The Unbroken Window

Our first glimpse is here. Some highlights (lowlights):

• Spending $2.4 trillion on “health care” by Americans is not enough. And apparently neither is spending an additional $1.2 trillion to get the uninsured covered. Read closely how he intends to spend that money. And this is all before he turns the entire health system into Mediscare.
• Expanding the budget deficit to 12% of GDP now represents a “hard choice” in Washington. Fine, then what amount of spending would have represented not a hard choice?
• More lies and misrepresentations. Obama is not raising taxes on”the rich” from 35% to 39.6%, but to something much higher. Why? Because he is reducing the rate at which “the rich” can claim on deductions for home interest, payment of state taxes, and charitable contributions down to 28%
• What do you think will happen to the charitable contributions from such a change? My guess is that we will see claims that in the free market, people do not donate to charity, so the government will have to do more.
• What is the new effective marginal tax rate for a rich guy? Assume that a person making $500,000 has a $400,000 mortgage at 6% per year, and pays $12,000 per year in property taxes and donates $6,000 per year to charity. Assuming he is in the 5th year of living in this house, he has roughly $22,000 of annual interest payments to deduct. So his total deductions would be $40,000 per year. Under the current tax code, he would owe the following in taxes:
  • 10% x $8,350, plus
  • 15% x ($33,950 – $8,350), plus
  • 25% x ($82,250 – $33,950), plus
  • 28% x ($171,550 – $82,250), plus
  • 33% x ($372,950 – $171,550), plus
  • 35% x ($460,000 – $372,950)
    • this last calculation due to the $40k of deductions he is eligible for.
    • His total tax liability will be $138,684 this year.
    • Under Breshnev’s Obama’s new budget, the tax calculation would not only look like this:
      • 10% x $8,350, plus
      • 15% x ($33,950 – $8,350), plus
      • 25% x ($82,250 – $33,950), plus
      • 28% x ($171,550 – $82,250), plus
      • 33% x ($372,950 – $171,550), plus
      • 39.6% x ($460,000 – $372,950)
      • For a total of $142,688, but rather:

* 10% x $8,350, plus
* 15% x ($33,950 – $8,350), plus
* 25% x ($82,250 – $33,950), plus
* 28% x ($131,550 – $82,250), plus
* 33% x ($372,950 – $171,550), plus
* 39.6% x ($500,000 – $372,950)
* For a total of $147,327.

In other words, this guy’s taxes will increase not only by $4,004 from the rate change, but an additional $4,640 from the loss of deductions! An even larger amount. That is sneaky, misleading and dishonest – but what else can we expect from our government officials? They have guns are accountable to no one. Simply announce a larger rate increase so people could see what the heck you are really doing. In this example, this is equivalent to raising the top marginal tax rate not just to 39.6%, but rather raising it all the way to FORTY-FIVE PERCENT – the same top tax rate that prevails in Germany today. Yes, I know “we” are all in this together. Fine, give me your socialism, but don’t hide it from plain view.