Here's Pelosi:
The speaker would like the trigger raised to $500,000 for individuals and $1 million for families, "so it's a millionaire's tax," she said. "When someone hears, '2,' they think, 'Oh, I could be there,' because they don't know the $280,000 is for one person.
"It sounds like you're in the neighborhood. So I just want to remove all doubt. You hear '$500,000 a year,' you think, 'My God, that's not me.'"
I think most people expected the original surtax to be watered down before it was inscribed into law, because watering down is what Washington does. Like golfing into a strong headwind, the best strategy with launching major legislation in DC is to swing too hard, and expect that every element of the weather will weaken your drive.
But I see no reason why this particular drive should fall short of its target, practically speaking. Passing a surtax on half-millionaires and up is really not very crazy at all. Historically speaking, it's remarkable how few tax brackets we use today to divide the richest Americans. As Economix pointed out this weekend, in inflation-adjusted terms, the top federal income tax brackets starts at $360,000 today. In 1960, that number started at $3 million, adjusted. If you're a believer in progressive taxes, looking to shrink the federal deficit, or both, there's good reason to want to put multi-millionaires in a higher tax bracket than Americans making one-tenth of their income.
That's especially true when you consider the effective federal tax rate. As Conor Clarke likes to say every few weeks, the reason Warren Buffett can say honestly that he pays less than his secretary is that his dividends and capital gains -- which constitute a much higher percentage of earnings for many of the richest Americans -- are taxed at a lower rate than salary income. Once you factor in the effect of these lower taxes, the effective tax rate for the richest 1% of Americans has done this over the last 15 years (graph from Clarke):
In short -- even accounting for the political headwind -- I don't see why it should be such a political impossibility to pass a future surtax that 1) Adds tax brackets after the $300K range, and 2) Brings the effective tax rate closer to its 1995 level.
God this is a silly post.
See, that's just unfair! If you disagree with a major point I made, I'd be happy to suss out our differences. But it's impossible for me to respond to an adjective!
However, the AMT treats them both the same. Largely for that reason, Warren Buffet's point is not true in general, as the CBO notes. The tax system remains progressive; the richest pay the most. You have you get far higher up in the taxes past even millionaires in order to get to the people with lower effective tax rates-- and people like Warren Buffett are the sort who can easily move their income elsewhere. Indeed, in general the reason that capital is taxed less is because it's very easy to move capital elsewhere, whereas consumption and labor is harder to move.
It's also illustrative to note that the top tax rates have declined in every major country over that same time period, along with corporate tax rates (with the result that the US has one of the highest corporate tax rates.) Most have declined faster than in the US. Raising the top tax rate doesn't help a lot if people shift their income to another country.
Also, your graph does have some minor cherry-picking of start dates, because of the tax increase in 1991. If you go back to 1990 it looks different. (Though then with a time horizon back to the 60s or 70s it looks different again.)
What confuses me, though, is that when you wrote "Is this realistic?" you didn't address what I thought you would. Is it possible for only millionaires to pay for it? Are there enough of them? How high would rates have to go to actually bring in enough money? Going from people making $400k to $1M eliminates a lot of people. The surtax was already 5.4% on the millionaire households; it'll have to rise further.
So if so much of the wealthy's income is from dividends and capital gains, will the surcharge really collect as much revenue as expected? Does it apply to all types of incomes?
And I would like to take small issue with this line:
"we've always been squeamish about taxing the rich." Errr, no. I'd suggest we've, for a long time, been squeamish about taxing the rich a significantly higher percent of their income than we tax everyone else. But I've seen no indication that we are any more squeamish about taxing the rich as much as we tax anyone else.
(Looks like John Thacker answered most of my question while I was posting it)
To me your key comment is "is it realistic?" Is it realistic to push through a larger tax on richer folks - yes. Is it realistic to expect this to pay for the healthcare of the other 99% - not really. This always seems to come up whenever there's a program to get paid for - "let's just get the millionaires to pay for it! they must have plenty of money, right? - they're millionaires!". Always attractive politically because then you can promise a "costless" benefit to the majority. Fairness arguments aside, though, even the millionaires don't have enough money to provide universal health care.
As you can see from the CBO report, you can also note that the share of federal tax receipts from the millionaires has also been going up during that same period. Both of these figures are total federal receipts, not just income tax.
Any effect of rates going up or down over the last fifteen years has been swamped by changes in the pretax income distribution. Thus, one can also point out that if tax rates go up, then if the rich hide their income from the government, then effective tax rates will go up and inequality "look" better even as the rich's share of tax could fall.
As you can also see from that data (page 17, , the top 1% starts at around $300K, the top .5% starts at around $500K, and the top .1% starts at $1.5M. Going from surtaxing the top 1% to surtaxing the top .2-.3% is taxing many fewer people.
Sweet, I like this thinking. Set the rate bottom at $300K, get everyone on board because of course the rich should pay more money to live in this country, and then drive up inflation, increasing wages until we all meet the minimum. Then it won't take just a successful opportunity in business to qualify. Kind of like the alternative minimum tax. Just set some arbitrary dollar value (and not a top X percent of incomes) and let cruise control take over until we are all assimilated. You know how the rich have it easier so should have to pay more? You know who else have it easy? Beautiful people. Life is just so much easier for them. They should either strive to be less beautiful (and more fair) or have to pay some sort of penalty for going above the difficulties that others have. I'd like to see some sort of commission on this. I am sure there are lots of areas where someone get's more benefit out of society than me, and should be made to pay 'their fair share' of the tax burden for services for me. Sorry, this is a lame comment, but I think it's lame we are even discussing this. I want to scream aargggghhh mlm mlp grppp... instead I will just annoy with this silly (ok stupid) post.