“A Dynamic GOP Often Bemoan’s”: Don’t Mess With Government Giveaways To The Well-Off
The Obama administration has given up on its plan to remove the tax benefits of 529 college investment accounts, which under current law allow parents to put money away, then withdraw it to pay for their children’s education without paying any taxes on the profits. Republicans not only basked in what looked like a White House defeat, but were emphatic in their defense of the 529 tax break: John Boehner called the proposal “a tax hike on middle-class families.”
As often happens with a punctured trial balloon, we say afterward, “How could they not have known this would never fly?”
If you want to know whether an idea like this has any chance of getting support in Congress, the first question to ask is, who is going to be harmed? The 529 proposal was targeted at what may be the single most dangerous constituency to anger: the upper middle class. That’s because they’re wealthy enough to have influence, and numerous enough to be a significant voting block.
The administration’s proposal may not have been policy genius, but it was certainly defensible. While 529 plans are open to anyone, they give their greatest benefit to those who have the disposable income to make substantial contributions to them, which of course are the wealthy and near-wealthy. While different surveys have produced slightly different figures (some are discussed here), it’s clear that most of the tax benefit was flowing to parents with six-figure incomes who could afford to pay taxes on the profits of their 529 accounts.
The administration’s idea was to increase other tax credits for education alongside removing the 529 benefit, so that more tax benefits would go to those who need them more. If officials had been thinking more about the potential backlash, they might have instead proposed taking away the 529 benefit only for those with incomes over some high level like $200,000 a year. But they didn’t, perhaps because that would have been another layer of complexity to the tax code, and one of their rationales for this proposal was simplifying the available tax benefits for education.
Whatever the reason, this is what they came up with, and the details of the proposal made its demise inevitable. Not only was it opposed by Republicans, even Democrats didn’t like it; Minority Leader Nancy Pelosi personally lobbied the President to drop it, and had encouragement from Chris Van Hollen, the ranking Democrat on the Budget Committee. Is it a coincidence that both members — Pelosi from San Francisco, and Van Hollen from Montgomery County in Maryland — have lots of wealthy and upper middle class constituents who have no doubt taken advantage of 529 benefits? Probably not.
The Republicans who are crowing about the White House’s retreat ought to remind themselves that this is yet another illustration of a dynamic they often bemoan: that it’s easy to give people a government benefit, but much harder to take it away once it’s in place. And while they sneer in disgust at the moochers who get food stamps or Medicaid, the program they’re now celebrating is a government giveaway, too, just one that is mostly given away to people who don’t need it.
Here’s the real lesson from this whole affair: If you want to create a politically bulletproof government benefit, like the 529 program or the mortgage interest deduction (which costs the government about $70 billion a year), just make sure it’s technically open to anyone, but that the chief beneficiaries will be people who are doing well. They’ll squawk if it ever gets threatened, and it’s an absolute certainty that their representatives in Congress — Democrat and Republican alike — will hear them loud and clear.
By: Paul Waldman, Senior Writer, The American Prospect; The Plum Line, The Washington Post, January 29, 2015
“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
“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
“We’re No. 1!”: How Government Helps The 1 Percent
You may think that government takes a lot of money from the wealthy and gives it to poor people. You might also assume that the rich pay a lot to support government while the poor pay a pittance.
There is nothing wrong with you if you believe this. Our public discourse is dominated by these ideas, and you’d probably feel foolish challenging them. After Mitt Romney’s comments on the 47 percent blew up on him, conservatives have largely given up talking publicly about their “makers versus takers” distinction. But much of the right’s rhetoric and many of its policies are still based on such notions.
It is thus a public service that the Institute on Taxation and Economic Policy (ITEP) has issued a report showing that at the state and local level, government is, indeed, engaged in redistribution — but it’s redistribution from the poor and the middle class to the wealthy.
It’s entirely true that better-off people pay more in federal income taxes than the less well-to-do. But this leaves out not only Social Security taxes, but also what’s going on elsewhere.
The institute found that in 2015, the poorest fifth of Americans will pay, on average, 10.9 percent of their incomes in state and local taxes and the middle fifth will pay 9.4 percent. But the top 1 percent will pay states and localities only 5.4 percent of their incomes in taxes.
When you think about it, such figures should not come as a surprise. Most state and local governments rely on regressive taxes — particularly sales and excise levies. Poor and middle-class people pay more simply because they have to spend the bulk of their incomes just to cover their costs.
This gets to something else we don’t discuss much: Public policies in most other well-to-do countries push much harder against inequality than ours do. According to the Luxembourg Income Study (LIS), the United States ranks 10th in income inequality before taxes and government transfers. By this measure, Ireland and Britain, and even Sweden and Norway, are more unequal than we are. But after government transfers are taken into account, the good old USA soars to first in inequality. Norway drops to 6th place and Sweden to 13th.
It’s not a matter about which we should be proud to shout, “We’re No. 1!”
Actually, things may be a bit worse for us even on pre-transfer incomes, said LIS Director Janet Gornick, because people in the other rich countries tend to draw their pensions earlier.
The overall story is that we are not very aggressive, with apologies to Joe the Plumber, in spreading the wealth around. “Our inequality is already high because of the low minimum wage, the weakness of unions and very high levels of private-sector compensation at the top,” Gornick, a professor at the Graduate Center of the City University of New York, said in a telephone interview from Luxembourg. “But on top of that, we are redistributing less than other countries and also have lower taxes on the highest incomes, particularly income from capital.”
And at the state and local levels, our governments are exacerbating inequality. The ITEP study concludes that “every single state and local tax system is regressive and even the states that do better than others have much room for improvement.” The five states with the most regressive systems are Washington, Florida, Texas, South Dakota and Illinois.
On its face, the property tax would seem progressive, because big houses are taxed more. But the study finds that on average, “poor homeowners and renters pay more of their incomes in property taxes than do any other income group — and the wealthiest taxpayers pay the least.”
There is also an unanticipated consequence of growing economic disparities: Because states and localities tax the wealthy less, “rising income inequality can make it more difficult for state tax systems to pay for needed services over time. The more income that goes to the wealthy, the slower a state’s revenue grows.”
Political debates are typically driven by clichés , but at the very least, we can expect our clichés to be true. We need to stop claiming that we have a massively redistributive government. We need to stop pretending that poor people are “takers” when they in fact kick in a lot to the common pot. And we need to replace arguments about “big” and “small” government with a debate over what governments at all levels are doing to make our society more just — or less.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, January 15, 2015
“Where Is The Outrage”: How States Are Redistributing The Wealth
In 2008, then-candidate Barack Obama was lambasted for supposedly endorsing policies of wealth redistribution. The right feared that under an Obama presidency, Washington would use federal power to take money from some Americans and give it to others. Yet, only a few years later, the most explicit examples of such redistribution are happening in the states, and often at the urging of Republicans.
The most illustrative example began in 2012, when Kansas’ Republican Gov. Sam Brownback signed a landmark bill that delivered big tax cuts to high-income earners and businesses. Less than two years after that tax cut, the state’s income tax revenues plummeted by a quarter-billion dollars — and now Brownback is pushing to use money for public employees’ pensions to instead cover the state’s ensuing budget shortfalls.
Brownback’s proposal: Slash the state’s required pension contribution by $40 million to balance the state budget, even though Kansas already has one of the worst-funded pension systems in the nation.
Brownback defended his proposal to take money from middle-class state workers and use it to effectively finance his tax cuts for the wealthy. He told the Wichita Eagle: “It’s kind of, uh, well where are you going to go for the funds? And I don’t like it, but it’s kind of what’s your other option if you don’t hit K-12 and higher ed with allotments?”
Brownback is not alone. He joins fellow Republican Gov. Chris Christie in coupling large tax breaks with cuts to actuarially required pension payments. In New Jersey, Christie slashed required pension payments while signing legislation expanding tax credits to corporations, and doling out a record amount of taxpayer subsidies to businesses. Many of those subsidies have flowed to firms whose executives have made campaign contributions to Republican political organizations. Earlier this month, New Jersey pension trustees filed a lawsuit against Christie for not making legally required contributions to the state’s pension system.
Both Brownback and Christie promoted their tax cuts as instruments to boost economic growth. Yet, a recent review of federal data by the Kansas City Star found Kansas “trails most other states when it comes to job growth.” Likewise, an investigative series by Gannett newspapers recently found “New Jersey’s job growth rate [is] the second worst in the nation. … New Jersey’s middle class has lost billions in income through layoffs, salary cuts and wage freezes [and] more than 100,000 job seekers have been unemployed for months on end.”
Illinois followed a somewhat similar path. For years, lawmakers did not make the full actuarially required pension payments, causing severe funding shortages in the state’s pension system. While lawmakers said there was little money to meet pension obligations, Democratic Gov. Pat Quinn signed a corporate tax cut in 2011 that is projected to cost the state more than $370 million a year in lost revenue. Two years after signing that bill, as pension funding gaps swelled, Quinn signed legislation slashing public employees’ retirement benefits. An Illinois judge last month ruled that the legislation violated the state’s constitution, though the ruling is being appealed.
The obvious question raised by these episodes is: Where is the outrage? To date, these attempts to use workers’ money to finance massive giveaways to the rich have generated little media coverage or political opposition — and certainly less than the full-fledged frenzy that took place when Obama made his “spread the wealth” comment a few years ago.
The tepid response to this kind of wealth transfer suggests that for all the angry rhetoric about redistribution you might hear on talk radio, cable TV and in the halls of Congress, the political and media class is perfectly fine with redistribution — as long as the cash flows from the 99 percent to the 1 percent, and not the other way around.
By: David Sirota, Senior Writer, the International Business Times; The National Memo, December 26, 2014
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