Brief Bits on Taxes and Entitlements

Like other bloggers of my kind, I spend a lot of time following issues I’ve seized on, while also dipping into others that look like my cup of tea.

I also try to exercise a certain amount of discipline about how much I pack into a post. So draft paragraphs fall on the cutting floor. And sometimes a new angle occurs to me after I’ve said, “enough already.”

All this certainly gives my mind a workout. But it’s also frustrating in a couple of ways.

On the one hand, I find new research on things I’ve already written about — not enough for a whole post, but meaty and relevant enough so I wish I’d found it before.

On the other hand, I identify issues that spark my interest. But I know I’ll have to spend considerable time learning about them before I’ll feel comfortable framing a post.

So I’m going to try an experiment — occasional posts that are more or less a scrapbook of supplements to posts I’ve written and first cuts into topics that are in my mental file.

Not a massive data dump. Just a selection of fragments of squirreled away, plus an occasional instance of what the French call l’esprit d’escalier (the smart thing you think of as you’re walking back down the stairs.)

This is the first of such posts. I hope you’ll let me know whether you’d like more.

Bush Tax Cuts: GOP v. Obama

Congressional Republicans and the President agree that the Bush tax cuts for households with incomes at or below $250,000 should be extended. As you undoubtedly know, the Republicans want the tax cuts for high-income families extended too.

Among these is the current version of the estate tax — a whopping $10 million exemption for couples, plus lower rates on the rest. The President wants to extend it, but exempt a mere $7 million.

Don’t think Republicans are all for lower taxes, however. Unlike the President, they don’t want to extend the expanded versions of the Earned Income Tax Credit and Child Tax Credit that were originally part of the Recovery Act. Both of these benefit low and moderate-income working families.

A new brief from Citizens for Tax Justice shows the contrasting results. Needless to say, very high-earners would do far better under the Republican approach. All but the top 5% would do worse.

Disparities increase as you move down the income scale. The bottom fifth would pay $150 more next year if the Republicans have their way.

CTJ provides similar state-level breakdowns for average tax cuts residents would receive.

Here in the District of Columbia, the bottom fifth would pay $120 more under the Republican approach. Only the top 20% would do better.

The top 1% would do a whole lot better — tax breaks totaling an average of $116,850 more than under the President’s plan.

Another Thought on the Millionaire Threshold

As those who follow this blog know, I’m not on board with making most of the Bush tax cuts permanent, as both Congressional Republicans and the President have said they want to.

Presidential hopeful Mitt Romney as well, of course, but with some extra sweeteners for high-earners and some bitter pills for low-wage workers who are barely getting by.

Raising the “middle class” threshold to $1 million, as House Minority Leader Nancy Pelosi proposed, would make things worse. I’ve already given some of the reasons I think so. Here’s another — not tactical like Pelosi’s recent retreat.

The millionaire threshold reinforces the notion that only the wealthy should have to pay higher taxes than they do now. To borrow from former Senator Russell Long, “Don’t tax you. Don’t tax me. Tax the rich fellow behind the tree.”

Yet in the long run we’ll need more tax revenues — both to curb our rising debt and, as the Center for Economic and Policy Research notes, to invest more in areas crucial for economic growth, e.g., education, infrastructure, research and development.

We can’t look only to millionaires and to large corporations — another favorite villain these days. As Adam Davidson at NPR Planet Money has argued, the middle class will have to pay more too.

Some People’s Entitlements Are Better Than Others

Hardly a day goes by without some public pronouncement about costly entitlements. I’ve yet to see calls for curbs on the food stamp program, Social Security and/or Medicare also mention farm subsidies.

Yet they’re entitlements too. Mainly benefits to large farm businesses — and people who own farm land but don’t grow anything on it.

Both the Senate’s new Farm bill and the House Agriculture Committee’s version would eliminate automatic cash payments to farmers (and non-farmers). But they would expand insurance against lower profits.

Farmers who grow certain commodities, e.g., corn, wheat, would be guaranteed 85-90% of their previous five-year returns — unless, in the House version, they’d rather get another layer of protection against steep, multi-year declines.

What other type of business gets taxpayer-funded underwriting against market price drops? What makes this affordable, but not funding to preserve food stamp benefits for low-income people who depend on them now?

$366 Billion Gambit Puts Low-Income Programs at Greater Risk

I think House Minority Leader Nancy Pelosi is very smart and politically very shrewd. And she can generally be counted on for progressive leadership.

So I was surprised — and dismayed — when I read that she wanted the House to vote on an extension of the Bush tax cuts that would raise marginal tax rates only for millionaires (and billionaires, of course).

As you probably know, the Obama administration wants the top tax brackets for couples with incomes over $250,000 to revert to their pre-Bush rates.

About 2% of households would pay some fraction of their taxes at a 3% higher rate — and if they’re wealthy enough, another fraction at a 4.6% higher rate.

Now Pelosi sweeps into what the administration quite generously defines as the middle class taxpayers who earn four times as much.

Why would she do this?

Surely not because she buys into the Republicans’ purported defense of “job creators” — in this case, the small businesses who pay taxes at individual rather than corporate rates.

As Howard Gleckman at the Tax Policy Center wrote during the last tax cut kerfuffle, many of the relatively few who’d pay more if the top brackets reverted are doctors, lawyers and owners of a lot of real estate — hardly the seed beds for new jobs.

Might Pelosi have tried to ballpark the Occupy movement’s 99% versus 1% dichotomy? Under her proposal, about 99.9% of households would pay all their taxes at the current lower rates.

But, says Citizens for Tax Justice, millionaires would reap about 50% of the tax benefits if the threshold were raised as Pelosi proposes because they would pay at the lower rates for all their income up to $1 million.

Not their gross income, of course, but their salary income after all the exemptions, deductions, credits and the like that they can claim.

Most of their investment income would still be subject to the lower capital gains and long-term dividend rates, unless Congress decided against extending these.

Which it won’t because, among other things, higher rates would also hit middle class households, which everyone seems to agree should, at least for now, be protected.

Pelosi says the Democrats are trying to move the tax cut extension process forward.

More likely she’s trying to force House Republicans into voting against her proposal because, as she frames it, that would show they oppose “middle class tax relief” unless it’s “coupled with tax breaks for the wealthy that increase the deficit and do not grow the economy or create jobs.”

A nice talking point for the Congressional campaigns, but a highly problematic strategy.

Because once the Democratic leadership has drawn the line in the sand at $1 million, how will it back up from there?

Won’t negotiations instead proceed from that point — assuming Republicans are ultimately willing to negotiate on the brackets at all?

Not likely when they can hold all the tax cuts hostage — plus the “full faith and credit” of our government.

But say, for the sake of argument, that the Republicans were willing to accept the new $1 million threshold.

The extensions package would then save 44% less than the administration’s $250,000 threshold would achieve, according to Joint Tax Committee figures reported by the Center for Budget and Policy Priorities.

The administration’s savings are no great shakes — $829 billion over the first 10 years.

But $366 billion isn’t chump change, especially when Republicans and Democrats alike have made deficit reduction a top priority. So, as CBPP says, policymakers would go looking for more savings to make up the difference.

And where do we think they’d look? Not in defense, since members of both parties are already upset about the cuts imposed by the Budget Control Act.

Which takes the third largest chunk of the federal budget off the table — and by far the largest that Congress can tackle through annual appropriations.

Programs that benefit low-income people would thus be highly vulnerable — and indeed, will be if undeniably wealthy households are merged into the middle class our leaders are so eager to foster and protect.

Not, I trust, what Pelosi intends. Nor high-ranking Senator Charles Schumer, who’s long favored preserving the Bush tax cuts for households earning up to $1 million.

But it may be hard to put the genie back in the bottle now.