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Taxes, the Deficit and the Economy

EDITORIAL: September 21, 2011

           

Republicans, predictably, are denouncing President Obama’s proposal to raise taxes on wealthy Americans and corporations to help wrestle down the nation’s budget deficit and pay for his job creation plan.

There was the usual silly talk about class warfare against the rich. Rick Perry said the president’s plan “penalizes investment when it is needed most.” Mitt Romney blasted the plan’s “crushing impact on economic growth.” A spokesman for John Boehner, the House speaker, called it a collection of “job-killing small-business tax hikes.”

Americans need to take a close look at what Mr. Obama is calling for:

HIGHER TAXES FOR THE RICH The Obama plan would allow the Bush tax cuts for the wealthiest Americans — individuals earning more than $200,000 a year and households earning more than $250,000 — to expire at the end of 2012. That would restore the top two marginal tax rates to 36 percent and 39.6 percent, up from 33 percent and 35 percent today. It would also restore the estate tax, which vanished completely in 2010, and raise the capital gains tax on wealthy individuals from 15 percent to 20 percent.

The full Bush-era tax cuts were the single biggest contributor to the deficit over the past decade, reducing revenues by about $1.8 trillion between 2002 and 2009. The White House estimates that Mr. Obama’s plan would raise $866 billion over the next decade, or nearly half of that.

As for the supposed job-killing effects, President Bill Clinton raised tax rates to where Mr. Obama wants to restore them now, and the economy grew faster and added many more jobs during those eight years than it did after President George W. Bush slashed taxes across the board.

Republicans’ main claim is that the higher rates will penalize small businesses that file as individuals. But only about 2.5 percent of all small-business owners earn enough to be taxed at the top two rates, according to the Treasury’s Office of Tax Analysis. Even more important, the argument ignores the fact that the higher income tax rate would apply to business profits, not revenues. Small businesses would still be able to deduct or amortize payrolls and investments.

Critics also claim that raising the capital gains rate would hamstring investment. The truth is that despite the current low tax rates, American businesses — small and big — are investing very little. Business surveys show that the main reason is that there are very few customers with money to buy their products.

THE ‘BUFFETT RULE’ President Obama has said that tax reform should follow the principle that no household making $1 million or more should pay a smaller share of its income in taxes than a middle-class family. Republicans say this is an act of “class warfare.” But it is clearly unjust to have a tax system that, today, allows 22,000 households earning more than $1 million to pay less than 15 percent of their income in federal income and payroll taxes — less than half of what a middle-class family pays.

Allowing the Bush-era tax cuts for the wealthy to expire would go some way in this direction. So would his proposal to require managers of hedge funds, private equity funds and other investment vehicles to pay standard income taxes on their pay, rather than paying at the much lower capital gains rate.

CAPPING DEDUCTIONS FOR THE WEALTHY Many wealthy Americans reap bigger gains from their tax deductions — of mortgage payments, charitable contributions and the like — than the middle class. Taxed at the top marginal rate of 35 percent, they get back 35 cents out of every dollar of authorized deductions. Middle-class filers, who pay a marginal rate of 28 percent, get only 28 cents back.

The president’s proposal would cap the benefit at 28 percent for wealthy taxpayers, raising about $410 billion over 10 years, according to the White House. The idea tracks those proposed by Martin Feldstein, Glenn Hubbard and Greg Mankiw, top economic advisers to Presidents Ronald Reagan and George W. Bush.

CORPORATE LOOPHOLES Mr. Obama is also calling for eliminating unnecessary tax breaks and subsidies for oil companies, the coal industry and others to raise about $300 billion over 10 years. That is drawing fierce criticism from Republicans eager to shield big campaign donors. These scams need to go.

Mr. Obama was right when he told Congress that the country has choices to make. “Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs? Right now, we can’t afford to do both.” His argument is sound, and so is the economics behind it.

Only the rich need apply.

By TAMAR LEWIN

September 21, 2011

Money is talking a bit louder in college admissions these days, according to a survey to be released Wednesday by Inside Higher Ed, an online publication for higher education professionals.

More than half of the admissions officers at public research universities, and more than a third at four-year colleges said that they had been working harder in the past year to recruit students who need no financial aid and can pay full price, according to the survey of 462 admissions directors and enrollment managers conducted in August and early September.

In the survey, 10 percent of the admissions directors at four-year colleges — and almost 20 percent at private liberal-arts schools — said that the full-pay students they were admitting, on average, had lower grades and test scores than other admitted applicants.

At many colleges and universities, the survey found, whom you know does matter. More than a quarter of the admissions directors said they had felt pressure from senior-level administrators to admit certain applicants, and almost a quarter got pressure from trustees or development officers.

Admissions directors at many public universities said in the survey that recruiting more out-of-state and international students, who pay higher tuition, was their top strategy.

America's Future: Hard decade or bad century.

By THOMAS L. FRIEDMAN

September 20, 2011

           

It becomes clearer every week that our country faces a big choice: We can either have a hard decade or a bad century.

We can either roll up our sleeves and do what’s needed to overcome our post-cold war excesses and adapt to the demands of the 21st century or we can just keep limping into the future.

The three elements that any serious recovery plan must have are: spending cuts, increases in revenues and investments in the sources of our strength.

The Republicans have come nowhere near rising to our three-part challenge because the G.O.P. has been captured by a radical antitax wing, and the party’s leaders are too afraid to challenge it.

We cannot just be about cutting. We also need to be investing in the sources of our greatness: infrastructure, education, immigration and government-funded research. We cannot maintain our vital defense budget without an appropriate tax base.

Countries that don’t invest in the future tend to not do well there.

Thomas Friedman is a NY Times columnist and co-author of  “That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back” which was published earlier this month.

Social Security: A Simple Solution

By Robert Reich,      September 9, 2011

Until last year, Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government. Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.

The reason there could be a problem 26 years from now is widening inequality. Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling — now $106,800.

Raising the ceiling on income hit by the payroll tax would restore balance to the system and make it solvent for the long term.

In 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. Today, though, the Social Security payroll tax hits only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

To return to 90 percent, the ceiling on income subject to the Social Security tax has to be raised to $180,000. Do that, and Social Security would be fully solvent over the long term.

Social Security isn't a Ponzi scheme, but it is vulnerable to widening inequality. The logical response to the increasing concentration of income at the top is simply to raise the ceiling.

Robert Reich, a professor at the Goldman School of Public Policy at the University of California at Berkeley, was secretary of labor in the Clinton administration. He is the author, most recently, of "Aftershock: The Next Economy and America's Future," and he blogs at robertreich.org.

Class warfare? Try simple arithmetic.

How far below zero should corporate taxation go?

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