A Democrat of my acquaintance, who makes something, but not a huge something, over $200,000 a year while living in Manhattan, was recently grousing to me about the surtax. "My taxes on a marginal dollar are going to go up almost 1000 basis points!" said he.
This is true, I agreed. And just what, I wondered, had he thought was going to happen if he elected Obama? Not clear. Our subject had listened to Obama talk about taxing people who made
more than $250,000, which seemed entirely reasonable; he hadn't
realized that being single, his tax hikes would start much lower than that--that he, too, was "the rich".
Mentally speaking, the rich don't live in eight hundred moderately
roach-infested square feet in an unfashionable neighborhood of New
York.
A few readers emailed to ask me about the proposed 4% income tax surcharge on incomes over $250,000, and what I think is that this experience will eventually be renacted down the income chain. What's really astonishing is how little money the thing is expected to raise: less than $100 billion a year over the next ten years. That's not even enough to cover the current static estimates of the health care plans on the table.
Needless to say, I don't think the plan will cost as little as it is projected to, since virtually no US government health care plan in history ever has. Meanwhile, the gaping maw of Medicare opens ever-wider. Obama is going to have to push much farther down the income ladder to pay for it all, taking money out of the pockets of ordinary folks--people who thought that by electing a Democrat, they were going to get relief, not more bills. He may end up far enough down the income ladder to scoop money out of the pockets of the jounralists and wonks who have been enthusiastically pushing his plans. Old people are expensive, and they don't have much income.
This hardly dooms his electoral chances--my acquaintance remains a die-hard Democrat. But it sure won't be popular.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Means testing Medicare wouldn't seem like the end of the world. If you're 67yo and you have a $8000 a month pension - how much should you be expected to contribue to your own healthcare?
Because you can't opt out of Medicare without losing Social Security.
http://www.msnbc.msn.com/id/27091854/
So if you means test out of Medicare...does that mean you are forced to pay Medicare "insurance premiums?" Or are you kicked out and lose your Social Security, too?
My answer? All of it.
Is that like 10%? Me and that Chicago SDS dude friend of Obama were figuring like we should add a zero on the end.
Yeah, it's 10%.
How 4% is almost 10% says something. Something about Megan and math.
I think, and I may be wrong here, but when the say the "taxes on a marginal dollar" are going up 10% what they mean is that the tax on that marginal dollar was, say 40% and that will now be 44%.
44% is 10% higher than 40% or, in other words, the taxes on the marginal dollar have gone up ten percent.
And they say "almost" 10% b/c his existing tax on a marginal dollar is greater than 40% already.
Um, no. Avoiding that confusion is the reason for using points rather than percent. With percent, it's often unclear whether you're talking percent of total or percent of percent. Points specifies that you're talking about actual rate. In New York, his combined marginal rate, state & federal, is probably around 40%, given that the guy is most likely in AMT & in the zone where your AMT exemption shrinks. If you're paying 40%, & the rate goes up 10%, that could be to 44 or 50 - you're right. But if it goes up 1000 points, it's 50%,.
Interesting, I didn't realize that.
I think Megan and her friend are using the term the same, apparently incorrect, manner that I was, that is 100 basis points can be used interchangeably with 1%, regardless of absolute versus relative disctinctions.
Understanding that basis points must always refer to the absolute rate, what her friend said cannot possibly be right.
10% because after next year, the Bush tax cuts expire, which pushes his rate from 35 to 39.5. He then gets another 4% on top of that.
So his total rate will be 43.5%, a rise of 850 basis points.
Are Manhattan statistics prices so he could only afford one sig fig?
No, because $200,000 AGI with a state tax rate of 10% & single translates to the bottom of the 33% range. IF the rates revert, that becomes 36%
Assuming he's not in AMT, in which case the rate wouldn't matter, he can deduct state taxes & the marginal rate change would be about 670 points.
The 35/39 rate starts at $372,950 taxable in 2009, which would mean that $400,000 is not a huge something over $200,000.
Your friend makes over $200k, voted for Obama, is a die hard democrat, but somehow feels he's already paying enough taxes?
Is that what they call cognitive dissonance?
It's like when you're a kid and you complain about school, but you still go, because the alternative is worse in the long run.
Glad to see the comparison between coastal, big city elites and whiny, naive school children.
The coastal big city elites are the ones who whined but stayed in school. The "real americans(tm)" are the ones who whined and dropped out.
Nobody likes taxes, everyone whines about them, but at least one side has enough sanity to be willing to pay up.
Except, apparently, this guy, who voted for Obama thinking he was raising taxes on other people but not his own taxes. I'm trying to generate some sympathy here but nothing's happening.
>but at least one side has enough sanity to be willing to pay up.
You saying that with a straight face?
Derek
Well I suppose I differ from you coming from real america™ as you put it and I recognized the value of education and did my best to learn -- and I wasn't a book worm either that never took the time to live outside of school. Just recognized that what I was doing was important and I should learn. Maybe old fashioned real america™ is good for something after all?
Sorry Winston, your side has only enough sanity to demand others pay up. So far as I can see, every member of this administration has actively avoided taxes and the same can be said for whiney big city elites who stayed in school for fear that they might one day have to do a real job.
I wonder. Is Tim "Turbo Tax" Geithner part of the "sane" portion willing to pay up?
Well, if he's honestly very upset about paying a very small additional amount of taxes, then yes, we're looking at cognitive dissonence here.
I think a commenter below worked out that if the friend makes $220,000 a year, his tax increase amounts to just $800/year. Certainly worth paying for all the policy changes (Healthcare, Foreign Policy, Education, Cap&Trade, etc.) that he presumably supports and voted for along with the strong majority of Americans.
If it somehow is a major pinch though, I have a solution for him: Brooklyn. Or Queens. They're lovely, have subways that go right to Manhattan, and would save him more than $800/yr in rent on a similar-sized place.
"...he presumably supports and voted for along with the strong majority of Americans."
If "Strong Majority of Americans" means the 7.2% difference in Obama's popular vote (52.9%) over McCain's (45.7%) and assuming that every person who voted for or against either of the candidates did so on the basis of policy positions rather than factors specific to the candidate (age, speaking skills, race, desire for "change," views on which candidate was smarter, Bush fatigue, etc.).
Yeah, that's a pretty strong majority. 10 million people. Bigger than any since the 80s, for example.
In fact, it significantly understates the size of the majority that supports these positions - non-issue factors such as the ones you cited tend to cut against Democratic candidates (racism being probably the biggest, but also general perceptions of Dems being more negative since Vietnam, despite consistant majorities in support of progressive policies).
racism being probably the biggest
I'm curious how you'd test that. How many blacks voted for Republicans in the previous election vs. how many whites voted for Democrats? From what I've heard, very few blacks voted for McCain. So it's possible that black racism and white racism might have been a benefit to Obama in his election campaign, despite their relatively small size. (How many whites would explicitly favor a black candidate over a comparable white one?)
It seems that racism degrades quickly with familiarity and is most potent in judging strangers. Thus the saying "I'm not racist, some of my best friends are..." as a common defense against racist behavior.
Really? Are you kidding?
--Age: Few said Obama was too young, many said McCain was too old
--Speaking Skills: Obama is a far better speaker than McCain
--Bush Fatigue/"Change" helped Obama
--Race: 95% of Blacks voted for Obama, among Whites, it was closer to 50/50...but Obama brought in a number of first-time voters, and primarily non-Whites. Remember, it was blamed for the defeat of CA Prop 8?
.
"...despite consistant majorities in support of progressive policies)." Is this another "Big Lie"? If I recall correctly, the GOP took over Congress in 1994 primarily as the result of Hillarycare, teh last attempt to socialize 15% of the US economy. With Cap-n-Trade, Hillarycare pt 2, and the auto bailouts, we may get a chance to see this again in 2010.
No, not kidding. What you (and Ryan W.) fail to take into account is that the fundamental issue is what makes people vote the way they do.
All the things you mention certainly existed and helped Obama, but the vast majority of the people who prefered his age, skills, intelligence, or who had "Bush Fatigue" also supported the basics of progressive policy - ie, the premise that a moderate level of taxation, heavier on the rich, is acceptable if it brings about useful programs such as universal healthcare.
The critical thing about anti-Obama racist votes (as opposed to, for example his huge majorities of support amongst black voters) is that a substantial number of the poor white voters swayed by that type of thinking and attacks built on it would ALSO support the basics of progressive government policy.
This was my point - that Obama not only beat McCain by 10 million votes, but his policies were almost certainly supported by an even larger majority. That's not to say that there weren't factors beyond the issues that decided votes both for and against both candidates, but rather that if we're debating the policy, we should remember that it's got massive support amongst the public.
I have to take issue with JDL. In the primaries, Obama ran as the far left candidate. But, even before the convention, Obama did not tack to the middle, he leaped to the middle. He ran most of his campaign as a slightly left of center moderate. That is why he needed the teleprompter. There was too much risk he would let his true beliefs out as he did with Joe the Plumber.
The consequences of that campaign is many of the Obama voters thought they were getting a moderate. They didn't. All Obama's talk of "common sense solutions" turned out to be a liberal's wet dream. So, please, do not make the starry eyed claim that Obama's voters voted for ultra liberal policies. They did not. They were misled by Obama.
Rick
The great thing about the view of JDL--from people who hold such views--is (1) they never need give any, you know, NUMBERS that support that view, since all their friends just nod with them and assume their views are accurate and (2) no one ever scoffs during the coastal dinner parties at such ignorance pretending to be sophistication.
In short, he say vast majorities prefer progressive policies and those who don't include many racists. Recent election results where democrats won show this, even if the true numbers are even higher.
Of course, the fact that democrats in many congressional districts ran as conservative candidates against Bush, and Obama was promising tax cuts to most Americans and hammering on spending is forgotten in the taking-power afterglow. Now they tell themselves that people actually voted for card check, higher taxes, more government, automobile bailouts, etc.
Obama did not run on the platform he is now implementing. So don't claim that 2008 was a mandate to do this.
Please advise us when your friend loses his her their home and job. I suspect a lot of us will need a laugh by then.
Richard,
If you have no job and no assets you would be eligable for medicaid. Also, no New York City public hospital will charge you more than $3,500, no matter what is wrong with you, provided you meet their generous income guidlines.
"This hardly dooms his electoral chances--my acquaintance remains a die-hard Democrat. But it sure won't be popular."
No, it won't doom Obama's electoral chances. But it sure as hell won't help congressional Democrats' electoral chances in 2010. And that's if the economy (especially unemployment) doesn't get much worse (a HUGE "if"). Personally, I think the economy will get worse, particularly unemployment. That, combined with political opposition to the Medicare cuts and tax increases necessary to pay for the bill will cause the whole thing to get scrapped.
That, combined with political opposition to the Medicare cuts and tax increases necessary to pay for the bill will cause the whole thing to get scrapped.
Cuts? When, in recent times, has any state or federal government actually made substantial cuts in response to revenue shortfalls? Did Prop 13 lead to limited government? Did Reagan or Bush's tax cuts "starve the beast?" In both cases, I thought it just led to deficits.
No. Government only grows; the only variable is how fast. Ironically, government seems to grow fastest under Republicans (well, until this year). Nobody wants to be the one to make actual cuts. Newt Gingrich was accused of "cutting" benefits when he proposed to slightly temper the growth rate.
No kidding. It's the same in California. The teachers' union was complaining about "cuts to education" when what was actually occurring was a reduction in the level of increase for the next year. And this is despite the fact that people are leaving the state in droves.
If you're making $200,000+ a year, even IF you live in New York, you are among the rich. There are few things more obnoxious than listening to New Yorkers complain that they can "barely get by" on $200K a year, especially in the current economic climate. The rest of the country would be more than happy to have your problems, Mr. New Yorker. $100K+ maybe you can make the "just scrapin' by in Manhattan" argument, but even then the sympathy is limited.
This doesn't mean I agree with the surtax though. I agree that this really isn't going to raise that much money at all. One need look no further than the current downward trend in overal tax revenue since the Democrats have been raising taxes on the rich. You would think this lesson is a no brainer, but it appears that it needs to be relearned every legislative cycle.
New Yorkers making six figures seem to have this blind spot where they pretend that living in Manhattan is not, in fact, a ridiculously expensive luxury.
Saying "oh, $200,000 is middle class in Manhattan" is like saying that $200,000 is middle class if you also have to pay the mortgage on a yacht.
When you have to work 16-20 hour days in order to earn your "rich" salary, living near work is not exactly a luxury. And living in a 1 bedroom Manhattan apartment will never earn you a visit from Robin Leach. Sure you could live like a price in Houston for that salary, but they wouldn't pay you nearly as much there to do the job.
I am not asking you to shed a tear for this guy - I am actually laughing at him, since he is similar to most of my idiot-Democrat co-workers. When those still employed after Obama further massacres the financial sector look aghast at their suddenly anemic paycheques in the coming years, I plan to ask them if they miss the BUSH tax cuts yet?
Sure you could live like a price in Houston for that salary, but they wouldn't pay you nearly as much there to do the job.
That sounds to me like an incentive for the company to move to Houston, especially if its workers are struggling to live near work. It may be more "prestigious" to have a New York address, but prestige don't pay the rent.
Shocking. Just an anecdote, but the plural of anecdote is data. Of course, Obama's definition of "rich" was always a bit absurd when applied to people who live in NYC (at least Manhattan), where $200k is decidedly middle class. If Obama succeeds in raising taxes on the rich, midle income professionals living in Manhattan are going to feel some serious pain, particularly when you add in the inevitable NY and NYC tax increases needed to pay for NY state and city employee's absurd pensions.
But I think Megan underestimates just what a political disaster this could be for Obama. Obama won the election by promising to in effect give away a ton of goodies to a huge portion of the electorate while sticking a small unpopular minority with the bill. But surprise! It now looks inevitable that that bill is going to have to be more widely shared. The American electorate is a big dumb beast but when it realizes that it's been tricked its wrath can be very very ugly. Obama better figure out a way to convince middle income people that their taxes won't be going up in the near future or he may be in for a spectacular fall from grace.
I too really do not understand this Manhattan garbage. I don't live in Manhattan so I can not attest to housing prices. I find it hard to believe it would be so high.
But even so, I have several friends, each making under 40k on Long Island, not too far from Manhattan.
If your company is down town and you make 200k you are perfectly able to move just 45 minutes away to make your life easier.
I'm sure that no one has to live on an island just like if you work for a hotel on Waikiki you don't have to own a condo on Waikiki but can live further inland.
True, virtually everyone could make different lifestyle choices to get by on less income. The point is that making $200k when living in Manhattan does not make you "rich." Making $200k living in just about any major city doesn't make you "rich", Manhattan just happens to be among the most expensive of the expensive places to live in this country, so it's often used as the example. And yes, the housing prices are that high. It's all relative.
Actually, the point is that making the choice to spend an extra $100k on a Manhattan apartment is not something poor people do. We have a word for people that are able to make that choice. That word is rich. Not that there is anything wrong with that. If people want to spend their hard earned money in that manner, more power to them. But let's not pretend that it isn't a luxury that most people do not have the option of choosing.
True, virtually everyone could make different lifestyle choices to get by on less income.
And pretty much everyone, in my experience, could make different lifestyle choices and earn significantly more income. They just choose not to, why that obligates the rest of us to pick up the slack... I don't know.
It's a lot more than just housing. Everything in New York is more expensive--housing, transportation, insurance, food, clothing, childcare, everything (the only thing cheaper is international flights).
The dollar is simply worth a different amount of money here than it is in most other cities. And your taxes are very high even if you're not liberal and didn't vote for Obama. If you have a job in New York City, your life will cost more.
And is it impossible to live 45min to 1 1/2 hour away on Long Island and also work in the city?
You can't just slide by the "The point is that making $200k when living in Manhattan does not make you "rich.""
The point is, you probably are not forced to live in Manhattan to have the city job. To use my own example, I work in San Francisco but live in the Jersey equivalent (Richmond in the east bay). I have the city income and a much lower cost of living… with a nice house...
Megan, like you, I am a libertarian-leaning independent that voted for Obama for mostly non-economic reasons. I liked his temperament, and I thought he could make patriotism cool again.
But journalists really dropped the ball for letting him get away with promising voters that he would "lower the level of the oceans" for free. It was a really irresponsible campaign promise, even by the low standards of the truthiness of campaign promises. It unreasonably raised expectations and essentially assured a lot of anger and disappointment. Free health care! Green jobs! Free stuff! And the woman who was so happy Obama won because she wasn't going to have to worry about her mortgage or filling her car with gas anymore. Whosoever believeth in me...
This is to say nothing for the gullible people who actually believed that you could get something for nothing. I have little sympathy for them if they are now surprised that legions of the creepy, unproductive narcissists that are attracted to DC like maggots to cowshit (although maggots actually contribute to society) are now fanning out to the media to push for regressive revenue solutions like a VAT and a tax on soda.
You do realize that the estimated cost of his program, according to Google, are 75-150 billion a year. So you're complaining that an amount of money to adequately pay for the plan won't be adequate? Or are you complaining that people will be OK with a $100 billion a year tax increase (OMG, 300 dollars a person skewered highly towards people who make so much they won't notice it!) but they won't be OK with, I dunno, say doubling that (if your barely-evidenced-at-all-claim about cost overruns is correct), or maybe, say reducing our military spending by a small percentage (leaving it still higher than the rest of the world combined)?
Or do you just, like, KNOW what you're talking about?
Honestly, have you ever stopped and thought that you're arguing that we can't afford to get poor people to doctors despite being one of, if not THE, richest nations in the world? The richest nation in all of HISTORY?
Even if you do think that's reasonable (which I find repugnant), how about acknowledging that those of us in favor of universal health coverage see it as WORTH THE MONEY. Far more so than, say, stealth bombers. I know it's crazy, but there it is. Some of us think that, as a society, we should care for those in worse conditions. That we should provide them with adequate food, shelter, education for their kids and medical care because without that they have ZERO chance? How about addressing THAT point instead of just arguing the bull crap that we all know and/or is completely disingenuous?
I DO hope realize that WRITING bleeding heart NONSENSE in ALL CAPS for EMPHASIS is REALLY OBNOXIOUS. No need to shout in the library. We can all read.
I think you're supposed to assemble the all caps words to form a secret message, right?
KNOW THE HISTORY!
OK -- OMG ... OK:
WORTH THE MONEY? ZERO, THAT.
Move it around, and it's haiku.
we can't afford to get poor people to doctors
Did we repeal Medicaid? Are all the safety net hospitals closed?
And the county health departments. All the free health care you can tolerate, regardless of income. They don't even ask.
Nutella, it's really difficult to argue that the federal government has a strong tradition of efficiency in spending tax money.
The second part of your argument, however, is a sound one, morally speaking. It may indeed be a better use of tax money to provide universal care than buy more bombers. That would be a strong argument if you could make it without striking such a posture of insufferable smugness while doing it. Do you close your eyes and tilt your head to the side when you say "some of us think that...we should care for those in worse conditions?" Just because somebody disagrees with the best way to help the unfortunate, it doesn't mean they don't think the unfortunate should be helped. To imply otherwise is just masturbation of the ego.
Just to conclude: consider what you are actually implying: what do you call somebody whose "food, shelter, education for their kids, and medical care" are all provided by government? It reveals a very dismal and condescending view of your fellow humans; those are the same paternalistic arguments slaveowners used to make; they took care of their slaves, who would be helpless otherwise.
The estimated 10 year cost of the health care bills on the table is 1 to 1.3 trillion. The estimated revenue from the tax is less than a trillion. QED: not enough to cover the health care plan.
And the estimate is a friggin' joke - Americans have a voracious appetite for healthcare - on that Obama and I agree. I just don't think that sticking the government with the tab will fix it - instead politicians will just promise more and more free stuff, the doctors will start to leave (or retire early, or not become doctors) and the first politician who implements and serious rationing will be beaten to death with canes, crushed by little motorized scooters, tarred and feathered and then branded with the words "AARP" on his forehead, pour encourager les autres.
$75 to $150bil a year, when you count the average cost over 10 years, and the first few years are supposed to have very little cost. Even these estimates really show the cost as being considerably higher than that $75 to $150bil figure. Look at the cost estimates for year nine and 10, and then realize costs will likely go up from there.
And that's before considering the fact that the estimates are likely too low. Including uncertainties I'll leave the lower bound that you presented intact, but the higher end is going to be multiples of the figure you give. Its more like $75bil to a $1tril a year than it is $75bil to $150bil a year.
And even with the low ball estimates you present, there is a lot of question whether it is worth the money, whether it would even be beneficial for most people.
"Old people are expensive, and they don't have much income."
But they do have savings and accumulated capital...
Clearly, what we need to do is tap that, to unleash the productive power those assets would have when wielded by the skilled hands of the Obama administration.
Immediately bringing back an extremely high estate tax would be a good start but, on the off chance that those rich old fogeys don't start dropping fast enough, I think a quick move towards a tax on accumulated savings is the way to go.
Any kind of "excess" savings would be subject to expropriation for the good of society.
We can argue over what constitutes "excess savings", I suppose, but I think the general principle is beyond dispute.
I can think of two good ways to determine "excess" in the savings context: either a measure of your total net accumulated assets per year of life lived or, going the other way, a measure of your accumulated assets per year of remaining life expectancy.
The first would work as follows: you're allowed to accumulate no more than, say, $20,000 of assets per year of life lived. Thus a 30 year old with a net worth greater than 30*20,000 = $600,000 would have that greedy excess taken away, leaving him with the reasonable 600,000 of savings. An older person, say a 50 year old, could have more: 50*20,000 = $1,000,000.
Of course, this sort of locks in the existing generational wealth disparities, though it would help get the thing past the AARP-voting block.
The other way is probably more "fair" overall, in that it allows you to save a reasonable amount for your remaing years. Under this system, assuming a life expectancy of 80 and the same reasonable $20,000 of savings per year, that 30 year old would be allowed a maximum of 50 * 20,000 = $1,000,000 of savings and the 50 year old would be allowed the lower $600,000 ( = 30 * 20,000).
And, of course, whatever is left once you die goes to the estate tax so it can be productively used for the good of society and not used to subsidize indolence and greed.
So, I'm not clear on a surtax vs. a straight-out tax increase. How is the surtax calculate?
4% of AGI over whatever the minimun turns out to be. If the single minimum is $200,000, and AGI is $210,000, the surtax is $400. (There might be a slightly higher rate over $500,000. Nothing is certain yet.) AGI is the income at the bottom of page 1 of 1040, before the deductions & exemptions on the back.
We already have a split system. You calculate with all your deductions & then look up the tax for your regular taxable income. Then you redo the calculations under the AMT, which has less deductions & flatter rates. Your income tax is the higher of the 2. Currently, most people with income in the $200,000-500,000 range end up under the AMT, so a plain rate increase might not touch them at all.
The surtax would then be added to whichever tax you pay.
Actually, the real difficulty people with the AMT face came when everybody else -- the slightly poorer and very-much-richer -- got a tax cut and they didn't.
Many thousands of their income potential, there.
But $800? That's a month's worth of dinners out, maybe a couple of dresses or a suit. That's not really that hard, unless you opt to live in places like Manhattan.
Perhaps you should explain to your friend the meaning of the word marginal - that only the "something" he earns over $200,000 (the value of the single tax bracket) is going to be more heavily taxed.
Say he earns $220,000. He will pay an additional 4% over 10% of his income. His taxes are going to go up by 0.4%, or 1/250 of hs total income. If he is rich, he isn't exactly getting soaked.
This has been written a million times before - the income of "the rich" doesn't start at the lower bound of the upper income tax bracket. It starts when you earn enough that the increase in the upper income tax bracket noticeably affects you income. That happens when you earn more like $400,000-500,000.
Also, you may want to stop trying to make us feel sorry for people who just have to live in Manhattan and then complain about their miserable lives in roach-infested small apartments. People in the rest of the country, where you can live a pretty "rich" life with $200,000, just aren't very sympathetic to the plight of your friend - who is, by the way, perfectly capable of affording a mucher better appartment than the one you described in Brooklyn, Newark, Long Island, or the Bronx. Even in Manhattan, he can get a really nice place in Inwood, Washington Heights or Upper Harlem.
Finally, 100 billion dollars a year is a lot of money. Certainly it won't cover health care - but in what fantasy land would a transition to UHC be financed by a 4% increase in the upper income bracket of 5% of the population? Who ever held those expectations in the first place?
"in what fantasy land would a transition to UHC be financed by a 4% increase in the upper income bracket of 5% of the population."
Exactly. Obama has been lying all along. To pay for health care, taxes need to go up on everyone.
I seriously doubt he said he was going to finance UHC with this rise in the income tax. He will need either to get other sources of revenue or make cuts in the budget (or he can be irresponsible and leave a hole in the budget).
But those sources are not necessarily the income tax. It can be, for instance, a rise in the VAT.
Or he could, and I wish he would, make cuts in the Defense budget. But I doubt that that it's going to happen.
He did promise that no taxpayer making under $200k would face an increase in taxes. Transparently bullshit given the size of his promises, but most of American bought it. Now reality is sinking in - we just can't pay for all of that without general tax increases. And yes, a VAT would be an increase in middle class taxes no matter how you spin it.
So yes, either Obama will 1) be totally, unimaginably irresponsible or 2) break one of his most fundamental campaign promises. Either way, it doesn't look good for his political future. He is, after all, just another politician. Let's stop pretending like the laws of gravity don't apply.
I think you're using a different definition of "marginal".
The way Megan and her friend are using it, the "marginal" dollar is the last one you earn. To use your $220,000 example, the marignal dollar would be the 220,001st dollar he earns.
On that dollar, he will pay the tax rate for the highest bracket, say it's about 40%.
This will increase, with the 4% surchage to 44%, a 10% increase in taxes paid on the marginal dollar, which is what Megan's friend was grousing about.
Your point that the change in his total tax as a percentage of his total income is much less than 10% is valid but not how they were using the term "marginal". (Nor, I should add, is it how that term is usually used.)
Oh, ok. Thanks for that.
But you gotta admit it's a silly measure. In that sense, if Megan's friend is in the upper income bracket, obviously the marginal dollar is going to go up (39-35)/35≈11.4%.
The taxes on a marginal dollar are the same if you earn $220,000 as if you earn $10 million. But what really matters - the additional fiscal burden resulting from the tax hike - is very different in these 2 cases. It's barely noticeable for Megan's friend, not so for the guy who earns $10 million.
The problem is, in New York, it's really easy to be so tapped out on $200K that you do, indeed, notice the extra missing money--his average tax burden is already in the 40-50% range, as mine was when I lived there. It's just not comparable to anywhere else. And it's no good saying that they chose to live in New York--most people living in New York couldn't earn their "fabulous" income anywhere else.
That's fair. It just kind of bothers me that you choose to concentrate on these cases of people whose income slightly exceeds the upper income bracket, and also happen to live in these high cost areas, to sort of show how the bracket affects "the common man" or something like that. Surely you know these cases are the exceptions, not the rule?
And, as I pointed out, people who earn just a little more than the upper income bracket aren't actually very affected by the tax increase, but your post makes it sound like they are.
In Barack Obama's - and it gets worse!
Barack Obama promised to finance universal healthcare, fix the financial crisis and drastically restructure our energey markets
with "no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes."
How big a % do you think that's going to be?
So how many dollars are affected at this new rate? IE, how much income past the bracket does your friend make? Your friend's tax rate isn't changing for that first $200,000. Depending on how much over the bracket this person is, we could be talking about small sums of money, or something decent.
You said its "something, but not a huge something." So how much did his overall tax bill go up? $10? $100? $1,000? and what percentage of his total income is this? His effective tax rate went up by what? a fraction of a percent?
Its hard to say because the information wasn't given, and maybe I'm just cynical, but I suspect that its because we're talking about pretty small sums of money for someone who makes 4-5x the median household wage.
It seems like the first move should be to make the uninsured person, making above 1.5x the median income, purchase insurance.
Freedom for me but not for thee?
Huh?
Forcing people to buy health insurance seems like taking away a freedom of choice from 25% of the population.
That is, if all people had the choice to buy health insurance (rather than the current system).
Joe
TreeJoe, I sympathize with your point (and the freedom ideology behind it), but we crossed that line a long time ago. For example, people are forced to have car insurance in order to drive on public roads. It would not be a large stretch in logic to require people who can afford it to buy health insurance.
But forcing a third party to buy his health insurance is ok?
Grundles - People pay car insurance if they choose to get a driver's license and own a vehicle on public roads in a state that requires car insurance (remember, that's a state law, not a federal law). All of those things are options of lifestyle.
Federal taxations affect anybody who earns income. Earning income is an essential part of life, not really an option or privelege. Therefore, forcing people to buy health insurance (on a federal level) is a very different law than car insurance.
Make sense?
Joe
P.s. Just in case you were wondering, i'm FOR a federal-level catastrophic health insurance provided to all. We already essentially have this, except for alot of people we don't bill them and just pass the cost onto those who are paying. Catastrophic health insurance is actually relatively cheap.
, people are forced to have car insurance in order to drive on public roads
And now we can force them to have health insurance in order to breath public air. No big deal.
Did the UHC proponents ever consider a national universal high-deductible ($5-10K annual) catastrophic insurance? Which, for the majority of the people, would simply be a 2nd tier policy that would reduce the cost of their existing ones. What do the numbers look like on this scenario?
I may be wrong, but the way I've understood it is we're not talking about a 4% point rise in the marginal tax rate. That would be $800 on a 220K taxable base (assuming that's his AGI - minus deductions)
Surtaxes generally disallow a lot of deductions and adjustment, thus making their impact much higher, so it may be 4% on 240K so it feels like an 8% rate hike.
Can someone tell me if I'm wrong on this...
If the acquaintance remains a die-hard Democrat, what is he grousing about? Chauncey needs "cheerful givers." In fact, why isn't the acquaintance offering, of his own accord, to give 100% of anything he makes over $200,000?
It's only "neighborly," right?
No, that would be crazy.
Fortunately, nobody in this century is suggesting that. Instead, how about a return to the tax rates in place during the 1990s (themselves lower than the ones from the 40s/50s/60s/70s/early 80s), which include a marginal tax on income over the top bracket line of 39.6%?
That, I think, would be somewhat closer to "neighborly" - or, if not exactly that, then at least democratic (since, you know, 70 million Americans voted pretty clearly for something like it).
JDL - if 70 million Americans voted pretty clearly for higher taxes, why don't they just pay more money to the government without the government having to raise taxes?
Because that's not how taxes work.
Seriously, do I have to explain perhaps the most basic collective-action problem? Generally, non-stupid people understand that the government buys stuff - schools, planes, tanks, highways, hospitals, health insurance; lots of good stuff - but that requires revenue in the form of taxes. So we've got to pay taxes.
But I don't want to be the only one paying taxes, and even if I think there are programs worthy of government spending in excess of my full income, I won't enjoy giving all of my income to pay for those programs. But the good news is, I don't have to! Because there actually a lot of other people in this country, and some of them make a lot of money. So we can ALL chip in and pay for some of this stuff, with the folks who make a lot of money paying a little bit more. And that's what I and about 70 million other folks voted for.
Really, this isn't rocket science.
JDL,
But his question is still valid. Why not make there be two published tax rates. You get to pick the one you want when you fill out your 1040. You can select the smaller tax table or the larger tax table. If you think it is a good idea then you get to pick the larger tax table.
I'm not saying that your choice is no taxes vs. high taxes. Simply a choice between lower relative taxes vs. higher relative taxes.
Then people that want to pay more can. Simple as pie.
Apsumen - to answer my own question - it's because no one wants to pay higher taxes - they want their neighbors to.
Mass has an optional higher tax bracket. Whenever they publish the numbers of people who use it annually, it's usually in the single digit range.
Seriously, apsuman and msully? Do you really think this line of reasoning has value? The taxation equivalent of "I know you are but what am I?"
Look, those of us (the majority of the country) who want a good, functioning government understand this costs money. We're willing to pay it. No, we don't "want our neighbors" to pay it - we want EVERYONE to pay their fair share.
I'd have to be an incredibly stupid chump to voluntarily pay a tiny amount more in taxes by myself, just out of principle, when this money could not come close to paying for the programs I'd support in a nation of 300 million people. No, I ask to have a large legal entity (the IRS) enforce a fair tax rate on all Americans, graduated by income, so that the burden for all that good government is shared.
Now, if I supported this position AND I was guilty of tax evasion, that would be hypocritical. But as long as I don't dodge the taxman, there's nothing unreasonable with supporting a return to the 39.6% tax rate on the marginal earnings of the wealthiest Americans.
Wow, you are a true believer. Where is this place where there are good government schools. I live NYC, for the most part, I don't see them. Planes and tanks usually come with cost over-runs in the billions. I will take a private hospital over a government hospital any day. Highways? An example of good government in highways? When I think of highways I think of payola, corruption, and delays to go along with the potholes. Do you koow Bush signed a highway bill in 2005 totaling over 280 billion dollars. Where did that money go?
Just for an example I think about the pathetic haggling going on over the new World Trade Center. It will be more than 10 years after their destruction before tenants will be moving into the new buildings. That is our government at work.
Um, because except for a few limousine liberals who are probably heavily invested in mumi bonds and other tax dodges, most of those people voted to raise the tax rates of OTHER people, plus a few dummies like Megan's friend.
Why is it so hard to understand ("mentally speaking") that if you can buy (or rent) things that few others can afford, then you are rich?
And thus your share of the burden should be proportionally larger. The problem is it's DISproportionately larger, leading to what amounts to the Tragedy of the Commons. People consume what they view as "free goods," but what they are actually consuming is someone else's sweat and toil.
What is that so hard to understand, mentally speaking?
Oh, it seems to me that argument is pretty well understood, tendentiously put as it is. But it's not the issue that the NYC friend spoke to, nor is it a straightforward matter of definition.
"since virtually no US government health care plan in history ever has [cost less than predicted]." Um, maybe romance has a deleterious effect on memory. I seem to remember the Bush drug plan turned out to cost less than projections, or is that one of the dreams of my dotage. :-)
Eh? I think it came out two or three times more expensive than the original estimates.
Forcing people to buy health insurance seems like taking away a freedom of choice from 25% of the population.
That is, if all people had the choice to buy health insurance (rather than the current system).
You make 75k and you choose to spend $350 a month on a Ducati 996 rather than health insurance and you take a spill on your bike. You incur 200k in hospital bills and are out of work for 18 months. You file for bankruptcy as you near recovery and have you debts wiped out. You start over again and in a few years it was like it never happend.
In reality, everyone else will have to pay more to compensate the hospital for the free care it provided. If we're not comfortable with denying care to those who could have afforded insurance but chose not to purchase it, we need to mandate they purchase coverage.
Tree joe,
In a perfect world - those making more than 50k a year would have $300 a month deducted from their paychecks automatically unless they submitted a certified letter to the IRS indicating they didn't want insurance. If they were in a car accident and didn't have an insurance card, the hospital would run their SS#. If a letter was on file they would be wheeled to the curb to die unless they could post a downpayment via Debit Card, Credit Card or Cash up front.
We already have the mechanism in place. Just make Medicare universal and increase its withholding rate by a factor of 6 or so.
Not saying it would be a great idea, but the mechanism is already in place for someone to flip a switch and make it happen.
We already have the mechanism in place. Just make Medicare universal and increase its withholding rate by a factor of 6 or so.
This isn't the same thing at all, for at least two reasons:
1. It makes the government the monopoly provider.
2. It's redistributive--people pay in proportion to their wages and not in proportion to what it costs to insure them.
The entire point of mandating the purchase of health insurance, as an alternative to socialization, is that it avoids these problems.
Hmmm, I didn't realize we were proposing to let people die from acute injuries. News to me.
Incidence relative to sample size?
Again, without numbers drawn from actual events, we could contemplate the effect of any imagined scenario, such as an alien landing.
Useless for policy discussins, though, except to raise froth in the mouths of the like minded.
Kind of like when you opined above that racists make up some material portion of the non-Obama voters. Neat way to be a disgusting race baiter, while pretending to be a high-minded progressive. (Yeah, that *is* what that is, so I will harp on it again.)
There was a case in Japan recently where an individual
got bumped off his bike, spent four hours waiting for
a hospital to admit him, and ended up bleeding to death
before one was found; This is what we have can expect
if the State takes over Healthcare, which is their
clear intention.
When I was in the Air Farce, a flight line type drove
a start-cart away from a KC-135, without disconnecting
the power cable. (Pause while the knowledgeable wince).
USAF cut him a deal: Reduction to Airman Basic, stay in
until you have worked off the repair costs, and we won't
throw your butt in prison.
For your examples, make the hospital bills non-dischargable,
and put the debtor in prison if he fails to find and keep
a job in the top half of his earning capability.
I remember that Japanese case. It didn't have anything to do with money. Rather, the hospitals in the area were overwhelmed with other cases.
Emergency cases in the US get shunted from one hospital to another all the time for the same reason. I seriously doubt you couldn't find something similar here if you looked hard enough.
I think it might be reasonable to require everyone to carry a high deductible major medical plan, just to prevent the scenario jmo3 proposes.
But I have serious objections to requiring everyone to purchase a fully loaded medical plan that covers every routine test and every predictable expense that a family might have (or that a politician may load into the plans at the behest of some advocacy group). People should certainly retain the option of purchasing their routine health care a la carte, buying only the items they need.
The same does not apply to catastrophic illnesses and accidents, for which few people are in a position to self-insure. But an actual insurance, as opposed to prepaid purchase, model works for that. We don't require auto insurance to cover oil changes and new tires, after all.
Agreed. The cost of catastrophic insurance is relatively low, is an actual insurance against worst-case scenarios, and is not a "maintenance" plan. Further, the entire populace is not amortizing the cost of those who choose to go to the doctors for every little thing vs. those of us who understand that a common cold takes 3-days to pass and just needs rest and plenty of fluids.
I would actually be very much for a national catastrophic illness plan, a baseline for all individuals in which they can privately purchase additional insurance/health management solutions.
think it might be reasonable to require everyone to carry a high deductible major medical plan, just to prevent the scenario jmo proposes.
Not even required - if you want to sign a form indicating you want to opt out - fine.* It's a free country you could do as you like. But, if you end up sick or hurt you're on your own.
Would any of the hard core libertarians object to such a scheme?
* We'd need the signed form to prevent sob stories in the media about the poor kid with the snaped spine being left to die. We'd have the form to show that he made 65k a year and decided to spend his health insurance money on a lift kit for his truck (which promptly rolled - hence the snapped spine)
First off, I like your style. :)
Second - your scenario is exactly what I love about a free country. People are allowed to make stupid decisions, instead of having government mandated decisions. I just disagree with the form to opt-out, I'd rather have an opt-in form (like we have selective service at 18 for all men). Opting-in = American. Opting-Out = Not-American. :)
Joe
I'd rather have an opt-in form (like we have selective service at 18 for all men). Opting-in = American. Opting-Out = Not-American. :)
But then you'd have some bleeding heart saying that he forgot or he didn't understand or it was a mistake. A signed form indicates he knew what he was doing - that would help quite the bleeding heart contingent.
Seriously, a universal catastrophic plan makes a lot of sense -- if the costs prove to be at least an order of magnitude below the UHC as discussed now. It is arguably better to finance it through taxation than force everybody to buy one because it solves the pooling problem -- and [hopefully] high deductibles would still provide necessary pressure to live healthier.
That is, if the problem we are trying to solve is that of unpredictable medical conditions ruining one's life. Somehow it doesn't look like there's agreement on that point.
The costs would be massively below a UHC program, because catastrophic (or major medical) coverage with a decent deductible is dirt cheap and is focused only on the treatment of a MAJOR MEDICAL EVENT and not colds, flus, preventative medicine (which is a major cost suck because it only extremely rarely catches anything).
Combine it either with a high deductible or a means-tested deductible for the major medical, and you'd get a very low cost coverage option for the entire population.
Then allow individuals with the means and desire to directly purchase health care solutions for routine care or the in-between stuff, as needed.
My guess, and it's just a guess, is that catastrophic coverage for the entire U.S. population would come out to something like $3000-4000 per person/year. That includes those over 65, currently covered by Medicare.
Now, as Megan likes to point out, that doesn't actually reduce the rate of healthcare cost growth. So this type of offering is not a replacement for healthcare reform.
catastrophic coverage for the entire U.S. population would come out to something like $3000-4000 per person/year
This is like $12-16K for a family of 4 and definitely above the cost of the all-frills PPO (mostly paid for by the employer) my family is presently enjoying. You're talking over 1 OMU (Obama Money Unit = $1,000,000,000,000) for the US population per annum. Not a number I would feel happy about.
I was basically hoping for 0.1 OMU/yr or less.
Hey Max,
Someone's math is off or I used a bad assumption. No time right now.
As a Manhattan Democrat, who is currently on strike with respect to further financial support for the party, I can tell you Megan is absolutely correct from what I am seeing. In addition to the potential federal hike, state taxes were already hiked on any individual earning more than 200K and couples over 300K, and itemized deductions were eliminated. The marginal state/local income tax rate (ignoring the elimination of deductions) is now 12.63% for NYC residents over those levels. Add that to the federal rate and your marginal rate is nearly 50% - if you get to keep the federal deduction for those taxes. At the same time, we see all levels of government increasing their budgets. It is one thing to be asked to contribute toward helping the poor but the middle class is too big to be subsidized by a small portion of the earning population. Contributions to Democratic candidates and organizations have dropped significantly in the past few months. New York City has had one center-right mayor or another for most of the past three decades. If the Republicans run the right candidates for governor and Senator in 2010, i.e. no religious /social wingnuts or moralizing hypocrites, they will have a fighting chance in both campaigns.
Unfortunately, you are wrong. The increase in NYS/NYC taxes is to pay the union public employees. NO mayor or governor or other politician in NY has taken on those unions.
Giuliani didn't. Pataki didn't. Bloomberg hasn't. None of the Republicans in the state senate ever did when they controlled the senate.
Every union NYS employee got a 3.5% raise this year, in spite of recession, in spite of private sector people losing their jobs. Did you hear ONE pol blasting the greedy unions? Did you ever hear one pol ever say that's it's unfair that public employee pensions are totally tax free in NYS while private pensions are not? Nope! Have you ever heard any pol say that we must control the unions or we'll be dead flat broke? Nope!
Really, any New Yorker"s best hope is to vote with their feet if at all possible.
I don't think I said what you think I said. You and I probably agree if I read you correctly.
I marvel at the self-proclaimed Democrats whose party's special interests make it impossible to avoid financial catastrophe. Californians and New Yorkers deserve the governments they have.
TreeJoe, let's get real. We will never let people bleed out because they don't have insurance. For one thing, doctors won't be willing to do it, and for another, public sympathy will always run to the dead guy and his family over the government or libertarian ideology.
So somebody is going to pay for his care, because there's no such thing as an unpaid bill.
The only question, therefore, is who should pay. And it seems to me that requiring broken-spine-guy to be the one to pay is perfectly fair--more fair than any other solution. Requiring him to pay by getting insurance rather than self-insuring is clearly superior in that it makes damn sure he doesn't escape via bankruptcy and contributes at least a little something to his own care.
To function properly, freedom must include the freedom to suffer the consequences of bad decisions. Because we won't enforce these consequences, we can't have the freedom.
Why are you directing that statement at me? I think you mis-read.
Forcing people to buy health insurance seems like taking away a freedom of choice from 25% of the population.
That was you, right?
Yeah, but it wasn't in reference to letting people bleed out. I didn't realize you took that statement that way.
Like I said (twice now or more), I'm in favor of a national, across-the-board, catastrophic coverage program.
Like I said (twice now or more), I'm in favor of a national, across-the-board, catastrophic coverage program.
Missed, that sorry. Damn these threaded comments!
By the way, why don't we have a federal health payment loan system.
For those un/under-insured, the system could pay their medical bill directly and issue a medium-term at a very low interest rate to them.
For instance, $200,000 at 3-4% interest for 15-25 years?
If Mr. Uninsured sends Ms. Victim to the hospital
for a $200K visit, he pays for it.
If Mr. Uninsured sends himself to the hospital,
we pay for it; How is this different from theft ?
Why should Mr. Uninsured not go to prison if
he will not do all he can to pay his debt ?
Now ask the same questions about Senor
Illegal Alien, and his family.
Nothing pleases me more than to see a person who thought he was voting to raise other peoples' taxes actually having to paying more in taxes. It's my earnest hope Megan's friend will bear the brunt of all the tax increases (and dollar devaluation) coming down the pike over the next 3 1/2 years or so.
I can understand a principled argument everyone's taxes should be increased to pay for universal health care, even if I don't agree. But raising taxes on other people and trying to cloak it grandiose rhetoric about what "we as a community" should do is just theft with a built in bromide for the conscience.
I always like to ask myself, "What is the ideal amount of taxes to pay at any given time? What percent of my income (all-inclusive of all taxes)?"
Should that tax rate be applied to all individuals equally, or graded based upon means? Or should governmental benefits/programs be reduced for those whose income increases (i.e. tax everyone equally, but don't give the wealthy the same amount of safety-net services)?
What's always amazed me is that somewhere along the line our country got into applying micro-taxes on everything instead of applying even taxation and allowing incentives (lowered rates) where government wishes to stimulate.
I have no idea what my actual tax rate is. I cross like 4 tax boundaries in my income, I purchase roughly $10000-20000 a year in consummables on which I pay a 6% sales tax (though there are also hidden taxes built into the price), a 3% state tax on all income, a 1% local tax on all income. I contribute a set amount to social security (against my will, now that's something we should be able to opt-out of) and medicare.
I won't include taxes I pay on gasoline, since that's going (supposedly) to a service I use (roads).
But what is my actual tax rate? Do I have any way to find out?
Based upon what I've said, I'm guessing that even though my combined income is probably 2x the median for my area, I only pay about 8% more tax than a low income individual due to all the other taxes.
I don't think it's possible to know what your actual aggregate tax rate unless you're keeping impossibly meticulous records, since it depends on things like how much gas and alcohol you buy.
I don't know about other states, but here in California some items you'd consider "necessary" are exempt from sales tax - food staples and clothing, mostly. So for a truly poor person who spends a large part of his income on those two items and also gets EITC the tax rate is probably pretty close to zero unless he has a car. Of course, if he buys a lot of beer and cigs it'll be quite a bit more.
Incidentally, I believe the taxes are spread around because it makes them harder to avoid. If you get taxed a little here and a little there it isn't worth the risk to avoid any one tax, since it doesn't change your overall financial picture very much. But if we scrapped all existing taxes in favor of a 20% VAT (as some people have advocated) you'd start to see a lot of people trading consumer goods out of the back of trucks.
Nimed,
You said none of us could be convinced of the need for universal healthcare. It seems that Rob, TreeJoe and me all think some sort of coverage should be mandatory.
I'd honestly like to hear someone who thinks a minimum level of mandatory coverage is a bad idea.
Actually, I think me and all y'all are agreeing on a need for universal insurance, not healthcare. The catastrophic medical insurance is indeed an insurance product -- unlike the majority of employment-linked private policies currently on the market.
I think another elephant in this particular room (maybe a calf?) is the fact that many [most?] people with employer-provided health policies are way overinsured. I know I am. However, in the present system there is a number of incentives to stay that way, even excluding the psychological ones:
- High-deductible policies are often not offered at all by the employers
- Even when they are, they are not that much less expensive as you'd expect
- And the killer: the employer's contribution towards the premium (part of those "great benefits" they like to tell you about during the interview) cannot be converted to cash if you don't use it. So even if there were a cheap high-deductible policy, taking it would forfeit part of the money otherwise yours.
Generally speaking, insurance is a financial product and buying more than you need just wastes money. And yet the trend seems to be pointing towards wasting even more.
Max -
Yes, I'm for a very high level catastrophic health insurance (and not care) provided to all citizens.
The problem with only mandating catastrophic insurance is that the busy-bodies on the left also want everyone getting regular checkups for health maintenance reasons, If people chose not to buy health 'insurance' that covered such checkups, then they might not go, and we can't have that.
Not to mention the fights about Viagra, birth control, mental health treatments (absent clear organic illness), and alternative medicine.
As someone who would WAY rather have a massage and do some yoga than get back surgery for lower back pain, I really, really want to pay my own way for the everyday stuff. Unless Senator Kennedy wants the federal government to pay for massage therapists and yoga classes as well as parks.
(Only kidding. I don't want the federal government to pay for those things. But I also don't want the government to take away the money I would use for them and send it back in a form that can only be used for surgery and prescription drugs.)
Interesting point. I'm much happier and healthier when I have time to take long walks. But if I have to work longer hours to take home pay after tax increases for the health care boondoggle, I'll only be able to get that money back in the form of, what, Xanax, gastric bypass, and blood pressure medication.
Tax expert Chris Edwards points out that this will make US tax rates higher than in France: http://www.cato-at-liberty.org/2009/07/08/socialist-surtax-for-health-care/
I want to see video on youtube of any those rich people strolling out to their backyards to pluck the money down off their money trees, too, instead of passing the cost along.
Man, the degree of envy of many of you people is a piece of work. I have yet to meet someone who includes himself/herself in the bracket that must, yes must, pay higher taxes. How curious that a hypothetical someone making $200,000 a year can't wait to see a $250,000 earner get stuck with higher taxes. And then he/she is surprised when someone making $100,000 can't wait to stick it to The Man who's making $200,000 a year. It's a race to the bottom, where all the free lunches can be wheedled for. Yes, socialism works until the government runs out of money. It's a child's mindset--"No money, mommy, that's OK, just write a check."
It's fairly obvious members of our current administration have no experience in small to medium sized business. The surtax plus the repeal of the Bush tax cuts will mean a Federal Tax Rate of 51% on small business, that is businesses that employ 20 to 1000 employee and are typically organized as a S corporation. S corporation pay taxes on income at the individual level.
Take 51% and add in state taxes, in say Massachusetts 5.5% or California probably 10% and you are talking tax rates of 56% and 61%. If you increase your inventory or have work in process, buy capital equipment or have slow paying customers, you taxes will exceed your amount of free cash.
You may have to borrow money to pay taxes on your "high profit". Consequences are business cutting back on hiring, capital expenditures and expansion.
Lest anyone doubt that 51% figure--- actually it's that high before any surtax. The Obama proposals to date have been for repeal of the Bush-era laws, *plus* an expansion of FICA (OASD part), at perhaps 2-4%. The current top marginal rate is 35%, and Medicare takes 2.9% as well. Reversion would change the 35% to 44.1% (39.6% plus the return of the "Pease Plan" phase-outs for itemized deductions and exemptions, which amount to 4.5%). Add in Medicare, 2.9%, and the new expanded FICA/OASD, 2-4%, and your top Federal marginal rate is 49-51%. And yet, for all of that, the Tax Policy Center and other budget experts say the government would net perhaps $45 billion a year from the repealed income tax brackets.
The latest reported version of the Rangel plan is perhaps even more insidious than thought. The NYT (Jul 11 09) reports, "Mr. Rangel said the income surtax would take effect in 2011 and begin at 1 percent of adjusted gross income — earnings before deductions like those for mortgage interest and charitable contributions — and would apply to individuals earning more than $280,000 and couples earning more than $350,000."
That would explain how a "small" sounding surtax could raise the announced $55 billion a year (more than the entire obama bracket repeal would raise)-- it's not a marginal bracket he'd be creating, it's a parallel tax system taking 1-3% of AGI from anyone over the threshold.
It would be an attempt to create, for the first time, a "payroll" tax that reaches all forms of gross income, functionally a Medicare tax with infinite breadth and a special higher rate for the politically disfavored.
Either that, or the NYT reporter is an idiot who doesn't understand marginal versus average...
I don't think you can operate an average S corporation business with tax rates above 60%.