HowWealthWorks.com

[Dave]

Bloomberg.com: U.S. House May Include Surtax on Wealthy in Health-Care Package

House Ways and Means Committee members are likely to propose a surtax on high-income Americans to help pay for an overhaul of the health-care system, according to people familiar with the plan.

The tax would be similar to, yet much smaller than, a surtax proposed in 2007 by Ways and Means Committee Chairman Charles Rangel, a person familiar with the committee’s talks said. That plan would have added at least a 4 percent levy on incomes exceeding $200,000, and was projected to reap as much as $832 billion over 10 years.

Two people familiar with closed-door talks by committee Democrats said a House bill probably will include a surtax on incomes exceeding $250,000, as Congress seeks ways to pay for changes to a health-care system that accounts for almost 18 percent of the U.S. economy. By targeting wealthier Americans, a surtax may hold more appeal for House Democrats than a Senate proposal to tax some employer-provided health benefits.

The possibility of raising taxes on top earners surfaced last month as a revenue option for members of Rangel’s committee, and the people familiar with the talks cautioned that no agreement has been reached. A Senate plan to tax the value of employee benefits that exceed coverage for federal workers may generate as much as $418.5 billion over 10 years, though talks are focused on proposals that would raise considerably less.

Rangel’s 2007 plan would have added a 4 percent tax on incomes exceeding $200,000 and an extra 0.6 percent levy on those making more than $500,000. A House plan this year may include lower rates and higher income thresholds, a person familiar with the plan said.

A surtax proposal would force President Barack Obama to decide whether he is willing to add the levy on top of higher income-tax rates for top earners that he wants to take effect in 2011. Obama has promised that he won’t increase taxes on Americans earning less than $250,000 and said he will delay increases for high-income earners until 2011.
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Dave

Please feel free to agree with or critique the article excerpts and our comments. Alan Greenspan: Gold and Economic Freedom

[Suresh]

As Dave might say, "And the beatings will continue, if morale doesn't improve around here!"
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Bloomberg: Health-Care Bill Would Tax High-Income Americans, Rangel Says
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Legislation to be unveiled on July 13 would raise $540 billion over the next decade by setting a 1 percent surtax on couples with more than $350,000 in annual income, said Representative Charles Rangel, chairman of the tax-writing Ways and Means Committee. Higher rates would take effect for those earning $500,000 and $1 million, Rangel said.
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The plan the Ways and Means panel agreed on yesterday would require individuals to begin paying the surtax when their income hits $280,000, with higher rates taking effect when those incomes reach $400,000, and again when they hit $800,000.

It would be levied on adjusted gross income, before deductions for items such as mortgage interest and charitable gifts. Regular income taxes are assessed after such write-offs.

While the surtax would go into effect in 2011, Representative Allyson Schwartz of Pennsylvania said it would increase if projected savings that Democrats expect the legislation to achieve aren’t realized.

“We were discussing doing it at a lower rate, then building to a higher rate in later years if we don’t get enough savings,” Schwartz said.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.

[Suresh]

Wall Street Journal: The Small Business Surtax
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late last week Ways and Means Chairman Charlie Rangel disclosed that his draft bill would impose a "surtax" on individuals with adjusted gross income of more than $280,000 a year. This would hit job creators especially hard because more than six of every 10 who earn that much are small business owners, operators or investors, according to a 2007 Treasury study. That study also found that almost half of the income taxed at this highest rate is small business income from the more than 500,000 sole proprietorships and subchapter S corporations whose owners pay the individual rate.

In addition, many more smaller business owners with lower profits would be hit by the Rangel plan's payroll tax surcharge. That surcharge would apply to all firms with 25 or more workers that don't offer health insurance to their employees, and it would amount to an astonishing eight percentage point fee above the current 15% payroll levy.

Here's the ugly income-tax math. First, Mr. Obama has promised to let the lower Bush tax rates expire after 2010. This would raise the top personal income tax rate to 39.6% from 35%, and the next rate to 36% from 33%. The Bush expiration would also phase out various tax deductions and exemptions, bringing the top marginal rate to as high as 41%.

Then add the Rangel Surtax of one percentage point, starting at $280,000 ($350,000 for couples), plus another percentage point at $400,000 ($500,000 for couples), rising to three points on more than $800,000 ($1 million) in 2011. But wait, there's more. The surcharge could rise by two more percentage points in 2013 if health-care costs are larger than advertised -- which is a near-certainty. Add all of this up and the top marginal tax rate would climb to 46%, which hasn't been seen in the U.S. since the Reagan tax reform of 1986 cut the top rate to 28% from 50%.

States have also been raising their income tax rates, so in California and New York City the top rate would be around 58%. The Tax Foundation reports that at least half of all states would have combined state-federal tax rates of more than 50%.

Mr. Rangel also wants to apply his surcharges to investment income like capital gains. So the combined effect of repealing the Bush tax cuts and the new surcharges would be to raise the tax on stock appreciation by at least 60% -- to as high as 24% from 15% today.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.

[Dave]

Don't look now, but here come the taxes. NPR carried a piece today that US taxpayers these days are more satisfied with the level of tax they're paying since WWII. That can only mean one thing: taxes are too low.

WSJ.com: It’s Time to Legislate a Spending Cap

Treasury Secretary Tim Geithner told ABC’s George Stephanopoulos on Sunday that “We have to bring these deficits down very dramatically.” This is the understatement of the new century: Many private economists now predict that deficit spending will surpass $2 trillion this year, with $10 trillion more borrowing over the next decade.

How will the Obama administration cope with this budget recklessness? Mr. Geithner and Larry Summers, Mr. Obama’s director of the National Economic Council, hinted last weekend that taxes on everyone may have to go up.

These taxes could take the form of a broad-based energy tax (from a cap-and-trade system on carbon emissions), a payroll tax hike (as in the health-care reform plan), and a European-style national sales tax (a.k.a., a value-added tax, or VAT).

The potential burden would be staggering. It would take almost $16,000 more from every household in America to balance the budget just this year. To grab this money from top income-bracket earners, according to the Congressional Budget Office (CBO), we’d have to hike their tax rates to between 80% and 90%. The CBO noted earlier this year in its budget report that “[h]igh tax rates would slow the growth of the economy, making the spending burden harder to bear.”
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Dave

Please feel free to agree with or critique the article excerpts and our comments. Alan Greenspan: Gold and Economic Freedom

[Suresh]

In discussions concerning the viability of universal healthcare coverage by the federal government, Medicare is often touted as a successful example of the federal government's involvement in payment of medical services. However, a program with a $37 trillion unfunded liability cannot be considered a success. All liabilities are sustainable until they need to be funded. Once they need to be funded, only liabilities consistent with ongoing revenues are sustainable.
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Wall Street Journal: ObamaCare’s Real Price Tag
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The press corps has noticed the Congressional Budget Office’s estimate that the House health bill increases the deficit by $239 billion over the next decade. But government-run health care won’t turn into a pumpkin after a decade. The underreported news is the new spending that will continue to increase well beyond the 10-year period that CBO examines, and that this blowout will overwhelm even the House Democrats’ huge tax increases, Medicare spending cuts and other “pay fors.”



In a July 26 letter, CBO director Douglas Elmendorf notes that the net costs of new spending will increase at more than 8% per year between 2019 and 2029, while new revenue would only grow at about 5%. “In sum,” he writes, “relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window.”
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And the CBO score almost surely understates this deficit chasm because CBO uses static revenue analysis—assuming that higher taxes won’t change behavior. But long experience shows that higher rates rarely yield the revenues that they project.
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ObamaCare’s deficit hole will eventually have to be filled one way or another—along with Medicare’s unfunded liability of some $37 trillion. That means either reaching ever-deeper into middle-class pockets with taxes, probably with a European-style value-added tax that will depress economic growth. Or with the very restrictions on care and reimbursement that have been imposed on Medicare itself as costs exploded.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.

[Suresh]

Wall Street Journal: Tax Cuts to Expire for Top Earners
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Taxes on high-income earners would rise by nearly $1 trillion over the next 10 years, under the budget plan put forward by President Barack Obama on Monday.

The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010.

The top two income-tax rates, which affect people earning more than $200,000 a year, or $250,000 for married couples, will return to 36% and 39.6%, from 33% and 35% now.

Under the budget plan, capital gains and dividends would be taxed at 20%, up from 15% now, for people at those income levels.

Limits on upper-income people's ability to claim personal exemptions and itemized deductions will also snap back next year, without any action needed from Congress.

But as in last year's budget, Mr. Obama proposed Monday to go further by limiting the value of those benefits, which include deductions for mortgage interest and some charitable contributions. The highest-income earners under current law can lower their taxes by up to 39.6% of those deductions; under Monday's proposal, that would be reduced to 28%.
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He proposed putting limits on the use of family trusts that have helped wealthy families lower their estate-tax liabilities, which the White House estimates would increase government revenue by $23.7 billion over 10 years.

Mr. Obama would extend the Bush tax cuts, including the 15% rate on capital gains and dividends, for single taxpayers making less than $200,000 and couples earning less than $250,000.
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Bloomberg: Peyton Manning Skills Needed to Avert Tax Fumble
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Inaction on the top income tax rates in 2010 in turn will affect dividends, where the rate increase will be more dramatic. The tax rate on dividends now stands at 15 percent, the same as the capital gains rate. But this special treatment likewise expires in December.

Double Whammy

Without new legislation, the rate will increase some 25 percentage points. That’s because dividends will again be treated, as they were historically, as ordinary income, and taxed at 39.6 percent rate.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.

[Suresh]

Wall Street Journal: For Top Earners, Tax Bite Is Likely to Be Worst
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A January study by the nonpartisan Tax Policy Center ... found that to reduce the federal budget deficit to a sustainable 3% of gross domestic product, the government would have to find an average of about half a trillion dollars each year in new revenue (or spending cuts).
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To cover that amount through tax increases on the top two brackets—roughly, families with more than $209,000 in taxable income—top rates would have to go from the current 33% and 35% to 72.4% and 76.8%, the study found.


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One idea gaining currency is broadening the tax base, by limiting individuals' deductions and closing what the Obama administration terms corporate tax loopholes.

Another plan getting attention is adding new taxes on consumption, such as a value-added tax, widely used in other countries.
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So when will taxes go up? It's already started. The just-passed health-care bill contained a couple of increases in Medicare payroll taxes for higher-income earners. Deloitte experts say those provisions would cost about $2,250 for a family with income of $500,000.

Congress might raise taxes on the well-heeled still further this year. President Barack Obama has proposed allowing the Bush-era tax cuts to expire for families making more than $250,000, a change that would return their top rates to 39.6% and 36%, lift their capital-gains rate and trim some deductions.
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_________________
Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.