The Return of the Inflation Tax

[classicman]

Interesting OPINION piece

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.

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%).

Certainly a partisan piece, but it does raise some interesting points


Link

[TheMercenary]

All part of the big wealth redistribution plan.

Originally Posted by classicman

Interesting OPINION piece

Certainly a partisan piece, but it does raise some interesting points


Link

Interesting? Perhaps to some. A partisan opinion with an agenda? Absolutely.

There is nothing unusual about NOT indexing revenue sources like this.

The surtax is on income over $500K (single) and $1 million (couple) -- personally, I would like to see it lower.

And the employer tax is on companies with payrolls over $750K -- which excludes many of the smallest businesses....and if any of those companies offer insurance through the Insurance Exchange, the companies would get a tax credit.

The notion of it being an "inflation" tax is fuzzy math at its best.

[Spexxvet]

Originally Posted by classicman

... but it does raise some interesting points
....

If the points are true.

Originally Posted by Spexxvet

If the points are true.

Start with a highly questionable assumption of an annual inflation rate of 4% each year over the next ten years as noted in the opinion piece.

Assuming a 4% annual inflation rate over the next decade.....

Then add the fact that the annual inflation rate has been at 4% (or above) only 3-4 times over the last 25 years.

The result is fuzzy math and an intellectually dishonest conclusion.

[TheMercenary]

More Democratic BS talking points. People do not buy this pile of bull shit.

Originally Posted by TheMercenary

More Democratic BS talking points. People do not buy this pile of bull shit.

Here we go again! You must be on auto-pilot.

Economic facts and statistics (Not just Democratic, but Republican as well if you look at the last 25+ years) are BS and a WSJ column based on BS is factual.

The annual inflation rate to-date for 2009 and the relatively comparable CPI are both hovering around 0% for the year.

And NEVER in our lifetime (or as long as economic stats have been recorded) have we had 10 consecutive years of a 4% annual inflation rate.

But its NOT BS for the WSJ columnist to make that assumption.

I honestly dont know if its ignorance on your part, a deep seeded and emotional hatred for anything Democratic (as expressed in Nazi comparisons), or just an inane attempt at being provocative and/or promoting fear-mongering....or perhaps a combination of all of the above.

But you're always good for a laugh.

[TheMercenary]

Inflation tax is real and measurable. Do your own research people.

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.

Originally Posted by TheMercenary

Inflation tax is real and measurable. Do your own research people.

The same bullshit assumption in your article:

Assuming a 4% annual inflation rate over the next decade,

There has NEVER been 10 straight years of a 4% annual inflation rate. No where close.

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.

Nearly 90% of businesses in the country will not be subject to the "penalty" and the smallest businesses are exempt...the others will not be penalized, but in fact, will get tax credits, if they provide (and share the cost with employees) of basic coverage.

I guess you think if you repeat it, it makes it more credible.

[TheMercenary]

Originally Posted by Redux

The same bullshit assumption in your article:There has NEVER been 10 straight years of a 4% annual inflation rate. No where close.
Nearly 90% of businesses in the country will not be subject to the "penalty" and the smallest businesses are exempt...the others will not be penalized, but in fact, will get tax credits, if they provide (and share the cost with employees) of basic coverage.

I guess you think if you repeat it, it makes it more credible.

You have provided no evidence that the numbers do not add up or that the facts are false about Inflation Tax. You don't have the credibility to say it is false. I agree that inflation has not been 4% for 10 straight years. The tax still exists.

Originally Posted by TheMercenary

You have provided no evidence that the numbers do not add up or that the facts are false about Inflation Tax. You don't have the credibility to say it is false. I agree that inflation has not been 4% for 10 straight years. The tax still exists.

Over 99% of taxpayers will not face the surcharge on income....it would initially only impact the top 1/2 of one percent of taxpayers....those making over $500K.

In ten years, based on assuming more reasonable inflation rates, it may hit a very small percentage of additional taxpayers...perhaps another 1/2 percent to maybe as high as an additional two percent of all taxpayers....with at least 98% of taxpayers remaining unaffected.

Does it bother me that in 10 years, the top 2% of taxpayers (those now making approx. $300K, but who would see their income rise in 10 years), rather than just the top 1/2 of one percent (those now making over $500K), may face a small surcharge on their income?

Not in the least. I would charge those fat cats now if I had my way.

[ZenGum]

Systems that allow for bracket creep are common around the world. Treasurers love it because of the steady growth in tax revenue, other pollies love it because they can give occasional "tax breaks" by resetting the brackets a bit.
I am in favour of progressive tax rates.

I did want to respond to this from Redux:

And NEVER in our lifetime (or as long as economic stats have been recorded) have we had 10 consecutive years of a 4% annual inflation rate.

That may be right, but you've also never seen a US government debt in the 10+ trillion dollar range either. That will almost certainly cause inflation. Averaging 4% for the next decade is not an unreasonable assumption. Why do you think the price of gold is at an all time high?

Originally Posted by ZenGum

....
That may be right, but you've also never seen a US government debt in the 10+ trillion dollar range either. That will almost certainly cause inflation. Averaging 4% for the next decade is not an unreasonable assumption. Why do you think the price of gold is at an all time high?

I agree that a $10+ trillion debt and potentially doubling the debt over the next 10 years (IMO, unlikely), as we did over the last eights years, is unsustainable in the longer term. At the same time, during the last 10 years, the price of gold has more than tripled (quadrupled?), with no inflationary impact.

But its not potentially inflationary unless the dollar is devalued much more significantly that it has been in the last few years. Could that happen? Sure, if the Fed floods the economy with "cheap" dollars. But, that is not likely.

A high rate of inflation occurs most often during a vibrant economy, at full production and with low unemployment, when demand outstrips supply. When the economy is strong, companies pay higher wages, which enables employees to spend more, which causes other companies to raise prices, etc....and you have a wage/price inflationary spiral. I know that is a little simplistic, but we are nowhere near that scenario.

While most economic measures would suggest that we are out of the recession of the last two years, the economy is hardly at full production or full employment. Wages arent rising, prices arent rising and there is no such spiral on the horizon.

Or, inflation could rise at a significantly higher rate if we were hit with a sudden, unpredictable and long-term scenario like a major oil embargo, similar to that which was primarily responsible for the inflation of the mid 70s....but I dont think it is reasonable to assume that will happen.

Studies by the Fed and others would suggest that the inflation rate will remain low (well below 4% - it is now still hovering at around 0%), at least over the next 2-5 years while the economy continues to recover and grow at modest (3-5%) GDP annual percentage increases....beyond that, it is more guesswork, but 10 years of 4% annual inflationary increases? IMO, it is disingenuous and dishonest to use that scenario to make a case against so-called inflation taxes.

I havent seen any credible study that would suggest such a scenario, but if you know of any such studies, I'll give it a look.

[TheMercenary]

Originally Posted by Redux

Does it bother me that in 10 years, the top 2% of taxpayers (those now making approx. $300K, but who would see their income rise in 10 years), rather than just the top 1/2 of one percent (those now making over $500K), may face a small surcharge on their income?

Not in the least. I would charge those fat cats now if I had my way.

That is exactly why you represent wealth redistribution programs.

[Urbane Guerrilla]

Originally Posted by Redux

Does it bother me that in 10 years, the top 2% of taxpayers (those now making approx. $300K, but who would see their income rise in 10 years), rather than just the top 1/2 of one percent (those now making over $500K), may face a small surcharge on their income?

Not in the least. I would charge those fat cats now if I had my way.

A small theft is theft nonetheless, Redux, however disguised in righteous-sounding language. Now I begin to see the core of your mentality -- that is, the thing that keeps you a Democrat when men of sense (for instance, registered independent voters) are abandoning the Donkey Party right, left, center, top, and bottom. You're fighting a class-war. This is the hobgoblin of the small and resentful mind.

So of course, I do not do what you do; I make a point of not going around fighting a class-war. It's unworthy of me, and should be unworthy of you as well -- but for some damnfool reason I can't plumb, you don't really want me to regard you as intelligent. Thing is, I'd really rather I could think of you as a smart, with-it kind of guy. Not, IOW, as a moderately dilute socialist.