"tax breaks for the rich"

[marbles]

Okay, we've had some time to digest Bush's tax proposal, so everyone should be educated enough.

It looks like the Dem's are going to stick with the position of "Bush's tax plan favors the rich." My question is, does anyone actually believe this? And if so, could you please support their position with some facts from the plan?

Here's how I understand the highlights of the Bush plan:
-No more taxing dividends
-Speeding up the reductions from the last plan
-Higher income tax credits to middle-class families w/kids

What am I missing?

[Chris Alger]

Of course cutting dividends favors the rich. Only about 22% of filers earning below $100K received dividend income, but more than 2/3's of those over this income level do. As a result, "more than 70 percent of the benefits of eliminating [the tax on dividends] will go to the wealthiest 5 percent of American taxpayers."[1]

The contrary arguments I've seen factor in the tax benefits to the working poor, which makes the overall plan slightly increase the percentage of the entire federal tax burden borne by the rich. But they'll still pay a lower tax and benefit to a much greater extent than the lower middle class.

[1]Ryan Lizza, "Wealthy Choice," The New Republic, 1/20/3

[patrick dicaprio]

a sample dialogue from teh Tom Daschle playbook:

q:what do you think about the war in iraq.
TD: it is a tax break for the rich

q: what about the show Joe Millionaire?
TD: it is a tax break for the rich.

q: what about raising a fourflush on the turn in holdem?
TD: it is a tax break for the rich.

Pat

[marbles]

Or one of my all-favorite Daschle quotes (word for word)

TD on oil in Alaska:
"It's this simple: We will not allow the Republicans to destroy the environment! (pound fist for effect)"

[marbles]

"Only about 22% of filers earning below $100K received dividend income, but more than 2/3's of those over this income level do."

--Please cite your source here. It was my understanding that virtually anyone with a penny in a well-diversified mutual fund receives dividend income. This includes most 401(k) plans, along with a lot of mutual funds owned by middle-class seniors.

Is the source including all dividend income (e.g. income to a mutual fund that you own as well as direct income to the shareholder), or just direct dividend income (shareholder receives a check directly from the company)?

[Clarkmeister]

Uhhhhh, he pretty clearly did cite his source.

[marbles]

Doh. My bad. I assumed the citation was for the direct quote, not for the approximations at the beginning of the paragraph. I'll have to check it out.

[marbles]

Here's the full article, from The New Republic. I'll give my two cents on a follow-up post:

On the afternoon of President Bush's economic speech this Tuesday, there was no happier Republican in Washington than Grover Norquist, the president of Americans for Tax Reform, conservative-coalition builder, and the White House's favorite anti-tax radical. Like many conservatives, Norquist has long fought to kill the tax on dividends, and he was giddy that Bush made that the centerpiece of his new tax plan. He had just come from a debate on National Public Radio in which he eviscerated a "midget commie from Massachusetts"--former Clinton administration Labor Secretary Robert Reich--and couldn't wait to square off Thursday on Bill Moyers's PBS show, which he "thinks" is called "Why we should steal everyone's money and give it to bums who won't work." He was looking forward to meetings on Friday with Dick Cheney and Karl Rove, presumably to plot a strategy for getting the new plan passed. Norquist insists the dividend tax-cut debate will be devastating for his opposition. "We are going to cripple the entire Democratic leadership all at once," he predicts. "I'm winning on all fronts."

It wasn't obvious, however, that this was the front the Bush administration wants attacked. In fact, in the pantheon of taxes that conservatives like Norquist have fought to eliminate, the tax paid by shareholders on their dividends has never quite caught on like the "death tax" or "marriage penalty." First of all, very few people actually pay it; only one-quarter of all tax-filers currently receive dividends. And, for Republicans defensive about tax cuts skewed toward the ultra-wealthy, a crusade against the dividend tax confirms their opponents' worst suspicions: More than 70 percent of the benefits of eliminating it will go to the wealthiest 5 percent of American taxpayers.

Why then has the Bush administration suddenly taken an issue dear to a handful of anti-tax cranks and made it the cornerstone of its economic policy? Partly it's because the administration thinks it can make the politics work. But mainly it's because conservatives inside and outside the White House fervently believe that the key to economic health (and Bush's reelection) is a booming stock market.



emocrats are already calling the tax cut a payoff to Bush's K Street allies. But that analysis doesn't quite hold up. To begin with, the case against the dividend tax is that it is "double taxation"; corporations pay a tax on their profits, and then investors pay a tax when they receive those profits as dividends. If Bush really wanted to reward the business community, he would have proposed eliminating this tax at the corporate end. But, fearing being tarred as too close to corporations, he rejected this approach. The other problem with the simple K Street explanation is that the business community hasn't been clamoring for a dividend tax cut. What corporations really wanted from Bush were new tax incentives for investment--and they didn't get them.

In fact, Bush's embrace of the dividend tax cut is less about campaign contributions than ideology. In the past, liberals and conservatives both discounted the stock market's role in stimulating the economy. But, during the Clinton boom, this view began to change. Most famously, Alan Greenspan warned that overvalued markets could actually cause inflation. Economists call it the "wealth effect," and now Bush and his aides have become its greatest champions. Simply put, the wealth effect is the extra dollar amount a person spends from an increase in wealth. The theory is that the 1990s stock boom dramatically increased the net wealth of many Americans. The stock market soared, investors' portfolios fattened, and--at least on paper--investors' net wealth shot up, leading them to consume more. Even if they didn't have actual extra income, they felt rich and therefore spent more and saved less. That investor-class consumption drove the '90s economy. By making the dividend tax cut the centerpiece of his economic plan, Bush is embracing the idea that the stock market is the most important economic indicator in the United States--in other words, he's embracing the wealth effect.

The most influential work on the wealth effect has been done by Michael Palumbo, a Federal Reserve Board economist. In a recent study, he and another Board economist, Dean Maki, showed for the first time that in the '90s the households that gained the most from the stock-market boom are the same households responsible for the era's plummeting savings rate. Almost all the drops in savings in the late '90s--from about 7 percent of disposable income to about 1 percent--can be attributed to the richest 20 percent of households. The savings rate of the bottom 80 percent--the people least likely to own stocks--barely changed. Another influential paper, by Maki and fellow Board economist Karen Dynan, looked at data from 1983 to 1999 and clearly showed that stock-owning households spend more after stock prices rise, while non-stock-owning households don't.

The most radical part of Palumbo's work is his rejection of the traditional economic view that to stimulate the economy, cash must be pumped into the hands of lower-income Americans--in the form of a quick rebate check or payroll tax holiday, for example--because they are more likely than the wealthy to spend that extra disposable income. For adherents of the wealth effect, the way to boost consumption is to make relatively wealthy investors feel richer by juicing the stock market. One of the main critiques of the wealth effect was that it was impossible that the small slice of shareholding households was responsible for so much extra spending. But Palumbo says that is exactly what happened. "[A]ll of the consumption boom [of the '90s] really can be attributed to the richest groups of households," his paper argues.

You won't hear the White House making this point publicly, but the Bushies believe that returning cash to rich investors is their insurance policy against a bad economy in 2004. While Greenspan worried about the inflationary impact of the wealth effect, that danger has obviously passed. Now the danger is that battered investors will stop consuming. In a recent speech, Bush's top economist and the architect of the new plan, Glenn Hubbard, noted, "One of the key risks obviously now in the economy's recovery are recent equity price declines in the United States. And you know there's something called a wealth effect, an effect on consumer spending and business spending when wealth is destroyed, much as we have seen in the decline in stock-market prices in the United States."

What worries Hubbard and the White House is that more than $7 trillion in value has been wiped out of the stock market over the last three years. According to the wealth effect, consumption should be plummeting in the wake of the market's decline, and yet consumer spending has continued to hold up the economy. One reason for this is that the enormous decline in the value of stocks has been cushioned by an incredible rise in the value of homes. "Fortunately, the losses in stock wealth to the midpoint of 2002 have been partly offset by gains in real estate wealth in the United States," an analysis from the financial services firm RBC recently noted. But wealth effect advocates also attribute the continued spending to the slow pace at which investors fully adjust to their decreased wealth. In other words, the predicted drop in consumption may well kick in this year.

For the White House, that means stimulating the stock market is more important than ever. Bush's aides argue that the dividend tax cut will bring investors flooding back into the market and raise share prices by 10 percent, which will presumably keep consumption high as shareholders start to feel wealthy again.

This emphasis on the investor class dovetails with the politics of Bush's reelection. He cares about how the economy will look to voters in 2004, not today. If the dividend tax cut has any impact on the markets and consumption, it won't be until next year, when Bush is campaigning. Bush is also trying to appeal to the two-thirds of voters who own stocks. The Democrats failed to capitalize on the bear market in the last election, and Bush wants to put them on the defensive about an issue supposedly dear to investors. "They are all getting locked in as enemies of the investor class," says one Republican strategist. And whereas in the 1970s and 1980s unemployment and inflation were the key indicators of economic performance to the public, the White House has come to believe that the stock market is now the key barometer. "There is a new number, and it is wealth," says Norquist. If the economy cooperates with these politics, the White House will have invested well.

[Chris Alger]

"Citing data from the Internal Revenue Service from 2000, [The Center on Budget and Policy Priorities] said 22 percent of taxpayers with incomes under $100,000 reported any dividend income, while 72 percent of filers between $100,000 and $1 million and nearly all filers above $1 million reported dividend income."

R. Stevenson, NYT, 1/8/3
http://216.239.57.100/custom?q=cache:ENUb061gzlkJ:www.iht.com/articles/82539.htm+bush+tax+plan+dividend+22%25&hl=en&ie=UT F-8

I don't know about pension funds, but dividends from IRA's and 401-k's are tax-exempt anyway, so the dividend cut wouldn't affect on them. Also, the dividend income received by middle income groups tends to be minuscule.

[marbles]

Good article. A few spots:

"First of all, very few people actually pay it; only one-quarter of all tax-filers currently receive dividends."
--Well, there it is in black and white. Unfortunately, the author doesn't elaborate from here, so I can't tell whether or not I'm wrong. I know for a fact that I have paid dividend taxes through mutual funds, but I've never declared dividends on my taxes. No idea whether that puts me in the top 25% or not.

"More than 70 percent of the benefits of eliminating it will go to the wealthiest 5 percent of American taxpayers"
--This sounds accurate in its context. Again, assuming they are taking mutual funds out of the equation, I figure 70% of the dividend taxes declared on individual tax returns are done by the top 5%.

"For the White House, that means stimulating the stock market is more important than ever. Bush's aides argue that the dividend tax cut will bring investors flooding back into the market and raise share prices by 10 percent, which will presumably keep consumption high as shareholders start to feel wealthy again."
--This, of course, benefits anyone who owns stock, and the impact is huge.

[andyfox]

You guys act surprised that A) a politician say things that sounds like a politician; and B) that when it comes to the environment, the republicans are usually less amenable to the arguments of the environmental lobby than to the arguments of their business friends.

[Clarkmeister]

Associating with a lobbyist who would call a former US Cabinet member a "midget commie" doesn't exactly do the Bush administration proud. Good lord, its downright embarassing.

[marbles]

Chris,
Thank you for your supporting data. Question for you, since you definitely seem better educated than me on the subject:
Let's say Joe has $100 in his 401(k). The 401(k) is entirely invested in a diversified fund consisting of some stocks that pay divvies, and some that do not. Regardless, all dividends are reinvested into the fund. At the end of the year, Joe gets a statement that his 401(k) returned $10 tax-deferred, leaving him with a balance of $110. Did he pay taxes on the reinvested divvies? Did the fund? Did anyone? And I'm not trying to be a smartass or anything... I really don't know.

"Also, the dividend income received by middle income groups tends to be minuscule."
--Comparatively, yes. But this is just another case where the top 5% are dealing with such giant numbers to begin with. If Granny is pulling down her $1,000/year in dividends, she's not going to make a dent in the huge numbers the Trumps and Gates's of the world are returning. But if you ask her, that $1,000 (or the % of that which is then taxed) is far from miniscule.

[marbles]

"You guys act surprised that A) a politician say things that sounds like a politician; and B) that when it comes to the environment, the republicans are usually less amenable to the arguments of the environmental lobby than to the arguments of their business friends."

--Actually, it's more of a Daschle thing for me than anything. I don't mind liberals saying liberal things (I enjoy Colmes of Hannity & Colmes), or politicians saying politician things (they're all allowed a certain degree of cliched BS on either side of the aisle). There's just something about Daschle's delivery that makes me want to put that guy's head in a blender.

That and the fact that he bears such a strong resemplance to the Emperor from Star Wars.

[patrick dicaprio]

its a good thing we republicans have that secret stash or air, water and oxygen. this way when we destroy the environment we will still go on. sounds like a tax break for the rich to me.

Pat

[andyfox]

Yeah, I have to agree, Daschle has something about him that makes him kind of hard to take. I think he's a bad leader. The dems would be lucky if he pulls a Lott and ends up out of power.

[nicky g]

ah but you miss the point - we "liberals" don't think that republicans/conservatives are voting selfishly for their own best interests, though they may believe they are; we think the majority of them are voting stupidly in bush and his pals' best interests. that's the really sad thing.
ironically enough bush's texan ranch is one of the greenest homes in the us - solar panels, cooling and heating from deep-water springs etc. but what's good enough for him and his family is too good enough for anyone else, it would seem (as with his month-long holidays, short working day etc). no doubt the super-rich will be able to buy their way out of global warming - and pollution-related problems in a way that the rest of us won't - certainly the very poor already suffer hugely and disproportionately from the weather changes.
sounds like a tax break to the rich to me.

[patrick dicaprio]

so how would you expect republicans to take it when someone says "republicans want to destroy the environment?" for you to say that republicans are voting for their best interets is something completely different than wanting to destroy the environment.

not that the democrats wouldnt vote for their best interests either. heaven forbid. /forums/images/icons/smile.gif

Pat

[IrishHand]

Republicans don't want to destroy the environment. That presupposes that they actually think about the environment, which they don't. Democrats, on the other hand, seem to be more aware that things like breathable air and a non-toxic environment might be good things in the long run.

[patrick dicaprio]

yeah i gues all the money the democrats receive from the green lobbies makes no difference.

i guess us republicans will have to resort to our secret stash of "breathable air" and our hidden "non-toxic environment."

Pat

[Chris Alger]

I'm not an authority, but it was explained to me thus: the dividends stay in the account untaxed, usually reinvested, and are paid out after retirement and taxed a the (presumably lower) ordinary income tax rate. So I don't see how cutting the dividend tax rate has any effect on retirement plans.

One thing that bothers me about the way Bush's people are selling this is that they don't make clear what people want to know: If you paid $X in taxes (or at least dividend taxes), you'll get about $Y back under the plan. Since these guys work for us, people should presume that the lack of detail and candor means they'll get screwed.

Here's a link to a good critical analysis of the tax plan. Note the estimated tax relief to people earning between $30 and $40K: $42, not even dinner and a movie, while the wealthiest get enough for new cars.

link: http://www.cbpp.org/1-6-03tax.htm

[marbles]

I think this mutual fund factor would really decide it for me... Further, it doesn't really surprise me that I can't get a clear answer from either side; with the mutual fund money taken out of the equation (often >50% of a company's total worth), the numbers are extremely easy for either side to manipulate.

Note the table at the very end of the article you linked, and the fine print that follows: "Dividend amounts have been adjusted to exclude interest from mutual funds." Thanks a pantload, author!

The really annoying thing in reading these articles (conservative or liberal) is that they all start with about 4 sentences of facts and then put together about 1,000 words of opinions and conclusions. This guy did a good job of citing his work, but even that is largely citing other opinions. Grr...

Here's my position, summed in two sentences: If the tax on dividends is lifted, everyone who owns stock in a company that pays, or could pay dividends benefits. I contest that this population consists of more than the 22-25% number that I have read today.

One of these days I'll figure out whether or not my position is total hogwash.

[andyfox]

When in doubt, and this proposal seems to be predicated on being confusing, you can usually bet with safety on the fact that those with the most money will get the most benefit and those who are less well-off will get screwed.

[marbles]

"When in doubt, and this proposal seems to be predicated on being confusing, you can usually bet with safety on the fact that those with the most money will get the most benefit and those who are less well-off will get screwed."

When it comes to tax cuts, I generally assume it means that those that pay taxes will pay less taxes. While this proposal is admittedly a bit confusing, that seems to be the case here.

How you are screwed when asked to pay less taxes?

[IrishHand]

What does either of your comments have to do with the fact that Democrats tend to be far more aware of environmental issues than Republicans?

Of course Democrats are influenced by lobby money - that's probably the single biggest problem in our political system, to my mind. That doesn't detract from the fact that they're doing supporting a "good" thing any more than a party that gives a tax break to the wealthy is doing a "bad" thing (something both Dems and Republicans have been guilty of recently - but who's counting?).

Also no clue what you're referring to about your secret stashes - unless that's some sort of Republican joke I don't get.

[marbles]

"That doesn't detract from the fact that they're doing supporting a "good" thing any more than a party that gives a tax break to the wealthy is doing a "bad" thing."
--I was going to call you self-righteous, but you seemed to nail it for me. So, what I can gather is this:

Protecting the environment ("good")
-jobs in industries from logging to ranching to farming are lost.
-economy relies on importing oil from nations that are sketchy at best instead of drilling our own.
Tax Breaks ("bad")
-Money in the hands of investors to reinvest, consume, employ resources.
-Added incentive for most economically productive individuals to work harder.

My cause may not necessarily be the one for "good," but I sure wouldn't call it all "bad," either.

And by the way, I like trees, too.

[Clarkmeister]

The problem is that frequently there are two goals:

1. Helping businesses make the most money, and by extension, help the economy.

2. Taking beneficial actions for the environment, either for practical immediate impact, or because of some sense of stewardship.

Obviously everyone agrees that its a good idea to protect things like the Redwood forests in California. Thats the easy part.

The conflict between Dems and Repubs arises when goals #1 and #2 are in direct opposition. i.e. emissions reductions would cost US factories millions of dollars in refitting their machinery. The two sides merely disagree about where the cost/benefit line lies.

[nicky g]

no one "wants" to detroy the environment. but it's fairly obvious that bush and co are quite happy to destroy the environment to further their own short-term interests. it's a shame that people buy their spurious arguments and non-science.

[nicky g]

except that climate change and other pollution-related problems cost the world economy vast fortunes through the damage they do (i'm talking about real money, not metaphorically). not that i think that's the best reason to want to protect the environment, but the "millions" that rejigging factories would cost is peanuts compared to the costs of keeping the status quo. also, renewable energy is far far far far far cheaper in the long term than fossil fuels and nuclear energy. the long term will be long over by the time bush and co wake up to it.

[nicky g]

i believe his point is that republicans rely on the same environment as everyone else, and therefore have no interest in destroying it. that's very true, but the adminstration clearly doesn't care. probably they can weather any disaster out at dick cheney's secret location. /forums/images/icons/shocked.gif

[andyfox]

Tax cuts usually mean that those who pay income taxes pay less taxes. Those less well off get screwed in the sense that the taxes that really hurt them, (sales taxes, excise taxes, payroll tax) don't get touched.

That those with the most money have the most influence on government and therefore derive the most benefit, doesn't seem to me to be an unreasonable assumption.

[marbles]

"Tax cuts usually mean that those who pay income taxes pay less taxes. Those less well off get screwed in the sense that the taxes that really hurt them, (sales taxes, excise taxes, payroll tax) don't get touched."

I know what you mean, but it all just seems like circular logic to me. Why don't you include state property taxes in your list? I realize it's not a federal tax, but neither is social security (regardless of what the dem's may claim). Now who's picking and choosing so the "right" people benefit?

As for cutting all of the taxes, hey, you're preaching to the choir here. I'd love to see 'em all cut! Get the money back into the marketplace and out of the way-too-big government. But I'm afraid we have to take it one step at a time... And at this time, the step is income and dividend taxes. I can live with that, even if there are those that benefit more than me.

[marbles]

I agree with everything you say here, Clark. It just sticks in my craw when liberals try to paint the picture of this "good vs. evil" battle between their views and the views of others.

And as for the cost/benefit line, that's once again where I go nuts, since neither side will ever give a straight answer. The Alaskan oil thing was a particularly irritating situation. A few months back, I simultaneously saw two "experts" on different cable talk shows; each had his graphs and scientific studies. According to one, there was enough oil to fuel the country indefinitely. According to the other, there was barely any oil there, and extracting it would be prohibitively expensive anyway, so why bother? Like Lewis Black would say, "Which one is real???"

[andyfox]

State property taxes are also paid by renters, in the disguised form of higher rent.

[IrishHand]

Cost/benefit analyses of anything involving the environment simply aren't done in anything resembling a comprehensive manner. Environmental costs are externalized, therefore excluded, while the short-term (income) benefits are internalized, therefore included. So...if you are happy ignoring the long-term environmental consequences, then industry all the way, baby!

[marbles]

"State property taxes are also paid by renters, in the disguised form of higher rent."

--A reasonable assessment. But then we come back to the fact that all mutual fund investors pay dividend taxes, in the "disguised form" of a lower return on their mutual fund. And then we're back to where we started.

Look. No matter how you slice it, those with more money will pay more taxes. It's how it's always been, and NO TAX (even sales tax) is immune to this fact. Those that pay more taxes will benefit more when the taxes are cut, because they paid them in the first place.

I just don't see anything unjust about that.

[marbles]

"So...if you are happy ignoring the long-term environmental consequences, then industry all the way, baby!"
--I never said I wanted to ignore consequences, just that I want straight answers. I can't trust the environmental lobby, because they're guaranteed to find the most Chicken Little "Sky is falling" study possible. OTOH, the business lobby will be equally ridiculous in their studies (last I heard, the tobacco folks still deny any long-term harms of smoking).

The problem is, you can't compare the costs and effects of a given event (e.g. retooling a plant for emission standards), because no-one is willing to give you an objective answer from either side.

[IrishHand]

I agree entirely that both the environmental lobby and the countless pro-business and pro-industry lobbies are completely disinterested in providing anyone with an impartial view. However, it seems senseless to me to continue with what we are 100% certain are practices which are damaging (which is a "bad" thing) our environment (which is a "good" thing). I don't know of a scientist alive who thinks that using fossil fuels is a good thing, or that destroying forests is a good thing. Even if we can't exactly quantify the long-term costs of such actions, the fact that we're 100% certain that those costs exist and that they're both substantial and irreversible at the current time would hopefully lead a sensible person to conclude that we should reduce those practices with an eye towards eliminating them in favor of practices which don't mutilate our world.

The fact that you'd want to label such a perspective as liberal is pretty narrow-minded in my opinion. It's got zero to do with politics and everything to do with wanting to live a pleasant, healthy life no matter who you are or where you live.

[Clarkmeister]

Tree hugger. /forums/images/icons/laugh.gif

[nicky g]

i don't agree. business has a fundamental motive for distorting the facts, namely profits. the environemental lobby has some incentive, in that it needs to emphasize envionmental problems for funding once it's up-and-running, but it has no basic reason to scaremonger in the first place.

[IrishHand]

Yes - the business lobby will happily distort facts if they need to. Of course, they tend to just dump money into their chosen political group and chosen politicians and let them do the talking.

However, marbles' point about the environmental lobby is well-taken. Knowing the huge mountain they have to climb, the environmental lobby is equally guilty of portraying their position in the most extreme manner possible in order to create awareness and generate support. Shock value is crucially important to get media coverage. Assuming the most extreme position tenable also helps the political situation too, since it's obviously better to start off with a negotiating point that's beyond what you actually want or can reasonably expect.

It's not scare-mongering - it's doing what's best for the concern you represent. I just think that the environmental concern applies to everybody, while big business/industry lobbies apply to the already-phenomenally-wealthy.

[Ray Zee]

nicky you are so right. the business sector stands to gain money. the environmentalists only get clean water. who do you want to believe. and who do you think is more honest about their cause. many from both sides that speak from an organization need to be anaylized because they may be looking to further their own cause but that can only go so far.
and who is more interested in the future. the person who cuts down the tree for a parking lot or the one sitting in it protesting its demise.