|Issue of the Day Posts Tagged ‘Taxes’|
One proposal to pay for national health insurance calls for imposing a surtax on income tax bills of the top 1.2% of American households. The tax would start at 1% for couples making $350,000 – $500,000. The surtax would rise to 5.4% for households making more than a million dollars; this is lower than depression era recovery efforts. According to the Center on Budget and Policy Priorities, very few small businesses would be affected. Plus, according to the proposal, small businesses that offer health insurance will see their cost reduced under the new plan. The tax increases of the House bill won’t take effect until 2011.
The Obama administration hopes that this tax increase will help pay for the record budget spending increases of the federal government, which has reached a total of $2.9 trillion in 2008. Mandatory spending now equals $1.788 trillion, an increase of 4.2%, this includes Social Security (+4.5%), Medicare (+5.2%), Medicaid and SCHIPS (+5.6%), Unemployment (+1.8%) and Interest on the National Dept (+9.2%). Discretionary spending equals $1.114 trillion, an increase of 3.1%, which includes double digit increases of 45.8% on the Global War on Terror, 12.1% on the Department of Defense, 18.7% for the Department of Veterans Affairs, 22% for the Department of State, and 13.1% for the Department of Transportation.
According to the Department of Education, countries such as Canada, Japan, and Korea have advanced beyond 50% of their adult populations earning the equivalent of an associate degree or higher. To get the US population to the competition’s level represents a roughly 50% increase in US annual degree production for the next 16 years. Moreover, we would have to pay close attention to the shifting demographics of the US population, which by 2020, whites will decrease to 63%; Hispanic will increase to 17%; and Blacks will reach 13%. A study by the National Center for Public Policy and Higher Education argues that if current gaps remain, the net result would be a projected 2% decline in per capita income over the period from 2000 to 2020. This would result in a shrinking tax base and a weakened global competitive edge.
College degree attainment rates within the US have been relatively flat for two decades at 20-28% for males and 24-30% for women, averaging 29% overall in 2008. Of those aged 25-29, broken down by race, Whites achieve 32%; Blacks earn 19%; and Hispanics are awarded 13% of all degrees. Adding an Associate’s degree increases income by about $10,000 annually; adding a Bachelor’s near doubles income; and a professional degree quadruples a High School annual income. This is especially important when considering that the top 50% of wage earners have paid 96% of our total Income Tax Share in 2007.
Tax Freedom Day — the first day of the year in which the nation as a whole has theoretically earned a total income equal to its annual tax burden — will arrive on April 13 this year, which is eight days earlier than in 2008 and two weeks earlier than in 2007. The reason for this early occurance is that the recession has reduced tax collections even faster than it has reduced income, and the stimulus package includes large temporary tax cuts for 2009 and 2010. Despite the extra days to ourselves, Americans will pay more in taxes than they will spend on food, clothing and housing combined. To break it down, individual federal and state taxes will require 38 days work. Payroll taxes take another 27 days, sales and excise taxes take 15 days, corporate income taxes take 6 days, and property taxes take 12. Americans will log 4 more days to pay other miscellaneous taxes and 1 day for estate taxes.
The individual taxes have been by far the largest proportion of the gross federal and state tax collection since 1944, 50.8% as of 2007. Before the Bush tax cuts, the individual tax proportion has ranged from 55.3% in 2001 to its lowest in 2005 at 48.8%. Of the other components of the tax revenue, employment taxes came to 31.6%; excise, gift and estate taxes amounted to 3%. Corporate taxes amounted to 14.7% of the total, the highest it’s been since 1978.
In two separate events, the Obama administration has started investigating tax reform. The last major tax reform took place in 1986. President Bush appointed a tax reform commission in 2005, which delivered a report in that same year, but its recommendations were not included in the 2007 budget. Prof. Elizabeth Garret of USC, who sat on the commission, has been announced to become assistant secretary of the treasury for tax policy. Also, President Obama asked Paul Volcker, who chairs his Economic recovery Advisory Board, to appoint a tax reform task force that would report no later than December 4th.
Given the composition of tax receipts over time, the percentage of each category has changed given the reforms made by various administrations. For the 2008 fiscal year, individual tax income amounted to $1,146 billion; $23 billion lower than expected. Corporate taxes amounted to $304 billion, $5 billion lower due to $4 billion lower in payments and $1 billion in extra refunds. Social Insurance and Retirement Receipts were $900 billion, $1 billion lower than estimated. Other taxes, such as customs duties, estate and gift taxes came to $106 billion, which was $1 billion more due to higher estate taxes, gifts, fines and penalties. The overall budget in 2008 amounted to $2,979 billion, which was $36 billion above the estimate due to the Department of Defense and the Treasury.