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White House Proposes "Wealthy Tax"
President Obama is proposing a new tax rate for people making over $1m a year. The new rate is part of a larger plan which seeks to bring in $1.5 trillion in new tax revenue and is sure to meet opposition in congress. From the article: "The core of the president's plan totals just more than $2 trillion in deficit reduction over 10 years. It combines the new taxes with $580 billion in cuts to mandatory benefit programs, including $248 billion from Medicare." GOP Rep. Paul Ryan of Wisconsin said, "Class warfare may make for really good politics but it makes for rotten economics."
Once the wealth accumulates to the top only, how will the economy survive without spending by the middle and lower classes? Won't a lot of business just shutdown because people don't have money to spend?
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Then how about we tell the multinationals where to get off and push heavy incentives to actual local businesses, who make up more of the economy than the huge companies and can't hold regions hostage when they throw a tantrum about not getting treated special?
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Yes, that's true. However, I wonder why this comment is usually directed at the working classes, when they are the ones upon whom the warfare is being waged. The rich have been conducting class warfare in the US since the Reagan administration, and they are now beginning to reap what they have sown.
I now make more than twice what my father earned at the height of his career in the early 80's, but I have less actual purchasing power. Rotten economics indeed.
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...for a long time now. IIRC, the 250K top tax bracket dates back to almost the beginning of the income tax system, when 250K was legitimately rich, and the earner of 250K would likely be a millionaire due to cash reserves from earning that kind of money for years.
Nowadays, 250K is still a very, very good income, but inflation has curtailed its spending power significantly. New brackets every so often that account for inflation, or else a periodic adjustment of all brackets for inflation would probably be good for the country.
As far as those who want to argue that "job creators" in the form the of the wealthy wouldn't create jobs if their personal income were taxed higher, the simple solution would be to offer tax breaks for the demonstrable creation of jobs. This mainly would affect small companies where only a handful of people actually own the companies in question, as they could say, "I didn't take $XX salary because instead I reinvested $XX in the company for salaries for workers" with the ability to produce those figures from the payroll books...
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The main reason that Warren Buffer, hedge fund managers, and many of the rest of the ultra-wealthy pay so little in income taxes is that most of their "income" is in the form of long-term capital gains: the appreciation of and sale of investments. On that money, they don't pay the maximum income tax rate of 35%, but rather the maximum long-term capital gains tax rate of 15%. (The situation is different for short-term cap gains, which are generally taxed at the ordinary income tax rate.) This is also the case for many CEOs who have compensation packages in the tens of millions of dollars: much of that value is in the form of stock and stock options, not outright salary.
In that light, creating a new, higher income tax bracket is unlikely to have quite the intended impact that many would like to see: having the ultra-wealthy pay at least as great a percentage of their annual income as taxes as their secretaries, minions, and housekeepers. Much as I prefer a simplified tax code, it seems to me that we may want to instead add this provision: If more than 50% of your adjusted gross income comes from long-term capital gains, then count it as ordinary income, because that's what it is to them.
Yes, some will find ways around that (and goodness knows the ultra-wealthy have tax planners aplenty), but it seems more equitable than what we have currently. Please don't trouble us with the strawman argument of "If the ultra-wealthy have their investments taxed so heavily, then they won't invest." What else are they going to do with all their extra money? Save it at ~0% interest?
I think that most of Buffet's income is in capital gains which are taxed (inexplicably) at a much lower rate than income. This is such an absurd concept. If a baker sells a loaf of bread, he's taxed on his profits at the income tax rate, but if a trader sells some financial instrument, he's taxed on the proceeds at a much lower rate. The baker (arguably) has contributed more to the economy but is discriminated against, tax wise.
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