By Hootsbuddy
Elected officials have finally figured out where to find some money. Like Willie Sutton they finally noticed where most of the money is: rich people.
After months of setbacks and uncertainty, House Democrats were jubilant as they unveiled their proposal to achieve a goal that has eluded presidents for six decades.
As of mid-afternoon, House Democratic leaders were still waiting for a cost estimate from the Congressional Budget Office.
President Obama, in a statement, praised what he termed �unprecedented cooperation to produce a health care reform proposal that will lower costs, provide better care for patients, and ensure fair treatment of consumers by the insurance industry.�
Republicans have asserted that the bill would raise taxes for millions of middle-income families. But Democrats said their proposal, which calls for a new surcharge or surtax, would affect �only 1.2 percent of all households in the United States.�
The surtax would apply at graduated rates ranging from 1 percent to 5.4 percent to families with annual adjusted gross incomes of more than $350,000 and individuals making more than $280,000.
Starting in 2011, a family making $500,000 would have to pay $1,500 of additional tax to help subsidize coverage for the uninsured. A family making $1 million would have to contribute $9,000. These taxes would rise significantly in 2013 if the federal government did not achieve specified savings in Medicare, Medicaid and other health programs.
Those of us whose memories predate Ronald Reagan will recall this is nothing new. In fact, it's tame compared with tax rates thirty years ago and before. Some Republicans still regard families scraping by on quarter million a year as "middle-income" but most people I know would be honored to pay taxes on that income. I know I would.
When my wife and I first married and were too poor to pay attention, I filed my own income tax. Being a nut case for detail, I poured over those government-speak forms for days at a time, looking for ways to save money. Those were the days of multiple deductions and finding them was like looking for eggs on Easter morning. I remember saving all our sales receipts once for an entire year to find out for myself if the various individual state sales tax tables furnished by the IRS were really accurate. I discovered (to mixed disappointment and pleasure) that those tables - at least for Georgia - were actually pretty generous.
Those were the days when medical deductions meant something when you filed for an income tax return. One of our children had to be in a private school for learning disabilities for two years and the tuition was higher than our mortgage payment. We were able to do it because a registered clinical educational psychologist had made the recommendation (that was when many public school teachers "didn't believe in" learning disabilities. ADHD was to come later.) so the tuition could be considered a "medical" deduction.
Credit card interest was deductible, along with a host of deductions aimed at helping small businesses.
With the election of Ronald (Government IS the problem) Reagan, the tax codes were "simplified." Multiple tax tiers were reduced to three.
In return for "flex-plans" allowing insurance premiums to be "pre-tax" individual medical deductions must now exceed a catastrophic percentage of earned income. Anyone with medical expenses over 7.5 percent of AGI is allowed the excess to be deducted, which means you're in damn deep doo-doo for health care at your house.
The big benefit of tax simplification, though, was for those at the top, whose rate was slashed from seventy to fifty percent. As time went by that was reduced another ten percent.
When the tax codes were complicated most wage earners took what was called the "standard deduction." leaving "itemizing" to those with a more complicated picture. Over time this habit has had the effect of dumbing down an already low tax IQ to the point where the "tax service" industry (seasonal, like Christmas tree sales) has become a flourishing enterprise that most ordinary people never realize eats away their hard-earned money worse than pay-day check-cashing outfits.
Here we are twenty years later. Anyone who thinks these twenty years of faux-prosperity has been the result of good management is in serious denial about all that has happened since last September. It is abundantly clear to me that what we have seen is more than a real estate bubble. It has been a foaming of the whole economy with many bubbles, including health care (Hello) driven by credit and all its permutations.
My wife and I, along with the rest of our super-rich peers, were awash with money after a few years so we didn't worry about anyone else. (Believe that if it makes you feel better.) But we looked with sympathy on our children who went into that dark earnings night unaware that their world was a very different place from the one into which they were born. It was about that time when easy credit became the order of the day.
Take a look at this History of Federal Individual Income Bottom and Top Bracket Rates furnished by the National Taxpayers Union. It starts in 1913 when the Sixteenth Amendment introduced the progressive income tax. For the first few years income was taxed between one and seven percent. But the First World War saw the top rate swell to sixty-seven, then seventy-plus percent.
Top rates dropped nicely for the rich in the Twenties, but then came The Great Depression and since they were the only ones with money, the top tier rate again jumped, this time to sixty-plus percent. (Now I'm not one to suggest any cause and effect between low taxes for those at the top and economic instability, but hey, look at what we're going through now.)
Taxes for the richest Americans remained in the seventy-plus percentile for all of WWII, even hitting ninety-plus percent in the Fifties. Somebody had to pay for the war. In money, I mean. Not just cannon fodder. And the wealthy few who had the money were the only place to find it.
So top tier tax rates remained high until the Reagan Revolution. See "tax simplification" above. Since then those at the top of the economy have enjoyed two decades of relief from really high taxes. During that time we have watched mergers and acquisitions eliminate jobs by the millions as big box stores drove smaller enterprises out of business all over the country. I guess all those people and companies that are s'posed to use tax breaks for jobs creation didn't get the memo.
Depending on whose numbers you believe, the top one percent of the population owns between a fifth and a third of the nation's wealth (net worth, income, whatever... the disparity is so uneven the details are not worth quibbling over). And the lower fifth of the country survives on one percent of the total. Don't believe me. Do a search for "income and wealth distribution" and see what comes up.
When Barack Obama said out loud that people earning a quarter million dollars a year would not see their taxes raised, he knew what he was talking about. Unlike his opponent who had a hard time remembering how many houses he owned Obama has spent enough time in the world of ordinary people to know that what Sophie Tucker said was true...
Addendum, July 16
Looks like I'm not alone. Robert Reich says pretty much the same thing.
There's another word for it: fair. According to the most recent data (for 2007), the best-off 1 percent of American households take home about 20 percent of total income -- the highest percentage since 1928. Yes, I know: Critics will charge that these are the very people who invest, innovate, and hire, and thereby keep the economy going. So raising their taxes will burden the economy and thereby hurt everyone, including those who are supposed to be helped.
But there's no reason to suppose that taking a tiny sliver of the incomes of the top 1 percent will reduce all that much of their ardor to invest, innovate, and hire in the future. Yet if this tiny sliver means affordable health care for a far larger number of Americans, who will be able to get regular checkups and thereby stay healthy and productive, the positive effect on the American economy is likely to be far greater.
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