B Hussein O's new health-care legislation aims to raise $210 billion over 10 years to pay for the extensive new entitlements. How? By slapping a 3.8% "Medicare tax" on interest and rental income, dividends and capital gains of couples earning more than $250,000, or singles with more than $200,000.

He also hopes to raise $364 billion over 10 years from the same taxpayers by raising the top two tax rates to 36%-39.6% from 33%-35%, plus another $105 billion by raising the tax on dividends and capital gains to 20% from 15%, and another $500 billion by capping and phasing out exemptions and deductions.

Add it up and the government is counting on squeezing an extra $1.2 trillion over 10 years from a tiny sliver of taxpayers who already pay more than half of all individual taxes.

It won't work. It never works.

The maximum tax rate fell to 28% in 1988-90 from 50% in 1986, yet individual income tax receipts rose to 8.3% of GDP in 1989 from 7.9% in 1986. The top tax rate rose to 31% in 1991 and revenue fell to 7.6% of GDP in 1992. The top tax rate was increased to 39.6% in 1993, along with numerous major revenue enhancers such as raising the taxable portion of Social Security to 85% of benefits from 50% for seniors who saved or kept working. Yet individual tax revenues were only 7.8% of GDP in 1993, 8.1% in 1994, and did not get back to the 1989 level until 1995.

Punitive tax rates on high-income individuals do not increase revenue. Successful people are not docile sheep just waiting to be shorn.

From past experience, these are just a few of the ways that taxpayers will react to the Obama administration's tax plans:

• Professionals and companies who currently file under the individual income tax as partnerships, LLCs or Subchapter S corporations would form C-corporations to shelter income, because the corporate tax rate would then be lower with fewer arbitrary limits on deductions for costs of earning income.

• Investors who jumped into dividend-paying stocks after 2003 when the tax rate fell to 15% would dump many of those shares in favor of tax-free municipal bonds if the dividend tax went up to 23.8% as planned.

• Faced with a 23.8% capital gains tax, high-income investors would avoid realizing gains in taxable accounts unless they had offsetting losses.

• Faced with a rapid phase-out of deductions and exemptions for reported income above $250,000, any two-earner family in a high-tax state could keep their income below that pain threshold by increasing 401(k) contributions, switching investments into tax-free bond funds, and avoiding the realization of capital gains.

• Faced with numerous tax penalties on added income in general, many two-earner couples would become one-earner couples, early retirement would become far more popular, executives would substitute perks for taxable paychecks, physicians would play more golf, etc.

In short, the evidence is clear that when marginal tax rates go up, the amount of reported incomes goes down. Economists call that "the elasticity of taxable income" (ETI), and measure it by examining income tax returns before and after marginal tax rates claimed a bigger slice of income reported to the IRS.

The evidence is surveyed in a May 2009 paper for the National Bureau of Economic Research by Emmanuel Saez of the University of California at Berkeley, Joel Slemrod of the University of Michigan, and Seth Giertz of the University of Nebraska. They review a number of studies and find that "for an elasticity estimate of 0.5 . . . the fraction of tax revenue lost from behavioral responses would be 43.1%." That elasticity estimate of 0.5 would whittle the Obama team's hoped-for $1.2 trillion down to $671 billion. As the authors note, however, "there is much evidence to suggest that the ETI is higher for high-income individuals." The authors' illustrative use of a 0.5 figure is a perfectly reasonable approximation for most purposes, but not for tax hikes aimed at the very rich.

For incomes above $100,000, a 2008 study by MIT economist Jon Gruber and Mr. Saez found an ETI of 0.57. But for incomes above $350,000 (the top 1%), they estimated the ETI at 0.62. And for incomes above $500,000, Treasury Department economist Bradley Heim recently estimated the ETI at 1.2—which means higher tax rates on the super-rich yield less revenue than lower tax rates.

If an accurate ETI estimate for the highest incomes is closer to 1.0 than 0.5, as such studies suggest, the administration's intended tax hikes on high-income families will raise virtually no revenue at all. Yet the higher tax rates will harm economic growth through reduced labor effort, thwarted entrepreneurship, and diminished investments in physical and human capital. And that, in turn, means a smaller tax base and less revenue in the future.

The ETI studies exclude capital gains, but other research shows that when the capital gains tax goes up investors avoid that tax by selling assets less frequently, and therefore not realizing as many gains in taxable accounts. In these studies elasticity of about 1.0 suggests the higher tax is unlikely to raise revenue and elasticity above 1.0 means higher tax rates will lose revenue.

In a 1999 paper for the Australian Stock Exchange I examined estimates of the elasticity of capital gains realization in 11 studies from the Treasury, Congressional Budget Office and various academics. Whenever there was a range of estimates I used only the lowest figures. The resulting average was 0.9, very close to one. Four of those studies estimated the revenue-maximizing capital gains tax rate, suggesting (on average) that a tax rate higher than 17% would lose revenue.

Raising the top tax on dividends to 23.8% would prove as self-defeating as raising the capital gains tax. Figures from a well-know 2003 study by the Paris School of Economics' Thomas Piketty and Mr. Saez show that the amount of real, inflation-adjusted dividends reported by the top 1% of taxpayers dropped to about $3 billion a year (in 2007 dollars) after the 1993 tax hike. It hovered in that range until 2002, then soared by 169% to nearly $8 billion by 2007 after the dividend tax fell to 15%. Since very few dividends were subject to the highest tax rates before 2003 (many income stocks were held by tax-exempt entities), the 15% dividend tax probably raised revenue.

In short, the belief that higher tax rates on the rich could eventually raise significant sums over the next decade is a dangerous delusion, because it means the already horrific estimates of long-term deficits are seriously understated. The cost of new health-insurance subsidies and Medicaid enrollees are projected to grow by at least 7% a year, which means the cost doubles every decade—to $432 billion a year by 2029, $864 billion by 2039, and more than $1.72 trillion by 2049. If anyone thinks taxing the rich will cover any significant portion of such expenses, think again.

The federal government has embarked on an unprecedented spending spree, granting new entitlements in the guise of refundable tax credits while drawing false comfort from phantom revenue projections that will never materialize. "

http://online.wsj.com/article/SB10001424052702304370304575151682845921038.html?mod=WSJ_hpp_sections_opinion

Hauser's Law




ObamaCare is definitely going to be a make or break issues for the Democrats for a long time to come. Too bad we couldn't break both parties with it.

One thing was omitted from the OP, that may well be counted on happening. When suddenly faced with a paying a 100,000 dollar tax bill or a multimillion dollar tax bill many individuals and corporations opt to 'donate' a much smaller portion of that amount to save double the donated amount in taxes.

National endowment funds, huge charitable donations, grant funding and scholarships all benefit from this kind of tax shelter. We are facing a crisis in this country that will become more evident as the demand on the non-profit sector exceeds the flow of funding.

A good way to 'assist' in the redistribution of wealth is to raise taxes so that it's effect is strongly felt by the those who have the largest incomes. Seeking charitable tax shelters takes direct entitlement burden off Federal and State budgets, and assures that portion of society that most needs it, the services that non-profits provide.

Such tax shelters also provide the doner with a sense of control over how their funds will be utilized, and at the same time it's good for business. A corporate entity gains not only loyalty of consumers, but also gains a larger asset on the books for their "Good Will".

It would be interesting to look at the time periods addressed in the OP and determine how much was donated to Charities when revenues 'suddenly' declined.

How about congress deals with the Pork Barrel and Subsidies and foreign give aways first?

They need to address spending and social spending first and foremost.

Ya know....I have been, over the last year or so, been seriously considering opening up a small restaraunt. I have a pretty good idea that isn't very prevalent in a certain area and I think I could do well.

But....what incentive do I really have to make a business successful?

If I do make it successful, I am going to get taxed so heavily that the chances of staying in business are slim at best anyway.

YAY!!!

So much for the " American Dream " eh, folks?

to answer the title of the thread,,,no


I have managed to budget on so little for so long, that paying a few more taxes and still being RICH is not something I think would stress me too much,,,,but thats just me

If our debt was manageable, raising taxes to pay for new spending is somewhat acceptable.

Our financial situation is not manageable or acceptable. Raising taxes and increasing spending is not sound fiscal policy when you are paying billions in interest on your debt.

This healthcare bill is one of the reasons we aren't creating the kind of job numbers we should be. We are almost 2 years into this recession and the economic indicators are not pointing towards sustained growth they are pointing towards a worsening of the recession.

If things don't change in 5 years time people won't give a rats a$$ about whether or not they have healthcare because healthcare doesn't pay their bills.

Not to mention who's going to provide the healthcare when all the doctors leave for better paying jobs overseas without the threat of malpractice suits with no cap, education that costs more than they'll make in the next 50 years, and taxes up the butt from the government to boot?

In less than two years this will be rendered moot ... 'The UN' will have made all of us (with the exception of his psychophants) equally POOR. 'Hope' and 'Change' ... sometimes y' gotta hold their feet to the fire and make 'em define terms. What we have now is the result of having not done that when the opportunity was there.

I think he has set the progressive agenda back 20 years. He is no different than Carter. It was 32 years between electing a real die hard progressive president. If the idiots running the republican party can manage to actually stick to a couple of core principles I may never see another hard core leftist president in my lifetime..

so do people shift jobs overseas because they have to pay MORE to those employees? weird,,, American doctors are still amongst the top paid , I doubt many are going to leave their american lifestyle (those who are successful doctors) because they have to pay more taxes. I mean, I am sure SOME will, but overwhelmingly they probably enjoy their AMERICAN lifestyles far too much.

there were probably many opponents to the 1984 child support amendment mandating support be withheld DIRECTLY from the paycheck of the absent parent too,,, do you know how much that amounts to for a doctor? yet they are still one of the most oversaturated fields in America,,,