Category Archives: Tax

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. 


The Richest Americans and Their Tax Rate

The GOP has been saying in ad nauseam that the way to grow the economy is not by raising taxes on the wealthiest because they are the ones that create jobs, the trickle down economics theory.

Needless to say this has been proven wrong over and over. Just in the past decade, tax rates were decreased to their lowest levels in over 50 years (I have also previously posted an interview with Warren Buffett who acknowledged the inequality in our current tax system stating that his secretary pays more in taxes than he does).   

 The IRS has released data on the tax rates for the 400 richest Americans in 2008. 

The IRS report shows that in 2008 (the latest year for which data are available), the 400 richest income tax filers paid just 18.1 percent of their adjusted gross income (AGI) in federal income taxes. That is down from 22.3 percent in 2000, and is just more than half of the top statutory income tax rate of 35 percent. More than half of the income reported by those 400 taxpayers consisted of capital gains and dividends subject to the preferential rates.

The IRS report, which shows the effective federal income tax rates paid by the 400 highest-income Americans in each year since 1992, offers an important opportunity to understand how the tax system affects the most privileged Americans.

  • Only those with at least $109 million of AGI were members of this group in 2008, and the average AGI for these 400 taxpayers was $270 million. 
  • Each one of these 400 taxpayers enjoyed, on average, more than $155 million of net capital gains and dividend income that was subject to special lower tax rates in 2008.
  • Although 400 returns are less than 1/1000th of a percent of the total individual tax returns filed, these 400 taxpayers collected more than 10 percent of the total preferential-rate capital gains and dividends in the nation in 2008.
  • These 400 taxpayers paid income taxes averaging just under $49 million in 2008. As a share of AGI, their tax bills averaged 18.1 percent. 
  • This decline from 22.3 percent to18.1 percent represented a total tax cut of $4.5 billion in 2008 for this group, or an average tax cut of over $11.3 million each.

“This valuable data confirms what we already knew—that the very richest Americans are paying much less of their income in tax than many would have us believe,” noted Citizens for Tax Justice director Robert S. McIntyre. “These taxpayers are now paying lower effective tax rates than at virtually any time since the IRS began publishing these data in 1992—and the Bush Administration’s capital gains and dividends tax cuts are the main culprit.”

GOP Policies Obliterating the Middle Class

I have been listening to GOP representatives and pundits proclaiming that taxing the wealthy who they refer to as so-called job creators would be bad for the economy.  These “job creators” have had the lowest tax rates in centuries, and over the last decade, we are still waiting for those millions of jobs they are supposed to create.  In fact, it has created such a gap in wealth between them and the middle class that it rivals the decade prior to the Great Depression. 

I came across a ThinkProgress article that articulates this point and brings into light how much income the middle and lower classes have lost and how the wealth in America is now concentrated into just 1% of our society. 

It may shock you exactly how wealthy this top 1 percent of Americans is. ThinkProgress has assembled five facts about this class of super-rich Americans: 

1. The Top 1 Percent Of Americans Owns 40 Percent Of The Nation’s Wealth: As Nobel Laureate Joseph Stiglitz points out, the richest 1 percent of Americans now own 40 percent of the nation’s wealth. Sociologist William Domhoff illustrates this wealth disparity using 2007 figures where the top 1 percent owned 42 percent of the country’s financial wealth (total net worth minus the value of one’s home). How much does the bottom 80 percent own? Only 7 percent:

As Stiglitz notes, this disparity is much worse than it was in the past, as just 25 years ago the top 1 percent owned 33 percent of national wealth. 

2. The Top 1 Percent Of Americans Take Home 24 Percent Of National Income: While the richest 1 percent of Americans take home almost a quarter of national income today, in 1976 they took home just 9 percent — meaning their share of the national income pool has nearly tripled in roughly three decades.

3. The Top 1 Percent Of Americans Own Half Of The Country’s Stocks, Bonds, And Mutual Funds: The Institute for Policy Studies illustrates this massive disparity in financial investment ownership, noting that the bottom 50 percent of Americans own only .5 percent of these investments:

4. The Top 1 Percent Of Americans Have Only 5 Percent Of The Nation’s Personal Debt:  Using 2007 figures, sociologist William Domhoff points out that the top 1 percent have 5 percent of the nation’s personal debt while the bottom 90 percent have 73 percent of total debt: 

5. The Top 1 Percent Are Taking In More Of The Nation’s Income Than At Any Other Time Since The 1920s: Not only are the wealthiest 1 percent of Americans taking home a tremendous portion of the national income, but their share of this income is greater than at any other time since the Great Depression, as the Center for Budget and Policy Priorities illustrates in this chart using 2007 data: 

As Professor Elizabeth Warren has explained, “there is nobody in this country who got rich on his own. Nobody…Part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” More and more often, that is not occurring, giving the protesters ample reason to take to the streets.

Trickle Down Economics – Economic Policy of Republicans

Republicans have said we cannot tax the “job creators” and in fact need to cut their taxes even further, and for the past decade they have made sure that the millionaires, billionaires and corporations pay as little to no taxes as possible. Over the past decade their income level and corporate profits have risen to historic levels. 

At the same time Republicans created 3 million jobs. The Wall Street Journal reported the total number of jobs at the start of the Bush presidency was 132.5 million and at the end was 135.5 million. Payroll expansion was just 2.3%. 

Their economic policy of trickle down economic hasn’t worked. The data coming from annual Statistics of Income tables on Wednesday shows this. This is a fact and the numbers reflect this. This cannot be debated. 

  • In 2009 total income was down 15.2 percent since 2007.  
  • Average income in 2009 fell to $54,283, down $3,516, or 6.1 percent in real terms compared with 2008, the first Internal Revenue Service analysis of 2009 tax returns showed. Compared with 2007, average income was down $8,588 or 13.7 percent.  
  • Average income in 2009 was at its lowest level since 1997 when it was $54,265 in 2009 dollars, just $18 less than in 2009.  
  • Average income in 2009 was at its lowest level since 1997 when it was $54,265 in 2009 dollars, just $18 less than in 2009. The data come from annual Statistics of Income tables that were updated Wednesday.  
  • No income tax was paid by 1,470 of the 235,413 taxpayers earning $1 million or more in 2009, compared with the 959 taxpayers with million-dollar-plus incomes who paid no income taxes in 2007. 
  • Average wages fell sliding $1,106 to $48,917 from $50,023 in 2007.

A person may choose to want to protect corporations and the wealthy from taxes shifting the burden to middle and low-income earners, but they cannot factually state that trickle down economics works in creating jobs. It is in black and white. Numbers do not lie.

Republican Tax-Cutting Track Record

I’m not a fan of taxes like everyone else, but if you like things like roads and bridges, schools and teachers, police and firefighters, etc, then you know they are a necessity. Our country cannot survive without them. We already see the effects of slash and cut politics all over the country at local and state levels. 

In order to grow our economy, everyone needs to pay, and right now not everyone is. The wealthy and corporations are seeing the lowest tax rates in 50 years. GOP’s record on their push for maintaining tax cuts, tax subsidies (corporate welfare), and their triple down economics theory has been proven not to work over and over and over. 

In 1982, conservative Republicans said Reagan’s tax increases would cause a disaster (they didn’t).  

In 1993, conservative Republicans said Clinton’s tax increases would invariably fail (they didn’t). 

In 2009, conservative Republicans said Obama’s stimulus would make the economy worse (it didn’t). 

And in 2001, conservative Republicans said Bush’s tax cuts would cause a remarkable economic boom (they didn’t). 

In 2003, these same conservative Republicans said more Bush tax cuts would do the trick (they didn’t).  

In 2010, these same conservative Republicans said if we could just keep those Bush tax cuts around a little more, we’d be amazed at the economic turnaround in 2011. Here we are. I don’t think anyone’s amazed. 

Ezra Klein wrote the other day “that the Republican approach to tax policy is no longer based on any recognizable economic theory.” America, over the past 2-1/2 years, have been held hostage by radical Republicans at every step of the way.

It is way past time to call their bluff since it is all too apparent they have no intention of doing anything to help out the 99% of us that are not mega-wealthy or a corporation/industry.

The Debt Ceiling And What Republicans Are Protecting

If you are curious about the reason for the stalemate in the debt ceiling negotiations, it has to do with GOP insisting there be no tax increases or ending of any tax subsidies, which they also view as a tax increase. All newly elected Republicans are asked to sign a pledge given to them by Grover Norquist that essentially says they will never vote for any tax increase, and all current Republicans serving in office have signed this pledge. 

This has created a road block in efforts to fix our budget crisis. Economists, conservative, liberal, and nonpartisan, have gone on record saying there is no way to balance our budget without tax increases. We cannot cut our way (Medicare, Medicaid, Social Security) out of this financial mess. 

Are you curious about some of the tax subsidies the Republicans are protecting? An estimated $40 million in write-offs that owners of motorsports entertainment complexes are given; the $162 million in expensing rules for U.S. film and television productions; and $30 million (over ten years) that could be saved by eliminating a withholding provision for those lucky enough to win at horse and dog race tracks. 

Taxpayers for Common Sense compiled a list of some of the tax expenditures Democrats are looking to end. The money that would be saved in comparison to our fiscal crisis is not a large amount but it is a starting point, however, the GOP will not even agree to end these expenditures. Keep in mind our tax code is full of these kind of expenses, and Democrats feel all should be put on the table. 

What do you think….could our government do without this kind of spending (aka corporate socialism)? 

Extension of Seven Year Straight Line Cost Recovery Period for Motorsports Entertainment Complexes (NASCAR tracks)  
Estimated cost to taxpayers in 2011: $40 million 

Extension of Special Expensing Rules for U.S. Film and Television Productions
Estimated cost to taxpayers in 2011: $162 million  

Extension of Temporary Increase in Limit on Cover Over of Rum Excise Tax Revenues to Puerto Rico and the Virgin Islands 
Estimated cost to taxpayers in 2011: $235 million 

Extension of American Samoa Economic Development Credit
In general, this credit allows certain corporations operating in American Samoa to offset a portion of their U.S. tax liability on income earned in American Samoafrom active business operations, sales of assets used in a business, or certain investments in American Samoa. This credit would be extended for two years (through 2011). 
Estimated cost to taxpayers in 2011: $15 million 

Special tax withholding break on Horse & Dog track winnings 
The American Jobs Creation Act of 2004 eliminated a 30% tax withholding on income earned by foreigners who gamble at American horse racing and dog racing tracks. Other forms of gambling such as lotteries do not receive this special treatment. 
10-year savings: $30 million

Starbucks Roasting Provision  
The American Jobs Creation Act of 2004 jobs bill also declared that coffee roasting, but not coffee preparation, is a manufacturing activity. This special classification allows Starbucks to qualify for a corporate tax reduction designed for hard-hit domestic manufacturing companies. 
10-year savings: not estimated 

Race horse owners depreciation 
The 2008 farm bill permitted racehorse owners to depreciate horses over three years instead of the normal seven year period.   
10-year savings: $126 million

Would an Economic Collapse Benefit the GOP?

My answer is yes and I will tell you why. Over the last two years leading up to the 2010 election, their main complaint (meaning GOP and the Tea Party) has been government is too big. The only way to grow the economy is to get rid of government waste, i.e., Medicare, Medicaid, Social Security, and funding for things like education. 

In my previous posts I have written about their plan on how to do this, which is called Starve the Beast. They want to create such an economic disaster through cutting of taxes personal and corporate so low that the economy can’t continue on its present course.

They have been very successful in their goal. Through the last decade, which began with a surplus, they cut taxes on the wealthy, slashed corporate tax rates to the point some are paying net negative (actually receiving refunds from the IRS), instituted Medicare Part D that was unfunded and was a huge give away to big PhRMA, on top of fighting 2 wars that were not paid for. 

Judging by Republicans actions in the last few weeks over the debt ceiling debate, it is my belief that they feel they would benefit by pushing talks to the last minute and creating turmoil in our financial system, which would result in rising interest rates on America’s debt.

This would put our economy in such a bind that it would create a scenario where our government could no longer continue Social Security payments, Medicare and Medicaid benefits, and cause already financially burden local municipalities who are already dependent on government subsidies to collapse and default on pension payments for retired government workers (which has already occurred in some areas that were already struggling). 

I wonder if this scenario does come to pass, would the Tea Party followers and social conservatives finally get it. When their parents are no longer able to reside in their own homes because of lack of government benefits or no longer have access to vital healthcare or be eligible to go to residential facilities or nursing homes, will it finally sink in who Republicans really work for?