Newsmax’ Highly Dishonest Article on Fiscal Cliff Deal


Newsmax is one of the many conservative news sites that routinely distort reality. Here’s a perfect example, David Patten’s analysis of the American Taxpayer Relief Act of 2012 (ATRA), aka the fiscal cliff deal struck last week. The distortions come fast and furious.

Reflecting the progressive nature of the new tax structure, the Tax Policy Center estimates that workers earning between $50,000 and $75,000 will pay an about $822 more in taxes this year. Compare that to a taxpayer with an income of $1 million, who is expected to shell out an additional $170,000.

No, that is not what the Tax Policy Center says. He refers to this chart, which does not say that those who make a million dollars a year will pay $172,000 more each year in federal taxes, it says those who make more than a million dollars a year will pay that much on average. That includes lots of people who make tens, even hundreds of millions of dollars. This isn’t particularly complicated math. The marginal tax rates on those making more than $400,000 a year only go up by 4.6%, from 35% to 39.6%. That’s a far cry from 17.2%, even if you add in some of the other smaller tax increases in the bill.

Perhaps the biggest surprise for taxpayers: Despite both parties’ promises during the campaign that taxes would not go up for middle-income wage earners, The Tax Policy Center reports taxes will rise for more than 77 percent of American households. Most of this stems from the expiration of the so-called payroll tax holiday.

Obama was clear on what he wanted from the start, which was an increase in marginal tax rates for those making over $250,000; it ended up being those making over $400,000 due to political compromise. The payroll tax rates were not included in that and everyone knew it. For the last two years, everyone has gotten a 2% break on payroll taxes and that is now expiring. And by the way, this is something every conservative should support. That temporary reduction in payroll taxes contributes to shortfalls in Social Security and Medicare revenue. It was a bad idea from the start. But the expiration of those temporary cuts was inevitable and has nothing to do with Obama’s promise not to raise marginal tax rates.

About $160 billion of revenue this year due to the expiration of the payroll tax “holiday,” which increases the payroll tax that helps pay for Social Security from 4.2 percent to 6.2 percent. According to the Tax Policy Center, this increase will hit lower- and middle-income taxpayers harder, in percentage terms.

Of course it will. You know why? Because payroll taxes are capped, they’re only taken out on the first $100,000 or so in income. That means the wealthy pay a far lower percentage than everyone else and makes that tax highly regressive. Would Patten support lifting the cap on payroll taxes? Of course not. But I sure as hell would. It would make federal taxes less regressive and help fix the revenue problem with Social Security and Medicare.

Comments

  1. Michael Heath says

    Ed writes:

    That temporary reduction in payroll taxes contributes to shortfalls in Social Security and Medicare revenue. It was a bad idea from the start.

    I think this “bad idea” needs elaboration, precisely because it illustrates how the president and Democrats were working in the interests of the country when confronted with the recession while the Republicans demonstrated they were and are frequently motivated by factors in direct opposition to the country’s interests.

    As Ed rightly noted, Social Security in the long-run and Medicate in the intermediate term require more revenue to continue to provide the same benefits, unless both parties started working for optimal economic growth*. However even more important, the stimulative effects which motivated a temporary cut in the payroll tax was known to be a sub-optimal component of any stimulative package if one hadn’t reached diseconomies of scale on other components which are more stimulative. Superior components which Democrats tend to favor which Republicans in general oppose, though hypocritically – not in their districts. Components such as repairs and investments in infrastructure along with investments in emergent business sectors critical to the national interest.

    So yeah, it was a bad idea, but it was the least worst option if one were focused on defending against economic contraction where the opposition doesn’t share your interest in fixing the problem but only advancing their own ideology and the interests of their financial and voting constituents.

    *Yes the GOP is far worse than the Democrats when it comes to opposing policies which promote growth, but the Democrats also have blind spots. In spite of holding the moral high ground on favoring more income equality, their motivation is more about more equal outcomes by harming the rich and businesses rather than optimized growth. They own the high ground because we understand that more income equality favors high growth over the long-haul. But their priority on social justice frequently has Democrats supporting tax policies which would bring more equality but at the expense of growth; even when different policies that would also promote more equal income though they’re opposed because they don’t play well with those who seek to screw the rich or businesses.

  2. cry4turtles says

    The expiration of the ss tax holiday cost me approximately $400 a month. I can no longer make my vehicle payment. My hubby and I are considering moving, but we haven’t a clue where to. My company has given me a raise to try and offset. Right now I’m scared and desperately seeking a 2nd job and hounding more hours at work. I already work 7 days a week. Social Security better fucking be there in 20!!! Goddammitt!!

  3. Thorne says

    By my math, based on that 2% rise, $400 a month would work out to about $240,000 a year gross income.

    cry4tyrtles should cry me a river! My wife and I COMBINED have never made even a third of that, yet we live in a comfortable home (paid for) have two vehicles (paid for) and still manage to save for retirement. Someone may need to adjust their priorities, here.

  4. acroyear says

    The SS tax break was 2%. This means that at $400 / month, your household must be making $20,000 PER MONTH.

    Pardon me if I don’t cry a tear that you can’t afford your Mercedes payments.

    If you got cut that much and you aren’t making $20k a month, then your company’s payroll system is stealing money from you.

  5. Dimitri Klimenko says

    That temporary reduction in payroll taxes contributes to shortfalls in Social Security and Medicare revenue. It was a bad idea from the start.

    Absolutely not. The payroll tax cut was one of the most effective stimulus measures used, precisely because payroll taxes are regressive.

    That being said, since greater Social Security shortfalls might have ended up being used as an excuse to cut benefits, it would have been better to replace the payroll tax cut with an equivalent income tax cut (i.e. a tax cut on low- and middle-income earners). This is, of course, merely a matter of bookkeeping, as is the entire Social Security Trust Fund.

    Sure, there were better options for more effective stimulus, but unlike many of those (infrastructure being one of the most notable) the payroll tax cut actually went through. This likely has a lot to do with the political environment, but whatever the reason, it actually got passed. With this in mind, that tax cut really should have continued throughout 2012, given the current economic situation.

    As for the shortfalls, Social Security doesn’t stand to rise significantly vs GDP in the long run, so it’s not a big problem. Sure, it may be that the government would have to add extra money to the trust fund, but as I’ve already said that’s merely a bookkeeping operation.

    The long-term shortfall issue is primarily due to healthcare spending, and something will need to be done about that, but austerity right now is quite simply a terrible idea.

  6. D. C. Sessions says

    Sure, it may be that the government would have to add extra money to the trust fund, but as I’ve already said that’s merely a bookkeeping operation.

    The payroll tax reduction is, by statute, made up from the General Fund. Basically, the payroll tax was just the vehicle for a general payment to the public.

  7. Michael Heath says

    Dimitri Klimenko wrote:

    The payroll tax cut was one of the most effective stimulus measures used, precisely because payroll taxes are regressive.
    […]
    it would have been better to replace the payroll tax cut with an equivalent income tax cut
    […]
    Sure, there were better options for more effective stimulus, but unlike many of those (infrastructure being one of the most notable) . . .

    Mark Zandi’s paper, How the Great Recession was Brought to an End, has a table noting the stimulative factor of each factor employed in the stimulas package. It’s Table 11 on page 17 of the linked PDF file.

    TABLE 11 – Fiscal Stimulus Bang for the Buck

    Tax Cuts – Bang for the Buck

    Non-refundable Lump-Sum Tax Rebate 1.01
    Refundable Lump-Sum Tax Rebate 1.22

    Temporary Tax Cuts
    Payroll Tax Holiday 1.24
    Job Tax Credit 1.30
    Across the Board Tax Cut 1.02
    Accelerated Depreciation 0.25
    Loss Carryback 0.22
    Housing Tax Credit 0.90

    Permanent Tax Cuts
    Extend Alternative Minimum Tax Patch 0.51
    Make Bush Income Tax Cuts Permanent 0.32
    Make Dividend and Capital Gains Tax Cuts Permanent 0.37
    Cut in Corporate Tax Rate 0.32

    Spending Increases Bang for the Buck

    Extending Unemployment Insurance Benefits 1.61
    Temporary Federal Financing of Work-Share Programs 1.69
    Temporary Increase in Food Stamps 1.74
    General Aid to State Governments 1.41
    Increased Infrastructure Spending 1.57
    Low Income Home Energy Assistance Program (LIHEAP) 1.13

    Source: Moody’s Analytics

    Note: The bang for the buck is estimated by the one year $ change in GDP for a given $ reduction in federal tax revenue or increase in spending.

  8. Ogvorbis says

    For the last two years, everyone has gotten a 2% break on payroll taxes and that is now expiring. And by the way, this is something every conservative should support. That temporary reduction in payroll taxes contributes to shortfalls in Social Security and Medicare revenue.

    I have to disagree with you here, Ed. For a true new conservative, anything that increases the (mythical) insolvency of Social Security and Medicare just puts it one step closer to total privatization, surely a worthy goal for conservatives?

  9. joachim says

    Since the SCOTUS has OKed Obamacare…as a tax…this means that everyone (who pays anthing) has had a tax increase.

    And since Obamacare, my families Health Care costs including insurance premiums have shot up.

    My aunts medicare is costing them more also.

    Its fair to say, Obama has hurt our family, and so have all the representatives who signed that 2000plus page bill without reading it.

  10. Dimitri Klimenko says

    Yeah, those numbers are something like what I’ve heard, and it’s in line with the idea that tax cuts are significantly more stimulative when given to lower-income earners.The payroll tax cut was also relatively large in scale (upwards of $120bn per year), so it would have had a relatively large impact overall.

    My point about replacing the payroll tax cut with an equivalent income tax cut was essentially a matter of relabelling – calling it a “payroll tax holiday” was a poor labelling decision.

    As the numbers highlight, there were better options to be had on the spending side of things, but such options might have been more problematic politically. In my view, not putting more infrastructure spending in the stimulus was one of the greatest failings, since not only is it quite effective as stimulus, it also has long-term benefits. More importantly, it’s not too late – that infrastructure spending could still happen now, if only there was the political will to do it…

  11. D. C. Sessions says

    And since Obamacare, my families Health Care costs including insurance premiums have shot up.

    Which is a neat trick, since it doesn’t go into effect until next year.

  12. says

    joachim, that can’t be right. Let me get this straight; you’re trying to tell us that Obama’s nibbling-around-the-edges-cobble-on-a-already-cobbled-healthcare-system healthcare plan is not a panacea for the decades long pattern of consistently-increasing-faster-than-anything-else healthcare costs?

  13. Johnny Vector says

    In fairness to cry4turtles, he or she may be self-employed, in which case the combined employee’s and employer’s share of the holiday would be 4%, meaning he or she only gets $120,000 per year.

    Oh wait, I just checked before posting. The employer contribution was not reduced. So, cry4turtles is claiming that he or she is paying payroll tax on $240,000 per year. Which doesn’t work even if that’s combined family income from two earners, since the cap is $110,000 per year per earner.

    Medicare taxes are not capped, so it is possible that cry4turtle’s household take-home is reduced by $400/month, if the total household income is substantially higher than $240K/year.

    So, turtle, if you really can’t make your car payment I recommend selling the car and downsizing to something a lot cheaper, like a Lexus or something.

  14. naturalcynic says

    If one thing is a problem in their analysis, the opposite would also be a problem. What about “skin-in-the-game”? Not very long ago, they were complaining that the 47% were not contributing enough and that WASN’T FAAAYURR.

  15. matthewhodson says

    Payroll taxes are capped? Capital gains are a lot lower too. WTF
    How the hell do people justify enabling a royal class in a representative democracy?

  16. Suido says

    @Michael Heath #1

    But their priority on social justice frequently has Democrats supporting tax policies which would bring more equality but at the expense of growth

    Given that increases to GDP don’t correlate with increases to quality of life in developed nations, do you think the democrat’s priority on social justice over growth is wrong only during depression/recessions, or do you think it is wrong even during periods of prosperity?

    The obvious answer is that pro-growth/pro-equality policies are best, but for the sake of this question I’d like to hear your opinions on anti-growth/pro-equality vs pro-growth/anti-equality policies for developed nations not at risk of/in a recession.

  17. eric says

    Thorne @6:

    By my math, based on that 2% rise, $400 a month would work out to about $240,000 a year gross income.

    cry4tyrtles should cry me a river!

    As Ed says, there’s a cap at about $100,000. That works out to a maximum inrease of $166/month due to this particular expiration…which will occur next year. The poster’s story is hinky.

    Maybe he got a big pay raise. Or became self-employed – that effectively doubles your contribution, and can be very painful if you’re not expecting it.

  18. bradleybetts says

    “…payroll taxes are capped, they’re only taken out on the first $100,000 or so in income.”

    What!? Really? How is that fair in any way? That’s a ridiculous rule.

  19. slc1 says

    Re bradleybetts @ #22

    FICA taxes have always been capped. Over the years, the cap has been periodically raised.

  20. fastlane says

    I’m betting that if cry4turtles’ claim of $400/month increase is true (I know…work with me here), it’s possible that (s)he is just noticing the difference between the last paycheck(s) of last year, with the first from this year.

    My tax burden increased by almost $300 between my last paycheck of 2012, and my first paycheck of 2013. I didn’t even notice, but my wife did (she watches more closely than me). So I checked my paystubs, and it turns out the reason is that I just managed to get over the SS cap in the last pay period of the year, so my very last paycheck had $0 in SS taken out. So, if that’s the case, the poster above would still have to be making $180k/year or so to get a $400 difference, and none of that was affected by this deal, it happens every year one makes over the cap.

    I’d just as soon eliminate the cap myself, even now that I’ve finally managed to exceed it for the first time in my career.

  21. Michael Heath says

    I wrote @ 1 as quoted by Suido:

    But [Democrats] priority on social justice frequently has Democrats supporting tax policies which would bring more equality but at the expense of growth

    Suido responds @ 20:

    Given that increases to GDP don’t correlate with increases to quality of life in developed nations, do you think the democrat’s priority on social justice over growth is wrong only during depression/recessions, or do you think it is wrong even during periods of prosperity?

    The obvious answer is that pro-growth/pro-equality policies are best, but for the sake of this question I’d like to hear your opinions on anti-growth/pro-equality vs pro-growth/anti-equality policies for developed nations not at risk of/in a recession.

    I point out the obvious answer is known to be feasible in the sentence immediately preceding that which you quote where I wrote:

    [Democrats] own the high ground because we understand that more income equality favors high growth over the long-haul.

    I haven’t come across any debates where one had to prioritize equality or long-term growth at the expense of the other. I am unabashedly pro-long-term growth, which requires me to support a dynamically regulated economy which promotes more income equality, not less. And my support for the equal protection and exercise of individual rights hasn’t caused me any cognitive dissonance when it comes to my support of optimal long-term growth.

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