Perspective On Progressive Tax, Buffet Rule & Obama Plan

By Daniel Downs

In an article published in the Tax Analyst, Martin A. Sullivan explains why the tax code is not genuinely progressive.

Almost everybody assumes the individual income tax is progressive — that is, that higher income categories pay higher effective tax rates than lower income categories. That is true only up to a point, as shown in Figure 2. The schedule of effective tax rates in the United States is not steadily upward sloping. Depending on the year, average tax rates begin declining somewhere in the $2 million to $5 million range. For adjusted gross income over $10 million, the average effective tax rate was 19.7 percent in 2007 and 22.6 percent in 2009. The income tax is regressive at the upper end.

There is a simple explanation for both the declining rates at the top end and the rise in top-end rates in 2009 over 2007: the 15 percent rate on capital gains and qualified dividends. As income rises, an increasingly larger share of income comes in the form of dividends and capital gains. And there were more capital gains in the boom year of 2007 than there was in the depths of the recession in 2009.

Application of the Buffett principle would eliminate the dip in tax rates at the high end. The Buffett rule is roughly equivalent to an increase in the tax rate on capital gains and dividends on millionaires.

This helps explain why secretaries of both Buffet and President Obama pay higher income tax rates while earning much less than their bosses.

Yet, Sullivan began his article stating why the Buffet Rule may not be a good idea. “[I]t is a basic tenet of tax economics that an efficient system should eliminate all taxes on capital income,” which “translates into big tax benefits for the wealthy.” In other words, it’s not a good idea to tax non-wage related investment income, capital gains or corporate profits because doing so multi-taxes wage income. (See Economist, Feb. 24, 2012)

Capitol Hill bureaucrats like Obama actually may want to raise about $5 billion more in annual revenues to help ease the imperial burden. However, it is more likely they want to create a genuine socialist economy. From the beginning of his presidency, Obama’s sought to fuflill the party’s agenda for a coherent socialist system. Evidence of his efforts is the passage of the Obamacare legislation. Another piece of evidence is his ties to the progressive policy agendas of the Communist Party.

Information about progressive Democrats ties to the Communist Party (CPUSA) is coming out since the public ire about Congressman Allan West’s statement that about 81 of the Congressional Progressive Caucus were members of the Communist Party. As journalist Cliff Kincaid recent commented, “Joelle Fishman, chair of the political action commission of the CPUSA, openly campaigned for Barack Obama” because of the progressive affiliation between the two. “Trevor Loudon,” Kincaid continued, “points out that ‘Joelle Fishman is the daughter-in-law of Soviet spy Victor Perlo. Her role within the Communist Party involves coordinating efforts to elect progressive Democrats to state and national office and seeing that the Democrats adopt Communist Party inspired policies.'” She is one of many working to achieve the same goal. The clincher is that Obama’s political mentor was Communist Party member Frank Marshall Davis.

Kincaid sums up the Obama plan that includes more progressive tax code: “The CPUSA is working through the Democratic Party as a whole, as well as the Obama Administration.” It is reasonable to assume that underlying Obama’s plan to tax wealthy is the goal of creating a socialist economy through progressive taxation. Such would be a win for the CPUSA. Maybe that is why neither the “Buffet Rule” nor any plan of Democrats proposes to eliminate the capital gain taxes.

Long live McCarthy!!!

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