

By: Joseph Anthony, The Los Angeles Times (TNS); The National Memo, December 31, 2014

January 2, 2015 Posted by | Tax Code, Tax Rates, Wealthy | , , , , , , , | Leave a comment

“The Secret Sauce”: Paul Ryan; “I’m Keeping Tax Cuts For The Rich”

Reducing the top tax rate has been the Republican Party’s highest priority for a quarter century. Since the 2012 election, a handful of apostates have gently urged it to change course. Paul Ryan, who remains the most powerful figure within the party, has just given an interview to John McCormack, and he has a message for the reformers who want to change course: forget it. Ryan, reports McCormack, “made it clear that he disagrees with some conservatives who are willing to accept a high top tax rate in order to increase the child tax credit.”

If the significance of Ryan’s statement here doesn’t immediately strike you, let me explain. Starting in the early 1980s, supply-side economics emerged as the Republican Party’s policy doctrine. Supply-side economics holds that the marginal tax rates hold the key to economic growth, and thus that even tiny changes to tax rates can unleash massive changes to economic performance. Accordingly, Republicans have valued low tax rates over absolutely everything else.

In the 2012 election, that commitment turned into a major liability for the party. The Republican ticket ran on a somewhat sketchily defined plan to reform taxes, the impact of which would have been to give the richest one percent a huge tax cut and impose higher taxes on the middle class.

The Republican reformers have, correctly, identified the commitment to reducing the top tax rate as a major (or even the major) liability. The most important theme of “Room to Grow,” a policy manifesto by “reform conservatives,” is that the GOP should abandon supply-side economics. In some ways, this is the key to many other policy choices the party faces. If they keep their traditional commitment to low top tax rates above all else, there’s simply no money to spend elsewhere. On the other hand, if Republicans stop proposing to cut rich peoples’ taxes by hundreds of billions of dollars, they’ll be able to spread that money around on other things — tax credits for middle-class families, maybe some kind of health insurance — that would benefit a vastly larger bloc of voters. The policy champion for this bloc is Utah Senator Mike Lee, who has at least tried (the math is tricky) to craft a tax-reform plan that would hold taxes for the rich constant while expanding the child tax credit.

The reformists cast their argument in the most soothing possible tones. Cutting marginal tax rates was the correct policy in 1980, they agree. (It is axiomatic among Republicans that everything Ronald Reagan did was correct, even the things that contradicted other things he did.) But the world has changed, tax rates have fallen, and what worked for 1980 does not apply today.

With predictable fury, supply-siders have denounced this heresy. You can get a flavor of the intra-party debate in columns appearing in places like Forbes or The Wall Street Journal, the later of which retorts, “Good economic policy doesn’t have a sell-by date. (Adam Smith? Ugh. He is just so 1776.)”

Ryan has positioned himself as a reformist in some ways. He acknowledged that calling people who get government benefits “takers” is mean. On the other hand, Ryan is a longtime, deeply devoted supply-sider. As a teenager, he immersed himself  in The Way the World Works and Wealth and Poverty, the two foundational texts of the supply-side economics worldview (both of which happen to be barking mad), which teach the absolute primacy of marginal tax rates.

So Ryan is cross-pressured here, between a faction that is attempting to excise the party’s weaknesses and his own most fundamental convictions. His answer to McCormack is surprisingly blunt:

“I’m a classic growth conservative. I believe that the best way to help families, the best way to help the economy is to reduce rates across the board,” Ryan said when asked about Utah senator Mike Lee’s plan to increase the child tax credit and create two income tax brackets of 15 percent and 35 percent. “Growth occurs on the margin, which is a wonky way of saying, if you want faster economic growth, more upward mobility, and faster job creation, lower tax rates across the board is the key—it’s the secret sauce.”

That’s Ryan’s conviction. He disagrees with Lee that subsidizing middle-income families with children ought to be the party’s priority. He still believes marginal tax rates are the “secret sauce.” To Ryan’s credit, in this case, he is not hiding it.

 

By: Jonathan Chait, Daily Intelligencer, New York Magazine, August 20, 2014

August 25, 2014 Posted by | Child Tax Credits, Paul Ryan, Tax Rates | , , , , , , | Leave a comment

   

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