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Mon Nov 12, 2012, 04:22 AM

It is time for a broad-based tax increase

At the present time, the United States Government borrows 40 percent of its budget.

The tea party and other assorted far-right types have one simple answer: cut spending until expenditures match income. There are two problems with that. The first is that the far right always believes in the power of just one more tax cut--if we somehow managed to cut the budget by 40 percent, they would then demand another tax cut and to balance it out by another spending cut. The other problem is simpler: of the spending funded by taxes on income, about half of it goes to the military--and the far right refuses to allow even a dollar of reduction. Hence, to fix the deficit through a cuts-only plan means a budget that funds the military, pays a little bit of interest on the money we borrowed before, and funds absolutely nothing else.

I like to look at the "root causes" of problems to determine solutions. The root cause of the fiscal crisis is a poverty of tax revenue. In 1981, Ronald Reagan cut taxes and spending substantially. This caused a crisis that was solved by raising taxes (in ways that didn't increase tax rates, such as eliminating deductions) and heavy stimulus spending. The spending caused growth, as sufficient stimulus spending always does; the revisionist historians on the Right saw the tax cuts and the growth and decided the cuts caused the growth. If you wade through GOP historical fiction, they will claim things like "the third year of the Reagan tax cuts caused x million jobs to be created." By the time of the "third year" anniversary of Reagan's first tax legislation, he'd already raised taxes three times and gone on a hyper-Keynesian spending binge - but memories of such things are always lost in the sands of time.

The economic crisis gives us three choices. None of them are very good, but only one works.

Choice one is status quo: continue to borrow 40 percent of the budget. No one thinks this is a good idea.

Choice two is to reduce the government to The Army, and nothing else. We would become a military dictatorship under this plan - not because military dictatorships are good things, but because they'd be the only government employees left.

Choice three is tax increases. On everyone.

There are two types of "taxes on income." The first is Income Tax - the rates levied on income earned through labor. There are six "brackets" - 10 percent, 15, 25, 28, 33 and 35. Under my plan...

10 percent becomes 12 percent (2 percentage point increase)
15 percent becomes 19 percent (4 percentage point increase)
25 percent becomes 31 percent (6 percentage point increase)
28 percent becomes 36 percent (8 percentage point increase)
33 percent becomes 43 percent (10 percentage point increase)
35 percent becomes 47 percent (12 percentage point increase)

All bracket amounts, deductions and credits will remain as they are. Just the rate will increase. I sat down and played with it for a while, and a Married Filing Jointly couple with two children, the standard deduction and a $35,000 per year income would see a net tax increase of about $3 per pay period. That's affordable for almost everyone. When you get up into the $250,000 range those guys do get slammed, but then again they can afford it.

The second is Capital Gains Tax - the rate levied on income earned through investment. Right now it is 15 percent. That rate will stand for anyone who is over the published age of seniority - right now it's 65 - and who earns no more than half his or her income through labor or executive compensation in whatever form rendered. (This is to prevent the Republicans from claiming that retirees will be hurt by this increase.) Capital gains earned from securities purchased directly from the issuing corporation or from the brokerage acting as the corporation's agent will also be taxable at the current rate. Income from securities purchased on the secondary market will be taxable at the rate labor is taxed at.

These tax increases will be coupled with spending cuts on things like missile defense and congressional salaries. I find it interesting that in an era when every Republican congressman screams about the need for spending cuts, not one has offered to cut his or her own salary or office expenses.

The far right likes to confuse microeconomics with macroeconomics - claiming what a family would do to solve its budget problems is what the government should do. A family can only cut so much. After they've cut out all the luxuries and given up a meal a day to reduce expenses, the only solution (short of bankruptcy, which the US can't declare so we won't talk about it) is for Mom to enter the workforce and Dad to get a second job until the crisis is over so more money comes in. This is what the US must do--we must bring in more money, and the only way to do it is through tax increases. If we don't do it, we'll never get out of the hole we're in.

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Response to jmowreader (Original post)

Mon Nov 12, 2012, 05:32 AM

1. Thank you for the time and energy you put into this,

It looks like a doable set of rates and I do like the idea that even the lower end of the scale is asked to do a little more. It puts us all in the same boat.

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Response to MrYikes (Reply #1)

Mon Nov 12, 2012, 06:57 AM

2. That's the most important part

Every income strata has tax cut defenders - the lower class because they have little money, the upper class because they supposedly create jobs...I could go on but you get the idea. Asking the lower class to kick in a buck a week won't hurt them. Asking someone who makes Romney money to pay a lot more won't hurt them. And reducing the amount of borrowed money in the economy will help us all.

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Response to jmowreader (Reply #2)

Mon Nov 12, 2012, 11:01 AM

5. "Asking the lower class to kick in a buck a week won't hurt them." This is one of the most disgust-

ing RIGHT-WING posts I've ever read here.

Read "Nickel and Dimed" and learn something about your fellow citizens.

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Response to WinkyDink (Reply #5)

Mon Nov 12, 2012, 03:19 PM

7. I don't need to read her book, but I hear it is good

I have lived at that income level. I have worked "full time part-time" at Walmart because it's the only job I could get. When I drove, my weekly food bill was less than $20 per week. I could go on but believe me when I say I have practical knowledge of being dirt poor.

I ran the standard deductions and personal exemptions. In tax year 2011...

Single person: $9650 combined
Single mother, one kid: $15,900
Married, two kids: $26,700

The last two are probably EIC eligible which changes things...but at or below those numbers your income is exempt from tax, and in large parts of the US $26,700 is a coveted job.

Let's play. Joe makes $32,500. He is married with three kids, and he lives somewhere $32,500 is comfortable...oh, let's say Bennettsville, S.C. Subtract $30,400 standard deduction and he pays taxes on $2100. At the current rate he pays $8.08 per pay period. At my proposed rate he pays $9.69 per pay period.

There are people $1.61 extra would break. They are already tax exempt, and I'd leave them that way. Joe is going to be okay.

This is our country. WE have to help fix it. All of us who can afford to do a little more, should do a little more.

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Response to MrYikes (Reply #1)

Mon Nov 12, 2012, 10:59 AM

4. "the lower end of the scale is asked to do a little more. It puts us all in the same boat." WTH?!


Did you take a wrong turn after you condescendingly visited the passengers in steerage?

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Response to jmowreader (Original post)

Mon Nov 12, 2012, 10:57 AM

3. I believe you have a reasonable plan here

And I want to note that all that debt we've accumulated starting with bush* has in fact fact been tax that has been deferred. Sooner or later we have to pay it.

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Response to jmowreader (Original post)

Mon Nov 12, 2012, 11:05 AM

6. I cannot fathom how this OP purports to present a plan as "fair" that raises rates on the LOWEST in-

comes.

THIS is FAIR:
“And then, in 1945, with the country loaded to the gills with war debts, the top bracket hit an all-time high: 94%. This was assessed on anyone making more than $200,000.
The following year, 1946, rates were trimmed a bit. The top rate was reduced to 91%.
And taxes stayed pretty much just that way for the next 15 years, until the early 1960s. Importantly, this was one of the most successful eras in US economic history. The middle class boomed, the economy boomed, and the stock market boomed. And all with the top marginal income tax rate over 90%.
This suggests that the Republican mantra about high marginal tax rates killing the economy is, well, a bunch of crap.”

Read more: http://www.businessinsider.com/history-of-tax-rates-2012-5?op=1#ixzz2C1dpbGfX

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Response to WinkyDink (Reply #6)

Mon Nov 12, 2012, 03:48 PM

11. It's apples and oranges

what that article leaves out is that notwithstanding those much higher marginal tax rates, EFFECTIVE tax rates were much lower due to the littany of deductions that were available during those periods. It was easy to deduct things that would not be deductible today so that taxable income was much lower than gross income.

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Response to jmowreader (Original post)

Mon Nov 12, 2012, 03:21 PM

8. It would be simpler to nuke a few American cities

It would also be damaging to no purpose, while making for better TV.

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Response to cthulu2016 (Reply #8)

Mon Nov 12, 2012, 03:33 PM

9. Oh, the TV from this would be more fun.

Look close at the high end of the plan to see the beauty of it all: if we can somehow also remove the tax treatment of charitable remainder unitrusts, Romney's tax bill goes from next-to-nothing to nearly $10.5 million overnight.

I love being called a communist, don't you? If we can come up with a way to significantly cut down on the government's borrowing from communists, they can call me anything they want.

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Response to jmowreader (Original post)

Mon Nov 12, 2012, 03:38 PM

10. I agree we need tax reform

but I don't think the bottom 2 brackets should see any increase and capital gains should pay the same rate as working people pay on their wages.

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