Effects of Various Tax Changes (not funny)

Sorry, couldn’t come up with anything snarky and amusing about this one, but the graphic is too good to not share with folks. A lot of confusion (certainly on my part) about just what the various proposed changes to the tax structure might do, and a 12/9/12 article in the NY Times by Jackie Chalmes has a table (source is Institute on Taxation and Economic Policy) that breaks down the relative contributions of each change:

variations on Obama plan

So you can see from the table that changing the top 2 marginal rates from 33 and 35% to 36 and 39.6% increase revenue by $442 Billion (10 yr). A little arithmetic teases out the individual effects of the other possible changes (using greatest increase in top marginal rates:

 Raise capital gains and dividend tax from 15% to 20%: (759-442) = $317B

 Limit deductions to 28%: (1314 – 759) = $555B

 Raise dividend tax from 20% to ordinary rate (1433 -1314) = $119B

 Raising estate taxes on estates over $3.5M from 25 to 45% would add another $200B (that’s how table got a max $1.6T gain)

Now it’s not in the table, but we can guesstimate the effect of taxing capital gains at ordinary rates. Because the table shows that raising dividend tax from 20% to ordinary (a 15 percentage point increase) adds only $119B, that suggests that the increase from 15 to 20% (5 percentage points) would be much less than $119B, perhaps one third as much, or $40B. So perhaps, $275B of the $317B gain derived from raising cap gains and dividend from 15 to 20% was due solely to the cap gains raise. Therefore, if cap gains was raised to ordinary rates, that might be expected to contribute an additional 3 x $275 = $825B

So, really, by going back to Clinton-era marginal rates, taxing dividends and capital gains at ordinary rates (as was long done and is hardly irrational—I mean, why do you pay LESS tax on money that you didn’t work to earn than money you sweated for? Oh, yeah, because that’s the kind of income rich people have), and raising the estate tax on large estates, we could reduce the deficit by $2.4T over the next 10 yr. And this doesn’t even include any efforts to make corporations pay something close to their nominal rate). But Republicans say that increasing taxes wont solve anything. Repubaloney.

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