James Pethokoukis

Politics and policy from inside Washington

That millionaire healthcare surtax would have to be …

Jul 23, 2009 14:57 UTC

… about 6 percent, according to the Tax Foundation, to theoretically raise the same amount of dough as also having surtaxes on those making over $350,000. Now this assumes wealthy Americans wouldn’t scramble to reduce their tax liabilities via all manner of tax-sheltering strategies. Of course, such behavior isn’t economically efficient as Obama himself knows:

The high marginal tax rates that existed when Reagan took office may not have curbed incentives to work or invest, but they did distort investment decisions — and did lead to the wasteful industry of setting up tax shelters.

Pelosi: If surtax passes, it’s staying, get used to it

Jul 16, 2009 19:40 UTC

Madam Speaker speaks (via The Hill) about the surtax and what it might be used for:

I hope we can change that percentage and get much more coming from savings,” Pelosi said. “In fact, I believe that all of the cost of the healthcare reform bill can come from squeezing more savings out of the system.”

Asked why Democrats were proposing more than $500 billion in new taxes if savings alone could fund their healthcare plan, Pelosi said: “We have to have a revenue stream to ensure that the bill will be paid for. If we don’t need that money we can use it to reduce the deficit. … There is going to be a revenue change at the high end. It will be directed to reduce the deficit or … to help reduce the cost of this initiative.

Me: So it really isn’t a surtax is it? It is just a plain-old tax increase — and a big one at that.

The healthcare surtax and bull semen partnerships

Jul 14, 2009 14:06 UTC

Howard Gleckman of the Tax Policy Center throws cold water on Obamacrat attempts to raise income taxes to pay for healthcare reform:

Many of the uber-rich are unlikely to pay much more in taxes than they do now, despite the rate increase. Since we’d be returning to pre-1986 rates, we shouldn’t be surprised when the very wealthy reprise their pre-1986 sheltering behavior. The hoary financial alchemy of turning ordinary income into capital gains, morphing individuals into corporations, and deferring compensation will return. Remember, the targets of these tax hikes are the people who can most easily manipulate their income. The bad old days of bull semen partnerships may not return, but I suspect the financial Merlins are already cooking up new shelters for what promises to be a booming new market. … Raising the top rates to pay for health reform would make President Obama’s fiscal math approximately impossible. We’d have a top rate of nearly 45 percent, a promise never to raise taxes for those making less than $250,000 annually, little or no government revenue from a cap-and-trade system that gives away rather than auctions pollution credits, and trillion dollar deficits as far as the eye can see.

A zero percent income tax rate

Jul 14, 2009 13:48 UTC

Think tanker Peter Ferrara talks up an interesting idea in the WSJ:

But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners?  … Trading an explicit 0% tax rate for the bottom 60% in return for eliminating the refundable tax credits would likely be at least revenue neutral, and probably result in a net increase in revenue. … Moreover, we should then be free to adopt sound tax policy for the top 40% of earners who make 75% of total income. Suppose we tax all of the income of those top 40% once with a 15% flat tax? That would be close to revenue neutral on a dynamic basis (i.e. counting work incentive effects). … All flat tax proposals effectively try to do the same through generous personal exemptions that are tax neutral for low- and moderate-income workers. But the explicit 0% rate would make the reform more easily understood. This — rather than adopting still more refundable tax credits as some conservatives are advocating — is also the way to eliminate the distorting tax preference for employer-provided health insurance. … The economic distortions caused by every other tax preference in the code would be minimized or eliminated entirely in this same way.

My spin: I would like to see a comparison on a revenue and tax efficiency basis of this plan vs. creating a de facto consumption tax by eliminating all taxes on savings and investment.  But it is fascinating as a political framing device. I assume this would also get rid of education and kiddie tax credits, maybe even the mortgage interest deduction? Those would surely raise political hurdles.


Why not just get rid of income tax altogether and raise consumer taxes? It seems to work for Hong Kong, and that way everyone is taxed the same, they just pay more taxes if they buy more stuff.

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The link between deficits and taxes

Jun 18, 2009 20:27 UTC

This chart from ClusterStock confirms what I have been saying: big deficits lead to higher taxes (1982, 1990, 1993, 2009) … at least I think it does



Weather we like it or not …

The economy is a complex and chaotic system. Dynamic and constantly changing conditions are just as impossible to control as the weather. Hurricanes, tornados, dark clouds, sunny days, beautiful weather are beyond the control of man and change from day to day, hour to hour.

Perhaps the mission of the key watchdog should be like NOAA: to monitor and predict and forewarn of disasters looming. Another body would be (capitalized) to come in and rescue and clean up after storms and disasters. Like flood insurance, investors would by “disaster recovery insurance” that would capitalize these disasters for quick recovery.

Although Hurricane Katrina showed us that government agencies charged with responsibilities to respond and rescue the public can (and do) fail miserably, overall, there is no way to stop hurricanes. A better case can be made for forewarning and rescue. If there is sufficient forewarning, investors can use better judgment and “seek shelter” and save themselves, thus saving much carnage and avoidable destruction.

The NOAA model, or in this case MOAN (Monetary Observation And Nominalization,) would be charged with responsibility of alerting and forewarning the public and policy makers of critical conditions occurring in the economy. GROAN would be the public insurance agency that would provide disaster recovery insurance.

A type of value added (value lost) tax could be tacked on to every stock transaction (like a broker’s fee) that would go into a “recovery fund.” This would have many benefits, including a “volatility governor” effect by creating a slighly higher cost to trade stocks, thereby slowing the system and reducing volitility, without impacting economic activity.

I would think this would be policitally acceptable as this would be a type of “greed tax” somewhat like a “sin tax” on tobacco and alcohol.

David Matthews

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