Tax workers - or the rich?
Obama's plan to soak high earners may hurt the economy less than broad-based tax hikes, writes TD Bank
Tax workers – or the rich?
Joseph N. DiStefano
With Obama re-elected, "will the fiscal cliff be avoided in 2013 and the economy spared?" asks Beata Caranci, economist at Toronto-based TD Bank, whose U.S. headquarters is in Marlton, in a note to clients.
For the lame-duck government and the new, similar gang, "the first order is to avoid the fiscal cliff," which is intended to cut the deficit in the long term, but also expected to stall the economy and hiring in the short term. "The second order is to evaluate the economic impact of the policies that will ultimately be put in its place ...
"If everything that is legislated to expire in the New Year actually took place, many private sector forecasters and the Congressional Budget Office estimate the drag to real GDP growth next year would be in the 3-4 percentage point range.
"There is little debate among politicians and economists that this would return the U.S. economy to recession.
"While the President shepherds the discussion, Congress ultimately decides the path of fiscal consolidation and the ability to reach agreement is crucial to this outcome ... Even with a majority Republican House, a Democrat Senate and a Democrat President, the prospects of a recession should prove distasteful to all and act as a catalyst towards compromise among rational individuals ...
"We view the odds of running off the cliff and remaining in complete free fall to be relatively low (at 10% or less) ... A (more) probable scenario is to kick the can down the road, temporarily extending deadlines to allow for more extensive discussions within the new Congress."
Obama's victory makes it more likely tax hikes will focus on the rich, not the mass of working people -- and that's a good thing for the economy as a whole, Carangi adds:
"It may be surprising to some that Obama’s more numerous tax increase proposals – health care, high income earners, dividends, capital gains" result in less "drag" on gross domestic product than broad-based tax hikes, because "the economic drag from a tax hike on an individual earning $500,000 is less than that of one earning $50,000.
"The reasons are numerous, but a key factor is that consumption among high income earners tends to be less sensitive to changes in income than middle and low income earners. Second, mathematically, high income earners make up a smaller portion of the population. So the biggest single economic drag from taxes next year comes from the expiration of the temporary two percentage point reduction in payroll taxes that affects all workers and tops out at $110,000 in labor income ...
"An Obama White House may be open to the possibility of new middle-class tax breaks to replace the payroll tax cut. Republicans may find this agreeable ...
"Fiscal consolidation in the U.S. is absolutely necessary and unavoidable, but the dispersion of forecasts among students of fiscal policy argue strongly in favor of a go-slow approach," so we don't end up like Europe, where the shock of budget cuts has slowed economies without giving any sign, so far, that the long-term gain is worth the pain.
Four more years of high unemployment and higher taxes on the middle class to support the 47% of slackers who pay no income tax.— UncleJoe- This comment has been deleted.— sharkmeat
- meat.. You are the ignorant one not Uncle Joe. In doing research for a comment that Ben Franklin made I ran accros an example that will simplify the tax code for you. Keep in mind that all small businesses are the guy that pays the restaurant bill in this example http://chuck-bitingmytongue.blogspot.com/2008/07/when-people-find-they-can-vote.html — jerryk2b
Let the Bush tax cuts expire. The capital gains tax should be higher, and the impact will be mostly on the wealthy. The so-called job creators can do one of three things: employ Americans at fair wages to reduce their own tax burden, pay higher taxes to help support those that they will not employ, or move to the far east to be closer to their investments. Also notice that the market falls precipitously because the wealthy did not get their way in the election. Guess what...they are only penalizing their own: those with money in the markets that probably voted for Romney anyway.— jp8899- Actually, many of those dependant upon capital gains or dividends are not wealthy. Many retirees depend on investment income, and increasing their tax burden will have a particularly harsh impact. But by all means, increase taxes on my grandmother so that her small retirement income can be redistributed to you. — jfar86
- Interest and dividends are taxed as income. If your grandmother is selling stock or other capital investments I doubt she has a small retirement income. — jp8899
- Let me guess, youre a ditch digger who dabbles in economic theory? You have no clue. His grandmother could be in a mutual fund and they have capital gains from buying and selling within the fund every year. So Granny could be making a few thousand a year for her retirement and she gets hit. ridiculous. Dont feel compelled to comment on a subject that you have no idea about other than the fact that you want other people to pay so you dont have to. Envy is so pathetic if your talking about telling what other people should do with their money or the size of your johnson. — tr88
- I think and I am not 100% sure I would have to check but even if you tax rich 100% you won't be able to pay 16 trillion. I am betting Democrats will tax middle class to some capacity. Rich will find loop hole.
People like Uncle Joe wakes up at 6am just like any of us and pulls his weight.
Do not worry Sharkmeat you will get your food stamps in the end of the month just like you always do. I even pay for your birth control and parent planning.
— Nitroglycerin - Exactly. Even if the "rich" are taxed more heavily, it's a [puff of wind] in a hurricane compared to the deficit that this country is running. — jfar86
- You could take every dime from every billionaire in America and it wouldnt come close to paying a third of our deficit for a year much less make a dent in the debt. And once you take it from them, what next? — tr88
- The middle and upper middle class are going to get taxes raised to pay for the socialist handouts the majority of Americans voted to continue. There are people who have no clue what it means to be self sufficient. Keep dumping millions upon millions of dollars into social programs that do not work - our cities get dirtier, more violent and less educated.— lulu
- How come the handouts are only "socialist" when they go to the poor or elderly? How come the handouts that go to big business, big banks, and Wall Street (to end up as bonuses in millionaire's pockets and not as capital investements) are not considered socialist? But I agree with reducing some handouts. For example, how about making welfare a low-interest loan at the Federal Reserve lending rate, instead of a handout? — jp8899
- obama just doing what he always does- trying to cut up the pie differently to make it fairer from his perspective, rather than increase the size of the pie.
tax cuts on the rich won't produce the results they expect, the can will get kicked down the road and we'll be 4 more years closer to the cliff when Joe Biden runs for the presidency.— jim715 - All should pay taxes. This can be done by eliminating the income tax and replacing it with a sales tax. Then it would not matter if you work under the table or you are bringing in the kings ransome. You have to eat, have clothes and shelter. Everybody pays!— Wildman Bill
- The headline of this article suggests a false dichotomy. I work with many people who are "rich" as defined by a family income of $250k, and they are the hardest working people you will find. They've obtained advanced degrees and routinely work long hours.
For those who have not put in the hard work or achieved their success to say they have to pay more is lazy and will ultimately be the downfall of our democracy.— jfar86
