I. Taxes and Deficit Reduction (continued)
The new tax structure premised on a single-payer health care system would be as follows:
The 10 percent and 15 percent brackets would be eliminated and replaced with a 16 percent bracket through $35,000 in taxable income. A 24 percent bracket would apply through taxable income of $70,000. The remaining brackets would be in percentages: 30, 36, 42, 45, 48, 51, 54, 57 and 60.
The too-generous child tax credit of $1,000 per child would be reduced to $500. The Alternative Minimum Tax would be retained but indexed to inflation. The estate tax would revert back to what it was in the year 2000, before the Bush tax cuts. Capital gains would be taxed the same as ordinary income.
Ordinary income is now taxed at 35 percent and capital gains are taxed at 15 percent. Capital gains include profits from the sale of stocks, bonds and real estate.
Some tax experts say that the claim that a low capital gains tax rate spurs investment is murky at best.
Middle-class people who own stocks or bonds tend to stash them in tax-sheltered retirement accounts where the capital gains rate does not apply. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to five percent of the people and about half has gone to the wealthiest 0.1 percent.
Corporations would be taxed at the 1980 rates and provisions, when corporations contributed much more to governmental revenue streams and the nation had enjoyed a long period of economic prosperity.
Four taxpayer situations are provided to show how families would fare under a single-payer health care system with no co-payments and no deductibles. The taxable year of 2010 is compared to the newly proposed taxation system.
I. Family of four filing jointly, with an adjusted gross income of $75,000. 2010- $6,516 tax – $2,000 child tax credit = $4,516 tax payable.
New Structure – $8.960 tax – $1,000 child tax credit = $7,960 tax payable.
Family pays $8,000 in health care premiums and has a $4,000 deductible. Total liability for 2010 is $16,516.
Under new structure the family pays $7,960 in taxes and has no health care liability. Windfall is $8,556.
II. Family of four filing jointly, with an adjusted gross income of $37,500. 2010 – $1,153 tax – $2,000 child tax credit = No tax due.
New Structure – $1,840 tax – $1,000 child tax credit = $840 tax payable.
Family pays $6,000 in health care premiums and has a $4,000 deductible. Total liability for 2010 is $10,000.
New Structure – $840 in taxes and no health care liability. Windfall is $9,160.
III Family of four filing jointly, with an adjusted gross income of $60,000. Family does not carry health insurance. 2010 – $4,266 tax – $2,000 child tax credit = $2,266 tax payable.
New Structure – $5,440 tax – $1,000 child tax credit = $4,440 tax payable.
Family contributes an extra $2,174 to the government to help pay for their otherwise free emergency room care.
IV. Individual taxpayer with $1,000,000 in taxable income. 2010 – $320,308 tax payable. New Structure – $368,700 tax payable. Additional tax is $48,392.
If the taxpayer has a $20,000 “Cadillac” health care premium, he/she can either drop it or continue it because he/she can afford it.
If President Obama had worked for and gotten a single-payer plan adopted, most families now paying a health care premium with deductibles would receive an annual windfall, which would be fairly sizable in many cases.
In conjunction with his jobs plan, unveiled in September 2011, President Obama has begun to make frequent use of the phrase, “fair share”. Anytime the word “fair” is used in a phrase it generally plays well with the general public; however, it tends to make little impression on lawmakers and opinion makers who believe that allowing the wealthy to keep more of their money is a great job creator.
President Obama has utterly failed to make the case of how concentrated has become the wealth and income of the nation. If we were to tax income on the proportion it bears to total annual income in the United States, we would need to add several tax brackets to the current top rate of 35 percent. In actuality, to match federal income tax rates to income distribution, would require top marginal tax rates at 1950 to 1980 levels. Since it is not politically feasible, the top marginal tax rate in the proposed new taxation structure presented in this blog is set at 60 percent.
President Obama is being very imprecise when he uses plumbers and secretaries as comparison models to what some very wealthy pay in taxes. These categories of workers can have widely varying salaries: for example, a secretary in a small school district would very likely earn far less than an executive secretary of a large law firm.
Obama also risks creating a false impression in the general public that he is proposing that rich people should be paying the same rate as plumbers and secretaries. Obama almost certainly means “at least as much” but that distinction can get lost in the public domain.
Another point to be made about Obama’s comparison models is that they are very similar to the Alternative Minimum Tax, adopted many years ago to ensure that wealthy individuals and corporations pay at least some income tax. Ironically, when Obama endorsed the “Gang of Six” plan he also endorsed the provision eliminating the AMT.
The following examples illustrate the minimum tax rates millionaires and billionaires would pay if pegged to the tax rates of illustrative plumbers and secretaries. These examples are based on 2010 tax provisions and the money amounts would be in item 38 of the Form 1040.
Husband and wife with taxable income of $50,000 would pay a 7.7 percent tax rate. A single individual with the same income would pay a tax rate of 12.7 percent. A single individual with taxable income of $65,000 would pay a tax rate of 15.5 percent.
A single individual with taxable income of $100,000 would pay a tax rate of 19.1 percent. A family of four with two child tax credits and a taxable income of $100,000 would pay a tax rate of 8.9 percent.
It can readily be seen that the tax rates would vary widely based on household situations.