Taxing The Rich More About Scoring A Political Victory Than Avoiding Fiscal Cliff

November 27, 2012 11:36 am

by Buzz Brockway · 45 comments

President Obama has said he will not sign any deal to avert the so-called fiscal cliff that does not raise tax rates for the top 2% of wage earners. Polls suggest his position has support which might help explain the willingness by several Republicans to go along.

However, this “balanced approach” as it’s being called, will raise very little revenue. Ending the Bush tax cuts on the top 2% will bring in $42 billion, yet the federal budget deficit for the 2011 fiscal year alone was $1.3 trillion. Consequently, the President desires to follow up with another tax on the rich colloquially known as the Buffett Tax. But as Mark Steyn pointed out yesterday the Buffett Tax would raise about $3.2 billion, forcing us to impose this tax for the next 514 years merely to cover the 2011 deficit.

These schemes to tax the rich, while popular, are mere drops is the vast sea of federal spending, yet if these tax increases are miniscule in the grand scheme of things, why is the President so adamant about enacting them? And, why should the Republicans oppose them?

There are a number of non-political reasons to be concerned by the President’s proposal: Roosevelt too raised taxes after reelection and it made matters worse, concern for the future is a big factor in many top businesses indicating they will curtail capital expenditures this year or next, and a study suggests these tax the rich schemes will cost 710,000 jobs.

President Obama is a highly skilled politician. He has successfully convinced the American people the wealthy are not paying their fair share. Never-mind the top 1% of earners generate almost 37% of all income tax revenue while the bottom 50% generate 2%. By getting the public on his side, the President has put the Republicans in a serious bind: Oppose these tax hikes and suffer politically with the general public by being blamed for sending us over the fiscal cliff or support his plans and set off a civil war within your own party. In addition to causing a GOP civil war, should Republicans go along with tax hikes, future tax increases will be harder to fight against politically. This scenario is win-win-win for the President unless Republicans can find a better way.

Republican leaders are indeed trying to chart a different course. Speaker John Boehner during a press conference immediately after the Presidential Election stated that Republicans would favor closing tax loopholes and lowering rates as part of a deal rather than raising tax rates. Erskine Bowles, of the famous Simpson-Bowles Commission will visit Capital Hill tomorrow to talk with senior Republicans. Some view the Commission’s plans as being in line with Republican principals:

That plan called for $800 billion in fresh revenue through an overhaul of the tax code and significant spending cuts, including major changes to Medicare and other federal health programs.

Closing tax loopholes is something I view as being in line with Republican principals, and something we should fight for and Grover Norquist should support. As a party we have all too often allowed ourselves to be painted as the party of insiders and big business. They are the ones who by in large benefit from these tax loopholes, not small businesses and not middle income taxpayers. The GOP should seize on this and make it their line in the sand: Get rid of loopholes and lower tax rates for everyone.

No matter the result of negotiations between the White House and Congress, I hope this group of Republicans remembers the lesson Georgia H.W. Bush learned the hard way: don’t accept tax increases for promises of future cuts. That was the worst of both worlds.

griftdrift November 27, 2012 at 11:45 am

So much straw. So little time.

Trey A. November 27, 2012 at 12:31 pm

Yup.

benevolus November 27, 2012 at 7:25 pm

+ 1 bale.

Trey A. November 27, 2012 at 12:30 pm

“Some view the commission’s plans as being in line with Republican principles.”

Who are these “some”? They certainly are not the Republicans in Congress. The Bowles-Simpson plan calls for (among other things):

• A 15 cents per gallon increase in the federal gasoline tax by 2015 (big tax hike on just about everyone)
• Limiting or eliminating the mortgage interest deduction, the child tax credit and the earned income tax credit (big tax increases for just about everyone)
• Increase the Social Security retirement age and reduce benefits for all but low income beneficiaries (a tax hike on the rich and middle class)
• A 2 to 1 spending cut to new revenues ratio
• The taxing of capital gains as regular income (a huge new tax on the rich)
• And deep military spending cuts of $100+ billion in 2015

T-Bone November 27, 2012 at 12:52 pm

“These schemes to tax the rich, while popular, are mere drops is the vast sea of federal spending, yet if these tax increases are miniscule in the grand scheme of things, why is the President so adamant about enacting them? And, why should the Republicans oppose them?”

I call this the “drop in the bucket” argument. In fact, I came up with that name back when Republicans were calling for cuts to NPR funding. Democrats were all, “but duuude, NPR is only like a drop in the bucket compared to other federal spending! Check out this pie chart!” Republicans were like, “yeah, but look at this big ol’ debt clock thingamajig we put up for the Convention! It’s this drop in the bucket line of thinking that got us into this mess! We’ve got to get serious about addressing our debt and deficit!”

So, let’s say you’re a public official and you want to address the debt and deficit with a Grand Bargain. (For the sake of argument, pretend such a person exists who actually cares about addressing the deficit.) The question is what is the most reasonable way to address the issue? Should we cut spending? Sure! What about looking at loopholes? You bet! What about raising everyone’s taxes? Well, we are slowly climbing out of a recession at the moment, and 90% of the country is still trying to get back on their feet. Maybe we can and should eventually raise everyone’s rates back to pre-Bush levels once we’ve had a chance to catch our breath. But the top 1 and 2% can afford to give a little more right now, so let’s start there.

GB101 November 27, 2012 at 4:02 pm

But it is not even a START, as the article pointed out. We spend ten billion dollars per day. The Buffett tax covers spending from the time the Peach drops at midnight to about 11 am on New Years day. The biggest tax increase I have heard about, proposed by the president, is (I think) about 160 billion per year. (They like to talk in trillions, over a ten year period, but to make things comprehensible, I divided by 10. We all think of budgets in annual terms.) So 160 billion takes care of our spending from the start of the Rose Bowl Parade until the middle of the month.

We could double the taxes on the top 50 % of households and still raise less additional revenue per year than we now have to borrow. Proposals to raise taxes on the rich is nothing but misdirection. They create the illusion of action, a mere pretense of addressing the problem – which is a grotesque overspending nanny state that sees its role as doing every thing for every body.

T-Bone November 27, 2012 at 4:58 pm

This reminds me of the last time I bought a car. I haggled them down to a great price and then brought up a possible trade-in. With the new car price so low, they tried to stiff me on the trade-in value. The salesman said, “we’ve worked so hard to get you a really good deal. Are you really prepared to walk away over such a small difference in price?” To which I replied, “are you really prepared to lose a sale over such a small difference in price?” Of course he blinked because the sale meant more to him than me.

Remember how ridiculous the candidates looked when they all raised their hand to reject $10 in spending cuts to a $1 in taxes? Are Republicans really prepared to die on the hill protecting the tax rates for the 1 and 2%, even if they had a chance to get some serious cuts to entitlement spending? (Entitlements only Democrats like, I mean.)

I grant you your arguments about what the tax cuts are worth in dollars and days of government. So cutting NPR funding would only run the government another half day. But that’s not the point.

Zoom out a bit and think about what’s reasonable to your average working class taxpayer. All of these wonky arguments defending the 1 and 2% will go right over the heads of most voters and sound like more of the same: protecting the rich.

GB101 November 28, 2012 at 11:51 am

The tax increases are real. The spending cuts are not.

In Washingtonspeak this is what is meant by “cut.”

“Spending more than we spend now and more than we have ever spent in the past, but saying now that we will spend less in the future than we said in the past than we would spend in the future.”

Chris Huttman November 27, 2012 at 12:56 pm

You guys set the table with the way the Bush tax cuts were structured to expire in 10 years, and now dinner is being served.

Buzz, riddle me this. The average small business “job creator” in the United States takes home about $200k a year – facing the 28% or so tax bracket. His deductions including mortgage insurance and charitable giving and retirement contributions might add up to $30k or $35k in a year. You propose limiting deductions to what – $20k or so? $25k to be charitable. That job creator loses $10k in deductions – and faces a higher tax bill of nearly $3,000.

When you make $200k, say your AGI is $150k, that $3,000 is a lot of money that’s not going into your business or retirement account. This is the choice you’re making when you defend the lower rates for the super wealthy. Meanwhile, most of the super wealthy who are taking advantage of deductions are paying the Alt Min Tax already – meaning their deductions phase out – meaning they’ll still pay the AMT because it has already set a floor for them which they may be below.

So – when it comes down to it – you talk about how “minor” the $42 billion that is raised is. But, when it comes down to it – when you have to choose a side, you’d rather the small businessman with 4 kids pulling in $150k be the one to pay it than the billionaire making $100 million.

Good to know whose side you are taking.

Buzz Brockway November 27, 2012 at 2:28 pm

Obviously you didn’t read what I wrote. The $800 billion in new revenue comes from closing loopholes on the rich not small business people and middle income folks. However, everyone is taxed at a lower rate so with loopholes closed and rates lower the system is more fair. If Democrats didn’t have such a bloodlust for raising rates on the rich they’d jump at this plan.

Chris Huttman November 27, 2012 at 2:36 pm

No the $800 billion mostly comes from (your quote again):

significant spending cuts, including major changes to Medicare and other federal health programs.

Nice try though. In the real world, the average INCOME tax rate paid in this country is about 15%. Now, obviously is you want to force people that make $2 million a year to pay the same tax rate on their income whether it comes from dividends, capital gains, carried interests or good old fashioned labor, I’m with you on that. It makes no sense that Mitt Romney (to take one such person) has amassed a fortune that he pays roughly 15% in taxes on because he structures his payments as carried interest and capital gains whereas if I go out and have a gang busters year at my job and make $1m, I’ll be paying 35% or 39%. I’m all for picking a rate in the middle – say 28% – and making everyone who makes that amount of money pay it, which means lower taxes for the person actually out there busting his ass and higher taxes for the guy by the pool waiting for his car to come off its elevator.

But – crucially – what you propose will hit the guy making $250k just as hard (probably harder) than the scenario I propose above.

Because while I would think we can all agree with the scenario above (it’s basically the Buffett minimum tax proposal that would hit wealthy dividend and carried interest payers) you guys are against it. So…

David C November 27, 2012 at 1:04 pm

This seems to me to be quite the dumbest reasoning out there. Gosh, we can’t get it back all at once on one change, so the policy is worthless. It’s like a basketball team down 12 quitting and going home because there’s not a 13 point shot. You have to do all sorts of things to close budget gaps.

And the current deficit split isn’t the real baseline you should be after anyway. Look to change the baseline noncyclical budget closer to balance, not fighting against the recessionary structural gap. You should want a budget that will be balanced in a good economy, surplus in a booming one, and in deficit in a recessionary / slowdown one. Given the fragility of the economy, now is not the time for deficit reduction anyway.

Jackster November 27, 2012 at 1:11 pm

On the note of the table has been set and now it’s time to eat.

I’d like to see the “fiscal cliff” bargain come to fruition. The deal was made, and now it’s time to follow through on it. NO ONE WILL CUT THEIR OWN SPENDING. This is a great way to have spending cuts while allowing every side to defer accountability to someone else.

The tax adjustments in the plan also make it difficult to point to a culprit, yet they are there. Let it happen, tell the American people to deal with it. Everyone’s all afraid of what might happen given some set of circumstances. Why can’t it just happen, so we can all stop fretting about it?

To me, my tax bill will go up regardless of what reforms are passed.

What is cut from the Federal budget will probably be passed to the States in some form, and then down to the county levels.
That will mean cuts to services or raises in taxes or fees.

When I read Buzz’s post, I think this is more political maneuvering to distract from the actual business at hand, and not to deal with the fact that YOUR or MY taxes or services will be increased or go up. But rather, someone else’s.

Three Jack November 27, 2012 at 1:34 pm

GOP basically has two choices considering that they have already lost the messaging battle:
1. Give in to the tax and spend dems, or
2. Fight them, go over the so-called cliff and get blamed for it no matter how valiant their effort.

If they choose #1, the GOP stands to gain considerable strength in 2014 as it is a foregone conclusion that higher taxes and more spending will lead to an even deeper recession. Dems even with a complicit media will have difficulty explaining how their plans turned out so badly.

If they choose #2, the GOP loses now and again at the ballot box in 2014. They will face a constant barrage from dems about protecting the rich at the expense of the middle class and other such BS. It would be much more difficult to pick up congressional seats if they are still perceived as the ‘party of the rich’.

It is time for the GOP to accept a minor setback now in order to be the heroes later. Let the dems have what they want with taxes and spending. Tax the rich, ignore so-called entitlement reform, grant amnesty…whatever they ask for, just say yes and get out of the way. America has survived eras of utter stupidity before, we will do so now.

Chris Huttman November 27, 2012 at 2:03 pm

Let’s do #1, since you are completely wrong about the foregone conclusion.

I Miss the 90s November 27, 2012 at 2:59 pm

Ditto.

Guess what a 4% pt increase in my taxes means. It only means that I will save a few hundred thousand next year.

It will not result in a recession…because we (the wealthy) do not behave the same way the rest of you do. My spending behavior, just like most people, does not change much from one year to the next. Unlike the average middle-classman, however, about 90% of my income goes to savings.

Just because we 1%ers might make millions every year does not mean we spend millions every year. I am not laying anyone off, I am not cutting pay, etc. Why? Because an extra $50k, heck even an extra $500k, in taxes will not change anything in my life. There is nothing you can’t do with $10mil that you can not do with $9mil.

Charlie November 27, 2012 at 3:06 pm

Again, you’re trolling and mixing up which character you’re playing. Get back into 90’s form before you blow your cover.

I Miss the 90s November 27, 2012 at 3:08 pm

Why doesn’t anybody believe I am a real person?

Is it because people like Charlie are tired of being wrong and told by those who know their stuff that they are wrong?

I Miss the 90s November 27, 2012 at 3:13 pm

Or is it because I have a real job?

Jackster November 27, 2012 at 3:38 pm

If you had a real job, you wouldn’t be making that much $.

I Miss the 90s November 28, 2012 at 9:13 am

Well, that is the point of capitalism…isn’t it.

Rent-seeking and unearned income is the dream.

My goal in life, and I will never be wealthy enough to realize this dream, is to disgust people with how little work I actually have to do to make more money each year then they do in their lifetimes. My father was much better at it…he made more money in a month than most do in a lifetime.

Three Jack November 27, 2012 at 3:35 pm

I agree with you Chris that #1 is the only viable answer in this distorted environment, but obviously for different reasons. Time will tell who is right if the GOP does what it should by getting out of the way of a bunch of fools. 1994 and 2010 provide support for my prediction.

Harry November 27, 2012 at 2:48 pm

Go for #2, take the hit, and make the first step toward true recovery.

I Miss the 90s November 27, 2012 at 2:53 pm

Oh yeah…destroy the country and hand it over to the wealthy. That always works.

Harry November 27, 2012 at 3:00 pm

Actually the wealthy would take a larger impact.

I Miss the 90s November 27, 2012 at 3:09 pm

Only in terms of dollar numbers, not proportions.

xdog November 27, 2012 at 2:16 pm

Sure sounds a lot like the Ryan plan for deficit reduction, where gopers close unspecified loopholes at an unspecified time in the future while leaving tax rates for the wealthy untouched, and before you know it, the budget’s balanced. Just like magic. Or voodoo.

benevolus November 27, 2012 at 2:29 pm

Did Buzz fall off a cliff?

I Miss the 90s November 27, 2012 at 3:07 pm

An increase in individual income taxes on the wealthy will not result in any significant changes in employment levels. Anyone telling you otherwise is banking on the fact that you do not understand the differences between profits and revenues nor do you understand what it is like to be a job creator making millions of dollars every year.

Raising my taxes does not hurt my company…just like raising Warren Buffet or John Schnatter’s taxes will not hurt their companies. Raising corporate tax rates might (and still probably will not), but not individual tax rates.

In fact, raising our taxes (myself and the 1%ers listed above) encourages us to reinvest profits rather than cutting our workforce.

Harry November 27, 2012 at 3:37 pm

Not if there are no profits.

Harry November 27, 2012 at 3:39 pm

Maybe with higher taxes we see lower profits and lower employment? A sinking tide lowers all boats.

I Miss the 90s November 28, 2012 at 9:36 am

Lower profits does not equal lower employment. It does on FoxNews, but not in real life.

And again, this is not about corporate tax rates…it is about individual income tax rates. If corporate tax rates were raised a few companies may trim their pay rolls. These would not be companies like mine, and 99.99% of all other companies, because my company is not publicly traded and I am not responsible to shareholders.

Job creators do not necessarily have high earned incomes. A lot of executives make little pay, but receive stock options and/or bonuses instead. Raising income tax rates on them will not affect employment levels in the least.

Those who do not employ people tend to forget how valuable labor really is. Sure, it is by far the biggest cost and that is why outsourcing is attractive for many industries (no, it is not taxes). Without employees, you have no goods to sell…I do not care how much money you want to make. For those of us that have made something of ourselves we know you do not get their on your own. I may have the money to start-up a new business and “create jobs,” but the flip side to that relationship is that if I want goods produced for sale I NEED employees. Every employee you cut will cut into your bottom line. For example, if I downsize 10 employees from Warehouse X I may “save” $400k…but I am also cutting my capacity by about $700k.

The math is simple, but ideologues like Harry are blinded by rhetoric. Cutting your workforce is always the very last thing you do before you go out of business and it is irresponsible for partisan CEOs to go on FoxNews and make a big show with their knee-jerk reactions and threatening poor-old middle-class America with job cuts.

seenbetrdayz November 27, 2012 at 8:20 pm

No one is stopping you from donating all your wealth to the government, if you think that is such a great idea.

Three Jack November 27, 2012 at 3:47 pm

Letting Bush tax cuts expire – $500m more to government next year or about the same amount some lucky person will win tomorrow night playing lotto.

benevolus November 27, 2012 at 4:24 pm

Maybe we could get by with one less aircraft carrier. Saves $8 billion.
Or maybe we could get by with 1900 F35’s instead of 2400. That would save $100 billion.

Harry November 27, 2012 at 4:42 pm

Let’s scrap all 10 (11?) of the carriers – they are death traps. Reduce the F-35 inventory to 1,000.

Three Jack November 27, 2012 at 4:49 pm

bene, No problem with reducing defense budget smartly as long that is part of a large spending reduction bill that also addresses freeloader redistribution. I’m not sure we should be cutting back on aircraft carriers, but the need for fighter jets is certainly declining as most of our enemies have no air-to-air capabilities.

Harry November 27, 2012 at 5:05 pm

If we don’t have allies in a region where we can use their bases, then we don’t need aircraft carriers because we don’t need to be there anyway. Carriers are slow and have no cover. They served a purpose in WWII, but that was then.

Three Jack November 27, 2012 at 5:17 pm

Right Harry. You ever been on a carrier? Do you have any clue how they operate? Didn’t think so.

Harry November 27, 2012 at 6:03 pm

And I never was on the Eastern Front in WWII. I’m just saying carriers make an awfully big target, and there’s some pretty good tech in the hands of bad people who can pretend deniability.

Three Jack November 28, 2012 at 10:32 am

Carriers do not make a big target, I was on one for a couple of years. They are not slow unless you consider 30 knots and faster to be slow. They turn just fine, much quicker than congress could ever hope to act on even the smallest issue. And they are a big asset when it comes to showing force when necessary anywhere in the world. If anything, we should be adding more carriers while reducing land based locations around the world.

seenbetrdayz November 27, 2012 at 8:21 pm

I do have to wonder what good a few more nuclear submarines would do against car bombers in the middle of a desert.

seenbetrdayz November 27, 2012 at 8:24 pm

And we spend money to rent bases in foreign countries where our troops spend their money overseas. If anyone really wants to see American tax dollars benefit you, it would seem the best thing to do is leave the country and wait for the money to come rolling in, lol.

benevolus November 27, 2012 at 7:29 pm

And I’m just saying that we spend more on “defense” than the next 10 countries combined. There is a lot of money there to be saved. Retrain the workers into the susainable energy industry.

Three Jack November 27, 2012 at 3:54 pm

GOP big PR plan to fight against tax hikes, have a meeting with business owners in Congressman McCarthy’s office…BRILLIANT! — http://www.politico.com/news/stories/1112/84270.html?hp=l1_b1

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