Category Archives: Middle Class

Middle Class Would Find Higher Taxes Under Republican Plan

The Congressional Research Service released a report last month reviewing the Republicans proposed tax reform plan that would broaden the tax base, and what they found was that under their proposal the net result would be cutting taxes on the wealthiest Americans while raising taxes on the middle and lower class. The report was actually prepared by Democrats and they then sent their findings to be reviewed by nonpartisan tax experts including The Tax Policy Center. I have noticed this has received very little attention so I wanted to share some their findings.   

Under the GOP plan, they would replace the current tax structure with a two bracket system (otherwise known as a flat tax) — 25% and 10% — cutting the top tax rate from the current 35% to 25%. This would benefit everyone and result in a reduction of federal tax collection by $4.5 trillion dollars. Now on its face it sounds great, the middle class would pay a 10% flat tax rate. 

Here is the catch — Republicans including their golden boy Paul Ryan want to get rid of special interest tax loopholes and tax shelters. 

The Republicans have declined to specify the exact loopholes they would target, but what we do know is, based on their record, they are united in opposing ending any subsidies for industries such as oil and gas. 

The study found that the biggest loopholes that are currently in the system consist of tax breaks for employer-provided health insurance, mortgage interest, state and local taxes, and retirement savings, and these all disproportionately benefit the middle class. 

According to the Joint Economic Committee, “although households earning $100,000 to $200,000 a year would save about $7,000 from the lower tax rates in the GOP plan, those savings would be swamped by eliminating major deductions.” 

This would result in married couples falling in that income range would pay an additional $2,700 annually to the IRS, on top of the tax increases Bush tax cuts that are set to expire at the end of the year. Households earning more than $1 million a year would get a tax cut of about $300,000 annually (multi-millionaires would receive a huge tax break) while people making under $200,000 will see their taxes rise

Roberton Williams of the Tax Policy Center has reviewed the Committee’s report and he says:

That even though the numbers are rough its conclusions are largely accurate. Even with eliminating fairly major tax preferences, the Ryan tax plan remains regressive. That’s the bottom line. Unless you go after the tax preferences that benefit the wealthy, i.e., capital gains, dividends, tax-free interest on municipal bonds, it’s really hard to undo the regressivity of the rate changes. You’ll be shifting the burden of the tax code toward the middle class

I guess there is a reason why whenever Mitt Romney and his fellow Republicans are asked to give specifics on their flat-tax plan, they refuse and then go to their usual talking points, i.e., we need to broaden the base, let everyone have skin in the game…my favorite….we can’t raise taxes on the job creators, etc. This is yet another example that shows who Republicans are working for…the rich.

Campaigns For Sale — The Highest Bidder Wins

Since the SCOTUS ruling on Citizens United, it has been so interesting to see how our campaign finance has changed. We now have candidates who are being funded by just a handful of people. We have Newt Gingrich who would not be in the GOP primary race right now if it wasn’t for billionaire casino owner Sheldon Adelson and his family funding his super PAC. Mitt Romney’s campaign raised $18 million in the last half of 2011 from just 200 donors, and over $30 million throughout 2011. Jon Huntsman’S super PAC received over 70% of its funding from his father, Huntsman, Sr.  

Despite your party affiliation, this should be upsetting to you. These very few 0.5 percenters in our country are not giving this money to these candidates because they feel charitable. You have to ask yourself, if they do manage to get their candidate elected, what will they want. 

The billionaire brothers Charles and David Koch are two of the biggest spenders for the Republican party. Despite their attempts to stay in the shadows and not draw attention to themselves, they have been making a lot of news in the last few years (most notably for their creation of the tea party movement). Last weekend they hosted a three-day conference in Coachella Valley in which several hundred deep-pocketed donors attended. Among the most notable attendees were Eric Cantor (R-VA) and Sheldon Adelson. At the end of the event, the Koch brothers and their guests had promised to pledge $100 million in order to defeat President Obama.   

Ed Pilkington of The Guardian wrote about the Kochs and their supporters. 

Though the Kochs have already stamped their influence on the American right, their impact to date looks like small beer compared with their ambitious plans for 2012. According to Kenneth Vogel of Politico, the brothers intend to use their leverage among billionaire conservatives to pump more than $200m into the proceedings, focusing in particular on the presidential race. 

Their potential to sway the electorate through the sheer scale of their spending has been greatly enhanced by Citizens United, last year’s controversial ruling by the US supreme court that opened the floodgates to corporate donations in political campaigns. The ruling allows companies to throw unlimited sums to back their chosen candidates, without having to disclose their spending.  

That makes 2012 the first Citizens United presidential election, and in turn offers rich pickings to the Koch brothers. They have already made clear their intentions. At their most recent billionaires’ gathering in Vail, Colorado in June, Charles Koch described next year’s presidential contest as “the mother of all wars”. A tape of his private speech obtained by Mother Jones said the fight for the White House would be a battle “for the life or death of this country”.  

As for President Obama, we do have a bit of good news. Reuters recently reported that in the FEC financial disclosures released last week, it showed in 2011 his campaign raised 60 percent of the funds, or $58.5 million, from donors who gave less than $200.  

We have entered into a new wild west style of politics where for some of our candidates there is just a small group of people who fund their campaigns and the rise of super PACs who now can have access to unlimited funds and can use those funds in unlimited ways in order to sway our elections. For the middle and lower classes, both Republican and Democrat, this is not a promising sign for our survival.

New Republican Study — Millionaires Receiving Billions In Taxpayer Support

People who are protesting against the wealth inequality and a tax code that grossly favors the 1% now have a new ally, Tom Coburn, Republican Senator from Oklahoma. He has released what he describes as the “first-ever compilation of federal aid for the richest.”  

Let me be the first to say how very surprised I am by this study. Mr. Coburn is known to be a bedrock conservative who has strongly supported the no new taxes mantra, and when someone with his background starts to shine a light into the inequalities in our government I firmly believe he can do more to further the Occupy Wall Street cause than any encampment ever could. 

The study reveals some startling findings. For example, in 2009, $21 million in unemployment insurance was collected by people who earned more than a million dollars. Also, the U.S. Treasury pays out more than $30 billion a yearto people who make more than a million a year. Mr. Coburn says what the study “reveals is sheer Washington stupidity with government policies pampering the wealthy costing taxpayers billions of dollars every year.”   

In a letter that accompanied the study, Mr. Coburn wrote, “The income of the wealthiest 1 percent of Americans has risen dramatically over the last decade. Yet, the federal government lavishes these millionaires with billions of dollars in giveaways and tax breaks,” as noted in the recent Congressional Budget Officestudy that examined the growing income gap over the last 30 years.  

“From tax write-offs for gambling losses, vacation homes, and luxury yachts to subsidies for their ranches and estates, the government is subsidizing the lifestyles of the rich and famous. Multimillionaires are even receiving government checks for not working. This welfare for the well-off — costing billions of dollars a year — is being paid for with the taxes of the less fortunate.” 

“The government’s social safety net, which has long existed to catch those who are down and help them get back up, is now being used as a hammock by some millionaires, some who are paying less taxes than average middle class families.” 

The following list was compiled by Mr. Coburn showing federal money handed out to millionaires over several years: 

  • $18.15 million in child care tax credits 
  • $74 million in unemployment checks 
  • $89 million for preservation of ranches and estates 
  • $316 million in farm subsidies  
  • $608 million in business entertainment deductions 
  • $9 billion in retirement checks 
  • $21 billion in gambling losses 
  • $28 billion in mortgage breaks for mansions, vacation homes and yachts 

These are powerful findings and they are coming out at a crucial time during which we are debating cutting such vital programs like Medicare, Medicaid, Social Security, Education, etc.

GOP’s $300B Revenue Increase – Tax Hike For Working Class

I was watching Morning Joe this morning and Joe Scarborough was touting the fact that GOP is now offering $300 billion revenue increase over a 10 year period. He boasted that this proves that the GOP is willing to compromise, and although he did acknowledge that the revenue increase is still extremely low, that it is an example of Republicans willingness to compromise.  

The GOP has been successful in lowering the expectations of their economic policy proposals, so now any proposal they have, no matter how minute and/or paltry, is cheered by the right and held up as proof of their willingness to compromise.  However, if you look at where this added revenue is coming from, you will see that this is another “wolf in sheep’s clothing” proposal.    

This is not a proposal to equalize a tax system that grossly favors the wealthy. It would actually have the effect of increasing middle and lower class income taxes while cutting the taxes for the very wealthy….again.   

Congressional Republicans have offered to increase tax revenue by nearly $300 billion over the next decade through an overhaul of the tax code, a significant concession aimed at breaking a long-standing impasse in negotiations over the federal debt.  

The offer envisions a tax code rewrite that would lower rates for everyone while raising overall tax collections by $250 billion, mainly by limiting the value of itemized deductions such as write-offs for home mortgage interest, state and local taxes and other expenses.  

The problem for the GOP is that the citizens of this country are now awake and focusing on the specifics of their economic policy. Washington Post’s Greg Sargent wrote that if Democrats want an agreement to raising revenue, Republicans want to not only make all of the Bush tax cuts permanent, but they also want to lower the top income tax rate from its current 35 percent to 28 percent:  

The highest tax rate would be reduced from 35 percent to 28 percent under the emerging GOP tax code overhaul proposal, the senior Democratic aide tells me.  And the reduction would actually be even bigger than this. 

After all, if the Bush tax cuts were allowed to expire, as they’re set to do, the high end rate would go up to at least 39 percent. In other words, the aide says, under the proposal Republicans are pushing, the drop down to 28 percent would be at least 10 percentage points from what it would be if the cuts are allowed to expire.  

Pat Garofalo of ThinkProgress wrote: 

According to Center for American Progress Director for Tax and Budget Policy Michael Linden, the reduction in the top tax rate alone costs $670 billion, which exclusively benefits the wealthy. Meanwhile, limiting itemized deduction in the way that the GOP suggested to the Wall Street Journal’s Stephen Moore would, according to Linden, raise $560 billion from the wealthy. So the rich are still getting a tax cut. 

The rest of the revenue that the GOP has to raise to net $300 billion, therefore, must come from middle- and low-income households. Let’s emphasize that again: the GOP’s big “concession” when it comes to deficit reduction is paltry amount of revenue that will come from many middle-class households, paired with a huge tax cut for the rich.  

Simply put, the GOP’s plan is not a concession, but a joke meant to make them look reasonable as they continue to push for lowering tax rates on the most well-off Americans. As one Democrat said, “they either think we’re morons or desperate.”

CBO Findings Show Extent Of Wealth Inequality

I have been reading the non-partison CBO (Congressional Budget Office) study showing the trends in wealth distribution since 1979. After I read it, I thought to myself how could there be any question as to why the protesters of Occupy Wall Street took to the streets.

Since the Reagan Administration implemented the trickle-down-economics policies, giving large tax breaks to the wealthy in the belief that with more money in their pockets it will result in job growth, the income gap has reached a level that rivals 1928, a year before the Wall Street crash that marked the beginning of the Great Depression.

CBO findings  

Sources of Income — For Middle Class is Wages/Salaries. For Wealthy is Capital Gains 

Two factors accounted for the changing distribution of market income. One was an increase in the concentration of each source of market income, which consists of labor income (such as cash wages and salaries and employer-paid health insurance premiums), business income, capital gains, capital income, and other income. All of those sources of market income were less evenly distributed in 2007 than they were in 1979.  

The other factor was a shift in the composition of market income. Labor income has been more evenly distributed than capital and business income, and both capital income and business income have been more evenly distributed than capital gains. Between 1979 and 2007, the share of income coming from capital gains and business income increased, while the share coming from labor income and capital income decreased.  

More concentrated sources of income (such as business income and capital gains) grew faster than less concentrated sources (such as labor income). 

Between 1979 and 2007:  

    • For the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent.  
    • For others in the 20 percent of the population with the highest income, average real after-tax household income grew by 65 percent. 
    • For the 60 percent of the population in the middle of the income scale, the growth in average real after-tax household income was just under 40 percent. 
    • For the 20 percent of the population with the lowest income, the growth in average real after-tax household income was about 18 percent.  

Growth in Real After-Tax Income from 1979 to 2007

The share of income going to higher-income households rose, while the share going to lower-income households fell. 

The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.  

Most of that growth went to the top 1 percent of the population.  

All other groups saw their shares decline by 2 to 3 percentage points. 

Shares of Market Income, 1979 and 2007

GOP Presidential Hopefuls Flat Tax Proposals — A Big Handout To Wealthy

Republican presidential candidates are now unanimously supporting a flat tax system. Every economist that has reviewed Herman Cain’s, and now Rick Perry’s tax proposals have reported that the flat tax would result in raising taxes on the working class and lower and/or eliminate taxes for the wealthy through zeroing out capital gains or income earned from money.  

The flat tax would tax only income from a person’s salary and would bring down taxes on capital gains to zero. What a majority of working class do not understand is that the wealthy make most of their money off money and not a salary. 

Robert Borosage, a contributor to Politico, recently wrote about this:  A flat tax, sculpted to delight the wealthy…..a flat income tax would apply only to income from work, exempting income earned from wealth, including interest, dividends and capital gains. Since the wealthy make most of their income in capital gains, this could mean a massive tax break to the wealthiest Americans — and a tax hike to working families.  

The Washington Post, a conservative-leaning publication, reported, “The 400 richest taxpayers in 2008 counted 60 percent of their income in the form of capital gains and 8 percent from salary and wages. The rest of the country reported 5 percent in capital gains and 72 percent in salary.” Also between 2001 and 2007 the 400 richest taxpayers saw their incomes double to an average of $345 million even as their effective tax rate was virtually halved.

Herman Cain’s 9-9-9 flat tax 

The flat tax proposal by Herman Cain, the 9-9-9 plan, has been analyzed by non-partisan economists. The effect of his plan would be to raise taxes on the middle and lower classes and cut taxes on the wealthy. 

Citizens for Tax Justice came out with their analysis of his plan and it shows that if 9-9-9 was in effect today, “the richest one percent of taxpayers would each pay $210,000 less in annual taxeson average, while the poorest 60 percent of taxpayers would each pay about $2,000 more in annual taxes on average, than they do now.”   

The Tax Policy Center has said that “a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly $1.4 million, increasing his after-tax income by nearly 27 percent” under Cain’s plan.  

Mr. Borosage wrote about Cain’s plan:  Policy groups and the press analyzed his plan — discovering that it would lower after-tax incomes of the working poor (incomes under $30,000) by 16 percent to 20 percent, while increasing the incomes of wealthier households (incomes above 200,000) by 5 percent to 22 percent. Roughly 95 percent of those earning more than a million would average an annual tax cut of $487,300.  

Rick Perry’s Cut, Balance, and Grow flat tax 

This week Perry came out with his plan for fixing our economy and tax system, and it will have a similar effect on working people as Cain’s 9-9-9. 

In a recent article Jon Perr brought up a few key points in Perry’s flat tax proposal: 

Flat taxes, by definition, raise taxes on middle-income and working people — the very people who have been hit the hardest over the past decades. This doesn’t require higher math to understand. 

Governor Perry’s ” Cut, Balance and Grow” scheme would undermine Social Security, produce mountains of debt and require draconian spending cuts, all while ensuring a massive windfall for the wealthy.  

His optional 20% flat tax rate would allow the top income earners to pay Uncle Sam at a much lower rate than the already low 35% level they pay currently. And Perry would not merely eliminate the estate tax, he would zero out the capital gains tax as well. 

As the Washington Post recently explained, “For the very richest Americans, low tax rates on capital gains are better than any Christmas gift”: 

While it’s true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent. 

In an interview on CNBC, Rick Perry was asked by John Harwood, why — in an era of massive income inequality — the rich should be given a tax break worth “hundreds of thousands, maybe even millions of dollars,” Perry replied, “but I don’t care about that. What I care about is them having the dollars to invest in their companies.” 

HARWOOD: Dividends, capital gains, interest income taxes would provide a huge tax cut for wealthy people in this country. Given what’s happened with income inequality, why is that a good idea? 

PERRY: We’re trying to get this country working again. And that’s what I focus on. As a matter of fact, as we looked and as we talked and as we went through what are the ways to really get incentives to those who are going to risk their capital to create the jobs. […] Those that want to get into the class warfare and talk about ‘oh my goodness,’ there are going to be some folks here who make more money out of this or have access to more money, I’ll let them do that. I’m worried about that man or woman sitting around the coffee table tonight or in their kitchen talking about how are we going to get to work, how are we going to have the dignity to take care of our family. This plan does that. And it also is a tax cut across the board, it doesn’t make any difference what strata you’re in. It gives a tax cut across the board. 

HARWOOD: But for those at the top, it is hundreds of thousands, maybe even millions of dollars for them. 

PERRY: But I don’t care about that. What I care about is them having the dollars to invest in their companies. 

How Wall Street Is Shifting Money From Pensions to the Top 1%

Since the beginning of Occupy Wall Street, corporate media and political pundits have been trying minimize OWS. The problem these news agencies aren’t addressing and what OWS is bringing to the forefront is the staggering income inequality. Our income inequality is worse that some third world countries like Trinidad and Tobago, Mozambique and Tunisia, and the amount of wealth here in the US dwarfs these countries.  

Wall Street has many tricks to shift the wealth from the middle class to the top 1 percent and one way, which has not been talked about much is the way they have decimated pension funds. Investigative journalist Ellen Schultz wrote the book Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workersthat exposes some of the tricks corporations have used to shift money from the working people’s pensions to their top executives.  

Here is what Ms. Schultz writes. 

It’s no secret that hundreds of companies have been slashing pensions and health coverage earned by millions of retirees. Employers blame an aging workforce, stock market losses, and spiraling costs- what they call “a perfect storm” of external forces that has forced them to take drastic measures.  

But this so-called retirement crisis is no accident. Ellen E. Schultz, award-winning investigative reporter for the Wall Street Journal, reveals how large companies and the retirement industry-benefits consultants, insurance companies, and banks-have all played a huge and hidden role in the death spiral of American pensions and benefits. 

A little over a decade ago, most companies had more than enough set aside to pay the benefits earned by two generations of workers, no matter how long they lived. But by exploiting loopholes, ambiguous regulations, and new accounting rules, companies essentially turned their pension plans into piggy banks, tax shelters, and profit centers. 

Drawing on original analysis of company data, government filings, internal corporate documents, and confidential memos, Schultz uncovers decades of widespread deception during which employers have exaggerated their retiree burdens while lobbying for government handouts, secretly cutting pensions, tricking employees, and misleading shareholders. 

She reveals how companies: 

  • Siphon billions of dollars from their pension plans to finance downsizings and sell the assets in merger deals. 
  • Overstate the burden of rank-and-file retiree obligations to justify benefits cuts while simultaneously using the savings to inflate executive pay and pensions. 
  • Hide their growing executive pension liabilities, which at some companies now exceed the liabilities for the regular pension plans. 
  • Purchase billions of dollars of life insurance on workers and use the policies as informal executive pension funds. When the insured workers and retirees die, the company collects tax-free death benefits. 
  • Preemptively sue retirees after cutting retiree health benefits and use other legal strategies to erode their legal protections. 

Though the focus is on large companies, which drive the legislative agenda, the same games are being played at smaller companies, non-profits, public pensions plans and retirement systems overseas. Nor is this a partisan issue. Employees of all political persuasions and income levels-from managers to miners, pro-football players to pilots-have been slammed.