Hey look, a timely article for a change!  Finally I’m addressing a phenomenon before it happens and not days/weeks after it has passed.  Anyway, you may or may not have heard about the “tea-party” anti-tax movement that’s developing around the country.  This tea-party movement consists of people gathering in various cities on April 15th holding protests about the “terrible taxes burdening americans”, and what they see as America’s coming descent into socialism.  Here’s a quote from one of the two fawning FoxNews articles that were up about it today.  From one of the organizers of the tea party protests:

“People are getting killed — they’re getting hammered with taxes and it’s not the way this country is supposed to be run. … We want to fight back,”

Are people really getting hammered with taxes?  I don’t challenge their right to gather and protest taxes or whatever they want, but they may want to check a few facts first.  And to make it convenient for them, I’ve gathered the pertinent graphs and information after the jump.  I should also note before I begin that not all tea-party participants are claiming taxes are too high and that some are doing this for other reasons (to protest the stimulus, just to express their anger that McCain lost etc), I’m not addressing those concerns here.  But these tea-parties are being billed as “anti-tax protests” so this is a significant part of what they’re organizing for and this article will address that issue.  Anyway, as best as I can deduce, here’s some relevant historical perspective…

Taxes on the Average Family

Click to enlarge

First up is this graph showing data compiled from the treasury department.  It only runs up to 2006 but I’m fairly certain the tax rates haven’t changed since then.  It clearly shows that the median-income family of four’s average effective income tax rate is currently at its lowest level since at least 1955.  And Obama’s budget will lower that substantially as described in this AP article.

Also, in this analysis from the Center on Budget and Policy Priorities from 2001 we read, “…this analysis’ update of the CBO data on overall federal tax burdens finds that when households’ total federal tax burdens are considered — including their payroll, excise, and other taxes, along with the income taxes they pay — most categories of households will face a lower average tax burden in 2001 than in any year from 1979 to the present. (1979 is the first year these CBO data cover.) For example, the middle fifth of taxpayers will pay an average of approximately 16.3 percent of income in total federal taxes in 2001, the lowest percentage during the 22 year period examined.”  And once again, for all but the highest earners, these tax rates, already at historic lows, are only going to fall further under Obama’s budget.

Taxes on Corporations

Click to enlarge

What about our poor businesses and corporations?  I mean during the election the (misleading) statistic that America’s corporate tax rates are higher than any other industrialized country was thrown around left and right!  And some members of congress have continued to call for them to be lowered further.  As we can clearly see from the accompanying graph, corporate tax rates are also at near record lows.  Whether or not they need to be lowered further from here is a topic for another article.  But the fact that they’re already lower than they’ve been in 50 years should be enough to make tea-party organizers think twice.

It’s been surprisingly difficult for me to find information on what specifically  Obama’s proposed budget would do to corporate tax rates but it seems that it includes a mixture of focused tax breaks and closure of current tax loopholes and there is some uncertainty about how it will end up affecting the average corporation.  But any change in the average rate will be a matter of a few percent and won’t substantially change our position on the graph.

Taxes on the Rich

Click to enlarge

Here we go!  Everyone knows Obama’s budget raises taxes on the rich right?  Its part of his socialistic plan for wealth redistribution!  Well this graph shows the top marginal personal income tax rate since 1913 according to the IRS.  And as you can see, the rich have had it relatively easy for the last several years.  The current marginal income tax rate for the rich lies at about 35% and Obama’s budget would move it to a little over 38%, which would be about equal with the 1997 levels on that graph.  And keep in mind we’re talking about the marginal rate.  So it’s only the income the wealthy receive that is above and beyond $250,000 that would be taxed at a higher rate.  Anything they make up to $250,000 would actually be taxed at a lower rate than it was before.  So their overall tax burden will increase by something less than 3%.  And these tax increases aren’t set to kick in until after 2011.

Wealth Redistribution

Click to Enlarge

A couple more charts and then I promise I’m done.  While we’re on the topic of wealth distribution and tax stratification, lets look at some of that data.  So when pundits and partisans throw around the word socialism in reference to Obama’s tax policies (they also use the term in reference to his spending policies but that’s another discussion) they’re talking about his lowering of the tax burden on the poor and his raising of the tax burden on the rich.  As we’ve already shown, the rich are getting a pretty paltry tax increase and even so, as this graph shows, our tax policies are flatter than they have been in decades.  The tax rates for nearly all households have been dropping since the 60s, but the rates of the richest have been dropping the fastest.

In fact they’ve been dropping so fast that when you take all sources of taxation into account our tax policies are already flat and bordering on regressive!

Click to enlarge

When you count sales taxes (which are regressive) and all other kind of specialty taxes (most of which are also regressive), the bottom 20% of income earners in this country pay a larger percentage of their income in the form of taxes than anyone but the highest 20% of earners.  and even then its only 1% less!  So when we are starting with what we see here in this graph, a slight decrease in the tax rates of most and a slight increase in the rates of the rich will not result in a substantially imbalanced tax burden by any means.

So what backbreaking taxes are these tea-parties protesting exactly?  Taxes are at historic lows (some would say they’re irresponsibly low) for almost everybody and for 95% of America they’re set to go down further.  Corporate taxes are also near all time lows and our country’s tax burden is spread fairly evenly amongst all income groups.  The only group facing any kind of tax increases at all are individuals with an income of $250,000 and even then its not until 2011, its less than 3%, and their rate will still be much lower than its been for most of this century.  And furthermore that income bracket voted predominantly for Obama in the last election, knowing full well that increasing their income taxes was one of his campaign promises.  So if these tea parties are being organized to protest increasing taxes we can only assume they’re doing it on behalf of the rich, which seems odd in its own right, but even more so when you realize that most of the wealthy don’t actually want the help.

No related posts.

No related posts.

At this point I think most political observers agree that the selection of Tim Geithner for Treasury Secretary was not one of President Obama’s best decisions.  Its not his tax evasion that gets me, though that’s disappointing in its own right, its his apparent inability to recognize the great importance of image in his position.  I’ve just recently watched Geithner’s debut press conference from last week and it was shockingly poor.  Part of Geithner’s problem is that, while he’s undoubtedly an intelligent person with nearly ideal experience and education for his position (he has graduate degrees in East Asian Studies as well as International economics), his boyish features make him look like he’s still a frat boy from some angles.  And his jilted speech, constant eyes on the tele-prompter, nervous rocking back and forth, and deer-in-the-headlights facial expression make him come-off…as someone who is not prepared for his position.  Lastly, and most importantly, his presentation was long on melodrama but very short on details.

Unsurprisingly, the speech was met with significant disappointment and even ridicule as described in this article from the Huffington Post. And the stock market took a nosedive as a result.  Investors were unsettled by the fact that we’re this far along and yet the Treasury is still unsure of the details of the plan, and that Geithner is obviously still trying to settle into his position.  Now of course its very rare that a Treasury Secretary is asked to take office and immediately step into such a difficult situation, it would be hard for anyone to hit the ground running.  And this article from the Washington Post gives us some insight into why Geithner’s “plan” seemed so ill-developed.  But when presenting something this critical everything must be perfect.  If the plan’s not ready, postpone the press conference!  The market may temporarily dip as a result but with the whole world waiting to hear what Geithner has to present he should have held off until he had details that he could present in a polished manner.  We’re talking economics and finance here!  Where consumer and investor confidence are actually quantified and plugged into equations.  Being mindful of the impression his speech will have on listeners is probably more important for Geithner than any other cabinet member.  Americans aren’t going to lose thousands of dollars from their investment portfolio if Hillary blows a speech.

As far as the bailout itself goes I’m a big fan of doing something, I just don’t know exactly what they’re going to do.  I think many people who oppose the bailout due to its expense are forgetting the part that the FDIC has to play in all this.  We are committed through the FDIC to bailout these banks one way or another and stabilizing a failing bank is much, much cheaper than refunding everyone’s accounts after they’ve collapsed.  The bank bailout is a cost-saving measure designed to prevent taxpayers from having to foot an even larger bill should any of the major banks collapse, its an attempt to minimize the debt that we have to lay on the next generation.  And I’m not much swayed by punitive arguments either.  I am frankly not willing to sacrifice the tax-dollars of the American people and the stability of our nation in hopes that if a bank fails some billionaire executive somewhere will feel bad about what he did and try to change his behavior in the future.  Most of those responsible for our current financial crisis have likely moved on to other jobs anyway.  Letting banks fail doesn’t teach anybody anything and it strikes me as a case of chasing the snake when you should be busy sucking out the poison.

What Geithner has laid out so far seems reasonable, and you can read a decent summary of it in this Freakonomics Blog Post, though details are obviously still lacking.  I just hope he can get a plan, and himself, together in the near future so he can restore a little much-needed confidence.

No related posts.

Screenshot from real life political computer game: "Take Back Illinois"

Well the Monday night deadline for CA politicians to agree on a budget came and went so Schwarzenegger was forced to send out 10,000 layoff notices to state employees.  The reason for the stall?  They were one vote short in the state senate.  California has a very unusual arrangement that requires a two-thirds majority in both houses of congress for a budget to be passed.  And after months and months of negotiations and concessions to republicans (the bill now consists of millions more in spending cuts than tax hikes) they were only able to entice 2 of the necessary 3 GOP senators to support the bill.

So when everyone woke up the next day and 10,000 more Californians were facing unemployment, did any of the senators who had voted against the bill, have second thoughts?  Did they acknowledge in anyway that thousands of CA families would now be suffering (and not to mention on the unemployment and/or welfare roles of the state) because of their posturing?  Nope.  In fact they gave a big raspberry to bi-partisanship and ousted the senate minority leader who helped negotiate the compromise bill.  The reason for these legislators’ ire?  The bill still contains tax hikes.  Literally, many of them will not vote for the legislation if it contains any tax hikes at all.

Unfortunately, CA is facing a 42 billion dollar deficit that absolutely cannot be fixed by spending cuts alone.  Governor Schwarzenegger recognizes this:

“If you think that you can do this budget without any increase in revenues then you have a big math problem because you can’t erase a $42 billion deficit without revenue increases,” Schwarzenegger said. “I hate taxes, but you when you are faced with that kind of reality, that’s what you have to do. We can only solve this problem with additional revenues and with spending cuts.”

We slashed 11 billion from the budget last year and the current budget has 15.2 billion in further spending reductions in the works.  I don’t think we can cut our way to solvency without unconscionably…canceling basic state services.  I respect the small government perspective, I really do, but now is not the time for extremism on this issue!  If the current budget is passed we will experience the largest reduction in the size of CA government in history as far as I’m aware.  Isn’t that enough?

Of course this isn’t only about tax hikes or spending cuts.  Being the holdout gives you great power and awesome negotiating rights.  You can ask for whatever you want while holding the collapse of the state as your ace in the hole.  And the negotiations began today.  Senators are coming forward and saying they’ll vote for the bill if certain conditions are met.  Sen. Abel Maldonado is one of them.  Does he want some substantive change to the bill?  Does he want lower taxes?  Does he have a new idea for streamlining state government? No, he wants two particular amendments added to the state constitution for him. One of which ironically punishes legislators for not meeting budget deadlines.  Now these amendments may or may not be a good idea but that’s not the point.  What’s upsetting is that Sen. Maldonado and others are using this bill as a lever.  They’re holding out on the budget as a legislative technique, a way to exercise disproportionate power.  He’s putting us at risk so he can try to force the legislature’s hand on an unrelated constitutional issue.  These are the political games I’m talking about.

Of course our state legislators are just mimicking their national counterparts.  After massive concessions were built into our federal stimulus bill (30-something% tax relief when anything over 20% is irresponsible in my book) stimulus opponents complained loudly of lack of input until that number was bumped up to 42% in the senate compromise.  This number was very close to the 46% that Rush Limbaugh proposed for America but it still wasn’t enough!  Republicans knew they could hold out indefinitely and concession after concession would have to be made to appease them, while they could accuse the other side of a lack of bi-partisanship.  When it was apparent that the bill would pass they complained even louder.  They could use even more inflammatory rhetoric now because their opposition had no real world consequences.  It just made them more popular with their conservative base.

Many governors are now in a similar position.  The national governors’ association came out strongly in favor of the stimulus bill but as soon as provisions were added to the bill allowing state legislatures to accept the stimulus funding even if the governor opposed it, governors all across the country started speaking against it.  Because they can now appeal to their conservative base, and come off like small government heros, all the while knowing that their state will receive the federal funds it needs regardless of what they say.

Obviously the Right doesn’t have a monopoly on these methods by any means.  I think to some degree its the natural tendency of the minority party to pull these kinds of stunts.  But I guess I had hoped that in these dire times we would pull together at least to some degree (as we did during september of 2001) and refrain from this kind of posturing.  Instead it feels like while Americans are losing their jobs,  legislators are busy playing a political game that uses our livelihood as the pieces and the media as the board.  And as long as tactics like this are alive and well in American politics, bi-partisanship will continue to be a pipe dream.

No related posts.