A tax deal only the ultra-rich could love

[xchrom]

http://www.washingtonpost.com/opinions/harold-meyerson-most-us-taxpayers-lose-out-on-fiscal-cliff-deal/2013/01/08/51d24bd8-59c5-11e2-9fa9-5fbdc9530eb9_story.html

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The study also looked at dividends and capital gains. The bottom four-fifths got just 0.7?percent of their income from those sources. (Those who believe we’ve become an “ownership society,” please take note.) The wealthiest 1 percent, however, realized 38.2?percent of their income from investments, and the wealthiest one-tenth of 1 percent realized more than half: 51.9?percent.

The tax deal Congress passed last week raised the top rate on wages and salaries from 35?percent to 39.6?percent. The rate on income from capital gains and dividends, however, was raised to only 20 percent from 15 percent. There has been no rending of garments nor gnashing of teeth from our super-rich compatriots; they got one sweet deal.

The intellectual foundations of this deal are even more dubious than the deal itself. Taxing investment income at a lower rate than labor income presumably fosters more investment in the U.S. economy. But say you buy a share of General Electric. The money you pay for your stock will be invested both at home and abroad, because GE, like virtually every major U.S. corporation, is a global company that retains a U.S. headquarters. Now suppose you’re an assembly worker at a GE aircraft engine parts plant in Dayton, Ohio. All your work takes place in the United States, and most of your spending is local, even though many of the products you buy are made abroad. Yet our GE employee may be taxed at a higher rate than our GE investor. We reward the investor for, in effect, sending money abroad, while the worker who produces wealth entirely within our borders gets no such reward. Globalization has completely changed the investment patterns of American corporations, but our tax breaks for investments chug placidly along as though U.S. companies still confined their work inside our borders.

Moreover, taxing wages and salaries at a higher rate than investment income means that the tax code is taking a bigger bite out of a steadily shrinking share of Americans’ income. Pay from work just ain’t what it used to be. As the St. Louis Federal Reserve has documented, income from wages and salaries as of July 2012 constitutes the smallest share of gross domestic product since World War II. The earned-income share of GDP peaked in 1969 at 53.5 percent. In 2012, it was 43.5 percent.

[AnotherMcIntosh]

1. K&R

[ProSense]

2. Here are a couple of charts and a good article

The Seven Things You Need to Know About the Tax Deal
http://www.whitehouse.gov/blog/2013/01/02/seven-things-you-need-know-about-tax-deal?utm_source=email191&utm_medium=text1&utm_campaign=middleclass





http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=3755&DocTypeID=1

For Obama, a Victory That Also Holds Risks

By DAVID LEONHARDT

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Perhaps the best prism through which to see the Democrats’ gains is inequality. In the 2008 campaign, Mr. Obama said that his top priority as president would be to “create bottom-up economic growth” and reduce inequality...In the 2009 stimulus, he insisted on making tax credits “fully refundable,” so that even people who did not make enough to pay much federal tax would benefit. The 2010 health care law overhaul was probably the biggest attack on inequality since it began rising in the 1970s, increasing taxes on businesses and the rich to pay for health insurance largely for the middle class.

As part of this week’s deal, Mr. Obama did make several major compromises. He accepted much less in overall tax revenue than the government would have received absent any deal. He allowed a payroll-tax cut, which applied to most households, to expire. And he yielded both on aspects of the estate tax and on the level at which the top marginal income-tax rate would start, moving it to $450,000 for couples, from $250,000.

Still, using inequality as a yardstick, he won much of what he had wanted. By holding firm to a top rate of 39.6 percent — up from 35 percent — he locked in a substantial tax increase for the very richest, who have received the biggest pretax raises in recent years.

On average, the top 0.1 percent of earners — whose incomes start at $2.7 million and go much higher — will pay $444,000 more in taxes in 2013 than they otherwise would have, according to the Tax Policy Center. The increases stem from both the fiscal deal and the new taxes in the health care law...the deal preserves the “compassionate conservative” part of President George W. Bush’s tax agenda — reducing federal income taxes on the working poor, sometimes to zero — while limiting the parts that most helped the affluent.

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http://www.nytimes.com/2013/01/03/us/politics/for-obama-fiscal-deal-is-a-victory-that-also-holds-risks.html