-Submitted by David Durmm (Nal), Guest Blogger
Although Rep. Paul Ryan (R-WI) had initially received praise for his budget proposal, upon more careful analysis, many, like Nobel laureate Paul Krugman, have found it to be Ludicrous and Cruel. A principal feature of his budget is tax cuts for the wealthy, from 35 percent to 25 percent. But not to worry, remember that tax cuts magically pay for themselves. Phase 1, cut taxes for the wealthy. Phase 2, ? Phase 3, prosperity.
Rep. Ryan’s budget relies on economic forecasts provided by the Heritage Foundation showing an unemployment rate of 2.8% by 2021. This seems like déjà vu all over again.
The Heritage Foundation also predicted massive economic gains from President George W. Bush’s tax cuts for the rich. The chart below show the Heritage predictions for employment in blue and the actual numbers in red.
The 2.8% prediction was so ludicrous and subject to so much ridicule, the figure vanished from the Heritage Foundation’s web site. Yet it is the Heritage Foundation’s model that Rep. Ryan cites as the analytical basis for his claims of job growth.
Ryan has been down this road before. In his “Roadmap For America’s Future”, Ryan proposed massive tax cuts for the rich. In a report from the Tax Policy Center, their analysis showed “[f]ederal revenues under the Roadmap would decline substantially as a percentage of GDP.”
To make up for lost federal revenues, tax increases for the middle class, through tax bracket “consolidation,” would be unavoidable.
H/T: Center for American Progress, Michael Linden, Matthew Yglesias.
median household monthly income in Hong Kong = US$2,252
http://www.gov.hk/en/about/abouthk/factsheets/docs/population.pdf
taxes @ 16% = 337.80
After tax income = 1,914 USD
Median household monthly income US = US$4,148
http://en.wikipedia.org/wiki/Median_household_income
SS, Medicare/Medicaid = $311
State tax (mean @ 6.7%) = $278
Federal Tax = $622
Total = $1,489 (% of income = 35.9%)
After Tax income = $2,659
US GDP per capita $47,100
Hong Kong GDP per capita $31,900 (US)
2010 Economic Growth rate:
US = 2.7% 2010 est. from CIA
HK = 6.8% 2010
So we have a 16% taxation of income in Hong Kong with a 2010 growth rate of 6.8% or a 35.9% taxation of income in the US with a 2.7% growth rate. We also see the cost of living is fairly consistent with ours with relative prices as % of income slightly higher.
Seems to me there is some correlation going on between rate of taxation and growth of GDP.
So while the Laffer Curve may not be right, low tax rates do seem to imply higher economic growth. At least it applies to Hong Kong. And I would imagine it would apply to other countries as well.
However if GDP is increasing at 6.8% it figures that tax revenue would increase by 6.8% as well.
I believe the problem with the US is that there are too many deductions for individuals and business. We should go to a flat tax of around 15% with no deductions of any kind for all income (passive and active) and inheritance. Which is pretty much what Hong Kong has.
The rate of taxation is important as well as the amount of deductions. A high marginal rate with deductions would seem to be worse in terms of revenue than a low flat tax with no deductions.
A high marginal rate with no deductions would not be good for growth or for revenue. You cannot tax that which is not produced.
Liberal Guy 1, April 10, 2011 at 11:20 am
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about the same as here in south flureedah…
interms of American dollars:
Living Expenses
Meal for two (Mid priced restaurant)
500 – 800 HK$ (65 – 105$)
Beer in Lan Kwai Fong/Wan Chai (Bottled or Draught)
50 HK$ (6.504)
Cigarettes
30 – 35 HK$ (4$)
Fast food burger meal
25 HK$ (3.25$)
Chart CD
120 HK$ (15.50$)
Cinema Ticket (HK Island/TST)
60 HK$ (7.75$)
Ground Coffee (250g)
40 – 50 HKD (5.80$ per 1/2 pound)
Frozen Chicken (Per Kg)
30 HK$ (2$ per pound)
1 Litre milk
25 HK$ (3.25$)
cost of living in Hong Kong:
Living Expenses
Meal for two (Mid priced restaurant)
500 – 800 HK$
Beer in Lan Kwai Fong/Wan Chai (Bottled or Draught)
50 HK$
Cigarettes
30 – 35 HK$
Fast food burger meal
25 HK$
Chart CD
120 HK$
Cinema Ticket (HK Island/TST)
60 HK$
Ground Coffee (250g)
40 – 50 HKD
Frozen Chicken (Per Kg)
30 HK$
1 Litre milk
25 HK$
whoops, citation for the above:
http://www.lowtax.net/lowtax/html/hongkong/jhktax.html
Many countries consider Hong Kong an ‘offshore’ jurisdiction; the attitude of the government however is that the territory is not an offshore centre in the traditional sense of the word but rather a low tax area which levies tax according to the territorial principle. The tax laws of Hong Kong are extremely simple compared to other onshore jurisdictions and the fiscal advantages of operating there could be summarized as follows:
Tax rates are extremely low by OECD standards. (See below for further details). Taxation case law is minimal since the low tax rate means that the costs associated with challenging a decision of the revenue authorities usually outweigh any monetary gain.
Taxes are levied according to the “territorial principle” meaning that taxes are only levied on income “derived from or arising in” Hong Kong and not on income sourced outside the Territory.
A number of taxes that exist in most jurisdictions do not exist in Hong Kong. Thus there are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them. In the long term it is intended to completely phase out stamp duty on the sale and issue of shares and securities and to reduce direct taxes further.
Tax Rates in 2011
Individual
The standard rate of Salaries Tax is 15%.
Corporate
The normal rate of Profits Tax is 16.5% for corporations and 15% for unincorporated businesses.
Capital gains
Hong Kong does not levy capital gains tax.
Indirect Taxes
Hong Kong does not levy value-added tax (VAT), goods and services tax (GST) or sales tax.
Other Taxes
Estate Tax was abolished in 2005.
Stamp duty on immovable property is charged at rates up to 4.25%, depending on the sale or transfer price of the property. However, to curb property speculation, the government introduced a Special Stamp Duty (SSD) on residential property in November 2010. Further measures to discourage speculation in the property market have not been ruled out by the government.
Withholding Taxes
There are no domestic withholding taxes on dividends, interest or royalties
http://www.huffingtonpost.com/2011/04/09/paul-ryan-medicare-plan-_n_847067.html Ryan’s plan worries voters back home in Wisconsin.
http://www.alternet.org/economy/150515/the_republicans%27_incredible_bait-and-switch_–_truly_trying_to_screw_you_when_you_get_older/
Paul Ryan’s “Adult” Budget
What’s so mature about mugging the poor to underwrite tax cuts for the rich?
— By David Corn
Mother Jones, 4/7/2011
http://motherjones.com/politics/2011/04/paul-ryan-adult-budget
Excerpt:
Google “Paul Ryan budget serious,” and you’ll be swamped with 22 million results. Add the word “adult,” and 239,000 results will appear. There’s been much musing within the politerati that the Wisconsin Republican’s proposed 2012 budget, which was released on Tuesday and would slash Medicaid and privatize Medicare, is not helpful for Republicans during the high-stakes showdown over spending cuts and a possible government shutdown. But within elite opinion, Rep. Ryan, the influential and wonky chairman of the House budget committee, has won perhaps the most vaunted accolade in Washington: “adult.”
MSNBC talk-show host Joe Scarborough, a former GOP House member, hailed Ryan’s “adult conversation.” Time’s Joe Klein praised Ryan’s proposal as “an act of political courage” (while taking sharp issue with specific provisions). The subhead on Jacob Weisberg’s review of the plan in Slate noted that it’s “brave, radical, and smart.” Erskine Bowles and Alan Simpson, who recently chaired a national commission on the deficit, called Ryan’s budget “a serious, honest, straightforward approach to addressing our nation’s enormous fiscal challenges.”
Yet how courageous is it to whack poor folks and promote tax cuts that favor the wealthy? That’s the core of Ryan’s budget. Even deficit hawks like Bowles and Simpson recognize this. In the same statement touting Ryan’s endeavor, the two declare that Ryan’s plan
relies on much larger reductions in domestic discretionary spending than does the Commission proposal, while also calling for savings in some safety net programs—cuts which would place a disproportionately adverse effect on certain disadvantaged populations.
Here’s the bottom line: In conventional Washington, squeezing the poor, while boosting the rich, is not considered a nonstarter.
Ryan’s budget has received plenty of attention for the provisions that would turn Medicaid into a block grant program that would provide limited grants to states (thus ending any guarantee of coverage for the poor) and would transform Medicare into a privatized system controlled by insurance companies (thus ending any guarantee of coverage for the elderly). Less discussed—especially by Ryan!—is the part of his plan that would implement a massive regressive tax cut. As Jonathan Chait points out: “He cuts Medicare and other vital programs in order to finance a huge tax cut for people who don’t really need it. That’s the point Republicans don’t want to defend but should be forced to.”
Ryan contends that his proposed revisions to Medicare and Medicaid—that is, cuts—are necessary to save these critical programs. But these cuts and revisions are necessary to finance his major tax cut for the well-to-do. His plan, then, is intellectually dishonest at its core. Which doesn’t seem very adult.
puzzling,
It’s kind of a moot point given that lack of regulation in industry is already creating the bubble effects regardless of what inflation is doing. Prices are not the only determining factor in risky behavior. Nor is it the only phenomena that causes currency to devalue. Our currency has devalued despite a relative lack of inflation in recent years simply due to changes in foreign markets and our loss of standing in the global community because of the imperialist polices Bush started.
if you’re upsidedown on your mortgage paying it off a would be easier with inflation. your house becomes worth what your paying for it.
puzzling, We have not had significant detrimental inflation since the Carter years. What is hurting the poor and middle class is the lack of wage increases over the last thirty years while the income and wealth of the top 1% has skyrocketed.
Why do people talk about inflation?
Because inflation is a real tax on the people that never has to be levied or voted on in Congress. It’s theft. Since the government creates a monopoly to itself on defining and printing money, government is the thief.
Inflation affects the poorest among us the most, particularly those on fixed incomes later in life. I would think this would be anathema to progressive values.
Inflation also encourages risky speculation in real estate, stock markets, and other assets classes, all to avoid destruction of purchasing power due to inflationary practices by government. This can create “bubbles” that eventually burst, harming middle Americans the most.
puzzling, Tax hikes on the upper brackets are what is needed. We do not need to lower the tax rate on the wealthiest to 25% as Rep. Ryan suggests. We have had more than enough cuts in domestic spending recently. Why do libertarians and some tea party members always talk about inflation?
Swarthmore Mom wrote:
Treasury auctions don’t fail because the primary dealers that buy treasuries in these auctions just turn around and sell them back to the Federal Reserve at a profit. This is monetizing our debt – inflation of the money supply – eventually leading to higher prices as more total dollars chase the same amount of goods.
Since cuts to the size of federal government and our US global empire are apparently unthinkable I see little hope that government spending will fall. Instead, government can choose between politically difficult tax hikes or simply printing new debt into circulation by inflation. That is our future, until the dollar itself collapses.
Nal,
Did you see this?
Ryan’s Budget Counts As Savings What Ryan Used To Deride As ‘Phantom Savings’
From Think Progress, 4/9/2011
http://wonkroom.thinkprogress.org/2011/04/09/ryan-phantom-deficit/
Excerpt:
When President Obama released his fiscal 2012 budget back in February, House Budget Committee Chairman Paul Ryan (R-WI) criticized the administration for counting “phantom savings” from the wars in Iraq and Afghanistan:
The savings that they’re talking about, they suggest that they’re going to be in Afghanistan and Iraq at current levels for 10 years and then they have a withdrawal that saves $1.1 trillion. So a lot of the savings they’re claiming, I think, are phantom savings.
But as it turns out, Ryan’s budget counts these same “phantom savings” as actual savings:
$1.3 trillion in “savings” from the official CBO baseline that comes merely from the fact that the Ryan plan reflects the costs of current policy in Iraq and Afghanistan. The CBO baseline contains a large anomaly related to the costs of the Iraq and Afghanistan wars. Following the rules governing budget baselines, CBO’s baseline mechanically assumes that current levels of U.S. operations — and costs — in Iraq and Afghanistan will continue forever rather than phasing down.
For budgeting purposes, the Congressional Budget Office assumes that war spending in Iraq and Afghanistan will remain stable over the course of the entire ten-year budget window, when in reality troop reductions are scheduled. So Ryan’s budget garners “savings” from an inflated CBO baseline that assumes military spending in those two theaters never decreases.
Liberal Guy,
You might want to read Matt Taibbi’s and Mark Ames’ book “The Exile: Sex, Drugs, and Libel in the New Russia.” Taibbi lived in Russia and other parts of the former Soviet Union for about a decade. He played professional baseball in Russia and professional basketball in Ulan Bator in Mongolia for a time. He wrote for The Moscow Times. He had to leave Uzbekistan after he wrote articles critical of its president.
Taibbi may have been a rich young punk and a drug addict at one time. IMO, he is now one of our best political writers and investigative journalists.
AY,
Put me on that sign-up sheet also! My lotto tickets don’t seem to be working!
Speaking of getting trickled down on:
You all know of the famous “laffer curve”? Its just a bell curve Artie drew on a napkin & became a holy article of the one true faith and its patron saint, St. Ronnie. Artie said that total revenue would raise with tax rates up to a point at which time the total revenue would go down as tax rates increased (a bell curve).
What nobody has asked these priests of poverty to explain is why every tax cut from the ’80’s on has resulted in a decrease in revenue and every tax increase has caused an increase in revenue. That is demonstrable. Yet the cardinals of catastrophe continue to say tax rates are too high and that tax cuts pay for themselves.
If they really believed the oracle they would admit that rates are too low and agree to raise them. But they never believed this bullshit. Their goal is not fair taxes of increased revenue. As St. Ronnies first budget director, David Stockman, explained they want to bankrupt the Fed because there are huge profits to be made in the chaos that will follow.