The Bush tax cuts

Correction: I favor leaving all the tax cuts favoring middle income households in place, and raising marginal rates on the super-rich.

Here is a summary of “the Bush tax cuts” that are set to expire at the end of the year via The heritage Foundation:

• Child Credit: This credit will shrink from $1,000 to $700 per child on January 1, 2005.
• The 10 Percent Bracket: The upper income level for this bracket will decrease by $1,000 per filer on January 1, 2005.
• The 15 Percent Bracket for Joint Filers: On January 1, 2005, the upper limit of this bracket will shrink from 200 to 180 percent of the upper limit of the 15 percent bracket for single filers, creating a marriage penalty.
• Standard Deduction for Joint Filers: On January 1, 2005, this will shrink from 200 to 174 percent of the standard deduction for single filers, creating a marriage penalty.
• Alternative Minimum Tax: Exemptions will decrease by $6,500 per filer on January 1, 2005.
• Bonus Depreciation: This provision, which changes depreciation schedules for businesses in a way that encourages investment, will expire on January 1, 2005.
• Small Business Expensing: On January 1, 2006, the maximum amount that a business may deduct will fall from $100,000 to $25,000, which will not be indexed to inflation.
• Capital Gains: Rates will rise to 10 or 20 percent, depending upon income, on January 1, 2009.
• Dividends: Rates will rise to match standard income tax rates on January 1, 2009.
• Child Credit: This credit will shrink from $700 to $500 per child on January 1, 2011.
• The Income Tax: Rates will increase between 3 and 4.5 percentage points in each bracket on January 1, 2011.
• The 10 Percent Bracket: The bracket will be eliminated on January 1, 2011, raising the income tax burden of many workers by 5 percentage points.
• The 15 Percent Bracket for Joint Filers: On January 1, 2011, the upper limit of this bracket will shrink from 200 to 167 percent of the upper limit of the 15 percent bracket for single filers, creating a marriage penalty.
• Standard Deduction for Joint Filers: On January 1, 2011, this will shrink from 200 to 167 percent of the standard deduction for single filers, creating a marriage penalty.
• The Estate Tax: The top rate for this tax will increase to 60 percent on January 1, 2011, and the value of an estate exempt from taxation will shrink to $1 million, which is less than it is today.

Public perception is that the Bush tax cuts benefitted the rich primarily, but it is clear that many targeted lower middle income households.

Given the best available research on the income distribution as measured by Emmanual Saez using IRS data, I continue to maintain that marginal tax rates on the super-rich are way too low.

The share going to the top 1 percent is more than a twenty percent! The share going to the top 0.01 percent is 6 percent! (See this paper by Emmanual Saez.)

So when the discussion turns to whether to let the Bush tax cuts expire, let’s not let them expire [corrected],while agreeing with the President in his State of the Union address that households with incomes over $250,000 need to pay more.

Given the ruling class’s apparent control over its own compensation, I’d hazard a guess that raising tax rates on them would quickly be followed by their incomes increasing (a la Lloyd Blankfein’s $100 million bonus), so that raising tax revenues should be relatively easy! It would also highlight in the public mind, perhaps even in the minds of fiduciaries such as corporate directors (nah, forget that) that American corporations are being looted by their managements. It might accelerate the rebalancing of aggregate demand through more fair compensation in the workplace.

How about a 95 percent marginal tax rate on the portion of income over a couple of million dollars a year? That would provide for am approximate take-home income multiple of 2,000,000/50,000 = 40 times the median household income, a compensation ratio that prevailed during our most successful postwar growth years. And let the estate tax cut expire. We are already close enough to neo-feudalism.

Or do we need to have a depression to bring people to their senses? That is the way it appears (see this).

Via: Visualizing Economics: