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Thread: The Democratic plan to kill the American Middle class

  1. #1

    The Democratic plan to kill the American Middle class

    Today's NY Times. On the money.

    [QUOTE]Op-Ed Columnist
    The Middle-Class Tax TrapBy ROSS DOUTHAT
    Published: April 17, 2011

    “Let’s tell the truth,” Walter Mondale said, accepting the Democratic nomination in 1984. “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.”


    Three months later, Mondale lost 49 states, and liberal politicians learned a valuable lesson. In the decades since, national Democrats have often promised to raise taxes — but only for the rich, and never for the middle class.

    Bill Clinton wrote the playbook: “We will lower the tax burden on middle-class Americans,” he pledged in 1992, “by asking the very wealthy to pay their fair share.” In 2008, Barack Obama imitated Clinton, campaigning on a promise to raise taxes for the richest 5 percent while cutting them for everybody else.

    Last week, in his address on deficit reduction, the president followed the playbook once again. In the throat-clearing section of the speech, Obama promised “tough choices” that put “everything on the table.” But his tax proposals were aptly summarized by The Atlantic’s Clive Crook: “The rich can pay for it all.”

    As it happens, they can’t. Squeezing the wealthy buys some short-term deficit reduction: over the next decade, President Obama’s plan could trim (almost) as much off the deficit as Paul Ryan’s controversial Republican budget — $4 trillion, give or take.

    But that $4 trillion is just a fraction of America’s projected long-term debt. The whole point of the Ryan plan is that the real deficit reduction starts at year 10, when his Medicare reforms are phased in.

    Under the president’s plan, we soak the rich in the short term, and then just keep going deeper into the red.

    [B]Does a plan to cut the deficit with middle-class tax increases exist? In a sense, it does. It’s called the “current law baseline,” a Congressional Budget Office projection in which the Bush-era tax rates aren’t renewed in 2012, the Alternative Minimum Tax (which is supposed to hit only the rich but increasingly bites into middle-class paychecks) isn’t indexed for inflation, and Medicare payments to doctors are slashed by 20 percent.

    With these policies, the deficit drops away in the next 10 years, and more important, it stays manageably low for the decades after that. [/B]

    This projection has become a touchstone for liberal wonks — “the graph that all budget discussions should start with,” The Washington Post’s Ezra Klein wrote last week. It does not represent their ideal policy vision by any means, but it is frequently cited as proof that we do not need to radically reform entitlements to keep the country
    solvent.

    All we need to do instead is let taxes rise and keep on rising. This is how the “current law baseline” cuts the deficit: [B]Thanks to inflation and bracket creep, its tax code gradually subjects more and more Americans to rates that now fall only on the wealthy.

    Today, for instance, a family of four making the median income — $94,900 — pays 15 percent in federal taxes. By 2035, under the C.B.O. projection, payroll and income taxes would claim 25 percent of that family’s paycheck. The marginal tax rate on labor income would rise from 29 percent to 38 percent. Federal tax revenue, which has averaged 18 percent of G.D.P. since World War II, would hit 23 percent by the 2030s and climb even higher after that. [/B]

    Such unprecedented levels of taxation would throw up hurdles to entrepreneurship, family formation and upward mobility. (Or as the C.B.O. puts it, in its understated way, they would “tend to discourage some economic activity,” and “harm the economy through the impact on people’s decisions about how much to work and save.”)

    They could have ugly political consequences as well. Historically, the most successful welfare states (think Scandinavia) have depended on ethnic solidarity to sustain their tax-and-transfer programs. But the working-age America of the future will be far more diverse than the retired cohort it’s laboring to support. Asking a population that’s increasingly brown and beige to accept punishing tax rates while white seniors receive roughly $3 in Medicare benefits for every dollar they paid in (the projected ratio in the 2030s) promises to polarize the country along racial as well as generational lines.

    [B]The Republican vision for entitlement reform, President Obama said last week, would lead to “a fundamentally different America” than the one we inhabit today. He’s right: asking the elderly to pay more for their health care, as Paul Ryan proposes to do, would transform the American social contract, and cause no small amount of pain.

    But what Obama didn’t acknowledge is that the alternative path could lead to a different country as well — a more stagnant and balkanized society, in which our promise to the elderly crowds out the fundamental promise of America itself. [/B][/QUOTE]
    Last edited by Winstonbiggs; 04-18-2011 at 09:05 AM.

  2. #2
    FWIW - Obama has lied so much since he's been elected, I don't believe a word out of his mouth. Especially regarding his recent decision to raise taxes on the rich. Didn't he just extend the Bush tax cuts for the wealthy last December?

    I don't know why Democrats believe anything he says. I don't know why Republicans believe anything he says.

    If Obama isn't "dithering", he's lying.

    :huh:

    :jets17

  3. #3
    So the op-ed guy wants what... Medicare to be abolished? GL with that.

  4. #4
    Never said Medicare would be abolished. Rework it to keep it solvent.

  5. #5
    [QUOTE=bitonti;4003129]So the op-ed guy wants what... Medicare to be abolished? GL with that.[/QUOTE]

    Perhaps my reading skills are weak these days....

    ...can you please quote the specific section of the OP-Ed that makes that claim, thanks.

  6. #6
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    [QUOTE=Warfish;4003174]Perhaps my reading skills are weak these days....

    ...can you please quote the specific section of the OP-Ed that makes that claim, thanks.[/QUOTE]

    Did you guys expect a response that actually addresses the topic at hand? Wouldn't a nonsensical deflection be the right fit there? 100% of the time?

  7. #7
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    47% or so of all Americans pay no income taxes.

    The "Rich" are on the verge of taking home less than 50% of their income and the rest will be taxed by the state or Federal government.....

    How is any of that "fair"? How can somebody pay more of their salary in taxes than they get to actually keep and not be outraged, while a huge percentage of the population are not only not paying ANY of their share, but have become a parasite class?

    Whatever. I have lost all hope for this nations future and plan to leave when I retire.

  8. #8
    [QUOTE=Jet_Engine1;4003767]47% or so of all Americans pay no income taxes.

    The "Rich" are on the verge of taking home less than 50% of their income and the rest will be taxed by the state or Federal government.....

    How is any of that "fair"? How can somebody pay more of their salary in taxes than they get to actually keep and not be outraged, while a huge percentage of the population are not only not paying ANY of their share, but have become a parasite class?

    Whatever. I have lost all hope for this nations future and plan to leave when I retire.[/QUOTE]

    Take care.

  9. #9
    [QUOTE=Jet_Engine1;4003767]47% or so of all Americans pay no income taxes.

    The "Rich" are on the verge of taking home less than 50% of their income and the rest will be taxed by the state or Federal government.....

    How is any of that "fair"? [/QUOTE]

    the effective tax rate for the highest bracket is 17%

    believe it or not the 45% who pay no income tax are not among the very rich or the very poor. they are the low to middle class (that this topic claims the Democrats want to kill) who fulfil the various loopholes in the tax code. these are people paying a mortgage with 4 kids and 1 in college. Write all that stuff off you end up paying no tax (on 48k annual income lets say).

    and by the way ... on tax day we'd all like to switch with these people, but 364 other days of the year no one wants to be that stressed financially. No one wants to switch with that class, even the very very poor have it better in some ways.

  10. #10
    [QUOTE=bitonti;4003928]the effective tax rate for the highest bracket is 17%

    [/QUOTE]

    Is that based on income or are you including taxes on savings which were allready taxed when it was income?

    Most people I know in the 250 to 400 range are paying close to 60% when you include State and local real estate taxes with the Federal burden in the low 30's.

    You are looking at the super rich who are being taxed at a low rate because much of their current income is dividends and cap gains which should remain at a reduced rate to encourage savings and investment both very good for our economic well being and have huge risks to principle.

  11. #11
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    [QUOTE=Winstonbiggs;4003943]Is that based on income or are you including taxes on savings which were allready taxed when it was income?

    Most people I know in the 250 to 400 range are paying close to 60% when you include State and local real estate taxes with the Federal burden in the low 30's.

    You are looking at the super rich who are being taxed at a low rate because much of their current income is dividends and cap gains which should remain at a reduced rate to encourage savings and investment both very good for our economic well being and have huge risks to principle.[/QUOTE]

    Per the CBO data, those with an average after tax income from 265,500 to 400,400 range paid in total federal taxes (individual income, social insurance, corporate income, and excise) from 27.5 to 29%. Only the top 1%, with average income at 1.2 million pay 31.2% in total tax.

    Income tax for the 265K-400K group ranged from 16-17%. For the 1.2mill crowd it was 19%

    Also, households in the bottom two quintiles (earning up to an average after tax income of $35,400) represented 23.8 + 22.4 million households divided by the total households reporting at 116.1 million. That would account for 46.2/116.1 million households or 39.8% paying no INCOME tax after deductions and adjustments. They were assessed for the other taxes. Which also points to the fact that there were about 7% of households in the other categories, including the highest groups, that didn't pay any income tax (which is reflected in the CNN table in the other thread). I want the names of their accountants... ;)


    [URL]http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf[/URL]
    Last edited by long island leprechaun; 04-19-2011 at 11:46 AM.

  12. #12
    [QUOTE=long island leprechaun;4004090]Per the CBO data, those with an average after tax income from 265,500 to 400,400 range paid in total federal taxes (individual income, social insurance, corporate income, and excise) from 27.5 to 29%. Only the top 1%, with average income at 1.2 million pay 31.2% in total tax.

    Income tax for the 265K-400K group ranged from 16-17%. For the 1.2mill crowd it was 19%

    Also, households in the bottom two quintiles (earning up to an average after tax income of $35,400) represented 23.8 + 22.4 million households divided by the total households reporting at 116.1 million. That would account for 46.2/116.1 million households or 39.8% paying no INCOME tax after deductions and adjustments. They were assessed for the other taxes. Which also points to the fact that there were about 7% of households in the other categories, including the highest groups, that didn't pay any income tax (which is reflected in the CNN table in the other thread). I want the names of their accountants... ;)


    [URL]http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf[/URL][/QUOTE]

    If you read the notes there are two reasons taxes dropped for the top quintile.

    One is SS taxes are capped but most Americans believe SS is not a tax it is a mandatory paid in retirement plan. Calling it a tax when it is a fully portable pension plan for those who contribute is an interesting take.

    2nd the notes are clear that the reason taxes drop is much of the top groups income is comprised of Capital income.

    I'm going to suggest to you that all of my capital income that isn't in Self-directed pensions was taxed as income and has been at risk in our capital markets or banks for years. All of my differed income in self-directed pensions will be taxed at the full rate when I take it out.

    Had I spent that money I would have none taxable stuff. Since I saved it and put it at risk the Government gets to call it income again.

    ;)
    Last edited by Winstonbiggs; 04-19-2011 at 11:56 AM.

  13. #13
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    [QUOTE=Winstonbiggs;4004104]If you read the notes there are two reasons taxes dropped for the top quintile.

    One is SS taxes are capped but most Americans believe SS is not a tax it is a mandatory paid in retirement plan. Calling it a tax when it is a fully portable pension plan for those who contribute is an interesting take.

    2nd the notes are clear that the reason taxes drop is much of the top groups income is comprised of Capital income.

    I'm going to suggest to you that all of my capital income that isn't in Self-directed pensions was taxed as income and has been at risk in our capital markets or banks for years. All of my differed income in self-directed pensions will be taxed at the full rate when I take it out.

    Had I spent that money I would have none taxable stuff. Since I saved it and put it at risk the Government gets to call it income again.

    ;)[/QUOTE]

    Yup. I read the notes. Not sure why you are arguing that social security taxes are not taxes, but that's a toss up to me.

    Capital gains taxes are alot lower than the income tax rate, so it does in effect provide a shelter from the higher rate. Of course it involves risk, at least in the markets (unless you're putting over 150K in a single FDIC insured bank, assuming you are married). On the other hand, the rate of return is much higher. Bottom line is you're free to redirect your income to this alternative, if you have the disposable income to do so.

    Your point about thrifts/401K's has to include the fact that for most people, by the time they access the deferred funds, they have structured the distribution of the thrift to lower the tax rate bracket. By the way, if we start eliminating deductions and deferrals, would you be happy to pay tax on your thrift savings earnings as an added margin to your current income, similar to long-term capital gains? That would be devastating to most people in the lower income brackets and create a real disincentive to long-term saving, which the deferred tax strongly encourages.

  14. #14
    [QUOTE=long island leprechaun;4004176]Yup. I read the notes. Not sure why you are arguing that social security taxes are not taxes, but that's a toss up to me.

    Capital gains taxes are alot lower than the income tax rate, so it does in effect provide a shelter from the higher rate. Of course it involves risk, at least in the markets (unless you're putting over 150K in a single FDIC insured bank, assuming you are married). On the other hand, the rate of return is much higher. Bottom line is you're free to redirect your income to this alternative, if you have the disposable income to do so.

    Your point about thrifts/401K's has to include the fact that for most people, by the time they access the deferred funds, they have structured the distribution of the thrift to lower the tax rate bracket. By the way, if we start eliminating deductions and deferrals, would you be happy to pay tax on your thrift savings earnings as an added margin to your current income, similar to long-term capital gains? That would be devastating to most people in the lower income brackets and create a real disincentive to long-term saving, which the deferred tax strongly encourages.[/QUOTE]

    You ignored the fact that capital gains were earned taxed and then invested. I think dividend interest, cap gains and consumption should be taxed at a very comparable very low rate.

    You also are probably dead wrong on part 2 about the lower tax rates for differed pensions. This was a myth sold to me by tax and retirement planers when I was in my 30's and 40's. The reality is because of inflation in real estate taxes and health care and coming cuts in Medicare, I'm going to need to increase my savings and my distributions to keep up with inflation. Since I max out on differed I have to increase savings from after tax into taxable dividends, interest or cap gains. The bracket creep in AMT taxes isn't going to reduce my tax rate. The government will get more of my savings in taxes because of the BS they sold me on reduced rates in my differed savings. They didn't tell me they would run deficits at 100% of GDP and print reams of money.

    Disposable income comes with a choice. You can spend it or save it. The government has made a choice to penalize those who save it.
    Last edited by Winstonbiggs; 04-19-2011 at 01:09 PM.

  15. #15
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    [QUOTE=Winstonbiggs;4004190]You ignored the fact that capital gains were earned taxed and then invested. I think dividend interest, cap gains and consumption should be taxed at a very comparable very low rate.

    You also are probably dead wrong on part 2 about the lower tax rates for differed pensions. This was a myth sold to me by tax and retirement planers when I was in my 30's and 40's. The reality is because of inflation in real estate taxes and health care and coming cuts in Medicare, I'm going to need to increase my savings and my distributions to keep up with inflation. Since I max out on differed I have to increase savings from after tax into taxable dividends, interest or cap gains. The bracket creep in AMT taxes isn't going to reduce my tax rate. The government will get more of my savings in taxes because of the BS they sold me on reduced rates in my differed savings. They didn't tell me they would run deficits at 100% of GDP and print reams of money.

    Disposable income comes with a choice. You can spend it or save it. The government has made a choice to penalize those who save it.[/QUOTE]

    I didn't ignore where the money came from for investment. It was taxed in the previous year or years when it was earned. You also left out the fact that capital gain losses can be deducted up to $3000 in a given year and any balance over that amount can be carried over to the following year and applied. It's not entirely a one way street.

    On the second point, much depends on the amount of tax-deferred money you intend to distribute yearly, as well as the amount you are putting in. There are limits, which may be the best thing to change... lift the ceiling on tax deferred savings. I'd be for that, especially given the other points you made that will add costs.

    I think your point about the government penalizing savings is incorrect. The government is focused on incentivizing savings below around $150K. It is not so encouraging at higher income levels probably because the expectation is that the options for burying/deferring marginal income are so much greater. And I still want to know how all those people in the 500K+ group managed to pay no taxes!

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