Nonstopdrivel
15 years ago

REVIEW & OUTLOOK
NOVEMBER 6, 2009


The Return of the Inflation Tax
 

The Pelosi tax surcharge applies to capital gains and dividends.


All of those twentysomethings who voted for Barack Obama last year are about to experience the change they haven't been waiting for: the return of income tax bracket creep. Buried in Nancy Pelosi's health-care bill is a provision that will partially repeal tax indexing for inflation, meaning that as their earnings rise over a lifetime these youngsters can look forward to paying higher rates even if their income gains aren't real.

In order to raise enough money to make their plan look like it won't add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on. The House tax surcharge is estimated to raise $460.5 billion over 10 years, but only $30.9 billion in 2011, rising to $68.4 billion in 2019, according to the Joint Tax Committee.

[img_r]http://s.wsj.net/public/resources/images/OB-EV305_Pelosi_D_20091105184824.jpg[/img_r]Americans of a certain age have seen this movie before. In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%, according to a Heritage Foundation analysis of tax returns.

These stealth tax increasesforcing ever more Americans to pay higher tax rates on phantom gains in incomewere widely seen to be unjust. And in 1981 as part of the Reagan tax cuts, a bipartisan coalition voted to index the tax brackets for inflation.

We also know what has happened with the Alternative Minimum Tax. Passed to hit only 1% of all Americans in 1969, the AMT wasn't indexed for inflation at the time and neither was Bill Clinton's AMT rate increase in 1993. The number of families hit by this shadow tax more than tripled over the next decade. Today, families with incomes as low as $75,000 a year can be hit by the AMT unless Congress passes an annual "patch."

The Pelosi-Obama health tax surcharge will have a similar effect. The tax would begin in 2011 on income above $500,000 for singles and $1 million for joint filers. Assuming a 4% annual inflation rate over the next decade, that $500,000 for an individual tax filer would hit families with the inflation-adjusted equivalent of an income of about $335,000 by 2020. After 20 years without indexing, the surcharge threshold would be roughly $250,000.

And by the way, this surcharge has also been sneakily written to apply to modified adjusted gross income, which means it applies to both capital gains and dividends that are taxed at lower rates. So the capital gains tax rate that is now 15% would increase in 2011 to 25.4% with the surcharge and repeal of the Bush tax rates. The tax rate on dividends would rise to 45% from 15% (5.4% plus the pre-Bush rate of 39.6%).

As for the business payroll penalty, it is imposed on a sliding scale beginning at a 2% rate for firms with payrolls of $500,000 and rising to 8% on firms with payrolls above $750,000. But those amounts are also not indexed for inflation, so again assuming a 4% average inflation rate in 10 years this range would hit payrolls between $335,000 and $510,000 in today's dollars. Note that in pitching this "pay or play" tax today, Democrats claim that most small businesses would be exempt. But because it isn't indexed, this tax will whack more and more businesses every year. The sales pitch is pure deception.

As for the Senate, instead of the 5.4% surcharge, the Finance Committee bill raises taxes on "high-cost" health care plans. But this too uses the inflation ruse. The Senate bill indexes its tax proposal for the inflation rate plus one percentage point. But that is only about half as high as the rate of overall health-care inflation, i.e., the rate of increase in health-care premiums. So the Joint Tax Committee has found that a Senate tax that starts in 2013 by hitting 13.8 million Americans will hit 39.1 million by 2019.

The return of the inflation tax demonstrates once again the stealth radicalism that animates ObamaCare. In the case of inflation indexing, Democrats would repeal a 30-year bipartisan consensus that it is unfair to tax unreal gains in income, thus hitting millions of middle-class Americans over time with tax rates advertised as only hitting "the rich." Oh, and the House vote on this exercise in dishonest government will come as early as Saturday.


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Zero2Cool (1h) : February 5, 2002 (age 23) ok no. packers.com is wrong
Zero2Cool (1h) : Micah Robinson is only 19??
Zero2Cool (2h) : 6 first rounders on Packers defense now
Zero2Cool (14h) : LB Isaiah Simmons. Signed. Called it!!! Oh yeah!
Martha Careful (14h) : ty bboystyle...fat fingers
bboystyle (15h) : Tom*
Martha Careful (23h) : RIP Packer Safety Tim Brown
beast (27-Apr) : Yeah, but also some of the wording suggestions Jax only pranked called the QB, not the others... and if he had an open spreadsheet & 3 calls
beast (27-Apr) : Thank goodness he's not leaving the Turtle in the Red Tide
Mucky Tundra (27-Apr) : Cowboys 1st round pick Tyler Booker will indeed be bringing his pet turtle to Dallas with him
Mucky Tundra (27-Apr) : that contained all prospects info and contact
Mucky Tundra (27-Apr) : beast, according the Falcons statement Jax came across it on an ipad. If I had to guess, probably an open spread sheet or something
Zero2Cool (27-Apr) : Simmons put up an emoji with cheese.
beast (27-Apr) : Not sure anyone is interested in Isaiah Simmons... Collin Oliver might of taken his potential slot
beast (27-Apr) : I'm going with Jax Ulbrich is not telling the whole truth... he accidentally came across it? Why would a defensive coordinator have a QB #?
Zero2Cool (27-Apr) : He's not that great, but final piece of the script.\
Zero2Cool (27-Apr) : If we add Isaiah Simmons, book your Super Bowl tickets
Mucky Tundra (27-Apr) : Colts 1st round TE Tyler Warren also got prank called, was that Jax Ulbrich as well?
Zero2Cool (27-Apr) : Jax Ulbrich, Jeff Ulbrich’s son, released an apology for his role in the Shedeur Sanders prank call.
Martha Careful (27-Apr) : apparently he did not participate in practice or play on the east west shrine game nor the NFL combine. The kid was a mediocre spoiled brat
Mucky Tundra (27-Apr) : Yeah that one that was a super wounded duck that Sanders supporters are highlighting to prove a point
Zero2Cool (27-Apr) : Shough is the guy who missed guys at combine isn't he?
beast (27-Apr) : It's not official until I'm dead! I have a chance still! (Not really)
Mucky Tundra (27-Apr) : I could feel my body decomposing in real time when I read that
Mucky Tundra (27-Apr) : @MIKEYSAINRISTIL Tyler Shough will officially be the last person drafted to the NFL born in the 1900’s
Mucky Tundra (26-Apr) : saw the tweet, he meant the city
Mucky Tundra (26-Apr) : Was that for the team or the city?
Zero2Cool (26-Apr) : Adam Schefter @AdamSchefter · 3m Draft grade is in: Green Bay gets an A. The people, the city, the venue were all superb. NFL Draft’s next
Zero2Cool (26-Apr) : Matt LaFleur says Jaire Alexander is participating in #Packers offseason program, which has been conducted virtually during this first week
Zero2Cool (26-Apr) : ✅ ...
buckeyepackfan (26-Apr) : Check
Zero2Cool (26-Apr) : Matthew Golden cahanged 81 to 22??
TheKanataThrilla (26-Apr) : Sam Howell to Vikings...guess no Aaron
Martha Careful (26-Apr) : 1 round 7 min, with one extra minute if there is a trade. 2nd round 4 minutes, 3rd -3, 2 thereafter IMO
Martha Careful (26-Apr) : Agree
dfosterf (26-Apr) : Great idea imo
dfosterf (26-Apr) : 1st round to 7 minutes with one extension
dfosterf (26-Apr) : NFL comissioner wants to shorten the 2st
Mucky Tundra (26-Apr) : @jalenreagors They’re discussing if Sheduer can go back to college on NFL Network LMFAOOOOO
beast (26-Apr) : Great point Martha
beast (26-Apr) : Buddy Ryan used to say if a candy bar goes missing, there are two to blame, Rex and Rob 🤪 jk 😁
Martha Careful (26-Apr) : Bum Phillips used to say there are two ways to get better. Get better players or get players to play better. We have a new DL coach
Zero2Cool (26-Apr) : Yes. Look at the losses last year. They can win.
beast (26-Apr) : Can Packers win with their current DL?
bboystyle (26-Apr) : waiting for a pass rusher.
dfosterf (25-Apr) : 5 minutes between picks in the 3rd
dfosterf (25-Apr) : 3rd. Hate this phone
dfosterf (25-Apr) : 4rd
dfosterf (25-Apr) : 5 minutes in the 4
dfosterf (25-Apr) : 7 minutes between picks in the 2nd round
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