Obama's Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011

President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.

Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.

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But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

Mr. Obama is of course counting on an economic recovery. And he's also assuming along with the new liberal economic consensus that taxes don't matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation's primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively "small business" is defined. These owners will find a way to declare less taxable income.

The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can't possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.

On that point, by the way, it's unclear why Mr. Obama thinks his climate-change scheme won't hit all Americans with higher taxes. Selling the right to emit greenhouse gases amounts to a steep new tax on most types of energy and, therefore, on all Americans who use energy. There's a reason that Charlie Rangel's Ways and Means panel, which writes tax law, is holding hearings this week on cap-and-trade regulation.

Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don't ignore the data. And the reality is that the only way to pay for Mr. Obama's ambitions is to reach ever deeper into the pockets of the American middle class.

http://online.wsj.com/article/SB123561551065378405.html?mod=djemEditorialPage

Good

Cycloptichorn

As his primaery job now is to undo whats been done , I suppose that to allow him to succeed would be in opposition to what the GOP stands for.
SO, in effect, the GOP will be sure to try to downplay how we got into this mess and hopefully they will successfully transfer all responsibilities to the Obama admin.
This is what Lush Rimjob said, isnt it?

I frankly hope Obama is successful - for all 0ur sakes. I don't think the fact of stupidity and venality by Republicans should be an excuse for stupidity and venality on the part of Democrats. The truth is on average we get our best governance occurs when the Congress & Executive are dominated by opposing parties. Compromise and filtering out the worst excesses of both sides are then a necessity. With either party in charge of both branches of government there is little to limit the selfish interests of the single issue groups that strongly influence both parties.

My concern about Obama is that he (like Bush before him) has shown little inclination to limit the worst excesses of his own party.

The manifestation of this with respect to the liquidity crisis at hand is that the current administration has as yet done nothing to address the truly significant element of the current economic crisis - the one from which all the secondary effects of unemployment, failing businesses and dropping equity values proceed - the liquidity crisis in our credit system. They have vociferously criticized the actions of the previous Administration in its TARP program but, despite all their promises to the contrary, have not yet provided even an outline of a meaningful plan of their own. Worse they have authorized an enormous increase in the national debt to finance a long list of favored Democrat social programs and payoff their key constituents (organized Labor, the Teacher's Unions and others), all in the name of mitigating what are merely the side effects of the crisis and not at all a solution to it.

So far I see little difference between Obama and Bush except they are inclined to waste money on different things and that Obama is a much more polished speaker than Bush.

Isn't it obvious that they are in a bind, George?

They have no real choice but to nationalize the big banks. The other options are to throw never-ending amounts of money into the hole, or to just let them fail and hope that we survive somehow.

But the minute that they make that clear, they are going to come under extreme attack: from the right-wing, from the pro-business, DLC-wing of the Democratic party, and from the idiots on CNBC! The market is going to freak out and nobody know what is going to happen after that.

So they are slow-playing things. But I would bet that the endgame is nationalization, or 'receivership,' of our major banks in order to save both us and them. Will you Conservatives denounce him for this?

Cycloptichorn

On the contrary, the market tanked following Geistner's very disappointing "plan" presentation precisely because it saw no constructive action at all, favorable to its prejudices or otherwise, to the liquidity crisis. Even a round two of the TARP program would have been better received. Indeed some very prominent Republicans have already argued that some degree of bank nationalization is necessary and inevitable.

I think many people believe Obama is throwing all the available money down the wrong hole, just to placate the prejudices of his key constituents. Worse even the generous grants to state governments come with many strings attached - in effect the Democrat Congress is legislating for state governments in order to meet the wish lists of organized labor, the education & environmental lobbies and others.

There's also a good deal of double talk involved. Obama promised to continue the Bush tax cuts, but now we see them sneaking back in the new budget projections. Some other countries have higher maximum tax rates, but none have such a high proportion of the total income taxes paid restricted to such a small fraction of the total population. To be sure this also reflects the very high incomes of the top 1% of Americans, but the oft repeated notion that the rich here are undertaxed relative to others doesn't withstand close scrutiny of the facts. I am not rich, but Obama is going to cost me a lot of money.

You have a funny definition of 'tanked.' Back in September the market went down 2500 points or so in a week and a half. Since the Treasury announcement the market is down about 7oo points.

Yes, they were hoping for handouts from Geithner with no strings attached, so it is unreasonable to assume they were upset when that didn't happen and their fiscal reports were still terrible?

Nationalization is the way they are headed, I would bet. They will put it off in order to avoid criticism but it's gonna happen. I think it's also a difficult thing to figure out how to do correctly.

The stimulus bill which passed was a lot more than just throwing money at Democratic constituents, George.

Cycloptichorn

I count a good deal more than 700 points, but regardless both drops - on a percentage basis were substandial and of the same order of magnitude.

Banks - the entities that presumable will receive the handouts - don't own the stock market. It wasn't the bank's reaction that caused the market to fall. Instead it was the reaction of pension & mutual fund managers and of individual stockholders that caused the fall - not the banks,

from Fact Check



WASHINGTON " Claims that President Barack Obama's tax plans are an assault on small business skirt the likelihood that most job-producing small businesses wouldn't feel that pinch at all.

Obama is proposing to raise taxes on households earning over $250,000 by increasing the rate on the top two tax brackets and limiting deductions, starting in 2011.

Republicans and other critics, knowing they will get little mileage from defending the rich, instead are casting the plan as a tax hit on people who run industrious little companies driving job growth.

That's not likely, according to one in-depth analysis, which found that more than 95 percent of small business owners would be off the hook.

Obama does not propose higher business taxes.

But critics reason that owners of many small companies report business income on their personal tax returns instead of filing corporate taxes. That exposes their business's earnings to Obama's higher tax rates on the wealthy.

To be sure, some business owners would get caught in that net.

But for one thing, most small businesses don't create jobs. They tend to be lawyers, accountants and other professionals who earn some of their money from partnerships or otherwise organize themselves as a business entity.

As well, many small businesses with employees don't earn enough to put their owners over the threshold for the higher tax rates.

Indeed, most of them " like Joe the Plumber of presidential campaign fame " would probably get Obama's tax break for the middle class.

Obama also proposes to eliminate capital gains taxes on small businesses and make a research tax credit permanent. He would expand a provision that allows money-losing companies to get refunds from taxes paid in previous years, when the companies were profitable.

Still, Obama is not cutting taxes for 95 percent of Americans, as his supporters often say. The president himself asserted Thursday that he's giving a "a middle-class tax cut to 95 percent of hardworking families."

An independent analysis estimated that 75.5 percent of all U.S. households would get his tax credit for workers. A higher percentage of working families would get it.

THE CLAIMS:

_"In fact, a majority of those penalized by the proposed tax increase in this budget are small businesses." " Republican Rep. Eric Cantor of Virginia.

_"Small businesses and the entrepreneurs who lead them have been the primary drivers of job growth over the past decade. This plan would punish them with higher taxes, resulting in less government revenue, less economic growth, and fewer jobs " not more." " Bruce Josten of the U.S. Chamber of Commerce.

THE FACTS:

The U.S. has roughly 6 million businesses that employ people, and 20 million businesses without employees.

The latter group includes solo operators, professionals in partnerships and those who organize themselves as a business for tax purposes but earn little if any income from the enterprise.

Small businesses are defined as having fewer than 500 workers each.

Sizable companies within that group wouldn't be snagged by Obama's personal tax rates simply because they are too large to report income on the individual return of the owner.

Many truly small operations simply don't make enough to qualify for the tax hit.

Last year the Tax Policy Center run jointly by the Urban Institute and Brookings Institution examined the likely effects of Obama's plans to raise taxes on couples making over $250,000.

The analysis estimated that 663,000 taxpayers who report business income or losses fall in the two tax brackets whose rates would go up under Obama. Many are small businesses on paper, without workers.

Millions of other small-business owners would be clear.

So, we're throwing money into the economy, every which way, in hopes of creating jobs and stimulating jobs. Is this consistant with the new taxes taking money out of the economy? Not being an economist, I can't guess which would work. I am having trouble believing they are both going to work at once.

No one really knows if this budget is "real" or some fantasy Obama has.

Certainly no one on A2K can understand to full reach of this budget.

Since it is packed with tax increases and a "reserve" of another 700B for Banks, what I am still waiting for is what Treasury will come up with.

eb. 27 (Bloomberg) -- President Barack Obama’s promise to slash a record deficit may rely on economic-growth projections for the coming years that are too optimistic.

The $3.55 trillion budget proposal for 2010 the president unveiled yesterday projects 3.2 percent economic growth next year, thanks to a $787 billion fiscal-stimulus measure he signed into law earlier this month that is aimed at creating jobs and consumer demand.

That is twice the 1.5 percent growth projected by the Congressional Budget Office before the stimulus bill was enacted and higher than the 2.1 percent consensus growth estimate by analysts in the Blue Chip Economic Indicators survey. Even those projections may be too optimistic: Federal Reserve Chairman Ben S. Bernanke said this week the U.S. is suffering a “severe” contraction, and a government report today may show the economy shrank more than previously forecast in the fourth quarter.

“One glaring, central risk to the budget’s projections is the economic outlook,” said Joseph Minarik, a senior vice president at the Committee for Economic Development, a Washington-based public policy institution. The budget assumes “the economy is going to turn around more rapidly,” said Minarik, a former associate director at the Office of Management and Budget under President Bill Clinton.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ao4T6YQIFoRE&refer=home

Fantasy????

I see one big difference -- that Obama is willing to put everything in the budget and make honest projections over the long term. If I'm not mistaken, this is the first time we've even budgeted for our two wars.

Honest projections over the long term?

How can he justify a 3.5% economic growth next year and 6% the year after? That would be unprecedented!

I'm talking about expense projections. According to Bush's budgets, the Iraq war was going to be free.

Republicans persist in trying to mislead the public. Some of their myths are exposed here.


Right-Wing Tax And Budget Myths

Yesterday, the Obama administration released its fiscal year 2010 budget, which lays out an ambitious course of action on health care reform, energy policy, and education while estimating a deficit of $1.75 trillion for the current fiscal year. The budget also includes "significant tax increases" for corporations and wealthy Americans that will increase revenue by nearly $2 trillion over the next 10 years. The proposal allows the Bush tax cuts on the top two income brackets to expire on time in 2011, reduces itemized deductions for those making more than $250,000 a year, raises the top rate on capital gains and dividends to 20 percent (from 15), and closes the capital-gains loophole so that hedge fund and other private-equity managers have their profits taxed as ordinary income instead of capital gains. The budget also proposes a cap-and trade program that would auction permits to companies that emit greenhouse gases, with the revenue directed toward President Obama's Making Work Pay tax credit. As the Center for American Progress's Michael Ettlinger noted, these changes are "going to provoke outrage." But "were this budget to be enacted, it would be by far the most significant progressive step in over forty years," noted CAPAF Fellow Matt Yglesias. Conservatives are already propagating various myths about the budget; The Progress Report offers these debunks:

MYTH 1: OBAMA'S RAISING TAXES DURING A RECESSION: "If there's anything that economists on the left and the right agree on, that supply-siders, classic economists and Keynesians agree on, you don't raise taxes in a recession," said Rep. Paul Ryan (R-WI). "This budget is raising taxes in a recession." The plan drew a similar rebuke from the American Petroleum Institute, the oil industry's most powerful trade group. However, as Office of Management and Budget Director Peter Orszag said, "[F]olks need to actually look at the budget document." To avoid raising taxes during the recession, the increases will not take effect until 2011. Furthermore, the economic stimulus package signed into law by Obama last week enacted one of the largest tax cuts ever, which made good on Obama's campaign promise to cut taxes for 95 percent of Americans. The first benefits from these cuts should be seen no later than April 1, 2009.

MYTH 2: TAX INCREASES WILL RUIN ECONOMIC GROWTH: The Heritage Foundation claimed that Obama's tax proposals "sacrifice future economic growth at the altars of redistributionism," while House Minority Leader John Boehner (R-OH) called the budget a "job killer." But as Orszag said, "[W]e're returning to the tax rates that applied during the 1990's. I think all Americans -- including high income Americans -- did quite well during that decade." The Center for Budget and Policy Priorities pointed out that "what the data do show clearly is that, despite major tax cuts in 2001, 2002, 2003, 2004, and 2006, the economy's performance between 2001 and 2007 was far from stellar." As CAP's Joshua Picker found, the Bush economy "registered the weakest jobs and income growth in the post-war period. Overall monthly job growth was the worst of any cycle since at least February 1945, and household income growth was negative for the first cycle since tracking began in 1967." Women reversed employment gains of previous cycles, and for African-Americans, the worst job growth on record was matched by an unprecedented increase in poverty. Businesses didn't fare any better, as the Bush tax cuts "were actually followed by a pronounced decrease in the fraction of G.D.P. devoted to business investment." Business investment fell after both the Reagan and Bush tax cuts, but rose after the Clinton tax increase, according to work by Princeton professor Uwe Reinhardt.

MYTH 3: TAX INCREASES WILL HARM SMALL BUSINESSES: Republicans, "knowing they will get little mileage from defending the rich, instead are casting the plan as a tax hit on people who run industrious little companies driving job growth," noted the AP. "A majority of those penalized by the proposed tax increase in this budget are small businesses," said Rep. Eric Cantor (R-VA). Sen. Jim DeMint (R-SC) said the proposal "shows a lack of understanding of the private sector." But as the Associated Press pointed out, Republicans are "adrift" on this one, as "many truly small operations simply don't make enough to qualify for the tax hit." Indeed, only 1.9 percent of small businesses file in the top two federal income tax brackets, which leaves 98.1 percent unaffected by the rate change. And because of the Treasury Department's broad definition of small business, "many of the roughly 650,000 filers with small-business income who face one of the top two tax rates are merely passive investors who have nothing to do with running the business." So "the $84 of income President Bush received in 2001 from a passive investment in an oil and gas company made him a 'small-business owner.'" Overall, only 0.7 percent of households file in the top two income brackets. As Yglesias wrote, "[A]ny small businessman who's earning a middle class income isn't paying in the top two brackets, just as any salaried employee who's earning a middle class income isn't paying in

americanprogressaction.org

I see there is little objectivity in the americanprogressaction.org .

Myth 1 is misleading. The "tax cuts" are minimal and of no consequence and will not stimulate anything. The tax increases are HUGE and of consequence. I do NOT disagree with ll the tax increases. However, I expect the media to be honest .

Myth 2 is not myth. It is a fact. Obama is raising taxes in a recession. It will have an impact on growth in certain sectors, not all.

Myth 3 is also misleading. Any S-Corp that has a gross in excess of the 250K limit will pay higher taxes.

Why does the left refuse to be honest (the right is also misleading the facts)?