Capital Gains Taxes And Small Minds

Phil Kerpen is a contributing editor for National Review Online. He has been a vice president of Americans for Prosperity and a policy analyst for the Club for Growth and the Cato Institute, as well as a writer for Fox News Opinion. In short, you get the idea: he is a conservative’s conservative these days.

I want you to read a paragraph from a piece published on Monday and written by Phil Kerpen for National Review Online:

President Obama likes his Clinton nostalgia — he has told the American people his tax increases are a return to the policies of the booming Nineties. It is ironic, therefore, that Obama insists on actually reversing one of the most critical economic successes from the Clinton years: the capital-gains tax cut. Before Clinton signed the 1997 budget deal, the capital-gains rate was 28 percent, and with Clinton’s approval of the cut it fell to 20 percent; Obama now insists on raising it to 23.8 percent, undoing not just Bush’s capital-gains-tax cut but almost half of Clinton’s, too. Such a move would undermine the fragile economic recovery while being unlikely to raise any federal revenue.

Absorb that. Right now, and since 2003, the long-term capital gains tax rate (on assets sold after being held for more than one year) for high-end income earners is, uh, 15%, as Mitt Romney taught us with his tax return. After this year, that rate will, without further action, rise to 20%.

According to Phil Kerpen, the conservative’s conservative, a mere move from the upcoming 20 percent to an Obama-blessed 23.8 percent in the capital-gains tax rate will, “undermine the fragile economic recovery while being unlikely to raise any federal revenue.”

Yes, that 3.8 point difference is crucial for gazillionaires like Mitt Romney. By God, if they get taxed that extra amount, they will take their toys and go home. To hell with America, and Americans.

In the mean time, from the Center for American Progress, we get this:

2012 capital gains tax

And, because of the effect of lower capital gains tax rates on gazillionaires, we get this:

effectivd federal tax rates in 2007

As you can see, if you earned $50,000 in 2007, you paid roughly the same effective federal income tax rate (this doesn’t include regressive state and local taxes) as someone who earned $345,000,000.

And that’s the way conservatives, conservatives like Phil Kerpen and Mitt Romney, think it should be.

Now, we have all heard the argument that giving rich folks a break on capital gains promotes economic growth and job creation, right? But, as the Center for American Progress says:

the evidence to support this claim is lacking and it is difficult to find any correlation between low capital-gain rates and economic performance over time.[4] The capital-gain rate was 28 percent throughout much of the 1990s—a time of strong business investment, rising productivity, and spectacular economic growth. By contrast, the capital gains and dividend tax cuts of 2003 were followed by a period of weak investment and growth—even before the recession began in 2007.

Think about how silly is the argument by Phil Kerpen that a 3.8 point difference in capital gains taxes will “undermine the fragile economic recovery.”

The small mind that argues that is only trumped by the small minds that would make his prophecy come true.

11 Comments

  1. ansonburlingame

     /  December 11, 2012

    I hesitate to get “sucked back in” to comments on this blog site. I vowed to stop such meager attempts to rebut such as the above points. It does no good and (like trying to teach a pig to sing) pisses off the “pig” as well. No I am not calling you all “pigs” only trying to show the futility of commenting herein. But…. here goes one more time.

    What is the number? 75% of all income (including capital gains) is paid by 10% of taxpayers, right? Close to all federal revenues are are paid by only a relatively small number of tax payers. And bottom line, progressives want to see the relatively small number pay MORE in total revenues to support the federal government and so do the majority of voters. So let democracy prevail, the will of the majority, and keep taking more and more total dollars (or percentage of total dollars) from a small number of people, until…….

    Well until WHAT, or WHEN exactly? In doing so will we balance our budget eventually? No, based on 52 years of history in essentially a social democracy in America, American styly social democracy, not yet the onslaught of the European type social democracy.

    I leave my comment with this simple affirmation. I will gladly support all of your social programs IF, and only IF, you show me how to PAY FOR THEM, sustainably, with no gimmicks or politcal spin. Now show me how to achieve that goal and tell me the tax rates on “everything” (like SS and Medicare payroll deductions, etc.) to achieve that goal.

    When you do so, I in turn will calculate the change in real GDP, production of “stuff” in America, to achieve the same goal with no change in tax rates of any sort. When we each take our own approaches we will find that it is IMPOSSIBLE to EITHER take tax rates high enough or grow real GDP in the same manner to achieve such a goal.

    Solution? I leave that one to you with no further comments.

    Anson

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    • Anson,

      I hereby except your challenge to “tell me the tax rates on “everything” (like SS and Medicare payroll deductions, etc.) to achieve that goal.” (The goal being to pay for social programs.) But I will go you one further. I’ll show you how to have a BALANCED BUDGET EVERY YEAR AND PAY DOWN THE FEDERAL DEBT!

      So, let’s take the data for 2010 (from BEA.Gov) to make the calculations. In that year the total expenditures, including Social Security and Medicare (and welfare checks and food stamps) were 3.7T. Income taxes from individuals and corporations was 1.226T, and contributions for “social insurance” was 970.9B. Those three sources produced 2.197T. And of the total government receipts that year of 2.43T, 243B came from other sources, mainly excise taxes, customs, and interest.

      Now, it turns out that total personal income for 2010 was 12.374T and corporate pre-tax income was 1.820T. That produces a gross income (using BEA’s definitions) of 14.194T. So, the effective tax rate needed to pay for a budget of 3.475T (3.7 – .243 = 3.475) is 24.4% (3.475/14.194 = 0.2435).

      But if you take out the 1.75T in social insurance benefits paid, you have an adjusted budget of 1.8T. (3.475 – 1.75 = 1.8). So, the tax rate to pay this adjusted budget would be 12.68% (1.8/14.194 = 0.1268). To pay for Social Security and Medicare, there would have to be a tax levied on employment income, which, according to the BEA was 7.971T in 2010. That comes out to 22.0% (1.75/7.971 = .22).

      So there you are. A flat tax rate of 12.68% on ALL income and 22.0% on ALL employee compensation would have produced a balanced budget – no surplus no deficit – for 2010.

      However, I would add a 3.5% tax surcharge dedicated to paying down the debt. That would produce about 500B and would take 32 years to pay off the debt. (16,000/500 = 32) Of course, that would push the tax rate up to 16.2%. (See the chart above showing effective tax rates to see how this compares.)

      It should be understood that under this method there would be no exemptions, no deductions, no tax credits. No rates for married or single or head of household. All income, including social security, welfare payments, interest on municipal bonds, and capital gains would al be taxed at the same rate.

      Furthermore, the rate would be recalculated every year based changes to the federal budget. Everybody is treated the same, the rich and the not-so-rich. Everybody has some skin in the game. And the pressure is squarely on Congress.

      This will never be implemented of course because of all the screaming and yelling by the charities, and municipalities, and the major corporations wanting their “loopholes.” But you asked how to get a balanced budget and pay down the debt. Here’s a way.

      Herb

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  2. Troy

     /  December 11, 2012

    Hell, Anson, I have a better plan for the wealthy. How about not requiring them to pay any taxes. Totally exempt from all taxes. After all they are the job creators. Leave them alone and let them do their thing. Just trust them to do the right thing. After all they are such loyal Americans. They fight and die in our wars and amass all their wealth all on their own. They even use that wealth to influence elections to better serve America. Just think of all that wealth they spent on this past election and all the jobs they created with it. Wow! No wonder they are so upset about a little tax increase. Less money they will have to use in the next election. How do they get by………..

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  3. ansonburlingame

     /  December 11, 2012

    Now you see, again, why I need to stay off this site in my comments. See Troy’s comments above!!!

    No society in the history of man has found a way to live without taxes. I agree with progressive taxation as well. Now we can argue over HOW progressive taxation might become in the future. 75% of all income taxes, the bulk of federal revenues, coming from only 10% of the taxpayers sounds pretty progressive to me.

    Next step I suppose is progressive sales and property taxes, right. Right now everyone in Joplin pays about $3.66 per $100 assessed value of their homes (just for schools), rich, poor or inbetween, kids or no kids in their household. Surely we can find a way democratically to make the owner of a mansion or business to pay a higher percentage than a poor man owing a shack, right.

    Try that one on as you run for City Council. You just might win, even in Joplin!!!

    Anson

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  4. What is the number? 75% of all income (including capital gains) is paid by 10% of taxpayers, right? Close to all federal revenues are are paid by only a relatively small number of tax payers.

    Why is this issue raised again? It appears that the 47% have now grown to 75% – interesting. Once again the clear implication is that the lower income stratum is being discounted as unproductive leeches on society – I simply don’t know what other interpretation to put on this.

    OK, let’s just imagine a society without that 75%. What would be missing? It would be most of:

    Electrical linemen to restore electricity after storms.
    Firemen to put out fires.
    Police to respond to crime scenes.
    Auto workers to make cars.
    Coal workers to dig coal.
    Cable TV installers and utility workers.
    Waitresses, waiters and cooks to supply meals.
    Butchers and meat-processing people to do the slaughtering.
    Clerks to stock shelves and check you out at Walmart and other stores.
    Nurses to tend your sickness, draw your blood and empty your bedpan.
    Maids to make up your motel bed.
    Masons to lay bricks on new houses.
    Truck drivers who deliver virtually everything we buy.
    Roofers, dry-wallers and carpenters too.
    Plumbers to respond to your leaks and cracked pipes.
    Enlisted soldiers and sailors on deployment.
    Call center people to respond to our consumer complaints.

    Never mind that these people constitute the bulk of the market for most industries and pay sales taxes, payroll taxes, property taxes, gasoline taxes, cigarette taxes, license taxes, and gasoline taxes. Oh, and they also buy a lot of lottery tickets, one of the most regressive of all tax systems.

    Man, what a bunch of leeches. Oink, oink.

    Oh, and how to pay for these leeches on society? Start with complete reform of the healthcare system by converting to a public healthcare system similar to the VA’s, pare down the bloated TSA bureaucracy, reform the DOD by eliminating unnecessary Cold War mechanisms, and finally, eliminate the absurd tax code and replace it with something simple and progressive. There will then, I predict, be money left over.

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  5. ansonburlingame

     /  December 14, 2012

    Herb,

    Hmmm? If I add up all your “rates” it seems that everyone would pay (only to the federal government) about 34% of their income (no deductions for sure) to make revenues equal spending. Then add in your “rainy day fund” of another 3.5% to ensure balance and we are all up to about 37.5% of money coming in, individually and corporately, to equal money going back to (only) the federal government. Then add in local and state taxes, including sales taxes and everyone is getting up to the 50% of all income to various forms of government to pay for that which is demanded from government.

    That sounds financially reasonable, everyone pay about 50% of what they “make” (or receive in benefits) to afford to keep getting that which is available for some today. Now try to do so politically!! If you do so or even try to do so the first thing you will hear is screw old people. Why shoud “I”, pay for granma? Let her kids take care of her!!

    However, I applaud your quick calculations as you have defined the “scope of the problem” confronting the American political scene today rather consisely. Bottom line is you show, again, that we demand far more than we can “make” or produce.

    Anson

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    • Anson,

      Actually, all taxpayers would pay 12.68%, but only those with FICA withholding (including self-employment taxes) would pay an additional 22%, which is 11% for the employee and 11% for the employer. So, those employed would pay 23.68% in federal taxes for every dollar of income. Those with income who are out of the workforce would only pay the 12.68%. The 3.5% surtax would put the poor working stiff paying 27.18% for every hard earned dollar, and the rest of the pool would pay 16.2%.

      I should note too that this would be a variable rate. It would change every year, up or down, based on the total federal budget. That puts the burden directly on Congress. They would have something like 300 million people and businesses looking to them for budget reductions since that would also have the concomitant effect of reducing tax rates. And if we ever get into another protracted war, well, maybe Congress will think twice before hitting up the taxpayers for more trillions.

      Of course, that’s just the Feds. What we pay to states and counties and cities is not included. I know for me that with federal and state income tax, sales tax, and property tax, I’m over 50%.

      I suppose the take-away from this little exercise is that it shows very clearly the cost of all the give-away’s and social engineering that Congress has kept adding to the tax code over the years. It also highlights the fact that if we, each and every one of us, don’t endure the pain of higher taxes now, it will only get worse later.

      This scheme is the 2 X 4 I talked about several months ago. Somebody ought to remind Congress of what they have done and what the “true” effective tax rate is. If it’s not borne by us, now, it will have to be passed on to the next generation. And, if that fails, well, as Edward R. Morrow used to say, “Good night and good luck!”

      Herb

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  6. ansonburlingame

     /  December 15, 2012

    Herb,

    However the details of your “quick calculations” might turn out, the simple fact is you have shown the futility of trying to pay for everything demanded by “people” using taxation (only at the federal level) to meet such demands. Most “rich” people, actually many in the today’s middle class pay well over 50% of all their money coming in through federal, state and local taxes and we don’t even come close to closing the revenue and spending gap.

    THAT is the reality of today’s economy in America today. Said another way, we do not produce anywhere close to enough to be able to pay for all demanded by Americans.

    Someone with “green eye shades’ should simply add up all the revenues really needed to pay for federal government “needs” today. The current $3.7 Trillion is not even close to such overall “needs” and we all know that as well. For one thing it in no way accounts for the $10’s of Trillions in future “unfunded liabilities” for starters!!.

    So have at it “green eye shades” progressives and add it “all” up. $5 Trillion or maybe $10 Trillion per year MIGHT be in the range of “needs”. THEN go figure out how to get that money each year through taxation!!!! It CANNOT BE ACHIEVED in my simple view of matters. And we will NEVER grow our way to such levels of taxation to support our current federal government “needs”.

    Anson

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