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Wednesday, April 20, 2011

NY Times: The Middle-Class Tax Trap

New York Times op-ed, The Middle-Class Tax Trap, by Ross Douthat:

Democrats have often promised to raise taxes — but only for the rich, and never for the middle class. ... Under the president’s plan, we soak the rich in the short term, and then just keep going deeper into the red.

Does a plan to cut the deficit with middle-class tax increases exist? In a sense, it does. It’s called the “current law baseline” ... Thanks to inflation and bracket creep, its tax code gradually subjects more and more Americans to rates that now fall only on the wealthy. ... Such unprecedented levels of taxation would throw up hurdles to entrepreneurship, family formation and upward mobility.

They could have ugly political consequences as well. Historically, the most successful welfare states (think Scandinavia) have depended on ethnic solidarity to sustain their tax-and-transfer programs. But the working-age America of the future will be far more diverse than the retired cohort it’s laboring to support. Asking a population that’s increasingly brown and beige to accept punishing tax rates while white seniors receive roughly $3 in Medicare benefits for every dollar they paid in (the projected ratio in the 2030s) promises to polarize the country along racial as well as generational lines.

The Republican vision for entitlement reform, President Obama said last week, would lead to “a fundamentally different America” than the one we inhabit today. He’s right: asking the elderly to pay more for their health care, as Paul Ryan proposes to do, would transform the American social contract, and cause no small amount of pain.

But what Obama didn’t acknowledge is that the alternative path could lead to a different country as well — a more stagnant and balkanized society, in which our promise to the elderly crowds out the fundamental promise of America itself.

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Comments

The Republican vision for entitlement reform, President Obama said last week, would lead to “a fundamentally different America” than the one we inhabit today.


Obama has become what he despises, a bitter clinger. LOLOLOLOLOL

America will fundamentally be different. It's just a decision on whether we're pro-active or reactive in handling it.

So much for "hope & change." Well, I guess that's what he's leaving us, we hope we have some change left?

Posted by: Sandy P | Apr 20, 2011 10:52:22 AM

"[U]nprecedented levels of taxation?" Were you born in 1981?

Posted by: Publius Novus | Apr 20, 2011 11:41:30 AM

The Douthat piece was heavily criticized and mocked in an article linked by Yahoo Finance yesterday by Daniel Gross.
The 94K income level cited by Douthat is controversial. The writer apparently didn't contact Douthat to find out if there was a typo, or the number was from a gov't study, or if Douthat is simply an idiot. The writer jumped to the conclusion that Douthat is an idiot, for anyone interested :)
http://finance.yahoo.com/news/NYTimes-Columnist-Douthat-dg-1886434488.html?x=0

Posted by: Jim,MtnViewCA,USA | Apr 20, 2011 6:22:08 PM

Argentina, here we come,
Where we’re headed on the run,
Where laws and more taxes will stifle us all;
Each effort at working
Won’t get passed those shirking.
Bureaucrats that excel at a stall
Will cast upon us a deadly pall,
Erecting hurdles exceedingly tall
Argentina, here we come.

Posted by: KenB | Apr 20, 2011 6:37:22 PM

RE the Douthat article, I had to chuckle at all the commenters who insist that there is no evidence whatsoever that tax increases negatively impact the economy. Don't they remember 1991 - 1992? The recession that immediately followed the Bush 41 tax hikes? The "worst economy of the last 50 years" according to Bill Clinton? Democrats eagerly blamed the recession on the Bush 41 tax hikes. What? Were Democrats lying? Did they deliberately blame Bush 41 when they knew better, just so they could get a Democrat elected President? Anyone want to come clean about this?

Posted by: Michael Laprarie | Apr 20, 2011 7:40:35 PM

The $94,000 includes employer-provided health insurance and employer-paid employment taxes (federal and state). At most large employers, such as my University, that's about 25%. So 94 x .75 = $70,000 which is certainly "in the ballpark" with other mumbers describing the same demographic. It is apples to apples. That established; this is scary.

[quote]Today, for instance, a family of four making the median income ...pays 15 percent in federal taxes. By 2035, under the C.B.O. projection, payroll and income taxes would claim 25 percent of that family’s paycheck. The marginal tax rate on labor income would rise from 29 percent to 38 percent. *** Such unprecedented levels of taxation would throw up hurdles to entrepreneurship, family formation and upward mobility. *** They could have ugly political consequences as well.[/quote]

Posted by: 30yearProf | Apr 20, 2011 9:37:31 PM

Wow, imagine "asking" the parasite-class to pay more for the handouts and other income transfers they demand from the productive class via government confiscation.

Better yet, imagine limiting the size and scope of the parasite-class itself.

Posted by: timstevens | Apr 21, 2011 11:13:37 AM

The middle class is a great advocate for not taxing the wealthy. They do not wnt capital gains taxes, they do not want an estate tax.
Hence, they will pay more in taxes. The policy of lowering government wasteful spending is a good one, but it is always followed up by lowering taxes for the rich. I burned my Republican card as the party does not really have a conservative agenda. However,some republicans and some democrats have actually figured you need to increase taxes and decrease spending-do both-if you really want a balanced budget.

Posted by: Nick Paleveda MBA J.D. LL.M, Adjunct Professor, Graduate Tax Program, Northeastern University, Boston. | Apr 21, 2011 12:05:40 PM

However,some republicans and some democrats have actually figured you need to increase taxes and decrease spending-do both-if you really want a balanced budget.

The same republicans and democrats have been promising border enforcement and amnesty since 1986. Guess which one we keep getting?

Same with the budget. Don't fall for it again - its not the taxes, its the spending.

Posted by: Fen | Apr 22, 2011 2:56:21 PM