The Weiner Component Vol.2 #12 – Trump & Taxes

speaking at CPAC in Washington D.C. on Februar...

Donald J. Trump, the candidate, made assorted promises to assorted groups about what he would do with taxes. At a rally in Scranton, Pa. he promised to “massively cut taxes for the middle class, the forgotten people, the forgotten men and women of this country who built our country.” At a town hall meeting on NBC’s Today Show, Trump said he believes in raising taxes for the wealthy. He has also promised to lower taxes for the wealthy and for corporations. The last part, he said, will bring jobs back into the United States. According to one survey taken after the last debate he had with Hillary Clinton, 51 percent of the people intending to vote for him supported increasing taxes on high earning individuals.

 

Trump, the President, has come out with his tax plan. Under it the top one percent, people like himself, will get about half of the benefits of his tax cuts. A millionaire would get an average tax cut of $317,000 up, depending upon how many millions he earned over the year.

 

Trump reduces the current seven tax brackets down to three distinct categories. He does away or repeals the head of household tax filing category. He raises the standard deduction for married couples filing jointly from $12,000 to $30,000 and for single individuals with or without children from $6,300 currently for those with no dependents to $15,000. Those who are currently single heads of households, like divorced women with children, would actually have their income taxes increased.

 

A family earning between $40,000 and $50,000 a year would get a tax cut of $560. But millions of middle class working families will have their tax bills rise under Trump’s plan. This is especially true for single-parent families because of the repeal of the head of household filing status as well as that of personal exceptions. Under Trump’s plan a single parent with $75,000 in earnings, two school age children and no child care costs would pay an additional $2,440 in income taxes. While a single parent with an income of $50,000, three teen-aged school children would be taxed an additional $1,186. A married couple with $50,000 in earnings and two school age would see a tax increase of $159. Many married couples would see no benefit from his so-called tax reform.

 

Presumably Trump’s proposal to cut the corporate tax rate from thirty-five percent to fifteen percent will help all taxpayers by boosting economic growth. He would also eliminate the Federal Estate Tax completely. This tax is paid by only the wealthiest taxpayers, by less than the top one percent. It’s a good way to keep wealth in the hands of the few. And, of course, he will do nothing to raise the federal level of minimum pay beyond $7.25 an hour.

 

President Trump’s Tax Plan does not deal with the needs of the Middle Class nor with single individuals raising families but is basically a give-away to the wealthy and the large corporations. He seems to be satisfying the economic group to which he belongs rather than dealing with the needs of the many.

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The United States is a Federal Republic consisting of federal, state, and local governments. Taxes are imposed on each of these levels. These include taxes on income, payroll, property, sales, capital gains, dividends, interest, imports, estates, school districts, and gifts. There are also various fees and licenses. These are imposed on net income of individuals, businesses, and corporations by the federal and some local governments.

 

Most business expenses and some living costs reduce taxable income. Among these are mortgage interest, if you own a house, state and local taxes, charitable contributions, and medical costs. Payroll taxes are paid by both the employer and the employee, as are Social Security and Medicare. An unemployment tax is an expense only to the employer.

 

Property taxes are imposed by most local governments and many special purpose authorities like school districts. These are based upon the appraised value of the property and more than one such tax can be imposed upon a single property.

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There are two types of taxation in the United States. One type is Progressive Taxation and all the others are Regressive Taxation. The Progressive is the Income Tax, as utilized by the Federal Government and a number of states. Here the more one earns the larger is the percent of their income they pay in taxes. In terms of Regressive Taxation, here everyone pays the same amount of their income regardless of how large or small it is.

 

A Regressive Tax would be a sales tax, value added taxes as in the purchase of gasoline or liquor, both of which would also include sales tax. It would be on imports, licenses for anything. It is a fixed amount that everyone would pay equally, regardless of how much or little they earn.

 

The problem with the progressive tax in America is that it is progressive up to a point and then it becomes regressive. Currently there are seven levels going from 10 to 40 percent of the taxed incomes after deductions are subtracted from the income. Progressive taxes go from $9,275 for a single person to $466,950 for a married couple filing jointly. In between these two there is another category called head of household, which is more than a single person pays and less than a married couple is taxed. After the income reaches $466,950, no matter how high it goes, the amount paid remains at 40 percent. Percentage wise the amount paid in taxes actually decreases.

 

Mitt Romney, when he was running for President in 2012 released his taxes for that year. The amount he paid was eleven or twelve percent of his annual income. The average family with an income well under $100,000 will pay 25 to 35 percent in income taxes.

 

The CEO of Hewlett Packard earns 15 million a year, which is over one million a month. Her taxes increase as her income rises in January, the first month of the year, until she reaches $466,950, then for the remaining eleven months of the year she will pay a fixed 40 percent of her income in taxes.

 

Donald Trump, who claims to have ten billion dollars, which he has never proven, has at least multi-millions. He pays the same 40 percent of his income in income taxes; but when eating at a restaurant would pay the same rate of sales tax as a man who could only afford to take his wife to a fancy dinner once a year.

 

Trump would reduce the current seven stages of income taxes to three levels: 12%, 26%, and 33%. His maximum income tax would be at 33 percent. A married couple filing jointly would pay $225,000. No one would pay a larger amount than the person earning a little under ¼ of a million dollars and heads of households would pay the single rate. Under Trump’s plan the system becomes far more regressive and the government collects far less in taxes during a period when the National Debt is over 19 trillion dollars. It could conceivably double under Trump.

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Trump also wants to reduce the corporate tax rate from 35% to 15%. He argues that this will bring industry back to the United States. The actual corporate tax that the government collects is lower than that of Germany, Canada, Japan, and China, among others. The reason for this is called tax expenditures, which is a term designed to legitimize special interest tax breaks and loopholes.

 

The 35% tax rate for most large corporations is a joke. Some of the largest corporations in the United States pay no taxes at all. Two examples would be General Electric and Wells Fargo. These and many other major corporations pay no income tax because the Tax Code is riddled with exemptions and loopholes. These were essentially created by lobbyists. The Tax Code is 71,000 pages long. It has been constantly added to over the years.

 

From 2008 to 2010 at least 30 Fortune 500 Companies, such as Pepsi Cola, Verizon, Wells Fargo, and DuPont, paid more to lobbyists than they did in taxes. They spent $476 million pressuring Congress for tax break loopholes and special subsidies. They kept $164 billion in profits and received $10.6 billion in rebates.

 

In a sense it can be said that Congress sells loopholes and subsidies. Monsanto paid 22 instead of 35%, while DuPont received a 72 million dollar rebate when it made a profit of 2.1 billion dollars. Basically the Tax Code is a mess.

 

In the United States elections are expensive. The Congressmen from both parties accept contributions, particularly in the House of Representatives when they run for office every two years. In addition Congressmen accept benefices from lobbyists but, here, the Republicans are the worst of the two. They prattle on about free markets while protecting just about any market-distorting loophole. Essentially their campaigns are largely funded by the Pharmaceutical Companies who they allow a very large return on what they sell.

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Legal tax scams do and have abounded in the United States; but will President Trump improve or worsen the situation? The high probability is that if Trump gets his way it will be like Christmas for the plutocrats in the country. While they have gotten away with all sorts of scams to date the situation will improve for them by 1,000 percent. The U.S. could well become a country of the rich, for the rich, run by the rich. Trump, who admitted to paying no income taxes for years will legally remain in that position. And so will others like him.

 

But Trump is not a legislator, he is the chief administrator in the country. Congress may not go along with him. As stated earlier the current Tax Code is 71,000 pages long. Trump had a problem with the Health Care Law. It is only 1,000 pages long. He found that group of laws very complicated. The Tax Code is 71 times more complicated. If he tried to simply eradicate the current law there would also be a lot of unhappy lobbyists whose companies would lose their subsidies. Some of these companies would even have to pay some taxes. Life can be very complicated at times!

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The major problem that Trump seems to be facing with tax relief for corporations and the economically upper one or two percent is that his tax relief program will reduce the Federal Government’s taxable income by over 8 billion dollars. Initially his plan was to reduce the funding for Universal Health Care by about 8 billion dollars. But since every electoral district in the country is vociferously against doing away with Affordable Health Care he has a severe monetary problem. A tax cut of the dimensions he wants could double the National Debt by the end of his presidency. It currently stands at 19 plus trillion dollars. In order to fund his tax cut he has to defund Obamacare.

 

Stay tuned in, after failing the first time, Congress is again talking about “repealing and replacing” Affordable Health Care. Paul Ryan is again talking about a new bill that will make health care available to everyone who can afford it.

 

 

 

The Weiner Component: Part 2 – Taxes & the Republican Party

English: Federal income tax amounts in the Uni...

English: Federal income tax amounts in the United States, based on average pretax household income (2003). The primary source of the information is the Congressional Budget Office’s publication titled, “Historical Effective Tax Rates.” (Photo credit: Wikipedia)

English: Plot of top bracket from U.S. Federal...

English: Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009. Data are from http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_progressivity_in_federal_income_tax (Photo credit: Wikipedia)

No one will argue that the Federal Tax System (the income tax) is fair and doesn’t need reform.  The problem is that both the Republicans and the Democrats come at it from totally different perspectives and cannot even begin to come to any sort of agreement about what should be done.

 

The Republicans are supposed to be the party of balanced budgets.  They have systematically held to two major positions: a balanced budget and not increasing the tax rate for the rich or for large corporations; in fact for a large number of years every incoming Republican to the House or Senate has sworn an oath/pledge in writing to Grover Norquist, a lobbyist with no direct connection to the Federal Government that he or she will not raise taxes.  They have also verbally and dramatically supported raising the rate of expenditure for the military with cuts to entitlement programs.

 

Yet the last three Republican Presidents, starting with Ronald Reagan and the two Bush’s, father and son, through military preparedness and wars have raised the National Deficit from one trillion dollars to over thirteen trillion dollars and, in addition, the last Republican President, George W. Bush, left the country at the end of his term in office at the very edge of a major depression.  Avoiding this potential Great Depression caused the next President, Barak Obama, in 2009 to have to spend a far greater amount than was taken in in taxes over most of his two terms to avoid economic calamity and to continue the two wars that Bush propagated, bringing the current deficit up to over seventeen trillion dollars.  Finally, toward the end of 2015, the administration may be able to reduce slightly the deficit.

 

The Republican majorities in Congress are still “Penny wise and dollar stupid,” refusing to spend money on fiscal policy which would both help leave the remnants of the 2008 recession behind us, improve the needed outdated early 20th Century infrastructure of the United States and significantly lower the current rate of unemployment.  They have since 2011, when they gained control of the House of Representatives, refused to pass any spending bills that would upgrade any of the needed infrastructure of the United States, like hundred year old bridges.

 

Their aim seems to be to lower taxes for the upper few percent of the earners, who they call the “job creators,” and increasing the taxes for the middle and lower classes.  In this process, regretfully, they have been fairly successful.  The middle class has been since 1980 decreasing in percentage of the population and the lower class has been growing, to a point where homelessness can be seen today in almost any major city in the U.S.  In fact poverty is at a higher rate today than it’s been in years and is continuing to increase.

 

Since the Republicans cannot get the Democrats in Congress to openly go along with tax cuts for the wealthy and paying for this with large cuts in entitlement programs they have in 2013 passed the sequester law, which automatically makes cuts across the board in government spending.  Most of these automatic cuts seem to be invisible but when one become openly harmful to the economy a law can quickly be passed funding it.  Such was the case with the air controllers at the airports throughout the U.S.   Such was not the case in terms of the U.S. military; they are currently in the worst state of preparedness they have been in decades.  It’s as though the Republicans in Congress are saying one thing, getting the nation ready for war with Iran when they completely take over the government after the next election and at the same time, assuming that they will not have to pay for the war or anything else.  Their actions and intent verge on idiocy and irresponsibility or on a total inability to deal with the real world.

 

One of their major actions during the last thirty-five years has been to systematically reduce taxes for the very wealthy and gradually increase it or make up for the increasing deficit by increasing the tax base for the middle and lower classes.  Some of this has been done by indexing income taxes; that is, with natural inflation incomes rise while purchasing power stays the same or decreases.  This throws many members of the middle class into higher tax categories because their incomes increase but their standard of living actually decreases.

 

Many or most Republicans legislators probably are not even aware that this is happening because it has been going on for over three decades.  Most, if not all of them, have come into office in Congress well after this process has been begun and have just continued it.  If we look at the pattern of taxation over the last fifty years this is one aspect that we can easily see.

 

The major responsibility for all these changes rests with the Republicans, their major contributors and the lobbies working for these people.  And the Supreme Court, in recent years, has expedited this process by defining contributions to political parties as just another form of “free speech guaranteed by the First Amendment to the Constitution.”

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First off, taxes are either progressive: everyone pays according to their ability to pay, or they are regressive: everyone pays equally, which means the rich pay a smaller percentage of their incomes on these taxes than the middle or lower classes.  In essence the lower one’s income the higher a percentage of his income would be paid on these taxes.  Examples of this kind of tax would be a sales tax or an excise tax.  Everyone pays these equally.

 

An example of a progressive tax would be the Federal or State income taxes.  They are progressive up to a point, that is up to a little over 400,000 dollars.  Up to this amount the percentage of the tax is gradually increased as incomes becomes larger.  After the maximum, a little over 400,000 dollars is reached the income tax becomes regressive in that the percentage paid becomes fixed no matter how great the income is over this amount.

 

An individual earning ten or twenty million a year or more would continue paying the same percentage as someone who has only earned 400,000 dollars a year.  In point of fact the higher his income the lower the percentage that individual pays in taxes.

 

Virtually all other taxes, which are touted as being fair because everyone pays the same amount, are regressive.  The wealthier one is, the lower that tax is in terms of a percentage of his income.

 

If we look at the 2014 Income tax schedule there are four categories for taxpayers: (1) Single, (2) Married Filing Jointly, (3) Married Filing  Separately, & (4) Head of Household.

 

Using Schedule Y-1: Married Filing Jointly as our example one sees the sequence of taxes for 1914.  For earning up to $18.150 there is no income tax.  For a couple earning between $18,150 and $73,800 the tax is $10,162 + 15% over $18,150.  For earning of $73,800 to $148,850 the tax is $10,162 + 25% of the amount over $73,800. If a family earns between $148,850 and $226,850 the tax is $28,925 + 28% over $148,850.  For between $226,850 and $405,100 the tax is $50,765 +33% over $226,850.  If they earn between $405,100 and $457,600 the tax is $$109,587.50 + 39%.  At $457,600 up they pay $127,962.50 + 39.6% no matter how much they earn.

The amounts are slightly less for a single person and roughly half for a married taxpayer filing separately.

 

In essence everyone pays increasing amounts for each category until they reach their total income after legal deductions.  This would be true for those earning over $457,600, except that after that amount they would pay $127,962.50 + 39.5% of their income.  If they earn a million it would be that amount and would remain the same with earnings of a billion or more.

 

Note that anyone earning any amount over $457,600 pays that same percentage whether his income is one million or over a billion dollars.  While this may seem like a lot of money still in comparison to the percentage of their incomes which most taxpayers have to pay who are under the $450,000 benefit it can be a very much smaller percentage of their yearly incomes.  In the case of someone like the Koch Brothers, who are estimated to have at least a $100 billion each, it can be well under ten percent of their yearly incomes.

 

Mitt Romney, in 2012 when he was running for the presidency, released one year’s tax percentage.  It was 11 or 12%.  No one earning less than $400,000 a year pays that small a percentage of their income

 

If we look at the taxes in 1980, the last year of Jimmy Carter’s presidency, the percentage in income paid in income taxes were graduated up to an income of one million dollars.  The more one earned the higher the percentage he paid in income taxes.  At $100,000 the tax was 27.3%.  At $200,000 it was 33.1%.  At $500,000 it was 40%.  Up to $1,000,000 it was 44.6%.  And over $1,000,000 it was 47.9% of the yearly income.  The income tax became regressive on earnings well over the million dollar mark.  But it was still a fairer income tax than that of 2014.

 

From 1932 to 1935 the percentage of income taxes for those earning one million or more was 63%.  It rose to 94% from 1944 – 1945 and then gradually declined to 92% by 1952 – 1953.  By 2013 for those earning $450,000+ the rate of taxation became 39.6%.

 

In 1981 Ronald Reagan became President of the United States.  From that point on the maximum percentage seemed to flow toward 39.6% for those earning $457,600 or more.  This amount was fixed, under the guise of tax reform, during the Obama Administration.  The Republicans who then held a majority in the House and were able to freely filibuster in the Senate absolutely refused to go over that amount.  It was that or nothing.

 

With the oncoming 2016 election this issue hangs in the air again.  A Republican majority currently exists in both Houses of Congress.  If a Republican president is elected then the tax reform will be enacted for the upper few percent of earners in the country.  The rich will keep more of their incomes and the middle and lower classes will get far less than they currently have.  It will truly be Government of the Rich, for the Rich, and by the Rich.  All entitlement programs for the poor and general public will diminish considerably.

 

In fact in one of his speeches Jed Bush has promised to lower taxes for the upper few percentage of the earning population.  His justification is that this will increase employment in the U.S. because these are the people who create jobs.  Historically this has never happened.  But Bush Jr. presumes he knows best.

 

If, on the other hand, the Democrats were to win both Congress and the Presidency then we could see genuine reform of our income tax system.  But the probability is that 2016 will give the country another Democratic President and the House of Representatives will maintain, through gerrymandering, a Republican majority.  The Democrats will still not have a super-majority in the Senate, so it will again be open to filibustering.  There will still be no way for real tax reform.  However we can hope for miracles.

Distribution of U.S. federal taxes for 2000 as...

Distribution of U.S. federal taxes for 2000 as a percentage of income among the family income quintiles. Source: Department of the Treasury, Office of Tax Analysis Working Paper #85, “U.S. Treasury Distributional Methodology” by Julie-Anne Cronin (September 1999)- also available here (Photo credit: Wikipedia)