Rich people do not keep their money under a giant mattress; they invest it so that it makes its own money, and they have so much money that the money their money makes is enough to live on. It’s the same thing middle-class people do with bonds or dividends, just on a much greater scale. The issue shouldn’t be whether or not Romney is too rich, it should be whether or not capital gains should be taxed at their current low rate of 15%. I’ve never understood why capital gains is taxed differently than income: it’s money that I get that lets me live, just like money I get from my employer. The double taxation distinction is completely off base; unless you want to get rid of all taxes in an economy, you cannot castigate one form of taxation. Given the false double taxation distinction, I’ve never understood why it’s not taxed at the same rate as income. That way Romney would pay way more on his millions of dividend income than I do on $15 of annual GE dividends. I don’t think the two of us should have the same tax rate.

The Gingrich plan would reduce federal tax revenues dramatically. TPC estimates that on a static basis, the Gingrich plan would lower federal tax liability by $1.28 trillion in calendar year 2015 compared with current law, roughly a 35 percent cut in total projected revenue. Relative to a current policy baseline, the reduction in liability would be roughly $850 billion in calendar year 2015. If taxpayers were required to file under the flat tax option (that is, they could not opt to remain under current tax law), revenues in 2015 would fall by about $1.25 trillion relative to a current law baseline and by about $830 billion relative to a current policy baseline.

There doesn’t appear to be much of a strategy behind how such a giant estimated reduction in revenue would succeed without bankrupting the government in its current form, but I suppose those are minor details to be worked out further down the road.  I wonder how long until a candidate proposes a serious (read: realistic) plan for reform.  Until then, we can poke at the inadequate proposals before us.

His opinion piece in Bloomberg is quite refreshing and it boils down to the idea that the rich have recently forgotten just what got them to where they are today: consumerism by the common man.  Hanauer says nothing he does or invests in can create nearly as many jobs as a regular American consumer, and thus he pokes holes in the common cry in the political sphere that we should not penalize the “job creators.”  The conclusion seems almost obvious: now that the rich have become richer than at any point in history, they are more concerned with guarding their current wealth than they are with incurring the cost of growing even further (which would actually entail shared growth across the economic spectrum).  My question is, when did everyone become so selfishly short-sighted?  If there are more Nick Hanauers out there, speak up and be heard.

In June, regulatory filings show, Mr. Lauder entered into a sophisticated contract to sell $72 million of stock to an investment bank in 2014 at a price of about 75 percent of its current value in exchange for cash now. The transaction, known as a variable prepaid forward, minimizes potential losses for shareholders and gives them access to cash. But because the I.R.S. does not classify this as a sale, it allows investors like Mr. Lauder to defer paying taxes for years.

Wow, cash now and no taxes, sounds great!  But it gets better:

His stake in Estée Lauder Companies, according to regulatory filings, is valued at more than $600 million. Nearly $400 million of that stock is pledged to secure various lines of credit. Many financial planners consider it imprudent for principal shareholders in a company to borrow against their stock. But it remains a popular way for wealthy taxpayers to get cash out of their holdings without selling and paying taxes.

Yes, wealthy shareholders (and even poor ones, if they so chose but with minimal comparative benefit) can borrow against their stock without recognizing any gains currently (kind of a more advanced rich person version of the home equity loan/HELOC).

And there is no limit on the amount of property taxes that can be deducted from federal income. So Mr. Lauder is entitled to deduct the $400,000 he pays annually on his Palm Beach mansion as well as what he pays on his home on Park Avenue and his holdings in the Hamptons.

So that is what all the “second” homes are for!  But what about that Renoir or Picasso?  You get a benefit there too:

As all art collectors may, Mr. Lauder is entitled to deduct the full market value of artworks donated to museums. (For years, Mr. Lauder availed himself of a quirk in the tax code that allowed donors to take a deduction for donating a portion of an artwork, without actually turning over the art. That break, known as fractional donation, was eliminated in 2006.) The tax code also allows artwork in offices to be deducted as a business expense.

But tax breaks may not be the only motivator: Sheldon Cohen, a former I.R.S. commissioner, said: “If an art collector makes significant contributions, and the public actually gets access to the works they are donating, then the major thing the collector gets is prestige and social status.”  It must be nice (and rare) to get a tax break and a juiced public image!

Virginia has a car tax. Does the car pay the tax? In most political jurisdictions, there’s a property tax. Does property pay the tax?…What about a corporation? As it turns out, a corporation is an artificial creation of the legal system and, as such, a legal fiction. A corporation is not a person and therefore cannot pay taxes. When tax is levied on a corporation, who pays it?

A valid question.  One whose answer seems almost too obvious:

One response is to raise the price of its product, so customers share part of the burden. Another response is to lower dividends, so shareholders share a part of the burden. And a considerable portion of reduced dividend burden falls on ordinary nonrich people…Therefore, it is people, not some legal fiction called a corporation, who bear the burden of the tax.

Really!?!?  So how bad is it?

In 1980, Joseph Stiglitz, now a Nobel laureate, said that workers share the highest corporate tax burden in the form of lower wages. A number of economic studies, including that of the Congressional Budget Office, show that workers bear anywhere from 45% to 75% of the corporate tax burden.

Armed with such facts, perhaps the whole debate over corporate taxes can take a new direction–at least for workers, it is time to demand higher wages!

But members of Mr. Obama’s own party have backed many of the breaks. Senator Charles E. Schumer of New York was a leading proponent of the Nascar benefit, which helped a track in upstate New York; Senator Ron Wyden of Oregon helped push through the break for toy wooden arrow makers, which also benefited a manufacturer back home; and Mr. Kerry, who serves on the special Congressional committee that is trying to reduce the debt, has been a main driver behind the beer bill.

Republican lawmakers come across no better.  It’s this type of behavior that makes Congress so unpopular.  But it’s not clear that individual members are not listening to their constituents.

Related articles

• Tax break or stimulus? Depends on lawmaker (seattletimes.nwsource.com)
• Want To Save $215 Billion? Eliminate the Mortgage Deduction (blogs.wsj.com)
• Gillibrand Sides With Schumer On Millionaire’s Tax (Updated) (timesunion.com)

First, one must recognize that this chart is reflecting what percentage of total tax dollars were received by the government from each earning class.  Thus it is only natural that the top 1% (who earn anywhere from roughly $400k+ up to the billions) end up contributing far more on a raw dollar basis than do those in the bottom 50% of wage earners (roughly $50k or less).

For example, in a world with only 100 taxpayers, Individual A and Group B (99 individuals), if A (as the top 1% earner) makes $1m pre-tax and is at a 35% rate, A will pay $350k of taxes to the government.  If our other taxpayers in Group B make only $30k on average and are taxed at a 15% rate each, Group B will pay $450k in taxes to the government.  Thus, the government’s total tax take for the year would be $800k, of which A’s share would represent nearly 44% of the government’s tax revenue for the year–yet A’s rate was only 35% on his income.  Furthermore, if we even assumed a flat tax rate of 20% on both A and Group B, A’s share would represent $200k in taxes while Group B’s share would represent $600k.  A’s share of total tax revenues to the government would still be 25% of the government’s total take for the year.  The reason for A’s substantial share of the overall tax burden is due to his vastly larger proportionate income than any of the other taxpayers in Group B.

Indeed, looking at how income gaps have widened in the last 30 years it is no surprise that on a dollar-for-dollar basis, the top 10% are paying a large portion of the government’s annual tax revenues.  The vastly growing gap between top income earners and the middle and lower levels is discussed in great detail in a June 2010 article by Arloc Sherman and Chad Stone for the Center on Budget and Policy Priorities.

That article brushes on another reason for the apparent disparity captured by Mr. Dubay’s chart: the impact of the recession that began mid-way through 2007 should be factored in.  His chart represents 2008–a year in which the American economy shed 2.6 million jobs, the majority of which hit middle and lower income workers.  The ultra-wealthy managed not only to hang on since the crash but have actually done quite well for themselves, taking advantage of cheap equities and other investment opportunities while middle class workers struggled to keep a roof over their heads.  It is no surprise, then, that the top earners ended up contributing much more to the annual tax revenue than they would otherwise–a large number of Americans were unemployed or underemployed at some point over the course of the year.

It is also too narrow a perspective to focus just on the Federal Income Tax.  As an article by Chuck Marr and Brian Highsmith for the Center on Budget and Policy Priorities highlighted, there are a number of other taxes such as employment taxes and state income taxes to take into account, as the following graphs illustrate:

Thus, while there is much criticism out there of how much lower wage earners pay toward taxes, usually the focus is too narrow and leaves out other crucial (if not regressive–social security) taxes from the consideration.  While achieving a fair and equitable distribution of the tax burden is certainly desirable, being fooled by the rhetoric and statistics thrown about without context is more harmful to the discussion than helpful.

Republicans, and some Blue Dogs, make the claim that there exists a correlation between taxes on the rich and job creation.  They say, “If you tax the rich, the economy will have fewer jobs.  There is a negative correlation between the rates of taxes on the rich and the rate of job creation.”  The article points out that the economy has had its most successful employment growth in years in which the top marginal rate was much (sometimes much much) higher.  In other words,

In fact, they are just as wrong about this as they are about the relationship between marginal tax rates and overall economic growth. In the past 60 years, job growth has actually been greater in years when the top income tax rate was much higher than it is now.

[...]

We showed last week that lower rates are not associated with faster overall economic growth—just the opposite, in fact. And now we know that lower rates don’t coincide with higher job growth, either. So where is the evidence that the lower marginal tax rates spur job creation? It’s certainly not present in the past 60 years of American history.

The article is not making a causality claim here.  It is making a counter-correlation one – “The correlation is positive between tax rates on the rich and job creation.”  This truth does not mean that higher tax rates cause job growth.  It means that no one can argue that higher tax rates on the rich hurt the economy.