WSJ OpEd: Get Ready for a 70% Marginal Tax Rate

[DougH 270]

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By MICHAEL J. BOSKIN

President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic "recovery" appearing more and more elusive, his timing couldn't be worse.

Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon.

The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers' share is ultimately shifted to workers in the form of lower wages.

But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.)

So, for a family in high-cost California taxed at the top federal rate, the expiration of the Bush tax cuts in 2013, the 0.9% increase in payroll taxes to fund ObamaCare, and the president's proposal to eventually uncap Social Security payroll taxes would lift its combined marginal tax rate to a stunning 58.4%.

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Martin Kozlowski
But wait, things get worse. As Milton Friedman taught decades ago, the true burden on taxpayers today is government spending; government borrowing requires future interest payments out of future taxes. To cover the Congressional Budget Office projection of Mr. Obama's $841 billion deficit in 2016 requires a 31.7% increase in all income tax rates (and that's assuming the Social Security income cap is removed). This raises the top rate to 52.2% and brings the total combined marginal tax rate to 68.8%. Government, in short, would take over two-thirds of any incremental earnings.

Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050. And that's before accounting for the Laffer effect, likely future interest costs, state deficits and the rising ratio of voters receiving government payments to those paying income taxes.

It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO's projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages. At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.

Nobody—rich, middle-income or poor—can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States—a permanent difference many times the temporary decline in the recent recession and anemic recovery.

Some argue the U.S. economy can easily bear higher pre-Reagan tax rates. They point to the 1930s-1950s, when top marginal rates were between 79% and 94%, or the Carter-era 1970s, when the top rate was about 70%. But those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today.

There were also greater opportunities for sheltering income from the income tax. The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.

There is only one solution to this growth-destroying, confiscatory tax-rate future: Control spending growth, especially of entitlements. Meaningful tax reform—not with higher rates as Mr. Obama proposes, but with lower rates on a broader base of economic activity and people—can be an especially effective complement to spending control. But without increased spending discipline, even the best tax reforms are doomed to be undone.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush

http://online.wsj.com/article/SB10001424052702304911104576443893352153776.html

"The restraining order says you're only allowed to touch me in freefall"
=P

[jclalor 12]

Clinton raised taxes, and what did we get?

"In 1993, President Clinton and Vice President Gore launched their economic strategy: (1) establishing fiscal discipline, eliminating the budget deficit, keeping interest rates low, and spurring private-sector investment; (2) investing in people through education, training, science, and research; and (3) opening foreign markets so American workers can compete abroad. After eight years, the results of President Clinton’s economic leadership are clear. Record budget deficits have become record surpluses, 22 million new jobs have been created, unemployment and core inflation are at their lowest levels in more than 30 years, and America is in the midst of the longest economic expansion in our history.

President Clinton’s Record on the Economy: In 1992, 10 million Americans were unemployed, the country faced record deficits, and poverty and welfare rolls were growing. Family incomes were losing ground to inflation and jobs were being created at the slowest rate since the Great Depression. Today, America enjoys what may be the strongest economy ever.

Strong Economic Growth: Since President Clinton and Vice President Gore took office, economic growth has averaged 4.0 percent per year, compared to average growth of 2.8 percent during the Reagan-Bush years. The economy has grown for 116 consecutive months, the most in history.
Most New Jobs Ever Created Under a Single Administration: The economy has created more than 22.5 million jobs in less than eight years—the most jobs ever created under a single administration, and more than were created in the previous 12 years. Of the total new jobs, 20.7 million, or 92 percent, are in the private sector.
Median Family Income Up $6,000 since 1993: Economic gains have been made across the spectrum as family incomes increased for all Americans. Since 1993, real median family income has increased by $6,338, from $42,612 in 1993 to $48,950 in 1999 (in 1999 dollars).
Unemployment at Its Lowest Level in More than 30 Years: Overall unemployment has dropped to the lowest level in more than 30 years, down from 6.9 percent in 1993 to just 4.0 percent in November 2000. The unemployment rate has been below 5 percent for 40 consecutive months. Unemployment for African Americans has fallen from 14.2 percent in 1992 to 7.3 percent in October 2000, the lowest rate on record. Unemployment for Hispanics has fallen from 11.8 percent in October 1992 to 5.0 percent in October 2000, also the lowest rate on record.
Lowest Inflation since the 1960s: Inflation is at the lowest rate since the Kennedy Administration, averaging 2.5 percent, and it is down from 4.7 percent during the previous administration.
Highest Homeownership Rate on Record: The homeownership rate reached 67.7 percent for the third quarter of 2000, the highest rate on record. In contrast, the homeownership rate fell from 65.6 percent in the first quarter of 1981 to 63.7 percent in the first quarter of 1993.
7 Million Fewer Americans Living in Poverty: The poverty rate has declined from 15.1 percent in 1993 to 11.8 percent last year, the largest six-year drop in poverty in nearly 30 years. There are now 7 million fewer people in poverty than there were in 1993.
Establishing Fiscal Discipline and Paying off the National Debt

President Clinton’s Record on Fiscal Discipline: Between 1981 and 1992, the national debt held by the public quadrupled. The annual budget deficit grew to $290 billion in 1992, the largest ever, and was projected to grow to more than $455 billion by Fiscal Year (FY) 2000. As a result of the tough and sometimes unpopular choices made by President Clinton, and major deficit reduction legislation passed in 1993 and 1997, we have seen eight consecutive years of fiscal improvement for the first time in America’s history.

Largest Surplus Ever: The surplus in FY 2000 is $237 billion—the third consecutive surplus and the largest surplus ever.
Largest Three-Year Debt Pay-Down Ever: Between 1998-2000, the publicly held debt was reduced by $363 billion—the largest three-year pay-down in American history. Under Presidents Reagan and Bush, the debt held by the public quadrupled. Under the Clinton-Gore budget, we are on track to pay off the entire publicly held debt on a net basis by 2009.
Lower Federal Government Spending: After increasing under the previous two administrations, federal government spending as a share of the economy has been cut from 22.2 percent in 1992 to 18 percent in 2000—the lowest level since 1966.
Reduced Interest Payments on the Debt: In 1993, the net interest payments on the debt held by the public were projected to grow to $348 billion in FY 2000. In 2000, interest payments on the debt were $125 billion lower than projected.
Americans Benefit from Reduced Debt: Because of fiscal discipline and deficit and debt reduction, it is estimated that a family with a home mortgage of $100,000 might expect to save roughly $2,000 per year in mortgage payments, like a large tax cut.
Double Digit Growth in Private Investment in Equipment and Software: Lower debt will help maintain strong economic growth and fuel private investments. With government no longer draining resources out of capital markets, private investment in equipment and software averaged 13.3 percent annual growth since 1993, compared to 4.7 percent during 1981 to 1992".

We have now had 10 years of the Bush tax cuts, Hows that working out for ya?

[billvon 2,991]

Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

[Channman 2]

> "We have now had 10 years of the Bush tax cuts, Hows that working out for ya?"

Very, Very well thank you. I'm looking forward to several more years of tax cuts. Nice to have all that extra money in the old pocket were it belongs.

Now back to my Self Imposed Banning.

[DougH 270]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Why debate an argument on its merits when you can dismiss it based on its source....


YEAAARARRRRRRRRRRRRRRRGHHHHHHHHH... speakers corner!!!!!!!!!!!!

"The restraining order says you're only allowed to touch me in freefall"
=P

[billvon 2,991]

>Why debate an argument on its merits when you can dismiss it based on its source.

No need. These two statements alone are enough to dismiss it:

"Get Ready for a 70% Marginal Tax Rate"
"The current top federal rate of 35% is scheduled to rise to 39.6% in 2013."

That's his "proof" - and he then even screws that up by trying to redefine the term "marginal." When the author contradicts even himself, he's easy to dismiss as yet another fact-free Obama-hater.

[dreamdancer 0]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Why debate an argument on its merits when you can dismiss it based on its source....


YEAAARARRRRRRRRRRRRRRRGHHHHHHHHH... speakers corner!!!!!!!!!!!!

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Wow a news article about medicare for all, on a political action groups website who promotes universal healthcare.

That right there some stellar fact finding, no bias in that article.

Here is the bio on the author: "Johnathon Ross, M.D., M.P.H., is past president of Physicians for a National Health Program and an executive committee member of the Single Payer Action Network in Ohio (www.spanohio.org)"

http://www.dropzone.com/cgi-bin/forum/gforum.cgi?post=4157236;sb=post_latest_reply;so=ASC;forum_view=forum_view_collapsed;;page=unread#unread

stay away from moving propellers - they bite
blue skies from thai sky adventures
good solid response-provoking keyboarding

[kelpdiver 2]

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That's his "proof" - and he then even screws that up by trying to redefine the term "marginal."

Another questionable math tactic he used was to say that the payroll tax is 15.3% - on the premise that the employer portion would otherwise have gone to the salary. But even if you accept that as true, the extra 7.65% would come out of 107.65% salary, not 100% as used in his calculations.

[DougH 270]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Why debate an argument on its merits when you can dismiss it based on its source....


YEAAARARRRRRRRRRRRRRRRGHHHHHHHHH... speakers corner!!!!!!!!!!!!

Quote

Wow a news article about medicare for all, on a political action groups website who promotes universal healthcare.

That right there some stellar fact finding, no bias in that article.

Here is the bio on the author: "Johnathon Ross, M.D., M.P.H., is past president of Physicians for a National Health Program and an executive committee member of the Single Payer Action Network in Ohio (www.spanohio.org)"

http://www.dropzone.com/cgi-bin/forum/gforum.cgi?post=4157236;sb=post_latest_reply;so=ASC;forum_view=forum_view_collapsed;;page=unread#unread

You will note that I had plenty to debate and post in that thread.

Go bitch about rich people and bankers some more if you have nothing to add.

"The restraining order says you're only allowed to touch me in freefall"
=P

[kallend 2,026]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Why debate an argument on its merits when you can dismiss it based on its source....

Because that particular source has proven to have no reliability.

Rather like the testimony of proven liars is disregarded in court.

...

The only sure way to survive a canopy collision is not to have one.

[DougH 270]

You must be right Kallend, because what we are all doing here is so damn important, like giving testimony in court.

You guys are a trip.

"The restraining order says you're only allowed to touch me in freefall"
=P

[kallend 2,026]

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You must be right Kallend, because what we are all doing here is so damn important, like giving testimony in court.

You guys are a trip.

Its importance and its reliability are uncorrelated. The source is unreliable - period.

...

The only sure way to survive a canopy collision is not to have one.

[Bolas 5]

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>Why debate an argument on its merits when you can dismiss it based on its source.

No need. These two statements alone are enough to dismiss it:

"Get Ready for a 70% Marginal Tax Rate"
"The current top federal rate of 35% is scheduled to rise to 39.6% in 2013."

That's his "proof" - and he then even screws that up by trying to redefine the term "marginal." When the author contradicts even himself, he's easy to dismiss as yet another fact-free Obama-hater.

Even if the calculations are wrong, once you add in sales taxes on items, property taxes, etc. It probably is at 70%.

That said the Bush tax cuts do need to be allowed to expire.

If the income cap was removed on social security, would the benefits cap be remove as well?

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[mnealtx 0]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Huh. Trying to use the venue to discount the message. Who woulda thunk it?

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[champu 1]

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You will note that I had plenty to debate and post in that thread.

Go bitch about rich people and bankers some more if you have nothing to add.

Doug, the article is garbage.

He includes both sides of FICA, he adds in the highest CA marginal tax rate (which kicks in at $1M btw, our brackets are hilarious, it's 9.5% from $50K to $1M and then 10.5% after $1M ), and he rounds up a couple times to get to 70%.

A flatter tax across the board will not be helpful and nor will a top marginal bracket of 70%. What he claims is the imminent situation and what he claims is the solution are both wrong. Luckily he's fear mongering and we're probably actually headed to somewhere in the middle, more similar to Clinton era taxes.

[mnealtx 0]

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Strong Economic Growth: Since President Clinton and Vice President Gore took office, economic growth has averaged 4.0 percent per year,

This was AFTER the 97 capital gains tax cut.

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compared to average growth of 2.8 percent during the Reagan-Bush years.

This was before the 97 cut and included Clinton.

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We have now had 10 years of the Bush tax cuts, Hows that working out for ya?

Worked pretty well for the first 7 years...then the Dems took over and tripled the deficit the first year, and quadrupled *that* the next.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[jclalor 12]

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We have now had 10 years of the Bush tax cuts, Hows that working out for ya?

Worked pretty well for the first 7 years...then the Dems took over and tripled the deficit the first year, and quadrupled *that* the next.

[rehmwa 2]

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he's easy to dismiss as yet another fact-free Obama-hater.

perhaps he's just lazy

or a product of public schools

or just a really bad journalist

(all of this is separate from some deep political motivation)

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[Amazon 7]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Huh. Trying to use the venue to discount the message. Who woulda thunk it?

You are the KING of it MIKEE...you discount the message all the time

Unless the source is PULPIT APPROVED from the HIGH PRIEST MURDOCH

[mnealtx 0]

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Huh. Disgraced right wing news mogul Rupert Murdoch has an editorial published critical of Obama. Who woulda thunk it?

Huh. Trying to use the venue to discount the message. Who woulda thunk it?

You are the KING of it MIKEE...you discount the message all the time

Unless the source is PULPIT APPROVED from the HIGH PRIEST MURDOCH

Must be mirror time again, since you've posted more Fox links than I have.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[idrankwhat 0]

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Worked pretty well for the first 7 years...then the Dems took over and tripled the deficit the first year, and quadrupled *that* the next.

That's how it works. You party on the credit card and THEN you get the bill. It goes like this:

Bush years-

"Hey, we've got a budget surplus so here's a check!"

"Let's start two wars and finance them off budget"

"Hey, how about tax cut to go with those wars?"

"Let's grow the size of our federal government more than any President since FDR...and let's throw in another tax cut while we're at it."

"Time for some "compassion", how about mandating that everyone using medicare has to pay retail for their drugs....better not try to get a bulk discount or I'll veto it!"

"Hey, let's fly billions in cash into a war zone and throw a bunch of it out of the back of a truck. No worries, I have a bunch of young, inexperienced campaign supporters who will oversee it all."

"Hey Congress, I like over-achievers. Why don't you set a record for both number and amount of earmarks! Don't worry, I won't veto anything."

"Bids? We don't need no stinkin' bids! Just tell me what you spent and I'll include a nice fat tip."

"Hey Wall St., I have NO f'n clue what you guys are up to and I don't really care. You look happy though so party on! I'll make sure that the SEC doesn't get in your way."

(bills start filling the mail box)

"Hey there President #44, here are the keys to the White House. Hope you like the new digs. Sorry about the mess.

[mnealtx 0]

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Worked pretty well for the first 7 years...then the Dems took over and tripled the deficit the first year, and quadrupled *that* the next.

That's how it works. You party on the credit card and THEN you get the bill.

Except it doesn't. Makes a nice 'soundbite' post, I'll give you that much.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[idrankwhat 0]

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Except it doesn't. Makes a nice 'soundbite' post, I'll give you that much.

What's this? More "conservative" accounting methods that I don't understand? Wouldn't be the first time.

For example, currently I'm trying to figure out the "conservative" reasoning behind shutting down the FAA (at a cost of thousands of jobs and $200 million/WEEK in lost tax revenue) under the notion of saving $200 million/YEAR in subsidies (and some obligatory union bashing). Why is it that when "conservatives" say they want to create jobs and save money that it ends up with higher unemployment and lost revenue? More fuzzy math I guess. I suppose that will be Obama's fault too.

I don't think this country can afford any more rescuing by the Republican minority....but I suppose I've digressed enough for one post.

[mnealtx 0]

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but I suppose I've digressed enough for one post.

You get full marks for the Dem talking points, though.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[idrankwhat 0]

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but I suppose I've digressed enough for one post.

You get full marks for the Dem talking points, though.

You're right. All of those numbers and facts used to make a point. I'm beginning to think I'm a liberal.