Posted by: theoptimisticconservative | November 15, 2011

Reversion to the Clinton tax hikes: Time to rethink what our government has become

As we read more and more about the US federal government handing out money – borrowed-against-our-future money – to the private enterprises of Obama’s campaign donors, it is heart-warming to remember that the tax code is scheduled to revert on 1 January 2013* to what it was under Bill Clinton.

This means that unless the Super Committee comes to an agreement to avert it, you are almost guaranteed to have a larger federal income tax bill after next year.

Money-manager-types explain, each time we reach this precipice, that going back to the Clinton tax code means virtually everyone who pays now will pay more.  It also means some who don’t currently pay net federal income tax will have a balance owed in 2013 after exemptions.

It’s not just rate increases for the “rich.”  The 10% bracket goes away, with the lowest rate reverting to 15%; the child tax exemption goes from $1000 per child back to $500; the “marriage penalty” comes back in terms of personal exemptions – and those are just the changes that will be felt by the most people.  Taxes on dividend income will go up as well, and all exemptions will be phased out as income rises (which will hit the small-business proprietors and professionals whose activities with their own money make an outsize contribution to economic growth and prosperity – not to mention dealing a blow to charities).

Bob Jennings at Fox Business ran some numbers for a young couple with two kids and combined income of $100,000.  (H/t: Lonely Conservative.)  Their tax bill would go up by nearly $3600 between 2012 and 2013, or about $300 a month.  And that’s just federal income tax:  they’re also paying property taxes (they have a mortgage), probably state income tax as well, and sales taxes and special excise taxes (e.g., federal gas tax) – plus they’re sending 13% of each of their earned incomes to Social Security and Medicare.

The young couple will certainly feel the loss of $300 a month.  Estimates of tax bill increases suggest that they will be felt down to incomes in the upper $20,000s range, by typical single filers.  (With exemptions, multi-person households have lower tax bills at the same or higher incomes.)  Those most likely to be single filers with incomes in this range are either seniors on fixed incomes, or young people just starting out.  For either demographic, an increased tax bite of even $20-30 a month makes a difference.  That amount can easily equal the total monthly fees assessed on, say, utility bills and banking.  Few people in this income bracket can say they wouldn’t miss the amount.

For a household earning $150,000 a year, the tax bill increase will run to $6,000, $8,000 or more, depending on the household.  People with incomes in this range know that the loss of $500-700 a month will make a significant difference.  Assuming they’ve already cut way back on consumption, they’ll have to start cutting back on savings and investment.  That will do the opposite of create jobs and encourage economic growth.  (It will also minimize the additional revenues from increasing the tax rate on dividends.)

The higher you go in the income brackets, the more likely filers will be to simply take less individual income.  Why expose it to the tax man?  The discretion wealthier taxpayers have over their assets disappears, disproportionately with each increase in current income.  It’s not worth it on the margin to accept the greater tax exposure.

These filers will park a greater portion of their assets in low-tax-exposure instruments rather than taking as much current income or capital gains as they do today, and taking economically-productive risks with it.  This removes some amount of ready capital from circulation, leaving it latent:  too expensive to take out and use.  If there were not relatively tax-advantaged options for using it abroad, this might make less of a difference.  But there are.  For America, increasing tax rates on our capital sump will drive jobs and economic growth elsewhere (especially with the costs of regulation on a dramatic upswing in the US).

We can hope the tax increase won’t happen.  The threat was averted for 2011, after all.  But it ought to be especially galling for taxpayers, in the wake of the Solyndra revelations – and the now seemingly endless parade of crony beneficiaries of the Obama administration – to contemplate the very real pain it will inflict on their recession-shocked households if the Clinton tax code comes back.

Americans are not undertaxed.  Government at every level is, rather, overspent – and the people’s lives and commercial activities are stupendously overregulated, which discourages economic activity – as well as income mobility – by raising the cost of literally everything.

Before we collect one additional penny in taxes from anyone, we need to cut spending and regulation.  Start with the federal grants to Obama’s political cronies; the current prohibitions on drilling for oil and gas; and 100% of the discretionary activities of the Environmental Protection Agency, including the new air quality standards set to go into effect on 1 January.  Whether you want to add a new regulation or modify an old one, you should have to fight in Congress for every single change, using your own money, not the people’s – and lose your battles if  you can’t get the votes.

The basis of government has gone badly awry in America.  The bottom line is that the taxpayers should not have to accept pain so that we can fork over more to keep funding it on its current basis.  Michael Bloomberg is wrong about thatGovernment is what has gone wrong, and it’s government that needs to change.

* Aw, heck.  I meant the tax code reverts to Clinton’s in 2013, as several alert readers have pointed out.  No excuse; brain flatulence.

J.E. Dyer’s articles have appeared at Hot Air’s Green Room, Commentary’s “contentions,Patheos, and The Weekly Standard online.

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Responses

  1. [...] do the Democrats hate hard working middle class Americans?H/T Doug RossUpdate: Linked by The Optimistic Conservative – thanks!google_ad_client = "ca-pub-1395656889568144"; /* 300×250, created 8/11/08 */ [...]

  2. J.E. – the reversion happens 1/1/2013, from what I remember – not on January 1, 2012. Might want to revise that part as this is cross-posted at hotair!

  3. good that the cuts will expire…we should be able to enact relief for the couple making $100K …the folks with larger incomes will not suffer from the return to a higher tax bracket.

    • How about this?… We make every self-important, doofus New Yorker fork over their entire income (because they inhabit the worst festering money drain crapthole north of the Rio Grande) unless they leave the country?

      That would fix things… just take all of Fuster’s rent money, his phone bill money, his money to pay for groceries… He can move into a hostel dormitory… it’s got a head, and a shower… three hots and a cot, dood! Even some make work mopping and scrubbing to make it all even-steven… After all it’s all anybody really needs right?

      Lemme see $600 a month is 1/2 of tuition payments for my sons at college – going to dial up and tell them that ole Fuster doesn’t much care that I couldn’t afford to pay for their college tuition… even though they have to pay 1/3, and because I am of that special class that gets no loan subsidies, or more than the absolute minimum amount… They’d have to drop out or crawl through… I guess college educations are only for the super rich, and the chronically poor. Just don’t bother to work hard enough to earn more money than the government allows…

      Gee Fuster… $600 a month… guess I won’t be buying that American car from Government Motors, eh? Guess I won’t be paying for that nice patio in the back yard I was hoping to put in (can’t have the landscaper getting paid all of that dirty -upper middle class money now would we? What can I do with $600 a month, right? I’m too stupid to spend or save that money as I see fit.. Uncle Sugar can do it for me, right?

      Nah… That money is better flushed down a government poverty pimp rat hole into a sewer like New York. The government knows best what it can do with my hard earned $600 a month, now doesn’t it?

      Let’s just go back to Boy Clinton’s Dot Com Bubble, beanie baby economy where fantasy corporations were in business just to be cool! And then have the big liberal crony corporate big wigs sell out to a big conglomerate, line their pockets with the cash, and lay off all of those suckers who worked 80 hours a week for worthless stock options and tiny salaries of borrowed money… That’s it!!! Back to then!

      Sometimes, Fuster, you are funny… sometimes you are just contrary to be painful… and more often than not you are just flat out wrong.

      Just like now.

      ugh

      • dear mighty, I’ve paid my share of those Clinton-era taxes on the $100k + households……and I’ll go right on paying taxes so that Uncle Sugar can pay to keep the troops in the field….the landscapers will have to find other folks to employ them….

      • Spot on Mighty.

  4. On CNN I saw Fareed Zakaria say that simply letting the Bush tax cuts expire would generate 3.9 trillion dollars for the government over ten years and basically solve our deficit problem. I found this intriguing. Until I actually thought about it.

    I’m no economy expert. But as our blogger points out, the federal government’s spending is continously rising. I don’t think Zakaria’s math considers that Congress, left to their own devices, will continue to spend more and more on social programs and entitlements. If these tax cuts do expire, we can all bet our representatives will be foaming at the mouth to spend all this new cash. Of course, when they realize, due to a still-suffering economy and American’s stashing their money in the Caymans, the revenues didn’t add up to nearly what they predicted, the deficit suddently gets much larger very fast.

    I find it especially funny that Hollywood celebrities often speak of how they don’t need a tax cut. You see, I’m from California. And it wasn’t long ago that the state legislature was in a panic because wealthy Californians, especially Hollywood celebrities, were sending all their income into overseas accounts, drawing a small allowance, then claiming only that allowance as income. The California legislature not only changed their tax laws to eliminate this loophole, they made it retroactive. (That’s very California.) I became aware of this when my cousin, who is a California resident and lives in Japan, got soaked with a huge tax bill from years past.

    Tax evasion is illegal. But tax avoidance is an American tradition. If the Bush tax cuts are repealed, it will interesting to hear of the new and very creative ways American’s avoid sending their money to a government they do not trust to spend it wisely.

    • Sadly, for those with a predeliction towards dodging their taxes, the political complexion of the government, or what the government might be spending their money on, is seldom a consideration.

      • I think you’re very wrong about that. I think the primary motivation behind the current anti-tax sentiment in our country is the fact our government wastes or abuses so much of what we give them.

        In local situations, people vote against more taxes for schools not because they are greedy and stingy and want to “dismantle public education”. Rather, they have seen time and time again when public “educators” get more money, they use it to hire more administrators and fund the latest stupid and useless trends like Outcome Based Education, Whole Language and College Prepratory Mathematics. (The last of which has nothing to do with College Prep and is only minimally related of math of any kind.) Teachers and children actually in classrooms never see any this money. They’re told to suck it up and sell some more wrapping paper, candy and cookie dough.

        People are fed up to say the least. The vast majority of American accept some taxation is necessary. But they also know our current governments are inept. I agree with PJ O’Rourke when he said giving money to politicians is like giving whiskey and car keys to teenage boys.

        When government officials start being frugal and sensible with the peoples’ money, only then will much of the anti-tax sentiment go away.

        • We are dealing with two very different species here.

          1. There are law-abiding people who complain about paying their taxes because:
          a. They feel the tax system is unfair, or
          b. They feel that they are getting little personal benefit in return for their taxes, and the money is being spent on people or projects they don’t like or consider “undeserving”, or
          c. They think government is too big.
          But they still pay their taxes.

          2. Then there are the avoiders and evaders for whom any old excuse (or none) will do to dodge their taxes or move their money to the Caiman Islands.

          Ron Paul and the Tea Party come within category 1 c.

          JED comes within category 1 b.

          I suspect most of the people who fund the Party of the Bankers come within category 2.

          • Paulite, a warning: Don’t make baseless criminal allegations. I won’t tolerate this against my readers. I am correcting this reply because I see that you didn’t actually accuse me of criminal tax evasion, but you have no reason to accuse the Tea Partiers of it either. I will block any commenter who makes libelous allegations against my readers or me.

            • If you had actually read what I had written before rushing into indignant print you would see that I made no allegations (libelous or otherwise) of unlawful or criminal behaviour on the part of yourself or the Tea Partiers – or any of the contributors to this discussion.

              Read it again:
              Category 1 refers to “Law abiding people”. Category 1b comes firmly within that category. I placed you in category 1b. Category 1c, in which I placed the Tea Partiers: ditto.

              I think you need to correct your reply again.

              • Very smooth.

              • Je reste ma valaise.

              • You have been listening to Concrete Blond haven’t you.
                Paul, we are sooooo simpatico.
                Quod Erat Demonstrandum

              • Yup. I get into the mood by listening to that track from chainsaw massacre.

  5. Of course congressmen are going to spend money, they’re in competition with the other members for their share of the federal pool of imaginary dollars. No constituent is happy to see a few million dollars spent on a bridge to nowhere just across the state line while nothing is happening in his own district. That’s why there’s all this clamor for stimulus spending for “infrastructure”. Everyone figures, and rightly so, if they’re going to spend our money, or money that we’re responsible for paying back, let them spend it near my house. This is what a federal personal income tax has created, even though, as opticon has pointed out in the past, there is no relationship between tax receipts and government expenditures. If the 16th amendment were repealed and the feds had to get their operating expenses from the various state legislatures we’d see a very different situation.

    • I’m glad you mentioned infrastrucure, Chuck. This is one area where I’m thinking our government actually could, and should, do something. I like to drive. But not on bridges that collapse beneath me.

      Like defense, I think infrastructure is an area where the government is the only viable method of support.

      What say you others?

      • I think that you’re correct and that private turnpikes were properly phased-out in the 18th century.

        infrastructure spending is desirable and necessary and has been neglected in many cases.

        • Toll roads in several states have been sold or leased to private developers for long periods of time.
          The deveopers have to run and rebuild same. The will make a very nice profit. It is a trend that will continue.
          Private space companies are on the cutting edge of future space exploration with NASA bogged down with Muslim outreach priorities.
          NASA is not the same. The Federal Govt is not the same.
          Fuster, you are living in the past. The Feds no longer do Big or Small things well outside of the military.
          Private capital is quietly moving into areas and bits of improvement are at hand.
          The public education system is a joke. A private parallel system is being built.
          The teachers Unions will wake up too late, flounder around a bit, threaten everyone,beg for tax money and then become The United Steel Workers.
          The Federal Govt is a fat, bloated pig. It over spends, over regulates, is prone to crooked dealings with special insiders (both parties). It is an ugly, self centered, dis honest monster that does less, but charges more.
          Come on in folks and welcome to our Re Grand Opening. We have less lighting,fewer carts and employees to help you. But, your selections should be a lot easier because we no longer have much to offer. Our new store opening list will be up dated regularly, maybe. You will love our new price increases.
          We have special contribution cans up front. Please help, won’t you? Little Timmy needs Green Energy. A windmill on every car. Thanks, come back, ya hear.

      • Yeah, like the $150,000,000 John Murtha Johnstown-Cambria Airport, we need more infrastructure like that. A valid argument can’t be made for the construction of such a facility in a rational world, only in the log-rolling, backscratching David Lynchian US Congress. And that’s just one example, thousands of over-priced, under-utilized projects dot the American landscape, vivid testimony to the prescience of de Toqueville’s analysis of our political system.

  6. Excellent post, OptiCon!

    The analysis of the impact of the return to the Clinton Tax Increases should be sent to everyone in the middle class in the US — it will change a few minds, and votes.

    End Crony Socialism!

  7. In regards to all this (Democratic) talk about the need to raise taxes, there is one thing in particular that I rather dislike. The federal govt heaped all this massive new spending upon us – much of it against the will of the citizenry – and now the federal govt is saying “we need to raise your taxes so we can pay for all this new spending we rammed down your throat.” Pardon my language, but they can go screw as far as I’m concerned. It takes some nerve for Obama & Co to say that a certain portion of Americans aren’t “paying their fair share.” My knee-jerk reaction to those saying that we should go back to the Clinton tax rates is: fine, I’ll go back to the Clinton era tax rates if we also go back to the Clinton era spending levels (special thanks to Newt and the R Congress for that). Maybe then we can have a reasonable discussion about those Clinton tax rates.

  8. As usual you are misinformed. If we reverted to the “Clinton” tax regime in 2013 without any further adjustments, a family with two children earning less than $122,000 will be ‘all-square’. Those earning less will do somewhat better. Those earning more will be somewhat worse off. Given that most US families have incomes considerably less than this amount – including the thoroughly “middleclass” families of most army officers, teachers, and many families running the small businesses which are the life-blood of this country – it is only someone completely detatched from middleclass realities who could say that most middle-class families would be worse off. (If the only people you socialize with are the very priviledged, you are inclined to have a misunderstanding of what middleclass people earn)
    This phoney concern for the middleclasses is laughable coming from someone at the far fringes of the Party of the Bankers. It is doubly laughable when the Party of the Bankers is doing its best to frustrate the changes which would ensure that an even wider cross-section of middleclass families would see themselves paying less tax. The representatives of the Bankers are determine to frustrate any tax-breaks for the middleclasses unless they themselves are allowed retain the tax breaks that allow most of them continue to pay less tax than their middleclass employees. This class-warfare by people who earn way away more than the middleclasses, and who resent paying their fair share, is fooling no one.

    • You never really say anything Paul. You’re wasting electrons.

      • Neat, closely argued point. Ever thought of joining the Perry campaign team?

        • More than 46% of Americans currently pay no income tax at all. Of those, many get back more than they paid in at the end the year through “Earned Income Credit”. How about considering this fact when discussing the subject of “paying their fair share”?

          By no means am I suggesting the genuninely poor and destitute should be punished. But come on. Even in this economy, no way are 46% of Americans poor and destitute.

          I feel very fortunate to be a person who currently works a full time job and supports myself with no public assistance. But according to Democrats, I should be punished for this.

        • I rest my case.

          • “I rest my case”?

            I would have thought “When in a hole it is wise to stop digging” would have been more appropriate in your case.

  9. Oh, I just got it. “The Man Is Keeping Me Down”. Clear as a bell.

  10. Germain, if they’re already paying other federal taxes, and paying proportionally to their total income as those making much more and paying income tax….which of course is more burdensome to those in the lower brackets with far less disposable income…is it ridiculous that they aren’t expected to also pay income tax?

    • Widen the tax base and lower rates. Some cherished exemptions will be gone. More people paying taxes at Lower rates. It would affect all of us. It would provide more revenue for the Feds to throw away. Perfect.
      The above with spending levels returned to 2008 levels would work.
      It will never happen. The fed ia a perfect storm of addiction and stupidity.

      • widen the base and lower the rates on the middle and a little lower, raise them at the top.

        • Fuster, folks with money to invest to make more money provide capitai formation for companies to exist and come onto being.
          The middle and lower class are not providing the power for wealth formation. They participate in the same in a very important way. The sell their services, knowledge,expertise and time to people or entities that can pay for their services. The more important their services, the higher their earnings.
          Some of those people save a part of their earnings and invest (take a chance) in a new business. They either lose evrything they have, do well or hit the big load.
          Everything is relative. Income classes are very fluid. The rich become middle or poor. So what?
          The whole aspect of fairness and guarantees are a politically correct way of freezing people where they are.
          I have built a company,busted , and built another company. I was poor after the bust. So what?????
          I have ZERO connections with anyone. I am not in with the gentry in any way, fashion or form.
          You know all this Fuster. You are a fun guy though. You have tapered off on your personal insults. Are you okay?
          I just doubled my RAM. I am feeling a little chatty. I can see my poor spelling faster.

          • reed, the idea that we daren’t tax the investors without crippling innovation and wealth generation doesn’t hold up.

            it doesn’t boil down to a simple binary of take nary a sou or bleed ‘em white.

            as you say, some hit it big and some go bust……..

            we can differentiate tween them, can we not?

            Bill Gates can pay more than 30% of his income in taxes without societal progress being crippled or Gates becoming discouraged.

            Matter of fact, there are guys who have enough cash to buy pro sports teams for a hobby. They maybe could kick a few extra coppers into the public hopper.

            Might even end up reducing the cost of a seat in the stands to the point where kids could attend games.

            (sorry if you ain’t getting your fair share of abuse from me, but I’m saving up to become a Licensed Public Nuisance)

            • I love it !!!!!!!

              • On a serious note. The Super Rich scenario is a straw man. 300 million People in the country.
                We could take all of Gates, Buffets, Heinz,Koch, Bloombergs, etc,etc,etc money. Give it to the fed. It would not amount to much.
                Strictly class envy and empty talking points. Someone is going to be rich and someone is going to be poor. It should not be a static situation. There is hope and a chance. What can anyone do with it? Their best?

  11. Ia is a new word I coined. Everyone should use it from now on.

    • Congratulations Your contribution to civilization.

      • I have a new show on NPR. 12 episodes to discuss all sides of the new word.
        We will begin the first episode with absolute ( I prefer Stoli) proof that expanding the use of my new word will in fact slow down warming on Mars.
        Sarah Palin will be on to agree with me. She will be nude, but it is only radio after all. (That was for Fuster)

        • don’t care if she’s not wearing clothes, but if she ain’t got that thing looks like the back half of a kinkajou setting atop her head, I ain’t warming up the crystal set.

          • LOL !!!!!!!!!!!

  12. your post doesn’t account for the strength of the current tax base versus what it make look like in the future. Furthermore a lot of these revenue problems could just be solved by changing the tax system and enacting new tax’s. For example S class corporations are not only exempt from paying state and federal income tax’s, but they are also benefit from a tax loophole in employee benefit plans. In short, we wouldn’t have to raise tax’s if we simply closed these loopholes, ensured that corporations are not exempt, and finally enact new tax’s that would bring in large amounts or revenue but only cost 25 cents( i.e a Multilateral Tobin tax system, or any kind of transaction tax)

  13. So, what is everybody going to do about government’s wasting taxpayers’ dollars?

    Elect another politician? Wrong answer.

    Listen to the economists? Wrong answer again.

    Find an intelligent, highly analytical non-politician to run the nation? Bingo!

    Anybody for a new political party?

    Censorship is evil.


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