The Clinton/Obama Tax Plans
By Pejman Yousefzadeh Posted in Barack Obama | Economy | Hillary Clinton | taxes — Comments (14) / Email this page » / Leave a comment »
They are full of shortcomings. Alan Reynolds explains, with the assumption that either a President Clinton or a President Obama would face a $500 billion budget deficit:
The federal government now takes 33 percent of taxable income above $200,000 on a joint return and 35 percent of income above $357,700. Both Democrats would raise those tax rates to 36 percent and 39.6 percent, respectively.
Even the Tax Policy Center (a think tank famously friendly to tax hikes and Democrats) estimates that raising the top two tax rates might bring in a mere $32 billion in 2010. That's 6 percent of the likely deficit - not a license to start a dozen new programs.
To squeeze a few more pennies from top taxpayers, Clinton and Obama would also phase out all personal exemptions at $250,000. That means large families would pay higher taxes than childless couples with the same income. They'd also phase out itemized deductions - which would force two-earner families in New York and California to pay more federal tax than those living in Texas and Florida.
And this politically suicidal tax discrimination against New Yorkers, Californians and big families would bring in only an extra $15 billion a year.
All in all, these tax hikes add up to, at most, $47 billion a year - only 1.5 percent of federal spending and 0.3 percent of GDP.
And even that assumes nobody makes the slightest effort to avoid the increased taxes. In reality, many two-earner families would become one-earner families; doctors would play more golf; some folks would quit working long hours and others would retire early. Top-bracket taxpayers would maximize deductions (take out a bigger mortgage, put more in the 401k) and minimize taxable income (buy municipal bonds or just spend rather than invest).
Such tax avoidance alone would cut the estimated revenue in half. The tax hikes' adverse effects on the stock market and the economy would more than eliminate the other half.
So much for the revenue enhancing prowess of the Clinton/Obama tax increases. As Reynolds explains, because the revenue intake is so much less than is needed to close the budget deficit gap, it will be used for increased spending--a fact that should shock no one anymore.
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There seems to be quite a bit wrong with at least the excerpted portion of Reynolds column.
First he says:
The federal government now takes 33 percent of taxable income above $200,000 on a joint return and 35 percent of income above $357,700.
That's right insofar as he's talking about ordinary income, but he's talking about taxable income, and capital gains and dividends, which are certainly taxable, are taxed at a maximum rate of 15%. So, if I have $500K in capital gains in one year, the federal government only takes 15 percent of that amount not 33 or 35 percent.
Then he says:
To squeeze a few more pennies from top taxpayers, Clinton and Obama would also phase out all personal exemptions at $250,000. That means large families would pay higher taxes than childless couples with the same income.
But that's not right. Large families would pay more taxes than they do right now with the personal exemptions, but since a childless couple doesn't currently get the benefit of the extra personal exemptions given to people with multiple dependents (i.e., children), large families would pay the same amount in taxes as a childless couple with the same income, not more.
Next:
They'd also phase out itemized deductions - which would force two-earner families in New York and California to pay more federal tax than those living in Texas and Florida.
This suffers from the same infirmatity as the previous quotes. I assume he is referencing here the fact that NY and CA have state income taxes, which are deductible to the extent not limited by the AMT, where TX and FL do not. But again, if the itemized deductions are eliminated, someone living in NY or CA will pay more in federal tax than they do now, but not more than someone living in TX and FL with the same income, who currently have no state income tax to deduct (ignoring the current temporary deduction for sales taxes, which I don't recall if it got extended).
There are good arguments that can be made against tax increases without having to misstate the facts.
want to repeal the Bush tax cuts which would increase my federal income taxes by 2.5%. Sounds small? It isn't, we're talking a few thousand dollars and trust me, I'm in the middle brackets so I don't make all that much.
Let's not forget also that they plan an enacting an economic tax plan that Democrats have long been clamoring, this would eventually involve the elimination mortgage interest deductions, the elimination of deductions for the wealthier taxpayers, redistributing income from the top to the bottom, and the most egregious implied income (I think that is the correct term, maybe Neal Boortz will be able to correct me b/c I read about it in his book).
Implied(?) income as one example can be found in housing, where if you buy a house twenty years ago and are now only paying $500.00, Democrats consider this unfair and changing it is something Clinton tried in the past and Democrats will try again. They would use a formula to determine what the actual cost of that housing would be today if someone bought the same house, or what monthly payments are in the neighborhood. Let's say, for the sake of argument, that that would be $1000.00. They would take the difference, which in this case is %500.00 and multiply that by 12, for the months in a year, and apply that amount to taxable income for tax time. In that case a person's taxable income would increase by $6000.00. That's a nice way to increase taxes on families.
Americans need to wake up, Democrats and Hillbama are dangerous.
"Glory is not a conceit. It is not a decoration for valor. Glory belongs to the act of being constant to something greater than yourself, to a cause, to your principles, to the people on whom you rely and who rely on you in return."-Senator John Mc
Okay, I got to ask - waht are you talking about? Is one or both of the democrats suggesting taxing unrealized capital gains? Cause I must have missed that.
Ad for what it is worth - eliminating the mortgage interest deduction is a great idea if politically infeasable (something Reagan learnt in 86 when he tried to dump it).
and they'll try it again. Democrats tried it in the Clinton years but failed. The only thing that halted its momentum was the 1994 Congressional elections.
"Glory is not a conceit. It is not a decoration for valor. Glory belongs to the act of being constant to something greater than yourself, to a cause, to your principles, to the people on whom you rely and who rely on you in return."-Senator McCain
Really, I don't recall it - do you have any reference to the proposal? Bill introduced in congress? Speech?
I'm sorry but I can't find anything specific. I was clued in on this by Neal Boortz and I've read several articles during the '90s that hint that often when determining tax plans the Clinton administration would constantly bring up this idea of imputed income. As far as I know it was an idea floated before 1994. Rush Limbaughsaid this in 1993:
"Let me tell you about imputed income. Let's say you own a home and you live in it, but you could, if you wanted to, rent it for, say, $200 a month. Two hundred times 12 is $2,400. Under Bill Clinton you will have to add $2,400 to your total income because that's the imputed value of your asset and then pay taxes on it. Not making this up."
I tried to find a specific speech or proposal but I've been unable to do so. As far as I know it never made it out of the idea stage, though imputed income still rears its ugly, but in other forms outside of housing, like child support.
"Glory is not a conceit. It is not a decoration for valor. Glory belongs to the act of being constant to something greater than yourself, to a cause, to your principles, to the people on whom you rely and who rely on you in return."-Senator McCain
I do not remember the specifics of the Dem proposal at the time -- but I do remember Rush saying that.
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Okay, Imputed Rental Income I understand - I'm fairly sure there wasnever a plan to tax it (I know some economists who have suggested it but the consensus is it would be exceedingly difficult for individuals to calculate and regressive in nature - i.e. hurt the poor more than the rich). What they did do was include imputed rental income in the numbers they were using in the public to claim that their tax hikes were hiitng the wealthy - i.e., when they said the tax changes would impact people with say $100K they were including imputed rental income among other notions that people wouldn't neccesarily think of as income (I believe they called it Family Econmic income) and the real income of that family was only $70k.
By the way, you do pay tax on some imputed income already, for example the value of group ife insurance provided by your employer above I believe $55K in value.
...worth more than the value of your house (as many are these days), and you make a deal with the bank to either cash out of the house for less than the mortgage value, or reduce the mortgage payments. In either case, the IRS deems the relief you've received from the bank as taxable income. (The bank takes a tax loss on the value that they give up.)
This is rich. Republicans lecturing Democrats about fiscal responsibility is like Rush Limbaugh lecturing someone about abusing drugs.
Clinton spent the 90's reining in the Reagan/Bush deficits, just so Bush could roll in, in 2001, and start racking up giant deficits again.
Why should Democrats worry about fiscal discipline when any progress they make just gets wiped out under the next Republican administration? Why should we put our agenda on hold to save money now, just so you guys can spend that money on your agenda later? No thanks. If we are going to be running a deficit in this country, I'd rather we be spending the money on programs that liberals care about.
They only time you guys care about fiscal responsibility is when you aren't the ones setting the fiscal agenda.
It (and the ensuing recession) was probably caused by the stock market crash in 2000. The crash, in turn, was the inevitable result of an asset bubble that was probably caused by policy interest rates that were set too low after the Asian Flu financial crisis.
I can make a case to you that, absent the response to the financial disorders of 1997 and 1998, we'd be talking about a recession in Clinton's last years in office, rather than in Bush's first years.
On the other hand, you could argue that Bush, when the swing from surplus to deficit became apparent early in his first term, ought to have abandoned his pledge to cut marginal tax rates. (John McCain certainly made this argument at the time.) But tax-rate cuts had been the centerpiece of Bush's campaign, and he wasn't about to break his promise. And in any case, tax cuts are not the worst available policy-response to a recession.
Unlike Clinton, who campaigned on a middle-class tax cut and proved in his first week in office that he'd been lying like a rug the whole time.
President Clinton was fiscally responsible because of Newt Gingrich. President Clinton was going to spend like a drunken sailor -- remember Hillarycare, but fortunately the Revolution of '94 put a halt to the guy.
Real spending responsibility on the part of Congress, along with an economy driven by internet IPOs and Corporate [fraudulent accounting] profits allowed President Clinton to point to a paper surplus. We all know those surpluses did not in fact exist -- but it made for good rhetoric (apparently even today)
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you did so well in so many less words than it would have taken me.
Mike Gamecock DeVine @ The Charlotte Observer
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Alan Reynolds appears to mistakenly assume that the Clinton/Obama (and more proximately, Rangel) tax-increase proposals are intended to solve an economic problem.
On that basis, of course they're irrational.
But the true intent of these proposals is political rather than economic. Politically speaking, they're golden strokes of genius.
Think about the elimination of personal deductions on high incomes. That's precisely the same effect as increasing the percentage rate of the AMT.
The most intelligent tax policy for the Democratic party is to eliminate all Federal taxes (except perhaps FICA/FUTA) on any income below a certain level. (Maybe $200,000, maybe even less.) And to all incomes above that level, apply a high flat rate.
This would have the magical effect of converting government into a no-brain proposition for a large-enough proportion of the electorate to ensure permanent electoral success for the Democrats.
Yes, it would certainly lead to much higher deficit spending. But with long-term interest rates where they are, this is actually not unsustainable.
Note: I'm not saying that high permanent deficits are a good thing. In fact, they're evil from several different points of view. What I am saying is that they're possible. In terms of short-term political goals, that alone makes deficit spending a winner.