Michael Maiello's picture

    The Rich Never Expire

    By Michael Maiello on Fri, 10/19/2012 - 12:34pm | Politics

    I really think that we should forbid the government from passing temporary laws, especially tax cuts with sunset provisions.  By enacting tax cuts that would eventually expire, George W. Bush was able to win the long-term "budget scoring" game, while also setting a trap for whoever occupied the White House after him.

    The Treasury and the Congressional Budget Office think about the economy in very different ways than the average American does.  They use a baseline, which is generally the current law, and then they judge proposals against that.  If the baseline is that the Bush Tax Cuts, as extended by Obama, will expire in January 2012, then that's the baseline.  If you extend them, then you shrink the government's coffers against the baseline.  So, to the budget people, extending them is actually a tax cut, since it lowers rate compared to what the law currently asks for.

    In practice, this doesn't work.  People get used to tax rates over time.  If my effective rate gets cut from 20% to 17%, I'm happy that first year.  If it stays at 17% for another five years, I'm now complaining that 17% is too high.  That's just how humans are.  Even if you tell me, you paid 20% this year, you'll pay 17% for the next five but we're going back to 20% in year six, I'm still aghast in year six because I've internalized the notion that 17% is more than enough, thank you.  The mind's baseline does not match the CBO baseline.

    I'm very sympathetic to the argument that Obama should let the Bush tax cuts expire and then start a new conversation about who should be paying what and how much and when.  The only way out of the "all or nothing" expiration of the Bush tax cuts is to swallow it and move on.

    Obama has now tried for years to push the idea that it doesn't have to be all or nothing and that rates can remain unchanged for everybody making under $250,000.  Republicans have repeatedly argued that this is unacceptable to them.  They care deeply about the highest tax brackets.

    There's another tax cut that's set to expire next year, one that hits many, many more Americans.  For two years, President Obama has held the employee portion of the payroll tax down near 4%, from just over 6% (which is its baseline going forward under current law.)  Payroll taxes are more regressive, since everybody pays the same amount of tax, up to an income limit of about $120,000.  For every dollar you make over $120,000 a year, the percentage of your income that goes to the payroll tax drops.  If you make millions, it drops to total insignificance.  If you make billions, it approaches zero.  But, if you make the median income ($50,000) the percentage of your income that goes to the tax is at the highest level the law demands.

    Any "grand bargain" on the debt is going to move the employee portion of the payroll tax back to the 6% level.  I wonder if we've crossed into the "new normal," where most people will react to that as a tax increase on the middle class, rather than the expiration of a temporary benefit.  We'll soon find out.  I'm not actually bringing this up to argue the merits or demerits of the current payroll tax rate.  Given that Social Security is always under scrutiny and attack, the payroll tax holiday might have been a very bad idea from the start.  But I see why Obama did it.  It's a tax that everybody pays, so cutting it injects money into the economy from the bottom up.

    What I'm more interested in is this -- the Bush tax cuts disproportionately benefits the wealthy.  They had a set expiration date, which Obama extended, but only temporarily.  They are now once again up for renewal and this is a major issue.

    Obama's payroll tax cut disproportionately benefits people who make less than $120,000 a year.  It had a set expiration date, which Obama extended, but only temporarily.  It is now once again up for renewal and this is not a major issue at all.  There's no fight at all.  Yes, Republicans will go into the midterm elections accusing Democrats of having "raised taxes on the middle class," but they seem quite comfortable, in the main, with letting the payroll tax cut expire (and so do most Democrats, and all of the centrists).

    Why do you all think it is that the Bush tax cuts are sacred and must be either kept forever or replaced with even lower rates while we accept the expiration of the payroll tax cut with no more concern than we accept the expiration of a carton of milk?

    Hmmm...

     

    Topics: 
    Politics

    Comments

    First, for some reason I always feel obligated to point out that being middle-class is properly defined by much more that annual income even though I am certain you know that. But for the discussion let's agree that how much you make is the determining factor.

     I am one of the people who said a long time ago that the Democrats should accept all the tax cuts expiring. The middle class that got "crushed" is no longer middle class based on income. They are therefor in a lower tax bracket. The ones still hanging in to the middle-class are still making middle-class bucks and should be able to afford the rate they paid under Clinton.
     The message that the 'rich' are fair game just because they have the bucks grates on some people sensibilities, mine included. An honest case for a much more progressive tax rate can and should be made and then a more progressive tax rate than under Clinton should be enacted, but if some sacrifice needs being made we should all be ready to share it.
     Liberals argued against Bush tax cuts and argued that tax cuts were the least efficient stimulus. Doesn't that mean that a tax increase would be the least drag on the economy when some method of increasing revenue is necessary ?  

    If Obama holds strong and that means he must allow expiration of all temporary cuts, I will congratulate his action for one of a very few times.

    The payroll tax should always be at a rate that realistically covers anticipated payout for the next twenty or so years. Even if it is somewhat of a bookkeeping fiction, a separate account should always exist by which it is seen that SS payouts, whatever they amount to, have been pre-paid.

      


    by A Guy Called LULU on Fri, 10/19/2012 - 1:27pm

    "First, for some reason I always feel obligated to point out that being middle-class is properly defined by much more that annual income even though I am certain you know that."

    Totally agree, Lulu.  But, since we tend to tax income rather than wealth or assets, you kind of have to focus on income for a discussion like this.


    by Michael Maiello on Fri, 10/19/2012 - 1:31pm

     Right, I get that point, but since it is my diversion that you picked up on I will add just a bit more. The defining characteristics of class go completely beyond any measure of wealth. They have to do also with values and more.

     If the Queen of England lost all her money she would still be upper class and the Beverley Hillbillies were still hillbillies until the day they died rich.

     

     


    by A Guy Called LULU on Fri, 10/19/2012 - 1:41pm

    The message that the 'rich' are fair game just because they have the bucks grates on some people sensibilities, mine included.

    As someone who didn't get crushed, and who knows that both (to a small degree) my hard work in educating myself and (to a much larger degree) a large amount of luck contributes to my current good earnings, my argument is that we should be taxed higher because we can afford it. I suppose to some people that might sound like saying we're (I'm including myself in this bucket even though I wouldn't call myself "rich") fair game just because we have the bucks, but that's not how I mean it. What grates on my sensibilities is any argument about paying what's "fair". In this discussion, what's "fair" is so impossible to even define, let alone measure, that it's not really a helpful argument. (Note that neither point is meant to argue against what you've written.)


    by Verified Atheist on Fri, 10/19/2012 - 1:54pm

    ...my argument is that we should be taxed higher because we can afford it.

     I agree but just don't think that is the only reason and when that reason is given it should be more nuanced than it ever seems to me to be. One more reason is what Obama made a muck of trying to articulate when he said, "You didn't make that". Another is the distortion of Democracy that the accumulation of truly huge amounts of money can cause, is causing. 


    by A Guy Called LULU on Fri, 10/19/2012 - 2:16pm

    The problem with not liking the idea of progressive taxation, which is all that asking wealthier people to pay more is, is that it's the only concept that actually works numerically.  It's also worked historically.  And nevermind that taxes have never been higher on the lower quintiles and lower on the top.  What's important is that the concept "grates" some people, so fuck it.

    Listening to well-to-do Americans whine over the last several years is enough to make me want to relocate to a third world country so that I can make contact with an actual thinking, feeling human being again.  I want to believe.  The truth is out there...


    by DF on Fri, 10/19/2012 - 2:39pm

    It's never a good time to be rich in America.

    Wait... that can't be right...


    by Michael Maiello on Fri, 10/19/2012 - 2:54pm

     Maybe you didn't understand me or else maybe I don't understand you.

    What's important is that the concept "grates" some people, so fuck it.

     I hope you don't think I suggested not taxing the rich more because the idea 'grates' on a lot of people. I just think the idea needs to be sold with a smarter sales pitch. I meant to convey the idea that merely saying they have it, we need it, or we want it, so let's take it, grates on a a lot of people. That grating is the fingernails on the blackboard sound conveyed by the dog whistle of  'redistribution'.

    There is some reason that so many vote against their own economic benefit and in doing so vote against what is good for you and me too, as well as for the country as a whole. I think making the case as to why progressive taxation is both necessary and fair might help cure some of what's the matter with Kansas.


    by A Guy Called LULU on Fri, 10/19/2012 - 3:20pm

    Whoops, meant as a reply to DF


    by A Guy Called LULU on Fri, 10/19/2012 - 3:21pm

    Well, you talk about raising taxes on everyone in the short term, which is what letting the Bush tax rates expire would amount to.  Additionally, you bring up the trope of "shared sacrifice," even though it was the power elite who got bailed out.  Like the false equivalence that permeates news media, this seemingly fair-minded notion is one that has come to embody that vast and growing disparity between those that rule and those that are ruled.  "Shared sacrifice" is now essentially ironic in that it really only ever applies to the plebs and never to the plutocrats.

    Beyond that, I'm not sure I buy the notion that the case just hasn't been made well enough yet.  The President has been talking about this for the last four years.  It's fair.  It's right.  It's been viable in the past.  Any fool can look at the relevant charts for the last three or four decades and see what's happened.  And it's even popular nationally.  The case, it would seem, has been made.

    The problem is not making the case.  The problem is that Mitt Romney was partially correct in his 47% analysis.  There really is a hard percentage of Americans that will not change their minds no matter what.  The trouble is that they support Mitt Romney and the GOP policy mix.  I know these people.  Even if you get the most reasonable among them to listen for a bit, they'll be jumping right back into the talk radio bubble tomorrow.

    These people aren't really persuadable.  The point cannot then be to just somehow do a shinier, happier job of telling them how wrong they have it.  They're wrong on purpose.  They're wrong with intent and conviction.  It's not about convincing them of anything.  It's about defeating them, failing that constraining them, failing that.. waiting for them to die first.


    by DF on Fri, 10/19/2012 - 4:27pm

    I think this is largely the problem with taxation in general.  You go to work, you don't necessarily like it, but you get this paycheck and then some of it is taken away.  You put up with it because you know, deep down, that we have a society to build together, but it always feels like a burden.  And if the burden is 30%, you grow to resent that burden.  But if it's 5%, you grow to resent that burden too.

    It sucks to have the flu but it's better than having a mild cold.  But for three to seven days, having either one seems about as equally intolerable.  I think this is the wrong way to think about taxes.  It's certainly unhealthy and leads to that persecution complex that so many Americans seem to enjoy, but there you have it.


    by Michael Maiello on Fri, 10/19/2012 - 4:43pm

    Assuming that the country does in fact need more revenue to carry on the social services we support and it all comes to a showdown and the only choice is to let all cuts expire or leave all cuts in place. Suppose the choice were yours. What would you do?


    by A Guy Called LULU on Fri, 10/19/2012 - 5:09pm

    The thing is when people have the information that we have they end up doing the same things we would. (if my assumptions about most of dagblog posters are right)

    I've read several articles about studies of ordinary people, self declared republicans, democrats, and independents, given a chance to balance the budget. With a simple to use program where they could move numbers around with information about those programs. In the end they overwhelmingly cut defense massively,  raise taxes on the rich, and raise taxes on themselves. Yes, they even raise taxes on themselves to preserve SS and medicare.

    Unfortunately people are not directly confronted with the numbers so they can believe the myths and lies that we can cut taxes, raise defense spending, and balance the budget all at the same time.


    by ocean-kat on Fri, 10/19/2012 - 5:31pm

    Your second paragraph is encouraging. 


    by A Guy Called LULU on Fri, 10/19/2012 - 5:59pm

    If Obama does veto a full extension of the tax cuts, insisting on not extending the cuts over $250k of income, it will be interesting to see how the deficit howling Teabircher Base reacts.

    They don't keep track or give a damn on the cost of the Decider's 'war of choice', but they do keep track of their wallets.  My guess is the bawling will be immediate and loud, and the GOP will cut a deal pronto, the rich can pay more. The big question though is will O be re-elected, and if so, will he follow through on the veto threat.


    by NCD on Fri, 10/19/2012 - 5:15pm

    This is well thought out; I assume you have changed your nutritional regimen. haahaha

    This is my Dayly Line of the Day Award for this here Dagblog Site given to all of you from all of me:

    In practice, this doesn't work.  People get used to tax rates over time.  If my effective rate gets cut from 20% to 17%, I'm happy that first year.  If it stays at 17% for another five years, I'm now complaining that 17% is too high.  That's just how humans are.  Even if you tell me, you paid 20% this year, you'll pay 17% for the next five but we're going back to 20% in year six, I'm still aghast in year six because I've internalized the notion that 17% is more than enough, thank you.  The mind's baseline does not match the CBO baseline

    This message is of note from a microeconomic view as well as a macronomic view.

    When Kennedy changed the rate from 90% to 70%, this meant something on both fronts.

    Of course there were many folks who were not morons who could manage to cheat the system and pay real taxes on a 40% level, etc....

    But when you fight for a rate of 39% like w bush and you decrease that rate to 34% or whatever, the cheaters end up paying 17%.

    The nation loses and the individual just finds gold.

    When w bush's captialistic oligarchist plan went into action the apologists said:

    HE THIS IS ONLY GONNA LAST TEN YEARS!

    I said bullshite when he did it.

    But when those ten years pass with crooks like Allen and a score of other Senators are still standing a decade later; OH YOU ARE GOING TO RAISE TAXES if you do not keep on decreasing taxes.

    I was struck when MSNBC replayed a short interview with Ben Stein (a man I have despised for three decades) in which Ben said, HEY WE HAVE TO RAISE TAXES ON THE SUPER RICH!

    Tax policy is one of the most important tools of the Federal Government in which it might lay down real policy.

    If we let Wall Street pay out bonuses of tens of millions of dollars to salesmen and we allow signing bonuses amounting to hundreds of millions of dollars to one man who 'oversees' a company without any repercussions, what in the hell happens?

    The Government loses any power it might have had in channeling where those bonuses go!

    Taibbi might note that those bonuses should just be taxed at 90% which is where I am at right now.

    But at least those felons should be taxed at 100% when they 'outsource' to foreign countries and when they hide their capital in Switzerland or the Caymans for chrissakes!

    Government has lost control over the capitalization of this country. These felons are allowed to hedge their bets off shore and they should be prosecuted and fined and taxed.

    the end

     

     


    by Richard Day on Fri, 10/19/2012 - 5:08pm

    Obama's payroll tax cut disproportionately benefits people who make less than $120,000 a year.  It had a set expiration date, which Obama extended, but only temporarily.  It is now once again up for renewal and this is not a major issue at all.  There's no fight at all.  Yes, Republicans will go into the midterm elections accusing Democrats of having "raised taxes on the middle class," but they seem quite comfortable, in the main, with letting the payroll tax cut expire (and so do most Democrats, and all of the centrists).

    Part of the disparate reactions has to do, I think, with how Social Security and Medicare were deliberately set up and are widely understood by the public--as social insurance programs where you pay in to assure that you receive benefits when you are of age.  At some level--I don't know how conscious--people understand that to sustain these programs enough money has to be paid in to fund them.  If that amount of money going in is cut temporarily it still needs to be restored one way or the other, by restoring the payroll tax rate or raising revenue in some other way.  

    Whereas other tax rates not tied to specific social insurance commitments seem much more likely to be perceived as "fair game", open to significant revision as a part of the give and take of political process debates about what are the appropriate "other" (non-social insurance, that is) core or important purposes and functions of government.

    Keeping the holiday rate for folks below a certain income level would reduce employer disincentives to hire people at or below that wage level, while increasing employer incentives to reduce the wages of those currently and potentially employed at just above that level. I don't know if retaining the current payroll holiday for folks below a certain income level, while raising the $120 cap somewhat at the current payroll tax rate, or raising that cap by more but with diminishing rates on income above the current cap, is an approach that could stabilize the program's finances, reducing the doubts about its long-term prospects many Republicans in particular have worked so hard to instill, and without undercutting the durability of its political support.  Nonstarter with a Republican president or Congress, that's for sure.  Sounds like an approach the Progressive caucus in Congress might like but until the widespread and growing public concern and anger about growing inequality gets translated into more votes in Congress that's not going to happen.  

     

     

     

     

     

     

     


    by AmericanDreamer on Sat, 10/20/2012 - 11:45am

    "Part of the disparate reactions has to do, I think, with how Social Security and Medicare were deliberately set up and are widely understood by the public--as social insurance programs where you pay in to assure that you receive benefits when you are of age.  At some level--I don't know how conscious--people understand that to sustain these programs enough money has to be paid in to fund them."

    I think you're right about this.  I think that people get the basics and they like these programs.  And, it makes sense -- the general tax revenue can be used for anything, after all.  Social Security and Medicare taxes pay for distinct and popular benefits.

    The problem I think we're having is that we have a very rich and influential class in our politics who do not need those benefits at all.  A tycoon can provide for themselves to such an extent that an $1,100 a month check does not even qualify as play money.  To them, all taxes are merely taxes and they have exported that notion to the rest of society.

     


    by Michael Maiello on Sat, 10/20/2012 - 6:30pm

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