Tag Archives: tax rates

The Complicated Perquisites of the 1%

It’s amazing what you can learn from research. Recently, the Brookings Institution took note of the oft-made assertion that the corporate tax rate in the U.S. (at 35%) is too high. The usual response is to point out that 35% may be the statutory rate, but many of our largest and most profitable corporations take advantage of tax breaks that substantially reduce–or even eliminate–federal taxes.

This report, however, looked at a different issue.

Corporations used to be the dominant form in which business was done. Partnerships and other “pass through” entities–so named because the income “passes through” and is taxed as the partners’– were far fewer.  In 1980, only 20.7% of all business income was earned by pass-through entities; in 2011, the share had grown to 54.2%.

So a band of number-crunching economists at the U.S. Treasury and some academic partners, with access to far more data than outside researchers can see, set out to answer two simple questions: Who is getting all this partnership income? And what tax rate do they pay? They offered their answer Thursday in a paper presented at a National Bureau of Economic Research conference in Washington.

The findings are significant. And troubling.

*Pass-through business income is even more concentrated among the richest Americans than traditional corporate profits. “Overall, 69% of pass-through income earned by individuals accrues to the top-1%. Corporate income is similarly concentrated, but other business income (typically considered very concentrated) is substantially less concentrated.

* The average federal income tax rate paid by individuals who report pass-through business income was 19% in 2011. In part, that’s because so much of that income is considered capital gains or dividends, which are taxed at preferential rates.

* Across all business entities except for sole proprietorships, the average tax rate of U.S. business income in 2011 was 24.3%, they estimate. That’s lower than is often assumed in debates over corporate tax reform.

* “The migration of business activity out of the C-corporate sector and into the pass-through sector has likely substantially reduced U.S. tax revenue,” the economists conclude. If pass-through activity had remained at the (low) level of the 1980s, then the average tax rate on total U.S. business income in 2011 would have been approximately 28% rather than 24%, and tax revenue would have been at least $100 billion higher.

Who was it who used to say “A billion here, a billion there–pretty soon, you’re talking real money”?

Just the Facts, Ma’am

From the rhetoric routinely employed by politicians trying to curry favor with voters, you’d think Americans were struggling under a massive tax burden. You’d also think service delivery and taxation were unconnected–that we can all have our cake and eat it too. (Just ignore that decaying bridge…and by the way, it might be a good idea to hire a private security guard, seeing as how we can’t afford to hire those extra police officers we need…..)

The next time one of our legislators is crying crocodile tears over our high levels of taxation, you might share this study.

Taxing “Small Business”

This is really getting tiresome.

Obama and the GOP continue their standoff over the Bush tax cuts. Obama is willing to extend those cuts for taxpayers making less than 250,000 a year, but wants to let the cuts expire for those making more–those in the top 2%. The GOP has fought tooth and nail to protect that 2% from the horror of a return to Clinton-era marginal rates of 39%, and (lacking even a superficially convincing argument for that position) they have deployed a number of rhetorical weapons intended to justify their stance.

First it was “job creators.” Raise the marginal rate to its previous low point and the wealthy won’t create new jobs! Since we have had the historically low Bush rates for nearly a decade, and the jobs have not been forthcoming, voters have begun to see through that one. (Recent studies have confirmed that job creation bears virtually no relationship to tax rates; we have had robust job growth in periods of relatively high rates.)

The curent faux concern is for “small business.” Since many small enterprises choose to be taxed as individuals, Romney and the GOP argue that a higher rate on those making over 250,000 will “target small business.”

Obviously, the word “small” means something different to Romney than it does to most of us. The nonpartisan Joint Committee on Taxation found that in 2013, the higher rate would affect just 3.5% of small business–mainly doctors and lawyers. As Harry Ried noted during a recent debate, the GOP’s idea of “small business” evidently includes “fabulously rich so-called small business owners like Kim Kardashian and Paris Hilton.”

The Republicans’ insistence on protecting its wealthy donors from even a modest tax hike sure makes their rhetoric about the deficit ring hollow.


Dollars and Sense

We hear a lot of talk from the Governor and legislators about the hard decisions being forced by tough fiscal times, and on this one, I’m sympathetic. When there isn’t enough money to do the things we need to do, finding the least painful cuts can be an incredibly difficult task.

Of course, it is made infinitely more difficult when you begin with a decision to keep your tax rates lower than those in all of the surrounding states.

So, where does HB 1000–our budget bill–aim Mitch the “Blade’s” knife? At education and social services funding. A few examples:

  • The Family and Children’s Fund is being cut by 219 million dollars (with no explanation or justification offered).
  • The 2011 appropriation for Healthy Families, Indiana’s much-touted health insurance program for poor Hoosiers (we don’t need no stinking federal healthcare reform!!) is being cut by 86%, despite the fact that there is a waiting list and the program is turning people away.
  • Health coverage under the CHIP program is also cut. Approximately 7000 eligible children will not be covered–despite the fact that over 75% of the costs of that coverage would be paid by the federal government, and the rest is supposed to be paid out of the proceeds of the tobacco lawsuit settlement.
  • Similarly, hospital care for the indigent is being cut by approximately ten million dollars–but the State will lose twice that amount in Federal Medicaid Leverage dollars.

I could go on and on, but you see the pattern. Mental health drugs are being restricted, making it more likely we’ll pay more through the criminal justice system. Public mass transit–the lack of which is already a huge drag on efforts at job creation–is cut by 15 million. Numerous cuts to K-12 and transfers to Charter schools belie all the rhetoric about improving education–while it is true that simply “throwing money at the problems” won’t solve them, it is equally true that starving public education will only make those problems worse.

I don’t want to minimize the difficulty of funding state government in tough times. But I am struck by three themes that run through these budgetary decisions: the cuts made hurt those who have the least “voice” in our political system (i.e., those who have no lobbyists at the statehouse, and whose displeasure is least likely to be felt at the polls); many of these cuts will actually cost us more in the not-so-long run, making their fiscal prudence highly questionable; and our adamant refusal to look at both the costs and income sides of the ledger not only makes this job much harder than it needs to be, it also benefits the well-to-do at the expense of our poorest citizens.

That doesn’t make either economic or moral sense.