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The 2% Illusion

Discussion in 'Political Zone' started by Kangaroo, Feb 26, 2009.

  1. Kangaroo

    Kangaroo Active Member

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    http://online.wsj.com/article/SB123561551065378405.html

    The 2% Illusion
    Take everything they earn, and it still won't be enough.
    President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."
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    This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.

    Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

    Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.
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    But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

    Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

    Mr. Obama is of course counting on an economic recovery. And he's also assuming along with the new liberal economic consensus that taxes don't matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation's primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively "small business" is defined. These owners will find a way to declare less taxable income.

    The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can't possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.

    On that point, by the way, it's unclear why Mr. Obama thinks his climate-change scheme won't hit all Americans with higher taxes. Selling the right to emit greenhouse gases amounts to a steep new tax on most types of energy and, therefore, on all Americans who use energy. There's a reason that Charlie Rangel's Ways and Means panel, which writes tax law, is holding hearings this week on cap-and-trade regulation.

    Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don't ignore the data. And the reality is that the only way to pay for Mr. Obama's ambitions is to reach ever deeper into the pockets of the American middle class.
  2. BrAinPaiNt

    BrAinPaiNt Bad Santa Staff Member

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    I have seen this posted before...not sure if it was here or somewhere else.

    But can someone show me where he said that or even implied that increasing the tax of the top 2% was going to pay for all of his spending?

    I do recall him talking about cutting some military spending, about going through and cutting other programs, about bringing a large number of troops back from Iraq.

    So I don't get why people seem to be implying that the only thing he plans on paying this stuff with is by increasing the taxes of the top 2%.

    Now whether he can or can not pay it off or has a legit plan to pay it is a big argument. I am not making that argument.

    What I am saying is...it seems some are implying that his only idea for the money is to tax the top 2% to get it, and then we get these articles and talking points about how that will not cover that...well duh because that is not the only area he has talked about.

    Just saying.
  3. Jarv

    Jarv Loud pipes saves lives. Zone Supporter

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    Maybe its because that is all we heard from him the other night. He did talk about cutting in other places but gave no examples or quantitative numbers. With the tax hikes he did.
  4. BrAinPaiNt

    BrAinPaiNt Bad Santa Staff Member

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    Yet like you said, he did talk about cutting in other areas. In the past his spokesmen have said that part of his plan for the money was the idea of getting troops out of Iraq as well and he has also talked about cutting defense spending in areas before.
  5. Kangaroo

    Kangaroo Active Member

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    The campaign trail when he talked about everyone over 250k then it became 200k and so forth.

    That was his magical cut of point he was going to raise taxes on the rich his whole platform was center around that mythical 2%

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