Fairness for the 2nd Percent (or: The Top 0.1% Gets a Tiny Trim, and the 2nd Percent Gets Its Head Shaved)

November 26th, 2012

A follow-up to The Herd, The Bucket/List and Not a Concession, inspired by RNC communications director Sean Spicer’s appearance on Chuck Todd with his newly shaved head.

 

 

“It makes it flatter and fairer and supports economic growth, and stops picking winners and losers in some cases.” –RNC communications director Sean Spicer on Chuck Todd describing the GOP proposal to increase revenues by phasing out deductions

 

Republicans their proposal as “fairness” present,

But nothing could be less fair… to the 2nd per cent.

 

Phasing out deductions makes the code less, not more, flat and fair,

But the top 1% and their lackeys don’t care.

 

They don’t care if the 2nd percent pays more.

(Isn’t that what the middle class is for?)

 

So float your ideas, but don’t give me that crap

About the fairness of a phased-out deduction cap.

 

And Sean: If you’re willing to completely shave your head,

Can’t the richest 1% afford a tiny trim off the top instead?

***

Here’s Sean Spicer 11/26/12 on Chuck Todd. Spicer says phasing out deductions makes the tax code “flatter and fairer” (that’s at the 4”20 mark), but the reality is actually the other way around. For example, let’s say Mitt Romney’s original proposal for a $17,000 deductions bucket is phased out for families earning more than $250K income on a 5:1 basis. That means that someone who earns $5 over that limit would lose $1 in deductions. If their nominal marginal tax rate is 35%, that increases their effective marginal rate to 42%. That effective rate would then apply to the next $85K in income, but after than the taxpayer’s marginal rate falls back down to 35%. That not only makes no economic sense: it’s unfair and regressive to the families caught in that income group. Why would Republicans favor this approach to a much smaller across-the-board increase? Because it allows their super-rich supporters to maintain lower tax rates, while upper middle class folks in the phase-out range make up the difference. Eliminating the “bubble” (progressive rates for the first $250K of family income, as some Republicans have proposed) is similarly unfair and regressive to those in the second percent. For example, in 2011, a family with an AGI of $400K paid total tax of $109,871.50 (not counting deductions), for an average rate of 27.47%. Eliminating that “bubble” would cost that family an additional $30,129. Assuming that elimination is phased out (if it weren’t, the unfairness would be even more extreme), e.g. again at a 5:1 ratio, increases that family’s effective tax rate from 35% to 42% for the income that falls into that range. How ironic that Republicans go on and on about not being unfair to any subset of taxpayers, and then propose doing just that to upper middle class families for the benefit of the very, very rich. And of course, each of these alternative approaches is far more complex and involves many more calculations and tables than the far more simple rate increase. Oh, and why the shaved head? Because Sean lost a bet with DNC communications director Brad Woodhouse (watch the head-shaving at the beginning of the clip). Elections do have consequences, but it would be nice if Republicans recognized that in public policy as well as personal bets. And Brad: I know it was for charity and because you’re a nice guy, but I hope your agreeing to get your head shaved too even though you won the election and the bet isn’t a harbinger of Dems’ negotiating tactics. We won, so we shouldn’t be the ones shaving our heads…unless we get something really, really great in return.

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NB: As pointed out by the Tax Policy Center, Wall Street Journal, and Allen McDuffee in the Post, limiting itemized deductions to $50,000 per year (a lot more generous and more upwardly-focused than Romney’s original $17K proposal) would generate $749?billion in additional revenue over 10 years, less than the $823?billion that Obama’s proposed rate increase would generate. However, that impact does not just affect the “rich”: 96% of the higher taxes would be paid by the top 20%, which means that 4% would be paid by those in the bottom 80%, and that the increases would affect many, many more than the 2% affected by the President’s rate increase. Another key indicator that raising tax rates for the top 2% would not negatively affect small business: 52% of small business owners support it.

Update: For more background and additional evidence that just capping deductions won’t work, see Cap on tax deductions would do little to trim debt: White House report (Lori Montgomery, WashingtonPost.com 11/29/12) and Limiting Tax Deductions: The Reality of the Math (White House 11/29/12).

Update/Opposing view: Read President’s Plan “Will Hurt Nearly a Million Small Businesses” (John Boehner12/05/12) for more about why Obama’s plan would hurt small business (OK, so it’s really more of a broad assertion, rather than a discussion of why). What the Speaker doesn’t say is that his plan would hurt actual small business owners much more, since they cluster around the low end of the 3% of small business taxpayers who’d be affected, which means that their effective marginal tax rates would increase significantly.

 

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One Response to “Fairness for the 2nd Percent (or: The Top 0.1% Gets a Tiny Trim, and the 2nd Percent Gets Its Head Shaved)”

  1. Newsericks » Blog Archive » Not the Same People Says:

    […] follow-up to Not a Concession, Fairness for the 2nd Percent, and Selling Out the Top 2 Percent about the GOP revenue […]

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