"A Serious Middle-Class Tax Cut?"

National Review editor Ramesh Ponnuru wonders why Republicans are pushing tax cuts that don't benefit the Party's lower income supporters:

Taxing the Hand That Feeds Us, by Ramesh Ponnuru: Republican presidential candidates can’t get elected without owning the tax issue. So far, the current crop is giving it away. ...

Republican contenders for 2008 are promising to keep all of Mr. Bush’s tax cuts. But the Democrats are not threatening the child tax credit or Mr. Bush’s reductions in the lower-level income-tax rates. Those issues are off the table.

What Mitt Romney and Rudy Giuliani ... are really saying is that they will make sure that taxes on capital gains, dividends, estates and high earners will stay low. Not many middle-class taxpayers will benefit directly from any of those policies.

Mr. Romney adds that he will try to cut the corporate tax rate, which his adviser Glenn Hubbard calls “a drain on competitiveness.” ... Cutting corporate tax rates may or may not be a good idea, but we don’t need to make it a priority to preserve our competitiveness.

Both Mr. Romney and Mr. Giuliani speak vaguely about making sure the alternative minimum tax doesn’t affect any more middle-class families. That is a step in the right direction. But it isn’t a tax cut.

Mr. Romney has also proposed an initiative to make the return on middle-class savings tax-free. It may also be a step in the right direction, but it’s small change. The primary focus of the Romney and Giuliani tax plans remains high earners.

What would be a serious middle-class tax cut? One answer is to expand the tax credit for children. But none of the candidates is proposing to do so, or any other big tax relief for regular folks. You might think that Mr. Giuliani would want to do everything he can to appeal to social conservatives short of actually becoming one himself. But why should he offer a pro-family tax cut when even the hard-core social conservatives in the race aren’t interested? Mike Huckabee wants a national sales tax and Sam Brownback wants a flat tax. Either proposal would increase taxes on a lot of middle-class families.

The Republicans in Congress are no better. For much of the right, the great passion of the moment is to make sure that the carried interest at hedge funds is taxed at what look an awful lot like preferential rates. For years, liberals have said that Republicans talk about “family values” but won’t do anything to meet the economic needs of families. Right now, on taxes, that charge hits home. ...

Republicans believe, in general, that the tax code should generate its revenue in a way that does the least damage possible to the economy. So they seek tax reforms that cut taxes on investment returns and thereby increase economic growth. What they ignore is that we overtax investments in children, too. ... Yet the tax code does too little to recognize parents’ investments.

True, an expanded tax credit for children wouldn’t increase economic growth. Growth is good, and more growth is better. But present tax rates are perfectly compatible with healthy long-term growth. There is no pressing need to bring them down to improve growth.

A few conservative strategists have designed tax reform plans that modestly cut corporate tax rates and simplify the tax code while also helping families. (One idea is to make up the lost revenue by bumping affluent childless people into higher tax brackets.) So far, the candidates have not been interested.

As the Republican Party has gotten more socially conservative, its voter base has become lower in income. Many of the working-class social conservatives on whom the party relies are parents trying to make ends meet, or young people who want to start families but have financial worries. They have no particular attachment, or hostility, to free-market principles. A Republican Party that found a conservative way to meet their economic needs would both hold and expand its base.

As he notes, the goal of the tax cuts he is advocating has nothing to do with economic growth, i.e. this is not a supply-side economics policy (though he shouldn't be so quick to dismiss the idea that helping middle and lower income families, e.g. through improved health and education, would have a positive impact on economic growth). This attempts to buy the votes of lower income households by manipulating the tax code, and, though there is some hand-waving at revenue neutrality toward the end, implicit in the call for tax cuts is that government is too large. No surprise that a conservative holds that position, and if one must worship at the tax cut alter, there are worse proposals than to reduce taxes on middle and lower income households (see estate tax).

The problem is that this avoids the real question. At some point we have to ask ourselves, what do we want government to do for us? Given our resources and capabilities, what goods and services should government provide and who should pay for them? There are legitimate debates about the proper size of government, the extent to which the deficit should be adjusted to combat business cycles, and about the appropriate level of the deficit or surplus we should have at any point in time, and we should have those debates, but talking solely about tax cuts misses the essential part of the equation. The tax structure determines who pays - it determines whether it's the poor, the rich, this generation, next generation, and so on - but it's the level of spending that determines the size of the bill.

So don't just tell people how much they will benefit from a tax cut with charts and tables showing how this or that household will fare under a particular tax cut proposal, be honest enough to tell people what they have to give up too. For too long conservatives have sold tax cuts as though there is a free lunch - as though the tax cuts pay for themselves - and it's time for those who are intellectually honest to begin fully spelling out the consequences of their tax cut proposals. If you think government is riddled with waste and inefficiency, then point fingers and tally amounts - tell us who's lazy, incompetent, doing unnecessary things - show us there's enough waste to finance your tax cut proposal. If you advocate tax cuts to improve economic efficiency, fine, but the efficiency gains won't be large enough to pay for the tax cut. Tell us what programs will be cut, or if programs can't be cut, who will have to pay more taxes, or how much of the burden will be shifted to future generations. Maybe people will agree that government is too large, maybe not, but let's debate the real issues and quit selling tax cuts based upon misleading claims that serve to hide the true goal of the policies.

Comments

[reason]

No argument here on your basic premise.

But what does piss me off, is the failure by economists as well as politicians, to treat the tax/benefit system as a single system. It is perfectly valid to make changes to several components and show the net effect of all the changes. (I know it is assumed that American voters are too dumb to understand such complexity. I think that is a self-fulfulling prophecy. If you treat them as dumb they won't think.)

This http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/06/doing-it-by-the.html
should be treated with more respect.

What matters to people is the whole package. What impact that has on the economy is a question of the details of how you go about it. You should sell the whole package and listen to technical experts about the details.

[BJ Feng]

Agreed, a large part that's been missing is actual talk about how to cut government. Even Greenspan has admonished the current Republicans for spending too much and not cutting down on government waste.

That being said, I believe one of the reasons we have so few actual detailed proposals on a middle class or lower class tax cut is because they already pay so little in income taxes. It would be hard to cut further, which is why even Ponnuru, the author, had to use a child tax credit in order to achieve the goal. Obama recently came up with a proposal, short of details, to cut payroll taxes. The reason we're getting all these complex plans is simply because middle and lower class income taxes can't be cut much further. That goes to show you how progressive income taxes have gotten, when we have to actively search for ways to cut their taxes. For political reasons, truly regressive taxes, such as the gasoline tax and payroll tax can't be cut. The payroll tax is supposed to be directly linked to Social Security, which is not supposed to be a tax, which is also why cutting the link is so hazardous. Looks like everyone's out of ideas.

[reason]

BJF...
Really? How much middle class tax cut (my favourite being to raise the minimum taxable income) would a 10c/$ marginal increase on all incomes over 1 million dollars buy?

[supersaurus]

The Republicans in Congress are no better. For much of the right, the great passion of the moment is to make sure that the carried interest at hedge funds is taxed at what look an awful lot like preferential rates.

gee, what a generous concession, "an awful lot like...". just because a hedge fund manager gets a tax rate less than half my marginal rate for risking other people's money? actually, to me that looks like robbery.

Republicans believe, in general, that the tax code should generate its revenue in a way that does the least damage possible to the economy.

they might believe that, but for quite a few years their *behavior* has been to make changes that allow the rich to retain as much as possible and never mind the damage to the economy now (unless you agree with dick cheney that "deficits don't matter") and never mind the fact that the tax cuts for the rich are really huge transfers of wealth from future middle class people to rich people now.

So they seek tax reforms that cut taxes on investment returns and thereby increase economic growth.

the first part is certainly true ("they seek..."), but the extent of the second part is arguable, even if an article of religion for some.

True, an expanded tax credit for children wouldn’t increase economic growth.

and of course it wouldn't help the poor or the childless or those with older children at all, and where is the offsetting revenue to be found?

As the Republican Party has gotten more socially conservative, its voter base has become lower in income. Many of the working-class social conservatives on whom the party relies are parents trying to make ends meet, or young people who want to start families but have financial worries.

the real miracle is the way the republicans have been able to get poor and middle class people to vote for the gop and against their own interests.

[Don Quijote]

The other thing that is usually forgotten when speaking of Federal Income tax cut is the domino effect, Washington gets less money therefor gives less to the States who in turn give less to the local communities who still have to give the same amount of public service causing local communities to raise Property or Sales Taxes (Usually both) making the tax burden even more regressive.

[Bernard Yomtov]

Has Ponnuru really just discovered that Republican tax cuts are overwhelmingly designed to favor the wealthy?

For years, liberals have said that Republicans talk about “family values” but won’t do anything to meet the economic needs of families. Right now, on taxes, that charge hits home. .

Right now?

NRO has been a consistent cheerleader for Republican tax policies. Funny how an upcoming election focuses the mind.

[dsm]

The national debate has gotten to the point that
a Republican candidate can discuss the issue in front
of workers in the bottom quartile of the income
distribution and merely imply that they will cut some
taxes or hold the line on increases and regardless of
whether these have anything to do with those people
in the lowest income quartile, those voters often
believe that there will be cuts that will benefit them.
Never mind that the tiny cuts they achieved earlier this
decade were easily offset by wage stagnation and higher
insurance premiums. Never mind that over the last 20 years
the rich are paying vast vast amounts less tax, both
by percentage and by amount.

There appears to be little support for a moral campaign
to "out" the Republicans on the topic of failing to provide
an economic environment in which people actually benefit.
Instead, corporations keep the wealth concentrated at the
very top, with no one to stop them, the safety net starts
getting holes, and someone like John Edwards who is the
only candidate to make noise about it will never get
elected.

It would be pretty easy to refinance the safety net and
expand health care on the backs of the rich at this point,
with pretty small amount of pain when you get right down
to it. But who has the guts to try to take their glasses
of cognac away? Congress and the president. Laugh.

[bakho]

This is not a question the GOP wants asked.

The strategy for keeping taxes for the wealthy low requires a relatively high rate of taxation for the lower classes. If taxes on the poor are too low, they will demand more services and won't mind paying a little more tax to get them. If taxes are already high, the GOP can maintain its broad support for tax cuts.

Only a few tax cut crumbs can be fed to the lower classes. Low taxes for the lower classes would erode the political sentiment that allows the GOP to cut the taxes of the wealthy (and pretend they are giving everyone a tax cut).

says...

Bumping affluent childless people into a higher tax bracket?

Wouldn't the effects of such a policy fall disproportionately on groups that tend to favor the Democrats over the GOP, like homosexuals?

[anne]

Don Quijote:

"The other thing that is usually forgotten when speaking of Federal Income tax cut is the domino effect, Washington gets less money therefor gives less to the States who in turn give less to the local communities who still have to give the same amount of public service...."

An important observation, I am increasingly conserned about missing federal-state revenue sharing especially for a dramatic lowering of public college and university tuition and for public health care needs.

says...

Also someone needs to be talking about the "cost of government" which is actually money diverted to the private sector. I'm thinking at this point specifically of Blackwater and Halliburton, who were ostensibly supporting the war, and therefore "our boys" overseas -- but who in truth are a very bad bargain in that department.

For "the government" to pay big salaries to people whose work is not needed is one thing. That money is taxable and the people who earn that money support their communities in other ways, if only by buying groceries, raising children, and otherwise being part of American society.

For "the government" to pay money to businesses who take that money and fail to do the services it was supposed to cover, and take the profits and (I am assuming) deposit them in offshore accounts, is the sort of theft of taxpayers dollars that ought to have true conservatives' heads' spinning while cursing in Latin.

Noni

[johnchx]

Mark wrote:The problem is that this avoids the real question. At some point we have to ask ourselves, what do we want government to do for us? Given our resources and capabilities, what goods and services should government provide and who should pay for them?

Perhaps unsurprisingly, I agree completely.

And anything that helps people to engage with that question -- the real question -- in a reality-based (i.e. accurately informed and arithmetically sound) way is a good thing.

[johnchx]

BJ Feng writesI believe one of the reasons we have so few actual detailed proposals on a middle class or lower class tax cut is because they already pay so little in income taxes.

This is probably more true than most people realize. The IRS figures for 2005 are below. The first column shows the income "ceiling" for each grouping (i.e. the first line is for tax units with AGIs of $15,000 or less). The second column is income tax paid ($ billions) and the third column is cumulative income tax paid by the group and all groups with lower incomes.

2005 Income Tax Paid by AGI 15k... 3.2 3.2
30k... 23.3 26.5
50k... 60.2 86.7 (median)
100k... 179.4 266.1
200k... 190.6 456.7
more... 471.5 928.2(source: IRS Tax Stats, Prelim 2005)
The median tax unit appears somewhere in the $30,000 to $50,000 group.

What this means is that zero-ing the tax liability for all tax units at or below the median would amount to a tax cut of less than $87 billion.

The next question is whether households with incomes between $50,000 and $200,000 are "middle class." On the one hand, many of them are well above the median. On the other, they are all clearly well below the $1 million-dollar-a-year set. And this group paid about $370 billion in Federal income taxes in 2005.

[calmo]

Geeze, I had no idea that the GOP had lower income supporters:why Republicans are pushing tax cuts that don't benefit the Party's lower income supporters:but I gloss over those 1 in 9 blacks that voted Republican, I suppose.
Second question: do the Party's lower income supporters make enough money to pay income tax? (Let's ask the white folks at the NASCAR track.)
I dunno.
I just don't know how intelligent people (that B us, people) can leap over (like sometime intelligent Mankiw leaps) the pretext: that the wealthy can and do afford to pay an increasing share of the tax burden based on out-performing incomes...so sadly missing from their "lower income" fellows. (You intelligent people out there [this means you] need to be paid more to fully comprehend this: if you don't buck up soon, you'll be payin zero tax...like those panhandlers. Ok, I've warned you.)

[donna]

I would prefer my taxes not go to fighting an endless war we can't win. I would prefer my taxes go to developing alternative energy instead of paying for oil companies to profit. I would prefer my taxes to be spent by competent administrations instead of incompetent fools. As one of the lower end of "the rich", I don't mind paying taxes. But I would like to see the higher end of "the rich", the one percenters, pay their share. Why they get to live the mega-rich life while many Americans struggle to get by is really the big question of our day, I think. This gilded age has to end, it's just a question of how and when.

But apparently Americans like me don't get a vote anymore, according to our Supreme Court and crooked election boards.

[quixote]

(I see I have a brother-in-arms higher up in comments ... ;) )

You can't really ask for intellectual honesty, can you? Enough of that, and people would have to admit they want the money. Government should be big enough to give it to them, and small enough to take it away from the other guy. That's all this is really about.

It's all been summarized years ago: Don't tax him. Don't tax me. Tax that fellow behind the tree.

[MT57]

I agree completely with the author and johnchx. Intellecual honesty has been missing since at least the Laffer curve/Kemp/Stockman era. Both the left and the right have become guilty of abandoning it. It needs to be reinstated and blogs like this make a contribution in that respect.

Donna writes:
"As one of the lower end of "the rich", I don't mind paying taxes. But I would like to see the higher end of "the rich", the one percenters, pay their share. Why they get to live the mega-rich life while many Americans struggle to get by is really the big question of our day, I think. This gilded age has to end, it's just a question of how and when."

I think it is important that this perspective be debated. Like most proponents of this sentiment, Donna fails to specify what is the top 1%'s "share," either in reality or in her ideal construct. All statistical evidence is that the 1% Donna identifies pay a proportionately high percentage of all federal income taxes in this country - over 30% is my recollection. If one adds in state and local taxes etc. the 1% is paying over 40% of its income to its governments in many cases. Far more, as johnchx points out, than the bottom half of the population, either in aggregate or on a percentage basis. The median American citizen according to the Census Bureau pays a percentage less than half that in income and property taxes and even sales taxes do not change the relationship that much. The top 1% pay proportionately more of their income in taxes than other cohorts. The only fact supporting the populist grudge against the top 1% is that they have more left over even after this. This seems to bother a vast number of americans. All kinds of imagined narratives are invented to justify the public expression of envy. The 1% are generalized/demonized to be corrupt, to have benefitted from a racist, sexist or corrupt system, to have inherited their wealth, to have no real merit, just connections, to have succeeded because the "system" is rigged, to be just lucky genetically, etc. Proponent of this view fail to specify what is the "fair share" the "rich" should pay or provide a reasoned justification of both why the current share is "unfair" and why the proposed different share would be "fair," other than to say "they can afford it if we take it away." But that is true of most property owned by Americans. On a global scale, all middle class Americans are wealthy, consuming and retaining far more than their "fair share" of the planet's resources on a percapita basis - yet I sense no rage or appetite for the principle of "fairness" of wealth distribution to be applied globally, such that the living standard of the median American would be lowered to a global median by some global tax. Yet, if wealth distribution were a principle of "fairness," it would apply across, as well as within, borders. Rather, all complaints about the "unfairness" of wealth distribution in America seem to presume the complainer's level of wealth is a "fair" one not to be disturbed in any meaningful way - it's always "the other" whose share is unfair. Such a line of argument is mere self-justification. In the spirit of intellectual honesty, it is important to begin recognizing that and raising the level of debate on economic issues above the level of mere envy.

[kharris]

The combination of cynicism and perspicacity is a dangerous one, which makes bakho a dangerous guy.

Now lookee here, there is nothing new about politicians being focused on getting re-elected. It's just that the rulers of today's GOP have been vastly more interested in crafting a "permanent majority" than in doing what is best for the country – vastly rather than just a whole bunch, which is the historic norm. It is the silliest sort of self-deception that allows those involved in politics for the sake of power to believe that, oh, just by coincidence, the policies that they follow to garner power are also the optimal policies for the welfare of the country. Thoughtful people realize that when you have an overwhelming focus on one objective, others objectives just naturally suffer.

So, the big GOP guys have, for a long time, not been Barry Goldwater or Ron Paul. They have been Newt Gingrich and Dick Armey and Shrub and Karl. How is that relevant to the issue Ponnuru raises? Because the rank-and-file guys in the GOP will, over time, come to look and think more and more like the higher-ups. When the RNC goes recruiting, it will pick people in its own mold, attract people who like what the RNC has to say, and shape more malleable people to their own liking. The current crop of GOP legislators and wannabes don't have it in them to see at a distance or wander far from home. They are more the party of the rich now than at any point in my lifetime and have little capacity to do anything other than be the party of the rich. Saving hedge fund billionaires from being a little less rich is exactly what today's GOP is all about. Making the stock market go up now, without regard to moral hazard, risk management, economic excesses and the like, is just what the GOP doctor ordered. Fighting a war through no-bid, best-buddy contracts (Noni's problem - Cheney's buddies build things to be blown up, Bush's buddies guard things by killing people) is the natural scheme of things. Winning and losing in war is important, because the big guy needs to go down in history as a great president, but again, only one goal can be foremost. Shoveling money into the pockets of friends and contributors is more important than the assessment of historians not yet born.

[Ian]

While Ponnuru dismisses Huckabee's (and others') support for the FairTax as something that would increase middle class taxes (which the research, below, doesn't appear to substantiate), since when is it equitable to scapegoat those who've "made it," in order to support unaccountable government spending, while fomenting class warfare? Is THIS want we have to look forward to after enduring hardscrabble years, and persisting to - with increasing difficulty - make a success, of ourselves?

The problem is more how taxes are paid (or aren't paid), the invisibility of taxes (*) that consumers pay in higher prices because politicians want their hands in business' checkbooks, and the unconscionable complexity of a tax-favor-driven tax code ($10 bil for theIRS, plus compliance costs to the economy of anywhere from $250 bil to twice that depending to what extent tax avoidance through planning is considered).

The effective percentages, that different income groups would pay under the FairTax, are calculated by crediting the monthly "prebate" (advance rebate of projected tax on necessities) against all likely spending that citizen families (1-member and greater, Dept. of HHS poverty-level data) are likely to spend. (A single person would receive ~$200/mo. A family of four ~$500 - in addition to working members no longer having tax withholding confiscated from the fruits of their labor every two weeks.) Prof.'s Kotlikoff and Rapson (10/06) concluded,

"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Further, per Jokischa and Kotlikoff (circa 2006?) ...

"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

(*) Kotlikoff believes that the only thing that can save the current, in-progress economic meltdown is enactment of the FairTax Act, though he is quite pessimistic the growing grassroots initiative will succeed. (Does that mean we should not try?)

[Thomas More]

Defining middle class is becoming harder no doubt. But I would suggest that you will have to consider the total tax burden on someone, not just the Federal tax to find out who pays a "fair share".

Considering just the employment tax will tell you that a $75,000 a year earner pays a far higher portion of his income in taxes than someone earning $150,000.

Also nominal rates are not a determinate of tax payment. As someone said, Bill Gates and I are average billionaires.

You are also going to have to consider the percentage of tax paid to the percentage of American income to that top 1%. And unless someone favors a country that is "everyone for himself" rather than for the common good as the country was founded for and has mostly been except for the guilded age of the Robber Barons, then the present system must be restored to balance.

[calmo]

Ok, I see my chance to close an italics:

Well, I'd say kharris is plenty as dangerous as bakho.

[Blissex]

Donna identifies pay a proportionately high percentage of all federal income taxes in this country - over 30% is my recollection. If one adds in state and local taxes etc. the 1% is paying over 40% of its income to its governments in many cases. Far more, as johnchx points out, than the bottom half of the population, either in aggregate or on a percentage basis.

This is just a crass, obvious, dishonest, lie -- there are several studies that show that the total tax burden in the USA is around 30% irrespective of income level, with slightly less than 30% for the lowest and highest earners.

It is so well know that even Warren Buffett has complained that he is paying overall the same tax percentage as his secretary:

http://WWW.CommonDreams.org/views03/0520-09.htm
The taxes I pay to the federal government, including the payroll tax that is paid for me by my employer, Berkshire Hathaway, are roughly the same proportion of my income -- about 30 percent -- as that paid by the receptionist in our office.

This is because the top 20% of households (taxable income above $60-65,000) get around 54% of total income and pay about 25% of their income in federal taxes and 5% in state taxes, and the bottom 80% have about 46% of total income and pay about 14% of their income in federal taxes and 16% in state taxes.

Side note: Isn't it absolutely amazing that very few tax reform advocates mention cutting sales and other state taxes, which hit the poorest 80% much harder than the richest 20%? Aren't those taxes too?

[Blissex]

Making the stock market go up now, without regard to moral hazard, risk management, economic excesses and the like, is just what the GOP doctor ordered. And this is official, as the GOP doctor is called Grover Norquist: http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11699 «The 1930s rhetoric was bash business -- only a handful of bankers thought that meant them. Now if you say we're going to smash the big corporations, 60-plus percent of voters say "That's my retirement you're messing with. I don't appreciate that". And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, "We're sorry about the seals and everything but we really got to get the stock market up."» http://www.thevanguard.org/thevanguard/other_writers/norquist_grover/060803.shtml http://www.enterstageright.com/archive/articles/0903/0903norquistinterview.htm «The growth of the investor class--those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result--is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats.»

[James Killus]

Gee, a lot of talk about taxes and only BJ Feng mentions payroll taxes and he gets it wrong:

Obama recently came up with a proposal, short of details, to cut payroll taxes. The reason we're getting all these complex plans is simply because middle and lower class income taxes can't be cut much further. That goes to show you how progressive income taxes have gotten, when we have to actively search for ways to cut their taxes.

Payroll taxes amount to around 15% of income up to $94,000 currently (including both sides of the tax; self-employed individuals pay both sides), with about 3% being Medicare Part A that has no income cap.

It requires no "active searching" to locate payroll taxes, nor does it take much analysis to recognize that it is a highly regressive tax that is currently being used to subsidize both tax cuts at the highest income and wealth levels (the ongoing reduction of estate taxes), plus the stuffing of money into the pockets of politically connected suppliers of "privatized" government services.

It is indeed useful to analyze both the income and expenditure sides of the budget, and the analysis leads directly to the conclusion that federal power is being used to suck money from the pockets of middle and lower income households and shovel it into the pockets of upper income households.

The situation resembles a city after a disaster, when all proper law enforcement has ceased and even the few remaining police take part in the looting. Everyone knows the situation is temporary, and even that their own actions are making the eventual disaster worse, but really, all the valuables are just sitting there, and if we don't grab them, someone else will. And later is, well, later.

[ilsm]

"The strategy for keeping taxes for the wealthy low requires a relatively high rate of taxation for the lower classes."

Reagan and followers eliminated income tax deductions for interest paid on credit cards, car loans etc, a fairly significant issue for me at the time.

That high rate for the lower classes was initiated by Reagan, somehow he and Greenspan got Moynihan on to the idea of building a trust fund for the Baby Boomers.

So, they raised the OASDI rates and limits (FICA in those days) which is a set percent on payrolls up to a certain income level then it steps to zero.

The current balance of the supposed social security trust fund is $1930B.

But that money has allowed tax cuts for the top one percent and the cash is in the pockets of the war machine.

OASDI excess receipts are paying for a war machine, with huge opportunity loss, that will yield nothing to pay back the borrowed cash.

[pgl]

And I thought Ramesh could rise above the rest of those nitwits at the National Review. The modern Republican Party must believe money grows on trees. Tax cuts for everyone - whew! Let's spend more on prescription drug benefits and the DoD ... all paid for by tax cuts. Can these folks be more stupid?

[reason]

pgl
Money does grow on trees. You cut them down, pulp them, etc and then let the printing go wild. Germany c 1920!

[reason]

johnchx..
Thanks for your analysis. So it looks like ceterus parabus, it would be quite easy to relieve those on median income and below of ALL income tax by modestly increasing taxes on the better off. Why isn't John Edwards saying that?

[reason]

P.S. The above suggestion would have course have the massive advantage of freeing up resources in the IRS to concentrate on looking out for tax evasion and tax avoidance by the big boys!

[BJ Feng]

When you segregate and exploit a segment of society to that extent, you cause divisiveness and conflict. I think that everyone should have to pay something in income taxes, if we have the tax at all. That serves to link government expenditures with the people's hard work. No, what the government provides isn't free, it has to be paid for by someone so we have to make sure we're getting a good value for the cost of government services. Without experiencing the "pain" of giving away your hard earned money, people might start demanding ridiculous things, such as free public transportation 24/7. Having everyone pay something also gives us the notion of unity, we're all in this together and everyone contributes, even if it's only symbolic for the lower income groups. The symbolism is important, we do not want a minority paying for everything while the majority reap the benefits. That could lead us down a dangerous path, a path even John Edwards fears.

The anger and thought process of some posters here is amazing. Instead of thanking the top 1% for providing so much of the services that we all enjoy, they are angry that they aren't providing even more. Where do you get off with that kind of entitlement mentality? If this kind of thinking came from a child, we would call him spoiled. Hey, someone has to work to give you the benefits you take for granted. The heavy lifters should at least get a word of thanks for carrying the load, and for helping the poor. So let me take this time to thank all those in the top 1%. Thank you for contributing so much. You are the quiet, unassuming MVPs, silently shouldering the burdens of the team day in and day out. Without you and your massive contributions, the team, and the nation, would be much worse off. MVP! MVP! MVP!

[reason]

But BJ, surely you realise that federal income tax is not (by a long shot) the only tax. If was explained as a surcharge to other taxes that only applied to those whose lives were going well and had more to gain from the protection of state and rule of law I'm sure people would understand. The only problem is when people look at individual taxes or rebates in isolation and not at the whole package (see my earlier comments).

P.S. Personally I am supporter of VAT, a citizens income (tax credit), plus "something" to make taxes as a whole more progressive (a tax on large incomes, a wealth tax and inheritance taxes come to mind). But I'm flexible about it.

[reason]

Besides, if only the elite pay income tax, it will become a status symbol.-)

[Cyrille]

Ahem.
I happen to think that free public transportation 24/7 is everything but ridiculous.
Of course, not with the same frequency and everything, but constant public transport would be a great thing to aim for (most of it automated of course), and free public transport would do a great deal towards cleaning the air.

Yes, a very good idea indeed.

[James Killus]

Oh golly I am so grateful to the top 1% for paying all those taxes on money that they never worked for and never earned. I lay awake at night saying silent prayers that those who set their own salaries set them just as high as they can so they will have even more money with which to purchase think tank position papers, media outlets to process them, and politicians to stamp the policies with their approval. And I am thankful, thankful I tell you! that there are so many lesser souls who identify with their betters, curry their favor, and hope that some of their magnificent grandeur trickles down upon the lowly brows of those of us who toil in the fields beneath their olympian strategeries.

[cm]

johnchx: 'The next question is whether households with incomes between $50,000 and $200,000 are "middle class."'

I'd say they mostly are. But not (exclusively) on the grounds of the nominal income numbers. Attempts at class/social strata classification that I find useful go more by the type of income, which is correlated with the individual's position in the economy or "productive/social process" if you will (there have been societies, commonly considered primitive, where money was not very ubiquitous, and which consequently did not have much of a concept of income). Of course in a heavily labor-divided, specialized, and intermediated economy like ours, things quickly get murky when trying to pin down the value addition of a particular profession.

But for a general flavor, consult the following articles.

Wikipedia on "Middle Class"
Wikipedia on "Upper Class"

Bottom line, the middle class derives its income primarily from what I would broadly describe as skilled labor. (Perhaps as a cynical side note, "skilled" as in "barrier to entry".)

Of course neither is everything about just money. But as one author quipped, first comes the feeding, then comes morality.

[BJ Feng]

Sorry to burst your bubble James, but most people have to work for their money, including the top 1%. The typical CEO works 60+ hours a week. Get over your envy, these people should be applauded for their success.

[Blissex]

«When you segregate and exploit a segment of society to that extent, you cause divisiveness and conflict.»

This is a very good thought, but highly inappropriate to a discussion about tax, especially to a discussion of taxes on millionaires. Because millionaires get juicy tax breaks (e.g. on capital gains) that benefit very few other people, for example.

«I think that everyone should have to pay something in income taxes, if we have the tax at all. That serves to link government expenditures with the people's»

Sure, that is also why Social Security is given to billionaires too.

«hard work.»

Hard work is just an imaginary category -- used usually by politicians and shysters to sanctify some sort of scam. The level of taxation is not based on hard work, but on affordability; people who inherit a few dozen millions or get them with sweet insider deals pay the same tax as those who earned the same few dozen millions by cleaning floors or serving hamburgers.

«The heavy lifters should at least get a word of thanks for carrying the load, and for helping the poor. So let me take this time to thank all those in the top 1%. Thank you for contributing so much.»

Sure, they make a lot of money, and they pay taxes too, but let's not overrate their contribution. Consider people like these, senior VPs at Dell who have cashed in a few dozen million dollars of options (at a low, low tax rate to reward these hard workers):

http://www.theinq.com/default.aspx?article=37549

Now it is a well know fact that the overall tax burden in the USA is a flat 30% across the income range (somewhat less at the extremes). The least hard working member of that group got more than $3,000,000 just in stock options.

Now let's compare some hard working, heavy lifting member of society earning $3,000,000 per year and paying say $900,000 in total tax and being left with $2,100,000 net and his improductive, exploitative receptionist somehow managing to sucker her employer out of $30,000, paying only $9,000 in tax and being left with $21,000 net on which she can have a lavish lifestyle of indolent luxury.

He is sacrificing 100 times more income than she, and we should be grateful to him for such a huge sacrifice. :-)

[Susan]

Hey BJ...there are alot of people in this country who bust their behinds and break their backs in this country, working 60+ hours per week just to keep a roof over their familie's heads and food in their familie's bellys. Quit being so arrogant.