Monday, November 21, 2011

The GOP Tax Plan - Ignorance, Insanity, or Greed?

What is the real Republican game plan?

Federal income tax rates are already at historically low levels, but the Republicans insist (demand) that they still be lower!

During the Great Recession the median family income has paid less in federal income taxes than at any time since at least 1955, according to the Tax Policy Center.

Big businesses and their CEOs have been earning record profits and record salaries these last few years, even though the Republicans and Tea Party have been constantly claiming that they have been paying too much in taxes.

When George W. Bush was President, they weren't making these claims, even though the tax rates are exactly the same today under Obama as they were under Bush.

Today the Republicans and Tea Party are repeatedly saying, "We don't have a revenue problem, we have a spending problem."

And they invoke panicked fear by constantly exclaiming, “Spending is out of control!"

As far as RECENT spending, under Bush we had a bank bail out, and under Obama we had a stimulus bill. We also extended the foods stamp program and unemployment benefits after all the mass layoffs during the presidential transition from Bush to Obama. (ObamaCare® hasn't kicked in yet, and as far as the "spending" or costs related to it, that's still being debated.)

The combination of three Middle East wars, higher domestic spending, the recession, and lower tax revenues spurred the deficit to new heights.

The Republicans and Tea Party have been repeatedly complaining about high taxes when in reality, the federal income tax rates for all income earners are actually at historically low levels...and they have been, ever since the Bush tax cuts.

The argument to lower taxes to stimulate the economy to promote job growth is a gross misconception by the public at large because of the gross deception of tax advocates by people such as Grover Norquist. In 1921 the U.S. Secretary of the Treasury Andrew Mellon had made that same argument, that "significant tax reduction was necessary in order to spur economic expansion and restore prosperity." Then we had 1929 on Wall Street.

Federal income tax rates are already historically low, but the GOP demands that they be lower, or if not, to at least have the Bush tax cuts made permanent, and the budget, deficit, and infrastructure be damned...just make cuts in Social Security and Medicare.

As the current tax code is now written, the higher income earners get the most tax relief because of thousands of provisions and clauses the higher income earners and large corporations can best benefit from, making the tax code so complicated.

The Republicans, and special interests who are backing the Tea Party, want to force cuts in the budget so as to force cuts in Social Security and Medicare. Because the higher income earners and large corporations have been paying TOO LITTLE IN TAXES for so long (and because of two un-funded wars) is the reason why we have a budget "crisis", not necessarily just because of government spending.

And when the Republicans and Tea Party mention "government spending", they are referring mostly just to Social Security and Medicare, but never to defense spending. When responsible and honest people refer to government spending, they look at all aspects, such as waste, fraud, and abuse in the Medicare program.

But rather than cut the fraud, the Republicans and Tea Party have been more focused on cutting benefits from the recipients. And although there's likely more waste, fraud, and abuse in defense spending, Republicans and the Tea Party would rather not cut "benefits to recipients" of defense spending, such as the corporate giants Lockheed Martin, General Dynamics, Northrop Grumman and Boeing.

Recently the House of Representatives approved a measure that would repeal a 3% tax-withholding requirement on government contractors, which was one of several congressional efforts to crack down on their tax evasion that business lobbyists have successfully opposed.

And these corporations (government contractors) in the military industrial complex, either don't pay the full effective corporate tax rate, or pay no taxes at all. The 25 top U.S. companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study done by the Institute for Policy Studies.

There's the top 1% of wealthy Americans, and then there's the top 0.01% (bankers, oil tycoons, hedge fund managers, CEOs, etc)

  • Lockheed Martin CEO Robert Stevens: $21.9 million
  • Northrop Grumman CEO Wes Bush: $22.8 million
  • Boeing CEO James McNerney: $19.4 million

The federal income tax rates for all income earners are actually at historically low levels in 2011, but ESPECIALLY so for these higher income individuals, because while although the upper margin is higher for those who earn over $379,000 a year, bankers, oil tycoons, hedge fund managers, and CEOs receive the bulk of their personal income from capital gains on stocks and bonus pools, not from a base salary that would normally be taxed much more.

Most Americans, on average, pay between 15% and 25% (before deductions and exemptions) from their hourly pay or weekly salaries in their paychecks. Bankers, oil tycoons, hedge fund managers, and CEOs only pay 15% from their capital gains. Also, most Americans pay Social Security and Medicare taxes on 100% of their total earnings, whereas these taxes are capped at $160,000 on the higher income earners (paying only a small fraction of a percentage of their wages in Social Security and Medicare taxes).

The low effective tax rate for the top income tax filers is largely due to the fact that capital gains and qualified dividends are taxed at much lower rates than ordinary income. During the last economic expansion (from the end of 2001 to the end of 2007), two-thirds of the nation’s total income gain flowed to the highest-income 1 percent of Americans.

After going over the U.S. Tax Code dating back to 1921 (the rise and then subsequent lowering) of corporate and capital gains taxes over the past 90 years, you'll realize it almost perfectly aligns with the rise and subsequent decline of the middle class (peaking in 1979). This can be no coincidence by any stretch of the imagination.

In 1963 the highest marginal income tax rate was 91% - - and at 35% today, it's well below the 50% rate in the 1980s and the 70% bracket of the 1970s.

In 1951 corporate taxes (as a share of GDP) peaked, and then declined to it's lowest level today in 2011, going back to 1946. Today the corporate tax rate is 35%, but also with many more loopholes than the days of yore - and the average "effective" rate they now pay is only 18.5%.

At 25% the corporate tax rate is lower in China, but they don't enjoy all the loopholes in their tax code that domestic American businesses do. When it's argued that American corporations need lower taxes to be more globally competitive, is an outright lie.

Multi-nationals go overseas for lower wages and less environmental restrictions; high taxes in NOT why they outsource jobs. But corporate entities will say and do anything to save or earn a dollar - that's just the nature of earning profits in a capitalistic economy.

But here is the NUMBER ONE REASON why the people who run these multi-national corporations are earning so much money, but paying so little in income taxes on their personal earnings: The bankers, oil tycoons, hedge fund managers, and CEOs are paying historically low federal taxes.

In 1921 capital gains taxes were 14.5%, and went to their high in 1977 when they were 49%. Today they're only 15% - - about where they were 90 years ago when the tax code was changed to no longer tax capital gains as regular income.

So how can the Republicans and Tea Party complain about "high taxes" when they know for a fact that this is blatantly false? Why do they keep saying, "We don't have a revenue problem, we have a spending problem" when they know for a fact that this is blatantly false? Why do they say that the cost of Medicare and Social Security is the only reason for our current "debt crisis" when they know for a fact that this is blatantly false?

And why do the Republicans and Tea Party refer to Social Security and Medicare as "entitlements" but refer to corporate welfare such as tobacco and oil subsidies and "incentives"? Why is it that they infer that Social Security and Medicare is "wasteful government spending", but yet have no qualms about pork spending in their own districts (including defense contractors, which are in almost all States)?

Federal income tax revenues should benefit the majority of the citizens the most, not just the very wealthy and large corporations, who are also paying the least amount as a percentage of their gross earnings, especially when compared to most other working-class Americans, the unemployed, the working poor, and abject poor (the 99%).

And at this moment, in the congressional deficit-reduction "super committee" the Republican negotiators are proposing only a modest increase in revenues of about $30 billion a year, but ONLY if Congress permanently extends all the Bush tax cuts. This would be a HUGE shift in tax burdens from the top of the income scale to the middle and bottom.

In other words, so that the rich can continue to get richer, so that the poor will always get much's business as usual.

While Republican lawmakers appear unified against tax increases and many Tea Party activists want existing rates rolled back, statistics consistently show that federal taxes are at an historic low.

“Some put tax cuts at the bottom of the list of things that stimulate the economy,” said Robert Williams, an economist at the Tax Policy Center. The currently low tax rate have helped give the U.S. government the lowest revenues as a percentage of gross domestic product of seven industrialized countries surveyed in 2010 by the Congressional Research Services. The U.S. also had the lowest spending as a percentage of the GDP.

The U.S. could close the annual deficit immediately by simply raising taxes – and still come in at a lower tax rate than Germany, Italy and France. But that's not an argument that goes over well with Tea Party activists – whose name stands for "Taxed Enough Already".

“I don't think we want to model ourselves after a near-socialist Europe,” said longtime Republican consultant Sal Russo, co-founder of the Tea Party Express." The tax burden is way too high. It's immoral for us to spend money like a drunken sailor."

Not all Tea Party activists share Sal Russo's understanding of the tax structure. For instance, Mission Viejo's Connie Lee, a retiree who turns out Tea Party demonstrations, was surprised by statistics showing personal rates were relatively low: “I'm stunned to hear that.

Richard Morrison at The Tax Foundation said people like Connie Lee have plenty of company when it comes to misperceptions about taxes. “The average level of fiscal policy savvy on the part of the American public is not very high."

Republican Paul Ryan's budget proposal, that was deceptively and ridiculously named A Path to Prosperity, has been highly praised by Republican leaders who want:

  • sweeping cuts in Medicare and Medicaid (for old and sick poor people).
  • a "reform" of Social Security (although Paul Ryan used it for college tuition).
  • a reduction of taxes on corporations (who are already paying very low effective rates).
  • a lower tax rate on the richest Americans (over $379,000 a year) changed from 35% to 25% (the same as those earning $35,000 a year - - even though the wealthiest are already only paying 15% on their capital gains).
  • spending cuts on education, food stamps and low-income housing (stuff that poor and working-class Americans need).
  • NO CUTS in defense spending for large corporations that are the big campaign contributors to Republicans.

You see, the Republican's and the Tea Party's financial backers don't care at all about the impact this will have on ordinary working Republican and Tea Party voters. (It's not so much a moral ideology, or even race, that divides the classes in a GOP hierarchy, it's ones level of personal wealth that assures prominence).

President Obama only wants to raise taxes (a little) on those earning over $1,000,000 a year - - and many experts agree that Paul Ryan's Draconian plan to punished the poor and middle-class, who have already sacrifices so much already, won't solve the problem.

The Tax Policy Center's Bob Williams says, “The Tea Party's view is that we cut spending, cut spending, cut spending - - and reduce taxes a little bit. But that's only a minority view of how we're going to reduce the deficit.

The majority of all Americans want higher taxes on the ultra-rich, even the Republicans voters; but the Republican (and Tea Party) leadership steadfastly REFUSES to raise them, complaining that they're already too high now (when in fact they're historically low) and wants to lower them more! Is the Republican's proposed deficit-reducing "tax plan" based on ignorance, insanity, or just pure greed? (Or a combination of all the aforementioned).

At Cal State Fullerton Raphael J. Sonenshein, professor of political science and public administration, says the spending side of the equation has been the focus of debate, while the government's lagging revenue stream is an equally important component. And he thinks he knows why lawmakers haven't worked harder to inform the public that taxes are at an historic low: “What rational person in the political arena is going to argue that taxes aren't very high?”

But this blogger agrees with Al Sharpton, who is now saying: "It's the Republicans who ruined our economy, but they say, we didn't do it! Yet they're the ones who have pie all over there face...because they're the ones eating the pie!"

NOTE: The Republicans like to say that, "Obama ran up more debt in one year than any other President in history, from Washington to the present."

Which is true, but...

What the Republicans don't say is that the vast majority of our national debt was acquired since Ronald Reagan, and almost half of that was under George W. Bush.

When President Obama took office the national debt stood at $10.626 trillion. To date it now stands at $15.032 trillion.

To put that into perspective, after Bill Clinton when President George W. Bush took office, our national debt was only $5.768 trillion. By the time Bush left office, it had nearly doubled to $10.626 trillion.

After Bush signed off on TARP for the banks, Obama was left with rising unemployment during the massive layoffs that began under Bush, which meant more spending for unemployment insurance benefits for over 10 million people at any given time - - out of 14 million that were unemployed.

The recession meant that there was less money coming in. High unemployment led to foreclosures which led to less property tax revenues on the local level because of the housing collapse. Obama was left to sign off on a stimulus bill to assist state budgets (which Republicans benefited from as well).

And the recession also required Obama to spend on tax cuts for middle-class families to help spur the economy (lower Social Security taxes).

And finally, Obama was also blackmailed into extending the Bush tax cuts for the rich in exchange for extending unemployment benefits and food stamps for the jobless last December.

In the eyes of the Republicans, the "debt crisis" didn't become a debt crisis until immediately after Obama was elected. But it's just a GOP excuse to cut programs such as Social Security and Medicare for the middle-class and poor....something the GOP has wanted to so since 1965, but the GOP NEVER wants cuts in "defense" spending.

The current "debt crisis" was primarily driven by these 6 factors:

  1. A 1912 Republican-sponsored tax code that gave preferential treatment to capital gains.
  2. The Economic Recovery Tax Act of 1981 which cut taxes for the wealthy under Republican President Ronald Reagan.
  3. The Republican-sponsored Gramm-Leach-Bliley Act in 1999 which de-regulated the banks and caused the housing crash.
  4. Excessive waste, fraud, and abuse in the military industrial complex
  5. The Bush cuts in 2003 (lowering capital gains taxes) and two un-funded Middle-Eastern wars.
  6. Tea Party politicians that were elected to the House of Representatives in 2010, that proposed more abortion bills than jobs bills.

Low Corporate Taxes = Excessive CEO Salaries

It doesn't matter what a corporation pays in taxes as compared to GDP, or how it's compared to any other index of measure (to skew the numbers), it's what they actually pay to the U.S. Treasury after loopholes (aka "deductions") that matters most. And for the last 25 years corporations have actually paid historically low taxes.

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

The same can be said for their CEOs and other high-income earners. While although the top bracket is also almost historically low (at 35%, when it was once over 90%), what they actually pay is nearer to 15% because the majority of their income is earned through capital gains.

And because corporations have been paying a low effective corporate tax rate for decades, that didn't keep them from outsourcing jobs overseas for cheap labor, but rather, it did enable them to pay very excessive CEO salaries...who only mostly pay 15% in federal income taxes on their capital gains.


  1. UPDATE:

    This ill-conceived scheme to make an end run around public opposition to major spending cuts to entitlement and social programs has foundered....and failed. (YEAH!!!!!!!!!!!!!!)

    The Joint Select Committee on Deficit Reduction with broad powers to sidestep the traditional congressional quagmire, the panel would somehow be able to craft a "grand bargain" that trimmed Social Security, Medicare and Medicaid while perhaps raising taxes on the wealthy.

    Sources familiar with negotiations have been saying for more than a week that the sides were deadlocked, primarily over how to treat the Bush-era tax cuts for the wealthy.

    Public policy priorities will be determined by the American people in the upcoming election. And the conversation has moved dramatically away from deficit hawking and austerity measures. With the Occupy Wall Street protests elevating economic inequality in the political conversation, and Europe teetering on the brink of crisis, calls to slash social spending have less resonance.

    While it's true the law requires automatic cuts to be triggered in the event that the super committee fails to reach a deal, that ax isn't scheduled to fall until 2013, after the presidential election. The Bush tax cuts expire on the same day and could become part of a compromise to stave off the sequestration.

    Members of both parties have already said they'll fight to save the Pentagon from cuts.

    And the idea of raising any taxes at all is toxic to the GOP base and lawmakers who have signed Grover Norquist's anti-tax pledge.

    Even if the automatic cuts do kick in, entitlement programs will be spared. Democrats would also have the leverage of those expiring Bush-era tax cuts.

    The current cuts to the payroll tax are set to expire at the end of this year, emergency unemployment insurance is due to run out, and Congress has to find ways to deal with legislatively mandated cuts to physician payments in Medicare. It also must prevent the alternative minimum tax from kicking in at levels that dramatically hike taxes for the middle class.

    In the next presidential election year, both sides will have to state their cases to a suddenly more motivated electorate, with Tea Party fervor being matched by rising anger over income inequality and the growing Occupy Wall Street movement.

  2. Good Read (especially if you're in the Tea Party)

    The big political lie of the Super Committee is that the deficit must be closed mainly by cutting government spending rather than by raising taxes on corporations and the super-rich. Both parties are complicit. The Republicans want to close the deficit entirely by cutting spending. On either approach, the poor and middle class would suffer grievously while the rich and powerful would win yet again (at least until the social pressures boil over).

    The key to understanding the U.S. economy is to understand that we have two economies, not one. The economy of rich Americans is booming. Salaries are high. Profits are soaring. Luxury brands and upscale restaurants are packed. There is no recession.

    The economy of the middle class and poor is in crisis. Poverty and near-poverty are spreading. Unemployment is rampant. Household incomes have been falling sharply. Millions of discouraged workers have dropped out of the labor force entirely. The poor work at minimum wages to provide services for the rich.

  3. Almost 70% of all capital gains taxes are paid by the top 1%

    A week after hinting he may raise the capital gains tax, Jon Huntsman proposed eliminating it altogether.