Taxes versus Tax Rates [Reader Post]

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Taxes

While it is true, as the OWS gang claims, that the “rich” are making more of the income (20%), they are also paying most of the income taxes (38%). Since 1980 the rich’s share of income has doubled, but so have income taxes. Those making at least $114,000 in 2008 (the last complete year from the IRS), earned 45% of the nation’s income, and paid 70% of all taxes. The top 25% of earners, those earning at least $67,200, took in 67% of the income, and paid 86% of the income tax total. The average income tax rate paid by those in the bottom half of the income scale is only 2.6%. Couple those facts with the fact that, in 2010, 47% of households paid no income tax. In fact, some in that group will be getting money from the federal government.

Studies show that the largest portion of the federal income tax burden is paid by a small group of the richest Americans. Payroll taxes of 15% are charged on the first dollar of income earned by a worker, and most of the tax is capped at an income of just below $100,000. The richest 1% pay 27.5% of taxes collected, the top 20% pay 72%, and the bottom 20% pay just 0.4% of taxes collected. One reason that the disparity in tax shares is so large is that Americans in the bottom quintile who have jobs get reimbursed for some or all of their 15% payroll tax through the earned-income tax credit.

Tax Rates

One thing the MSM and Democrats love to focus upon is how tax rates have fallen for the “rich.” The latest manifestation comes in the form of the “Buffett Rule.” “[Last year] what I paid was only 17.4% of my taxable income — and that’s actually a lower percentage than what was paid by any of the other 20 people in our office,” wrote Buffett. Obama chimed in, “Middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward.” That is what the MSM reported, but the MSM did not report WHY Buffett paid a lower rate. There are two fundamental reasons. First, Buffett makes a lot of his money from investments, which are taxed at a lower rate than wages. Second, the Social Security tax applies only to the first $106,800 in wages, which means that Buffett and his secretary (assuming he/she makes $106,800) pay the same Social Security tax.

Debbie Wasserman-Schultz, chairman of the DNC, said that we’re at the lowest tax rate since the 1950s. When Wolf Blitzer of CNN (no bastion of conservatism) pointed out to her that the “rich” pay a huge chunk of the federal income tax, Wasserman-Schultz responded, “But they’re still at the lowest tax rate since the 1950s.”

In terms of who pays taxes, there is a big difference between taxes paid and tax rates. Besides, if some of the “rich” want to pay higher taxes in the form of gifts, they are free to do so.

The Deficit and “Tax the Rich”

To partially offset his massive overspending, Obama proposes to raise taxes on the “rich.” His class warfare plan can take him only so far since the rich don’t earn enough to make up the difference for all the spending he plans. The proposed Obama tax hikes, in the next ten years, will take almost $700 billion from taxpayers. That is only 8 percent of the nearly $9 trillion President Obama’s budget adds in debt over that same period. Low tax revenues are not the cause of the debt explosion, spending is. There is no correlation between tax rates and deficits in recent U.S. history. The federal deficit was caused by massive spending increases.

But will it matter? A poll by 60 Minutes/Vanity Fair, conducted from November 29 to December 2, 2010, showed that 61% of Americans polled want to raise taxes for the wealthy as a first step to reducing the deficit

Bush Tax Cuts

The MSM and Obama administration never tire of demonizing the “Bush tax cuts.” They contend that the tax cuts put more of the burden on the backs of the middle class and the poor. But that is simply not true. An analysis of Treasury Department data shows that the “rich” are paying more than they would have paid, not less, after the Bush tax cuts.

And they like to maintain that the “Bush tax cuts” favored the “rich.” In a static world that is true. But the world isn’t static, it’s dynamic. There was more investment, more hiring by businesses, and a stronger stock market. Comparing taxes paid under the old system with those paid after the Bush tax cuts, the rich actually paid a higher proportion of income taxes. The latest IRS data show an increase of more than $100 billion in tax payments from the wealthy by 2005 alone. Why can’t Obama and his economic advisors learn this one fact? But I guess it’s easier to promote “class warfare” by mixing apples and oranges, a static world with a dynamic world.

They also maintain that gains by the rich come at the expense of a declining living standard for the middle class and poor. Again, that is simply not true. The middle class (defined as those between the 40th and the 60th percentiles of income) isn’t falling behind or disappearing, it is actually getting richer. The lower income bound for the middle class has risen by about $12,000 (after inflation) since 1967. The upper income bound for the middle class is now roughly $68,000, $23,000 higher than in 1967. A family in the 60th percentile has 50 percent more real income (buying power) than 30 years ago. And the same thing is happening to the “poor.” Real income levels of the poorest 20% of Americans have actually risen. Economics professor Steve Horwitz explains why this is true.

Conclusion

The rich aren’t paying their fair share, they’re paying their unfair share. But the MSM and the Obama administration ever let facts or the truth get in their way. And have you noticed that they never cite references or analyze data? All they can do is repeatedly play the “class warfare” card.

But that’s just my opinion.

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Hi Aqua: Here’s how Medicare works: Medicare gives out contracts to private insurance companies in different regions of the country (often at the state level) to administer its programs. These individual companies can and do negotiate. But Medicare as a whole can’t negotiate, on a national basis. As a result, our prescription drug costs are double those in the rest of the world (and sometimes more), where governments do negotiate on a national basis. That 23% discount for Medicaid resulting in “cost shifting?” That’s pure baloney. At Medicaid prices, drug companies are still getting paid way more money than they are getting for selling the same drugs in Germany and Japan and Korea and the UK. As I said, manufacturing costs are trivial. Profit margins are enormous. And sales and marketing expenditures are multiples of R&D costs.

You make it sound as if drug companies are losing money on Medicaid. Hah! They simply aren’t making as much as they wish. You think that they’d lower drug prices for everyone else, if the mandatory Medicaid discount was lowered to 10%? Hah! They charge as much to everyone that they can possibly get away with. That’s how capitalism works.

The US government can’t arbitrarily set prices on drugs. It’s a competitive marketplace. Drug companies won’t sell drugs at a loss. Drug companies compete with each other on price at the national level. Germany. The UK. Japan. Korea. Singapore. South Africa. Russia. Everywhere they sell drugs, they are making a profit (even on anti-HIV drugs in Africa). And everywhere they sell the drugs, they try to get the maximum profit possible.

The GOP did indeed put a provision in Part D Medicare forbidding Medicare to negotiate on drug prices — at the national level.

Think about it: the US government awards contracts to lots of industries … let’s look at defense. It doesn’t set prices; it tells the would be contractors what it’s willing to pay them and, when possible, it takes bids from suppliers who say they can beat the established price. Contractors aren’t required to lose money. If they don’t want the government contract, they just don’t bid on it. Drugs shouldn’t be any different than anything else.

P.S. Here’s an informative (and amusing) look at US health care costs (including prescription drug prices), compared to the rest of the world:

http://www.ritholtz.com/blog/2011/04/us-healthcare-vs-rest-of-the-world/

– Larry Weisenthal/Huntington Beach CA

@Larry W: The GOP (in the back pocket of big pharma) … snip

You know, if you insist upon making this a Dem vs GOP issue, it would be nice is you got your facts straight. Right now Obama leads Romney in pharma manuf donations. They’ve not even looked the way of any candidate except Romney with their cash.

In the 2008 POTUS race, Obama outpaced everyone with pharam manuf money, rolling in the dough.

In the pharma/health products (post manuf) category, double the cash goes to Obama as to Romney. Again, they don’t even see another GOP candidate on their fiscal radar. In 2008, here’s the money split for post manuf pharma…

Obama, Barack (D) Senate $2,319,306
2 McCain, John (R) Senate $788,322

So who’s pocket are you babbling about again, Larry? Would be very nice if you’d skip the Dem headline presentation for political points, and get down to the facts that are easily available. I’ll make it easy for you, so you don’t trip over your talking points again in the future.

Here’s the Open Secrets site, nicely sorted by industry. Maybe when you get time from your more important job, you’ll actually breeze thru it – this election cycle and prior – and find out just how gullible to DNC soundbytes you’ve been about who is in who’s pocket, eh?

Hi Mata, The whole “mandate” thing is simply a matter of semantics and point of view. If you want to, you can make it a matter of personal freedom. But that’s not what it is. Under both RomneyCare and ObamaCare, the individual does have a choice: buy insurance or pay a tax to support the cost of providing health care to the uninsured. No one goes to jail for not having insurance (that would indeed be a mandate).

You know more than a little about real estate — help me out on this, if you please. Let’s look at “mandatory” flood insurance, in flood zones. How does this work? Can anyone else come up with situations where citizens have a choice — either pay a fee or tax on one hand or avoid the fee or tax by doing something else?

– Larry Weisenthal/Huntington Beach CA

FEMA flood insurance is only “mandatory” if you have a lien holder on your property, Larry. At that point, the mandate comes from the lender/lien holder as a condition of the loan. Much like a lien holder in a vehicle or RV demands collision and comprehensive insurance on your vehicle to protect their cash investment.

There is no government mandate for a homeowner, who holds the deed to his/her house free and clear, to obtain FEMA flood insurance.

Under both RomneyCare and ObamaCare, the individual does have a choice: buy insurance or pay a tax to support the cost of providing health care to the uninsured.

Actually, that didn’t fly, which is why they did not construct O’healthcare as a taxation power, but under a Commerce power, Larry. They revamped the language for that ill-fated argument in the back rooms in the hours before voting/passage. As for RomneyCare, I pointed out how the US Constitutional arguments used by the sole challenge were the wrong approach, and how the judge did not find sufficient relief to overturn the police power approach.

The basics of most insurance mandates…. from auto to FEMA, i.e…. is that they are there as liability, protecting others, and you have options where you are not forced simply because you are alive. For auto medical/accident liability, it’s for those you injure in an accident. If you have a loan on your car, your lender requires comp/collision to protect his money invested. Don’t want that? Don’t own a car or drive. There is no financial penalties for not owning a car.

For FEMA flood, the only mandate comes from the lender as the payee, protecting his cash. Don’t want that? Don’t own a home, or pay cash outright. No problem, and no penalties.

Only health insurance is the reverse, with a government mandate stating your protect yourself or be subject to financial penalties – all collected under the arm of the IRS. Altho I’m sure the counter argument is that all those uninsured are costing everyone else. Fact is, the uninsured are a drop in the bucket compared to the costs of Medicare/Medicaid.Funny that Medicare and Medicaid don’t go away with O’healthcare tho, don’t you think? And the costs of the uninsured (those hitting ER rooms for colds, etc) fall under the Medicaid programs.

Hi Mata, With regard to campaign contributions, contributors like Wall Street and pharma tend to give the most to the candidates which they think will win, as opposed to the candidates whom they would prefer to win. Of course Obama is getting a lot more than Romney — for now. Obama is the certain nominee. He’s probably got a 50/50 chance of being the next President, as of now. Romney probably has a 60% chance of being the GOP nominee; if he’s nominated he’s then got a 50/50 chance of being elected. So his chances of being President, right now, are probably about 30% (0.6 X 0.5). So more money is flowing to Obama. If Romney sews up the nomination, his contributions will increase.

Anyway, pharma already has the “no negotiation” clause locked in place — in the case of both Medicare Part D and in the case of ObamaCare. They got that provision in return for not being a roadblock to passage of ObamaCare. Once that’s settled, they like ObamaCare for the same reason hospitals and primary care doctors like it — they’ll have lots more paying customers.

I concede that it was wrong of me to try and make this into a Dem vs GOP thing. I should have said “used to have the GOP in its pocket.” This was true, circa the debate on Medicare Part D, where the Dems did, indeed, want to allow Medicare to negotiate over drug prices, but the GOP was resolutely opposed. But, with that issue settled and with ObamaCare also forbidding price negotiation at the national level, Big Pharma has what it wanted and now wants to keep it in place. You may or may not remember that Obama took a lot of heat from liberals for basically selling out the ability to negotiate in return for some token price concessions (I believe a bit South of $100 billion) and for then staying on the sidelines in the debate over ObamaCare.

Thanks for the explanation of how flood insurance works.

With regard to Aqua’s points about individual liberty at the level of drug intake, I have a very libertarian view on this. I’d decriminalize recreational drug use, but I’d have people be responsible for their actions when under the influence, as in the case of alcohol. I think that this would be more consistent with the 14th Amendment than are the national prohibition laws now in effect. I’m dismayed that Holder’s Justice Department is going after California’s licensed marijuana growers. I say the above as one who has never used such drugs.

– Larry Weisenthal/Huntington Beach CA

Larry: I concede that it was wrong of me to try and make this into a Dem vs GOP thing.

Thank you. That’s all I wanted to hear. Both parties are on the take. And in this current, and last two election cycles, it’s the Dems more than the GOP. So that “pocket” is bipartisan, and it disrupts an otherwise cogent argument to stoop down into party points.

Hi Hard:

RomneyCare is a success because fewer than 2% of MA residents are now uninsured, contrasted with greater than 25% in Texas. Plus the law is even more popular with MA residents now than when it was voted into law. Plus it’s overwhelmingly popular with providers. You are unhappy that they are happy.

– Larry Weisenthal/Huntingon Beach CA

No. Like I said, people being happy with something doesn’t prove it’s a success. When we have a leftist shill like yourself claiming it is, I will call you out on it.
I have shown you several times that costs have spiraled out of control, doctor wait times have risen drastically, and rationaing has been started. Yet you come back here and proclaim it a success over and over. Like I said, you are a liar.

BTW, Larry, above I mentioned that the “tax” approach by Congress was dissed in the back rooms as a risky approach, and that’s why they avoided the word “tax” and based their authority on the Commerce Clause.

I did a post about this back in Dec 2010, and explained why Congress changed language from “tax” to “penalty”. Why? Because the oversight scrutiny on “taxes” is far more stringent than penalties. And every bit of this has to do with whether they use Congressional powers of taxation, or Commerce. Much as the MA judge ruled (based on the arguments and approach) in favor of police powers when compared to the US Constitution. With courts, it’s all about the choice of direction in the argument. They only rule on what is presented before them. They don’t tell you that you could have skinned that cat with a different scalpel.

In a twist of irony, this attempt for the Dems’ to have their cake, as well as eat it, in order to avoid political repercussions lies at the heart of the admin’s troubles in the courts today. Whether the fees for not having insurance are considered a “penalty” or a “tax” relates to the specific Congressional authority to impose that fee at all. A tax under the general welfare authority generally has a very limited judicial review. However as a “penalty”, it can only be within Congressional power to levy such a regulatory penalty if linked to an enumerated power other than the General Welfare authority.

Enter the Commerce Clause… the power cited in O’healthcare as their specific authority for both the mandate, and the “penalty.

I highly recommend reading Vinson’s penalty vs tax sections in particular, but he sums up Congressional intent with this:

To summarize the foregoing, it “clearly appears” from the statute itself, see Helwig, supra, 188 U.S. 613, that Congress did not intend to impose a tax when it imposed the penalty. To hold otherwise would require me to look beyond the plain words of the statute. I would have to ignore that Congress:

(i) specifically changed the term in previous incarnations of the statute from “tax” to “penalty;”

(ii) used the term “tax” in describing the several other exactions provided for in the Act;

(iii) specifically relied on and identified its Commerce Clause power and not its taxing power;

(iv) eliminated traditional IRS enforcement methods for the failure to pay the “tax;” and

(v) failed to identify in the legislation any revenue that would be raised from it, notwithstanding that at least seventeen other revenue-generating provisions were specifically so identified.

In short, the lead counsel’s faux pas, and their dual defense argument that it’s a tax instead of a penalty in order to bring it easily under the general welfare powers of taxation, has yielded them a verbal spanking for their political shenigans by a federal district judge, even before the hearings began.

What has become apparent from reading opinions and preliminary rules on motions to dismiss is that the Commerce Clause will end up being center stage, and likely the sole and final battle ground in the individual mandate issue.

As I pointed out above, States and central government can attempt to sidestep Constitutional rights (State or US) in all kinds of ways by the language they use, and the authority they evoke. In the case of Mass, it was argument incorrectly via the 5th and 8th, and the police power won out. I don’t believe they used a more cogent US Constitutional argument that addresses the root question – does any level of government have the right to mandate the purchase of a private sector product or service that focuses on protection of one’s self instead of others (liability. ) Whether State or Federal.

In the long run, this really is a question of “general welfare” and “commerce” construed powers at any level of government, and all mandating consumption of products or services directed at minimizing one’s own personal fiscal loss.

Hi Hard (#58). Life is too short for stuff like this. If you want to have a civil conversation, then I’m happy to talk to you. Otherwise, not so much.

– Larry W

@ Larry
The citation was pretty cool. It didn’t answer any questions and I couldn’t find part 2. I would have been interested in reading Why Healthcare is so Expensive in America. You said:

You make it sound as if drug companies are losing money on Medicaid. Hah! They simply aren’t making as much as they wish. You think that they’d lower drug prices for everyone else, if the mandatory Medicaid discount was lowered to 10%? Hah! They charge as much to everyone that they can possibly get away with. That’s how capitalism works.

That is not how capitalism works. Capitalism would ensure competition and market value prices. But we don’t have capitalism any longer, we have crony capitalism. We have the FDA, who decides winners and losers. People within the FDA that will ensure on company has the market cornered on a drug so that person can feather their nest when they leave the FDA. The same thing that happens with every other government organization. How many news stories have we read just last year about government contract officers awarding contracts to favored companies?
Your bitterness is focused directly at corporations and mine is directed at government. I believe my view is more realistic. I already know that corporations will take advantage of any opportunity. It is the way they are supposed to work. What is not supposed to happen is for the government to facilitate it. The government should not pick winners and losers. The FDA should not favor one drug company over the other and they should not force manufacturers to spend billions to get a drug on the market.
I would love to hear your take on this:
http://www.foxnews.com/opinion/2011/11/09/fda-is-killing-us/