The Obama tax hikes begin, gingerly

I hate to say it, but why do you rob banks? That’s where the money is. Why do you tax the rich? Ditto.
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I think we should be open to a VAT, as long as it replaces (not supplements) the incomprehensible income tax we have today.

I thought I’d clicked on the swampland link, and was shocked to find so much substance in a post… then I scrolled up and saw it was you!
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and while I agree that raising taxes on the rich is a good idea, the complexity you note is a bad idea. The only reason I can come up with for doing it this way is to confuse people about the fact that they are raising taxes; they will be able to claim they aren’t raising marginal rates, “just adjusting the calculation of deductible expenses” or (better yet) “closing tax loopholes only available to the wealthy.”
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and if that is what they are going to try and sell this as, its a mistake. The reality is that we can’t close the budget deficit without increasing taxes — and increasing income taxes just on the wealthy won’t do it either. We’ve really only got two choices — taxing wealth (which I prefer to call pre-death estate taxes);) and increasing marginal rates for more americans.
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speaking of estate taxes, Obama could probably save the lives of a few rich people by doing an early recission of Bush’s elimination of the estate tax. I mean, millions of dollars are at stake depending on whether grandpa dies in December or January…. lets remove the incentive for the heirs of large estates to do away with their grandparents before the estates tax reverts to the status quo ante.

I think we should be open to a VAT, as long as it replaces (not supplements) the incomprehensible income tax we have today.
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sales taxes (even when you tart them up by giving them a fancy name like “value added tax”) are always regressive. I wouldn’t mind seeing an expanded “luxury tax”, which is a sales tax that only affects the wealthy (or upper-middle class and stupid.)
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For instance, why not charge a luxury tax on meals over $50/person. Or cars over $30,000? Or homes over $400K?
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But what I’d really like to see is a graduated wealth tax that impacts only the top 20% of Americans dedicated to paying debt service for the national debt and eliminating that debt in 20 years. Use the income taxes for “operating” expenses – and force rates to be adjusted upward when expenses exceed revenues. New “capital” expenses (infrastructure spending, military jets and boats, etc) could be amortized over 20 years, and that expense would also be paid for out of income taxes.
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@plukasiak: Most VATs exclude at least some necessities, and also rebate amounts based on income. And they tend to encourage (gasp!) saving behavior. Still, they can build their own complexities.
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My biggest complaint with our current tax system is complexity. Twenty years ago, it took me three days of manual calculations to do my taxes. Today, it takes me three days manipulating TurboTax to do my taxes. It is simply wrong that I have to pay for a service to do something the government requires me to do.
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Reagan blew it up in 1986; and that resulted in a few years of relative simplicity. Perhaps Obama can do the same.

I just can’t understand why anyone thinks it’s okay for the so-called wealthy to pick up the tab for all of this. I make right around $250k but I work every day and average about 70-80 hours per week. I paid for my graduate education myself. If you think capping itemized deductions and increasing the tax rates for families making $250k is not a disincentive to work, you are sorely mistaken. I am already trying to figure out how I can work less in order to make just under $250k. I’m also looking at how I can fire some of my employees to keep my company’s overhead down. I’m sure I’m not the only one who is doing this kind of planning. Hope Mr. Obama has factored that into his recovery plan.

Oh, and one other thing – to the guy who likens these tax hikes to robbing banks – great analogy. That sums it up perfectly since apparently some people think it’s okay to rob banks too.

@frontier2: You know yourself better than I do, but I’m dubious. Did you work fewer hours in the 1990s and early 2000s because the top marginal tax rates were 36% and 39.6% instead of 33% and 35%? I mean, I might buy it if we were talking about a big increase in rates here, but we’re not.

Sorry Frontier2, that makes no sense. Let’s say, for the sake of argument that you make $300,000. Let’s assume the cut off for the top rate is $250,000. Currently you would pay 35% on the $50K difference, or $17,500, leaving you $32,500 out of that $50K. If the rate goes up to 39.6% you would pay $19,800 leaving you $30,200 of the $50K in your pocket. If you limit your income to under $250K to avoid that nasty 4.9% increase you would have $0 left from that $50K.

In other words you would cut off your nose to spite your face. Which is why I seriously doubt if you make anywhere near that amount in real life. Most graduate schools assume basic math skills.

My biggest complaint with our current tax system is complexity. Twenty years ago, it took me three days of manual calculations to do my taxes. Today, it takes me three days manipulating TurboTax to do my taxes. It is simply wrong that I have to pay for a service to do something the government requires me to do.
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Paying taxes isn’t complex — its avoiding taxes that provides the complexity. Twenty years ago, you were probably not making nearly as much money, and tax avoidance was not so profitable.
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that being said, i agree that the whole thing is too complex. I’m all for getting rid of all itemized deductions and tax credits, and basing everything on a graduated income tax. (Things like what is now called the Earned Income Tax Credit — basically negative income taxes — should be maintained, but in a separate system. You file your return to the IRS showing no taxes owed, and then file with a separate agency to claim the “negative income tax.”)

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I am already trying to figure out how I can work less in order to make just under $250k.
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good! The less work you do, the more work there is for someone else, and in this economy that’s a good thing!
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I’m also looking at how I can fire some of my employees to keep my company’s overhead down.
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So, let me get this straight. You’re making 250K a year on your company, while employing X number of people. But that not enough for you — you want to put someone out of work just so you can have more money, despite the fact that you’re already earning more than 98% of Americans.
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YOU are precisely the kind of person whose taxes should be raised to 100% on income above $250K. After all, it appears that the only way to keep people employed when there are employers like you around is to provide you with absolutely no incentive to earn more than $250K.

First of all, I have worked for the last 15 years to get to where I am. Eight years ago I was not making what I currently make (I began my career in a lower tax bracket) and yes, I did work the same hours. Omne, thanks for the math lesson. Here’s a lesson for you: most graduate schools don’t assume anything. They require you to have a college degree and to pass whatever standardized test is required for the discipline in question. They also require you to pay tuition, room and board. I also had to pass a test to get my state license. While I appreciate your attempt to minimize the anticipated burden of tax hikes on me and my family, I would be interested to know two things: will these tax hikes apply to you and if not, why not?

@pluksiak: No, I was making about as much money 20 years ago as I am today (I’ve not climbed any corporate ladder, but instead move sideways through different careers). And I’m not interested in avoiding taxes, but rather doing the right thing. It’s the tax law that is much more complex.
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I would also disagree (strongly) that someone doing less work means more work for someone else. That’s nice in theory, but I’ve never actually seen it work that way in practice.

I’m in favor of an extremely simplified tax regime. My personal preference would be (call it a Flat Tax with Universal Deduction):
Take the 40th* percentile for personal tax returns from the previous year.
That is the standard deduction for all single filers.
Flat tax rate on any income beyond that; capital gains are now considered standard earnings.
A greatly reduced number of deductions – one for retirement savings up to X a year, one for college: both savings for dependents and personal tuition, up to Y a year – applied to all filers, and that’s about it.
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*You could put the standard deduction percentile at 50, or 30, or any value, depending on how progressive you want your effective tax rate to be. I feel there are extremely toxic incentives to not taxing a majority of the filers, however.
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You then tie everything else to those two values (deduction percentile, tax rate):
You set your EIC to, say, 60% of that standard deduction.
If operating under a balanced budget system, your tax rate automatically gets increased the next year to cover the difference (presumably short term bonds cover the difference for that year).
Etc.

frontier2:
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That makes absolutely no sense. You are either lying about your income or you don’t understand how a progressive income tax works, or both.
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If you are trying to reduce your income to get it under $250,000, you still pay the exact same percentage on everything under $250,000. Our tax bracket is only applied on income earned in the range of that bracket, not on your entire lump sum of income.
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For example, lets say you have three income brackets: bracket A, which ranges from $0 to $10k, is not taxed; bracket B, which ranges from $10,001 to $30k, is taxed at 10%, while bracket C, which includes everything above $30k, is taxed at 30%. If you make $40k, then you are paying 0% on the first $10k, 10% on the next $20k, and 30% on remaining $10k, for a grand total of $5000 in taxes. Note that this is only 12.5% of your total income. Even though you are considered “in the top tax bracket”, you do NOT pay 30% on the entire $40,000 of income. If you did, you would be paying $12,000 in taxes, not $5,000.
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So let’s say, for the sake of argument, that you decide to reduce your income by $10,000 just so you can fall in tax bracket B instead of the top bracket C. You no longer pay the 30% tax on that $10k, saving you $3000 in taxes; however, you reduced your income by $10,000, giving you a net loss of $7,000. You do not save money by reducing your income to a lower tax bracket. You lose money.
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So why do people talk about disincentives to productivity if the top marginal tax rates are too high? When you raise the top tax bracket, or ANY tax bracket for that matter, you are taking more of every extra dollar that someone earns within that bracket. The dollar you earn in tax bracket A is worth more to you than the dollar you earn in tax bracket C. If the US were to raise the top marginal tax rates to 70%, then this might cause some people to think twice about taking risks and making sacrifices to earn more money in that tax bracket when every dollar they earn is only worth 30 cents to them. But again, this only applies to those dollars earned in that tax bracket, not to every single dollar you take home.
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But we aren’t talking about raising the top marginal rate to %70. Obama is just talking about a few percentage points (a few cents on the dollar) rise. I’m sorry, but that is not a disincentive to earning extra money in those top tax brackets. The rich people were still plenty rich when the top marginal tax rates were at 36% and 39.6% under Clinton.
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Let me be clear: raising the top tax brackets by a few percentage points is not going to force people to stop working!

Justin:
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You’ll be surprised how many people don’t realize how a progressive income tax works. Just the other day I was arguing with some of my extended family (all conservatives, mind you) who claimed that your entire income is taxed at whatever bracket you land in. And these family members were well educated doctors and lawyers! It was shocking!
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Perhaps you should do a small post about it so we can just post the link when someone doesn’t understand it…

I would also disagree (strongly) that someone doing less work means more work for someone else. That’s nice in theory, but I’ve never actually seen it work that way in practice.
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I guess you’ve never been in a company that got downsized — while its true that some of the work that was done previously doesn’t get done at all, a lot of it gets shifted to the remaining personnel.
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whether your doing less work means more work for others depends upon the nature of the work you stop doing. For instance, frontier may own a convenience store, and spend 10 hours a week counting register drawers in order to recover the 10 cents to much that one of his clerks gave in change to a customer. That kind of work can be easily given up. But lets say that frontier works the register himself, and decides to cut the hours of operation of his store by 10 hours. People are still going to buy cigarettes and chili dogs — they’ll just go somewhere else to do it, and someone else will do the work on the cash register.
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Frontier 2- yes they will apply to me and I really don’t have a problem with them. I stand by my point. You claim that you will forgo the additional 60.4% in take home income to avoid the increase of 4.9%. I maintain that makes no sense whatsoever to anyone looking at it objectively.

As for the complex tax code:
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The income tax itself isn’t complicated, it’s all the deductions. If you do away with the deductions then it would be a much simpler code. However, the government uses the tax system as a vehicle to influence behavior. Some decisions are rewarded with extra deductions (home buying, sending a kid to college, investing in green energy, buying solar panels, giving money to charity), whiles others are discouraged with extra taxes (alcohol, cigarettes, gambling, etc…). Many industries only remain competitive because of government tax incentives, so how do you still do all these things with a flat tax or a system with no deductions?
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The simple answer: you can’t.
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If you want to change the status quo then you have to either a) give me a system that can do the same thing better, or b) convince me why I don’t need the things the current system does.

Sorry, 4.6% not 4.9%.

Nathan, You’ve found me out. I’m lying about my income. It is Obvious from your post you are clearly brilliant (after all you figured out right away that I was lying about my income). Here’s a concept to consider while you sit in your mom’s basement checking out your acne and thinking up the next great computer virus to unleash on the world: you don’t need to worry about the tax increase of a couple of percentage points. Do you know why? Because you can’t fathom how someone could earn $250k a year. And do you know why that is? Because you have no ambition. …the world needs ditch diggers too I guess.

@plukasiak: I’ve been in far too many companies that have been downsized (I’ve worked in both high tech and publishing, both notorious in this regard). I agree that work is not done, but it is decidedly not given to others. The total aggregate simply isn’t done as well.

It’s the tax law that is much more complex.
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please provide three examples of increased complexity that does not involve tax avoidance.
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(The AMT may be one — if the Bush Tax cuts made you liable to the AMT.)

frontier2:
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I never claimed you were lying about your income; I only listed it as a possibility. I apologize if I have offended you. However, I stand by my statement that you do not understand how the progressive income tax system works. If you did, you wouldn’t make comments like “I am already trying to figure out how I can work less in order to make just under $250k”.
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And for the record: I argued with substance. You, however, have avoided the subject and instead responded with ad hominem attacks. Let’s keep this at an adult level please.

. I agree that work is not done, but it is decidedly not given to others.
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you’re duties have obviously never included answering the phones.
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I once worked for Company X, doing clerical work, including being one of two people whose job it was to answer the phones (no later than the third ring — when we didn’t pick up, the calls went to the sales staff.) When the other employee was laid off, while my clerical duties were slightly reduced, that did not compensate for the amount of additional time I spent on the phone. The clerical duties that I was relieved of were shifted to the sales staff (for instance, I was no longer responsible for putting postage on envelopes, because that took me away from my desk) and they also wound up having to answer a lot more calls.
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If you did, you wouldn’t make comments like “I am already trying to figure out how I can work less in order to make just under $250k”.
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that doesn’t mean he doesn’t understand how it works, it just means that he’s a jerk who would rather clear $30,000 less in order to avoid paying an additional $2,000 in taxes.

I don’t buy that. Jerks like money too. The only people who would do that are those who don’t understand the code and think they are saving money by giving it up.

The late Dr. Adrian Rogers summed up sentiments very well, when he said: “You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”

To partially fulfill the pledge made during the presidential campaign, the White House team has just come out with a huge 3.5 trillion budget mainly on health, education and environment — bold move indeed. By taxing the rich (the very rich) and reducing defense-cum-war expenditure, the president hopes to close the immense deficit gap. Somehow, nothing seemed to have mentioned on how the gargantuan near $11 trillion national debt would be serviced or reduced.

Squeezing the rich and the large corporate may not be a viable task in the current crippling financial mess, they are smart enough to know how to evade taxes or avoid being tapped. Cutting military and defense expenses may push the generals into tight corners, they would want to retain the status quo for enhancing the American global hegemony and continue escalating the war in Afghanistan.

With the US GDP continues shrinking, the Washington administration is betting on things to work out as planned quickly. But who really knows? What happens if there will be an equally quick BACKLASH? Just wait.
(Tan Boon Tee)

We can pick apart every little thing done by Barack Obama and his advisors, but only a complete overhaul of the American tax system will bring the American people relief. It is a shame and sad disappointment that Americans were hopeful for change in the way American government functions, but all that has been shown so far in Washington D.C. is the insistence that one party was wrong and that we have to take the country in the opposite direction. We need some bright accountants to take over the IRS. Geithner was a very poor choice.

The self-described, so-called “Curious Capitalist” sounds like a run-of-the-mill Marxist/Obamaist to those of us in the pro-America community.