Monday, September 19, 2011

Obama to propose millionaire's tax to cut the deficit

LA Times:

President Obamawill propose that people earning more than $1 million a year pay at least the same tax rate as middle-class earners to help reduce the soaring budget deficit, according to administration officials.

Obama will call the plan the "Buffett rule" after billionaire investor Warren E. Buffett, a supporter of his who recently called the tax system unfair, noting that it lets him pay a lower rate than his secretary does.

The plan would replace the complicated alternative minimum tax, which was enacted decades ago to ensure that the wealthy paid at least some income taxes, according to the officials, who requested anonymity because they were not authorized to discuss the matter publicly.

Obama's proposal, to be unveiled Monday, is likely to face strong opposition from congressional Republicans and could resonate throughout the 2012 presidential election.

Republicans have vowed not to raise taxes even on the wealthy, arguing that the struggling economy cannot recover if Washington takes more money from people they have dubbed "job creators."

Republican leaders already have balked at the president's suggestion to help pay for his proposed $447-billion jobs package by closing some loopholes and eliminating deductions for some industries as well as for families earning more than $250,000 a year.

But the White House appears to be calculating that the GOP will have a more difficult time standing up for millionaires as the nation struggles with a huge budget deficit.

Obama has cited Buffett's example as an illustration of what's wrong with the tax code and the need for the wealthy to do more to help close the deficit.

"Right now, Warren Buffett pays a lower tax rate than his secretary, an outrage he has asked us to fix," Obama said this month in a nationally televised address to a joint session of Congress. "We need a tax code where everyone gets a fair shake and where everybody pays their fair share."

While unveiling his jobs package in that speech, Obama promised to announce deficit-cutting measures on Monday. His proposals would go to a special congressional committee charged with finding deep budget cuts by Thanksgiving.

House Speaker John A. Boehner (R-Ohio) said last week that tax increases were "not a viable option" for the deficit-reduction committee.

"It's a very simple equation. Tax increases destroy jobs," Boehner said.

About 235,000 income tax returns with at least $1 million in adjusted gross income were filed in 2009, according to theIRS. The median income in the U.S. that year was about $50,000.

Polls have shown that the public supports raising taxes on higher-income Americans. For example, a CBS News/New York Times survey in August found that 63% of respondents favored increasing taxes on households earning more than $250,000 a year to help close the budget deficit.

Despite that support, Obama backed down in December on his campaign promise to let the George W. Bush-era tax cuts expire for those earning more than $250,000 a year. In the face of strong Republican opposition, and out of concern that failure to strike a deal would cause taxes on all earners to go up when the cuts expired at the end of the year, he agreed to extend the tax breaks until the end of 2012.

Details were sketchy about the latest White House proposal, which was first reported by the New York Times.

Administration officials did not say what the minimum rate would be for those earning more than $1 million a year, how a middle-class income would be defined, nor how much revenue the plan would produce.

Income over $379,150 is taxed at 35%, but the overall average tax bite for those earning more than $1 million a year in 2009 was 24.4%, according to the IRS. For those earning between $125,000 and $150,000, it was 11.7%.

The relative bargain for the wealthy comes partly as a result of tax breaks available to them, such as a lower rate on capital gains.

"My friends and I have been coddled long enough by a billionaire-friendly Congress," Buffett, chief executive of Berkshire Hathaway, wrote in an August opinion article in the New York Times. "It's time for our government to get serious about shared sacrifice."

Buffett said his 2010 federal tax rate was 17.4%, lower than that of any of the 20 people in his office. Their tax rates averaged 36%.

Obama's proposal is similar to one floated late last year by Sen. Charles E. Schumer (D-N.Y.), who wanted to let the Bush-era tax cuts expire only for those earning $1 million or more.


  1. Is John Boehner right? Do tax increases really destroy jobs?

    Recent history does not support Boehner's assertion. Since World War II, there have been only three tax rate increases:
    1) Lyndon Johnson's Vietnam War surtax imposed from 1968 to 1970
    2) George H.W. Bush's 1991 tax rate increase
    3) Bill Clinton's 1993 tax rate increase

    The following data comes from the Tax Foundation and the Bureau of Labor Statistics.

    1) Lyndon Johnson's war surtax was 7.5% in 1968, 10% in 1969, and 2.5% in 1970. The unemployment rate was low in 1968 and 1969, consistently around 3.5%. The unemployment rate began to rise in 1970 when we entered the era of stagflation. But by that time the surtax was gone. In this case Boehner is wrong.

    2) The George H.W. Bush 1991 tax rate increase raised the top rate from 28% to 31%. (The 1986 tax reform had incorporated a 33% "bubble rate" that complicates the matter.) The unemployment rate went up from 5.2% in June 1990 to 7.8% in June 1992. In July 1990 the economy went into a short recession lasting until March 1991. What caused the recession? The tax increase could very well be a factor. So I will give Boehner some credit. But there were other things happening as well. Saddam Hussein invaded Kuwait in August 1990 which caused a spike in the price of oil. The effects of the S&L crisis were still being felt in 1990 and there was a sharp drop in new home construction. But I will give Boehner partial credit in this case.

    3) In 1993 Bill Clinton raised the top tax rate from 31% to 39.6%. Employment went up -- way up -- until the relatively mild 2001 recession. When Clinton took office in January 1993, the unemployment rate was 7.3%. When he left office in January 2001 the unemployment rate was 4.2%. It fell below 4% for several months in 2000. In this case Boehner is completely wrong.

    Interestingly, Rush Limbaugh decided to work harder after the 1991 Bush tax hike; he began his new TV show in 1992. And he decided to work harder after the Clinton tax hike too. That's right. This Atlas of talk radio did not shrug. In 1995 he went into the men's tie business with his No Boundaries Collection. And he continued to work at his TV show until 1996. Rush terminated the TV show, not because of Clinton's higher tax rate, but because TV stations were airing the show very late at night due to lower ratings.

    Maybe I should mention some serious job creators. Bill Gates and Paul Allen started Microsoft in 1975. Steve Jobs, Steve Wozniak, and Ron Wayne started Apple in 1976. The top tax rate at the time was 70%. Bill Hewlett and David Packard founded Hewlett-Packard in 1939, when the top tax rate was 79% on incomes over $5 million.

  2. This piece from the LA times is very misleading:

    - Income tax has been progressive from the beginning, that is, the higher the income bracket the higher the income tax (
    - Precisely because income tax is progressive, the rich always pay the lion's share of the INCOME tax collected by the IRS. For example: since 1986 the top 1% have paid between 38% and 40% of the total income tax revenue in a given year (
    - It is true that capital gains are taxed at a lower rate than income tax, but it is precisely so that people are encouraged to put their money at risk (investments, unlike income from labor, is not guaranteed to generate a return, as we are seeing now).

    I could go on, but then I'd get lost in the weeds Obama is trying to send people to while he continues to try to turn the USA into the USSA.

    The weightier questions before us are:
    - Do Americans really believe that the socialist utopia that has failed to materialize everywhere else in the world will somehow succeed here in America?
    - Do Americans really want to live with government as overlord and accept the loss of freedom and all of the social ills that come with such a bargain?
    - With America technically bankrupt, can the "rich" be squeezed enough to (1) pay down our debt back to reasonable levels, (2) continue to fund out-of-control entitlements, (3) provide for the obscene level of spending Obama has demonstrated an insatiable taste for, and still have enough left over for individual hopes and dreams and to support groups like Ave Maria radio? (Plainly, the math says NO!!!)
    - Would this "benevolent" government master be willing to protect and uphold the religious liberties that have been seminal to the success of this country? (The trend here as in Europe is decidedly negative.)

    I could go on, but I truly hope that I am just "preaching to the choir".

    The Founders of this country drew the right conclusion from the history of humanity and from their own experience: distrust of government authority is the only attitude that makes any sense when trying to build a social compact that preserves individual freedom and empowers the individual.