We've heard it so many times before: Tax reform. When the Democrats say it, it usually means raising taxes (mostly on the rich). When the Republicans say it, it almost always means cutting taxes (mostly for the rich).
The Democrats had a chance for so-called "tax reform" when Obama had both chambers of Congress in 2009/10. Now the GOP controls Congress in 2015, but the Democrats are now proposing tax reform, when they know very well that they don't have a snowball's chance in Hell of ever getting their own version of tax reform passed. Why?
From an article at the New York Times, "Obama Will Seek to Raise Taxes on Wealthy to Finance Cuts for Middle Class":
"President Obama will use his State of the Union address to call on Congress to raise taxes and fees on the wealthiest taxpayers and the largest financial firms to finance an array of tax cuts for the middle class, pressing to reshape the tax code to help working families ... The proposal faces long odds in the Republican-controlled Congress, led by lawmakers who have long opposed raising taxes and who argue that doing so would hamper economic growth at a time the country cannot afford it."
The article goes into detail about Obama's proposed tax reforms, but they are not serious proposals, and are a waste of our time and an insult to our intelligence. Obama and the Democrats are "trolling" their base — maybe to help gamer support for their 2016 Moderate/Third Way/Blue Dog presidential candidate (Hillary).
But it's all poop — plain and simple. After all, Obama and the Democrats also wanted to change the way COLAs were calculated for retirees, Vets and those on disability (paying them a lower monthly benefit.) Some called this a "compromise" with the GOP, while others called it a "sell out" by the Democrats.
Excerpts from an another article at the New York Times, "Driving the Obama Tax Plan: The Great Wage Slowdown":
"The key to understanding President Obama’s new plan to cut taxes for the middle class is the great wage slowdown of the 21st century ... The great wage slowdown has several main causes: globalization, which has forced Americans to compete with hundreds of millions of poorer workers from around the world; technological change, which allows machines to replace human labor in new ways; the slowdown in American educational attainment, even as the rest of the world has continued to become more educated and more highly skilled; and the shifting balance of economic power, away from workers and toward companies and their executives ... No politician, of either party, can quickly alter the basic forces behind the great wage slowdown. That’s why Mr. Obama has begun talking about a tax cut for the middle class, to be financed by a tax increase on the affluent — who have continued to do quite well in recent years. It’s also why several conservatives are talking about a cut in the payroll tax, the largest federal tax for most Americans."
I have no idea why the New York Times linked to that article about a cut in the payroll tax. It's a Tea Party rant about the "error rate" for the Earned Income Tax Credit program and a rant against the IRS. It does mention payroll tax cuts, but those same cuts would mostly benefit employers who must also contribute to Social Security and Medicare — programs the GOP wants to defund. The Republicans want to entice workers to take a payroll tax cut now, and then workers will have to hope that they have adequate Social Security credits to properly retire on later. (Why not just completely eliminate the Social Security "cap"?)
The New York Times also says the payroll tax is "the largest federal tax for most Americans." True, because 95% of all wage earners must pay these taxes (FICA) on 100% of their earnings. Whereas, the most wealthy (whose earnings are primarily from "capital gains") pays no Social Security taxes at all — and the tax rate on capital gains (23.8%) is lower than on regular wages (On $37,451 and over, the tax rate starts at 25% and goes up to 28%, 33%, 35% and 39.6%).
Senator Bernie Sanders became the ranking minority member on the Senate Budget Committee when Congress returned to begin a new session. That will make him a leading voice for Democrats as they clash with Republicans (who now control the chamber) over government spending, entitlement reform and taxes.
G. William Hoagland, a budget hawk who is senior vice president for the Bipartisan Policy Center (founded by Howard Baker, Tom Daschle, Bob Dole and George Mitchell) said “If you are actually setting fiscal policy for the future, it is a very unpleasant thing to talk about either tax increases or spending increases.” Hoagland believes "moderate" Democrats on the Senate Budget Committee will prevent Bernie Sanders from taking too hard a line: “They will definitely pull him back to the left of center, as opposed to the far left of center."
But is Bernie Sanders really all that "far left" on tax policy when compared to Republican President Dwight Eisenhower? Ike's idea of a significant marginal rate cut was to push the top rate down to 91 percent from 92 percent. The IRS reckoned that the "effective" rate of tax in 1954 for top earners was actually 70 percent. A more comprehensive interpretation of income (that also included capital gains) suggests the real effective tax rate for millionaires was 49 percent in 1953 — when corporate taxes hit 50 percent. During that time jobs proliferated, wages rose, and the economy prospered.
Obama’s originally proposed tax plan (aka The Buffett Rule) would have created a 30 percent tax on individuals making more than a million dollars a year — still far less than during Eisenhower's time, and not very much more than the current tax rate of 23.8% on capital gains.
But the whole notion of giving tax cuts to the poor and raising taxes on the rich in 2015 is a total fantasy (especially now that the GOP controls both cambers of Congress). Obama and the Democrats are being very dishonest in their attempt to convince the public that 1) they want tax reform, and 2) that it's even possible with a GOP Congress. As I mention in another post:
"The Democrats are seizing on the opportunity to be progressive at a moment when it’s cheap and easy; being out of power (or in Obama’s case, term-limited) they won’t have to pay the price in campaign dollars or blowback that would come from pursuing these policies in an environment in which they could actually become law. After all, when Democrats controlled all of Congress and the presidency, it’s not like they made a move on paid sick leave or a financial transactions tax or any of a host of other ideas that would have helped out the middle class ... Now they can stoke the fire and garner the goodwill of the left, without having to deal with the downside."
Most American voters (from liberals to conservatives) want a fairer tax code, but neither the trolling Democrats nor the Republicans will ever do anything to change it. Our tax code has been rigged for the very rich ever since the first Gilded Age.