Tax Cuts and Revenue

piezoe · Jul 23, 2014

lotek771 said:
just curious, what does it mean when they say, "Broaden the tax base."?
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It is a politically useful phrase that can mean several things, and is a convenient way of intentionally avoiding clarity of one intentions. Currently it is being used as a euphemism for cutting back on deductions, credits and loopholes. (That is to say credits and deductions tend to narrow the tax base, meaning fewer things get taxed or taxed as much as they otherwise would be. So cutting back on these deductions, credits, etc. could be said to "broaden the tax base".) It is a more politically astute way of saying you're going after "special interests."

It can also mean what dbPhoenix suggested.

See this: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/11/what-does-broadening-the-base-entail/

and this: http://www.economist.com/news/unite...er-rates-broaden-tax-base-and-pray-heres-plan

dbphoenix · Jul 23, 2014

piezoe said:
It is a politically useful phrase that can mean several things, and is a convenient way of intentionally avoiding clarity of one intentions. Currently it is being used as a euphemism for cutting back on deductions, credits and loopholes. (This is to say all these credits and deductions tend to narrow the tax base, meaning fewer things get taxed or taxed as much as they otherwise would be. So cutting back on these deductions, credits, etc. could be said to "broaden the tax base".) It is a more politically astute way of saying you're going after "special interests."

It could also mean what dbPhoenix suggested.

See this: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/11/what-does-broadening-the-base-entail/

and this: http://www.economist.com/news/unite...er-rates-broaden-tax-base-and-pray-heres-plan
More...

But your answer was better and more complete.

lotek771 · Jul 23, 2014

piezoe said:
It is a politically useful phrase that can mean several things, and is a convenient way of intentionally avoiding clarity of one intentions. Currently it is being used as a euphemism for cutting back on deductions, credits and loopholes. (This is to say all these credits and deductions tend to narrow the tax base, meaning fewer things get taxed or taxed as much as they otherwise would be. So cutting back on these deductions, credits, etc. could be said to "broaden the tax base".) It is a more politically astute way of saying you're going after "special interests."

It could also mean what dbPhoenix suggested.

See this: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/11/what-does-broadening-the-base-entail/

and this: http://www.economist.com/news/unite...er-rates-broaden-tax-base-and-pray-heres-plan
More...

I know it's not politically possible, but if you eliminated 20,000 pages of tax code by eliminating the corporate tax, and raised the personal income tax, including treating cap gains as ordinary income, you could eliminate a lot of lobbyists and crooked politicians.

That corporate tax code is the power in Washington D.C.

jem · Jul 23, 2014

1. you are confusing the idea that lower tax taxes can lead to an increase in revenue (supply side) ... and tax code engineering. Very different animals.
As proof they are different note that tax revenues went up after tax cuts, and note that after the Bush tax cuts the top 1% paid more in taxes into the treasury.

2. Then even more "artfully: you are somehow blaming "income inequality" on rate compression. Something which is unfounded.

so lets look at the problems 1 lets start with income inequality.

a. If income inequality is the problem.. first let me say... I am not into fixing income inequality by eliminating income and death taxes... which will allow people and families to garner asset over time and move up the ladder according to their efforts and their brains. This is the only fair way to be. Then if you want to provide a safety or give everyone 60 grand great.
Gov't may pick a few winners but they should not punish the productive.

But even if you are sadist and want to hurt people with income and death taxes... you would agree the inequality is that the top .o2 % own 40% of the assets and probably control 80 percent of the rest.
So of fix inequality should we not drop the taxes on the 99% and progressively tax the cronies?
seriously... how can taxing those without the assets be the answer?

we can cover the other issues after you honestly answer the above.

piezoe said:
Arnie, I know you mean well, but you're resolutely refusing to recognize that my post deals with tax rate compression and its consequences. You yourself provided the data and an explanation for the features of the '86 act that garnered support from both sides. Obviously, at the time, not enough concern was raised regarding possible long-term undesirable effects of "de-emphasis on adjusting the tax's distribution by income class.", i.e. rate compression.

I did not state which specific Reagan tax cuts I was referring too, but when I mentioned that he raised the rate on the lowest bracket, from the data you provided you could, of course, tell that it was the 1986 act that did that. Does it really matter to you which specific Reagan period Tax act raised the rates on the low brackets? What is important is that it happened and the ultimate effect was rather profound.

The main point of my post was that during the Reagan presidency what we could call "the great rate compression" began. And the cuts resulting from the 1981 and the 1986 acts both resulted in rate compression. This has been somewhat undone since of course. Even after partially undoing the rate compression of the Reagan era, however, we still have not recovered anything like the progressiveness of the income tax rate structure prior to Reagan.

I just now found this quote in the Wiki article on Reaganomics: I think you, and especially Jem, will find it enlightening.

"With the Tax Reform Act of 1986, Reagan and Congress sought to raise taxes on lower incomes, eliminate many deductions, and reduce the highest marginal rates. In 1983, Democrats Bill Bradley and Dick Gephardt had offered a proposal; in 1984 Reagan had the Treasury Department produce its own plan. The eventual bipartisan 1986 act aimed to be revenue-neutral: while it reduced the top marginal rate, it also cleaned up the tax base by removing certain tax write-offs, preferences, and exceptions, thus raising the effective tax on activities previously specially favored by the code. Ultimately, the combination of the increase in tax rates on lower incomes and decrease in deductions raised revenue equal to about 4% of existing tax revenue." [underlining is mine.]

But this is a side track from what I have pointed out to you, namely that there was a great compression of brackets during the Reagan Presidency, and it has remained, in part, ever since. .

I think I made it quite clear that to blame Reagan for this is misguided. In fact democrats also bought into the supply-side economics of the time. The supply siders held sway until there was enough data to make it clear that the results were not as had been anticipated. We found that we were not on the down slope of the Laffer curve, as Laffer had suggested to Cheney and Rumsfeld, who ran breathlessly back to Washington to spread the news that tax cuts will pay for themselves. It's win win!

We're past that now. We know the supply-siders were wrong, but the damage done by rate compression remains to this very day. Even though top marginal rate have gone back up some since the Reagan era, they still remain lower than at any time since 1930! By no means have we put back all the progressiveness that once existed in the U.S. tax structure.

Obviously the the upper income brackets can take far more advantage than lower income brackets of various deductions and loopholes to reduce their tax burden. The effect of these loopholes is equivalent to rates even more compressed than shown in the tables. The tables tell you all you need to know about how tax rate tampering during Reaganomics, in the interest of "fairness" and "revenue neutrality" squeezed the lower middle class while benefiting high income earners. The family vacation enjoyed by the lower middle class during the Eisenhower era, a period of steeply progressive tax rates, was soon to become an endangered species by the end of the Reagan Presidency.

By the way, Arnie, the 1986 act lowered over two years, rather than one, the top marginal rate by a little more than the 1981 cuts.

I have been puzzled by why a flat tax is more fair than a progressive one, since in both a flat and progressive tax structure we pay exactly the same tax rate on the same dollars earned. For example. If I make 25K and a Billionaire makes 1 billion we both pay exactly the same rate on 25K. It is just that Billionaire also makes dollars that fall in other brackets as well, and he pays a different rate in those brackets. I'd pay exactly the same rate as he if I made dollars that fell in those other brackets. What is unfair about that?

So, in my mind it isn't a matter of fairness, it's a matter of which tax structure produces the most stable and strongest economy in the long run. Is it the one that produces less disparity in net income after taxes, or the one that produces more disparity? You can argue until you're blue in the face, but you'll never convince me that the way to provide opportunity for the middle class to move up the economic ladder is to make the wealthy wealthier. I don't care if the wealthy get even wealthier, that's fine with me. I'm concerned about the increasing difficulty for middle class citizens, especially the lower middle class, to move up the economic ladder. Don't tell me that the way to improve opportunity for the lower classes is through making the upper classes wealthier. That's nonsense!
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piezoe · Jul 23, 2014

Ricter said:
To be fair, I'd like to know what a single filer, earning minimum wage full-time, would have paid in income tax in 1981, and how much he or she would have paid for the same income in 1989. When Reagan took office, and when he left. At the end of the day that's what matters so far as Reagan is responsible.
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I'm re-posting this because we can't edit old posts and my original above was gobbledygook, for which I apologize.

I'd also like to know that, however the minimum wage worker was probably not affected by the changes in tax rates taking place from 1981 to 1989. From 1981 to 1989, the minimum wage was held constant at 3.35/hr, so a full-time, minimum wage worker would have earned around $6900 for a 40 hr week times 52 weeks. Chances are, after an exemption, standard deduction, any other deductions and social security plus medicare, they would have had virtually no taxable income, so it is unlikely the Reagan tax revisions would have had much, if any, affect on the minimum wage worker.

On the other hand, those workers surely would have noticed that their pay checks didn't go nearly as far in 1989 as in 1981. The minimum wage was held constant throughout those years of fairly substantial inflation. One of the reasons given for holding the minimum wage constant was to help fight inflation. I could be a little sarcastic here and say "So what's new? Military wars have always been fought with the lower economic classes on the front lines, so why not put them on the front line in the fight against inflation?"

Should we be, perhaps, more interested in the affect of Reaganomics on the lower middle class? I think, if I could turn up data in terms of what was paid in income taxes in 1981 versus 1989 for those netting, after deductions, just a few thousand dollars of taxable income, there would be quite a difference in what was paid in income taxes between 1981 and 1989. I would expect to find that very little, or no, income tax was paid by these lower middle class workers in 1981, compared to income tax of some hundreds to a few thousand dollars paid in 1989. One also has to consider that real wages, wages adjusted for inflation, dropped throughout the 1981-89 period. It must have been the lower middle class who really got hit hard by Reaganomics.

Arnie is good at finding nice data, maybe he can unearth this information for us on the net.

jem · Jul 23, 2014

1. I already answered that... I got out of college in 86...
most of my friends with jobs did not even file taxes back then. the lower incomes did not owe any income tax money after deductions and many if not most did not even bother filing. The 1986 tax restructuring were not reaganomics if you consider Reaganomic supply side.

2. The lower middle class has been hammered by inflation. correct?
Now lets examine the cause of that inflation. Was it tax cuts... no... revenues went up.
Was it govt spending? Lets do a thought experiment...

a. Lets hold the money supply constant
b. Lets say the fed government runs a deficit.
c. But lets say the govt borrows the short fall.

Should there be inflation across the board? or just limited to few areas where govt buying may cause a little price appreciation.

If you can't explain across the board inflation... can you blame Reagan? the Congress? or some other entity?

piezoe said:
I'd also like to know that, however, the minimum wage worker was probably not affected by the changes in tax rates taking place from 1981 to 1989. From 1981 to 1989 the minimum wage was held constant at 3.35/hr so a full time minimum wage worker would have earned around $6900 for a 40 hr week times 52 weeks. Chances are, after the exemption, standard deduction, any other deductions and social security plus medicare they would have virtually no taxable income so I don't think the Reagan tax revisions wouldn't have had much, if any, affect on the minimum wage worker. The main thing those workers would have noticed is that their pay checks didn't go nearly as far in 1989 as in 1981. The minimum wage was held constant throughout those years of fairly substantial inflation. One of the reasons given for holding the minimum wage constant was to help fight inflation. I could be a little sarcastic here and say "so what's new? Military wars have always been fought with the lower economic classes on the front lines, so why not put them on the front line in the fight against inflation?"

Should we be, perhaps, more interested in the effect of Reaganomics on the lower middle class? I think if I could turn up data in terms of what was paid in income taxes in 1981 versus 1989 for those making just a few thousand dollars of taxable income we'd see quite a dramatic change from virtually no tax to some hundreds to a few thousand dollars. It must have been the lower middle class who really got hit hard by Reaganomics.

Arnie is good at finding nice data, maybe he can unearth this information for us on the net.
More...

piezoe · Jul 23, 2014

lotek771 said:
I know it's not politically possible, but if you eliminated 20,000 pages of tax code by eliminating the corporate tax, and raised the personal income tax, including treating cap gains as ordinary income, you could eliminate a lot of lobbyists and crooked politicians.

That corporate tax code is the power in Washington D.C.
More...

Yah!

jem · Jul 23, 2014

I am not for taking anyone's money via income taxes and death taxes... but..

I just read that michael moore who has been a crusader for income inequality is getting divorced. It has been revealed that he has 9 homes and 50 million dollars.
http://www.breitbart.com/Big-Hollywood/2014/07/23/michael-moore-owns-9-homes

Piezoe won't you join me in telling these democrats and their crony sob buddies to shut up about income inequality because the way to remedy it would be to take it from them.

jem · Jul 24, 2014

Piezoe... while I did not expect you to respond to the michael moore post....
I am disappointed you did not try to answer these questions...
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The lower middle class has been hammered by inflation. correct?
Now lets examine the cause of that inflation. Was it tax cuts... no... revenues went up.
Was it govt spending? Lets do a thought experiment...

a. Lets hold the money supply constant
b. Lets say the fed government runs a deficit.
c. But lets say the govt borrows the short fall.

Should there be inflation across the board? or just limited to few areas where govt buying may cause a little price appreciation.

If you can't explain across the board inflation... can you blame Reagan? the Congress? or some other entity?

piezoe · Jul 28, 2014

Jem, I can explain 'across the board inflation' as you put it, but I'm not inclined to. I'm sure you also understand what can cause it, and in particular that deficits can be an indirect cause of inflation.

Most of us here understand the link between deficits and inflation, even if the typical voter doesn't. That's why, of course, politicians endlessly promise not to raise our taxes, while endlessly raising them indirectly through deficits and inflation -- they know their constituents won't make the connection between a three trillion dollar war in Iraq and the price of groceries in 2014.

You really do understand than that tax cuts in the face of increased spending can lead to inflation, and whether you blame the tax cuts or the spending for the inflation is strictly a matter of perspective. Your continued insistence that tax cuts raise revenues is absurd in the face of the mountains of economic evidence to the contrary. Revenues generally rise with time regardless of whether taxes are cut or increased. Typically, they only drop during the early phase of recessions. Your going to make a fool of yourself if you continue to believe that you can just assume that tax cuts were responsible for any subsequent rise in revenue. Neither is it valid to assume that tax cuts on the wealthy were responsible for a subsequent increase in revenue from that same bracket. The entire tax structure, including changes in deductions credits and depreciation has to be considered, as well as other important factors..

I don't know how I can make myself more clear than I already have. Reagan should not be held accountable for the mistaken economic theories of the 1980's. He was a skilled baseball announcer and a competent actor, but not an economist.