April Fool’s Budget Relies on Inconsistent Tax Rates
The April Fool’s Budget released today contains, naturally, generous tax cuts for the wealthy. One such tax break is that they propose to offer Americans a “choice” between the current tax system, or else you could choose to pay a marginal tax rate for income up to $100,000 of 10 percent and 25 percent for any income thereafter.” Since right now the top marginal tax rate is 35 percent, that would be a huge tax cut for wealthy Americans. And of course wealthy Americans would choose the option that’s cheaper for them. This would sharply reduce government revenue and lead to large budget deficits.
But one of the April Fool’s Plan’s conceits is that it’s supposed to produce low deficits. How to accomplish that? Well, Ryan Grim points out that one thing Paul Ryan did to make the math work out is assume people would choose to pay the higher rate:
But the real way that Republicans offer the tax cut without factoring it into the budget’s revenue is to suggest that Americans won’t actually take advantage of the lower rates. Instead, the GOP budget permanently extends President Bush’s 2001 and 2003 tax cuts. A Republican budget committee aid said that the revenues assumed in the GOP budget are based on the current tax structure that resulted from those cuts. [...] Under the current tax code, an individual making more than $160,850 pays a 33 percent rate; under the Republican plan, that taxpayer could choose to pay 25 percent instead. (For a family, the income threshold is $195,850.) For a family earning more than $349,700, the rate rises to 35 percent, but filers could still choose the 25 percent rate.
It would be nice to have a real debate between progressive and conservative ideas about the course of public policy instead of needing to spend all this time hunting around for gimmicks.
24 Responses to “April Fool’s Budget Relies on Inconsistent Tax Rates”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
April 1st, 2009 at 4:08 pm
Sneaky bastards, aren’t they? Or perhaps it was just carelessness on their part.
April 1st, 2009 at 4:17 pm
having a real debate between progressive and conservative ideas requires that honest conservatives emerge from hiding. the people who speak for conservatism today work in the field of propaganda….
April 1st, 2009 at 4:21 pm
So the lower rates will result in people working harder to take advantage of the extra money they would get, but the when April rolled around, they’d decide to pay the higher rate anyway. Doublethink as budget planning policy.
April 1st, 2009 at 4:21 pm
We can balance the budget without raising taxes by…hey, look over there, is that black person filling out a mortgage application?
(Runs out nearest door, jumps into waiting car).
Man, that was CLOSE!
April 1st, 2009 at 4:40 pm
Typical Republican deficit spending. When will they stop mortgaging our children and grandchildren’s future??
April 1st, 2009 at 4:42 pm
These people must think everyone is retarded. How can they possibly expect the rich folks who will have every CPA toiling over the tax code to find every loophole, would somehow accidentally end up paying 35% instead of 25%?
Only poor people, rushed for time, without access to professional tax help, end up making those kind of “mistakes.”
April 1st, 2009 at 4:51 pm
If we just do away with taxes on the rich, I’m confident that they would patriotically make cash gifts to the federal government that exceeds their current taxation.
Can I be on TV now?
April 1st, 2009 at 4:54 pm
Oh, so THAT’S how the Laffer Curve works!
Thanks, Njorl.
April 1st, 2009 at 4:55 pm
Thats a pretty cool trick. Obama should propose an alternative tax rate of 95% that people can pay if they choose. Then assume everyone pays that tax rate and we can balance the budget and pay off the debt in his first term!
April 1st, 2009 at 5:15 pm
It would be nice to have a real debate between progressive and conservative ideas about the course of public policy
We did. Last year. I seem to remember winning.
April 1st, 2009 at 5:19 pm
@12, that would assume that there was a real debate. “Tax cuts tax cuts pork pork pork” is not a debate.
April 1st, 2009 at 6:10 pm
@13 It’s hard to have a real debate when one party’s proposals aren’t even internally consistent.
April 1st, 2009 at 6:38 pm
Let me take a break from the snark to ask a meta-question: why in the world did the GOP decide to release the budget on April 1? The Daily Show headline writes itself. It’s the most easily avoidable PR gaffe I’ve seen since McCain’s not knowing how many houses he has—but the difference is that this is premeditated. If I were a Republican I’d want to sue my leadership for malpractice.
April 1st, 2009 at 8:02 pm
@15 Because paparazzi questions might concentrate on the April Fools aspects and not on the budget. The questions will be easier to deflect. The questions might even allow you to show indignation.
You can blame the paparazzi for missing the central theme and paparazzi will report that they are being blamed for missing the central theme.
And the central theme will slip by unnoticed. Brilliant.
April 1st, 2009 at 8:19 pm
Greg Mankiw claims that the CBO lists effective tax rates (total taxes/total income) at 25.7% for the top 96-99%. So a 25% marginal income rate without deductions seems comparable. Also the fourth quintile pay an effective tax rate of 17.4%. Include social security/medicare to the 10% income tax rate and that sounds about the same as Ryan’s plan. It just reduces loopholes (ie those evil special interests) and employment of a lot of tax accountants/turbo tax workers. Sloppy outrage. The very poor will pay more, but maybe it will fund those additional services Democratic Party members want, so they’ll get the money back in the end.
April 1st, 2009 at 8:48 pm
Maybe we should just point out the little check-box on tax returns where you can indicate that you are contributing cash towards the national debt!
Profit is a gross measure of market inefficiency.
April 1st, 2009 at 8:49 pm
Joe, isn’t this Republican proposal about taxes on ordinary income? I find it hard to believe they’d actually be raising the capital gains tax, and the low tax on capital gains relative to wages is what gives you most of those low rates for the rich under the current system.
April 1st, 2009 at 8:59 pm
In response to # 19. I really don’t know how much each portion of the income pool pays in capital gains, interest income, and dividends. However, the effective tax rates for the wealthiest, who pay smaller percent of payroll taxes, seem to approach marginal income tax rates. So I think effects from capital gains and dividends are probably small. Also, I don’t know about the wealthy (other than those with carried interest which will probably disappear), but I am not getting any captial gains anytime soon. Also former high dividend payers (financials) have been obviously decimated.
April 1st, 2009 at 9:59 pm
Is that really a photo of Paul Ryan or did you morph a pic of Ronald Reagan with one of Alfred E Neumann?
April 2nd, 2009 at 2:09 am
Joe Says:
April 1st, 2009 at 8:59 pm
In response to # 19. I really don’t know how much each portion of the income pool pays in capital gains, interest income, and dividends. However, the effective tax rates for the wealthiest, who pay smaller percent of payroll taxes, seem to approach marginal income tax rates. So I think effects from capital gains and dividends are probably small. Also, I don’t know about the wealthy (other than those with carried interest which will probably disappear), but I am not getting any captial gains anytime soon. Also former high dividend payers (financials) have been obviously decimated.
Obviously this statement is entirely false, as demonstrated by your previous post that the effective income tax rate of the top 96-99% is ~25%, rather than >30%.
April 2nd, 2009 at 2:39 pm
The top 1% pay around ~30% effective tax rates. With exemptions the plan from Ryan might as well be an april fool’s joke.
April 9th, 2009 at 12:13 am
I follow your blog for quite a long time and should tell you that your posts are always valuable to readers.
April 10th, 2009 at 5:50 pm
FANTASTIC!
April 15th, 2009 at 10:34 am
Hey, nice tips. I’ll buy a glass of beer to that man from that forum who told me to go to your site