Tax Arithmetic Shows Top Rate Is Just a Starter

[TomCADem]

Source: NY Times

Despite hints in recent days that President Obama and House Speaker John A. Boehner might compromise on the tax rate to be paid by top earners, a host of other knotty tax questions could still derail a deal to avert a fiscal crisis in January.

The math shows why. Even if Republicans were to agree to Mr. Obama’s core demand — that the top marginal income rates return to the Clinton-era levels of 36 percent and 39.6 percent after Dec. 31, rather than stay at the Bush-era rates of 33 percent and 35 percent — the additional revenue would be only about a quarter of the $1.6 trillion that Mr. Obama wants to collect over 10 years. That would be about half of the $800 billion that Republicans have said they would be willing to raise.

That calculation alone suggests the scope of the other major tax issues to be negotiated beyond tax rates. And that is why many people in both parties remain unsure that a deal will come together before Jan. 1. Without agreement, more than $500 billion in automatic tax increases on all Americans and cuts in domestic and military programs will take hold, which could cause a recession if left in place for months, economists say.

“The question is making sure that we hit a revenue target that’s required for a truly balanced deficit-reduction plan,” said Representative Chris Van Hollen of Maryland, the senior Democrat on the House Budget Committee. “And when the president and all of us say this is a question of math, we mean it. It’s very hard to make the numbers work without the top rates going back to the full Clinton-era levels.”


Read more: http://www.nytimes.com/2012/12/09/us/politics/tax-arithmetic-shows-top-rate-is-just-a-starter-in-talks.html?pagewanted=all

[Panasonic]

1. Let Prez O starts at 95% tax rate, then work his way down

to about 55% tax rate for the 2%

[karynnj]

8. When he introduces that - someone will play "Taxman" by the Beatles

Let me tell you how it will be,
There’s one for you, nineteen for me,
‘Cause I’m the Taxman,
Yeah, I’m the Taxman.
Should five per cent appear too small,
Be thankful I don’t take it all.
‘Cause I’m the Taxman,
Yeah, I’m the Taxman.

(If you drive a car ), I’ll tax the street,
(If you try to sit ), I’ll tax your seat,
(If you get too cold ), I’ll tax the heat,
(If you take a walk ), I’ll tax your feet.
Taxman.

‘Cause I’m the Taxman,
Yeah, I’m the Taxman.
Don’t ask me what I want it for
(Haha! Mister Wilson!)
If you don’t want to pay some more
(Haha! Mister Heath!),
‘Cause I’m the Taxman,
Yeah, I’m the Taxman.

Now my advice for those who die, (Taxman!)
Declare the pennies on your eyes, (Taxman!)
‘Cause I’m the Taxman,
Yeah, I’m the Taxman.
And you’re working for no-one but me,
(Taxman).

95% is a level that GEORGE HARRISON objected to - and is higher than it has ever been in the US. Not to mention, what about state or city taxes on this income?

The fact is a proposal even NEAR that number would create more bad will than you can imagine. Obama has the upper hand when speaking of returning to Clinton rates as the majority agree to that for those over $250,000. In 2004, Howard Dean ran on eliminating ALL the Bush tax cuts - which was politically dangerous. Doing that would go a very long way to raising the full amount needed, but would instantly eliminate the majority support.

[mostlyconfused]

2. It’s very hard to make the numbers work at all

Van Hollen says "It’s very hard to make the numbers work without the top rates going back to the full Clinton-era levels."

That's not just a question of math, it's a question of bad math. The other comment on this thread suggests the President start at a 95% top marginal rate, and negotiate from there.

The fact his, even if we got it changed to be a 95% top rate, that doesn't come remotely close to covering the deficit. It's hard to see that there is any way to make this math work, which is pretty alarming if we need to not just make the rich pay their fair share, but also continue to make infrastructure investments to get the economy going.

[daybranch]

3. lets get real

First lets change our focus to those who gain the most from our economy. This is not the top two percent of earners. Yes many people earn money at their jobs putting them in the top 2 percent some doctors, some lawyers and so CEOs and they should be taxed at a higher rate, but these are not the people necessarily making the most. It is those who profit most from capital gains and capital gains are only taxed at 15 percent. We should tax any capital gain at 25 percent until that gain reaches $50,000 and then we should raise rates significantly for those who receive income in any form over $80,000. Besides the increase in the capital gains rate we should institute a progressive bring the profits home tax. For example if you pay the taxes now the rate will be the sameas if the profits were made in the USA, but for every year past that we will levy a penalty of 2 percent per month on income. We also need to let those who have profited most by the Bush tax cuts to amass a fortune pay taxes on estates over $200 thousand. These should be taxed of course at progressively higher rates starting at 2 percent and going up to 55 percent. If we do these things we will have no problem reaching the revenue needed to keep a responsibly sized government going.
As for a responsibly sized government, I firmly believe that government should do for individuals what they cannot do or it can do better than private industry. For this reason a strong safety will continue. We should also cut defense spending starting with the high ticket items desired by the Air Force and the Navy. The Armyand Marines have been the poor stepsisters for 20 years now.
Lets change the military back to the service.

[mostlyconfused]

5. How about a rate of 104%?

"we should raise rates significantly for those who receive income in any form over $80,000"

Based on 2009 IRS data...the most recent year where detailed figures are available...If you were to raise the rate on all taxable income above $75,000 to 104% you could cover a $1.1 trillion deficit.

Obviously that is not a very balanced approach, and it would absolutely decimate the economy, but it's one way to quantify the size of deficit with which we are dealing.

If you could come up with about $500 billion in federal spending cuts...each year....then you'd only need to raise that rate to 70% on all taxable income above $75,000.

Granted this is based on 2009 data, in which personal income was down among wage earners at every level. I'll be anxious to work the numbers when the government release the details for 2010 and 2011.

[Yo_Mama]

12. Excellent post

The fact is that we have to raise taxes on everybody to make our math work, and that reality is what no one wants to talk about.

The lowest income bracket is going to see payroll taxes go up 2%. The middle ones really won't see much in the way of income tax increases, although of course they will pay the additional payroll tax, but will probably be impacted by benefit and other social program cuts.

The the top two brackets are going to pay way more.

To sustain our basic social welfare programs, we are going to have to cut a lot of spending PLUS raise taxes on the whole population.

[mostlyconfused]

14. Thank you

"that reality is what no one wants to talk about"

That's kinda the soap box I've been on for a while here. Longtime reader of DU but I just joined and started posting recently because it bothered me how many discussion threads seem to ignore that reality. The politicians are having this silly debate on whether the top marginal rate should go up from 35% to either 37% or 39%, as though the are completely oblivious to the real size of the budget problems. On DU the talk was more about taking top rates to 50%, or doubling them, or going back to the 1950's level of 91%. But most don't seem to realize how little even that would do.

The rich cannot be taxed enough to fix this problem. The money isn't there. It is likely going to take tax increases on every single one of us AND significant reductions in federal spending (not just a reduction in the rate of increase...that they spin as a cut) to get back to a balanced budget.

[mostlyconfused]

13. Or maybe it needs to be 121%

The CBO says that through the first two months of the government's current fiscal year the deficit has been $292 billion, compared to $240 billion for the same two months last year. If that rate of increase holds, we're looking at a $1.3 trillion to $1.4 trillion deficit this year. It won't hold because whether we go off the cliff or not there are going to be some increases in taxes. Not sure whether or not they'll cover the increased spending Obama has proposed. But...

Out of curiosity I ran the numbers...based on 2009 income tax filings, to cover a $1.35 trillion deficit we'd need to raise the rate on all taxable income above $75,000 to 121%. Obviously not possible, so instead we could raise the rate on all taxable income above $50,000 to 85%.

[OrwellwasRight]

11. Closing unneeded overseas bases would be an excellent start.

Really, we need bases in Italy? Portugal? Spain? the UK? Really?

[blueclown]

6. I doubt the CBO has ever scored a 95% top marginal tax rate bill

So it's impossible to say whether such an idea couldn't "come remotely close to covering the deficit." What we do know is that a 95% marginal tax rate would come a lot closer to closing the deficit than simply going back to the Clinton-era top marginal tax rates.

[mostlyconfused]

7. IRS data says..

that based on 2009 tax returns, if you raise the top marginal rate to 100% you could cover about 35% of a $1.1 trillion deficit. That's just straight math off of actual tax return data. Raising the top marginal rates to Clinton-era rates is not a serious attempt at deficit reduction.

[blueclown]

9. Link?

I'd like to know where you found this data. I'm not doubting the legitimacy of it. Just looking for the source of the claim.

[mostlyconfused]

10. 2009 data from this link, and I understated it by 3 points

Source data is here:
http://www.irs.gov/uac/SOI-Tax-Stats---Individual-Statistical-Tables-by-Size-of-Adjusted-Gross-Income

And I was off by a few points. Based on 2009 data, increasing the collection rate to 100% of all taxable income above $500K would bring in 38% of a $1.1 trillion deficit.

More details in a nice discussion we've been having on another DU thread.
http://www.democraticunderground.com/?com=view_post&forum=1002&pid=1949823

Edit: I should add that this of course does not equate directly to raising the top rate to 100%, but the IRS does not split out returns filed into groups that match the breaks in rates. In other words, I cannot make this calculation based on returns that were above $388K, because the IRS doesn't provide that data. $500K is the closest they get. You'd probably add a few percentage points more than 38% if you applied this at $388,000+.

[Yo_Mama]

15. No it wouldn't

And it is certainly possible to know whether it is impossible to raise the money if the top income brackets really don't have the money.

You can get tax return stats at SOI tax stats. Here at this link you can get preliminary numbers for 2010 (the latest available):
http://www.irs.gov/uac/SOI-Tax-Stats---Individual-Income-Tax-Returns#prelim

So using the 2010 numbers, here's why you are talking nonsense.

Let's figure ALL the income of those earning over 200K, okay?
AGI total is 2,187,332,730,000.00, about one quarter of the total of 8,045,020,527,000.00
Or 2.2 trillion out of 8.05 trillion.

But obviously you are going to have to leave these folks something to live on, so let's subtract 100K per return that you will let them keep. There are 4.26 million of them, so this exclusion adds up to 4,258,649,000.00, meaning that their total taxable income is 2,183,074,081,000.00, or 2.1 trillion.

So you say, yes, we have plenty of money. Except of course you don't, because these people pay other taxes, and then why the heck would anyone work for nothing or less than nothing? They wouldn't, and the end result is that many would leave the country and many would just adjust their behavior, so your total taxes collected currently on this group (501 billion) would shrink massively. Would you go to work for nothing or pay your employer to keep working at your job?

Let's theorize that we raise tax rates on everyone making over 200K a year by 10%, meaning that many higher income taxpayers would face total income taxes of over 65% by the time you add in state income taxes, which is a very high total tax burden that begins to suppress economic activity. That would increase total taxes for all taxpayers reporting over 200K in income from 501 billion to about 551 billion. In other words, the 10% tax increase only nets you about 51 billion a year more, to close a deficit of over 1 trillion a year?

It's time for us all to get serious about this problem, but getting serious has to mean getting serious about the math. This election was a smoke and mirrors exercise, fiscally.

[blueclown]

17. "Talking nonsense"?

I never said that raising marginal tax rates on the richest 2% would eliminate the deficit. However, raising top marginal rates beyond the Clinton-era rates would significantly narrow the deficit. Combined with some spending cuts (primarily on the military) and increased governmental revenue from an improved economy, and we are well on our way to a balanced budget within a decade.

[DJ13]

4. Just ...... do nothing

No negotiations, no compromise, no caving in, dont do anything until after the end of the year.

The resets ALL the Bush tax cuts, which goes far beyond the income tax....... like capital gains, inheritance, and several others that the GOP is trying to protect by 'giving in' on income taxes.

That is also the only means in the foreseeable future to reduce the defense budget, as anyone with half a brain knows that sacred cow (to both party's) is untouchable otherwise.

Just do nothing, then adjust those cuts that go to far after the fact.

[leftlibdem420]

16. Cutting taxes on the rich and fighting dumb wars.

No wonder Bush "led" America from prosperity to penury.