Hey, Where'd All the Rich People Go?
Barack Obama kicked off his presidential campaign imagining he could transform America into his vision - which is one where there's all kinds of rich people whose surplus incomes could be tapped to provide "opportunities" for the under-accomplished. But that vision was dealt a severe blow by the financial crisis.
Quite contrary to the massive taxes he thought he could garner to drive his transformative vision, taxes have actually cratered. But the weird thing is they seem to have cratered out of all proportion to the economy's contraction.
From FY 2008 to FY 2009, tax receipts dropped by over $400 billion - just about all of it personal ($230b) and corporate ($166b) income taxes. But as a proportion of GDP, these taxes in total dropped by over 3 percentage points. In contrast, between FY 1981 and 1982, during a similarly deep recession, these taxes remained flat both in absolute terms and as a percentage of GDP. So what happened this time around to cause such a steep drop?
Looking further at the details, we see that Social Security taxes dropped just 1%, a mere $10b. Personal income taxes, on the other hand, dropped 20%. So why the 20-fold difference in impact?
Social Security taxes are applied only to the first ~$100k in income while income taxes are applied to all income. Since SS taxes were only slightly affected by the recession, it seems likely that the big impact was on higher incomes and unearned income (investment results) - the very gravy train to which Obama was hoping to hitch his "Hope and Change" wagon. Even in FY 2010, with the economy recovering and the stock market scoring huge gains, tax receipts continue to be be down - modestly, but still down.
There is certainly some additional revenues for the taking by increasing tax revenues on the wealthy, but probably no more than about $100b per year. With annual deficits running well in excess of $1 trillion though, Hope and Change appear to be off the table.
Data reviewable here.
Quite contrary to the massive taxes he thought he could garner to drive his transformative vision, taxes have actually cratered. But the weird thing is they seem to have cratered out of all proportion to the economy's contraction.
From FY 2008 to FY 2009, tax receipts dropped by over $400 billion - just about all of it personal ($230b) and corporate ($166b) income taxes. But as a proportion of GDP, these taxes in total dropped by over 3 percentage points. In contrast, between FY 1981 and 1982, during a similarly deep recession, these taxes remained flat both in absolute terms and as a percentage of GDP. So what happened this time around to cause such a steep drop?
Looking further at the details, we see that Social Security taxes dropped just 1%, a mere $10b. Personal income taxes, on the other hand, dropped 20%. So why the 20-fold difference in impact?
Social Security taxes are applied only to the first ~$100k in income while income taxes are applied to all income. Since SS taxes were only slightly affected by the recession, it seems likely that the big impact was on higher incomes and unearned income (investment results) - the very gravy train to which Obama was hoping to hitch his "Hope and Change" wagon. Even in FY 2010, with the economy recovering and the stock market scoring huge gains, tax receipts continue to be be down - modestly, but still down.
There is certainly some additional revenues for the taking by increasing tax revenues on the wealthy, but probably no more than about $100b per year. With annual deficits running well in excess of $1 trillion though, Hope and Change appear to be off the table.
Data reviewable here.
posted by ziel | 3/18/2011 11:51:00 PM
3 Comments:
Great article supporting your premise in the WSJ on Sat on how states rely on high income people to balance there budgets
"probably no more than about $100b per year."
Ridiculous.
Ridiculous? That might be too strong. I respond in depth here.
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