Knowing Which Side Your Bread Is Buttered On
Greg Mankiw teases out the real beneficiaries from Charlie Rangel’s tax plan.
- The bottom three-fourths of households, those making less than $75,000 a year, are not much affected. They each would receive a tax cut of about $100 per year.
This group mainly votes for Democrats. Perhaps Rangel sees those who don’t, the culturally conservative white working class, as a lost cause. Or they can be won over via other means.
- The next 24 percent, those making between $75,000 and $500,000, would receive much more substantial tax cuts. Those in the $200,000 to $500,000 range, who are in the 96 to 99 percentile of the income distribution, would get a tax cut of about $3,600 per year.
Here we have a key Democratic constituency, the suburbanites behind the party’s small-donor boom. These voters are tax-sensitive and they are susceptible to Republican appeals.
- The top 1 percent, those making over $500,000, would pay substantially more in taxes. Those making more than $1 million would see their tax bill rise by an average of more than $100,000.
The Democrat-friendly ultrarich aren’t tax-sensitive, and many are in fact eager to pay higher taxes. The rest, micropolitan industrialists, “small-scale” entrepreneurs, upper-middle management, etc., are the bedrock of the Republican Party.
The logic is impeccable. And besides, it’s not obvious that it wouldn’t be an improvement, though that’s more a sad reflection on our current mess of a tax code. Personally, I like the Millman Plan.
You’re saying that taxpayers in the $200,000 to $500,000 range will receive a tax CUT of $3600 a year? I’m calling BS on that.
If you look at the “analysis” from the Tax Policy Center that leads to this conclusion, you will discover that this “tax cut” depends entirely upon “offsetting” the Rangel 4 and 4.6% bracket increase against the projected take of the AMT over the next 7-8 years or so if the AMT were left unaltered. In other words, there is a major thumb on this scale.
The AMT is taking more and more from not just the entrepreneurial class, but from ordinary upper-middle income earners. It is only by using this rapidly expanding tax — and ignoring the annual fixes that have curbed the growth of this tax and would continue to curb the growth of this tax — that the Tax Policy Institute comes up with a “tax cut.” You know what, speaking as a member of the entrepreneurial class, I’d say “thanks, but no thanks” to any “tax cut” like that.
The other element that is ignored is that the AMT has a markedly different effect depending on what state you are in, so the “tax cut” is far greater for those in high tax states than it is in lower tax states. So, surprise, surprise — the other element of income distribution in the Rangel plan is from high tax (did I say Blue?) states, to lower tax (Red anybody?) states.
Please, tell me where I’m wrong in this analysis.
— Lycurgus · Oct 31, 07:49 PM · #