Washington Unites — To Screw The Middle Class

The big buzz words in the recent election were “middle class.” Every pol in both political parties claimed to be fighting to save or protect the middle class. None were more emphatic about claiming to be a friend of the middle class, its protector, than Barack Obama.

The election ended and we had a big debate about taxes. Mr. Obama, playing his usual fade and cave role, backed off from a years-long pledge to let Bush-era tax rates for the top two percent rise to Clinton-era levels, fading and caving to a $400,000-$450,000 level, a huge win for the rich. In return, the Republicans allowed Bush-era lower income tax rates for the middle class — those making less than $200,000, or $250,00 in family income — to stay in place, something they were willing to do before the negotiations started.

That’s how Mr. Obama (and go-along Democrats) protected the middle class on taxes. He didn’t fight, however, and certainly the Republicans didn’t fight, to keep the Payroll Tax rate at 4.2 percent. It rose back up to 6.2 percent.

Since three-quarters of American working people (a.k.a. the middle class) pay more in this tax than in income taxes, the net result of saving the middle class on income tax hikes while not protecting it on Payroll Tax (a.k.a. Social Security Tax) hikes is that taxes have gone up for almost all middle class taxpayers by virtue of this tax deal.

Here’s another way to look at this so-called “compromise.” If Bush-era tax cuts for all taxpayers had simply been allowed to expire, while the Payroll Tax rate had been kept at 4.2 percent, the middle class would have been better off on a net basis.

Ah, but you may have heard that this lower Payroll Tax rate might soon be reconsidered by Congress and the President down the road. Will this, if it happens, end up benefiting the middle class?

If you think that you don’t understand today’s Washington. A place where no matter who gets elected on whatever platform, the rich are aided and protected and the middle class is screwed. (The poor, or course, are no longer even considered. Their disenfranchisement and abuse is taken for granted.)

In return for lower Payroll Tax rates, Republicans would certainly demand, and likely get from a fade and cave president, middle class stiffing cuts in entitlement programs. Or Republicans would demand so-called “reform” of the Social Security. This might include a higher retirement age to collect Social Security, or reduced benefits, or a new way to compute annual COLA adjustments that would cut future benefits indirectly. Any of these would naturally hurt the middle class but not touch the rich at all, because the Payroll Tax is now collected only on incomes of $113,000 a year of less.

There are, of course, other ways to “reform” Social Security. The tax could be collected on all incomes, for example, even income from dividends and capital gains. And were this done, the Payroll Tax could be less than 4.2 percent on individuals, and perhaps lower on the Payroll Tax share paid by business as well, a huge incentive to boost hiring.

Such a real reform is not even under consideration in present-day Washington. Not with a big buck bought Republican Party, and a Democratic Party whose members that are not totally brain dead on issues are nonetheless prevented from being real middle class defenders by a need to support their party’s current fade and cave head.

One of these days, from the still breathing segment of the Democratic Party, or a new Working Americans Party, true middle class defenders will arise again. Let’s hope it starts happening as soon as the 2014 elections. Because, dear friends, it ain’t gonna happen any time before that.

(My two most recent novels, Fifteen Feet Beneath Manhattan and The Bellman’s Revenge, are available on Amazon.)

47 Comments

  1. Who really advocates for the middle class and the working poor? Nobody that I can see. (sorry, lip service doesn’t count).

  2. Well the fact is that the payroll tax isn’t without a goal. It pays for something that all people are definitely going to need, and the 6.2 rate is where it should be. That was a temporary relief and was going back up to that rate at some time anyways. I don’t think its the royal screwing some are making it out to be. I’m more disappointed that the new top tier bracket was created instead of keeping it to $200/250k. That basically cut by around 1/3rd the new revenue coming in and I doubt that the money is going anywhere but into derivative investments.

  3. It would be much smarter to remove the cap on payroll taxes so everyone has to pay equally. They need to restore the contributions by the wealthy to their historic levels. That would close the Social Security funding gap in an equitable manner rather than making cuts. Hey, if those making over $113k don’t need to pay into it, then they don’t need to collect it when they retire I guess.

    I realize getting the Republicans to understand that this is the fair and reasonable solution is like battling with the devils of Hell, but preferable to lowering the PRT on the middle/lower classes where they would want to exact their pound of flesh!

    Heard a joke the other day, which is really not so funny. ” Many Republicans don’t hate minorities……but they all hate the poor.”

    All any of us can do to change the inequity is write our congress, the White House, and sign petitions til we’re blue in the face.

  4. The cap on payroll tax should be eliminated. Everyone should pay into SS equally. By restoring contributions by the wealthy to their historic levels, it would close the SS funding gap.
    Lowering the PRT on the middle/lower class again would only be another trigger for the Republicans to exact their pound of flesh since those classes were “favored” due to our crummy economy.

    Heard a joke the other day, which is not so funny. ” Many Republicans don’t hate minorities……but they ALL hate the poor.”

  5. “It pays for something that all people are definitely going to need”
    How is this different than what income tax is used for? Should people only pay for what they themselves will need?

    “Many Republicans don’t hate minorities……but they all hate the poor.”

    They hate policies that keep the poor poor.

    “I am for doing good to the poor, but…I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. I observed…that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
    Benjamin Franklin

    “The Wrong Way to Help the Poor”
    http://www.nytimes.com/2012/10......html?_r=0

    I’ve heard it said that Rep’s are generous with their own money and Dem’s are generous with other people’s money:

    “Rich businessman Mitt Romney gave more than 16% of his income to charity last year. A few years back, Barack and Michelle Obama gave less than 1% of theirs. Aren’t Republicans supposed to be the heartless ones?
    According to their tax returns, the Obamas gave to charitable causes just $10,772 of the $1.2 million they earned from 2000 through 2004. In 2005 and 2006, they boosted their giving a bit to 5%.
    How about Vice President Joe Biden? Surely he could top the Obamas and save some face for the party that purports to be all about helping the poor. But no.
    Biden and his wife gave an average of $369 a year to charity for the decade preceding his vice presidency, according to USA Today. That amounted to 0.3% of their income. They haven’t been much more generous since Biden became veep. In 2010, they gave $5,350, or roughly 1.4%.
    Maybe the Clintons, the last Democrats to hold the White House before the Obamas, can save the party’s reputation. From 2000 to 2006, their donations averaged 8.26% of income, from a low of 1.21% in 2002 to a high of 12.57% two years later, says the Tax Foundation.”

    http://news.investors.com/ibd-.....others.htm

  6. Republicans hardly hate policies that keep the poor poor. Too many examples to note in policies over the years, but suffice it to say that in THIS instance, there is just no excuse. NO excuse not to have payroll taxes for all income levels. None whatsoever.
    If all brackets benefit from SS, then all should have to pay into it. The policy that keeps them from doing so now was a Republican one to protect the wealthy.

  7. They pay payroll tax on their income up to 113K. This is also the income used for benefit calculation.

    Regarding the poor, the Rep’s tend to have a philosophy that depriving a government agency of money will drive efficiency. It takes more than that. The article I posted above from NY times is very good. This is good too.
    http://www.nytimes.com/2011/06......html?_r=0

  8. Churches aren’t charities. They are more like SuperPacs.

  9. Good article thanks Zusai. Germany also has a much sounder approach to unemployment than we have.

    The big and I mean BIG difference between us and them is that their government wasn’t imbalanced so drastically to begin with with as ours was. They also didn’t and don’t devise laws and loopholes to protect the wealthy as does ours.

    We just started on a track that never ended, where the wealthy just kept pulling ahead of the middle class, farther and farther. Consequently, they became ( become) more and more powerful. They buy our politicians and dictate our laws and regulations…and all to suit them and those who serve them.

    But I don’t want to hijack this post so I will just say that once again, we possibly see things differently on the issue of payroll taxes.

  10. Just to clarify one point. The way it is now, people who earn say $50k a year have to pay 6.2% on all their income. People who earn $226K a year pay 6.2% on only HALF of their income. Makes a pretty big difference at the grocery store.

  11. “Makes a pretty big difference at the grocery store.”

    I get your point, sheknows. On the other hand somebody’s got to have enough after tax income to be able to afford to shop at Whole Foods.

  12. LOL…True…or as I call it Whole Paycheck Foods.

  13. The person taxed at 6.2% on 50K, gets 50K credit in benefit calculation.
    Would the person taxed at 6.2% of 226K get 226K credit or 113k in their benefit calculation? Because the answer is 113k, the extra 7k the 226k earner would pay would be forfeited to the system.

    I’m not necessarily against progressive taxation of social security (I think it is preferable to means testing which could discourage personal saving), but we need to look at both payments into and out of the program when discussing fair.

  14. No offense, but this statement is simply incorrect.

    Here’s another way to look at this so-called “compromise.” If Bush-era tax cuts for all taxpayers had simply been allowed to expire, while the Payroll Tax rate had been kept at 4.2 percent, the middle class would have been better off on a net basis.

    Let’s say you are a middle class taxpayer with an AGI of $50,000. The change in the payroll tax cut costs you $1,000. The change in the tax rates would have cost you far more.

    Under the tax rates that pertained under Clinton, you’d pay $8,300 in income tax

    Under the tax rates that pertained in 2011, you’d pay $6,650 (or $1,650 less).

    Last I checked $1,650 was larger than $1,000.

    And while we are at it, this is also incorrect.

    The cap on payroll tax should be eliminated. Everyone should pay into SS equally. By restoring contributions by the wealthy to their historic levels, it would close the SS funding gap.

    First off, I assume you mean paying in equally as in equal tax rates. Second, I’m not sure what you think the “historic levels of contribution were for “the wealthy.”

    In 1960, to pick a random date, the FICA tax topped out at $4,800. In that year, 6.5 million of the 45.4 million families in the US had income over $10,000. So about 14% of families had income above 2x the FICA cap.

    http://www2.census.gov/prod2/popscan/p60-037.pdf

    Let’s contrast that with today. According to the TPC, the number of families with income over $200,000 (a bit less than twice the FICA cap) is a shade less than 7 million of about 163 million families or more like 5%. So the number of HHs that earn more than twice the FICA cap has declined from 14% 50 years ago to less than 5% today.

    http://www.taxpolicycenter.org.....ocTypeID=7

    So restoring the FICA cap to its historical level of having 14% of families with incomes above the cap would reduce the FICA cap to between $60,000 and $70,000. I hardly think that would close the funding gap.

  15. Thanks Steve. I knew I was probably being overly simplistic.

  16. What do you mean” benefit calculation?” You are saying that the current system is fair, and that there really IS no payroll tax cap in existence, and Dem congress has been trying to change that non-existent inequity for years because …why?
    BTW, means testing wouldn’t discourage personal saving one bit. In fact, it would encourage it since why WOULD the wealthy want a “Government handout”?

  17. Sheknows,

    I’d suggest reading the CBO report. Benefits are calculated on the basis of lifetime contributions.

    One of the reasons raising the cap is a poor approach to solving the funding issues is that benefit payouts would go up at the same time so you wouldn’t save as much money as you think you would.

    To quote two conclusions from the report

    However, for people
    born in the 1940s or later who have household
    earnings in the second quintile or above, the present
    value of taxes will be, on average, more than the
    present value of scheduled benefits. Also, taxes are
    projected to be insufficient to pay for scheduled
    benefits, so benefit-to-tax ratios for payable benefits
    generally will be lower than for scheduled benefits.

    Benefit-to-tax ratios are lower for people with
    higher household earnings, in part because the benefit
    formula is progressive and in part because those
    with lower earnings are more likely to receive disability
    benefits, dependent benefits, or both. Those
    effects are partially offset by the longer average life
    expectancy of higher earners

    I’m saying the current system is highly unfair to the wealthy since, on average, they will receive somewhere between 40 and 75 cents per dollar of contribution while the poor will receive somewhere between 100 and 175 cents on the dollar.

    I do agree with your point about means testing. I don’t think it would have much of any impact on savings. I’m also strongly for a means test for all federal payments to individuals and corporate entities.

    Of course there’s a cap but that cap is higher today (relative to the income distribution) than it was in 1960. There is no cap on Medicare contributions though.

  18. It’s not the wealthy that would be a problem, it is the people on the margin. I don’t want a system where people have a goal of not having too much income at retirement so that they qualify for social security. Perhaps in the beginning the threshold would be set sufficiently high, but as are currently seeing, the definition of rich is highly subjective.

  19. Zusai,

    For what it’s worth, I think the means test should be on wealth and not income. The way I would do it is to ask people with above a certain level of wealth to pay back SS and Medicare benefits out of their estates before passing any on to their heirs.

    Net, net, benefits provided to you by the government should be returned to the government before you pass anything on.

  20. “The way I would do it is to ask people with above a certain level of wealth to pay back SS and Medicare benefits out of their estates before passing any on to their heirs.”
    I really like this approach.

    As an aside, I also think we should consider a bump in estate tax to cover the under payment of taxes that occurred during the person’s lifetime, specifically designated (if that’s possible :) ) to go towards the debt.

  21. Not to hijack, but Germany’s approach to unemployment isn’t all that great. No minimum wage and €400 jobs that subsidize slave labor isn’t a good answer. Germany is in dire need of setting limits on how companies use tax payer dollars to avoid having to hire full time employees.

  22. Just a question,

    I have heard a lot of comments concerning how raising taxes only on those families earning more than $450,000 + per year, and individuals at $400,000 + has effectively negated any of Obama’s hopes to raise taxes (meaningfully)on the wealthy. Can someone tell me how much less will be collected in income taxes by using the final compromise income level, than the original $250,000 and above level? It seems to me that there will still be plenty of taxpayers who earn much more than $450,000. Does anybody have the exact figures?

  23. Just a side note by Boston University Economist Larry Kotlikoff. ” removing the cap entirely, and imposing a flat tax of 12.4% ( 6.2% on each side) on ALL earnings, essentially 100B a year tax increase on the wealthy, would more than completely close the funding gap”.
    Another economist, Mulrey submitted her report to the Congressional Research Service in 2010. She had another angle and stated “If all earnings were subject to the payroll tax, but the base would remain for benefit calculations, we could remain solvent for 75 years.”
    Since the taxable earning base rate has risen at the same rate as average wages it wasn’t a problem until the wage inequity. The percentage of covered earnings that are taxable, has decreased each year for the last 4 years, and continues.

  24. The amount I read was that by going to 450K instead of 250k it saved appx 200B for the wealthy. The first was projected to bring in 800k, now it only brings in 600k. But that was just the tax portion. We haven’t gotten to the deduction/loophole portion yet.

  25. correction 800B and brings in 600B.

  26. But for the base to remain while the tax goes up requires changing the benefit calculation. If you’re willing to do that, just cut benefits to the wealthy instead or means test.

    And of course human history extends beyond the last four years. Try figure 1 of the attached.

    http://aging.senate.gov/crs/ss9.pdf

    You’ll see that the wage base covered by SS is well within the historical average.

    A little history can be helpful.

  27. Only if means testing begins with a realistic income. My inlaws parents were so wealthy that they didn’t even know when a SS check came let alone cash any.

    They would need to figure out how much of a difference certain income levels would have on shoring up the program. Is $500k enough? what about medical emergencies, retirement communities..suppose they need more than $500k for a projected retirement over x amt of time? It would go on forever and be impossible to assess in lieu of unforeseen events.
    Much simpler to tax across the board and be done with it.

  28. Much simpler to take money from people who make it and give it to people who don’t need it. Gotta love simplicity.

  29. Shannon, it was my understanding that when companies face a financial crunch, rather than firing employees and putting them all on total unemployment, they cut back their hours to part time and the state pays the difference to them.( the individuals, not the company) Then, when the company is reviewed on a periodic basis for improvement, they start hiring back full time. No?

  30. LOL, No much simpler to take money equally from all people and give it people who probably WILL need it. Don’t forget, we have generations coming up that don’t near anyway total the # of baby boomers who contributed this time round .

  31. Willie Sutton said it all: I rob banks (substitute middle class) because that’s where the money is.

  32. Sheknows, I’ve never heard of that, but it is a complex system so it might be happening too. What a lot of companies do is to hire people part time for 400 euros a month. The people continue to receive all of their unemployment benefits, but must work part time. It sounds great, but what is happening is that the government is outsourcing this to temp agencies that abuse their employees. Other companies hire these temps, batches of them, to do full time jobs. So,the system that wants the unemployed to work for their benefits is effectively take many full time jobs out of the market. And of course, the temp agencies are charging the companies that hire their cheap labor for more than what they pay for them, so there is now a massive “temp agency complex” that is fully funded by tax payers.

  33. Hi All,

    There seems to be some question in some of the above comments about the simple point made by my post — to wit, that the middle class got screwed in the recent tax deal. To answer this question, one need only look at the lead story on today’s New York Times web page headlined: “Tax Code May Be Most Progressive Since 1979.”

    The key sentence in this piece as regards my own post reads that …”about 99.3 percent of [American] households experience no change in their income taxes” because of this deal. The only households to get hit were a few at the very top of the income ladder.

    So…since no middle class households saw an increase in their INCOME TAXES, and the only households that pay THE PAYROLL TAX are middle class ones because income over $113,000 isn’t hit by this exaction, and THE PAYROLL TAX went back up to 6.2 percent from 4.2 percent by virtue of this deal, then the middle class got screwed here because their net after-tax income went down. Can this really still be a debatable point?

    One other interesting thing about the headline of this Times story. Another way to read the headline — the right way, I think — is that for the last 33 years the rich have been paying even less as a percentage of taxes than they did in 1979. Could it be that this failure to redirect wealth adequately via appropriate tax policy for more than three decades explains the fall off in the middle class standard of living?

  34. No offense Michael but you seem to be misinformed on this topic.

    First off, let’s look at the change in tax rates incurred by this deal between the rich and the middle class. Effective tax rates on the top 1% rose by about 7 percentage points versus about 2% on everyone else. See this piece from Jordan Weissmann, no conservative he.

    Second, you are ignoring the historical context. If you’d like to see tax rates across groups, this from the TPC is a good place to start (it is data from the CBO).

    If you look at the data, you’ll note that rates are down across groups over time but that the top 1% is the only group facing a tax rate at an all time high since the 1979 series began. Other groups average around a 6 or 7 percentage point decrease in tax rates.

    Finally to your last paragraph, the US has one of the most redistributive tax codes in the developed world. In an analysis done before the change (which increases the redistribution in the US code), the OECD concludes that the US redistributes pretty much as much as any other country in terms of how it taxes. This is not true in terms of how we spend but that wasn’t your contention.

    So, in short, the middle class didn’t get screwed and hasn’t been screwed seen from either a historical perspective or relative to other developed nations.

    It’s often helpful to look at all of the data before drawing conclusions. That would appear to be the case in this instance.

  35. I’m probably, undoubtedly, missing something. Here is what the increase in taxes would be if the Bush tax cuts expired.

    http://www.npr.org/2012/07/10/.....class-norm

    In every case the payroll tax increases are less than the expiring Bush tax cuts would have been.

    Income Bush tax cuts expire Payroll tax increase
    $16,000 $512 $320
    $33,000 $1,281 $660
    $60,000 $1,843 $1,200
    $100000 $3,424 $2,000

    Had this deal not been made, the Bush tax cuts would expire and workers would be paying more in taxes than they now are with PRTax increases. And those increases in PRTaxes would have to kick in sometime (then being added to the increased taxes, had they taken place), otherwise the deficit would rise to cover the borrowing now in force to pay back the SS fund both for the expected shortfall but the increase in shortfall caused by the 2% missing for the past year. Causing taxes to rise even more (or the debt increase).

    If your premise is that the middle classes are the only ones who are paying payroll taxes on income under $113,000 and therefore are getting screwed, that has always been the case and this deal has little to nothing to do with changing that fact.

    This deal let workers keep more of their income than the raise in PRTax takes away – they are now paying what they should in PRTax and paying less than had the Bush Tax Cuts expired. Their net income went down, as was inevitable at some point when the PRTax was restored, but didn’t go down as much as it would have had this deal not been made.

    The fact that the middle class has been screwed for years, thus lowering their standard of living, because the wealthy and very wealthy haven’t been pulling their share of the load, is a fact; but this deal has in small part changed that. Until the wealthy’s tax lawyers find/pay Congress to include the loopholes to counter it, that is.

    Should the $200,000/$250,000 have been retained? Certainly, but when horse trading you get the best deal you can rather than no deal at all. Save your indignation for the rest of the fiscal cliff problem (cutting spending) when it shows up. Soon, very soon.

  36. Hi Steve,

    Always good to hear from you. If the “inCH” in your title means you’re from Chicago, by the way, I may know why you appear to think as you do. My son went to the University of Chicago. Since graduating, however, he is coming along nicely and we expect a full recovery.

    You and I seem to have a very different approach when looking at the world — at least the economic world. Your own approach strikes me as rather scholastic. Take as many official facts, from official sources, from the certified best and brightest, and come up with conclusions.

    I tend toward a more simplistic approach. If it walks like a duck and talks like a duck it’s a duck.

    Haven’t you noticed that American middle class life in recent years has been getting more and more difficult? Haven’t you noticed that the richest among us are getting richer while the rest of us aren’t? Haven’t you noticed that our government seems to express more and more the wishes of the richest and isn’t doing things that most Americans — through the ballot box — say they want?

    That’s what I see. How I see it. And the reason I think things have to change a great deal if the American middle class is to thrive again and a healthy American capitalism is to get restored.

  37. The very wealthy are only 1-2% of the population. Even if their benefits were raised according to their contributions, they are too few to skew the contribution/benefit in any meaningful way. No need to means test. Anyone who has over a certain income pays taxes on their SS benefits already. Ask any double or triple dipper how much they actually net from their SS benefits.

    Considering SSI benefits for the disabled and spousal benefits only muddies the basic calculations of what most people pay vs what most wealthy people pay – and receive (if they live that long). One could make a case for lower classes living less long and thus receiving less in benefits, but that’s too far afield for this thread.

  38. What Ohio said.

  39. Michael Silverstein said: Haven’t you noticed that American middle class life in recent years has been getting more and more difficult? Haven’t you noticed that the richest among us are getting richer while the rest of us aren’t? Haven’t you noticed that our government seems to express more and more the wishes of the richest and isn’t doing things that most Americans — through the ballot box — say they want.

    Bingo Michael!

    I believe that everybody sees this… It’s just that some don’t seem to care.

  40. Hi Michael,

    Of course, we all believe what we want to believe. When people state things as conclusions, it’s generally helpful if there are facts to back those conclusions up. It’s not that I disagree with your observations but assigning causality requires more than an observation.

    There are a lot of people who have a closed loop process of inquiry into the world…where facts and observations that disagree with beliefs are discarded or discredited, not through the presentation of alternative facts but simply because they don’t agree with the hypothesis. That approach to the world seems a very dangerous approach to life, or at least one that stifles learning.

    I never went to the UofC but there are certainly worse places to go. Congratulations to your son on having been admitted and on having been graduated.

  41. duck and Ohio

    I really would encourage you both to go read the CBO report I cited upthread. It takes into account the objections you raise and still reaches the same conclusions.

  42. Edit to add: I believe that everybody sees this… It’s just that some don’t seem to care and others continue to try to convince us that a system that has been proven not to work is the way to go simply because of partisan (not economic) differences.

    The Republican Party and its sycophants continue to insist that ‘trickle down’ works… It doesn’t, the only thing that ‘trickle’s down’ is bribes to politicians.

  43. SteveCH

    Not sure what objections I raised that you think the CBO addresses. Looked at the CBO report and it includes SSI disability and dependent’s benefits in comparing low to high earners tax/benefit ratio. As I said, that only muddies the water. If you look at only tax/benefit ratios of low as compared to high earners, the high earners get less because it’s progressive.

    All of which has little to do with all the income over $113,000 which is not being taxed and not increasing benefits at this time. Whether the tax/benefit ratio is still progressive, should that change occur, the small amount of people paying more would, even with progressive benefits, not skew the total in/out out of all proportion. Means testing would not need to be considered since the progressive tax system is doing that already. More would be going into the SS fund, though, which would alleviate the short term problem of the baby boom and bump recipients.

    The real problem is stopping any new SS funds being used to pay for other things and the paying back of all those T-bills, and their interest, into the SS fund from which they were borrowed. The choice is simple; either tax everyone more according to their ability to pay, or keep borrowing and getting deeper in debt – and paying more interest on that debt.

  44. SteveinCH said: There are a lot of people who have a closed loop process of inquiry into the world…where facts and observations that disagree with beliefs are discarded or discredited, not through the presentation of alternative facts but simply because they don’t agree with the hypothesis. That approach to the world seems a very dangerous approach to life, or at least one that stifles learning.

    It seems like that goes in both directions… Here’s some other information directly from SteveinCH link to the CBO report:

    Average Corporate Income Tax Rate
    * 1/2 of what it was in 1979… across the board

    Average Excise Tax Rate
    * 1/2 of what it was in 1979 for the top 1%
    * 2/3 of what it was in 1979 for the 96th – 99th
    * 3/4 of what it was in 1979 for the

    Average Social Insurance Tax Rate
    * 8.3% for lower and middle income levels
    * 2.5% for the top 1%

    Trickle-Down Economics: Four Reasons Why It Just Doesn’t Work

    We’ve all heard the claims that cutting tax rates for the richest Americans will improve the standard of living for the working class. Supposedly, top-bracket tax breaks will result in more jobs being created, higher wages for the average worker, and an overall upturn in our economy. It’s at the heart of the infamous trickle-down theory.

    The past 40 years have seen a gradual decrease in the top bracket’s income tax rate, from 91% in 1963 to 35% in 2003. It went as low as 28% in 1988 and 1989 due to legislation passed under Reagan, the trickle-down theory’s most famous adherent. The Clinton years saw the top bracket hold steady at a higher rate of 39.6%, but under the younger Bush’s tax-cut policies, the rich are once again paying less. The drastic change in tax policy that has taken place since the early 1960s gives us a great opportunity to study and evaluate the claims that lower taxes for the rich translate to more wealth for the average American.

    We can compare changes in the top tax rate with the real GDP growth rate (a measure of the growth of the entire U.S. economy), and three measures of how life is for the average working American: annual median income growth, annual average hourly wage growth, and job creation. If cuts for the rich were really the magic elixir for the economy and the middle class that the Republican consensus claims it is, we would see an increase in the four indicators whenever the tax rate dropped. However, this is not the case. Such a trend occurs sometimes, but the opposite happens at other times!

    We are where we are today because of the Republican insistence that Trickle-Down and Reaganomics work.

    Wikipedia – Income tax in the United States – History of top rates

    Before the Reagan era tax cuts (aka the start oaf our current depression) the tax rates were:
    * 1964: First Bracket paid 16% – Top Bracket ($400,000+) paid 77%
    * 1965: First Bracket paid 14% – Top Bracket ($200,000+) paid 70%
    * 1980: First Bracket paid 14% – Top Bracket ($212,000+) paid 70%

  45. The payroll tax cut was a mistake. Payroll taxes go towards social security, by reducing funding of social security it is putting the program at risk. Who benefits most from social security? The working class.

    Reducing the payroll tax is like paying less into your 401K: it doesn’t “save you money”, it only screws you in the long run.

  46. SteveK

    Not sure what that has to do with anything I said but it’s all true. That said, looking at one tax in isolation isn’t terribly compelling which is what you are doing…cherry picking federal taxes that tell the story you’d like to tell.

    The total tax rates in the tables encompass all of those taxes and tell exactly the story I told to Michael.

    So no, I’d say it’s only working one way, at least on this topic.

    Take care

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