How much might marginal tax rates be going up?

by on December 26, 2012 at 10:29 am in Data Source, Law | Permalink

Gerald T. Prante and Austin John have a new paper and a report for us:

This paper compares state-by-state estimates of the top marginal effective tax rates (METRs) on wages, interest, dividends, capital gains, and business income for tax year 2012 to the rates scheduled for 2013 under scheduled law. Scheduled tax law for 2013 assumes the expiration of the 2001 and 2003 tax cuts and the new PPACA taxes. Overall, the average top METR on wage income is scheduled to increase by approximately six percentage points (41.8 percent to 47.8 perent), while taxes on dividends would increase the greatest (19.0 percent to 47.9 percent). The top METRs on wages, dividends, interest, and partnership/sole proprietor income would exceed 50 percent in California, Hawaii, and New York City.

Dave Barnes December 26, 2012 at 11:10 am

Whatever.
Our republic will survive and thrive.

Rich Berger December 26, 2012 at 11:35 am

I’m with Dave on that one. Obama is just getting warmed up – if you think the last four years have been great, they are just going to be even greater in the next four!

Phil Perspective December 26, 2012 at 11:46 am

Yeah, the 8 Bush Jr. years were so great!!!

derek December 26, 2012 at 12:54 pm

If Obama was getting the same numbers as Bush in 2005 or 2006 he would be nominated for a Nobel in Economics.

Bill December 26, 2012 at 12:59 pm

What about 2008?

derek December 26, 2012 at 1:09 pm

Agreed. Same can be said for Clinton with the dot com bust. It would be very difficult for Obama to create a bubble in anything right now, hence the redefinition of prosperity.

Spencer December 26, 2012 at 2:44 pm

Actually, there has been no significant difference in the growth of private sector real GDP
between Bush and Obama. Real GDP growth is lower under Obama only because of the contraction of government.

Remember, Bush experienced the weakest US economic expansion on record.

mulp December 26, 2012 at 3:09 pm

Yep, the pump and dump asset inflation asset churn promoting capital gains cuts really created wealth with the NASDAQ bubble from 1997-2000 and then again with the Wall Street innovative securities from 2001-2008, and with real estate 2001-2006, and with stock 2001-2008. Which were a repeat of 1983-1987 for stocks and real estate.

What the capital gains exclusion was originally was a crude inflation adjustment, but then it got turned into a way to promote asset churn on the premise that with high asset churn, depreciating value assets will increase in price creating wealth from decay. In three decades we have had economic booms and busts based on asset churn through bubbles promoted like ponzi schemes.

The Republicans are trying for a fourth decade of bubble boom and bust by increasing the incentive to churn while Democrats are seeking to quash the incentives to churn assets. Republicans and Wall Street are winning some fights – no asset churn killing transaction tax; the rule requiring skin in the game and more capital has been delayed, ….

vanderleun December 26, 2012 at 1:39 pm

That kind of knee-jerk response, Phil, just singles you out as a jerk.

Cliff December 26, 2012 at 1:58 pm

Yep, taxes don’t matter. Nor does money.

vanderleun December 26, 2012 at 4:31 pm

Money? There’s no “money.” Money went away several trillion dollars ago. There’s just a quaint belief system still hovering around. Quaint but of no utility.

Brian Donohue December 26, 2012 at 12:33 pm

Very useful…great link.

DocMerlin December 26, 2012 at 12:39 pm

At this point it doesn’t really matter. Its just a matter of waiting for the default. Even if it went up to 100% on those making over 1m per year, somehow without changing behavior. The US government still wouldn’t be able to pay off its liabilities.

Tim December 26, 2012 at 3:01 pm

The US government denominates all of its liabilities in dollars which it can borrow, tax or create at will. The chances of default are exactly 0% and anyone who believes otherwise is an utter moron.

Yancey Ward December 26, 2012 at 5:12 pm

Long live the Zimbabwe dollar.

DocMerlin December 26, 2012 at 6:17 pm

I don’t mean an “official” default. I mean the liability holders will get less than they are promised. It won’t be called a default, but it will still be one.

mulp December 26, 2012 at 3:24 pm

Obviously voters would elect Republicans who would argue that not having the US Treasury issuing trillions in bonds per year would be harmful to the economy because there would be no investment better than US Treasuries around and the economy would collapse, so tax cuts and spending hikes are required to give the private sector safe investments.

If it worked in 2001, it would work in 2017 if Republicans win even if the deficit is $500B or even $1T. Romney-Ryan were running on tax cuts and increased spending with entitlement cuts not occurring before 2022 and even then very small cuts.

The only reason conservatives and Republicans are focused on the debt and deficit is the president is not named Reagan, Bush, or Romney, and the Senate majority leader is Harry Reid, and not Mitch McConnell, who would find any concern about deficits unwarranted if he were getting votes on Romney’s tax cuts.

Reagan proved deficits don’t matter to voters.

Willitts December 26, 2012 at 11:27 pm

We wish we had the deficits we had under Reagan. We also wish it was being used for such useful purposes.

derek December 26, 2012 at 12:53 pm

I guess the trend towards issuing dividends will come to a screeching halt.

A data point that may be of interest. Old age security payments begin to be clawed back by taxation at $69500 income level in Canada. That defines ‘rich’ in Canada. Expect the same redefinitions in the US. 8% unemployment has been defined as normal already.

Bill December 26, 2012 at 1:02 pm

By clawed back, you mean you start paying taxes on benefits?

derek December 26, 2012 at 1:23 pm

I’m not a tax expert, just repeating what I read. From what I understand, any income above that threshold is taxed at 15% on top of other taxes. The OAS is taxable income as well. The Canadian system has what is called OAS, which is similar to the US plan; we pay into it through payroll taxes. On top of that there is what is called Guaranteed income supplement, which goes to those with an income less than $16k.

The maximum per individual is a bit less than $1300 per month, that is two benefits combined.

This is what fiscal sanity looks like. I suspect most Americans have an inkling hence the continued political support for deficit spending.

Bill December 26, 2012 at 2:20 pm

Well, it looks like all you’re doing is taxing benefits when total income exceeds a base; that is, exempting income, but, then when a threshhold is reached, you begin taxing it. Hardly clawing anything. Sounds like someone is using words, not logic, to frame an argument by using the word “claw”. Sounds nasty.

derek December 26, 2012 at 2:57 pm

OAS is taxable income. There is a specific threshold and rate to, as the government says, ‘repay’ what they sent you. Clawback is another way to express it.

http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/oasrepay.shtml

It’s worth noting that the maximum that a taxpayer would get without the GIS is $547.06 per month.

As I said, this is what fiscal sanity looks like.

Bill December 26, 2012 at 4:48 pm

derek, If you think of OAS tax as a balloon, and you squeeze it one place, it expands in another. The fact that there is a exemption from tax, and then a tax when it exceeds a threshold, is just tax policy. If you are using words to substitute for logic, fine, but recognize that. Another regime would be to lower OAS distributions so you wouldn’t have clawback, using the balloon principal. What it really is is differential taxation premised on the declining marginal utility of money.

Urso December 26, 2012 at 1:14 pm

Well, anyone earning $70 grand in income *in retirement* is pretty well off by any definition. That assumes about a million dollar nest egg. Not necessarily rich. But certainly not so impecunious that they need government handouts to live on.

derek December 26, 2012 at 1:25 pm

Or a good pension plan.

Bill December 26, 2012 at 2:22 pm

For us rich people who have gotten you suckers to give us a tax break, $70k in retirement is peanuts.

Brian Donohue December 26, 2012 at 3:01 pm
mulp December 26, 2012 at 3:33 pm

In 2000, the California pension funds run by Calpers was proof that Social Security was a bad deal because Calpers was able to fund bigger pension benefits than Social Security with a lower contribution by the employer and employee, thanks to the fact the stock market and real estate prices always go up up up up up while interest on US Treasuries goes down down down.

Now Calpers is in trouble and the too low Social Security returns have now become excessive and unsustainable benefits to too many people who don’t need the $1000 a month because they are so rich from their 401Ks and IRAs in the stock market.

Willitts December 26, 2012 at 11:35 pm

@mulp: why don’t you let people who earned money and were forced to invest with a negative rate of return decide for themselves whether they need that $1000 a month.

Я знаю, что вам нужно.

Rich Berger December 26, 2012 at 1:22 pm

Newsflash gentlemen:

If you earn over $32k (joint filer) you pay tax on your SS benefits.
SS benefits are based on your taxable pay (that is the pay on which you and your employer paid 6.2% tax) and the benefits decline as a percentage of your average taxable pay (they start at 90% and decline to 15% of your average pay). So much for regressive and the “handout” gets less attractive the later you were born.
If you draw $70K a year out of a principal of $1M you are going to outlive your funds. $2M is more like it – money that you would have accumulated by not consuming all your income. Of course, you didn’t save that – you took it from the poor.

mw December 26, 2012 at 1:57 pm

We need those 50% wage rates to pay for our 20% capital gains rate that’s so critical to the tremendous “investments” undertaken by our overlords.

Cliff December 26, 2012 at 2:01 pm

By “overlords” you mean bosses?

Rich Berger December 26, 2012 at 2:35 pm

It will be interesting to see how much revenue is actually brought in by the tax increases versus predictions. BTW, it would be entertaining if Vegas gave odds on actual results being different than OMB/CBO forecasts – I would put my money on significantly less being raised.

Yancey Ward December 26, 2012 at 5:15 pm

I predict the CBO overestimates it by 30%.

Comments on this entry are closed.

Previous post:

Next post: