Tax Increases

Here, I’ll say it: I would be willing to pay more taxes.

Surprised? Well, there’s a catch. I’ll be willing to pay more taxes if it was combined with reduced government SPENDING to help eliminate federal debt. That’s a small ‘catch’ for ordinary Americans balancing their own checkbooks, but a seemingly impossible catch for politicians.

I’m honestly amazed at the amount of taxes the Democrats are proposing to offset their record $3.5T in new spending. The taxes won’t cover that much, of course. We’ll still need hundreds of billions of new debt – even if their rosy financial forecasts all prove to be true (but they never are).

Here are the key changes I’ve read about …

⁃ Raise top individual income tax rates from 35%/37% to 39.7%

⁃ Eliminate pass-thru deduction for business owners

⁃ 3% surcharge for income over $3 million

⁃ Raise corporate tax rate from 21% to 26.5%

⁃ Raise top capital gains rate from 20% to 25%

⁃ Make ETF capital gains taxation immediate

⁃ Restore the ObamaCare 3.8% surcharge

In addition, according to the Wall Street Journal, leading Democrats have also proposed increases to “the dividend-tax rate, the death-tax and payroll-tax rates, while creating a new wealth tax, a new financial-transactions tax, a new carbon tax and a new pharmaceutical tax.”

As they say, elections have consequences and I’m always disappointed when it results in one-party rule, as we are right now. I’m hopeful that a few brave Democrats will worry enough about their reelection bids to hold up the tax & spend train. Hopeful, but not optimistic.

What do you make of the current rush of tax & spend proposals?

Image Credit: Pixabay

24 thoughts on “Tax Increases

  1. Chief, I’m willing for you to pay more taxes too! 😜 We both know there is no intention by the Duopoly to cut debt. Reps say they will and don’t. Dems say they’ll tax more and do. At least one is telling the truth. Our current levels of debt are unsustainable and unrepayable. All they know how to do is seize more money from others, justify it in self-righteous ways, and act as if they are heroes, not villains of insolubility.

    Liked by 2 people

    1. The situation has become so ridiculous. Yet, people are so foolish they ignore the debt problem and instead focus on trivial political matters that make the 24-hour news headlines.

      Liked by 1 person

  2. We should all be horrified with the tax and spend attitude of our politicians. Most of us have stuck our heads in the sand way too long. We are on an unsustainable path, and I fear for all of our retirements as future taxes and inflation may very well throw a wrench in many of our current long range plans, not to mention our kids and grand kids futures. We have to find a way to curb the National spending. If we don’t, we all will eventually pay for this mess dearly.

    I firmly believe we also need some form of term limits to stop career politicians from these unsustainable approaches that they all seem to take after just a few years in the job. We also need to make their pensions and healthcare plans the same as ours (non-existent!). We were meant to be a republic of citizen representatives, not 40-50 year career politicians. We need to get back to it or recognize that we are no longer the great experiment in freedom that we thought we were. We also have to somehow tie politicians to their votes/decisions by hard metrics or it will never change. What other job doesn’t have consequences to some form of metrics? There has to be consequences to spending decisions or the whole system eventually fails…and it will most definitely fail…and very likely in our retirement lifetimes given the current spending levels.

    Well…that turned into a minor rant rather quickly! 😉

    Liked by 2 people

    1. Even with all of the buzz about inflation from this debt-driven spending, I don’t see treasury yields moving much at all. The 10 year note is just 1.3%. I’m frankly very puzzled. With respect to term limits,I’m not sure they honestly matter. If it’s not one person from a party, it will be another. Many people just vote for party and they all hold to largely the same approach. I’m. It against them … just not sure it would fix anything.

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    2. We have term limits in California and that is how we replaced a bad Jerry Brown with an even worse Gavin Newscum as Governor.

      Liked by 1 person

      1. Jerry Brown left California with a $6.1B budget surplus (https://www.wsj.com/articles/jerry-browns-legacy-a-6-1-billion-budget-surplus-in-california-1515624022). Moreover, aggregated over the 15 years from 2004 – 2018, California has had a balanced budget (https://www.pewtrusts.org/en/research-and-analysis/articles/2020/03/18/9-states-struggle-with-long-term-fiscal-imbalances). You may object to the size of the tax burden or to the state’s spending priorities, but CA has done a pretty good job of living within its means.

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  3. Our Federal Government doesn’t have a revenue problem. They have a spending problem. So for me a resounding NO of further increasing my household’s number one cost.

    Liked by 1 person

  4. I agree with all of the comments.

    On one hand it’s sort of like climate change – the worst case scenarios are too scary to comprehend and the solutions seem too drastic in our “short term focused society.” The difference with climate change is that corporations have made it an issue to take on and it’s making a difference. Sustainability is a highly marketable and profitable endeavor.

    So – how can someone make “balancing the budget” a winnable issue to run on? Who in the political / intellectual field has good ideas on this?

    Andrew Yang seems to be the best “out of the box yet makes tons of sense” thinker on the left. Ben Sasse seems to be his equivalent in the right. And they both seem to really care about progress, people and our country. Can we get them to run together!? 🙂

    Liked by 1 person

    1. My son is a big fan of Andrew Yang. His UBI scares me though. I honestly am not familiar with Ben Sasse. Will have to look him up.

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  5. One thing I’ve always thought would be very eye-opening for most people would be to send every American an itemized “bill” for what it costs to be an American citizen, with the broad budget categories (social sec, medicare, defense, …) broken out. Their family’s share of the “cost” would simply be computed on a straight-forward, per capita basis.

    Then, show how much they actually paid in taxes (payroll, income, …) as well as their share of any new debt being added (as well as their share of our accrued debt).

    Such an approach would have a few benefits:
    * It would show people where their money is really spent so there can be an honest discussion about what kinds of cuts actually have impact. Rule #1 of budgeting is knowing how you spend your money.
    * It would “rationalize” the discussion into scales of money that people can understand. I think that, for most people, the numbers we hear reported in billions and trillions of dollars are meaningless — the scale is just too great. By putting it terms of “your family’s share,” the scale would be something people could relate to and map against their other household expenses/debt.

    I actually suspect/hope that many people would be humbled by how little of their “fair share” they actually pay AND how difficult it is to make meaningful cost reduction without making significant cuts to sacred cows like Social Security or defense. At least I feel the conversation can be a bit more honest than it often is now (although I don’t hold out much hope that the outcome would be different).

    Liked by 1 person

    1. You make an interesting point about most people not realizing the bite that government takes. As a provocative question, I sometimes ask people what their largest household expense is. Most times they reply, “Their Mortgage.” Me: Really? Your house costs more than Federal Income Tax, State Income Tax, Social Security ‘contributions”, Medicare ‘contribution’, Real Estate Tax, Sales Tax, Gasoline Taxes, excess taxes on services such as your utilities and Disability Insurance.

      Getting people to think about the true cost of taxes seems to wake them up. My follow up question is, “What does your family get in return for its largest household expenditure?” My family personally, not very much, especially in light of my children never attending the inferior product known as Public Education.

      Liked by 1 person

      1. That point of view seems quite cynical to me. I actually think I get tremendous value for my tax dollar, and I would hope that by showing people how their dollars are spent, they might too.

        Whether it’s a guaranteed pension (Social Security), guaranteed medical insurance (Medicare), a strong defense/military, 24-hour police protection, fire protection, disaster relief, roads & bridges, public transportation, schools, parks, scientific advancement, food & drug safety, veterans benefits, …, these all have value to me even if they don’t benefit me directly. Are all of these things as lean and efficient as they could be? Of course not, but I can’t name one item on that list that I would simply do away with.

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      2. I think I’ll calculate this and show it in an article. Our biggest expenses versus our share of government expenses – actual and per capita ‘fair share’. Great idea!

        Liked by 1 person

      3. Tivolo, you give government too much credit. Please look up Dr. Jeremy Siegel’s article on receiving his first Social Security Check at age 70. He calculated that it his and his employer’s ‘contributions were held in a separate account with his name on it, he would have received 3X the benefit and his Medicare would have been fully funded.

        The problem is that the excess contributions made during most of our working careers were spent instead of invested.

        Most of other government activities could operate more efficiently if there was competition. Government charges a great deal for their often inferior quality services that many people have to buy on their own again from the private market.

        As an example, my son’s went to private Catholic High Schools that I paid for in addition to being forced to pay for the inferior public school product whether I use it or not. The superior Catholic High School Product cost around $20,000 annually, while the inferior Public High School Product costs $27,000.

        Finally, I would like to know if you ever saw the National Geographic Special where they filmed CALTRANs crews ‘in action’ using time lapsed photography. It was amazing. You could actually see ‘the workers’ move.

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      4. Social Security is not a personal savings program, it’s an insurance program (as evidence, the benefit you receive is actually called the “Primary Insurance Amount”). Like all insurances, the average person pays more in than they ever receive. If I had invested all the money I’ve paid into homeowner’s insurance into the stock market, I would certainly have a LOT more money… at least until my house burns down.

        As for public/private education, I’m not sure where the $27K figure you quoted comes from, but here’s an article (with references) that puts it at $12.7K per student in CA. Regardless, there’s also the fact that public schools must accept and accommodate ALL students, while most private schools can be selective. Teaching disabled, poor or non-English-speaking students is generally more expensive than teaching wealthy students that can afford $20K/year.

        As for CALTRANS, if your argument is that private sector employees could never be caught working at sub-optimal speed, then I’m not sure what kind of job you worked in. 🙂

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      5. MN is $13K for average public school. We paid about $7K for parochial school K-8 and $12K for 9-12. I support parent choice through vouchers. I think it would be good for all schools to compete for K-12 students the way colleges do.

        Liked by 1 person

  6. While I don’t like paying taxes and get reminded when making quarterly payments, I do think that it is my civic duty to pay my fair share. I happen to be a fan of Malcomb Forbes Jr who posited that personal income taxes should be done on a postcard and all income above a certain level subject to a certain percentage.

    While the theory of UBI is nice, the challenge is that the entrenched way of doing things such as Housing Assistance, which is to a certain extent a form of welfare (guaranteed rental payments) to landlords, Food Stamps and other forms of support would have to go away and that is politically unpalatable.

    As a retired Risk Manager of a large city I recall one instance of a person wanting $12,000 for damage to his corvette due to a construction project. The road under construction was a private road thus the contractor/owner was responsible. He claimed that his “common-law-wife” (no such thing in California) had her Benz damaged even more. I looked up his address and knew from past experience that his address was mostly HUD subsidized housing yet the at least two adults living there had vehicles valued in excess of $100,000. This is of course welfare abuse but I could write volumes on corporate welfare abuse.

    Much of this could be solved by making more of what most consider income to be taxed as income. I’m talking about Interest Carried and other methods which are legal in which hedge fund managers and other highly paid people are able to classify “income” as capital gain. Also such schemes as 1031 exchanges when investor owned real estate is sold and reinvested and while I am at it, the property which is bought from the exchange is likely depreciated once again. Shouldn’t a property once fully depreciated never depreciate again? Isn’t its value zero?

    I had a good decent education at a so-called “inferior” public university. I graduated in four years and I am successful. Thank you to the State of Maine and yes I appreciated the socialist snow plows.

    I don’t like paying my high California income taxes but my property taxes are much less than what brother in Maine pays or sister in New York pays.

    I did get a shock for the cost of Medicare Part A and B that my wife has to pay. Medicare isn’t free!

    Liked by 2 people

    1. Social Security is also free of State Tax in California. Regarding Medicare IRMAA costs, you do make a valid point. I am currently covered under COBRA because I am under age 65. Planning ahead, I saw the IRMAA payments on “excess income” and project that my Medicare payments will be higher than my COBRA.

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  7. Tivolo: I am posting an article from the Daily News that describes LA School District’s $24,000 per student budget that they just passed in June.

    https://www.dailynews.com/2021/06/22/lausd-board-approves-13-8-billion-budget-but-bid-to-further-cut-school-police-falls-short/

    The figure was higher last year because the LA Unified received additional Covid-19 funds from the Federal Government.

    Regarding Social Security being an Insurance Program. If any private entity ran an Insurance Program similar to Social Security they would go to jail for running a Ponzi Scheme. A Ponzi Scheme is a plan where the current beneficiaries are being paid from current ‘contributions’ of future recipients. This works great as long as the population of productive, defined as net tax paying workers is growing.

    Social Security as currently constituted will screw our kids. We are not going to fix the problem with immigration either, unless the country starts be more selective to only allow immigrants who will not be public charges to come.

    Take the time to learn more about both personal and government finance. It will improve your life and help you become FIRE.

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    1. That article is actually a great rebuttal to your assertion that CA’s “inferior” public schools spend $27K/student. LA’s new, $24K/student budget started less than 3 months ago and is funded with pandemic relief grants. The article states this is a 62% increase over last year’s budget. That means that LA has historically been spending about $15K/student.

      As for Social Security being a Ponzi scheme, you would be correct if the govt were acting as a broker/banker for your money (i.e. if you were the beneficial owner of assets being held by the govt on your behalf, as you would be with Fidelity, Schwab, …). That’s how investments work — it’s your money, held by an institution.

      But that’s now how insurance works. Insurance companies use policyholder premiums to cover insurance payments to other policyholders. Of course, in order to prevent default in the event of catastrophe, insurance companies are required to keep statutory reserves (see https://www.investopedia.com/terms/s/statutory-reserves.asp). These are typically based on actuarial models to ensure that the company has the funds to pay out in such an event, but, statistics being what they are, they sometimes fall short (see: AIG). The insurance company does not hold your premiums in a lockbox for your future claims payments, and the Ponzi scheme metaphor isn’t really apt.

      All that said, you’re correct that Social Security is in trouble, just as any insurance company would be in trouble if claims exceeded premiums for a significant portion of time and they depleted their reserves. Either premiums will have to increase or benefits reduced to ensure its solvency.

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