Tag Archives: fiscal cliff

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.

PRESIDENT OBAMA SELLS A CAR

Lot’s of wheelin’ and dealin’ going on this month between President Obama and John Boehner. Let’s hope the president doesn’t give away the store like he did recently as recounted below.

President Obama was touring Detroit the other day, talking to people to see how they were making out in the current hard times. He was visiting a car dealership just outside of town when the owner got an emergency call from his wife and had to run home. Before he left, the owner asked the president to watch the store for him just in case a customer arrived before the assistant manager could get in. The president agreed. Who was going to buy a car right now anyway? And besides, how hard could it be?

 But a customer did arrive. A Mr. Beaner, from nearby Ohio.

 B: Hi, I’m Jon Beaner. I hear you have some new car for sale.

 O: That’s right. Your name’s “Beaner.” Are you Mexican? You’re kind of dark.

 B: Mexican? I got no use for Mexicans. Besides, I’m not dark, I’m orange. Different thing entirely. How about this car? I hear it’s a Barackmobile, or some dumb name like that.

 O: Well, that’s right. I know the name maybe takes a little getting used to, but the car itself is the latest thing. It’s an energy efficient hybrid that’ll help the environment, use less gas, and most importantly, makes you feel good about yourself!

 B: That sounds like a lot of crap to me. How much is it?

 O: It’s $28,995 plus tax.

 B: Plus tax? I hate tax. I’m not paying any tax.

 O: Well, you have to pay tax.

 B: I’m not! Take the tax out of your cut. Mark the price down the amount of the tax!

O: Well, I guess that’s fair. All right (pulls out calculator), I’ll take it down to $27,000.

 B: What about state and local taxes and fees? I want them off, too.

 O: (hurt) I already counted that in! You told me how you feel about taxes.

 B: Hummph. And the thing looks like a cereal box on roller skates. How can I take the missus to the country club in something that looks like that?

 O: Well, I could make it $26,000?

 B: That doesn’t make it look any better. What are you, stupid?

 O: No! I have a law degree. How about $25,000…no, let’s say $24,000! $23,000? (thinks) Say, maybe you have a trade-in we could put into the deal? What are you driving?

 B: I’ve got an ’86 Reagan Special. Best car I ever owned!

 O: Gee, that’s a pretty old model. And it had a lot of problems as I recall. It didn’t have enough seats for the whole family and the old-fashioned computer controller kept falling asleep while you were driving. I don’t think the dealership wants to own a Reagan Special at any price. I can’t buy that from you.

 B: Are you kidding me? The Reagan Special was the best car ever made! Millions of people loved it. It’s worth more than this hunk of junk you’re selling! However, I could maybe be persuaded to part with it for $25,000.

 O: (to himself—Gee, I don’t think the owner’s going to be very happy if I tell him I bought a Reagan Special. But I want to be fair…) All right, I could give you $5000.

 B: $5000? What an insult! For that, I’m raising the price to $26,000!

O: Wait a minute! You can’t negotiate like that! You’re supposed to come down towards my price, not up! That’s not how we make a fair deal!

 B: More insults, huh? All right for you, then. $27,000!

 O:  I’m not trying to insult you, I just want to be fair! You’re not being fair!

 B: You’ll see fair! Now it’s $28,995 for my Reagan Special or nothing!

 O: (to himself—I can’t afford to keep going. Better do something) Ok, Ok. That’s fine. $28,995. Anyway, I cleverly note that’s the list price of the Barackmobile, so we’re at least making an even trade.

 B: Trade? I’m not making any trades. I’ve decided I don’t want a Barackmobile after all. Doesn’t look like it’ll last very long, anyway. My kids Eric and Rick will start fiddling with it and it’ll be broken in no time. No thanks.

 O: Well, I’m sorry we couldn’t make a deal.

 B: What do you mean, couldn’t make a deal? We have a deal for $28,995 for my Reagan Special!

 O: But that’s…that’s a trade in! Wait a minute! I mean…

 B: What are you, some kind of chiseling liar? You agreed on a deal and I aim to hold you to it. And since you seem so shifty here, I want it in cash. Now.

 O: Oh, gosh. I don’t know if we have the cash to do this. Let me go look in the back. Hold on. All right. I found some bills in a bag marked “health insurance payments.” I guess the owner wont mind if I use that. Here you go, then.

 B: (counts) Looks like it’s all there. Here’s your keys. You strike a hard bargain, mister. Pleasure doing business with you.

 O: Likewise. You have a good day now. Phew. Sure glad I’m president and not a used car dealer.

The Grand Bargain

President Obama likes Grand Bargains with Republicans. Just prior to the election, he made these comments to the Des Moines Register:

I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending…

And, he is eager to point out to the chorus of ankle-biting snakes that make up the Republican leadership, cuts to Medicare, Social Security, and education are on the table as his part of the bargain.

Now, I like grand bargains as much as the next person,  at least when they involve something like “buy one, get one free” on cinnamon buns (and they’re not stale). And “bargain” sounds so fair. Each side gives up something it wants in order to reach agreement.  So what’s wrong with that? Well, how about this “grand bargain.” Dad wants a 2 week vacation in the Cayman islands and Mom says they should spend the money on school clothes and supplies for the kids. Dad suggests they strike a bargain. They take only a 10 day vacation and buy clothes for only the child who grew the most. Fair enough, right? A little pain from each side. What could be more equitable?

Well, “equitable” means that each side is giving away something of equal value. And in monetary terms, that’s correct—$1000 is $1000, whether it’s spent on a vacation or kids’ clothing. But do you really think that mom should be bargaining with dad at all? Or should she say “What are you talking about? We’re not spending on any vacation at all until the kids are taken care of.” What would happen in your house? Right, I figured.

So why are we not saying, “No, we’re not cutting care for old people, sick people and kids’ education just so you can have lower taxes on the well-to-do and more military spending than the rest of the world combined. We’re not bargaining those things away.” Oh, that’s right, we want to appear reasonable. But it’s not reasonable to trade jewels for junk just because they weigh the same. We should cut our wars and war spending (including the war on drugs) and restore taxes to Clintonian levels. That’s reasonable. Bargain that.