Taxes on high-income earners would rise by nearly $1 trillion

Discussion in 'Economics' started by WallStWhizKid, Feb 3, 2010.

  1. Tax Cuts to Expire for Top Earners

    Taxes on high-income earners would rise by nearly $1 trillion over the next 10 years, under the budget plan put forward by President Barack Obama on Monday.

    The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010.

    The top two income-tax rates, which affect people earning more than $200,000 a year, or $250,000 for married couples, will return to 36% and 39.6%, from 33% and 35% now.

    Under the budget plan, capital gains and dividends would be taxed at 20%, up from 15% now, for people at those income levels.

    Limits on upper-income people's ability to claim personal exemptions and itemized deductions will also snap back next year, without any action needed from Congress.

    But as in last year's budget, Mr. Obama proposed Monday to go further by limiting the value of those benefits, which include deductions for mortgage interest and some charitable contributions. The highest-income earners under current law can lower their taxes by up to 39.6% of those deductions; under Monday's proposal, that would be reduced to 28%.

    The bid to lower the limit on itemized deductions stalled in Congress last year amid strong resistance from Democratic and Republican lawmakers. It is also opposed by a battery of interests including Realtors and charities.

    Fund managers would see their partnership profits taxed at ordinary income rates, rather than the lower capital-gains rate, under Mr. Obama's proposals. That plan—also proposed in last year's budget—passed in the House but has had trouble getting off the ground in the Senate, where lawmakers of both parties worry that a tax increase on so-called carried interest could harm entrepreneurship and investment. Supporters of the president's plan say it is unfair that fund managers' income should be taxed at a lower rate than wages.

    Mr. Obama proposed reinstating the estate tax, which was repealed for one year on Jan. 1, at the levels in effect last year—or 45%, with an exemption for estate wealth under $3.5 million—and extending those rates permanently.

    He proposed putting limits on the use of family trusts that have helped wealthy families lower their estate-tax liabilities, which the White House estimates would increase government revenue by $23.7 billion over 10 years.

    Mr. Obama would extend the Bush tax cuts, including the 15% rate on capital gains and dividends, for single taxpayers making less than $200,000 and couples earning less than $250,000.

    But he dropped a request to make permanent the payroll tax credit that fattened worker paychecks by $400 per person in 2010. In Monday's budget blueprint, Mr. Obama proposed extending only through 2012 that credit, which was his signature tax-cut proposal for middle-class workers during his campaign.

    Other tax cuts aimed at helping low- and middle-income people, released ahead of Monday's broader announcement, were also proposed. Those include a doubling of the child-care tax credit, and an expansion of the federal matching contribution for low-income savers.
  2. 1) Job security for tax attorneys.
    2) Obama will have to maintain those tax breaks in order to have any chance of being re-elected. :cool:
  3. bit


    Can't wait 'till '12 when Palin & Perry are running the show. Things will be different then, amirite?
  4. Why? Tax payers (Federal income tax) are in the minority, so they effectively don't have a vote.
  5. Continued unemployment will be blamed on lack of incentives perpetuated by Dems. :cool:
  6. wouter


    We should tax the super rich and take ALL thier money away so they can't spend it anymore and then the retailers that cater to them can't make a living and then they can't buy their lattes and then that coffee shop owner and all the others involved in the chain Can't live either and then the government migt think it is rich but the tax base is gone.


    The problem is not who to tax. The problem is a government that does not know how to spent its money wisely.

    Until they stop spending money on overseas wars in which we invade other sovereignties on some bogus pretense, they don't deserve a penny.
  7. piezoe


    Kid, are you bothered by the gee whiz lead-ins to these stories? Such as "Taxes on high-income earners would rise by nearly $1 trillion over the next 10 years, under the budget plan put forward by President Barack Obama on Monday."

    One Trillion!, a meaningless number! You don't learn until you get into the thing that the proposed increases would actually be modest, would only hit upper income levels, and would simply return us to rates in effect previously.

    The myth continues that cuts in direct taxation produce, as if by magic, higher government revenues. Usually, cuts in direct taxation cause increased deficits, with attendant borrowing, that lead ultimately to a higher total tax burden and inflation. The appearance of a more robust economy is temporary, and the result of living high on the hog using borrowed money. The inflation that this invariably causes makes earnings and the market go up in nominal terms. Thus government revenues also rise in nominal terms, but in constant dollars the net effect on government revenues will be just what you would expect.

    Of course we are not talking about genuine investment here. That is, either borrowing to invest productively, or cutting direct taxes to free up money for investment. That's not at all what we are talking about. What we of the "less-tax-is-more-school" are actually talking about is cutting government revenue to free up money for investment, and then borrowing a little more money than the amount freed to spend in other ways; thus raising overall government revenues. (If you think that last sentence is nonsense. stick a gold star on your forehead.)

    There is only one way this magic can have a happy ending. And that is for the productivity resulting from the business investment to be so great as to create enough future revenue growth --in constant dollars mind you-- to pay back the money borrowed at interest with plenty left over. That hasn't happened any time in the recent past. In a nutshell, whenever this nutty attempt to get something for nothing, i.e., less income to get more income, has been tried it has resulted in inflation and this, when properly accounted for, wipes out the illusional gains in government revenue.

    Ask any of those cherry pickers who spout this nonsense to compute their figures in constant dollars. And they are not allowed to compare periods of recession with those of plenty and lower tax rates. When you force these economic geniuses to do their computations in constant dollars and use reasonable comparison periods, they will get the result that any ninth grader could have predicted. Increasing your spending while voluntarily cutting your income doesn't produce higher income.

    Logically, the only way cuts in net overall taxation can, in the long run, lead to a stronger economy is if there are corresponding cuts in non-productive areas on the fiscal side.

    Most often, because of errant fiscal behavior, when a politician (or uninformed ET poster) talks of lowering taxes they are unwittingly talking of shifting more of the total tax burden to the inflation side, and away from the direct taxation side. The curious result is that low wage earners pay a larger fraction, and higher wage earners a lesser fraction, of their gross incomes as indirect tax.

    Another popular myth is that low wage earners pay no tax, and thus don't contribute to the cost of running the US government. I've even heard talk-radio blabbermouths claim that over 40% of Americans --I assume they aren't counting children!-- pay no income tax. This is probably correct! But it is highly misleading. All Americans, even children, pay the inflation part of the total tax burden.
  8. Once again you have violated the terms of use for Elitetrader. Please take your rational arguments and facts elsewhere, nobody on ET has any use for them.
  9. That said, trickle down economics is a myth. Paying bankers more money, does not equal more wealth.
  10. pspr


    Democrats today are experts at holding a knife to their own throats. I don't get it. Can they be that stupid? Can they be that desperate? Can they not think rationally?

    I can only conclude that they must hate the America that most of us know and love.
    #10     Feb 4, 2010