We’re being buffaloed over “tax reform.” From what we know so far about the mysterious workings of the Washington Republican cabal, we will be presented with a proposal that massively rewards the professional political donor classes. Joe Six-Pack? Forget it!
To help us swallow our bad medicine, we are being dealt a steady diet of tax mythologies. Here are some of them, and responses you can try on your favorite Congressman.
“America is the highest taxed nation in the world.”
We often hear the CinC assert this. By any number of measures, it is a flat out falsehood. Of the 35 major developed economies that are part of the Organization for Economic Cooperation and Development (OECD), looking at total tax revenue as a fraction of the Gross Domestic Product (GDP), the US has the fourth-LOWEST tax burden of any OECD country, with only South Korea, Chile, and Mexico ranking lower. Perhaps he means we have the highest marginal tax rate? Nope, we are in the middle of the pack (18th) on that score. Well how about Joe Six-pack? If you are a single person earning the US median wage of $56 000, your tax burden would rank as #16 in the OECD list; if you are married with two kids, your tax burden drops to #25.
“American Corporate taxes are crippling US competitiveness.”
The American corporate tax rate of 35% is the highest in the world, it is true. In fact, because the tax structure is riddled with loopholes, when the dust settles, and we ask what the effective tax rate is, then we pay the 4th highest level of corporate taxes. If we drop to 15% as Mr. Trump originally proposed, we would drop to the 4th lowest. But even so, this misses the point on two levels. First, corporate taxes are not crippling US competitiveness. Let’s ask Warren Buffett. He knows a thing or two about American corporations and their earnings. “When American business talks about strangling our competitiveness, or that sort of thing, they’re talking about something [corporate taxation] that as a percentage of G.D.P. has gone down,” Mr. Buffett says. And indeed, in 1960, corporate taxes in the United States were about 4% of GDP. Today, they are 1.9 percent. If you express that as a percentage of all tax revenue collected in the US, corporations pay about 9%, a fraction that has been declining steadily (in the 1950’s it was 33%).
Mr Buffett says there IS something that is crippling American competitiveness - medical costs. “Medical costs are the tapeworm of American economic competitiveness,” he says. According to the Tax Policy Center, in 2015, corporations paid $343,797 million in federal taxes, out of a total of $3.2 trillion collected. Interestingly, that number, $3.2 trillion, is what the entire US spent on health care in 2015, according to the Center for Medicare and Medicaid Services (CMS). The CMS says that private companies paid 20% of that total, or $640,000 million. Mr. Buffett is right; if we want to do something for American corporations, we should get them out of the healthcare business. There are plenty of ways to do that, as most OECD nations have discovered to the universal benefit of the health of their citizenry. . . .
“35% of the population pay no taxes.”
We’re getting to Mitt Romney and the “takers” here. It is true that 35% of filers pay no federal income tax, either because they had no taxable income, or they didn't end up owing any income tax due to credits, deductions, and other adjustments. But if you are employed, pretty much everyone pays payroll taxes-- those line items on your pay stub that go to pay for Social Security and Medicare. Indeed, according to the Treasury Department, all but the top-earning 20% of American families pay more in payroll taxes than in federal income taxes. And those payroll taxes make up a big chunk of federal revenue-- about a third, compared to just under a half for income tax. And of course, sales and property taxes mean that many people in lower tax brackets are in fact paying significantly higher effective tax rates.
“The top 20% pay 80% of all taxes.”
That’s pretty much true for federal income tax; actually, it is the top 16%, those with adjusted gross incomes over $100,000. What the statement does not capture is the huge rise in the wealth of the super rich, the top 1% of the population, and the rate at which their wealth is increasing. The top 1% are taking home more than 20 percent of all income; and the gap between the wealthiest Americans and the rest of us gets larger every year. Since much income at that level derives from capital gains, which are taxed at a lower rate than regular earnings, the effective tax rate at this level is much lower than the current top marginal rate of 39.6%. Warren Buffett, who famously pointed out that his tax rate was lower than his secretary’s, has long advocated for a minimum tax on top wage earners -- the so-called Buffett Rule, which is fiercely opposed by Republicans. Mr. Trump would have us believe that the super rich need more help, to be paid for by the rest of us.
“The President’s tax plan will benefit the middle classes.”
We await with bated breath the appearance of the final plan, but estimates from the outline suggest that more than two-thirds (67 percent) of the tax cuts contained in the framework would go to the richest one percent of Americans in 2018. These taxpayers are projected to have incomes of at least $615,800 next year.
“Repealing the Death Tax will save the family farm.”
This claim, or versions of it, has been around for years, as a battle cry to eliminate the Estate Tax. In fact, fewer than the wealthiest two of every 1,000 estates nationwide owed any estate tax in 2016. So, if you are not in the 99.9% percentile, don’t lose any sleep over this. The Koch brothers, on the other hand, lose a lot of sleep over it. They and their friends are behind the repeal of this tax.
“Increased growth will make up for the loss of revenue.”
It has never happened in the past; it will not happen now.
Someone once said that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Right now, the Koch brothers and their friends are hissing the loudest! So when your Congressman feeds you some of this misinformation to sell you on the plan — HISS!!!