The officials said the resulting increase in revenues, estimated at $318 billion over 10 years, would account for about half of a $634 billion "reserve fund" that Mr. Obama will set aside in his budget to address changes in the health care system. The other half would come from proposed cost savings in Medicare, Medicaid and other health programs.

Side Question: When's the last time a government successfully maintained (i.e., did not promptly raid) a "reserve fund"? Do we really need to cite the fictional Social
Security "trust fund" yet again? Or all those "rainy day funds" that state and local governments never established and therefore can't draw from now that it's, um, "raining"?

But there's actually something much more pernicious in the administration's tax package:

Administration officials said Mr. Obama would propose to reduce the value of itemized tax deductions for everyone in the top income tax bracket, 35 percent, and many of those in the 33 percent bracket — roughly speaking, starting at $250,000 in annual income for a married couple.

Under existing law, the tax benefit of itemizing deductions rises with a taxpayer's marginal tax bracket (the bracket that applies to the last dollar of income). For example, $10,000 in itemized deductions reduces tax liability by $3,500 for someone in the 35 percent bracket.

Mr. Obama would allow a saving of only $2,800 — as if the person were in the 28 percent bracket.

The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions.

Consider that proposition for a moment.

Take a hypothetical: Taxpayer 1 has in the past earned exactly twice as much as Taxpayer 2. But this year, Taxpayer 1 and Taxpayer 2 each earn an additional $100, and each donates $20 of that increase to a qualified charity.

The White House's position is that it is perfectly permissible (indeed a moral imperative) to impose a higher marginal tax rate on Taxpayer 1 than on Taxpayer 2 on the way up, but that "it is unfair" to backpedal that unequal treatment on the way down (i.e., by applying the higher marginal tax rate to the charitable contribution). Even if Taxpayer 1 donated the entire extra $100 to a qualified charity, he would still have to pay a higher tax than had he not received the $100 in the first place. Anything else, the Obama Administration insists, would be "unfair."

Call it the Ratchet Theory of Income Taxation: Tax policy must be crafted such that every single action a higher-income taxpayer undertakes must increase tax progressivity. No action by a taxpayer, no matter how economically (or "socially") useful, even under the government's own policies (e.g., encouraging charitable donations), can ever be allowed to result in decreased progressivity.

(Note: Not decreased revenue, but merely decreased progressivity. Because "income inequality" — no matter what underlying factors cause it, and even if it only means the poor get richer but not as much as the rich do — is increasingly the fundamental, and occasionally manic-obsessive, concern of the Fringe Left.)

It's quite simple really: It's one thing to punish success, which is what progressive taxation does. But if you take it too far and instead punish every action, even the "correct" actions, that the successful undertake, simply because they're successful, then expect them to eventually stop acting altogether.

Previously:
–Does Progressive Taxation Really Help the Poor?
–Progressive Enough For You?

After being dealt a rare public embarrassment by the City Council, which forced his administration to acknowledge on Monday that he was legally required to send out $400 rebate checks promised to hundreds of thousands of New York homeowners, a defiant Mr. Bloomberg said on Wednesday that he had no plans to release the money.

At a news conference, Mr. Bloomberg described the rebates as "up in the air." Asked what he would tell homeowners who have been depending on the money to pay bills or buy holiday gifts, he responded: "Plan for the worst, and hope for the best."

When pressed, the mayor said: "I just answered your question. You just don’t want the answer."

To be clear, I have always been and continue to be adamantly against the rebate, which is nothing more than a stealth layer of progressivity quietly superimposed upon property taxes.

But that's not the point — this is: The rebate law was duly enacted and its terms are unambiguous — even the mayor's office admits that there is no bona fide dispute on that question.

And still Bloomberg tells the City Council, and taxpayers, to go screw themselves. He'll do whatever he damn well pleases — because, in case you forgot, he's in charge.

This is the most unrepentant display of unbridled anti-taxpayer political hubris I've seen since Alaska Representative Don Young's infamous "my money, my money" tirade on the House floor.

But if anyone can "out-Young" Don Young, it would be the insufferable Michael Bloomberg. As chronicled in the Times exposé (and of course on this blog), Bloomberg never hesitates in, and indeed seems to enjoy, dismissing his constituents as whiners, obstructionists — or just plain idiots.

So I ask again, in the wake of Bloomberg's recent, dishonorable end-run around term limits: four more years of this?

The "Best" (i.e., Worst) of Bloomberg:
–NYC's Tax-and-Spend Microcosm
–"Just Plead Guilty"
–Bloomberg: "Poor Get Better Health Care Than Rich"
–Bloomberg Decries Tax Breaks for Opponents While Championing Them for Supporters
–"Be Glad We Don't Take It All"
–Latest Bloomberg Election Stunt: Senior Rents
–Bloomberg: Ban Campaign Contributions by Businesses
–Still Think Bloomberg's Not a "Typical Politician"?

Powerful House Democrats are eyeing proposals to overhaul the nation's $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.
…
Under [the] plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

Of course, the bulk of the outrage from this story, at least that I saw, was over that last part. For two reasons. First of course is its deliciously leftist, soak-the-(nowhere-near-)rich class warfare. (Do you really think a Wall Street CEO gives a hoot in heck about the tax implications of her annual $15,500 401(k) contribution? The 401(k) is a program for the middle class, not the "obscenely" wealthy.)

Second is the sheer inaccuracy of the proposal's premises. The tax benefit of a 401(k) or similar vehicle is tax deferment, not tax reduction. The money gets taxed when it's withdrawn rather than when it's earned. Oh the inequity!

(Yes, I'm aware that if the holder of a 401(k) account has the impudence to die before he withdraws the money, then the corpus of the account will generally escape income taxes. But do progressives really hate people so much that they damn them for dying prematurely? I would hope not.)

In any event, I was less astonished by the proposal regarding eliminating 401(k) tax advantages than with the proposed replacement program: A new, government-run mini-account that workers would fund from their paychecks. A new payroll deduction that would not revert to the government and would not buy an poorly performing life annuity to commence in the distant future and backed only by the full faith and credit of the United States Government. This new program would instead stay in a fully vested account, owned by the worker, presumably fully accessible and controllable upon retirement and transferable to the worker's estate in the event of her pre-retirement death.

Excuse me, but isn't that partial privatization of Social Security? The same sort of partial privatization that liberals denounced as dangerous and indeed evil?

This proposal (which, incidentally, is just a proposal — jawboned by a partisan academic in a backwater congressional hearing; there is no bill under consideration, nor is there likely ever to be one) is barely distinguishable from the Bush administration's proposal; the backbones of the two programs are essentially identical.

The only differences between the Bush proposal and this version are:

1. The Bush proposal was voluntary; this proposal is compulsory.
2. The Bush proposal would not have repealed or crippled 401(k) vehicles (i.e., the Bush plan pursued the policy goal of "fostering retirement saving" while this proposal pursues the policy goal of "class warfare").
3. The Bush proposal would have given participants greater control over how to invest the new accounts — stocks, bonds or cash, depending on risk tolerances; this proposal forces participants (i.e., everyone) to buy government bonds that pay a rather measly 3% coupon.

Some things never change, including the ability of politicians and central planner wannabes to damn the opposition for an idea, only to later repackage and praise it as their own.

Concurrently via Crime & Federalism and Below the Beltway.

Of course, as is always the case, year after year, one has to read a bit further down to find any mention of the flip side of that annual (and automatic) increase:

Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $106,800 from $102,000. Of the estimated 164 million workers who will pay Social Security taxes in 2009, about 11 million will pay higher taxes as a result of the increase in the taxable maximum.

So much for Barack Obama's pledge not to raise taxes* on anyone making less than $250,000 per year. Of course, he doesn't have to raise your taxes* — the government already does it for him automatically.

Additionally, so much for Obama's vague plan for a "donut hole" in Social Security taxes. Recall that I raised the question of the automatic increases in the wage cap back when the "donut hole" was first mentioned: Would the upper end of the "hole" increase automatically as the lower end increases automatically, or would the automatic increases merely shrink, and eventually eliminate, the "hole"?

In reality, you don't here much about the "donut hole" from the Obama campaign anymore. Instead, we get assurances from the candidate of "change we can believe in" that there will be absolutely no change in Social Security, under any circumstances, ever:

Despite the cries of privatization proponents, Social Security is not in crisis — it has a manageable cash-flow issue that we can ably solve over the upcoming years and decades.

Obama is confident that we can come together to find a workable solution. He believes that one strong option to improve Social Security's long-term solvency is asking people who earn more than $250,000 to pay a little more into the system. But Obama will not raise the retirement age or reduce Social Security benefits.

Even more important, Obama strongly opposes the privatization schemes that George Bush championed; Americans' retirements should not be subject to the whims of the stock market. Social Security is one of the most successful government programs in our nation's history.

Some hasty stitches, none of which are new:

• The next time you can't pay your bills, thanks to your own fiscal recklessness (say sometime around 2017), tell your creditors — as this Obama operative tells taxpayers — that you face, not a "crisis," but a "manageable cash flow issue." See how far it gets you.
• If one insists, ex ante, that raising the retirement age or reducing benefits are not options, then only two other options remain: raise taxes or raise the deficit. This, apparently, constitutes "ably solving" the (non-)crisis.
• What, exactly, constitutes "a little more"? (And while we're on the subject: What, exactly, constitutes "asking"?)
• Regardless of how much constitutes "a little more," how is it moral to "ask" the people who already pay almost all the taxes* to do all the "little more paying"?
• Would the "little more" that Obama would "ask" the highest-income taxpayers to pay into Social Security earn them higher benefits? If so, then how does that (i.e., taking in more, only to pay out more) address the underlying problem? If not, then how is it not naked, brazen, class-warfare income redistribution?
• Why is the Obama campaign lying and fear-mongering by suggesting that a voluntary, partial privatization reform plan "scheme" would (a) not be voluntary, (b) not be partial, and (c) necessarily entail investing in "the whims of the stock market" (as opposed to, e.g., money market and other low-risk investment options)? Is lying and fear-mongering "change we can believe in"?
• What, exactly, is the basis for claiming that Social Security is "one of the most successful government programs in our nation's history"? How does burdening the working poor with a 12.4% payroll tax, with no deductions or exemptions, constitute a "success"? Is vacuous chanting of tired (and false) bromides "change we can believe in"?
• Oh, and what happened to the "donut hole"?

—

*I've been enjoying the rather comical exchanges recently between supporters and opponents of Obama, fencing over talking point terminology regarding who pays "taxes." There is, of course, plenty of truth, half-truth and falsehood to go around. Here are the true facts:

• Approximately 32% of households, representing over 40% of the population, have no federal income tax burden.
• You cannot "lower income taxes" for those who pay no income taxes.
• You cannot give an income tax rebate to those who pay no income taxes; you can only give them welfare checks.
• The working poor (most of whom, remember, pay no federal income taxes) do pay other federal taxes: most notably Social Security tax and Medicare tax, but also federal gasoline tax, excise taxes and other taxes (hence my use of "taxes*" where what is really meant are "income taxes").
• Those Obama supporters who have been so quick to point out the asterisk in "taxes*" (i.e., that the working poor do indeed pay federal "taxes") are the same apologists for Obama's sotto voce ("ask" them for "a little more") class warfare on income tax policy and Social Security (non-)reform. I suppose Obama believes, as did Emerson, that a foolish consistency is the hobgoblin of little minds.

—

Previously:
–Has Social Security Been a "Success"?
–The Working Poor, Retirement and Social Security
–Questions — Special "Obama Donut Hole" Edition
–Obama's "Little Bit More" for Social Security

Without savings, low-wage workers will have to rely on other sources of retirement income, such as Social Security and pensions. Yet these sources of retirement income are based on earnings. The Social Security benefit formula replaces a greater share of earnings for low-wage workers than for higher-wage workers, but low-wage workers will still have lower benefits than their higher-wage counterparts.

Can you identify the missing word in that text? That's right: taxes.

The reason higher-income workers receive higher Social Security benefits is because they pay higher Social Security taxes.

As I've blogged repeatedly: Social Security can either be viewed as a form of compulsory retirement savings or as intergenerational welfare. It cannot simultaneously be both. (It can be presented, by the government or its apologists, as one or the other depending on the context or the audience, but it cannot be both at the same time.)

If we (i.e., the majoritarian mob) decide that no one should have a low-income retirement, then fine: Let's scrap the current Social Security scheme altogether and replace the current "lifetime earnings" benefit formula with a single, poverty-eliminating old-age pension — paid equally to all elderly regardless of their lifetime earnings. Simultaneously, we would abolish FICA taxes (which, recall, have no exemptions or deductions) and raise federal income tax rates by an appropriate amount to make the transition revenue-neutral.

The only thing standing in the way of such a reform plan is the unwillingness to admit that this would turn Social Security into intergenerational welfare. That was unacceptable in 1935, and it's unacceptable now. Social Security, to remain politically viable, requires the continued insistence that people "earn" benefits via dedicated taxes. With the corollary truth that some people will pay more taxes and therefore earn more benefits.

You can't have your retirement cake and eat it too: Either Social Security is a government-imposed, government-run retirement savings plan (in which some people will put in and get out more than others) — or it's the dole, complete with the stigma that attaches to being on the dole. It cannot be both.

And my challenge to Social Security's apologists remains on the table: Anyone who claims to champion the plight of the working poor must also champion the reform of a system that seizes one-eighth of the working poor's paychecks — week in, week out — over their entire careers. Anything else is simply irrational.

Go back to the quote: "Without savings, low-wage workers will have to rely on other sources of retirement income, such as Social Security and pensions." Absolutely correct. But the first and greatest impediment to saving is taxes — 12.4% of an entire paycheck is a lot of money that could have been saved, had it not been for Social Security.

Previously:
–Has Social Security Been a "Success"?
–Questions — Special "Obama Donut Hole" Edition
–Some Thoughts on American Poverty
–"Comment Left Elsewhere" of the Day (Means-Testing Medicare)
–Socialized Medicine: More on Means Testing

Democratic presidential candidate Barack Obama on Friday called for a $1,000 "emergency" rebate to consumers to offset soaring energy costs amid fresh signs of a struggling economy with the nation's unemployment rate climbing to a four-year high.

Obama told a town-hall meeting the rebate would be financed with a windfall profits tax on the oil industry.

Naked, shameless vote-buying, $65 billion worth, of the nation's economic illiterates, most of whom do not pay federal income tax (hence the calculated couching of the electoral bribe as a "energy rebate" rather than as a "tax rebate"), most of whom do benefit (indirectly if not directly) from the well-earned profits of the (already record taxpaying) "big bad oil companies."

Good grief, why not just drop money from helicopters on Election Day? It would be far less disingenuous and therefore far more ethical.

Oh right, I forgot: Obama is a politician — has been all his adult life. "Ethical" is therefore never part of the equation.

Never.

Previously:
–Return of the "Liberaltarians"
–Where Does One Draw the "Liberal-tarian" Line?
–Must Be the Ice Caps Melting

(Click to enlarge.)

(Click to enlarge.)

There are many moving parts to the federal tax apparatus between now and 2011 — many of which can be invoked (i.e., distorted) by the campaigns. For example:

The tax cuts passed since 2001 have reduced the overall progressivity of the federal tax system with the notable exception of the stimulus package passed in early 2008. The tax rebates in the stimulus legislation are in effect for 2008 only, however, and so the progressivity of the tax system will decline markedly in 2009 and 2010 as effective tax rates rise substantially for lower and moderate-income households. At the same time, effective rates will fall for high-income households as the repeal of the limitations on itemized deductions and personal exemptions and the complete repeal of the estate tax become fully phased in. Finally, almost all provisions of the 2001–06 tax cuts are set to expire at the end of 2010. Barring legislative action, effective tax rates will therefore rise across the income spectrum in 2011. The largest increases will be in the upper income classes and so the tax system will become more progressive in 2011 unless the tax cuts are made permanent.

The point is that there will be enough isolated elements that will have such-and-such effect on somebody's tax rate or somebody else's revenue projections that there will be no shortage of talking points for both Republicans and Democrats this election season.

And don't forget — as PAYGO-constrained Democrats such as Charlie Rangel wish they could — about the Alternative Minimum tax:

Another driving force behind the changing distribution of the federal tax burden between 2008 and 2010 is the continued expansion of the alternative minimum tax (AMT). Under current law, the AMT will affect an estimated 26.9 million taxpayers in 2008 and 33.4 million in 2010, while AMT revenue is projected to grow from $87.7 billion to $124 billion over that period.

Ironically, the super-rich tend not to pay any AMT, since their ordinary federal income tax is already so high. (Remember, the AMT is not a surcharge, but merely a tax floor — one that most of the super-rich are already well above.) This, like the Social Security and Medicare crises, is not new news.

In any case, there are three enduring takeaways from this latest analysis:

1. Federal tax rates have long been, are now, and will continue to be obscenely progressive.
2. Federal tax shares contradict the class warfare propaganda that "the rich don't pay their fair share."
3. The working poor are burdened not by federal income taxes but by Social Security taxes.

It is simply impossible to reconcile Barack Obama's increasingly hostile leftist rhetoric, and his (disingenuously labeled) "little bit more" policy proposals — with those three irrefutable axioms. While McCain practically boasts about his lack of understanding of economics altogether.

Should be quite a campaign.

(Click to enlarge.)

I don't necessarily dispute the accuracy of UI's data (but see my note below) — in a semi-capitalist semi-meritocracy such as ours there is simply going to be income inequality. Having said that, any time series analysis of income inequality in the United States will inevitably be flawed for two reasons:

1. Such studies ignore the astounding mobility of income segments in the United States over time. The individuals in the top 1% of incomes in 2002 are not the same people who were in the top 1% in 1979. The same cannot generally be said about socialist economies, where "class" is a far more enduring concept.

2. Worsening income inequality in the United States does not mean that "the rich get richer while the poor get poorer. It means that the poor get richer, just not to the same extent as the rich get richer.

In any case, I'm more interested in the change in tax progressivity represented by UI's numbers. (NOTE: Here I actually am annoyed with UI's data, because they never specify exactly which taxes they're talking about. I'm presuming they mean the three major federal individual taxes — the federal income tax, the Alternative Minimum Tax, and the federal gift and estate tax. Of course, the highly progressive nature of Social Security benefits, not to mention the progressivity of state and local taxes, mean that any analysis of federal tax progressivity will be understated.)

Here's a table showing tax progressivity (i.e., pre-tax share of income minus after-tax share of income) in both 1979 and 2002. A negative number means the segment is burdened by progressive taxation, while a positive number indicates the segment is benefiting from progressivity:

(Click to enlarge.)

The column labeled "Change" shows how much worse the progessivity burden has grown from 1979 to 2002 (so, again, a negative number is bad).

Some hasty stitches:

–Progressivity has increased for high-income segments. The idea that "the rich don't pair their fair share" is simply false.

–Note who benefits from tax progressivity: not the poor at all, but the middle 20%. To some extent this is not surprising, since the lower 50% of households pay no income tax. It's hard to get more progressive than "the poor pay zero."

Meanwhile, look at the middle 20% row (i.e., the middle class). They are actually beneficiaries of progressive taxation, not contributors to it. And the taxation subsidy they are receiving has increased during the 1979-2002 period. Indeed, not only is the tax burden of high-income households rising to subsidize the middle class, but so is the relative tax burden of the poor — all to support the middle class, not the rich.

The pending retirement of the Baby Boom generation, not to mention the new Medicare prescription drug benefit will only exacerbate this trend, as would the expiration of the Bush tax cuts.

If you care about the poor, then it's not the rich you should be indignant towards, but the middle class. They are the ones who, to use the obnoxious lexicon of the progressives, "don't pay their fair share."