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Home Publications Blogs Beat the Press Republicans Propose to Raise Marginal Tax Rate on "Job Creators" and the Post Doesn't Notice

Republicans Propose to Raise Marginal Tax Rate on "Job Creators" and the Post Doesn't Notice

Sunday, 25 November 2012 22:14

Folks who have been awake during the last six months recall that the Republicans opposed raising marginal tax rates on the wealthy as the highest principle of politics and economics. That is why it should have been a huge news story when they proposed a plan that would do exactly this, but only for the less wealthy who fall in that esteemed group they call "job creators." Remarkably the Post article that reported on this change totally ignored this break with Republican theology.

The break comes in the form of what the Post describes as a "bubble tax" which it claims that Republicans are proposing. The bubble tax would phase out the lower tax brackets (e.g. the 10 percent tax bracket for income under $17,900 and the 15 percent bracket for income between $17,900 and $72,500). This phase out implies an increase in the marginal tax rate over the period of the phase out. For example, if the phase out for couples occurs between the income range of $250,000 and $750,000 it would be roughly equivalent to an increase of 5 percentage points in the marginal tax rate over this income interval. That would actually be a larger increase in the marginal tax rate for people in this income range than just letting the Bush tax cuts expire. (Of course the phase out could be more gradual, but then it would raise less money.)

The income levels that would be most affected by this sort of restructuring of the tax code includes the overwhelming majority of small business owners who the Republicans have blessed as "the job creators." Given this change in positions by the Republicans, it might have been appropriate to headline this piece something like:

"Republicans throw "job creators" under the bus to limit taxes for the very rich."

The article also refers to a proposal by Senator Susan Collins that would raise taxes on people earning more than $1 million, except for those who own a small business. It would have been worth pointing out to readers that this small business exemption would essentially make the tax increase optional for the very rich. It is unlikely that there are many people in this income category who either could not figure out how to make themselves a small business owner or hire an accountant to pull off this trick.

In keeping with the Post's longstanding editorial policy of pushing for cuts in Social Security the third paragraph of the piece referred to the:

"skyrocketing cost of federal retirement programs such as Social Security and Medicare."

Of course Social Security costs are not skyrocketing by most definitions of the term, with spending as a share of GDP projected to increase from 5 percent to 6 percent over the next two decades. Medicare costs are rising more rapidly, but this is due to projections that show U.S. health care costs in general rising rapidly.

The piece also used the term "fiscal cliff" in both the headline and first paragraph. This term, which is not an accurate description of the impact of the expiration of the tax cuts and the spending sequester that takes place in January, helps to imply an atmosphere of crisis over not reaching a budget deal by January 1. This also fits the Post's agenda of pushing for a deal this year that is likely to be on more favorable terms to the Republicans than a deal that is made after the tax cuts expire.

Comments (6)Add Comment
Medicare Cost Increases Slowing Not Skyrocketing
written by Robert Salzberg, November 26, 2012 5:59
Medicare costs are rising at slowest rates seen since the 90s.

written by bmz, November 26, 2012 7:09
The Social Security trust fund, together with payroll taxes, is sufficient to cover program benefits for more than the next 20 years. Moreover, assuming no additional funding, currently scheduled payroll taxes can provide benefits equal to those now provided, even adjusted for inflation, for the indefinite future. Given all the real economic problems we truly must address now, there is no legitimate argument for even considering Social Security modifications until the economy is fully back on its feet and long-term costs and revenues can be more accurately projected.

The Medicare trust fund was actually “going broke” when Pres. Obama took office, due in large to changes pushed through by the Bush administration. At that time, the trust fund was projected to be exhausted by 2016. However, the ACA (“Obamacare”), rather than taking the much vaunted $716 billion out of Medicare, actually added that amount to the Medicare trust fund; which is now projected to last until 2024. In one fell swoop, two thirds of the Medicare shortfall was eliminated. Eliminating the remaining one third could be even easier; for example, now that the ACA will protect older working Americans, we can in good conscience synchronize Medicare eligibility dates with those for Social Security. The relative ease of these Medicare fixes, and the fact that the small Social Security issues remaining are far beyond our legitimate planning horizon, why then the Post's "skyrocketing cost of federal retirement programs such as Social Security and Medicare." In a word—TAXES.

Everyone knows that Ronald Reagan reduced income taxes (more than one half for the wealthy); what is less commonly understood is that he extensively offset this by raising payroll taxes(more than double for most self-employed). Today, most American families pay more in payroll taxes than they do in income taxes. Between 1946 and 1981, income taxes averaged 12(+/-1)% of normalized GDP. Reagan reduced income taxes to near 9%. Clinton increased them back to 12%; and Bush/Obama reduced them again to 9 %( and below). However, on budget expenses (which exclude Medicare and Social Security) have remained 12(+/-1)% of normalized GDP throughout. The deficit in income taxes has been financed by borrowing, largely from the Social Security and Medicare trust funds. When Clinton raised income taxes back to 12%, this eliminated the on budget deficit. The CBO projected that this, plus the Social Security and Medicare surpluses, was enough to pay off the entire US debt before the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise any taxes to pay for the amortization of those trust funds. Like Reagan before him, Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that income taxes would have to be raised in order to amortize the trust funds. Although the Republicans like to talk about those “47%” who in large part pay only payroll taxes as being supported and subsidized by those who pay income taxes, the truth is the opposite; ever since Reagan, income taxes have been subsidized by payroll taxes; and the failure to raise income taxes to pay back that subsidy, is to steal the money that middle-class workers have had taken out of their income to pay for their retirement.

Hence, the only problem we have with entitlements is paying back the money that we borrowed from the Social Security and Medicare trust funds. This requires that we raise income taxes in the short term to 12% to cover normal on budget expenses. And, as soon as the economy recovers, we must raise taxes above 12% to pay back the trust funds. This is why the Republicans refuse to discuss raising income taxes; they would much prefer to steal workers retirement funds, and reduce the entitlements paid for by them. We do not have an entitlement problem, we have a Republican problem.
Wow!!! WSJ has honest piece on falling effective tax rates for top incomes
written by Robert Salzberg, November 26, 2012 7:16
The times they are a changin:

written by skeptonomist, November 26, 2012 8:18
The wealthy and their employees in Congress (mostly Republicans) have apparently thrown the wool over the eyes of the media pretty thoroughly about all the schemes which supposedly raise revenue miraculously without raising "tax rates". Are editors and pundits really so dumb as to think these schemes are serious? Obviously the ultimate objective of the rich is to lower their own tax payments and raise those of others down the income scale - would they really sponsor schemes which do anything else? When are the media going to give equal space to the tax schemes suggested by unions, for example?
Paid Incompetence
written by FoonTheElder, November 26, 2012 10:21
If you listen to the incompetents who control the media and legislatures, you get nothing but incompetent solutions.

That's because you never identify the real problem, just more propaganda from the economic elite who are still laughing all the way to their offshore banks.

At the same time, our politicians are getting elected on the most important issues, stopping abortion, gay marriage and Twinkies.
Nother post request plz, eric cantor walks this back, and makes the mother of all gafs
written by Lrellok, November 26, 2012 5:52
“I believe as a society we're growth oriented, we're risk oriented, you wanna go and say that's different then someone getting a wage income check” Eric Cantor

SO, what happens to our economy if (Pursuing the economic/social rewards structure) 90% of all workers quit their jobs to speculate on wall street? Unless Mr Cantor is proposing people should be denied the ability to pursue their rational self interest?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.