Opinion article - Obama's Stealth Tax Hike

xmacroxmacro Posts: 3,402
With the on-going debt talks, here's an interesting piece from the WSJ:

The White House wants Republicans to agree to tax increases that no one wants to call tax increases, and for an insight into this political method let's focus on one proposal in particular—the phase-out of itemized deductions for upper-income taxpayers. We hope the tea party is paying attention, because this kind of maneuver is why people hate Washington.

The idea is that once taxpayers earn a certain amount of money (say, $200,000), they would begin to lose the value of the various deductions they're entitled to under the law. These include such IRS Form 1040 line items as the personal exemption, the deductions for state taxes and charitable contributions, even those for spouses and children. Earn enough money and soon the value of those deductions goes to zero.

The political point of this exercise is to raise marginal tax rates without appearing to do so. The top statutory individual rate would remain at 35%, so the politicians could claim they hadn't raised rates. But for those losing their deductions, the marginal rate would increase by between one and two percentage points until the phase-outs were complete.

We raise the alarm now because this sneaky bit of political fiddling last became law during a previous bipartisan budget summit—in 1990. Democrats proposed it then, too, and President George H.W. Bush and his budget chief D.ick Darman agreed to it so they could appear to be raising tax rates less than they really were.

Those deduction phase-outs continued to be part of the tax code until the 2003 tax law finally phased out the phase-outs. They are scheduled to return when the George W. Bush tax rates expire at the end of 2012. While the statutory top rate will then rise to 39.6%, millions of taxpayers will pay a top rate closer to 41% as they lose their deductions. This is in addition to the 3.8% payroll tax increase on investment income that will hit millions of these same taxpayers when ObamaCare gears up in 2013.

Only six months ago, President Obama endorsed the extension of the Bush rates (and the end of the phase-outs) for two more years, but now his negotiators want to renege on that deal. They want to reintroduce the phase-outs as part of a debt-ceiling deal, apparently so they can claim they got Republicans to agree to some "revenue increases" in return for spending cuts. Some Republicans might be tempted to go along claiming they didn't raise tax rates.

They'll deserve only scorn if they do. Republicans will be signing on to a tax increase, and one of the more dishonest varieties at that. The phase-out gambit is an attempt to shoe-horn more progressivity into the tax code without admitting it, and to do so in such a way that only tax experts will know what's going on.

One goal of the tax reform that Republicans and Mr. Obama keep talking about is to simplify the tax code, but deduction phase-outs make the code far more complicated. Phase-outs make it impossible for taxpayers to add up their income, look at the tax tables, and know what they owe. The IRS taxpayer advocate service and even the head of the American Bar Association's tax section urged their repeal in the 1990s.

Democrats keep telling us Americans support raising taxes. If that's true, the least they can do is try to raise them honestly.


Comments

  • VulchorVulchor FloridaPosts: 4,803 ✭✭✭
    First-----as is likely expected, Im generally fine with this......but beyond my own personal feelings.....It talks about the Bush tax cuts (which may or may not have placed us in some of our mess right now, but I digress) ending at 2012 and resuming the way it was. To me, this doesnt seem like Obama raising anything, just ending a policy by a prior President...no?
  • cabinetmakercabinetmaker Posts: 2,561
    Vulchor:
    First-----as is likely expected, Im generally fine with this......but beyond my own personal feelings.....It talks about the Bush tax cuts (which may or may not have placed us in some of our mess right now, but I digress) ending at 2012 and resuming the way it was. To me, this doesnt seem like Obama raising anything, just ending a policy by a prior President...no.
    Fixed it.
  • xmacroxmacro Posts: 3,402
    It all kinda depends on what you view as the ideal policy - to me, the Bush tax cuts should've always been permanent - the fact that the Dems passed them in a lame-duck session when they controlled both houses of Congress just says that they know full well the penalties of raising taxes.

    Vulchor:
    To me, this doesnt seem like Obama raising anything, just ending a policy by a prior President...no?
    But by this token, GW Bush ended the Clinton/HW Bush policy and returned to the Reagan policy that HW Bush had deviated from

    Honestly, I'm with the WSJ on this - if the Dems really think higher taxes are the way to go, they should be open about it - come out and say, "We want to increase taxes on certain people - this is what the cut-off is, and this is how we're going to raise them" - be open about it, so the American people can decide where they stand on this issue, instead of this kind of back-door policy of slowly erasing deductions. It's the Stealth part that really irks me; if you really think the debt is such a problem, and taxes are the best way to go about it, why not tell your constituents what you think, instead of this backroom type of dealing.
  • VulchorVulchor FloridaPosts: 4,803 ✭✭✭
    I dont disagree with you there---and I dont think the Dems would get much backlash....hell they would evben get bonus points from the base.....if they said new taxes for people with big figures and over

    ::::OFF TOPIC ALERT:::::I just went to my mailbox and recvd a rather odd letter from someone that leads me to believe that a thank you, threat of future retaliation, and political disclaimers can all be inlcuded in one envelope. I havent seen mail this strange since my grandfather was overnighted a chicken leg in tin can-----though he died shortly thereafter while clucking........Nice letter man, lol
  • Joeyjoe21_8Joeyjoe21_8 Posts: 2,048
    I like how you named is Obamas Stealth Tax hike...come on...we all saw higher taxes due to his BS bailout plans which created virtually no jobs and will cause higher taxes for at least 20 years just to pay that portion off...i have a idea....Less goverment control? lol.
  • PuroFreakPuroFreak Posts: 4,132
    I love to hear the left talk about how the Bush tax cuts are to blame for our debt. Nevermind the fact that the out of control spending we have seen from BOTH parties is what is sinking us. Just do some basic math and the money that would he collected this year if the Bush Tax cuts weren't in place, would equal about 1.5% of the budget deficit... Damn those evil tax cuts.
  • VulchorVulchor FloridaPosts: 4,803 ✭✭✭
    1.5%.....As John Boehner said about the p!ss poor showing by congress and trimming the budget this year...."well, we have to start somewhere".
  • PuroFreakPuroFreak Posts: 4,132
    The point was the 1.5% did not cause the debt crisis in this country. Also that was not directed towards your comment. It stemmed from a Twitter discussion I was having and seemed relevant to this conversation. Also if we ended BOTH wars and ended the Bush tax cuts, we would still have a deficit this year of almost $1.3 trillion. Also if we got rid of all corporate subsidies we would still run a $1.1 trillion deficit. The dems have to admit sooner or later that massive spending cuts HAVE to happen. Unless they want to run on massive tax increases for the middle class... Let's see how that would work for them.
  • VulchorVulchor FloridaPosts: 4,803 ✭✭✭
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
  • stephen_hannibalstephen_hannibal Posts: 4,317
    Vulchor:
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
    I'm starting to warm up to the idea of flat tax (no write offs) at say %15 that would level the field for everyone. Mandatory drug testing for welfare (to be paid for by welfare recipients), Conviction of a felony makes you ineligible to receive federal grants or government assistance at any point for the rest of your life, end federally backed student loans, cut the defense budget... but I guess this isn't a dream word lol.

  • Amos_UmwhatAmos_Umwhat West TNPosts: 4,955 ✭✭✭✭✭
    stephen_hannibal:
    Vulchor:
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
    I'm starting to warm up to the idea of flat tax (no write offs) at say %15 that would level the field for everyone. Mandatory drug testing for welfare (to be paid for by welfare recipients), Conviction of a felony makes you ineligible to receive federal grants or government assistance at any point for the rest of your life, end federally backed student loans, cut the defense budget... but I guess this isn't a dream word lol.

    I've always liked that flat tax idea. Seems fair, doesn't it?
    WARNING:  The above post may contain thoughts or ideas known to the State of Caliphornia to cause seething rage, confusion, distemper, nausea, perspiration, sphincter release, or cranial implosion to persons who implicitly trust only one news source, or find themselves at either the left or right political extreme.  Proceed at your own risk.  

    "There is nothing so in need of reforming as someone else's bad habits."   Mark Twain
  • cabinetmakercabinetmaker Posts: 2,561
    Amos Umwhat:
    stephen_hannibal:
    Vulchor:
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
    I'm starting to warm up to the idea of flat tax (no write offs) at say %15 that would level the field for everyone. Mandatory drug testing for welfare (to be paid for by welfare recipients), Conviction of a felony makes you ineligible to receive federal grants or government assistance at any point for the rest of your life, end federally backed student loans, cut the defense budget... but I guess this isn't a dream word lol.

    I've always liked that flat tax idea. Seems fair, doesn't it?
    +1 on that, also +1 on most of what Stephen said.
  • blurrblurr Posts: 962
    My wife and I have been hoping the welfare recipient drug testing would catch on for years. Honestly I'll vote for anyone who runs on that platform of mandatory welfare drug testing, even if its a Republican. I also think anybody receiving welfare should have to report to work 5 days a week doing city maintenance/etc any work needed around town. Hell even having them walking the roads & highways picking up garbage would make them "earn" their welfare paycheck. Also +1 for a rule that a felony conviction ends any government assistance or grants for life, thats a great idea and would save us sooo much taxpayer moneys.
  • stephen_hannibalstephen_hannibal Posts: 4,317
    cabinetmaker:
    Amos Umwhat:
    stephen_hannibal:
    Vulchor:
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
    I'm starting to warm up to the idea of flat tax (no write offs) at say %15 that would level the field for everyone. Mandatory drug testing for welfare (to be paid for by welfare recipients), Conviction of a felony makes you ineligible to receive federal grants or government assistance at any point for the rest of your life, end federally backed student loans, cut the defense budget... but I guess this isn't a dream word lol.

    I've always liked that flat tax idea. Seems fair, doesn't it?
    +1 on that, also +1 on most of what Stephen said.
    I'm pretty sure I lost you on the last two points. So let me explain. The reason I would end federally backed student loans is that most of the recipients attend for profit colleges and these loans have an extremely high default rate.
    After a few years of lower applicants I believe we would see for profit institutions lower their prices to fit the market. While at the same time state schools would receive more applicants no only bolstering state education standards but also adding a source of revenue to offset the higher demand.
    As for cutting the defense budget I believe our entire outlook on war needs to change.
    The extended occupation is not only costly but as of yet we haven't seen it work.
    The idea of war in our government needs to shift to a simple idea of 'go in eff up the bad guys go home.' At the current juncture I would rather we abandon our occupation and focus our efforts on re-armament.

  • wwesternwwestern Posts: 1,397 ✭✭✭
    stephen_hannibal:
    cabinetmaker:
    Amos Umwhat:
    stephen_hannibal:
    Vulchor:
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
    I'm starting to warm up to the idea of flat tax (no write offs) at say %15 that would level the field for everyone. Mandatory drug testing for welfare (to be paid for by welfare recipients), Conviction of a felony makes you ineligible to receive federal grants or government assistance at any point for the rest of your life, end federally backed student loans, cut the defense budget... but I guess this isn't a dream word lol.

    I've always liked that flat tax idea. Seems fair, doesn't it?
    +1 on that, also +1 on most of what Stephen said.
    I'm pretty sure I lost you on the last two points. So let me explain. The reason I would end federally backed student loans is that most of the recipients attend for profit colleges and these loans have an extremely high default rate.
    After a few years of lower applicants I believe we would see for profit institutions lower their prices to fit the market. While at the same time state schools would receive more applicants no only bolstering state education standards but also adding a source of revenue to offset the higher demand.
    As for cutting the defense budget I believe our entire outlook on war needs to change.
    The extended occupation is not only costly but as of yet we haven't seen it work.
    The idea of war in our government needs to shift to a simple idea of 'go in eff up the bad guys go home.' At the current juncture I would rather we abandon our occupation and focus our efforts on re-armament.

    They'll never give us a flat tax it doesn't fall into their divide and conquor strategy. That would take away their ability to wage class warfare and all kindsa fun stuff they love pulling to make us call each other villains while they strip our freedoms.
  • Amos_UmwhatAmos_Umwhat West TNPosts: 4,955 ✭✭✭✭✭
    blurr:
    I also think anybody receiving welfare should have to report to work 5 days a week doing city maintenance/etc any work needed around town. Hell even having them walking the roads & highways picking up garbage would make them "earn" their welfare paycheck.
    I've been saying this forever, who knows might even lead to a job!
    WARNING:  The above post may contain thoughts or ideas known to the State of Caliphornia to cause seething rage, confusion, distemper, nausea, perspiration, sphincter release, or cranial implosion to persons who implicitly trust only one news source, or find themselves at either the left or right political extreme.  Proceed at your own risk.  

    "There is nothing so in need of reforming as someone else's bad habits."   Mark Twain
  • Amos_UmwhatAmos_Umwhat West TNPosts: 4,955 ✭✭✭✭✭
    wwestern:
    They'll never give us a flat tax it doesn't fall into their divide and conquor strategy. That would take away their ability to wage class warfare and all kindsa fun stuff they love pulling to make us call each other villains while they strip our freedoms.
    Precisely!
    WARNING:  The above post may contain thoughts or ideas known to the State of Caliphornia to cause seething rage, confusion, distemper, nausea, perspiration, sphincter release, or cranial implosion to persons who implicitly trust only one news source, or find themselves at either the left or right political extreme.  Proceed at your own risk.  

    "There is nothing so in need of reforming as someone else's bad habits."   Mark Twain
  • PuroFreakPuroFreak Posts: 4,132
    stephen_hannibal:
    cabinetmaker:
    Amos Umwhat:
    stephen_hannibal:
    Vulchor:
    Kill the Bush Tax Cuts, End the Wars, End the Corporate Subsidies, Reduce Medicare and SS------Im on board for all of em.
    I'm starting to warm up to the idea of flat tax (no write offs) at say %15 that would level the field for everyone. Mandatory drug testing for welfare (to be paid for by welfare recipients), Conviction of a felony makes you ineligible to receive federal grants or government assistance at any point for the rest of your life, end federally backed student loans, cut the defense budget... but I guess this isn't a dream word lol.

    I've always liked that flat tax idea. Seems fair, doesn't it?
    +1 on that, also +1 on most of what Stephen said.
    I'm pretty sure I lost you on the last two points. So let me explain. The reason I would end federally backed student loans is that most of the recipients attend for profit colleges and these loans have an extremely high default rate.
    After a few years of lower applicants I believe we would see for profit institutions lower their prices to fit the market. While at the same time state schools would receive more applicants no only bolstering state education standards but also adding a source of revenue to offset the higher demand.
    As for cutting the defense budget I believe our entire outlook on war needs to change.
    The extended occupation is not only costly but as of yet we haven't seen it work.
    The idea of war in our government needs to shift to a simple idea of 'go in eff up the bad guys go home.' At the current juncture I would rather we abandon our occupation and focus our efforts on re-armament.

    +1 to everything here! A flat tax would be ideal. The liberals constantly attack it as a regressive tax but that is ridiculous. Also the FAIR Tax plan is a good idea, but I think I like the flat tax better.
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