Michael Maiello's picture

    Should We Raise Taxes On The Middle Class?

    It's speculative, but some non-partisan tax specialists have looked over Paul Ryan's budget and have come to the very reasonable conclusion that the only way you can cut taxes on rich people while maintaining budget neutrality is to raise taxes on the middle class (probably the amorphous "upper middle class," that everybody thinks they're part of.

    This is a big deal, since Ryan's budget is Mitt Romney's.  It gives Obama a chance to campaign on an anti-tax platform.  After all, Obama has lowered taxes for everybody throughout his stimulus efforts and Republicans have responded by calling it socialism.

    Now, I'm of the mindset that the vast majority of Americans don't have enough money to pay higher federal tax rates than they already do.  But I wonder if you all agree.  I'd seek to balance budgets on the backs of the very rich by taxing investment income as income for people who make more than $250,000 a year and I would take away their mortgage interest deductions.  I would also raise their marginal rates.  That's just me.

    I wonder what you all think about this $250,000 a year Maginot line that Obama has been using since pretty much day one.  This is five times the median income.  Are people who make $200,000 rich?  Can people who make $150,000 a year afford to pay more in taxes than they do now?  $100,000 is still twice the median income in America.  As a New Yorker these sub $250,000 a year sums do not seem to me like a lot of money.  But, you know, nobody asked me to live in one of the most expensive cities in the country.

    Of course, one reason that $100,000 doesn't go far in New York is taxes.  We pay city and state taxes.  These are deductible from federally taxable income but, there's a catch -- that deduction can actually land you paying the Alternative Minimum Tax, designed to snare the very wealthy.  Also, rents are high here and renting doesn't enjoy the tax advantages of ownership, which is actually an argument for either making rent deductible (which would either drive up rents or bankrupt the country) or getting rid of the mortgage interest deduction (which might perversely make home ownership more affordable by driving down values, or might not).  Frankly, I'm okay with working people getting a mortgage interest deduction.

    These are all discussions we could have, but that we're not having.  The default Democratic position right now is that George Bush's tax rates are absolutely perfect for the first $250,000 of any person's annual income.  Do you agree with that statement?

    I want to believe it's true because I don't want to pay any more in taxes than I have to.  But, come on, what's the likelihood that George W. Bush, who got so much wrong, got that part right?  The one argument in favor of him getting it right is that the tax cuts that he enacted were small for people under the $250,000 income threshold.  That we're talking trivial amounts of money from the Clinton rates to the Bush rates.

    Matt Miller, the Washington Post columnist who I pick on when I can tear my attention away from David Brooks and Thomas Friedman at The New York Times, speculated in his book, The Tyranny of Dead Ideas that the "upper middle class" are victims of the current concentration of wealth because of inflation in the costs of things that might be considered perks of having money.  It used to be, he said, that a highly paid professional like a doctor or lawyer would have enough money to join a civic board or to help administer the 92nd Street Y or to send their kids to private school or to even buy an apartment and that all of those things are now out of reach because the super rich have bid up the prices.  Miller believes this will one day culminate in a revolution of the upper middle class. Not a physical rebellion, of course.  But definitely a political one.  This is a group of people, he says, who see themselves as being denied their due.

    I wonder if this isn't a motivation behind the $250,000 tax hike cutoff.  A lot of these people could be termed high income but not affluent. They have cash flow, but not considerable savings.  They can lose their jobs and be knocked down a few pegs very quickly.  I do not make that much but if I were fired tomorrow I know I would have a hard time replacing my job without giving up wages.  So, you have this group of people with money and some influence and low security and a low sense that they're getting the lives they envisioned for themselves.  They're competing, basically with the truly affluent and though by most measures in life they're "winning," they look in the mirror and see "struggling."  So, there's a lot of anger there.

    How much of it is legitimate, though.  Are the Democrats making a mistake by indulging this anger?  While it would be very funny to see Romney go down in flames because the vast middle thinks he will raise their taxes, I'm not so sure that it's healthy that the Democrats have basically made a protected class out of people who take home salaries that are on a higher order of magnitude than what most of their fellow citizens make.



    Why do you feel there is a need to exceed the Clinton era rates?

    They were carefully calibrated to get maximum compliance and a minimum of class warfare agitprop among the population (and the only members of the truly wealthy class I knew of that complained about them were wingnuts.) The results were excellent. Tested, proven, no need for trial and error. Bonus: they funded EIC with a minimum of bitching about it from other classes.

    I found comparative charts on this guy's blog, here's Clinton era:

    Why in the world do you want something higher than that on the upper middle class? Want to punish someone? Want to get them all back on the GOP's side? Like the purple turning to red on election maps? Loved the Eisenhower years, think JFK's tax reductions were the start of the downfall of the country?

    As far as getting off the home mortgage deduction crack addiction, you know that's all pie-in-sky talk for a very long time to come. When all the current living construction workers have retired, and you've convinced the younger public to buy only existing homes, then you can start to get serious about it.

    leaving aside for the moment the adverse political impact that you apprehend, and bearing in mind that I have been influenced by the memory (no doubt the result of a carelessly scripted neuralizer session) of buttons extolling the likability of Ike, on simple utility grounds, Krugman says 70%

    First, a reminder that destor is talking about increasing the take from the above $200K per year crowd and not the $60K per hour hedge fund manager, so this here is a different conversation.  (And I believe it is the case that you could get a lot more bucks for Congress to spend targeting the six-figure crowd, much more than if you started doing an Ike on the billionaires.)

    Second, the Ike recipe nonetheless sounds to me like a great growth stimulator for the Tea Party.  And I sense that Krugman is not arguing that it would be politically wise, only factuals. It was tolerated by the American public during the Ike years because we had a post-war boom going on, the only country left standing, lots of money to be made  (not to mention lots of suburban housing to be built) regardless of the tax rates.  But I don't see a USA founded the way it was going for European level federal tax rates for long. Too many prefer where the major power is with the local tax man, where they can pick and chose their tax rates and the services that come with it by moving to/from localities.

    Speaking as a tax planning genius (I have the audit to prove it) in recovery, the preference for capital gains and leveraged dwelling costs are two profoundly deforming aspects of the code. Both operate to turn bad investment policy into good tax planning strategy.

    think JFK's tax reductions were the start of the downfall of the country

    Yes, but not for the reasons you may think.  More or less coincident with those tax reductions, the Fed set up its Open Market Committee and Primary Dealer system.  The rationale for a Primary Dealer system was and is to create a sure market for government debt.  For certain market maker privileges they are obligated to bid at auctions.  Basically they are government debt salesmen.  

    Whether planned or not, that system would be able make up any shortfalls in government spending that resulted from the tax cuts effectively masking them from the general public. And who better to sell our debt to than the extremely wealthy who just came into a windfall?  Imagine their joy.  They not only get their tax break but a nice safe income on it as well.  

    It wasn't a bad plan.  Certainly it was worth trying and we did learn a lot about how money works but like all such schemes, people got greedy, there were unintended consequences and things eventually got out of hand.  So here we are.  


    Anyone who works for any part of their living is not rich.  Oh, they may technically work but they do it for other reasons.  Avocations really but the very high incomes 'earned' add to their overall wealth.   It is the excessive accumulations of wealth and the unearned incomes from it that should be taxed at higher rates.  That is something progressive tax proponents never really make clear.  Why?  Because unfortunately we swallowed the kool-aid the wealthy served.  Without that wealth they cannot create jobs so we, too, if we work hard and play by their rules can one day be wealthy, too.  But they will always be wealthier.  Oh, a few here and there may squander it, but overall they will always aim to stay at the head of the pack because at that level, their wealth defines their status.  It is how they keep score.

    Basic point, you will have a better chance of success if you will just make a clear case for marginally higher taxes on unearned incomes and wealth accumulations.  And you do not have to start from scratach, wealth taxes are not exactly unheard of in the developed world.

    Of course, you may not find this appealing if you are a trust funder yourself.


    I think your idea here is spot on.

    Everybody who owns a financial asset that is gaining value has unearned income - or at least a claim on unearned income to be delivered in the future.  You have some money; you buy the asset; you wait a bit and do no work connected with the operations in which the funds are invested, and - voila! - you have more money.   Amazing!

    We're almost all capitalists now.  That is, most us possess some partial ownership stake in the work product of other people.  Maybe that means most of us are at least a little stained with the mark of the slavemaster.

    So, sure, let's begin to go after that unearned income.  As Robert Frost put it in another context, "Who's to say where the harvest will stop?"


    Off-on-a-tangent-thought:  Do you think, as New York City residents, that we could cut our taxes in half if we get the City to secede from the state?   Let me know, because I could sure use the extra money.

    I was thinking about this.

    I suppose the plan would go like this:

    The taxpayer's first mortgage payment shall be deducted as 1/2 of the interest payment.

    The second third and fourth mortgage payment shall be deducted as 95% of the interest payment.


    The fifth mortgage payment shall be enhanced by 500% as far as the deduction for interest payment.


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