The 2% Illusion by AURaptor

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The 2% Illusion

POSTED BY: AURAPTOR
UPDATED: Friday, February 27, 2009 06:33
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Thursday, February 26, 2009 11:57 AM

America loves a winner!

Take everything they earn, and it still won't be enough.

President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.

Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.

But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

Mr. Obama is of course counting on an economic recovery. And he's also assuming along with the new liberal economic consensus that taxes don't matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation's primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively "small business" is defined. These owners will find a way to declare less taxable income.

The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can't possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.

On that point, by the way, it's unclear why Mr. Obama thinks his climate-change scheme won't hit all Americans with higher taxes. Selling the right to emit greenhouse gases amounts to a steep new tax on most types of energy and, therefore, on all Americans who use energy. There's a reason that Charlie Rangel's Ways and Means panel, which writes tax law, is holding hearings this week on cap-and-trade regulation.

Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don't ignore the data. And the reality is that the only way to pay for Mr. Obama's ambitions is to reach ever deeper into the pockets of the American middle class.
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online.wsj.com/article/SB123561551065378405.html

It is not those who use the term "Islamo-Fascism" who are sullying the name of Islam; it is the Islamo-Fascists. - Dennis Prager

A concern of the GOP is that the people aren't informed enough to understand their policies, while a fear of the Dems is that the people ARE.

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Thursday, February 26, 2009 12:07 PM

HERO

Quote:
Originally posted by AURaptor:
Mr. Obama is of course counting on an economic recovery.

Naw...thats what we're counting on. He's counting on change. Course if he sinks the economy into a lasting depression...thats ok too. The Democrats are the party of poor people. Makes sense they'd want MORE poor people so they'd have a bigger party.

I want my party to be the party of supermodels...cause who wouldn't want to party with supermodels?

Taxes, spending, weak defense and foriegn policy, gun laws, pork. Change we've seen before...Carter is the love child of Jimmy Carter and the black Kennedy (the behind Ted in all the family pictures).

And we really need to find out where he's from. Some say Hawaii, some say Kenya...I'm betting on Fantasy Land.

H

"Hero. I have come to respect you"- Chrisisall, 2009.

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Thursday, February 26, 2009 12:29 PM

AURAPTOR

America loves a winner!

Hey, even in the poorest of socialist countries, there's still the upper, upper class elites.

And then there's everyone else, barely able to sustain a living.

That's the sort of change I can do with out, thank you very much.

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Thursday, February 26, 2009 1:31 PM

KWICKO

"We'll know our disinformation program is complete when everything the American public believes is false." -- William Casey, Reagan's presidential campaign manager & CIA Director (from first staff meeting in 1981)

Dang, I thought this thread was going to be about low-fat milk!

Mike

"It is complete now; the hands of time are neatly tied."

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Thursday, February 26, 2009 3:46 PM

KIRKULES

There you go again AuRaptor with your inconvenient facts. They don't need no stinking facts, they've got "Hope".

These numbers definitely prove that 95% of Americans can look forward to a big tax increase down the road.

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Thursday, February 26, 2009 3:51 PM

SIGNYM

I believe in solving problems, not sharing them.

Ah, yes... those poor "socialist" countries like... Denmark. Sweden. Norway. Finland. Germany.

We should be so lucky!

---------------------------------
It's the end of the world as we know it, and I feel fine.

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Thursday, February 26, 2009 4:06 PM

AURAPTOR

America loves a winner!

Quote:
Originally posted by AURaptor:
Hey, even in the poorest of socialist countries, there's still the upper, upper class elites.

And then there's everyone else, barely able to sustain a living.

That's the sort of change I can do with out, thank you very much.

The use of the word "EVEN" denotes an intent to include those countries which are indeed the POOREST of socialist nations. Not just Germany , Sweden, but EVEN such nations as Cuba and the crumbling Soviet Union.

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Thursday, February 26, 2009 4:17 PM

RUE

I have a vote and I'm not afraid to use it!

Then let's compare countries that are on the same timeframes:

Haiti and Cuba
China and India
The Republic of Congo and Angola

If you were just an ordinary person, where would you rather be ?

***************************************************************

Silence is consent.

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Friday, February 27, 2009 4:16 AM

GEEZER

Keep the Shiny side up

Quote:
Originally posted by SignyM:
Ah, yes... those poor "socialist" countries like... Denmark. Sweden. Norway. Finland. Germany.

"Social welfare" countries, maybe, but all have way too much free enterprise and privately owned business to be considered "socialist" under any common definition.

"Socialism refers to a broad set of economic theories of social organization advocating public or state ownership and administration of the means of production and distribution of goods, and a society characterized by equal opportunities for all individuals, with a fair or egalitarian method of compensation."
http://en.wikipedia.org/wiki/Socialism

"a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole."
http://dictionary.reference.com/browse/socialism

"System of social organization in which private property and the distribution of income are subject to social control; also, the political movements aimed at putting that system into practice."
http://www.britannica.com/EBchecked/topic/551569/socialism

Google for a list of "socialist countries" and you might find Sweden on one, but mostly due to their social welfare, since most of their businesses are still privately held.

The countries most lists include:
Cuba
China
Venezuela
Vietnam
Syria
Belarus
Laos
Zambia
Turkmenistan

Edit to add:

And here's the GINI index for these countries

Cuba - None listed
China - 46.9
Venezuela - 48.2
Vietnam - 34.4
Syria - Not listed
Belarus - 29.72
Laos - 34.65
Zambia - 50.8
Turkmenistan - 40.76

And Gross National Income per capita, so we can see what's being divvied up.

Cuba - Not listed (again. what a surprise)
China - $865.03
Venezuela - Not listed (hmmm)
Vietnam - $392.19
Syria - $935.58
Belarus - $1248.60
Laos - Not listed
Zambia - $295.52
Turkmenistan - $1038.53

All figures from Nationmaster, BTW.

Add again

U.S. Gini - 40.81
U.S. Gross National Income - $33,070.30

"Keep the Shiny side up"

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Friday, February 27, 2009 6:33 AM

CITIZEN

Quote:
Originally posted by Geezer:
"Social welfare" countries, maybe, but all have way too much free enterprise and privately owned business to be considered "socialist" under any common definition.

They're mixed economies, which by definition is a mixture of socialist and capitalist economic policy.

More insane ramblings by the people who brought you beeeer milkshakes!
No one can see their reflection in running water. It is only in still water that we can see.

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