Browsing the blog archivesfor the day Tuesday, December 29th, 2015.


Taxes and 2016: Some Choices

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Obama Administration, Republican Party, Taxes

Although this won’t surprise most of you, do read the in-depth feature in the New York Times about how the mega-wealthy avoid paying taxes.

With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means. …

…Operating largely out of public view — in tax court, through arcane legislative provisions, and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.

These several thousand Americans making use of the private tax system are mostly supporters of Republicans, and donors within this group are behind most of the money going into conservative Super-PACs. A very small number of them are Democratic Party donors, however.

In the heat of the presidential race, the influence of wealthy donors is being tested. At stake are the Obama administration’s limited 2013 tax increase on high earners — the first in two decades — and an I.R.S. initiative to ensure that, in effect, the higher rate sticks by cracking down on tax avoidance by the wealthy.

While Democrats like Bernie Sanders and Hillary Clinton have pledged to raise taxes on these voters, virtually every Republican has advanced policies that would vastly reduce their tax bills, sometimes to as little as 10 percent of their income.

At the same time, most Republican candidates favor eliminating the inheritance tax, a move that would allow the new rich, and the old, to bequeath their fortunes intact, solidifying the wealth gap far into the future. And several have proposed a substantial reduction — or even elimination — in the already deeply discounted tax rates on investment gains, a foundation of the most lucrative tax strategies.

The article goes on to say that the wealthy are not so much buying politicians as they are buying policy. The “income defense industry” has been able to lower their tax bills from roughly 27 percent to less than 17 percent over the past 25 or so years. The industry has also managed to hobble the IRS from going after them, even as the Obama Administration has made closing loopholes a priority.

Again, although there are Democrats who have gone along with this, for the most part it’s the Republican Party that supports it.

While you are at the New York Times, be sure to read “$250,000 a Year Is Not Middle Class” by Bryce Covert. Hillary Clinton has pledged not to raise taxes on the “middle class,” which she is defining as anyone who makes $250,000 or less. Covert argues that those who make $206,568 or more are in the top 5 percent of earners; they are not “middle class.” Further, this pledge will prevent a Clinton Administration from being able to fund programs that really would help the actual middle class, such as paid family leave.

Bernie Sanders and Martin O’Malley both support a policy program that would provide paid family leave as a kind of social insurance, and this would be funded by a 0.2 percent payroll tax increase across the board. I’m seeing Hillary supporters gleefully pounce on this, saying Bernie would raise middle-class taxes and Hillary won’t. But it isn’t quite that simple, as Sanders also has pledged to leave all other taxes on people making $250,000 or less alone. Covert writes,

Mr. Obama, who also made a pledge not to raise middle-class taxes, has seen how limiting it can be. Early last year, he made an effort to levy some taxes on 529 college savings accounts, given that 70 percent of account balances in those and similar accounts are owned by families who make more than $200,000. The revenue from the tax would have been plowed into college subsidies that would reach low- and middle-income Americans.

It was a doomed idea. Some families with closer to median income do use 529 accounts. So adding a tax would, technically, increase some middle-class people’s burden, thus violating Mr. Obama’s promise. Backlash erupted not just from Republicans, but fellow Democrats, and he dropped the idea less than a week after floating it.

IMO this plays into the Republican talking point book about taxes, which says that taxes are an oppressive and horrible drain on the pockets of America, while expecting Americans to spend even more money to pay for things that a tax-funded program could provide cheaply is not.  (See also: health care.) It’s why we can’t have nice things. And it’s a notion supported by the income defense industry.

Also, too: Goats

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