House GOP to propose 25% top federal income tax rate

[Newsjock]

Source: Washington Post

The long-awaited simplification of the tax code being drafted by House Republicans would slash the top income tax rate to 25 percent from 39.6 percent and impose a surtax on some of the nation’s wealthiest households.

Under the proposal, set for release Wednesday, the vast majority of taxpayers would see little change in the ultimate size of their tax bills, according to a nonpartisan congressional analysis of the legislation.

But the tax system would be dramatically simpler, with seven existing brackets collapsed into just two, set at 10 percent and 25 percent.

In addition, the plan would impose a 10 percent surtax on certain types of earned income over roughly $450,000 a year. The surtax would hit many salaried professionals, such as attorneys and accountants, while dodging farmers and manufacturers — as well as the super-rich, whose income often is derived primarily from interest and investments.

Read more: http://www.washingtonpost.com/business/economy/house-gop-tax-plan-would-cut-top-rates-but-also-hit-high-earners-with-a-surtax/2014/02/24/361ac868-9d92-11e3-9ba6-800d1192d08b_story.html

[Recursion]

1. I actually like the surtax idea, particularly if it's a wealth surtax (this one isn't)

I'd change the surtax to include more non-labor income, but in principle this isn't a horrible framework.

[yeoman6987]

8. What the hell?

They are going to drop the tax rate on the rich to 25 percent, but I still have to pay 25 percent? What the hell? Perhaps I am reading something wrong. Ok so I won't have to pay the surcharge.

[JaneyVee]

11. No, you'll pay 10%, but you probably pay that or less now anyway. So yeah,

Another huge tax break for the rich.

[yeoman6987]

13. No, you'll pay 10%, but you probably that or less now anyway. So yeah

I pay way more than 10 percent. I don't mind paying taxes but when the rich are paying the same rate as we are, that is not good.

[JaneyVee]

20. Same here. I pay a 25% tax rate and would be pissed to be lumped in with

People who make billions paying the same rate as me. I don't mind paying 25% if they pay much more.

[hfojvt]

41. I don't see how you can pay that much

when the average tax rate of members of the top 25% is 10%. Even the marginal rate of 25% does not kick in for a couple until income is over $65,000

[yeoman6987]

43. I make 86K single. Believe me I pay 25 percent just federal, almost 10 percent in Maryland, SS, etc

I don't mind it but please make the rich taxed even more.

[joeglow3]

44. That is your marginal rate. Not your effective rate.

[hfojvt]

49. well, it is hard to tell

Since you can deduct state taxes, then you'd have itemized deductions of at least $8,600. Plus a personal exemption of $3,650. Any IRA deductions? (I guess it is non-deductible if you are covered by a retirement plan, still could do a Roth though).

AGI then, is no more than $73,750. Tax is no more than $14,631 (from a 2009 tax table). Tax rate is 17%. Most of the rich, depending on their income and various deductions, are paying a higher rate than that. Average rate for the top 1% was 23% even in 2008 and for the 0.1% it was 22.7%.

And a single person making $86 is doing very well, in my estimation, even if it can be costly to live in the DC area.

[yeoman6987]

51. Thanks for the information

I guess I just want the rich to pay more even though they seem to be. I want them to pay even more! lol. What a spoiled brat I am, huh? Again, thanks for the post.

[hfojvt]

63. well they should be paying more, IMO

if you go back, partway before Reagan, in 1986 (which is even after Reagan slashed the top rate from 70% to 50%) the top 1% was paying an average tax rate of 33%. If you go back before Bush, the top 0.1% was paying an average rate of 28% in the year 2001 which was then reduced to 22%. http://journals.democraticunderground.com/hfojvt/169

I think it is dishonest to do what Republicans do, what they are doing here, in fact, to give those people big tax cuts and then complain about the deficit and the debt.

However, if it was up to me, I would also increase taxes on those in the $80,000 - $400,000 range. Compared to me, and most other Americans, those people are quite well off.

[kentuck]

15. And we will cut every program for the people...

including food stamps for the poor and Medicare for the elderly but, like all good Republicans, we will have our tax breaks. Way to go, DU!

[yeoman6987]

18. That is why we all need to vote!

2015 this could become our nightmare if we don't win the House and keep even a bigger part of the Senate. When we had all 3 branches of government, why on Earth did we not get taxes raised by a huge margin?

[Recursion]

14. 25 percent plus a surtax

It's the same thing as having a 35% tax bracket but that extra 10% can't be eaten away by deductions, etc.

I'd change some numbers and the target of the surtax, but I think it's a pretty decent idea. It's an attempt to raise the marginal rate while keeping the effective rate similar.

Unfortunately, like all recent tax plans it rests on "removing deductions and credits", which nobody can ever actually bring themselves to do...

[PoliticAverse]

2. Why do I have no confidence that any tax reform at the current time would have a good outcome? n/t

[flying rabbit]

34. My thoughts exactly. nt

[JaneyVee]

3. Defund America. It's the Republican way.

Every dollar less in taxes means less food, less healthcare, less textbooks in school, etc. and of course it would never mean less money for war or corporate welfare.

[Recursion]

6. As it stands it's revenue neutral, apparently

It's just taxing doctors and lawyers more, and CEOs and investors less.

[JaneyVee]

7. Revenue neutral doesn't pay off debt. And just what we need...

Less doctors and lawyers and more CEOs and investors. : :

[Recursion]

9. We don't need to "pay off debt". The debt never needs to be smaller than it is.

This is how a government isn't a household.

That said, looking closer I see it's revenue-neutral through the hand-waving of "end deductions and loopholes worth $X", which we've all heard before.

And, yeah, like I said upthread I'd change the target of the surtax away from skilled labor and towards investment and rents.

[JaneyVee]

16. And the Iraq War would only cost $60Billion, and Bush tax cuts would create

Millions of jobs and also be revenue neutral, and we can help the poor by helping the rich instead.

This is also the same Republican Party who says "we're broke".

[Recursion]

19. No, seriously, "paying down" the debt would be an awful idea

We're currently receiving interest on the debt because bonds are selling at a lower rate than inflation. For that matter, we should stop all taxing and just borrow until it's at least a real rate of 0.

[JaneyVee]

22. I know what you're saying. I also believe that it's more beneficial for America to

Carry some debt. Paying it all off would actually be a strange crisis as we would no longer need to purchase T-bonds which would throw things like social security into a bit of disarray. But we have too much debt now, it could be helpful to lessening it so e by collecting more revenue.

[Recursion]

23. So jack up the surtax and apply it to capital gains

Use the revenue to continue to grow the economy to the point that $16 trillion in debt isn't even worth thinking about.

[JaneyVee]

31. You think Republicans are going to apply it to capital gains?

[Recursion]

32. No, which is why I don't like the plan as it stands

I just prefer a surtax to a higher marginal rate, because a surtax is harder to tinker with.

[JaneyVee]

33. IDK, I'm all for raising taxes on the rich and lowering them for the middle class and

Working poor. Call me old fashioned. The rich and corporations are robbing our future.

[hfojvt]

35. so the $1 trillion we spent on net interest

from 2007-2011. That's all just play money? No big deal?

[Recursion]

36. We're paying negative real interest right now

(Though we weren't in 2007 or most of 2008, in fairness.)

As it is, we're redeeming bonds for less in real terms than the bondholders paid. We're making money off the debt; people are paying the US government for the privilege of lending the US government money. Those periodic interest payments are part of the redemption schedule.

[hfojvt]

40. those rates hopefully won't hold for another decade

Hopefully.

[El_Johns]

10. +1

[hfojvt]

39. it's revenue neutral over how many years?

One? Five? Ten?

In 1986 total income (AGI) of the top 1% was $285 billion. By 2007 it was $2 trillion. Even in 2007 dollars, the income of the top 1% was only $539 billion in 1986.

Revenue neutral now, or for five years is not gonna be revenue neutral if the 1% expands their hold on the US economy even more.

[JHB]

61. However, if it were passed, I have no faith it would stay that way

With professionals feeling like they've been singled out to pay more taxes -- and largely being right about that --- promises of cutting the surtax (in the interest of "tax fairness", of course) would be quite the campaign sweetener.

[AZCat]

4. That's so pathetic looking compared to historical rates.

What was the maximum we've had historically? 94% or so for the top bracket in the 1940's? That's only a bit higher than the proposed rate.

[Recursion]

17. What was the effective rate in the 1940s?

I have no idea, but it's the effective rate that matters. The nominal marginal rate isn't really very important.

[AZCat]

28. I have no idea either.

The oldest data I seem to be able to find is from the CBO, and goes from 1979 to 2005.
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/98xx/doc9884/12-23-effectivetaxrates_letter.pdf

Apparently the CBO started keeping data in 1970 on effective rates, but the 1970 to 1979 data doesn't seem to be included in any reports.

[hfojvt]

30. not surprisingly

taxes for the rich go down when the top rate gets cut - that's why they and their lackeys keep pushing for it to get cut.

According to this, the average tax rate for the top 0.1% was 50% in 1960 http://commons.wikimedia.org/wiki/File:Average_Tax_Rates_for_Selected_income_groups_Under_a_fixed_Income_Distribution,_1960-2010.jpg

And, again, the marginal rate IS important. Because if somebody has say $5,000,000 in income, they are probably already using every loophole on that income - under current law, for example, they would be deducting their state income taxes, writing off certain charitable contribution, deducting their mortgage interest.

Yet, if they are somehow able to steal another $5,000,000 they won't have many loopholes left for THAT income, so it will be taxed at the highest rate.

[JHB]

57. George Romney was nominally in the 90+% zone, but effective was 37%...

...over the 12 years he released his tax records for (the 50s and early 60s). Granted, that's a sample of 1, but it's better than "no idea".


The important thing to draw peoples attention to, IMO, is the way the distribution of the brackets has been radically altered since Reagan. Income tax progressivity was eliminated on very high incomes back then, and has never been restored.

In 1955 there were 24 tax brackets. 16 of them kicked in at income levels over the equivalent of $250,000. 11 of them kicked in at over $500,000.



Similar, for all years of the income tax (in 2013 dollars). The adjusted thresholds in the 19teens and thirties make everything else unreadable:


And the bracket distribution for selected years, for clearer comparison (this is incomplete, so not all bracket values are present, but it's enough to show this point)

[Recursion]

58. Oddly enough a "flat" tax can be the easiest to make actually progressive

Simply levy a 40% (or whatever) tax on all income above $40,000 (or whatever).

Below 40K, your tax is 0%.

Above 40K, it starts at 1%, and approaches 40% logarithmically as your income increases.

The trick there is getting unearned income included, which we absolutely have to do.

[JHB]

59. I understand the math behind what you're suggesting, but...

...I don't think it would translate well to the general public, and and would be too easy to redirect the rhetoric towards a non-log flat tax.

Personally, I'll stick with pointing out how badly the bracket structure has been truncated. Maybe we'll get to where we can safely use a log formula, but I don't think we're even close yet.

[Recursion]

62. Oh, I grant it's political suicide; I'm just having a wonk moment (nt)

[NYC_SKP]

5. Just bring back Reagan's rates. nt

[JHB]

56. That's actually what they're trying...Reagan's 2nd round, that is

The 1988 cuts went from 15 brackets to 2 (to "simplify", of course): 15% to roughly the median income and 28% on everything above it.

That was the tax structure Poppy Bush told everyone to "read his lips" on, but it was unsustainable and brackets were added higher up in 91.

Further tax changes by Clinton, Bush, and Obama still modify the structure set in 88 rather than return to anything resembling what came earlier.

[El_Johns]

12. Tax the workers, don't tax capital. Always what it's about. Thank goodness it will get no traction

from the professionals they're trying to sock it to (who already get taxed more than the super-rich)

[hfojvt]

21. it's NOT the number of brackets that make income taxes complicated

it's the number of forms and exemptions and deductions.

Lowering the top rate is a long-standing Republican dream. Of course, currently rich people are paying a lower average rate than 25%.

But the marginal rate is important.

Here's a CEO making $10,000,000 a year and he/she has an opportunity to steal another $10,000,000. A 39.6% top rate is more of a disincentive to steal than a 25% top rate is.

[unblock]

24. this does virtually nothing to "simplify" taxes. the tax *rates* are not remotely the hard part.

they've been playing this outrageous lie for decades. they point to how complex the tax code is, thousands of pages, so many forms, and then to "simplify" it all they do is reduce the one very, very final calculation, which isn't all that hard anyway because you just look it up in the tables or get turbotax or h&r block to tell you the amount. even if there were 20 tax brackets, that isn't the hard part.

the *hard* part is figuring out what's taxable income and what isn't, what's a qualifying deduction and what isn't, and so on. and even then it only *really* gets hard if you're trying to find more and more aggressive ways to reduce your tax bill.

but these proposals generally do *nothing* to actually simplify that part of the tax code. it's all about the rates, but they always call it "simplification".

[Recursion]

37. Yeah, the definition of "income" is surprisingly difficult

And where they target the surtax in this only makes it worse.

[Silent3]

26. When simplifying taxes is equated with reducing the number of tax brackets, you know it's BS.

There's nothing all that complicated about tax brackets, it's just a way to add a smoother slope to the way progressive taxation progresses.

A simple chart or a very simple calculation solves the problem - you pay a fixed amount on all income below the last bracket boundary you cross, and pay a simple percentage on all income above that boundary.

That supposed "complication" is utterly trivial compared to rules about what counts as income of what type, what is or is not deductible, what is or is not eligible for such and such a credit or exemption, and of course, all the special rules caused by all of the carve outs for special interests.

[onehandle]

27. I propose a 99% tax rate on the rich.

Let's split the difference and call it 62%

[RB TexLa]

29. Only place this goes is fundraising letters and campaign speeches

[Marr]

38. Now THAT is what political negotiating looks like.

Demand the moon. Then wait to "compromise".

Political negotiation is certainly not what Democratic voters have been asked to believe in recent years, which is essentially, 'begin by walking halfway to your opponents' position, then start 'compromising'.

[PoliticAverse]

42. "The tax burden on the poorest taxpayers ... would initially rise slightly under Camp’s plan". n/t

[Jake Stern]

45. There will be loud spitting and sputtering in opposition

but at the end of the day it (or a Republican friendly compromise) will pass and the party cheerleaders will be out in droves to tell us how there was no alternative but to take it.

[Deep13]

46. no. nt

[Cali_Democrat]

47. That's all that needs to be said about that absurd proposal. nt

[MADem]

48. If they didn't get any deductions, and actually had to PAY the twenty five percent, it would

probably be a better situation than it is now.

But we know damn well that Mitt Romney didn't release his tax returns because he gamed his way into paying nearly nothing--or maybe even less than nothing!!!!

The source behind Senate Majority Leader Harry Reid's (D-Nev.) bold claim that Republican presidential candidate Mitt Romney had paid "basically" no taxes for a decade was Jon Huntsman Sr., a new book on the 2012 campaign claims.

[Warren DeMontague]

50. SURE SOUNDS SIMPLER!

[reformist2]

52. Tax wealth. That's where the real money is - people who don't work at all!

[Populist_Prole]

53. Nothing more than political right-wing masturbation

Like all the other deliberately inflammatory statements RW-ers are doubling down on. It's just to rally their base and give a dying party/demograhic a sense that they are on the offensive. Or to put it another way: They just want to go down swinging.

[JHB]

55. True, but if they hand us an opportunity show how they operate...

...and that they were successful with these same phony arguments in the past, you can put the thought of reversing it in people's' heads.

There's a lot of people who simply don't know how radically the tax structure has been changed over the last 40 years, either because they weren't paying attention, or they're too young to have known anything different and no one taught them about how it used to be.

[JHB]

54. Any time someone talks about "simplifying" taxes by cutting the number of brackets...

...they are lying. Pure and simple falsehood. Misdirection.

The income tax has had as many as 56 brackets, and from WW2 to Reagan 24 was typical. And that was before everyone had a computer in their pocket (or a least access to one at the local library).

Brackets are the easiest part of the tax code. The complexity is in the deductions, credits, what counts as what sort of income, exemptions, etc.

"Simplifying" by cutting brackets is just a way to eliminate brackets at the top. Income tax progressivity on high incomes was eliminated under Reagan, and these guys think it's a Divine Right of Wealth to keep it that way.


(In 2013 dollars)

[hobbit709]

60. If they're for it, i know that the people are going to get screwed.