Obama calls for Taxing Millionaires at Middle Class Rates; Republicans Panic

In yet another move messaged as “bold” but actually typically spineless as far as returning policy from the Bush years to reality goes, Obama has called for taxing millionaires. The problem is that this doesn’t return our tax system to even the Reagan concept of a progressive tax system.  Obama wants millionaires to pay taxes at the same level as median tax earners. How friggin’ bold is that?  That means, millionaires would get taxed at the same rate as people that make about $50,000 a year which is around 20%. The problem is that’s lower than tax tables in the law now enacted by Ronald Reagan.  The “Buffet Rule” makes Ronald Reagan’s tax reform look downright socialist.

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday.

Mr. Obama’s proposal is certain to draw opposition from Republicans, who have staunchly opposed raising taxes on the affluent because, they say, it would discourage investment. It could also invite scrutiny from some economists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments.

In a speech on Thursday, Speaker John A. Boehner, Republican of Ohio, agreed with Mr. Obama that the deficit-reduction committee “can tackle tax reform, and it should,” to get rid of many tax breaks and allow for lower marginal rates.

“Tax increases, however, are not a viable option for the joint committee,” Mr. Boehner said. Instead, he emphasized that meeting the deficit-reduction target should come largely from overhauling benefit programs like Medicare, Medicaid and Social Security.

So, we’re getting this packaged as the “Buffet Rule”.  Score one for attempted messaging. Subtract major points for substance.  Let me just quote a turn of phrase from Robert Reich which is the QOTY as far as I’m concerned.

So when the President refers to his new initiative to raise taxes on millionaires as the “Buffett rule” we might expect he’d start the bargaining from a tough position.

But this is Barack Obama, whose idea of negotiating is to give away half the house before he’s even asked the other side for the bathroom sink.

But, let me get back to the idea that Ronald Reagan was a socialist using Reich’s analysis.  I’m really glad he crunched the numbers so I don’t have to.

America’s median income is about $50,000. The typical taxpayer at that level pays approximately 20 percent in taxes.

Granted, that’s a higher rate than most of today’s super rich pay because of countless deductions, credits, and loopholes – including, especially, their ability to take their incomes in the form of capital gains, taxed at 15 percent. That’s a big reason Buffett’s hundreds of millions a year are taxed at just over 17 percent — a lower rate than his secretary faces, as Buffett often says.

But a 20 percent rate is still ridiculously low compared to what millionaires and billionaires ought to be paying. Officially, income over $379,150 is supposed to be taxed at 35%.

And even 35 percent is a pittance compared to the first three decades after World War II. Before Ronald Reagan slashed taxes on the rich in 1981, the highest marginal tax rate was over 70 percent. Under Dwight Eisenhower it was 91 percent. Even if you include deductions and credits, the rich are now paying a far lower share of their incomes in taxes than at any time since World War II.

The estate tax (which only hits the top 2 percent) has also been slashed. In 2000 it was 55 percent and kicked in after $1 million. Today it’s 35 percent and kicks in at $5 million. Capital gains – comprising most of the income of the super-rich – were taxed at 35 percent in the late 1980s. They’re now taxed at 15 percent.

Meanwhile, the top 1 percent’s share of national income has doubled over the past three decades (from 10 percent in 1981 to well over 20 percent now). The richest one-tenth of 1 percent’s share has tripled. And they’re doing better than ever. The last time the top 1 percent got that much was in the roaring 1920s.

So much money is now concentrated at the top that what we really need are more tax brackets at the high end, higher marginal rates in each bracket, and a tax code that treats all sources of income – whether ordinary or capital gains – the same.

I hate to say this again and again, but here we go.  That last sentence is important.  Buffet, Soros, and friends live off of capital gains income.  Unless you deal with the capital gains tax, you’re not really going to impact the really really rich dudes.  If they make it from a salary, they’re paying a 35% percent marginal tax rate.  Their stock options with appreciation only get taxed at 15%. You have to apply the tax rate to capital gains to really get at their revenues.  So, how is this plan going to attack the major source of income for the richest of the rich?  It’s not! But that’s not stopping the morality-impaired Republicans from screaming class warfare.

Republicans Sunday criticized President Obama’s plan to call for a new minimum tax rate on millionaires as “class warfare” that would do little to create new jobs and instead would hurt the small businesses that drive the economy.

“Class warfare. . .may make for good politics, but it makes a rotten economics,” Rep. Paul Ryan (R-Wisc.), chairman of the House budget committee, said on “Fox News Sunday.” “We don’t need a system that seeks to divide people. . .We need a system that creates jobs and innovation.”

There’s some excellent analysis over at WAPO on the tax loopholes that have evolved over the last 25 years since the last time the tax code was reformed.  It shows how much tax breaks really go out to all levels of incomes already.  Many of them benefit middle income earners as much as wealthier individuals.  Upper middle class families–those earning in the $100,000 – $300,000 level–get an incredible amount of tax largess right now. By not limiting some of the more pedestrian tax breaks to lower income families and by giving special consideration to capital gains, we lose a lot of revenues from truly well-off individuals. These ideas have not been put on the table by the President.

The number of tax breaks has nearly doubled since the last major tax overhaul 25 years ago, with lawmakers adding new benefits for children, college tuition, retirement savings and investment. At the same time, some long-standing breaks have exploded in value, such as the deduction for mortgage interest and the tax-free treatment of health-insurance premiums paid by employers.

All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks while paying $1.09 trillion in income taxes, according to government estimates.

Only about 8 percent of those benefits went to corporations. (The write-off for corporate jets equals about .03 percent of the total.) The bulk went to private households, primarily upper-middle-class families that Obama has vowed to protect from new taxes.

“The big money is in the middle-class subsidies,” said Syracuse University economist Leonard Burman, former director of the nonpartisan Tax Policy Center. “You’re not going to balance the budget by eliminating ethanol credits. You have to go after things that really matter to a lot of people.”

I’ve just basically come to the conclusion that the Bush tax cuts should expire for every one at this point.  But, if the president is truly interested in going after the big money–which is a fine idea–he needs to quit coming to the table with piddling suggestions.  Capital gains need to be taxed like normal income, for one.  Giving them preferential treatment has just subsidized Wall Street Gambling as far as I’m concerned and provided a huge tax benefit for the richest of the rich.  Again, this Obama plan makes the Reagan Tax reform look socialist.  The fact that Republicans are screaming about it on the Sunday New Shows demonstrates just how extreme our policies have gotten in terms of benefiting the donor class these days.  What a mess!!!