Senate GOP Tax Plan Would Raise Taxes On 20 Million Working Families

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http://thinkprogress.org/economy/2012/07/20/556801/senate-gop-tax-plan-would-raise-taxes-on-20-million-working-families/

Senate GOP Tax Plan Would Raise Taxes On 20 Million Working Families

By Travis Waldron on Jul 20, 2012 at 1:20 pm


Republicans have consistently denounced President Obama’s plan to allow the Bush tax cuts on income over $250,000 to expire at the end of the year. “We ought not raise taxes on anyone at the end of the year,” Senate Minority Leader Mitch McConnell (R-KY) has said of the Obama plan, which would raise taxes on roughly 2.1 million high-income earners (while still preserving a piece of the tax cut for them).

A new Senate GOP tax plan released by McConnell and Utah Sen. Orrin Hatch (R), however, raises taxes on nearly 10 times as many Americans by allowing certain tax breaks signed into law by President Obama expire at the end of the year. Putting an end to those three tax breaks — the Child Tax Credit, a tax break on college tuition, and a more generous Earned Income Tax Credit — would raise taxes on 20 million families, as shown by this chart from Seth Hanlon, the director of fiscal reform at the Center for American Progress:



According to Hanlon, 13.1 million families would see higher taxes if the enhancements to the Child Tax Credit and Earned Income Tax Credit are allowed to expire. Another 9.1 million benefited from the American Opportunity Tax Credit, a break on college tuition.

The Senate GOP claims it wants to prevent tax hikes on Americans at the end of the year. The McConnell-Hatch plan, however, is yet another example of the fact that the only tax hikes Republicans can stomach are those that only hit the poor.

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1. kr

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2. K & R

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3. We need better tax reform soon

Our tax code has been a great experiment in income and wealth distribution. In 1995 the top 10% of the country had 67.8% of the country’s wealth while the bottom 50% shared only 3.6%. By 2010 the bottom share was only 1.1% ($584 billion) - (a 70% loss amounting to $1,333 billion over 15 years). The loss of wealth to the bottom half the country was offset by a 6.7% gain ($3,558 billion) for the top 10%. A wealth gap of this extreme has not been seen in the U.S. since the Great Depression of 1929 (when unemployment was also as bad).

The extreme concentration of wealth is problematic due to the loss of consumer spending which drives the economy and creates jobs. Since the Great Recession of 2008 our economy has been propped up with increased government safety net spending (i.e. food stamps, unemployment, temporary payroll tax relief, etc.) and monetary policy has kept interest rates low. These measures have not revived the economy. They are also not sustainable because we have a tax code that contains $1.1 trillion in annual tax expenditures (“loopholes” that reduce government revenue). The investment class gets subsidy which exceeds the combined cost of Social Security and Medicare now paid for with payroll taxes – a 15% burden on low and middle income workers which did not exist back in 1929.

Today it is worse than 1929 because the payroll taxes add 7 ½% to the cost of each job (business share) and further reduce consumer spending power by 7 ½% (employee share). This 15% tax on jobs is the main reason why the economy is less resilient to recession. Replacing payroll taxes with a 2% net wealth tax (excluding $15,000 cash and retirement funds) would quickly create millions of jobs through increased consumption. Income tax expenditures (“loopholes”) would be unnecessary if the tax rate was lowered to 8% (and capital gains, estate and gift taxes were eliminated). These changes will encourage maximum business investment and complement the healthy negative reinforcement (“use it or lose it”) of the wealth tax.

Completing the perfect tax reform plan would be a 4% value added tax (VAT) on business and an 8% corporate income tax rate for the most competitive business rates in the world. [Foreign profits will return to the U.S. and pass-through rates would be equalized].

Let us know at www.TaxNetWealth.com if you can identify a logical, legal or economic reason why this 2-4-8 Tax Blend would not produce a sustainable economic recovery as promised. Otherwise let your representatives in Washington know that the right blend of taxes can create jobs without government spending.

Eugene Patrick Devany, JD, MPA