November 20, 2008

A Real Middle Class Tax Cut

I have had my differences with Speaker Gingrich. Many, many as it happens. But I have always respected his ideas and his pragmatism.

Today, he pens an excellent guest editorial in the WSJ. Gingrich would love to cut corporate taxes and marginal rates on the most productive American workers -- but he watched the elections results and knows that the evil "rich" are not in line under an Obama Administration and 111th Congress. So he suggests stripping the welfare portion of Obama's plan and enacting a real middle class tax cut.

For a real middle-class tax cut, we should cut the 25% income tax rate that now applies to single workers earning $32,550 to $78,850, and married couples earning $65,100 to $131,450. We should reduce that rate down to the 15% rate paid by workers below these income levels. That would, in effect, establish a flat-rate tax of 15% for close to 90% of American workers.

Marginal tax rates for middle-income families in the 25% tax bracket are too high. Add in effective payroll tax rates of 15% and state income taxes, and these workers are laboring under marginal tax rates of close to 50%. No wonder middle-income wage growth has slowed sharply. Reducing the marginal tax rates for these middle-income earners would lead to income increases for middle-income workers, just as reducing excessive marginal tax rates for higher-income workers did, going all the way back to the Kennedy tax cuts of the 1960s.

I think he's got it here. President Obama comes through on a campaign promise, creates a fairer, flatter tax system, provides a supply-side stimulus to the economy (shhh, we won't call it supply-side outside of ThreeSources).

Good politics, good policy, good economics.

Posted by John Kranz at November 20, 2008 12:16 PM

The Refugee is in favor for flat (or "fair") tax proposals and there is a lot of merit to this idea. However, The Refugee is worried more about government spending. He would like to see a proposal to freeze the federal budget for 24 months even more than he'd like to see a tax cut right now.

Posted by: Boulder Refugee at November 20, 2008 12:49 PM

This is conservative populism at its finest, extolling pure economic rubbish. It's something I'd expect from Hucksterbee.

Even with cuts in federal spending, all this does is shift a greater burden to those who are most economically successful -- specifically to single people earning $78,851 or more, and married couples earning $131,451 or more. Because Gingrich doesn't talk about cutting rates for the brackets above, this only exacerbates the already major disincentives to earn anything above the 25% bracket's limits. Not to mention, in major professional areas like New York, Chicago and San Francisco, where government policies keep real estate expensive and state and local taxes sap another several percent of income, $130 grand a year is not a hell of a lot for a family.

Even a true flat tax, which means NO DEDUCTIBLE (otherwise it's a partially graduated tax), is still unfair to those who earn more. Why should I pay a greater number of dollars than my neighbor who earns a lower income yet derives the same benefits from government? Government can afford me no greater protection than anyone else, and it certainly provides me with fewer goods and services than anyone of lower incomes. So even a flat tax is passing the bulk of the costs to those of us who pay the most, hence it's unfair.

But as some of you may recall, my solution is the inverse graduated tax that is part of my "Eidelbus 2012" platform. If there's to be taxation, then it'll will be only on bottom levels of income. The more you make, the less you pay overall in taxes. That's fair because people of lower incomes receive far more from the government -- so let THEM pay for what THEY consume.

Posted by: Perry Eidelbus at November 20, 2008 1:51 PM

The problem, BR, isn't the amount of government spending or the mere fact that it exists. The most fundamental problem is that government can take my money against my will, and use it for someone else's benefit or even give it directly to that other person.

Posted by: Perry Eidelbus at November 20, 2008 1:53 PM

Hahahahahahahahahahaaha!!! You slay me, br!! that's a good one!!

Okay, let me wipe the coffee of my keyboard. No, I would not make that trade. I'm a supply sider to the core and I am more afraid of contraction than debt.

Posted by: jk at November 20, 2008 1:53 PM

No, Perry, Speaker G does voice a preference for tax cuts on more productive people:

Of course, reducing the top income tax rates of 28%, 33% and 35%, capital gains tax rates, and the excessive 35% corporate tax rate, would boost the economy even more. But these are the "hate" rates imposed on those who liberals think are too productive, work too hard, and earn too much. Liberals deride these taxpayers as corporate fat cats and "the rich."

Fine. Leave those rates for a future initiative. For now we should focus on the middle-income tax rates that are attractive to cut in the current political climate.
We are talking art of the possible. Don't know if either of you had a TV set on in early November, but the guys who do not want to cut taxes or spending did really well in elections.

I liked this proposal for pragmatic concerns but also as a new baseline for a flatter structure.

Damn. Tough room.

Posted by: jk at November 20, 2008 2:18 PM

They say that laughter extends one's life and, in this case, there is no additional charge to The Refugee's friend, JK.

The Refugee is mainly concerned about "stimulus" and "fairness" (read: entitlements) that will never, ever go away. The best case for supply-side stimulous is generating enough to pay for the government's largesse. Better to never have the largesse in the first place, thus never have to find creative ways to pay for it.

Posted by: Boulder Refugee at November 20, 2008 2:47 PM

So Gingrich wants to cut the top rates to...what? As I pointed out, even if they're equal with everything else, it means that someone who makes more money will pay more taxes, which tend to give most of their benefit to those who pay the least taxes.

What if Reagan had been pragmatic, believing it was impossible to cut the top rate from 70% to 35%, believing a Democratic Congress would never go along? What if JFK had been pragmatic in cutting taxes, not wanting to alienate his party?

The time for "pragmatism" is over. It's gotten us nowhere. It's time to give government the finger, not accept what trifles it lets us keep.

George W. Bush showed us eight years of "pragmatism" -- working with Democrats to achieve the most bloated federal budget, and the biggest increase in the national debt, since FDR. With the increase in the national debt, I'm merely talking as a % of GDP; in absolute numbers, it's the biggest ever.

Posted by: Perry Eidelbus at November 21, 2008 1:03 AM

The Refugee isn't the only one delivering punch lines. "So he suggests stripping the welfare portion of Obama's plan..." But that is one of the planks on which the man ran his campaign. The administration-in-waiting and the Democrats in congress believe they have a mandate! And even RINO governor Arnold Schwarzenegger capitulates that Republicans "should move away from some of their core principles, those conservative principles and start spending on programs Americans want."

Gingrich's closing argument:

"Because of the highly beneficial effect of these middle-class rate reductions on our economy, and the freedom they would give workers to spend, save or invest their money as they choose, this proposal would likely enjoy broad public support and present a viable alternative to the liberal social purposes of President-elect Obama's tax credits."

Yeah... I can see Rahm Emmanuel pushing this in the oval office. Can't you?

Gingrich's new role is, in my early view, that of "shadow" president to show us what the actual president will NEVER do.

Posted by: johngalt at November 21, 2008 10:44 AM

I repeat: tough room. I repeat: damn.

Perry: President Reagan made a Faustian bargain with Jim Wright: give me my tax cuts I'll give you your spending. As I told br, I'll take that trade today. But you can't say that was principled winner-take-all small government devoid of pragmatism. I'll tolerate a bit of revisionism about our 40th, but you're going too far.

Jg: Obama has perfect cover to blow off that part of his campaign promise: I am delivering a tax cut to all middle class taxpayers (I told you you'd get a tax cut!) but, in this economy, we are going to use more "targeted" methods to deliver relief to Americans in need (Democrats love "targeted;" it provides maximum control).

Plus there are a couple of Republicans left in Congress. This is a sop to them and checks off the promise for "new bipartisanship, working together, Kumbye-frikken-ya..."

A good, pragmatic, workable suggestion to which the GOP can aspire in a rough climate.

Posted by: jk at November 21, 2008 11:11 AM

Please bear with me for a while JK. At the moment I've got the "hoist the jolly roger and begin slitting throats" mentality that says "Please, implement all of the collectivist crap of your wildest dreams so this house of cards can collapse and the producers among us can start building anew." I told dagny, "You need to let go of the idea that our present mixed economy can, or should, be saved." Sounds vaguely familiar doesn't it?

Posted by: johngalt at November 21, 2008 4:00 PM

Perry: President Reagan made a Faustian bargain with Jim Wright: give me my tax cuts I'll give you your spending. As I told br, I'll take that trade today. But you can't say that was principled winner-take-all small government devoid of pragmatism. I'll tolerate a bit of revisionism about our 40th, but you're going too far.

I've always been at the forefront to point out that Reagan "played ball" with the Dems, signing off on their social spending bills in exchange for tax cuts (and to a lesser extent, military spending). However, that wasn't "pragmatic" by any means, but rather a good trick to play on the Dems. What they didn't realize that Reagan's tax cuts spurred such economic growth, resulting in more tax revenue that helped (but didn't completely) pay for the new spending increases. The CBO's data shows that after the necessary recession (resulting from stabiilizing monetary policy) and Reagan's tax cuts were passed, growth in federal outlays exceeded growth in tax revenues in only one year: 1985.

What we have with Bush and Gingrich are token efforts in tax cuts. I want a serious tax cut plan that will inspire Americans, even something "almost there" like Fred Thompson's two-bracket proposal. Remember the urban legend of "640K ought to be enough for anybody" that Bill Gates supposedly said? How about "A top tax rate of 10% ought to be enough for anybody"?

Bruce Bartlett was really right all along. He warned us in "Impostor" all that time ago that tax rebates are crap, and even the 2003 cuts are minor tax cuts compared to what Reagan and Kennedy did. (You didn't address Kennedy, btw.)

Did you ever consider why the GOP retook Congress in 1994? It wasn't because of pragmatism. It's because they took bold steps to present themselves as real conservatives. Sadly, their talk was cheap. Or if you want to be accurate, their talk was paid for by American taxpayers.

On the flip side, do you see Democrats being "pragmatic" now? Hell no: they're full-steam-ahead on their socialism, and they didn't hide it at all in the last two campaign cycles in which they crushed the GOP.

Posted by: Perry Eidelbus at November 21, 2008 4:23 PM | What do you think? [11]