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Tax the Rich and the Corporations – The Hard Math

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Our current federal fiscal accounts are out of balance by about $800B per year right now and we are not paying a dime for SS. When the bill comes due on SS (about 5-10 years) and the full cost of Obama care kicks in they will add about another $500B – 700B per year in costs.

We take in about $1.3T per year (not counting SS). To simply stop the growth of the deficit we need to double that. Since we only tax half the population that means that about 35M tax payers must pay the bill. You do the math. The tax increase would double to triple the average taxpayer’s federal income tax.

Yes, we can tax the rich more. Mr. Obama has proposed an increase of 4% in the marginal tax rate of those making over $350K yielding about $70B over the next ten years ($7B per year) Your can see how little of the deficit that would pay.

Now we can tax corporations. We currently tax between 15 and 35% - the latter the second highest in the industrial world. Last year that yielded about $200B (included in the revenue figure above). We could increase it. The recent high is the equivalent of about $500B annually today. Of course, most of the problem is in the tax breaks we have given those corporations. WE could take them all away. The first thing that would happen is that all the public policy initiatives that led to those tax breaks would be unfunded so that if we still wanted to do them the cost would be born by the taxpayers already trying to cover the existent imbalance. In fact, it is most likely that any corporate tax increase will be passed on to the consumer either in product cost increases or in increases in the social safety net to cover the existent jobs that those corporations take offshore to avoid our taxes.

Therefore, if we more than double effective taxes on corporations to the recent high and tax the rich as Mr. Obama has suggested we only have to accommodate a shortfall of about $1T per year. Now how much of that $1T a year should be paid by the 35M taxpayers? The rest must come from cuts. Note that the imbalance equals the SS shortfall and Obama care. Maybe we should have banked the SS trust fund or not added the entitlement to Obama Care. We knew the costs and the math is as it is and was.

Remember, in the above analysis not one dime is being used to cut the existent $14T deficit. Now I can be off in my analysis so I challenge anybody to come up with better numbers. What I suspect is a bunch of platitudes ignoring the hard reality or a deafening silence.

Perhaps it is this math that is bothering the credit rating agencies?? If after all the fuss we just went through we could only find something between $1 and 3T in real cuts over the next ten years and the only revenue enhancement on the table might have yielded upwards of $80B in that same period, when we need about $10T, maybe they have cause to do what they are doing??

Comments

George Lippencott 2 years, 8 months ago

Thank you Jafs. I will, of course, comment on anything you post. I appreciate your opinion on my style. I do not share it. You seem to have a problem when I do not agree with you - that seems to be your definition of confrontational. You do not seem to have a problem confronting others with whom you do not agree??

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jafs 2 years, 8 months ago

George, this one's for you.

It's too bad that the irony of your sending me a confrontational private message via e-mail as an attempt to argue that you're not overly aggressive will probably be lost on you.

Since you have made this personal, I will have to regretfully ask you not to send me any more private messages, and not to respond to my posts any longer.

For some reason, you seem to want to get into a fight with me, and I'm not interested in that.

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heygary 2 years, 8 months ago

Obama's doing great!

Washington Post ... The recent report written by the White House’s Council of Economic Advisors, a group of three economists who were all handpicked by Obama, chronicles the alleged success of the “stimulus” in adding or saving jobs. The council reports that, using “mainstream estimates of economic multipliers for the effects of fiscal stimulus” (which it describes as a “natural way to estimate the effects of” the legislation), the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job.

In other words, the government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the “stimulus,” and taxpayers would have come out $427 billion ahead.

Any wonder why his team of "economic advisors" have been jumping ship?

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Centerville 2 years, 8 months ago

I"m still not getting the feed-the-government-first thing. I must be too libertarian for this place.

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George Lippencott 2 years, 8 months ago

llama

And where did I accuse you of that??

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llama726 2 years, 8 months ago

"Now we can tax corporations. We currently tax between 15 and 35% - the latter the second highest in the industrial world."

Corporations pulled in $1.659 trillion in 3rd Quarter of 2010. http://www.nytimes.com/2010/11/24/business/economy/24econ.html

We taxed corporations in a year for 12% of what they profited in a quarter. A 15% annual rate isn't accurate, or even close to accurate. Assuming corporations profited only $4 trillion last year overall, even taxing corporate taxes at a flat 25% would bring in one trillion dollars.

Instead of increasing marginal tax rates, solely, we should probably do away with loopholes, more gentle taxes on stocks and dividends, etc.

Nah. Let's just blame Obama. Good call.

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Jimo 2 years, 8 months ago

It's important to remember who Adam Smith, founder of capitalism, believed were the "wealth creators."

Smith criticized those with the "disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition.”

Smith aid, this disposition colors the way we view the world, and leads us to conflate wealth and greatness with virtue and poverty and weakness with vice.

You need only to look at this pages to identify those who would lick the sole of a billionaires shoes, thinking him the superior man.

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Jimo 2 years, 8 months ago

Here is a chart showing how the various tax burdens at the federal level have changed in the post war era: http://graphics.thomsonreuters.com/F/12/US_TAXGDP1210.gif

Big Take-aways:

  1. Federal tax revenues haven't been this low since Truman. It is an obscenity that there is any discussion of cutting programs for the poor, the needy, the unemployed, children, or the elderly before tax revenues are increased to their historic levels plus the higher level that an aging population unavoidably requires.

  2. Income taxes are falling, particularly corporate income taxes (despite all the squawking about how "high"(!!) they are). This isn't just unsustainable. We have reached the moment where it cannot be sustained at all any longer. If some GOP Congressman was enough a fool to sign a 'no tax' pledge back when the Treasury was running surpluses that Congressman is about to be turned into a pledge-breaker or an ex-Congressman.

  3. The most regressive tax of all - taxes on employment - has exploded. This alone puts paid to your lie this morning about how only half the population pays taxes. Democrats should immediately put forward legislation to end all employment taxes paid by employers and make significant cuts in the rates for the employees, and replace them with a carbon tax (with a refundable(!) credit back to the poor), with a goal of being revenue-neutral to the average income household (roughly $50k). That is, almost all the burden would fall on 6-figure income households after the below $50k folks get compensated with their tax credits.

  4. Estate and gift taxes have shrunk from being a material contributor to the Treasury to being non-existent. Often referred to as "death" taxes, if they aren't reinstated, it's fair to say their absence will be the "death" of us (which is why I included their reimposition in my debt solution). Typical middle class people never did have to pay these taxes and their elimination was a classic example of welfare for the wealthy being sold as a benefit to average people when it was objectively not.

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Jimo 2 years, 8 months ago

Here is a brief item from the Economist: http://www.economist.com/blogs/democracyinamerica/2011/08/stimulus-thinking?fsrc=rss

It discusses the astonishing George Lipponcott like claim by an important Tea Party official arguing that we shouldn't be cutting military spending because such spending serves as an economic stimulus, without which economic activity would decline and jobs would be lost.

If you're gob-smacked, you're not alone.

It's unclear why the Tea Party thinks building aircraft carriers has magical powers to employ people but building bridges (and roads and sewer systems and teaching kids and researching diseases, etc., etc., etc.) does not. (What's more, an aircraft carrier isn't exactly a productive asset.)

GDP (economic production) is so easy to understand that a junior high student could follow along. It's as easy as A plus B plus C, where: A = consumer spending (that's you) B = business spending (that LJW) C = government spending

Now if A falls off and B falls off, the only way GDP doesn't fall--that we are all poorer--is if C goes up to make up the difference. A+B+C=GDP That a "moderate" makes this into a questionable proposition, a controversy, makes as much sense as saying that gravity is dubious. Or that GDP is more difficult to understand than the pixies that makes the magic pictures spark with life on your television screen.

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gvnobas 2 years, 8 months ago

Let's go ahead and send the nation into an economic oblivion. I like how you guys sit here pontificating about economics while the Dow is sinking into the toilet.

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usnsnp 2 years, 8 months ago

Social Security is solvent for the next 25 years, the money for social security does not come from the governments general fund, it comes from the Social Security Tax fund so at present it does not add one dollar to the defisit. Yes military spending needs to be cut, but watch, most of the cuts will come from pay and benifits just like everytime there has been major cuts in the military. Why do you think the military gets big boneses for some jobs, ask the military people that have been to our two ongoing wars 4 or more times. If you want a voluntary military you are going to pay high personnel costs, if you dont we will not have enough people to sign up. I know a large number of people would not like to go back to the draft, then they might have to do something for the country.

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Jimo 2 years, 8 months ago

George -- instead of fuming at how quickly your agenda (there's no point in taxing wealth as it won't solve all our problems) got skewered, why don't you go to that NYT interactive site, play with the numbers, and present some alternative budget balancing scenarios?

Much like the Tea Party on the economy or Republicans on immigration, it's almost as if you don't want to solve anything at all.

I think you'll find that my point is inescapable -- Armageddon isn't required to solve our problems. They are quite manageable so long as you don't refuse all approaches except the obvious ones.

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George Lippencott 2 years, 8 months ago

Jimo(anonymous)replies…

The NYT does not agree with you "on the size of the problem" but rather disagrees with you on the ease of solutions ..."

Wow. Thank you for making that so simple. My SS, military retirement, Medicare, VA benefits, taxation level and all the rest are not needed to balance the budget. You are magnificient.

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George Lippencott 2 years, 8 months ago

Yes we need revenue enhancements. Whjat part of restoring the Reagan tax rates for the rich did you not understand?? Doing that actually helps not hurting innocent people. Remember increasing taxes on the middle hurts the middle a big increase hurts a lot

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George Lippencott 2 years, 8 months ago

Response to Jafs:

It is interesting how we read each other. I have never advocated not cutting Defense. I support rational cuts in Defense. What I did advocate is changing our national strategy so that there is not a resource disconnect between what we fund and what we claim we will do with the forces we buy. Needs to be consistent. That was my reference to Bataan. We continued to have far pacific ambitions while not funding the Navy sufficiently to support those ambitions – and the troops (not the leaders) paid for it. What I did observe is that it takes time to downscale Defense. (Cutting bases for instants must go through a congressionally mandated process that delays closing and reaping any savings for closings for quite a period). I might observe there are many more suggestions for cuts on the NYT link that are not in Defense.

As to SS. We must cut it in some manner. JIMO’s link has many suggestions short of killing it. I have helped advocate some of those suggestions in the past with our Congressional people.

Why is it that everything posted here seems to be at extremes???

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jayhawklawrence 2 years, 8 months ago

The argument has now expanded beyond this level. We are now questioning our system of government. During the Great Depression, a lot of radical political groups sprouted in this country. If conditions get worse and the Republicans cut away all of our social safety nets, we will see the same kind of political upheaval.

We are heading toward some serious discussions about the constitution itself, because we are not going to be able to compete in the global economy or solve the major problems facing us in the near future if we continue down this road. You can only kick the can down the road for so long and time is not on our side.

The political parties have demonstrated very convincingly that the system is in need of serious repairs and a major house cleaning in federal and state legislatures.

What they call politics today is the worst way to manage our nations resources. At this rate, we cannot stand against global competition or take care of the American people.

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heygary 2 years, 8 months ago

“I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”

Warren Buffett

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George Lippencott 2 years, 8 months ago

jafs(anonymous)replies… "Nope. I'm not a communist. We have a massive financial problem, and I want to solve it without hurting people, if possible."

I am not advocating that either. But I have problems with the simplistic notion we can fix this problem without pain. Go use Jimo's link and pick your poison. We do not have to kill any of the social safety net programs but we can not tax our way out either.

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usnsnp 2 years, 8 months ago

Here is a question. Why did the Republicans when they cut money to NPR say every little bit helps. No uping the tax on the rich will not solve all the problem , but every little bit helps. I sure that a person clearing say $500,000 and taxed another 4% on it, their life style will not be affected.

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Jimo 2 years, 8 months ago

While these numbers are all projections, we need roughly $418B in 2015 and $1,345B by 2030. This assumes an improved recovery. It cannot be said often enough: if we don’t get unemployed people back to work there is no scenario for balancing the budget or even reducing debt. (Remember the ironic contradiction the next time someone points out that Congress refuses to put forward any jobs bill, while busy debating “debt reduction.” It costs the nation far(!) more money to have unemployed than it costs to get them back to work.)

Here is one of multiple solutions to this puzzle: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html?choices=419345n1

Such a solution matches $2 in spending cuts with $1 in tax revenues. The burden of cuts falls mostly on the Porkagon and reduces our military empire to its constitutional limitations and its historic levels. The burden of tax increases falls mostly on the wealthy, primarily by returning tax policy to what existed in the Clinton era. The budget balances in both 2015 and 2030 (indeed, runs a surplus) but I would not want to balance the budget in 2015 at all. Doing so both ignores immediate necessities and would have a contractionary effect on growth.

Balancing the budget is easy. It’s so easy a Democrat could do it – and did, just a decade ago. Just begin at that known, safe place and then look to what changed since. You’ll find all the adjustments you need—and more—right there. The only people who want to pretend that it is difficult are those seeking radical revolution (certainly not conservatives!) and seeking to protect the wealthy from paying their proportionate share.

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Jimo 2 years, 8 months ago

Where to begin!

"Our current federal fiscal accounts are out of balance by about $800B per year right now" - false. "and we are not paying a dime for SS" - false. "the full cost of Obama care kicks in they will add about another $500B – 700B per year in costs." - false, liar, liar, pants on fire! "we only tax half the population" - false, you've been fined for excessively repeating fake propaganda "The tax increase would double to triple the average taxpayer’s federal income tax." - false - good God, just how wrong can wrong be?

Gee, let's just stop. If all of your premises are false then you'll never make it to the truth.

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Ken Lassman 2 years, 8 months ago

What I don't understand is the economics of the European Union--can anyone explain why the biggest EU economic power---Germany--has strong unions, more paid vacation than Greek workers, a high tax rate for both individuals and corporations, and somehow manages to produce enough of an economic surplus to drive the Euro and avoid economic hard times while Italy, the 3rd biggest economic producer, is facing economic austerity measures that include slashing government programs, privatization of services, gutting worker benefits, etc.? And what does all of this say about the American economy?

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Roland Gunslinger 2 years, 8 months ago

Good link here showing that corporate taxes, as a percentage of GDP, are at near historic lows. During the 50's this tax rate was averaged 4.7% of GDP. Between 2000-2009 that average was 1.9%

The average corporate tax rate between 2000-2005 was a mere 13.4%.

http://www.cbpp.org/cms/index.cfm?fa=view&id=3411

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Jan Rolls 2 years, 8 months ago

Exon and other oil companies just recorded big profits again and we are giving them tax breaks. Give us a break.

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George Lippencott 2 years, 8 months ago

Response to Jafs

All that is well and good but how much do we increases taxes on the middle. One number floating around in Democratic circles (do not know if it is a party position) is that we should raise one dollar in revenue for every three dollars in cuts. That means a 50% tax increase on the middle class. That is far more than ending the “Bush” tax cuts.

Added to the increase would be the diversion of income to replace cuts to SS, Medicare, Medicaid, Obama Care and all the rest of the “middle class” entitlements. That could be made worse if we hold the bottom half of the population harmless in our cuts and only ask an additional 4% from the rich.

Perhaps it is the reality of the potential impact on the middle class that has riled up the original “Tea Party” demonstrators (before that party was captured by the business community).

All in all a very bleak future particularly when one realizes (as many on here do not) that the vast majority of Americans really did not benefit substantially from the excesses of the past several decades. The real winners – yep – the rich (top 5%).

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Steven Gaudreau 2 years, 8 months ago

Major corporations have bought and paid our lawmakers. In our current corrupt system, any law maker who challenges big business will have no support from fellow elected officials. From the president down, big business interest comes first, the people second.

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jafs 2 years, 8 months ago

They absolutely have cause to do what they did - we don't have anything remotely resembling a sustainable economic plan in place.

And, we absolutely should have saved the SS surpluses - that would have helped a lot.

Lastly, no reasonable people think we can just tax our way out - they think we need to both cut spending and raise revenue. I don't understand why people get so polarized about this one.

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