Poll: Voters want to soak the rich to avoid fiscal cliff.
An American appetite for tax hikes gives President Barack Obama leverage in fiscal cliff negotiations.
A new POLITICO/George Washington University Battleground Poll finds that 60 percent of respondents support raising taxes on households that earn more than $250,000 a year and 64 percent want to raise taxes on large corporations.
Even 39 percent of Republicans support raising taxes on households making more than $250,000. Independents favor such a move by 21 percentage points, 59 to 38 percent.
Only 38 percent buy the GOP argument that raising taxes on households earning over $250,000 per year will have a negative impact on the economy. Fifty-eight percent do not.
“Democrats really have a winning issue here, and we should drive it hard,” said Celinda Lake, the Democratic pollster who helped conduct the bipartisan poll. “We’re in an era now where there’s a lot of cynicism about trickle-down economics.”
So Republican ideas are unpopular — no surprise there. This is pretty much just a continuation of the trend in polling. Obama won reelection, so it’s no surprise most people back his ideas here. The alternate Republican ideas were also Mitt Romney’s ideas.
But that last question is so odd you wonder why they asked it. 75% support “cutting government spending across the board,” which is pretty much the same as going over the fiscal cliff. I suppose it’s so vague that it’s appealing; when you start to get into specifics, spending cuts get a lot more unpopular.
It goes without saying that the Republican “counteroffer” is basically fake. It calls for $800 billion in revenue from closing loopholes, but doesn’t specify a single loophole to be closed; it calls for huge spending cuts, but aside from raising the Medicare age and cutting the Social Security inflation adjustment — moves worth only around $300 billion — it doesn’t specify how these cuts are to be achieved. So it’s basically the Paul Ryan method: scribble down some numbers and pretend that you’re a budget wonk with a Serious plan.
What I haven’t seen pointed out here is the longer arc of GOP strategy. Does anyone recall how the Bush tax cuts were passed? The 2001 cut was passed based on the claim that the government was running an excessive surplus; the 2003 cut on the claim that it would provide an economic boost. Then the surplus went away, and the economy did not, to say the least, perform very well.
So now we face a substantial long-run deficit largely created by those tax cuts:
And the GOP says that because of that deficit we must raise the Medicare age and cut Social Security!
Oh, and for all the seniors or near-seniors who voted Republican because you thought they would protect Medicare from that bad guy Obama: you’ve been had.
I think it’s obvious what needs to be done - the rich need to be taxed and heavily. I wonder if there is anyone left in Washington that has the political will to make this happen?
Many say we have to cave in to the Republicans because withholding rates will go up on the middle class on Jan 1. This can be avoided by a Presidential Directive to the Secretary of the Treasury. There is a precedent for this. In 1992 President Bush issued a Directive to lower withholding rates (without a corresponding tax change or any legislation) to stimulate the economy.
In 1992, the income tax withholding tables were adjusted so that withholding was reduced. A typical worker received an extra $28.80 in take-home pay per month in March through December 1992, to be offset by a lower tax refund in 1993. The change in withholding amounted to 0.5 percent of GDP. President Bush, who proposed this change in his State of the Union address, intended that it provide a temporary stimulus to demand.
Therefore there is way to rebut those who say if we don’t cave-in and pass the tax cuts for the rich, everyone else will immediately face higher withholding on Jan 1st. Pres. Obama can issue an Executive Order to maintain tax withholding rates for those with income under $250,000 . He can even cite President Bush for the precedent.
1) Refuse to pass anything but the Middle Class Tax cuts.
2) President Obama can issue a Directive to the Secretary of the Treasury to maintain existing tax withholding rates only for those with income under $250,000..
3) Fight everyday until we force Republicans to capitulate on Middle Class tax cuts only.
Would this work?
But let’s focus on this claim, from Republicans, that Obama only wants to raise taxes and isn’t serious about spending cuts. Here’s an analysis from one senior Republican aide, as relayed to ABC News’ Jonathan Karl:The White House keeps saying it wants a ‘balanced approach’ but this offer is completely unbalanced and unrealistic. It calls for $1.6 trillion in tax hikes – all of that upfront – in exchange for only $400 billion in spending cuts that come later. Plus, the only entitlement changes they proposed come from the exact proposals in the President’s budget.
The trouble with this analysis is that it ignores history: As part of the 2011 Budget Control Act, Obama agreed to spending reductions of about $1.5 trillion over the next ten years. If you count the interest, the savings is actually $1.7 trillion. Boehner should have no problem remembering the details of that deal: As Greg Sargent points out, Boehner at the time actually gloated about the fact that the deal was “all spending cuts.”
And now, with this latest offer, Obama is proposing yet more spending reductions, to the tune of several hundred billion dollars. Add it up and it’s more than $2 trillion in spending cuts Obama has either signed into law or is endorsing now. That’s obviously greater than the $1.6 trillion in new tax revenue he’s seeking. (And that doesn’t even take into account automatic cuts from the 2011 budget sequester, which Obama has proposed to defer, or savings from ending the wars in Afghanistan and Iraq.) So, yes, Obama’s proposal is unbalanced—but not in the way Republicans seem to think. If Obama were proposing a truly balanced plan, he’d be calling for even more tax revenue or even less spending reduction.
House Minority Leader Nancy Pelosi offered her own way to break the apparent stalemate over the so-called fiscal cliff — by taking matters out of House Speaker John Boehner’s hands. She pointed out Friday that the Senate already passed a bill in July that would accomplish President Barack Obama’s goal by extending lower tax rates for the middle class but not the wealthy.
Pelosi called on House Republican leadership to bring that legislation to the floor next week and threatened that if they do not schedule a vote on the Senate bill, Democrats will file what’s known as a discharge petition on Tuesday to force a vote on the measure in her chamber. If Democrats successfully obtain 218 signatures on the discharge petition, it would automatically force the middle income tax cut bill to the floor for a vote.
President Barack Obama is seeking input from Corporate America on the so-called fiscal cliff. But whatever company honchos may be saying about the risk of recession in 2013 if tax hikes and spending cuts kick in on Jan. 1, it looks as if they actually fear higher taxes more than a downturn.
Exhibit A is the recent flurry of special dividends, including a $3 billion whopper announced on Wednesday by warehouse retailer Costco. Data group Markit says 112 firms so far this quarter have already pulled the trigger on special dividends. They include casino operator Las Vegas Sands, which will send more than $1 billion to Mitt Romney’s pal Sheldon Adelson, his wife and the trusts the billionaire controls. Markit expects 20 more firms to do something similar before the year is through.
It’s notable that many of the companies announcing special payments have big family-owned stakes. These early distributions will save shareholders money if tax rates on dividend income do go up next year, from the current 15 percent.
But paying out cash isn’t a rational response if the fiscal cliff is a recipe for a downturn. In that case, companies ought to be hoarding it. The nonpartisan Congressional Budget Office has long said U.S. output would fall. That has given corporate chiefs like Mark Bertolini of Aetna and Dave Cote of Honeywell a bandwagon from which to implore Washington to do something to avert a metaphorical plunge into the abyss. If the real fear is not so much the health of their companies as that of any dividend recipients’ pocketbooks, it’s a less compelling line.
If Congress fails to act before the end of the year, every American family’s taxes will automatically go up. A typical middle-class family of four would see its taxes rise by $2,200 starting in 2013. Learn More.
Tell us what $2,000 means to you and your family.
In the new poll, 73 percent of Democrats support such tax hikes, including a majority, 57 percent, who do so “strongly.” Among political independents, 63 percent back an increase, while 59 percent of Republicans oppose such a move.
Other proposed solutions to shrinking the debt are far less popular with the public. Only 44 percent support new limitations on the deductions people can claim on their federal income taxes — a proposal that former Massachusetts governor Mitt Romney put forward during his unsuccessful 2012 presidential campaign.
Even fewer — 30 percent — favor raising the age for Medicare from 65 to 67, part of a bid by Tennessee Republican Sen. Bob Corker to avert the automatic spending cuts and tax increases that would hit if there is no deal by the end of the year.
The coming Congressional debate over fiscal policy is sure to feature a wide array of proposals, some of which would hit certain taxpayers harder than others.
But one idea being floated by Congressional negotiators, as described in an article by The New York Times’s Jonathan Weisman on Thursday, is hard to defend from the standpoint of rational public policy making.
Its arithmetic could require that the 300,000th dollar of income was taxed at a rate of about 50 percent – even while the three millionth dollar of income, or the three billionth, was taxed at a lower 35 percent rate instead.
The math behind these calculations is not all that complicated. It’s just a matter of understanding how marginal tax rates work.
Take an American who earns $400,000 a year in taxable income. (This is roughly the threshold at which a taxpayer reaches the top 1 percent of households.)
The top marginal federal income tax rate is now 35 percent, and kicks in at earnings above $388,350.
Someone making $400,000 is above the $388,350 threshold. Does this mean that she’d be taxed at a 35 percent rate on all $400,000 of income, meaning that she’d owe the government $140,000?
Not under current law. Instead, only a small fraction of the taxpayer’s income – the $11,650 she earns after she’s already reached $388,350 – is taxed at the top 35 percent rate.
Because tax rates are applied in this way, a taxpayer making $400,000 would owe about $117,000 in federal taxes, or about 29 percent of her earnings — rather than $140,000 if all her income had been taxed at the 35 percent rate.
Under the proposal described in Mr. Weisman’s article, that would change.
“One possible change would tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula,” he reports.
In other words, under this proposal, the taxpayer making $400,000 would in fact pay 35 percent in overall income taxes and would owe $140,000 — about $23,000 more than she does currently.
The question is when the government would collect the additional $23,000 of taxes.
Specifically, after the taxpayer had hit her 400,000th dollar of income, her marginal tax rate would then decline. Rather than owing 50 cents for each dollar earned, she’d be back to a 35 percent rate instead.
Suppose that the taxpayer is considering taking on a part-time job that would make her an additional $50,000 in income. If the taxpayer had already earned $3,000,000 in income from her main job, then she would be able to keep 65 percent of the additional income from her side gig, owing 35 percent or $17,500 in taxes.
But if the taxpayer had “only” made $300,000 from her main job, she would get to keep only about $25,000 of earnings from her second job, owing the other $25,000 to the government. Faced with this steep tax rate, the taxpayer might decline the second job, meaning that the government would never collect the additional revenues from her earnings.
This is what’s known as a “tax bubble”: when someone earning less income might be taxed at a higher marginal rate than someone making more.
Tax bubbles have existed at various times in the federal tax code, such as from 1986 through 1990. They also exist in some state tax codes. But the proposal described in Mr. Weisman’s article would create an especially steep one.
To be clear, the people subjected to the tax bubble would be reasonably well off. An average family making $50,000 a year would not pay any additional taxes because of it, nor would its incentives be distorted in any substantial way.
Also to be clear: many of the people writing about tax policy, from academic economists to yours truly, make incomes that are considerably above the national average.
Nonetheless, the proposal described in Mr. Weisman’s article would place its heaviest tax burden on the somewhat wealthy as opposed to the very wealthy, particularly as it is being proposed as an alternative to raising the top marginal rate.
If the tax bubble were implemented, but the tax code were otherwise unchanged, then someone making $400,000 would owe $140,000 in federal income taxes, $23,000 more than she does now, increasing her overall tax rate to 35 percent from about 29 percent.
Someone making $4 million would owe $1.4 million in taxes, also reflecting a $23,000 increase. But the increase would be minimal on a percentage basis, since it comes from a larger pool of income. Their overall tax rate would rise to 35.0 percent from 34.4 percent.
If, instead, the top two marginal tax rates were increased to 36 percent and 39.6 percent, as they were under the Clinton administration, then someone making $400,000 would owe about $124,000 in federal income taxes – or about 31 percent of her income. This would reflect a tax increase, but less than under the tax bubble proposal.
However, the government would collect more taxes from the $4 million earner. Someone making that much would owe $1.55 million if the Clinton-era rates were restored, with their tax rate rising to 38.7 percent from 34.4 percent.
Either policy would reflect a tax increase – whatever semantics the Congress might use to describe it. It’s a question of which taxpayers would bear more of the burden.
It’s also a question of whether the tax increase would make the tax code more efficient or less so. One might favor a flatter schedule of marginal tax rates or a steeper one. All taxes have the potential to discourage work. But smoother increases in marginal tax rates, as under current law, create less economic friction, and fewer deadweight losses, then those with a number of peaks and valleys. It is hard to see the economic rationale for creating a bubble in the middle of the tax code.
Dave Weigel complains today that too many rich people have no idea how income taxes work. They’ve heard that Obama wants to raise tax rates on people who make more than $250,000, so they’re working on ways to keep their income right at $249,000. After all, if they go over the threshold, they’d suddenly have to pay the higher rate, and it would be a net loss.
This isn’t true, of course. Obama is only proposing to raise tax rates on income over $250,000, so if your income goes up to $251,000, you only pay the higher rate on the extra $1,000. The tax bill on your first $250,000 stays exactly the same.
But that’s hard to explain, and we’re all about solutions here, not petty griping. So I have the answer: an EZ-to-Read table that compares total taxes paid under the old Bush rates and the proposed Obama rates. It starts at $241,900 because that’s $250,000 minus the standard deduction, and it’s for married couples filing jointly.
Example: under the current Bush tax rates, a couple making $300,000 pays $75,802, or 25.27% of their total income. Under Obama’s plan, the rate goes up on the amount over $241,900, so they pay a whopping $2,000 more, or 25.85% of total income. Millionaires will pay $32,000 more. Raw data here. Share this with all your rich friends!
Sadly, most of the people I have discussed this with don’t understand how tax rates work.
There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, “Are you now or have you ever been?” The rest of us, however, are very glad those days are gone. We are, morally, a much better nation than we were. Oh, and the food has improved a lot, too.
Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.