Today, thanks to Emancipation Day, which marks the end of slavery (but only in the District of Columbia, by Lincolnian signature), it's not too late to file your tax returns.
Since 1992, the IRS has analyzed the tax returns of the 400 highest income taxpayers. The average adjusted gross income of the 400 was $345 million in 2007, the latest year for which the analysis is available.
The top marginal tax rate is 35 percent (and was in 2007). And these fortunate families would hit the top bracket a few hours into the new year.
And yet, thanks to that analysis, we know that in 2007, the fortunate 400 paid an effective tax rate of just 16.6 percent. (Please pardon the act of class warfare of reporting this number. And please excuse the snotty, bolshie word "just" in that sentence.)
In 1992, the average effective tax rate of the 400 wealthiest was 26.4 percent.
Also, the share of all adjusted gross income received by those 400 families in 2007 was 1.59 percent (up triply — and yes, "triply" is a word) from 0.52 percent in 1992).
We won't know until 2015, I guess, but who wants to bet that in 2010, the top 400 earned an even larger share of total income and paid a lower effective tax rate?
By the way, according to David Cay Johnston, who covered tax matters for The New York Times for many years, the average American taxpayers in 2007 paid 22.5 percent of income in federal taxes. I believe these are not just income taxes, but all incomes, sales and payroll taxes). Still, since sales and payroll taxes would have no measureable impact on the annual tax bill of the $345 million a year set, it's safe to assume that the effective federal tax rate of an average American was substantially higher than the effective rate of the 400.
Johnson, by the way, in a snotty, bolshie aside, mentions that during the G.W. Bush years, the IRS still analyzed the richest 400 tax returns, but refused to make the anlysis public. Says Johnston, this was "a policy that the Obama administration overturned almost instantly after his inauguration."
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If we went back to the Clinton era tax rates this year we would have about $400 billion more in tax receipts. That would bring this year's deficit down to about $1.2 trillion dollars. Which is about three times the previous highest pre-Obama deficit (just over $400 billion) during 2008. Obviously the increase in receipts would make for a smaller number, especially if you don't think that this would have any effect on the overall economy.
But what do you do for that other $1.2 trillion? Wish it away? Raise taxes even higher? The 'People's Budget' that Ellison and others are talking about raises the top rates to nearly 50%. Add in state, local and other tax increases and you're certainly on the wrong side of the Laffer curve.
We have a *spending problem*. The small amounts of cutting that caused so much ire a few weeks back amounted to a drop in the ocean of red ink that we're currently wallowing in. So what are we going to cut? Anything? Or do we simply bury our heads in the sand and wish away the deficit?
As long as we're fantasizing...
If Congress had been smart enough to deny Bush the chance to piddle away the surplus Clinton left him, the situation would be entirely different. But, spilled milk...
What could we do now? End Bush's two misbegotten, pointless wars. Keep Obama from getting us into another one. End the oil depletion allowance and other corporate welfare that has the GEs of the world not only paying no taxes but collecting rebates from the IRS. End the offshoring of profits in the Caymans and elsewhere.
More fantasizing....
Will, back in 2007 we had a federal budget of about $2.7 trillion. Now, four years later, we're talking about a budget of $3.8 trillion. For comparison sake, the entire defense budget last year was $.66 trillion. That means we could *zero* out the defense budget entirely and still be spending about half a trillion dollars more than we did four years ago.
You may not know this but we have one of the highest corporate tax rates in the world. Companies like GE took big advantage of various green initiatives to drop their tax payments. Do you really think we should stop giving money to companies that play around with solar and wind power? I don't know how much additional money that would bring in but I'm willing to try it.
What was the percentage of total tax receipts paid by the top 400 in 1992 versus that paid in 2007?
The deficit of the past few years does not represent a sudden increase in spending. Revenue is down because unemployment is up and demand is down.
We have a recession problem.
Peder--
Most of GE's tax avoidance came not from green initiatives but from moving their profits to off shore affiliates.
And when you talk about the defense budget, do you mean the REAL budget (including the portions funding the Iraqi and Afghan wars that Bush moved 'off-budget'.
Actual war spending (little of it is defensive -- most I'd characterize as offensive) is quite a bit more than a trillion.
Mark, you've got it wrong. Spending made a huge jump in 2009 with various efforts to combat recession. And it simply hasn't gone back down. It's as if we're spending TARP, various bailouts and the big stimulus package every year. They were sold as one time emergency efforts, not recurring annual costs.
"Will, back in 2007 we had a federal budget of about $2.7 trillion. Now, four years later, we're talking about a budget of $3.8 trillion." - Peder DeFor
Peder, I know that. I agree with you that the Wall Street Bailout was yet another stupid Bush blunder, compounded by Obama's continuation of it. But let's look at that $2.7T budget of Bush's. You probably know, as Paul notes, that it didn't include Bush's "off budget" wars that were "funded" really dishonestly by means of "emergency resolutions" carried by those Deficit Hawks, the congressional republicans. Again as Paul notes, in ten years we've easily spent over a trillion dollars on those, the longest wars in our history.
We've had some other dumb wars, but at least they ended reasonably quickly. At least Obama had the guts to put them "on budget," and (I'm agreeing again), that does indeed make his budget look a lot worse than Bush's.
Used to be when this country went to war, it went to a war footing and raised revenue to pay for it, rather than put it on the credit card. That ended with Saint Reagan, and Bush was his adoring disciple.
Bush's 2007 budget was also $1T more than the last budget Bill Clinton sent to congress. You remember that one, right? The last federal budget that was BALANCED?
What happened in the interim? Well, Bush:
* Slashed taxes on the rich, twice.
* Started two wars that turned out to be even more wasteful and pointless than Saint Reagan's Lebanon, Grenada, and Panama. And, I kid you not, that's saying something.
* Passed an utterly misbegotten Medicare Part D prescription program that specifically prohibited the government from leveraging its huge bargaining power to minimize costs (WHY? Got an answer?). As a result it bleeds seniors (especially those who are inside the donut hole) while enriching insurance and drug companies with your tax money and mine. Which, of course, was the intention. Even the government analysts whose job it is to pay attention reported that part D was a windfall for those beneficiaries. They were silenced, of course, threatened with their jobs, etc.
What a surprise.
The highest corporate tax rates in the world? Man, give me a break! Name me a corporation that pays at that level. Go look up what rate they actually pay at, and then we can have a conversation.
At the end of the day, you sound like you think a deficit that took ten years to accumulate must be eliminated in one. Nonsense. Reasonable taxation along with targeted cuts (like those stupid wars)would put us on a path to eliminate the deficit and start paying down the debt, and actually do those things within our lifetime, unlike that ridiculous Ryan "path to perdition."
I have some more ideas, BTW.
* Restore taxes on the affluent by letting the Bush tax cuts expire on them.
* Reduce the deductibility of mortgage interest for wealthy homeowners.
* Cut subsidies for large, corporate absentee-owned farm operations.
* Close loopholes that prevent huge corporations from paying taxes
* Raise the cap on Social Security payroll taxes.
* Means testing for SS benefits.
* Restore the estate tax (and don't even start on that "oh my, we'll lose the family business" crap).
So, your question: "So what are we going to cut? Anything? Or do we simply bury our heads in the sand and wish away the deficit?"
See above.
Oh, and don't get me started on the Laffer Curve, unless you're prepared to defend the Malthus Curve as well. Laffer really is a laugher.
Paul Krugman has a good graph of total general government receipts as a function of GDP at
http://krugman.blogs.nytimes.com/2011/04/18/the-23-percent-solution-2/
Will, you've put a lot down there so let me respond in pieces. You've suggested that I'm trying to solve the deficit in one year, even though it took ten years to build. That's not even close to true. I'm simply trying to slow the bleeding. This will take a long time to get out of.
You mentioned repealing the tax cuts on the 'most affluent'. If you mean only those making above $250k then you've added $80 billion to the pot. That takes care of a full 5% of this year's deficit. Congratulations.
You've also made a big deal of our spending on wars. This year's defense budget in total is just over $600 billion dollars. We could zero it out and still be a trillion in the hole. Take a second and let that wash over you. If we *completely defunded* defense this year we would still be running a trillion dollar deficit. (Which isn't to say that the wars we're in aren't cause some budget problems. Well, one of these times Obama might keep his promise regarding troop levels in Iraq in Afghanistan. And hopefully he'll keep Libya from becoming a decade long problem. Fingers crossed!)
What else? Reducing the mortgage deduction? I'm completely on board with this as are most libertarian leaning conservatives. Good luck selling this on your side of the aisle. And I mean that sincerely, as this would help stabilize the housing market as well. I've got no idea how much revenue it would bring in, though I'm doubtful it would be much. You can put farm subsides in this category too but they only cost about $25 billion annually.
While we're at it, I'm fine with means testing social security. Obama isn't and I'd guess you'd find most of the Dem leadership afraid of it too. And from what I've read there isn't a lot of money there either.
I'm opposed to the estate tax for both philosophical and practical reasons but let me set those aside for hypothetical reasons. That gives you another $90 billion.
So these cuts give us a couple hundred billion dollars of cuts with a starting deficit of $1.6 trillion. Eliminate the defense department (which of course isn't really being advocated) and you've cut the deficit in half. That still leaves another $800 billion dollar deficit.
And of course corporate taxes. First of all, despite big headlines recently, US corporations are indeed paying taxes. They pay various payroll taxes, sales tax and property taxes. Since Libs want to count those when talking about the overall progressiveness of the tax code, it only seems fair to include them here.
You may not know this but the US really does have one of the highest corporate income taxes in the world. This drives multi-national companies to try and get their taxable income in other countries. Is this shady? Well, let me ask it this way, how many readers of this blog declined to take any deductions from their taxes this year? If you didn't take any, pat yourself on the back. If you did, then you are simply doing the same thing that the big guys are doing. Trying to minimize your taxes.
And this gets us to the Laffer curve that you want to dismiss. For some reason, people on the left can't get their head around the idea that people actually would change their behavior depending on the rewards and penalties attached to it. We have very high corporate tax rates. Companies that operate internationally try to avoid it. And they have the money to create large accounting departments that can help them.
This is one of the big problems with simply raising taxes on the rich. They are much more able to avoid them. Meanwhile the guy at the margin of the cut off gets the full measure. Target the big, rich corporations and you're much more likely to hit the small business owner.
Oh, no, Peder, not the poor small business owner thing again! I thought when Bachmann got scorched on that one that would be the end of it. Sigh.
Are you going to try "cut taxes, cut spending, do it for the kids" next? If we pay our own way, it's not going to cost them a nickel. And I suggest we do so.
You asked for ideas and now you have some of mine. I do have more, but I suspect you are less interested in them than you are in cutting our way out of the deficit--which, BTW, has even less of a chance of ever happening than growing our way out, another favorite of conservatives that has never happened, ever.
I don't share your pessimism about the various revenue enhancements. They are in fact doable, and some of the less ideological republicans are starting to think and talk about them. I don't get, however, why you think Obama is against Social Security means testing. I've never heard that before, his hiring of Peter Orszag stands in contradiction, and he actually proposed it for Medicare.
I see, however, that you and I have some common ground. That's good, and it may reflect the growing understanding that cuts-only is not going to work. In Minnesota, for example, republican legislators are finding out that to "balance" the budget with cuts alone, they are having to make red-faced arguments that the feds will once again come to the rescue, that cuts in state employee compensation will actually make a dent in the deficit, and that, even though property taxes have spiraled in the last decade under conservative fiscal policies, that surely won't happen again as they again slash local government aid.
It's nuts. Sooner or later, I keep thinking, they have to wake up.
I happen to think that the rich should pay their fair share, and that means paying at least the same percentage of their income as the rest of us do. Actually, because they benefit the most from what taxes buy, their percentage should be much higher. It was, once, and voila! they didn't flee the country, they didn't move all their jobs overseas, and they were fine with making ten times what their employees were paid. Unlike the revolting greed we see on every side today.
The rich are the only significant economic demographic that has not been asked to sacrifice to bring us out of this mess. It's time the pitched in with the rest of us.
The effective corporate tax rate is actually much smaller. Obviously if GE pays no taxes they are not too impacted by that terribly oppressive tax rate. In actuality the Bush tax cuts should expire and the rate raised again. When the wealth is rapidly being concentrated in those upper incomes, then tax rates should be going up. Instead, Republicans have those rates going down on the wealthy as the rate of all taxes on the rest of us has increased dramatically. As those tax rates have gone up they are also cutting services that benefit the middle class. How anyone can suggest that the wealthy deserve another 10% cut (as the recent Republican budget lays out) while their wealth along with the deficit is soaring is simply not at all concerned with balancing the budget.