The Democrats Tax Plan

October 25, 2007

Well, the Democrats have come up with their tax plan. Overall, it’s not too bad (I like the idea of making lawyers and accountants pay into Social Security) but there’s an area that bugzs me. According to this article I found on Bloomberg, the plan calls for a surtax of 4%+ on “wealthy” families. Their definition of “wealthy” is families with adjusted gross incomes over $200,000 per year.

Sure, $200,000 sounds like a lot of money but does it make a family “wealthy?”

I hate progressive taxes.

32 responses to The Democrats Tax Plan

  1. And I hate regressive taxes, like sales tax and property tax, that put a heavy burden on the lower middle class. Tax rates for those in the top tax brackets are currently low by historic standards, while the poor and middle class are increasingly struggling to get by, so I think the adjustment back towards a more progressive tax system is justified.

  2. I’m glad to see the super rich finally take a hit but 200k is only the upper middle class – i.e. the group that has always carried the highest tax burden!!!

  3. Progressive tax: The more money you make the more the government will take. That is not much of an incentive to work hard. In fact, it is a way to keep the middle class down. You will never escape because your tax will continue to grow with your income.

    A consumer tax gives more control to the individual – you only pay tax when you spend. Typically people with more money spend more.

  4. Maybe it’s difficult to look at objectively, but when

  5. ok, let me try this again…

    Maybe it’s difficult to look at objectively, but when

  6. I agree with Michele that progressive is better than regressive. But sales tax does not have to be regressive if you remove or refund taxes on necessities or to the poverty line (like the FairTax).

    Except in large, expensive cities, $200k is a large family income. Upper middle class might be right, but a lot people around here would call that rich. Not that this justifies a 4% tax just for making that much or anything . . . just commenting on the labels.

  7. must be the operators, now removed…

    Maybe it’s difficult to look at objectively, but when less than 3 percent of households in the U.S. have income of $200k or more and when the median household income is less than $50k, I would consider those households with income of $200k+ “wealthy.”

  8. I can’t consider $200K wealthy, especially here in Los Angeles. But specifically regarding this round of tax reform, supposedly even families that would get hit by this increase would still pay less b/c AMT would be abolished.

  9. “I like the idea of making lawyers and accountants pay into Social Security”

    Why?

    Why should anyone have to pay into social security that doesn’t want to? How does it benefit you at all? If they have to pay in they will also be taking out. Making someone else do something not of their own free will, just because you have to do it, is not going to fix the problem. The problem is that the government is being authoritarian and forcing citizens to do things with their money that they don’t want to do. Instead, you should like the idea of lawyers and accountants not paying into Social Security and the idea of everyone having the choice to not pay in as well. That seems a little more fair and it might actually solve a problem as well.

    So class envy seems to be everyone’s rational for raising taxes around here. Let me just remind all of you “tax the rich” people that the income tax was originally billed as a tax on the “super wealthy.” Look where we are now, stuck with taxes on everyone and everything and a bunch of lying politicians who are always looking for a better way to get money, and what better way than inflation. Inflation raises taxes without passing any laws, it’s the lawmakers dirty little secret. So, don’t think that raising taxes on people making $200,000 plus is not going to hurt you. In a few years you will need to make that much just to get by, and don’t think the politicians will repeal the tax when that happens because they never do.

  10. Easy E,

    Good points.

    I LOVE the idea of NOT paying Social Security Taxes. However, the ability to opt out is not going to happen for most people so I think EVERYONE should have to pay in.

    I am not one of the “tax the rich” people. I think we need a FAIR tax system. Progressive taxation is NOT fair no matter how many people think it is.

  11. Sorry, overly progressive taxation is ridiculous. Considering that the top 50% of income earners pay nearly all of the taxes, you have absolutely no justification in making it. It is simply class-warfare.

    The Democrats are the worst thing that ever happened to America, followed very closely by the Republicans (or Democrat-lite).

    Switch to the Fair Tax, and hold the SOBs accountable and eventually lower the tax down to 10%.

  12. How is it that lawyers and accountants don’t pay social security taxes now? My dad is a lawyer (self-employed) and he’s always complaining about the self-employment tax of 14% to cover both sides of social security. How are some avoiding this?

  13. Bill,

    That’s a good question. According to the article:

    “The proposal also imposes $9.4 billion in Social Security and Medicare taxes on lawyers, accountants and others who currently avoid them by organizing as a partnership.”

  14. I agree, we need a fairer tax system. What can be fairer than giving people the chance to choose how much they want to pay in taxes? Sounds impossible? Not at all, check out FairTax.org.

  15. I worry that the proposed AMT $200,000 limit does not appear to be indexed to inflation so in a decade or two another “fix ” would be required. Problems I have with the $200,000 figure: It Seems too low as it would hurt some in high cost of living areas. I also notice that it is $150,oo for individuals – hurting two income familes – dual carrier success stories-and disentive for marrage and stronger familes.

    If we had not downsized and paid off the mortgage we’d be snagged by the AMT big time. As it is we pay so much tax the AMT would be a tax break.

    I prefer the Fairtax too.

  16. typo $150,000 for individuals

  17. typo — I noticed that the proposed limit is $150,000 for individuals

  18. I think that people that promote progressive “soak the rich” tax schemes are motivated by two things, greed and envy. Envy of people that for whatever reason have more money than they do. Greed for wanting programs and services provided by the government that they don’t want to have to pay for themselves.

  19. It’s hard to bash the Democrats plan after Republicans have mismanaged our countries finances to the extreme the last few years. When an administration has billions of dollars in Iraq and other places that is totally unaccounted for and they are okay with that, they lose all credibility.

    Whether it’s social programs or military programs we need accountability and we’re not getting it.

  20. TIL, you’re half right. The republicans certainly have mismanaged just about everything they’ve touched, but it’s still very easy to bash the democrats’ plans. Neither party has any sense of fiscal responsibility. There is zero accountability. GO RON PAUL!

  21. Progressive taxes are the best thing that happened to this country in terms of reducing income inequality and poverty.

    It’s ludicrous to claim that politicians never lower taxes. Bush has done exactly that. It’s happened many times. Taxes are at fairly low levels historically.

    The Fairtax is an interesting idea, though I doubt it will get implemented. Although it too is progressive.

  22. I agree with GLM. This proposal, on the face of it, may look like they are transferring the tax burden from the “rich” to the poor. But, $200,000 really isn’t all that much of a household income for places like San Francisco and New York. It seems to me this proposal is shifting the tax burden to the high cost of living areas. I live in the Bay area where a middle class house starts at $700,000 so you have to have both people in the couple work. For a dual income couple, $200,000 isn’t that hard. Thanks Democrats, as if trying to pay a mortgage in the Bay area and have time for a family isn’t hard enough already.

  23. First off, why this is being cheered is beyond me. Notice that at the same time it is raising taxes on individuals it is lowering taxes on corporations? Who’s got more money to spare, Exxon or me?

    The problem I have with this is the same problem I have with the income tax generally. There’s no incentive for the government to control spending and yet there’s no effective way for me to protest against this. I can’t exactly decide to strike and not earn an income. At least if they raise sales taxes too high, I can at least reduce my spending on non-essentials for a time to demonstrate my distaste. This is what is evil about an income tax. It’s wage slavery, pure and simple.

    A sales tax need not be terribly regressive if it is structured properly. But notice what the definition of regressive is there. Not that the individual is faced with a higher tax burden than others, but that it makes up a larger percentage of their expenditures. Whereas the progresive income tax is truly unfair, because there are different rules that are applied to one person versus the next.

    Finally, if you think that most lawyers and accountants don’t pay social security taxes because you read a single sentence claiming that to be so in a Bloomberg article, well, all I can say is don’t believe everything you read. The vast majority of lawyers and accountants are employees, not members of a partnership. And for those who are partners, yes they don’t pay social security taxes. Instead, they pay two forms of self-employment taxes that are used as the basis of calculating their social security contributions.

  24. “Progressive taxes are the best thing that happened to this country in terms of reducing income inequality and poverty.”

    Really? Where’s your evidence to support that? The progressive income tax has only guaranteed one thing — an ever expanding government.

  25. While many who are invested in the current income tax system seek to demagog the well-researched FairTax plan (1), FairTax’s theoretical underpinnings have been professionally reviewed (2), and its acceptance in the professional / academic community continues to grow (3).

    Renown economist Laurence Kotlikoff believes that failure to enact the FairTax – choosing instead to try to “flatten” what he deems to be a non-flattenable income tax system – will eventuate into an irrevocable economic meltdown (4) because of the hidden aspects of the current system that make political accountability impossible. Tom Frey, of the DiVinci Institute, foresees the coming collapse of the income tax system (5).

    Here is why the FairTax MUST replace the income tax. It’s:

    • SIMPLE, easy to understand
    • EFFICIENT, inexpensive to comply with and doesn’t cause less-than-optimal business decisions for tax minimization purposes
    • FAIR, loophole free and everyone pays their share
    • LOW TAX RATE, achieved by broad base with no exclusions
    • PREDICTABLE, doesn’t change, so financial planning is possible
    • UNINTRUSIVE, doesn’t intrude into our personal affairs or limit our liberty
    • VISIBLE, not hidden from the public in tax-inflated prices or otherwise
    • PRODUCTIVE, rewards, rather than penalizes, work and productivity

    Its benefits are as follows:

    For INDIVIDUALS:
    • No more tax on income – make as much as you wish
    • You receive your full paycheck – no more deductions
    • You pay the tax when you buy “at retail” – not “used”
    • No more double taxation (e.g. like on current Capital Gains)
    • Reduction of “pre-FairTaxed” retail prices by 20%-30%
    • Adding back 29.9% FairTax maintains current price levels
    • FairTax would constitute 23% portion of new prices
    • Every household receives a monthly check, or “pre-bate”
    • “Prebate” is “advance payback” for taxes payable on monthly consumption to poverty level
    • FairTax’s “prebate” ensures progressivity, poverty protection
    • Finally, citizens are knowledgeable of what their tax IS
    • Elimination of “parasitic” Income Tax industry
    • NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
    • Those possessing illicit forms of income will ALSO pay the FairTax
    • Households have more disposable income to purchase goods
    • Savings is bolstered with reduction of interest rates

    For BUSINESSES:
    • Corporate income and payroll taxes revoked under FairTax
    • Business compensated for collecting tax at “cash register”
    • No more tax-related lawyers, lobbyists on company payrolls
    • No more embedded (hidden) income/payroll taxes in prices
    • Reduced costs. Competition – not tax policy – drives prices
    • Off-shore “tax haven” headquarters can now return to U.S
    • No more “favors” from politicians at expense of taxpayers
    • Resources go to R&D and study of competition – not taxes
    • Marketplace distortions eliminated for fair competition
    • US exports increase their share of foreign markets

    For the COUNTRY:
    • 7% – 13% economic growth projected in the first year of the FairTax
    • Jobs return to the U.S.
    • Foreign corporations “set up shop” in the U.S.
    • Tax system trends are corrected to “enlarge the pie”
    • Larger economic “pie,” means thinner tax rate “slices”
    • Initial 23% portion of price is pressured downward as “pie”
    increases
    • No more “closed door” tax deals by politicians and business
    • FairTax sets new global standard. Other countries will follow

    (1) http://snipurl.com/taxpanelrebutted (.pdf)
    (2) http://snipurl.com/taxnotes_galerebut (.pdf)
    (3) http://snipurl.com/econsopenletter (.pdf)
    (4) http://snipurl.com/meltdowninprogress
    (5) http://snipurl.com/incometaxcollapse

    It’s well past time to scrap the tax code ( http://snipr.com/scrapthecode ) and pay for government the way that America’s working men and women are paid – when something is sold.

    (Permission is granted to reproduce, in whole or part, provided snipurl.com links are preserved to measure message efficacy. – Ian)

  26. God, after reading that post about the FAIRTAX proposal, I am infuriated beyond belief. I am self employed, make a great living, but was told by my accountant last year (at EOY) to withhold some invoicing to my clients so I would avoid AMT. I mean what the hell is that…I have to tiptoe around not knowing exatcly how much I owe every year and it sooooo confusing.

    I cannot believe that there is a lack of support of the fair tax system. The current system is so freaking flawed, unfair, and BS it makes me want to puke…who else is baffled by all of these nonsense form, estimated payments etc…

    What candidates support the fair tax? Lets make a AFM PUSH!!

  27. The problem with “soak the rich” tax schemes is they miss the real rich, who don’t have much in the way of taxed income versus unrealized capital gains and other untaxed “income”. Warren Buffett’s not going to have his tax bill increase at all, no matter what the Dems do – his tax lawyers will take care of that.

    The people they hit are highly compensated professionals and small business owners, who make good incomes but don’t have the resources to get paid any way other than with salaries, self-employment, or other income, which is already taxed at marginal rates approaching 50% in many states, especially when you include SS/Medicare.

  28. The reason schemes like “fair tax” never are popular is they are very visible. Politicians love hidden taxes, especially if they can be spun as being paid by Someone Else, such as corporate taxes or employer-side shares of payroll taxes.

  29. @Foobarista: Warren Buffet is ON RECORD as wanting to pay more taxes. He has slammed every recent tax decrease on the rich. Google it.

  30. Than he should put his money where his mouth is. He is far from the only billionaire who thinks cashflow taxes should be higher, but who carefully structures income from their investments to minimize taxes, so their marginal rates are often lower than someone making $50K/year.

    One property of high tax regimes: as long as they don’t tax wealth but only income, they cement the very rich in place, while preventing the rise of strivers and new companies that compete with them. After all, if you’re already super rich, high cashflow taxes won’t threaten your lifestyle or your fortune, but if you’re building your own wealth with cashflow, high taxes crush you.

  31. Actually, many of the top end of the “super rich” say they want more taxes on themselves. And the story there is that they want taxes to be more progressive. So, less taxes for you and more for them.

    Perhaps it’s populist rhetoric, but why should they bother?

    I’m not excited about paying taxes either, but I think most of the taxes noise comes from those in the top 5% (modulo the super rich we talked about earlier).

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