More On O’s Budget

February 13th, 2012 at 3:29 pm

Learning new deets re the President’s budget…here’s one worthy of attention, from the NYT:

In his new budget blueprint, President Obama is proposing to tax dividends of the wealthiest taxpayers as ordinary income subject to their top income-tax rate, which was the practice until the Bush administration lowered the rates. The proposal, released on Monday morning with other parts of the budget, would raise about $206 billion over 10 years.

Assuming that the Bush-era tax cuts expire at the end of the year, as required by law, dividends for the top 2 percent of income-earners would be taxed at 39.6 percent. Before 2002, the richest taxpayers paid a 35 percent tax on dividends, like on all ordinary income.

OK, it’s not going to happen with this Congress, but it’s good to see it in the budget—ending the favorable treatment of non-wage income, like divs and cap gains, is a good idea in terms of fairness (the Buffetts and Romneys of the world pay lower rates because their income derives from sources favored by the tax code), revenue, and avoiding distortionary incentives to structure your income in ways that evade taxes.

The fact that the President is putting this on the table is a good thing.  The fact that few members of Congress would sit down at that table is less good, but that’s the reality.  The President presented the budget we need right now, with considerable stimulus up front and deficit reduction in back.

The fact that the system is too broken to recognize that, much less implement it, is our problem.


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3 comments in reply to "More On O’s Budget"

  1. Jon Smith says:

    What is interesting about capital gains and the dividends policy is that the policies that Obama does not like, of preferred treatment for these forms of income, do expire at the end of the year. Therefore, if nothing happens, Obama wins. That almost makes this area of policymaking a little different than other things Obama has proposed (financial responsibility tax, infrastructure investment) because obstinate behavior from House Republicans serves to their detriment, as they would lead to Obama getting his preferred policy of revenue increases anyway. On the other policies, Obama requires legislation to get what he wants, here if nothing happens he gets what he wants.

  2. perplexed says:

    -“The fact that the system is too broken to recognize that, much less implement it, is our problem.”

    Maybe its time to recognize that the system is so seriously broken that nothing short of a major overhaul will be sufficient to fix it. Let’s face it, we have just watched the latest episode of a very unsafe vehicle rambling down a very steep mountain at a very high rate of speed toward a huge group of people that have no way to get out of its path of destruction.

    How is it even possible that we can really be watching our government sell “get out of jail free” cards to a group of criminals and criminal enterprises that nearly destroyed our entire economy with the largest fraud and con – game ever perpetrated on a population and whose victims span the entire globe? Not only do they buy the “get out of jail free cards,” but they also maintain their positions running the most powerful organizations in the world, more powerful than the governments of the countries they operate in, governments whom they hold hostage in the event that they screw up their fraudulent operations so seriously that they need enormous government resources to continue their crime spree. If my memory serves me correctly, there is something in our constitution requiring equal protection under the law. Does this now require the government to sell these “get out of jail free cards” to all criminals who can afford it? I suppose the prices for these cards are somehow established in the “free market” right? Hopefully, the federal judge that has to approve this settlement will see it for the outright sale of our justice system that it is and put a stop to it. Nothing would do more to restore the confidence of businesses and individuals in both the justice system and the marketplace than to see these criminals tried and imprisoned for these crimes, and prevented from ever working in a similar position of responsibility in the future. Foregoing this opportunity only provides more evidence that “Frankly, the banks own the place.” Had this been done initially as it should have been, the courts would have recognized early on that they were dealing with losses resulting from a massive criminal fraud and found some defensible way to apportion these these losses (i.e.. maintain the same mortgage/equity percentage as existed before the fraud) between the investor and homeowner victims. The failure to address the original fraud (mortgage origination and securities fraud) is part of what let to the second fraud (foreclosure fraud and more securities fraud).

    Many of us that lived through Watergate scandal and its cover-up are amazed at the degree to which Mortgage-gate is unfolding before our eyes with the Press serving as an accomplice to the criminals instead of as a source of the truth about what is going on and being covered up; the contrast is so stark that I keep trying to adjust my my TV screen thinking there must be something wrong with it. Even Chris Hayes never even thought to bring it up on his show last Sunday. I suppose he’s not smart enough to recognize it right?

    And all of this is done out in the open, in a presidential election year; an election year in which the Judicial Branch of our government has given a completely free hand to our oligarchs, oligarchs who have commandeered more than 2/3’s of our wealth and 1/4 of our annual income, to use these resources to manipulate our elections under the guise of “free speech.” An un-elected Grover Norquist is given a free hand to coerce our representatives into forking over their independence to vote in best interests of all of their constituents. Why are any of these representatives allowed to serve after publicly agreeing to hand over their independence to a group that threatens them with financial retribution if they refuse to acquiesce in this “protection” racket? Is this free speech as well?

    Meanwhile, all three branches of government have worked to systematically undermined our 4th and 14th Amendment rights, taking them away from school children altogether and now allowing the government to suspend them at will for adults, without recourse; thus supporting the coercion and “cowing” of the population that Justice Jackson so adamantly tried to prevent. A minority of people, all of whom are unemployed and powerless to do anything about it, are frozen out of the supposed “job market” without recourse while the majority is allowed to deprive them of their Constitution rights to liberty and pursuit of happiness by denying them free access to this supposed “market” without compensation? We don’t even think to challenge the Constitutionality of this market manipulation? Economists rename it “price stickiness” so no one has to deal with the reality of what’s really going on in terms of “market” access? Really? What a convenient way to impose the entire cost of the output gap on a small, powerless minority as if there’s no alternative way to solve the problem or spread the cost.

    Let’s face it, the movie we are watching here is the utter failure of our Constitution, and the institutions designed to protect and enforce it, from securing the rights guaranteed under it to those it was established to protect. We’re in denial while the damage continues to accrue. There are a few voices out there including Peter Schweizer (“Throw Them all Out”), Glenn Greenwood (“With Liberty and Justice for Some”), and Dean Baker (“The End of Loser Liberalism”) among others, trying to rise above the din; but the high level of noise created by the money of the oligarchs is getting harder and harder to overcome.

  3. RPL says:

    I have to disagree with the endorsement of differential tax rates for capital gains and dividend income. The reality of taxing dividends at normal rates while providing favored rates for capital gains is that it results in tax-induced biases in corporate policy that reduces the flow of dividends and results in management focusing on boosting stock prices in the short run so they can then provide a stock buyback program, which is a stealth method of providing shareholders with a dividend that is taxed differently. Raising taxes on dividends and capital gains is almost certainly an appropriate public policy decision. Among other things, in addition to tax equity issues, the evidence suggests that it leads to higher retained earnings and more aggressive long-term reinvestment in our business enterprises. However, it is highly misguided to tax dividends and capital gains at different rates. Both represent returns to shareholders and should be taxed equally. Otherwise, you create tax based incentives for undesirable corporate behavior. We get plenty of that with a balanced tax code (though for example allowing the deduction of interest expenses and not dividends results in over reliance on debt financing), we don’t need to exacerbate the problem by creating tax wedges between what are in economic terms the same event.