Category: Taxation in America

MLLG

Taxation in Biden’s America

George Noga

Taxation in Biden’s America

Do the wealthy and corporations pay their fair share?

GEORGE NOGA
March 17, 2024

President Biden’s State of the Union (SOTU) screed demagogued corporations and the wealthy, alleging they do not pay their fair share of taxes. He repeated his ersatz claim that no one with income under $400,000 would pay a penny more in taxes. This post lays waste to these and other Biden assertions, whose only aim is to divide Americans by income and to engage in unrestricted class warfare based on disinformation.

person holding paper near pen and calculator
Paying Income Tax

Do the Wealthy Pay Their Fair Share?

The top 1% of earners paid 42.3% of all federal income taxes¹ which is the highest in 20 years. That same 1% reported 22.2% of income (AGI) which means that cohort paid roughly double its share of income in taxes. The wealthy’s share of taxes was even higher because AGI excludes income from 88 government programs for low-income Americans, refundable tax credits and debit cards loaded with food stamp benefits.

The top 5% of earners reported 38% of AGI, but paid 63% of all income tax.² The lowest 50% of earners reported 10.2% of AGI and paid 2.3% of all income tax. When adjusting for credits such as the EITC, the bottom 60% paid only about 1% of all federal income tax. The top 1% paid an average tax rate of 26%, while the bottom 50% paid an average rate of 3%. To put a finer point on it, the wealthy in the US pay a far higher share of taxes than in Sweden and in every other developed nation.

As progressive as are federal taxes, deep blue states are even worse. In California and New York, the top 1% of earners pays 40% of all taxes. As high earners decamp California for friendlier climes, it has caused a budget deficit of $70 billion.

Tax Increases for Under $400,000 Income

Several of Biden’s tax increases directly raised taxes on low-income Americans; the increase in cigarette taxes comes immediately to mind. However, tobacco taxes are penny ante. The killer tax increase on low-income and middle-income Americans is inflation. And yes, inflation is a tax – just like any other tax. Economists of all stripes consider inflation to be a tax. Biden’s inflation, caused by blowout spending, costs families earning under $400,000 a whopping $7,000 per year in inflation tax.

Biden’s inflation has raised mortgage rates to multi-decade highs and added around $700 per month to new mortgages and to variable rate mortgages. Home ownership for first time buyers is nigh impossible. The rate on credit card debt (now at an all time high) has gone up 6 percentage points, or 30%. All these Biden-created inflation costs lay waste the budgets of Americans earning below $400,000.

Do Corporations Pay Their Fair Share?

It bears repeating that corporations do not pay taxes – only people pay taxes. Wouldn’t it be wonderful if we could magically impose taxes that no human had to pay? Studies have shown that 96% of all corporate income taxes are passed along to consumers as price increases. Thus, if Biden and his progressive cool-aid drinkers raise corporate taxes, the real burden will fall on low and middle income Americans.

In his SOTU speech, Biden resurrected his stale canard that some big corporations pay no income tax. The poster child for this is Amazon, which in some recent years paid no corporate income tax because in prior years it suffered humongous losses which, pursuant to law, Amazon was able to carry forward to offset income in subsequent years. Another case in point is FedEx, which owed no income tax due solely to lawful depreciation on its large fleet of new aircraft. However, both Amazon and FedEx paid billions each year in payroll, state and local taxes.

Warren Buffet and His secretary

Biden’s SOTU also repeated another red herring, i.e. some billionaires pay tax at a lower rate than their secretaries. This assertion made quite a stir in 2012 when Warren Buffet said he paid tax at a lower tax rate than his secretary, Debbie Bosanke. Indeed, it is possible that Buffet (or anyone) with income only from capital gains could pay a lower rate than someone with only ordinary income. However, that is only one of many parts of taxation and far from the whole story. Before anyone realizes capital gains, he/she must first pay income tax and then invest with after tax funds.

I computed the total taxes over the entire cycle on this tranche of income (including ordinary, dividends, corporate, capital gains and estate) and determined that Buffet would have paid overall taxes of 70% to 80% – far, far higher than Ms. Bosanke.

Raising the Minimum Wage

To complete Biden’s SOTU circle of disingenuity, he trotted out the minimum wage. Markets determine wages, not governments. However, far from helping those most in need, raising the minimum wage actually hurts them by putting the poor, young, minorities and low-skilled out of work. The minimum wage affects less than 1% of all workers and for only 6 months or less. Most earning minimum wage are not poor; they have household income over $60,000 and consist of spouses and teens living at home.

Taxation in Biden’s America

After a half century on the public payroll, Biden must be conversant with the facts reported in this post. If he isn’t, it is ignorance on an unimaginable scale. If he does know the facts, it can only mean he chooses to ignore them to incite class warfare. Either way, it is condemnable. To cap it off, Biden really does not want to soak the rich, i.e. his biggest donor base; he merely wants the appearance of doing so.

1      Based on official IRS data for 2020 – the most recent year for which data are available.

2     Tax Foundation data as reported in The Wall Street Journal.

© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

A Smorgasbord of New Taxes

George Noga

Trillions of dollars in new taxes are coming soon; here’s what to expect..

A Smorgasbord of New Taxes

By: George Noga – September 19, 2021

Hold on to your wallet! The House Ways and Means Committee has begun marking up the whopping $3.5 trillion (really $5+ trillion) infrastructure bill, expected to be enacted into law later this year via the reconciliation process. Not only will your taxes skyrocket, but some of the biggest increases may be retroactive to the beginning of this year. Following are some of the tax increases democrats are seriously considering.

  • Increasing the top marginal income tax rate to 39.6%
  • Raising the corporate tax rate to 28% – a 33% increase
  • Eliminating the step up in basis at death – more on this infra
  • Doubling the capital gains tax to 43.4%
  • Capping Section 1031 like-kind exchanges
  • A plethora of new taxes on energy companies
  • Border tax on carbon – raising prices of many imported goods
  • Taxing carried interest for the first time ever
  • Removing all caps from the payroll tax
  • Taxing unrealized capital gains each year
  • Applying the payroll tax to investment income

New taxes will be paid by ordinary Americans

President Biden vowed not to increase taxes for Americans earning less than $400,000. The naked truth is that the trillions in higher taxes will be paid by the middle class. Economists universally agree the burden of corporate taxes falls on shareholders, employees and consumers and not on companies. In August, the Joint Committee on Taxation estimated the middle class would pay 98.4% of the increased corporate taxes.

Indeed, nearly all the tax increases listed supra will be paid by the middle class. When asked why he robbed banks, Willie Sutton replied, “Because that’s where the money is.” And so it is with taxation in America. Progressives must rob – err tax – the middle class because that’s where the money is. They demagogue the wealthy in order to beguile ordinary Americans into accepting what they would not otherwise tolerate.

Progressives prefer class warfare to raising revenue

The main objective of taxation is to raise revenue and in an efficient manner. Biden has proposed doubling the capital gains tax rate to 43.4%. This would be an effective rate above 50% when adding state taxes. The CBO estimates the revenue-maximizing rate for the capital gains tax is 28% – most economists believe it is 20% to 24%. The CBO found for each 1 percentage point tax increase, there is a 1.2 point decrease in sales of assets subject to the tax. Raising the tax to 43.4% costs the government money; instead of raising revenue, the tax is hemorrhaging tax dollars. There is only one logical explanation: democrat ideology prefers class warfare that divides Americans.

The capital gains tax is arguably the unfairest tax of all because: (1) it often is double taxation such as gains previously taxed at the corporate level; (2) most gains result from inflation and are not indexed; (3) gains and losses are asymmetrical; loss deductions are limited to $3,000 per year whereas gains are unlimited; (4) it is a tax on investment that harms productivity and wage growth; and (5) taxpayers holding onto assets too long results in misallocation of resources damaging the entire economy.

The estate tax is back – and with a terrible vengeance

Just when you believed estates of less than $11.7 million were safe, democrats have found a back door to tax estate assets above $1 million – and it is a cruel and virulent tax. Democrats accomplish this by eliminating the step-up in basis at death for all gains in excess of $1 million and then taxing them as a capital gain in the year of death.

Consider the example of a farmer who bought land in 1950 for $250,000 and then dies in 2022 with the land valued at $4 million. The farmer’s heirs would be required to pay capital gains tax on $2,750,000 (the sale price of $4 million less the original basis of $250,000 and less the $1 million exemption) at 43.4%, or a tax of $1.2 million. Based on BLS data, $250,000 in 1950 would be $3 million in 2022 when adjusted for inflation. Perniciously, the entire tax of $1.2 million is attributable to phantom income from inflation. This tax will devastate family-owned farms, ranches and businesses.

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The Biden tax increases will fall on the middle class as they always must. Family businesses will become extinct. Social Security and Medicare will exhaust their reserves. The deficit will accelerate its death spiral. But those aren’t the worst things that will happen. The out-of-control national debt is (by far) the biggest threat to our national security, which is why we have a government in the first place.

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Next: The 140th birthday of the greatest social thinker of the 20th century.

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The American Dream – Strangled by Government

George Noga

Two worker households are a Faustian Bargain, the second income pays only for government. 

The American Dream – Strangled by Government

By: George Noga – May 31, 2020

        I graduated from high school in 1961 and went on to college. Most of my high school friends remained in Orlando, began work, married, had children and bought homes. The wives stayed home; a second income wasn’t necessary to buy a house and to raise a family. I kept in touch with many of my classmates. Following is the true story of two such people, Steve and Sandy – their real names.

       High school sweethearts, Steve and Sandy married soon after graduation. Steve started work in the paint shop of the Martin Company (today Lockheed Martin) at $2.00 per hour, soon increasing to $2.25. With a little overtime, their income was $5,000 per year. A year after their marriage, they bought a new home and were blessed with a daughter. Sandy did not work and stayed home to care for the baby.

         I visited Steve and Sandy often. They bought and furnished a median-price home, accumulating enough for a down payment and furniture in one year with both working. Once the baby was born, Sandy quit work as they could live solely on Steve’s income. Their home cost the equivalent of 2 years of Steve’s income and their monthly house payment including principal, interest, taxes and insurance (“PITI”) was under $100, or 22% of his income. Sandy never returned to work; it simply wasn’t necessary.

        Fast forward to 2020 and see how a modern day Steve and Sandy would fare. We begin with the generous assumption that a high school graduate earns $15 per hour, or $30,000 per year. The median home price in Orlando is $260,000; assuming a 10% down payment and low interest rate, the monthly PITI payment is $1,167, or $14,000 per year. The house costs 9 years of income and requires 47% of monthly income to pay PITI. Many years are needed to save for a down payment and furniture.

       What could account for such a sea change in the course of a few generations? Why did these changes happen? Why is it necessary today for a family to have two wage earners merely to live as well as their grandparents lived on one income? The answer in one word: government. The causes are many but all have a nexus to government.

     Housing costs skyrocketed due to government diktats including, zoning, growth management, building codes, greenbelts, bureaucracy, anti-leapfrogging, concurrency, infill and regulatory delay. All taxes were increased, especially the payroll tax and many new ones added. The Florida sales tax Steve and Sandy paid was 3%; today it is 7% – an increase of 133%. Steve and Sandy’s real estate tax was $100; today it would be $2,600, a 2,500% increase. Government drove up the cost of many other things such as health care, tuition and child care. The more government got involved, the more costs increased over time, less intervention meant lower prices.

       At first, as the second family wage earner entered the workforce, there was a sense of faux prosperity; they could afford an extra TV and some other accoutrements. But higher taxes and government-imposed costs devoured the second income. By the time they realized they were hoodwinked, it was too late for a volte-face. Two income families are a Faustian Bargain, the second income pays only for more government. Families doubled the number of workers but have nothing to show for it.

       A modern day Steve and Sandy can’t afford to buy a house or to start a family and they often live lives of quiet desperation. The American dream didn’t just die; it was murdered. The cause of death was strangulation by government!

Watch for our special D-Day posting on June 6th.
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Taxation in America – Part V

George Noga
The new tax law makes America competitive and will bring about a veritable cornucopia of new investment, job creation, productivity and economic growth.
Taxation in America – Part V
New Tax Law Analyzed and Dissected
By: George Noga – December 22, 2017
       I promised a final blog in our Taxation in America series immediately following final passage of tax legislation; otherwise, I would not post this close to Christmas. This is the final part; the prior four parts can be accessed on our website: www.mllg.us. We are taking a brief holiday respite; thus, our next post will not be until January 14.
     My “take” on the new tax law is similar to that of many other commentators; nonetheless, I hope to add some fresh insight and perspective. For corporations and businesses, the new law is utterly transformational. Lowering the corporate rate to 21%, expensing 100% (for 5 years), changing to a territorial tax system and the deemed repatriation tax all are highly salutatory. These changes make America competitive with most other nations and will result in a veritable cornucopia of new investment, job creation, productivity and economic growth for years to come.
      For individuals, there is little to cheer. There are modest tax cuts for most taxpayers and the $24,000 standard deduction, combined with the new deduction limits, will provide simplification to many. Repeal of the Obamacare individual mandate is a big winner. For individual taxpayers, Congress missed a once-in-a-generation opportunity to substantially lower taxes and to reform and to simplify the tax code.
    Regrettably, the law also contains many lese-majeste provisos: (1) seven tax brackets; (2) absurdly high (106%) marginal brackets due to recapture; (3) gaming potential and complexity on the business pass-through tax; (4) high capital gains rates; (5) sunset provisions after 8 years; (6) failure to repeal the death tax; (7) the enhanced and now partially refundable child care credit which is pure social policy; and (8) the tax treatment of carried interest remained unscathed. The changes to the individual parts of the tax code will produce little or no economic growth.

Tax Law Exposes a Deeply Flawed Political Process

     A parallel story about the 2017 tax legislation is the structural flaws it exposed in our political process. The Byrd Rule (no deficits beyond 10 years) hamstrings and contorts the ability of Congress to act. CBO scoring is pure voodoo; they are consistently wrong and highly political, yet they establish the parameters the law must follow. The PAYGO rule, requirement to offset higher spending, is also unleavened sorcery that thwarts the will of the people. Reconciliation is yet another political dysfunction that determines what can and cannot be considered a tax matter.
     The political process also is pregnant with demagoguery. No matter what the law contains, progressives were going to assert it favors fat-cat corporations and the rich and savages the poor. Recall that: (1) the top one-half of one percent of Americans pay 70% of all income tax; (2) America has the most progressive (by far) tax regimen in the world; and (3) the bottom 60% of Americans pay less than 1% (net of credits).

The Bottom Line

      As always, the proof is in the pudding. The 2017 revolutionary transfiguration of corporate and business taxes and the repatriation of trillions of dollars has the potential to bring about a Reaganesque revival. The best hope for America’s future lies in sustained, robust economic growth; it is not only the most important thing, it is the only thing that matters. Without strong growth, we cannot properly defend ourselves; we face an imminent debt and deficit crisis and the social fabric of our beloved republic will be further rent. All Americans should hope the pudding tastes good!
Best Wishes for a Merry Christmas and Happy New Year
Our next post is scheduled for January 14, 2018

Taxation in America –  Who Pays How Much

George Noga
Americans in the bottom 60% pay around 1% (net of credits) of all income tax. Ipso facto, any tax cut must necessarily benefit only the top 40% of Americans.
Taxation in America –  Who Pays How Much
By: George Noga – November 5, 2017
        This is Part IV of our intermittent series: Taxation in America. The first three parts are on our website: www.mllg.us. The final part likely will be in January once the outcome of tax legislation is known. This post reveals who pays how much in federal income tax. Also, I propose a new intrepid minimum and maximum tax plan.
        IRS data show Americans in the top 1% of income pay 40% of all federal income tax; the top 10% pay over 70%. Converting those data to living, breathing humans means that only 1.7 million people (one-half of one percent) pay that 70%. The bottom 45% of households pay no federal income tax whatsoever, while the bottom 60% pay about 1% (net of credits) of all income taxes. Note: people and income cohorts are not aligned, i.e. the top 10% of income is not derived from the top 10% of taxpayers.
      US corporate tax rates (including states) are 40% – the highest in the developed world. Politicians fool people into believing they will impose taxes on business or property – but not on real people. Economist Walter Williams uses a good example. You are a homeowner and the government imposes a property tax but tells you it is not a tax on you but on your property. You see right through that fraud. But when liberals say they are taxing corporations (and not you) you are suckered in. Corporate and business taxes are passed along to you in the form of higher prices just as property taxes are passed on to the homeowner. Only living, breathing people pay taxes!

MLLG Boldly Proposes New Minimum and Maximum Taxes

      Something is dreadfully wrong when in the richest nation on earth, 60% of its citizens pay virtually no income tax and hence have no skin in the game. They form a brawny advocacy group favoring government spending (since it costs them nothing) and opposing tax cuts because they threaten their government benefits and they will not benefit directly from lower taxes. This is something we must fix.
       MLLG’s minimum tax plan would continue to exempt the bottom quintile (20%) of Americans from income tax. The second lowest quintile would pay a de minimus tax rate of 6% subject to a minimum tax of $1,200 per year. The middle income quintile  (half of which by definition earn above average income) would pay a 12% rate subject to a minimum tax of $2,400. This minimum tax plan would give 80% of Americans a vested interest in reducing spending and taxes along with the, not inconsequential, quiet dignity of being a taxpayer and contributing to the common weal.
      When surveyed, large majorities of Americans consistently respond that no one should pay more than 33% of income in taxes. The MLLG maximum tax plan would cap all taxes at 40% – including federal, state and local income taxes, payroll taxes, property taxes (principal residence only), sales taxes and certain other taxes The maximum tax would be computed on a new one-page form filed along with your income tax. If taxpayers paid more than 40%, they would get a credit or refund from the IRS – which could recover pro-rata from the other taxing jurisdictions.
      MLLG’s minimum/maximum tax plan would make America a much fairer place while preserving a high degree of progressivity. When you hear that the rich do not pay their fair share, recall that one-half of one percent of Americans pay over 70%
      Inscribed directly above the entrance to the IRS Building in Washington is: “Taxes are what we pay for a civilized society“. Stop and think about that one for a while. They got it dead wrong. Taxes are the price we pay for an uncivilized society!
In our next post November 12, we take on Neo-Nazis and Antifa.

Taxation in America – Buffet vs. Bosanke

George Noga
Taxation in America resumes by examining the progressivity of the US tax code; also, we compare Warren Buffet to his secretary, Debbie Bosanke. 
Taxation in America – Buffet vs. Bosanke
By: George Noga – July 30, 2017
     We examine liberal assertions that: (1) the US tax system favors the rich; and (2) Warren Buffet pays a lower tax rate than his secretary. When including refundable tax credits, the lowest income 60% of Americans pay less than 1% of individual income taxes. This is by far the lowest of any nation; moreover, the share of Americans not paying tax has doubled in recent decades. OECD and other studies confirm America has the most progressive tax system including federal, state, local and payroll taxes.

      Let’s turn from the bottom 60% to the top income cohorts. The highest income 10% of Americans pay 35% more of the total tax burden than in Sweden for cryin’ out loud. Data are similar for the top 1% or 5%. During the past 30 years, the US has become far more progressive relative to Sweden, Germany, France and Finland. Corporate tax rates in America also are the highest in the developed world – by a large margin.

    The liberal reflex is to blurt out, “Although income taxes are progressive, payroll taxes are steeply regressive and this makes the overall tax system regressive.” They fail to distinguish between a general purpose tax and one linked to a specific benefit to a specific taxpayer. Consider: (1) the tax base is capped, but so is the benefit; (2) higher income taxpayers receive less of a benefit as a percentage of contributions than lower income taxpayers; and (3) Social Security income is subject to highly progressive income tax rates. Independent studies, including by the Social Security Administration, conclude that both Social Security and Medicare taxes are progressive.

Warren Buffet Versus Debbie Bosanke

    Using virtually any metric, the US tax code is the world’s most progressive. Liberals trot out disingenuous comparisons for misdirection and maskirovka to try and show the system favors the wealthy. Perhaps the most bizarre liberal attempt to bamboozle and to hoodwink is the assertion Warren Buffet pays a lower tax rate than his secretary.

    MLLG once published a highly detailed tax computation showing Warren Buffet’s true tax rate; this post was one of our all-time most popular and is easily accessible on our website: www.mllg.us.  This post summarizes and updates data from the original.

     Buffet asserted he paid 17.4% in income tax and his secretary paid a much higher rate. In truth, Buffet paid close to 80% solely on that tranche of his income. Before Buffet can invest, he must first earn income subject to taxes of federal 39.6%, payroll 6.2%, Nebraska 6.8% and Obamacare 3.8%. He may then invest his after tax income in Berkshire and pay federal tax on his share of Berkshire’s income at 35% and Nebraska tax at 7.8%. When he sells stock he pays a 20% capital gains tax. At death, Buffet is subject to a federal estate tax of 40% and a Nebraska tax of 18%. Whew!

     When properly computing his tax, Buffet is subject to an overall rate of nearly 80%. The 17.4% rate he cited was cherry picked from only the capital gains phase of the complete tax cycle. Furthermore, Debbie Bosanke earns $250,000+ per year – unlike a typical secretary who earns more like $25,000 and pays little or no income tax.

      Buffet (like liberals everywhere) was cynically banking on the ignorance and class envy of the American people. His deception transcends political spin and crosses into a netherworld of duplicity and deceit. It froths with contempt for the American people. All we can do is shine the bright spotlight of truth on this sordid affair.
We now begin our summer in Montana and the next post is a surprise.

Taxation in America – The Ideal Paradigm

George Noga
This post presents the theoretically correct approach to taxation in America.
It is vital to understand the ideal – even if it has no chance of becoming law. 
Taxation in America – The Ideal Paradigm
By: George Noga – July 9, 2017
       Economists often begin by defining the ideal. In that spirit, we present the ultimate plan of federal taxation. Our plan is transparent, fair, simple, pro-growth and neutral with no corporate welfare or social policy. Compliance (now $600 billion per year) is cheap, quick and easy; evasion is nigh impossible. It abolishes the IRS and the need to provide government personal financial data. It taxes the underground economy (an enormous revenue enhancer), broadens the tax base and has no exemptions or mandates. It taxes consumption and not income, savings, investment or wealth.

      The ideal tax is a tax on consumption collected from consumers at the point of sale. All other federal taxes are abolished. Individual and corporate income taxes, payroll taxes, capital gains taxes and death taxes are abolished. Every American would know each time a purchase was made that he/she was paying a tax and the amount of the tax. If government raised taxes, Americans would be painfully aware every time they bought something. The true cost of government would be manifestly transparent.

       Everyone, even the poorest, would pay the tax. However, government could make the tax burden fair to all by any one of several means such as tax rebates for the first tranche of annual consumption or by a form of UBI (universal basic income). It is the proper role of government to decide which citizens are subject to the tax and the best method to rebate money to those who are fully or partially exempt from the tax.

      The national consumption tax (“NCT”) would be progressive, as those who spend more would pay proportionately more tax. Lower income Americans would benefit enormously because an NCT would be incredibly pro growth. Without a corporate tax, jobs and investment would flood into America from abroad. Without taxes on income, savings, investment or wealth, capital would surge into new investments creating new jobs; productivity would go on steroids. Note: The NCT could be in the form of a VAT, provided the tax was collected from consumers and not embedded in products.

      Economists of all stripes agree on much, if not all, of this. There is widespread consensus to abolish corporate and business taxes as nearly every dollar of such taxes comes from higher prices paid by consumers. Since most consumers are not wealthy, corporate taxes are highly regressive, harming the poorest among us. Payroll taxes are regressive as they are imposed only on the first tranche of income. The 50% paid by employers is entirely regressive as it really is the workers’ money. All in all, the new NCT would be less regressive than all of the taxes that are abolished.

        America can enact a simple, fair tax regimen that is the envy of the world. We can create a veritable cornucopia based on sustained economic growth for all Americans. We could generate enough growth to defuse the crisis of spending, debt and deficits, buttress Social Security and Medicare and fund a robust national defense.

    Unsurprisingly, the main obstacle is the Sturm und Drang between politics and economics. Economists of all persuasions broadly agree on a plan such as presented herein. Politicians however, prefer things complex and opaque; they prefer class warfare and demagoguing about how to divide the pie rather than growing the pie. They prefer to milk the system for political contributions. Saddest of all, they prefer to see their political enemies fail far more than they wish to see America succeed.
We return to Taxation in America in a week or two, following other posts.