“In Just Six Months” – The Tax Increase Email

Sep 06 2010

Published by at 7:38 pm under Current Events


Note of Apology

In response to the criticism in the comments I wish to extend my apologies for any partisanship that came through in my article. I attempted to address the facts and their presentation in the viral email and to point out that these new taxes are not realistically a given considering the (in)action that Congress would have to take for some of them to come into effect. This is something that is not stated in the email itself and supporting documentation is provided.

MOAA is apolitical by law and by nature, and this blog was created by the Member Service Center to address the many viral emails that we encounter daily. Instead of responding to each one individually, we started it to have a reference point to refer members to. It in no way takes time away from our legislative team’s actions nor does it affect our mission or goals, which are clearly laid out on MOAA’s Legislative Action Center. This is for informational and discussion purposes only and should not be seen as an extension of MOAA’s core principles and goals.

I can certainly understand the sentiment expressed, especially by Colonel James Rogers, that wishful thinking and predictions of Congressional action can be seen as partisan. It was not meant to be a support of any group, but an attempt to address specific items in the email.


Death, Taxes and Distortions

Probably the most distributed email for the past month has been a scare message that talks about what would be the largest tax hike in history starting in January 2011. While the intent of the email is to tie in the increases in taxes and changes in law directly to President Obama’s ‘redistribution of income’ scheme and some of the items in the email are directly related to President Obama’s health care bill, there are several items that should be of concern to citizens. The partisan language at the conclusion of the email is not warranted, and the assertion that this is an attempt to force America to ‘Soviet style Socialism and then Communism’ is simply a scare tactic. So let’s drop the partisanship and examine the particular items.

We sat down with our resident MOAA financial expert, Phil Dyer, CFP, and went over the list item by item. Our thoughts follow the full text of the email.


The Email

Subject:Tax Hikes in 2011

In just six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011
First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the Congress enacted several tax cuts for investors, small business owners, and families.

These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.

The full list of marginal rate hikes is below:

– The 10% bracket rises to an expanded 15%
– The 25% bracket rises to 28%
– The 28% bracket rises to 31%
– The 33% bracket rises to 36%
– The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011. They include:

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. Abortions are covered by Obamacare.

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise the AMT won’t be held harmless, and many tax relief provisions will have expired. The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families, rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or depreciate) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be depreciated.

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the research and experimentation tax credit, but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual required minimum distribution. This ability will no longer be there.

Now your insurance is INCOME on your W2’s. One of the surprises we’ll find come next year, is what follows – – a little “surprise” that 99% of us had no idea was included in the “new and improved” healthcare legislation . . . the dupes, er, dopes, who backed this administration will be astonished!

Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that’s a private concern or governmental body of some sort. If you’re retired? So what; your gross will go up by the amount of insurance you get.

You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That’s what you’ll pay next year. For many, it also puts you into a new higher bracket so it’s even worse.

This is how Obama is going to buy insurance for the15% that don’t have insurance and it’s only part of the tax increases.

Not believing this??? Here is a research of the summaries…..

On page 25 of 29: TITLE IX REVENUE PROVISIONS- SUBTITLE A: REVENUE OFFSET PROVISIONS-(sec. 9001, as modified by sec. 10901) Sec.9002 “requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer sponsored group health coverage that is excludable from the employees gross income.”Joan Pryde is the senior tax editor for the Kiplinger letters. Go to Kiplingers and read about 13 tax changes that could affect you. Number 3 is what is above.

Why am I sending you this? The same reason I hope you forward this to every single person in your address book; increased taxes are a way to accomplish what Obama said he wanted for the United States, “redistribution of income”. Ask yourself, “is he accomplishing this in partnership with Congress?

The consequences of these Congress legislative actions will be a continued deep-recession, even a possible depression. This will open the door for Soviet style Socialism and then Communism. People have the right to know the truth because an election is coming in November.


‘Wave 1’ Analysis

What is labeled as ‘Wave 1’ here are primarily related to the Bush tax cuts that were written and passed in 2001 and 2003 set to expire on January 1st, 2011. These changes would become the regulations and terms only if Congress did not act to extend the cuts. Currently the discussion is not if they should be extended, but for which groups and whether or not it should be extended for everyone. There is very little in the way of chatter that would indicate that no action will be taken prior to the end of this term.

Regarding the rises in tax brackets, which should really be described as a return to the previous states, this item leaves out a huge point. While the email states that these changes will happen starting on January 1, 2011, it is extremely unlikely that the tax brackets will not be extended, especially for anyone making under less than $200k annually or $250k for families filing jointly.

The return of the ‘Marriage Penalty’ and a 50% reduction of the child tax credit. This would be something that would hit the most American families directly and, by our estimations, has about as much chance of expiring as the Rams have of winning the Super Bowl this year.

The ‘Death Tax’ return is a concern and has a high probability of coming back in some incarnation, but it is extremely unlikely that the rate will be for estates worth over $1 million. The House passed a bill in 2009 that would make the top rate 45% and only applicable to estates worth $3.5 million and newer Senate figures are talking about 35% top rates for estates over $5 million. The Senate measure failed, and the estate tax expired in 2010 as it was written to in the tax cuts of the early 2000s. The most probable solution, barring an irreconcilable procedure debate (which we all know happens far too much), is that the $3.5 million 2009 level will return, affecting a small portion of the populace.

The capital gains tax rises from 15 to 20% in 2011 and will most likely increase in 2013. If there is another part of the Bush tax cuts that need an extension, here it is. Capital gains and dividends tax increases are brutal on small businesses and, in a jobless recovery, anything that will end up being a ‘job killer’ is likely to be addressed. Take this item to heart as it would have a large impact on investments and hiring should they expire.


‘Wave 2’ Analysis

Each of the three items listed in section 2 are represented in the email fairly accurately in terms of cost and impact with a few exceptions. It lists three changes to law that could hardly be considered a historic wave of new taxes, it affects a much smaller portion of the populace than the email implies, and the final line of item 2, ‘Abortions are covered by Obamacare’, makes no mention of the tight restrictions on when and under what conditions abortions are covered by federal funding.

The most controversial of the items is number 2, the “Special Needs Kids Tax”. For this, I refer you to FactCheck’s summary:

The argument made in the e-mail is that “many” families with special needs children now use FSAs to pay tuition at private schools catering to special needs children, schools that ATR [Americans for Tax Reform] says “can easily exceed $14,000 per year” in Washington, D.C. Perhaps so. IRS rules do allow use of FSA funds to pay for such expenses with pre-tax dollars. But the e-mail message offers no evidence of how many families might be taking advantage of this tax break currently. The claim is copied from the website of Americans for Tax Reform, but as ATR itself says: “For most people, the $2500 cap won’t be noticed.” As ATR concedes, FSAs “tend to be used for things like small deductibles, co-payments, eyeglasses, over-the-counter medicines, and laser eye surgery.” The amount deferred in the typical FSA is probably much less than $2500 today, ATR says. The JCT [Joint Commission on Taxation] expects the change will bring in $13 billion over 10 years, but says nothing about how much of that is likely to come from the pockets of parents of special needs children.


‘Wave 3’ Analysis

The items in wave three are mostly concerned with the annual debate Congress and the White House have over extending the Alternative Minimum Tax (AMT). Like the Bush tax cuts, this would only be an issue if Congress failed to enact an extension to the yearly fix that ensures that the number of families affected remains low. In 2009 the AMT band aid was passed and there are no strong indications from Congress that this will not happen again. Eventually, the law will have to be fixed and adjusted for inflation, but the budget presented by President Obama for 2011 actually assumes an extension of the fix to keep the AMT at 2009 levels and factors that in to the equation.

The most concerning item in section 3 is the small business expense reductions and research and experimentation tax credits. Although the ‘literally scores of tax hikes’ are mostly obscure, if Congress fails to extend the tax credits we’ll have another case of possible job killing changes. Again, this is another case of ‘if Congress does nothing’, and if the Tax Extenders Act of 2009 is any indication, the fate of the increases are, at worst, still up in the air, and at best, an almost sure-to-pass group. Especially in a hot mid term election year, we expect Congress to ensure that these changes don’t come into effect.

The provisions that company-provided insurance will be required to be listed on your W-2’s as income leave out the most crucial part of that provision – that the amount is not taxable and does not factor into your tax brackets. It is an add-on to the email of a previous viral scaremail that we discussed in May and June. While an argument could be made that this sets the stage for a slippery slope trending towards inclusion of employee provided health care costs, it would be a purely hypothetical one.

The ending of the email is more of the same that we’ve seen before, with the keywords thrown in there for good measure. Politics and obstructionism will play their roles in the coming months, and we will all have to watch closely to make sure that this email turns out to be dismissible come 2011.

Note: As pointed out by an observant reader, the $100,000 IRA charitable contribution amount expired at the end of 2009. A falsehood that we did not cover initially. You can still of course contribute from your IRA to charitable foundations, but the amount you send will be added to your Adjusted Gross Income and negatively affect your tax return. For more information, see the following article from Getting Your Financial Ducks In A Row: click here.


Update

The New York Times is reporting that President Obama is against any compromise that would allow the top 2% of earners an extension on the Bush tax cuts:

It is not clear that Mr. Obama can prevail given his own diminished popularity, the tepid economic recovery and the divisions within his party. But by proposing to extend the rates for the 98 percent of households with income below $250,000 for couples and $200,000 for individuals — and insisting that federal income tax rates in 2011 go back to their pre-2001 levels for income above those cutoffs — he intends to cast the issue as a choice between supporting the middle class or giving breaks to the wealthy.


Further Reading

MOAA’s Financial Frontiers Blog
CNN Article
FactCheck.org Article
Media Matters Rebuttal
Time Magazine’s “Stupid Tax Tricks”


Discussion

Posts are not held for moderation so your comment will appear immediately, but may be modified if it is deemed inappropriate.

Politics Blogs - Blog Rankings

107 responses so far

107 Responses to ““In Just Six Months” – The Tax Increase Email”

  1. OKJack™Group™on 30 Sep 2010 at 9:48 pm

    We shall not mince words. The decisions by the democrat majority and the republican minority are indicative of the political pusillanimity that has reigned supreme in congress for at least the past three decades.

    The top marginal rate was rolled back by 42% (from 70% to 50%) to 28% beginning in 1988 by Messrs. Reagan/O’Neill/Dole/Rostenkowski and a majority in congress.

    Since that 1986 law was passed (and Speaker O’Neill immediately retiring from congress), successive congresses and presidents have individually and collectively lacked the political fortitude to get anywhere nearer than an additional 11.6% to the historical average top rate of 70%—the latter being the minimum top rate necessary to pay America’s bills and keep America out of debt.

    And even then, the top rate of 39.6% (28%+11.6%) did not endure—dropping to 35% after only eight years (at the beginning of the second Bush administration). Of course, 23.1 million net new jobs were created during that selfsame 8-year Clinton administration. The Bush administration’s 8-year job creation record was as dismal as the Clinton administration’s was robust.

    We’ve flipped our 50:50 coin and it comes up as follows: The Obama/Pelosi/Reid/Levin team (or an Obama/Boehner/McConnell/Camp team) and a majority in congress will most likely temporarily (or even permanently) extend the 35% top rate when the lame duck session of congress convenes after the November 2nd election (or after the new congress convenes on January 3rd…any new law being retroactive to January 1st).

    While acquiescing to the privileged class on the income tax issue, congress and the president will probably do what they have usually done (as at the beginning of the Bush administration), i.e., throw a bone to the middle class by perhaps adding a 5% bottom marginal rate or slightly raising the threshold for the 10% bottom rate (and perhaps slightly lowering the threshold for the 35% top rate).

    Of course, there is always the chance that a miracle of political courage & country-ahead-of-self patriotism may somehow take root and bloom on Capitol Hill and at the White House before midnight on December 31st.

    That miracle would mean America being able to pay its bills once again (i.e., diminishing the deficit), and even being able to pay down the U.S. Public Debt which presently flows in a river of red ink that is 13.5 trillion dollars wide and deep.

    Said another way, congress and the president may finally dispense with unproductive talk, and raise the top marginal rate to the historical average of 70% above $350,000, and opt for a single rate of 10% below $350,000 (10% being the historical average bottom marginal rate).

    Not only would these two rates and a single threshold of $350,000 enable the payment of America’s bills and pay down America’s debt—but the massive tax burden on the middle class would be lifted to the point that middle class small businesses and individuals can then significantly expand the middle class job base, thereby expanding opportunities for the working class and the poor class to be hired and then move up economically.

    Expanding the middle class would save it—and likewise save America in the process.

    OKJack™Group™
    Middle & Working Class Disabled American Veterans
    We Paid the Dues that Aren’t Required!™

  2. OKJack™Group™on 08 Oct 2010 at 11:01 pm

    It seems that there is in fact a new age “truism” that IS “true” after all, i.e., the short lifespan of a web log. Nevertheless, we’re going to try and help to “keep hope alive”—for this one anyway. After all, this particular web log has gotten more traffic than any other that we’ve seen on the MOAA web site.

    It goes without saying that in less than a month we’ll be participating in the U.S. congressional mid-term elections of 2010. To be decided by the voters (in all 50 states) are just which politicians of which political party will be filling 435 House seats, as well as 1/3 of the Senate, i.e., come January 3rd, when the new congress convenes its first full session. There will, of course, be a lame duck session shortly after November 2nd—which hopefully will accomplish what the democrat majority and republican minority made every possible effort to confuse the American voting electorate about before they packed their bags and flew home to their respective states.

    What was the confusion all about? Well, it was about the need for new income tax legislation to replace 8-year old tax rates and inflation-adjusted thresholds (i.e., brackets) that are set to self-destruct at midnight on December 31st…and that are likewise set to take a BIG bite out of the middle class, and a SMALL bite out of the wealthy class. All of this will happen unless congress extends or replaces the old tax rates/brackets.

    Naturally, if tax legislation MUST wait for the new congress to convene on January 3rd, new tax rates/brackets CAN be made to be retroactive to January 1st—which takes some of the edge off the urgency. Congress knows this, of course. And that’s why they went home without doing anything about the expiring George W. Bush era revenue laws.

    As for our small research team here at OKJack™Group™, the most important conclusions to come out of our analysis and synthesis of the following items are that all three of these items are inextricably tied together in one way or another: 1) Federal income tax rates/thresholds (i.e., brackets) 2) Net new middle class job creation [“creation” meaning the absolutely necessary continued expansion of the middle class and middle class small businesses] and 3) the U.S. Public Debt [33% of which consists of the $4.5 TRILLION in cash surpluses owed by the U.S. Treasury to America’s trust funds (yes, both the trust funds & their surpluses are real), e.g., social security ($2.5 TRILLION), Medicare, military retirement, military health care, etc.].

    Contrary to popular belief, more net new jobs were created during the single 4-year term of Jimmy Carter, than during the average of either of the 4-year terms of President Reagan (and yes, we’re well aware of the “legacy” that the Reagan Foundation is “dedicated to the promotion of”…to include the Reagan administration’s fiscal, financial and economic “legacy”). We conclude that the inextricable relationship between the net creation of jobs (and middle class expansion) during the Carter years and the top/bottom marginal income tax rates during the Carter years is no accident. That is, the Carter years’ bottom marginal rate was 0% (v. the rise in the bottom rate from 0% to 11% to 15% during the Reagan years)…the Carter top marginal rate having been 70% (v. the precipitous drop in the top rate from 70% to 50% to 28% during the Reagan years)—bearing in mind that the 70%/0% top/bottom marginal rates in the first year of the Reagan administration were carried over from the Carter years—and the net loss of 2,180,000 jobs (during Aug-Dec 1981 & Jan-Dec 1982) coming on the heels of the Reagan administration’s (and congress’s) Economy Recovery Tax Act of 1981 (signed into law on August 13, 1981, to take effect in 1982).

    What follows is a ranking of net new jobs created (source: BLS) along with top/bottom marginal income tax rates (source IRS)…looking back over 48 years at every presidential administration from John F. Kennedy/Lyndon B. Johnson (1961-68) through Ronald Reagan (1981-88) through George W. Bush (2001-08):

    #1 – CLINTON – an average of 11,535,000 net new jobs during each of his two 4-year terms.
    (1993-2000) Top Marginal Rate: 39.6%/Bottom Marginal Rate: 15% (by 2000, the Social Security Trust Fund surplus had finally topped $1 TRILLION for the first time, and borrowing from the SSA Trust Fund surplus was briefly halted—$1,049,445,000,000 in assets at the end of 2000 (so, $1.5 TRILLION was borrowed from the SSA Trust Fund during the George W. Bush years); the top rate of 31% enacted during the George H.W. Bush administration to replace the Reagan administration’s unsustainable top rate of 28% is found to also be unsustainable, and then raised to 39.6% in order to slow down government borrowing and lower the annual budget deficit)
    #2 – CARTER – 10,488,000 net new jobs during his one 4-year term [much of the net new job growth (beginning in 1983) that was credited to the follow-on Reagan administration is in reality the result of the delayed effect of Carter administration economic policies that the democrats could have taken credit for had Carter been reelected].
    (1977-80) Top Rate: 70%/Bottom Rate: 0% (ZERO PERCENT) (America’s bills were being paid on the top marginal end, and the low tax burden on the bottom marginal end allowed for continued expansion of the middle class and middle class small businesses)
    #3 – REAGAN – an average of 7,967,500 net new jobs during each of his two 4-year terms.
    (1981) Top Rate: 70%/Bottom Rate 0% (ZERO PERCENT carried forward from Carter administration)
    (1982-86) Top Rate: 50%/Bottom Rate: 0% (ZERO PERCENT continued from the Carter administration) (so called “landmark” income tax legislation signed into law on August 13, 1981, to take effect in 1982)
    (1987) Top Rate: 38.5%/Bottom Rate 11% (transitional threshold raises the bottom rate from 0% to 11%, and therefore adds to the tax burden of the middle class, slowing down expansion of the middle class and middle class small businesses)
    (1988) Top Rate: 28%/Bottom Rate: 15% (top rate is cut to an unsustainable 28% level, compensated for by borrowing and by higher middle class income taxes and progressively higher and higher middle class FICA tax thresholds; bottom rate rises again and this time to 15%, thus putting an even greater tax burden on the middle class, further slowing down expansion of the middle class and middle class small businesses (only 311,000 net new jobs are created in 1990, and 857,000 jobs (net) are LOST in 1991); so called “landmark” two-rate income tax legislation signed into law on October 22, 1986, to take effect in 1988)
    #4 – KENNEDY/JOHNSON – an average of 7,751,000 net new jobs during each of two 4-year terms.
    (1961-63) Top Rate: 91%/Bottom Rate 20%
    (1964) Top Rate: 77%/Bottom Rate: 16%
    (1965-68) Top Rate: 70%/Bottom Rate 14% (top and bottom rates are lowered—but the top rate is cut by 21 percentage points for the wealthy class, the bottom rate for the middle class being lowered by only 6 percentage points)
    #5 – NIXON/FORD – an average of 5,601,500 net new jobs during each of two 4-year terms.
    (1969-76) Top Rate: 70%/Bottom Rate: 14%
    #6 – George H.W. BUSH – 2,544,000 net new jobs during his one 4-year term (a “legacy” of the Reagan years).
    (1989-90) Top Rate: 28%/Bottom Rate: 15% (carried forward from Reagan administration)
    (1991-92) Top Rate: 31%/Bottom Rate: 15% (28% is unsustainable, and it is raised to 31% in order to cut borrowing and lower the deficit…and then raised to 39.6% in 1993 for the same reason, because 31% proves to be unsustainable)
    #7 – George W. BUSH – an average of ONLY 921,500 net new jobs during each of his two 4-year terms (an “imitation” of the Reagan years).
    (2001) Top Rate: 39,1%/Bottom Rate 15%
    (2002) Top Rate: 38.6%/Bottom Rate: 10%-15% (10% threshold is a mere “token” $12,000, cutting the bottom marginal end’s tax liability by ONLY $600)
    (2003-08 & expiring at the end of 2010) Top Rate: 35%/Bottom Rate 10%-15% [35% found to be unsustainable; 10% bottom rate found to have a low “token” threshold, the real bottom rate being 15%; and by 2010, the U.S. Public Debt found to have risen to $13.5 TRILLION ($11.1 TRILLION increase from $2.4 TRILLION (in 2010 dollars) in 1981 when Ronald Reagan was inaugurated]

    As a matter of fact, between the end of the Great Depression and the end of World War II, the last 1-1/2 terms of the administration of Franklin D. Roosevelt saw the creation of an average of 7,958,667 net new jobs (v. Reagan: 7,967,500)—1939-44 being a period when the top marginal rate ranged from 79% up to 94% (v. Reagan: 50% down to 28%).

    Our conclusion is that high top rates are best for America (with low thresholds) in order to pay America’s bills…and that low bottom rates are best for America (with high thresholds) in order to prevent a heavy tax burden on the bottom end from stifling the necessary continued expansion of the middle class (75% of America’s economic base being INSIDE the United States and CREATED by small businesses…NOT by corporate America and Wall Street which create jobs OUTSIDE the United States with their 25% share of the U.S. economic base).

    Likewise, when the top marginal income tax rate is cut to shift wealth (redistribute wealth, if you will) from the middle class to the (already) wealthy class, middle class expansion slows down and eventually grinds to a halt, e.g., 8,363,000 middle class jobs (net) LOST in 2008 and 2009 (and the small businesses associated with most of those jobs simply closing their doors and ceasing to exist).

    The result is that the traditional middle class generators of America’s wealth shut down, the U.S. Public Debt increases dramatically (i.e., annual budget deficits) and America’s trust fund surpluses are totally depleted to help mask the size of those deficits. The proof of all of this is staring us in the face…beginning slowly with the top marginal tax cuts of the Kennedy/Johnson years (91% to 70%)…and then picking up speed with the totally unrealistic and unsustainable top marginal tax cuts during the Reagan/George H.W. Bush years (70% to 28%)…and finally culminating in the economic free fall of the George W. Bush years, when an imitation of the Reagan years was instituted and the top marginal tax rate cut from 39.6% to 35%.

    At this point in history, we recommend that the top rate be increased to its historically traditional level of 70%, and that the historically traditional bottom rate of 10% remain in place. Naturally, because of the dire situation as to the U.S. Public Debt ($13.5 TRILLION) and the shutting down of the traditional middle class generators of America’s wealth—and the actual shrinkage of the middle class and small business economic base—we recommend a single threshold of $350,000 between the 10% and 70% rates. In other words, something drastic must be done to recharge and restart America’s middle class using the bottom end of the tax rate schedule—while at the same time bringing down the deficit and the national debt using the top end of the tax rate schedule.

    At the following link is another article that may or may not be BILGE: fair.org/index.php?page=4161 Regardless of its source, we don’t think that it is BILGE at all.

    Here is the introduction to said article: “Way back in 1983, corporate media helped sell the dubious notion that Social Security needed saving by a blue-ribbon commission (Extra!, 1–2/88). The panel—headed by future Federal Reserve chair Alan Greenspan—raised payroll taxes and the retirement age for the ostensible purpose of accumulating a large surplus to help finance the retirement of the baby boomers born between 1946 and 1964. That this surplus, loaned to the general federal budget in exchange for Treasury bonds, would also help to finance the Reagan-era tax cuts for affluent taxpayers was treated as a complete coincidence. Twenty-seven years later, the baby boomers are retiring on (delayed) schedule, and Social Security has accumulated the projected surplus—some $2.5 trillion. But now that it’s time for wealthy taxpayers to pay back the money that the Treasury borrowed from the Social Security program, suddenly Social Security needs “saving” once again. The new twist is that the use of the trust fund that had previously been the mechanism by which it was “saved” is now the chief indication that the program is in dire danger.”

    Referenced in the preceding article’s introduction is the following link to the Social Security Administration’s (SSA) tote board showing 2009’s $2,540,348,000,000 SURPLUS (i.e., $2.540348 TRILLION SURPLUS ) in the Social Security Trust Fund. Yes, there really IS such a “trust fund”: ssa.gov/OACT/STATS/table4a3.html

    Once you get into the SSA’s tote board, note that there was $667,257,000,000 in net social security CONTRIBUTIONS in 2009 v. 675,482,000,000 in BENEFIT PAYMENTS in 2009. When this happens (i.e., when benefits are more than net contributions), the “cash” in the trust fund surplus is supposed to take up the slack and kick in. However in order to RETRIEVE its cash, the SSA Trust Fund must REDEEM treasury instruments (the article’s referenced “Treasury bonds”). That’s because there is no actual cash surplus in the SSA Trust Fund. Why? Good question! Well, that’s because the federal government has borrowed it all for operating expenses…which in effect, masks the true extent of the annual budget deficit.

    We’ve always been told that the Federal Reserve System is supposed to be independent of the executive branch of the federal government…you know, independent of the president. However…was Mr. Greenspan actually “cooperating” with Mr. Reagan and the latter’s flawed view of macro/micro economics, when the top marginal income rate was cut from 70% to 50% (1982) and then to 28% (1988)? Perhaps Mr. Greenspan will tell us about this one of these days.

    The one thing that we do know is definitely NOT BILGE are the economic RESULTS of Mr. Greenspan’s advice and counseling to both congress and to the voting electorate of our great nation. To put it bluntly, Mr. Greenspan’s advice and counseling have apparently not been sound—and could even be termed “very scary stuff”.

    Another thing that we also know is NOT BILGE is that Mr. Greenspan strongly supported (and was present for the signing) of the Gramm-Leach-Bliley Act of 1999. However, we can’t post the photo here that showed just how happy he was to be there for the signing (along with others such as then U.S. senator, Phil Gramm and the present House minority leader, John Boehner). There is a second photo indicating that their happiness apparently shifted to pure joy after Mr. Clinton put pen to paper, and signed the congressional legislation into law a few moments later.

    To quote from a little known web site (which contains said photos): “How Sweet It Is (For The Few)—Gramm-Leach-Bliley Act of 1999 [passed by Congress in veto-proof form on November 4, 1999 (House 83.2% Yea & Senate 90% Yea) and signed into law by President Bill Clinton on November 12, 1999] conflicts with the anti-stupidity Articles, Sections & Clauses of this Constitution for the United States of America—Repealed those portions of the Glass-Steagall Act of 1933 that prohibited consolidating the operations of commercial banks (deposit banks), investment banks, securities firms and insurance companies into financial services conglomerates…thereby precipitating the subprime mortgage-backed securities meltdown of 2007-09 and still counting.”

    OKJack™Group™
    Middle & Working Class Disabled American Veterans
    We Paid the Dues that Aren’t Required!™

  3. Matthew LoFiegoon 11 Oct 2010 at 7:05 am

    Thanks Jack, and thanks for continuing to keep this discussion alive. You have helped to give us a great deal of information and I appreciate it. We’re playing a wait and see game with the elections, the congressional dances being played and all the other factors that are going into it. Unfortunately, there has not been any movement on the tax extensions so there hasn’t been much to report.

  4. OKJack™Group™on 07 Nov 2010 at 3:21 am

    We, a small research group of Veterans, four days ago sent a message encouraging Washington democrat and military-friendly representative, Adam Smith, to sponsor TRICKLE-UP income tax legislation during the lame duck session of the House—legislation that can easily be passed by a mere 51% of the House and likewise only 51% of the Senate [simply bypassing the obstructionist republican senate minority of 41% led by Mr. McConnell, while getting the jump on the upcoming obstructionist republican house majority (of a mere 9% or less) that will most likely be orchestrated by Mr. Boehner].

    This “McConnell business” of spending four irreplaceable years of OUR (i.e., your and our) LIVES attempting to hamstring the Obama (or ANY) presidency is similar to what happened when Mr. & Mrs. Clinton were individually or together being “investigated” by a republican “independent” counsel for 8 long and bitter years. All the republican party seems to desire is to GRIDLOCK America for the sake of its own wealth, power, privilege and control of our middle & working class Constitutional institutions, i.e., the House, Senate & White House (not to mention the supreme Court…aka Big Business’s legal department). And they keep harping on “saving social security”…which is one of the biggest diversions in the history of the republican party (or any political party). The Social Security Trust Fund is owed $2.5 Trillion in nice, crisp, clean greenbacks!

    Such legislation as we are encouraging would help mightily to create middle class jobs and Small Businesses—and then TRICKLE-UP middle class economic wealth created as a result thereof.

    After all, Reaganomic/Bushonomic TRICKLE-DOWN of privileged class (unsustainable 28% & 35% tax-rate-created) wealth to create jobs, Small Businesses and wealth for the middle class simply NEVER MATERIALIZED over the past 28 years—that is, except in the “fantasies and dreams” of the majority of the middle and working class voting electorate apparently. The latter have proved yet once again [as in ’94, ’96, ’98, ’00, ’02, ’04 (& almost in ’06)] just how much they are in denial about exactly how the American Dream is actually achieved, i.e., NEVER from the privileged-class top down…but ALWAYS from the middle/working-class bottom up! There is no free lunch [except for millionaires and billionaires paying a top marginal rate of no more than 28% (Reagan); 31% (Bush 41); 39.6% (Clinton) & 35% (Bush 43)]. Up until 1963, the top marginal rate was 91%, and one heck of a lot of middle class jobs were being created along the way, as a matter of fact (while America’s bills also got paid)!

    When any vote-toting or vote-slinging member of the middle & working class electorate says that privileged class-controlled Big Businesses create jobs from the top down…well…they are in denial as to where 75%-80% of America’s jobs and economic wealth really come from—and that is straight up from the bottom through the creation of middle class-controlled Small Businesses and middle class jobs!

    The U.S. progressive income tax system enabled America’s middle class to grow and prosper from 1913 to 1963 (shrinking thereafter). How did this prosperity occur? Well…the middle class paid little or no income tax during that half century—while the wealthy class paid ALL of America’s bills and minimized America’s debt (and DID NOT borrow from the Social Security and Military Retirement trust funds!).

    On the other hand, we middle & working classers certainly did our part. Right? Yes, definitely…by risking and sacrificing our lives and limbs, sight, hearing and mental & physical health on foreign battlefields through two world wars, the Korean Civil War (the north backed by China)—and numerous counterinsurgencies to include Vietnam, Iraq and Afghanistan.

    In the process of implementing our TRICKLE-UP income tax proposal, the middle class would reboot itself and open its doors to the working class…thereby opening the the doors of the working class to the poor who want to work at jobs besides being the “fry person” or “shake person” at a burger joint. Although frying potatoes and mixing milk shakes are honorable enough, these are not the same quality of family jobs that Big Business has for decades now, exported overseas to where 75%-80% of the consumers of Big Business’s products and services live and work (for guess who…Big Businesses).

    Middle & working class America has become but 20%-25% of the market for America’s Big Businesses—and likewise only 20%-25% of its job base! Because of this, the question that could easily be asked is whether Coca Cola, IBM, etc. are really “American” anymore. The answer to that question is a resounding “no”. They have become what is called “global”. And in the process, they hardly pay any U.S. business income taxes anymore! And of course, 75%-80% of their employees don’t pay U.S. individual income taxes either! One could say as a matter of fact, that the income taxes a Chinese employee of Coca Cola pays to the Chinese government enables China to loan money to the U.S. government to send out tiny little income tax refund checks that don’t mean a hill-of-beans to the average American!

    This is a ridiculous, unsustainable and downright messy situation that blurs the future of our great nation!

    We just want to emphasize the terms “global” and “Big Business”—as such so called “American” companies have net worths that are as much or more than some individual small countries. And Big Business’s CEO’s and boards of directors are more interested in the long-term health of their global corporations (and their investors, many foreign) than they are in the long-term health of the United States of America. That’s just the way of it.

    Apparently, however, the middle and working class voting electorate hasn’t figured that out yet. But then, look who is keeping them informed. Yes, we’re speaking of Big Business’s PR firm—none other than (collectively) the Big Business Media (and is that really a surprise?). After all, look at who controls television, radio and the internet!

    We encouraged President Obama, Mrs. Pelosi and Mr. Reid to pursue a “Revenue Act of 2010” before the election—and it didn’t happen. That was a major miscalculation on their part in our opinion. Instead, something else happened. And we all know what that “something else” was, i.e., the beginning of what will soon be the worst gridlock to face “We the People” since Newt Gingrich faced off against Bill Clinton beginning in 1994 (Dennis Hastert inheriting Mr. Gingrich’s mantle as House Speaker and thereafter preventing Full Concurrent Receipt, for instance, from ever coming to the floor of the House for an up or down vote).

    And look at the “ride” that Bush/Hastert/Lott/Daschle(D)/Frist took us for…we, the middle class & working class…and particularly between October 2007 and February 2009 when we lost 54% of the value of our IRA’s and 401(k)’s…and most particularly when 6.5 million of us lost our jobs and closed the doors of our Small Businesses, many of those jobs and businesses lost forever!

    In our TRICKLE-UP proposal, there would be a single tax rate for middle class individuals and Small Businesses with taxable incomes (after exemptions/deductions and expenses, respectively) below $350,000—that single tax rate being a Reaganesqe (e.g., simple-to-understand) 10%, i.e., what has been the historical average bottom marginal rate since 1913. The present 10% threshold is a mere $16,750—nothing more than a “political token” or “crumb” thrown out by the Bush administration and republican congress in 2003—basically nothing more than a gimmick (similar, as a matter fact, to the gimmickry of small refund checks borrowed from China (or printed & minted) and sent out by the Obama administration during the past 22 months). The selling of the latter as “bona fide tax cuts” by the Obama administration has been…well…almost laughable.

    We call our proposal TRICKLE-UP, because middle class jobs would be created by middle class Small Businesses, and these Small Businesses would reboot and rebuild 75%-80% of the U.S. economic base (their present overwhelming slice).

    Those above the single threshold of $350,000 would (while benefiting from the $35,000 maximum income tax below $350,000) pay a top rate of 70% (the historical average top marginal rate since 1913). So, instead of the present unsustainable effective rate of 32% for the first $1 million in taxable income/net profits, the effective rate for that $1 million would increase to 49% (10% below $350,000 and 70% above $350,000).

    This 2-rate, single threshold tax rate schedule is the best of both worlds for the U.S. economy.

    That is, those individuals and Big Businesses making more than $350,000 would over the long-term pay down the $1+ Trillion deficit and the $13.5 Trillion U.S. Public Debt (and repay the $2.5 Trillion owed by the federal government to the middle and working class Social Security Trust Fund—$1.5 Trillion of that borrowed from the SS Trust Fund for federal operating expenses just since 2001). Those individuals and Big Businesses with taxable incomes/net profits greater than $350,000 would also repay the $2 Trillion owed by the federal government to America’s other trust funds, e.g., MILITARY RETIREMENT. In other words, $4.5 Trillion of the oft recited $13.5 Trillion U.S. Public Debt was borrowed during the past 30 years from trust funds what were never intended to be touched (yes, that’s why they call them “trust funds” in the first place, Mr. & Mrs. Middle & Working Class America). And one of the greatest burdens on these middle & working class trust funds over the past 28 years has been to pay for much of the unsustainable reductions in the top marginal income tax rate for the wealthy class.

    On the other hand, those making less than $350,000 would create the Small Businesses and 75%-80% of middle class jobs that would in turn create wealth for both the middle class—and for the wealthy class to share in as well—over the next 6-14 years.

    As America re-prospers from the dire economic prospects that it now faces…everybody would share in that rebooted prosperity in the long-term, i.e., share in America’s return to an economic glass that is full. For millionaires in the long-term, 51% net (49% effective tax rate) of a glass that is full or nearly full (1/1) is exactly the same as 68% (32% effective tax rate) of a glass that is only 3/4 full (also 51% net)—and certainly much more desirable than 68% of a glass that is but 1/2 full (34% net)—as U.S. middle class wealth and economic output appear to be (since at least 2007).

    Regardless, the wealthy class would not be able to hold on to and hoard (and gamble with) middle class wealth, as it has been doing for the past 28 years—when the top rate was cut by 60% [the traditional average of 70% down to 28% (Reagan), 31% (Bush 41), 39.6% (Clinton), 35% (Bush 43)]…while the bottom rate was raised by 65% (from an effective rate of 9.1% up to 15%…the present historical 10% bottom rate being of little or no use or benefit to the middle class and Small Businesses because of its present low threshold of a mere $16,750).

    If the lame duck session (still controlled by the democrats) and President Obama compromise by retaining the present 2003 Bush tax rates and brackets (thresholds)—then it will be obvious to us that neither the government’s wealthy class nor the private sector’s wealthy class (both of the triple “private-public-media” sector revolving door fame) really care what happens to the Unites States of America in the long-term.

    It is time for greed to come to a screeching halt!

    It is time for a resurgence of REAL patriotism—even if only that of the privileged class wallet, pocket book & purse genre. Otherwise, we all might as well kiss our proverbial you-know-whats goodbye—since we will no longer be able to foot the bill for the strongest and most effective U.S. Armed Forces that the world has ever known (and of necessity rightly so to be that strong!).

    OKJack™Group™
    Middle & Working Class Disabled American Veterans
    We Paid the Dues that Aren’t Required!™

  5. CDR JC West USCG(RET)on 12 Jan 2011 at 9:30 pm

    I encourage you to reread the earlier comments of Col Rogers. You are not only UTTERLY WRONG but in direct violation of your charter. You’ve spent altogether too much time inside the capitol beltway so you can no longer distinguish between the compromises you feel you must make with anonymous congressial staffers to accomplish your political objectives and the lies you must tell your members to keep them sending in money. Whining and wringing your hands and crying MEA CULPA does not constitute a correction.

  6. CDR JC West USCG(RET)on 12 Jan 2011 at 9:34 pm

    Sorry for the typographical error– the adjective is, of course, “congressional”

  7. Matthew LoFiegoon 13 Jan 2011 at 9:28 am

    Lesson learned and changes made in terms of tone and political prognostication, Commander. But I was not utterly wrong on the predictions, as we saw Congress extend the tax breaks, saw a special bill to help small businesses and there was no ‘Historic’ wave of tax increases on January 1st. I take great exception to the statement that I lied to members to get them to send in payments. The mission of this blog is to calm fears and correct inaccuracies that are being transmitted. If I were being dishonest for the purpose of membership dues, you would see a good deal of fear mongering and actual distortions.

    The current talk of Defense cutbacks and personnel benefits reductions mean that earned entitlements are under real attack, and that is being worked on by our Government Relations team.