The Wonk Room

Douglas Holtz-Eakin Returns To Spread Shoddy Research Defending Tax Breaks For Wealthy Heirs »

Douglas Holtz-Eakin, the former policy director for Senator John McCain’s presidential campaign, recently told Congressional Quarterly that conservatives needed a “‘Center for American Progress’ for the right.” His most recent research doesn’t bode well for his think-tank ambitions.

Holtz-Eakin has published a paper claiming that eliminating the estate tax would create 1.5 million jobs. He concluded:

“Eliminating the estate tax would raise the probability of hiring by 8.6 percent, increase payrolls by 2.6 percent and expand investment by 3 percent…If small business payrolls were to rise by as much as 2.6 percent strictly through additional hiring, this translates to roughly 1.5 million additional small business jobs.“

This conclusion is very, very unlikely, relies on sensitive assumptions, leaps of logic, and dubious calculations. Here’s where the study goes wrong:

It severely overestimates the incidence of the estate tax on small businesses: Holtz-Eakin asserts that eliminating the estate tax would raise the wealth reported on estates by over $1.6 trillion. He describes this as an “increase in small business capital,” despite the fact that only 1.3 percent of the .24 percent of all estates who pay estate taxes are small businesses. In 2009, according to the Center on Budget and Policy priorities, only 80 (yes, eight-zero) businesses or farms nationwide will owe any estate tax at all. The average rate the heirs to these estates will pay will be 14% of their multi-million dollar inheritances. More »« Less

If We Had Let GM Go Bankrupt Last November, We Could Have Lost Another Million Jobs »

Late last year, conservatives advocated pushing GM into a Chapter 11 bankruptcy proceeding. Echoing the conservative line last December, Sen. Jim DeMint (R-SC) told the Fox Business Network:

“We don’t think it is the role of government to intervene…We need to let the market and the laws work the way they are already in place.”

But doing it then, without a pre-packaged agreement amongst creditors, suppliers, workers and management, alongside protections for consumers, could have been disastrous.

As Susan Helper, an economics professor at Case Western Reserve University, told the Huffington Post, “I thought filing for bankruptcy in December would be a disaster…It would have focused people on fighting over who was going to get paid, rather than making the companies work better.”

Merely plunging into bankruptcy proceedings without a prepackaged plan would have left suppliers and manufacturers of intermediate goods (who provide parts and materials for every car company with factories in the Unites States — including Toyota and Honda) struggling to secure credit, forcing cascading layoffs and stalled production that would have caused slowdowns throughout the industry. Combined with customers who would steer clear of Detroit brands because of uncertainty surrounding maintenance warranties, a messy bankruptcy could have have kicked off a vicious downward spiral that could have ended in liquidation and enormous job losses.

A study from the Center for Automotive Research suggests that an unsuccessful bankruptcy of GM and Chrysler would have cost approximately 1.3 million jobs. “Instead,” reports the New Republic, “the likely hit from the twin restructurings is 250,000.”

A GM in bankruptcy last November, in the midst of a nearly frozen credit-market, would have found it nearly impossible to find creditors to finance them through a Chapter 11, so without government assistance, they probably would have had to undergo a rapid and jarring liquidation under Chapter 7. This would have meant mass layoffs, a sell-off of assets at bargain basement prices, dismantling of factories, and hundreds of thousands more Americans straining states’ fraying unemployment safety nets, and a denial of millions of dollars in revenue to starved state budgets. More »« Less

GOP Budget Deficit Projections Don’t Account For $3 Trillion In Budget-Busting Tax Cuts

Congressional Republicans are getting their cake and eating it too.

Ryan Grim reported at The Huffington Post that, in order to calculate the projected deficits for their budget alternative, Republicans assumed that Americans would pay a higher tax rate even though they are offered the “simpler” tax rates of 10% and 25%. This allows the GOP to “offer the tax cut without factoring it into the budget’s revenue.”

In other words, they pretend they can cut taxes for free.

Economist Dean Baker, in a back of the envelope calculation, estimates these tax cuts actually cost approximately $300 billion every year, or $3 trillion over the ten year budget window.

If these real costs, in the form of gutted revenues, were tacked on to the Republicans’ distorted projections, their actual deficits would rise from around 3% of GDP from 2012-2019 to 4.5% of GDP from 2012 to 2019.

This puts their actual deficits in the same range as President Barack Obama’s budget, whose deficits the Congressional Budget Office estimates to be approximately 4%-5% of GDP over the next decade.

Here’s the difference: Obama’s budget would make vital investments in health care, education and energy that would transform our economy, get health care costs under control, and reform the tax code to lay the foundation for broadly shared long-term economic growth.

The April Fool’s budget of Congressional Republicans would double-down on the Bush economic strategy of budget-busting tax cuts for corporations and the wealthy.

Rep. Paul Ryan (R-WI), when releasing the budget, said, “the stakes of this budget debate could not be higher; and the choice for a stronger, more secure, and more prosperous future could not be more clear.” We agree. Maybe Ryan and Republicans in Congress should rise to the occasion and stop lying to the American people.

More Than 99% Of The Kyl-Lincoln $250 Billion Estate Tax Giveaway Goes To Wealthy Families

Sen. Jon Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) have a $250 billion proposal to cut estate taxes for the children of multi-millionaires even more than George W. Bush already did, and it’s attracting a disturbing amount of support.

Their $250 billion proposal would raise the estate tax exemption from $7 million to $10 million per-couple and lower the top rate from 45% to 35%.

While opponents of the estate tax claim rolling it back protects small farms and businesses, the Center on Budget and Policy Priorities points out that “only 0.2 percent of the additional cost of the proposal, relative to [the Obama proposal], would go toward tax cuts for small businesses and farms.”

The rest of the cost, approximately $249.5 billion, would go to the inheritors of estates worth over $7 million. Paris Hilton, get excited.

Let’s make one thing clear: the estate tax affects a vanishingly small number of American families. Under President Barack Obama’s budget, over 99.7% of people who pass away wouldn’t pay a dime.

Apparently, however, this isn’t enough for some Senators, who would gut revenues needed for investments in health care, education and energy in order to reward the inheritors of massive estates with $249.5 billion.

ANALYSIS: Republican ‘April Fools’ Budget Is A $1.5 Million Tax Windfall For CEOs

Rep. Paul Ryan (R-WI) and Republicans in Congress finally unveiled their final alternative to President Barack Obama’s budget today, and we certainly hope it’s an April Fools Joke.

Unsurprisingly, it contains an extension of the Bush tax cuts and a massively expensive set of tax cuts for wealthy Americans and corporations.

These tax cuts would cut the top three tax brackets to 25% and cut capital gains taxes to zero through 2010. As we showed previously, this would cut an average CEO’s taxes by $1.5 million in 2009 and 2010. After 2010, capital gains taxes would return to 15%, but the average CEO would continue to save over $550,000 every year in taxes from lower taxes on earned income.

This temporary reduction in the capital gains tax rate is particularly pernicious as it would likely have exactly the opposite effect Ryan claims it would have. Ryan says it would “create an incentive for risk-taking and investment.” Actually, it would do just the opposite: encourage wealthy people to cash out of their holdings, discouraging new long-term investing (right at a time when we need it most) but providing a sweet windfall for the wealthy investor class.

As John Fout of The Street explained when Sen. John McCain (R-AZ) proposed a similar temporary capital gains rate cut during the presidential campaign, it would “encourage investors to make one-time sales to capture lower capital gains and increased tax write-offs. Such equities sales would facilitate capital flight.”

The conservative budget would enact a severe anti-stimulus, and block much-needed public investments in order to fund tax cuts for wealthy people in a way that would hurt the economy. Sounds like more of the same to us.

ANALYSIS: Conservative Budget Alternative Saves Average CEO $1.5 Million Every Year »

Earlier this month, Rep. Paul Ryan (R-WI), ranking Republican on the House budget committee, published an alternative proposal to the Obama budget in a Wall Street Journal op-ed. The plan: doubling down on Bush-style economics.

Like the Bush tax cuts, Congressman Ryan and his allies in Congress would cut taxes for the wealthiest Americans and reject public investment or a fairer tax code that would ensure broadly shared prosperity.

The Center for American Progress Action Fund finds that Congressman Ryan’s proposals would cut taxes for the average CEO by $1.5 million per year and do nothing at all for a minimum wage worker.

Ryan calls for lowering the 35%, 33% and 28% income tax brackets to 25%, eliminating the capital gains tax, and cutting the top corporate tax rate from 35% to 25%. These hugely regressive tax cuts would extend the Bush economic strategy of massive tax cuts for the wealthy and gutted government revenue.

In 2008, the average CEO of one of America’s largest 800 companies made $3.3 million in salary and bonuses, $6.3 million in stock gains, and $3.2 million in “other compensation” for a total of $12.8 million. Under Ryan’s plan, the average CEO’s $6.5 million in paid income would drop from a marginal tax rate of 35% to 25% and his $6.3 million in stock gains would go from being taxed at 15% to being totally tax free. This tax change would save these CEO’s over $1.5 million every year.

A minimum wage worker, however, making around $15,000/year, would see no benefit at all from these proposed tax changes. They already only pay federal income taxes in the 10% marginal tax bracket, are unlikely to have any capital gains, and would thus see no change under the conservative budget plan.

The Bush tax cuts ushered in almost a decade of tepid economic growth and stagnant wages for American families. Ryan says he and his fellow conservatives are offering to be “part of the solution, not part of the problem.” Why, then, are they only offering more of the same?

Methodology notes after the jump. More »« Less

ANALYSIS: Bush Tax System Saves Rich Celebrities Like Donald Trump & Paris Hilton Millions Every Year »

If you’re a hugely wealthy celebrity, the Bush tax system is working well for you.

A new analysis from the Center for American Progress Action Fund finds that America’s wealthiest celebrities save millions every year because of Bush’s lower tax rates for the very richest Americans:

The same tax system that is currently saving Donald Trump $1.2 million every year ushered in the weakest job growth of economic recovery since the Great Depression and half a decade of declining incomes for average American families.

President Obama’s budget would return the tax brackets for the richest 2% of Americans to what they were in the 1990’s (as soon as the economy emerges from recession), in order to cut taxes for 95% of American families and make vital investments in health care, energy, and education.

Once the economy has begun to grow again, America has a choice between a recovery like Bush’s, marked by growing inequality, stagnant wages for working families, and neglected public investments, or one that, in the words of Larry Summers, President Obama’s Chair of the National Economic Council, enjoys growth that is “sustainable and shared by the majority of American households.”

Notes and methodology after the jump. More »« Less

ANALYSIS: Current Bush Tax System Saves AIG Traders More Than $7.5 Million

Bailed-out insurance giant AIG just revealed that they would be paying over $165 million to traders “in the very group that caused the company to fail.”

Lucky for these traders, they’re collecting their bonuses under the Bush tax system that lowered income tax rates for the richest 2 percent of Americans.

According to our analysis, thanks to the Bush tax system, these traders are taking home $7.5 million more then they would have in the 1990s.

In 2000, this $165 million would have to have been taxed at 39.6 percent (the top marginal tax rate for top income earners that prevailed through the 1990s). Now, thanks to the Bush tax system, they’re only paying at 35 percent and saving themselves over $7.5 million.

This is assuming that most of this bonus income is taxed at the highest marginal tax bracket (a reasonable assumption based on typical base salary for Wall Street traders and the massive size of these bonuses).

The Obama budget would eliminate these Bush tax bonuses in order to cut taxes for 95 percent of American families and invest in health care, energy, and education.

See how much your family would save from President Obama’s Making Work Pay tax credit here.

ANALYSIS: Current Bush Tax System Saves Glenn Beck & Bill O’Reilly More Than $400,000 Per Year

Conservative commentators Glenn Beck and Bill O’Reilly regularly rail against President Obama’s budget which would fix the Bush tax system and invest in education, energy and health. Maybe it’s because Bill O’Reilly and Glenn Beck benefit tremendously from the broken status quo.

According to a new analysis, Glenn Beck and Bill O’Reilly each save over $400,000 per year under the current Bush tax system.

These savings for O’Reilly and Beck come from the lower tax rates for the top two income brackets implemented by President Bush, and doesn’t factor in their additional savings from Bush’s historically low tax rates on dividends and capital gains.

President Obama’s budget would restore fairness to the tax code by returning the tax rates for the richest two percent to what they were in the 1990’s, while cutting taxes for 95 percent of American families. When this happens, Beck and O’Reilly’s savings will be reversed.

To see how much you and your family would save, see our new ‘Making Work Pay’ tax cut calculator here.

Beck and O’Reilly are each paid over $10 million every year — more than 99.9 percent of Americans. This is a conservative estimate as it only includes their income from Beck’s $10 million annual contract with Premiere Radio Network and Bill O’Reilly’s contract with Fox News.

By opposing Obama’s budget and protecting their Bush tax giveaway, Beck and O’Reilly are denying tax cuts for 95 percent of working American families. Will Bill O’Reilly and Glenn Beck really deny these cuts and prevent much needed investments in education, health care and energy, all to keep their $400,000 a year?

For a description of methodology, see our analysis of Rush Limbaugh’s savings under the Bush tax system.

ANALYSIS: Current Bush Tax System Saves Rush Limbaugh More Than $1.5 Million Every Year »

When conservative radio star Rush Limbaugh roots for President Barack Obama’s failure, he may be motivated by something other than ideology.

A new analysis by the Center for American Progress Action Fund finds that the current Bush tax system saves Rush Limbaugh over $1.5 million every year.

The current Bush tax system, enacted in 2001 and 2003, showered tax breaks on the very wealthiest Americans and ushered in a decade of tepid job growth and declining real incomes for average American households.

President Barack Obama’s budget would restore some fairness to the tax system by returning the tax rates for the richest 2% to what they were in the 1990s, reversing Bush’s giveaways to the investor class, and cutting taxes for 95% of working American families.

Limbaugh is paid approximately $38 million every year — more than 99.9 percent of American taxpayers. By cutting the rates for the top two income brackets Bush effectively saved Rush $1.5 million a year.

Of course, as a man of means, Limbaugh almost certainly saved much more than this through tax savings on income from his investments (the details of which are not publicly available) when Bush also lowered the top tax rate on capital gains and dividends to historically low levels.

If Obama returns the rates for the top two tax brackets to what they were in the year 2000 in order to cut taxes for American families and invest in health care, energy and education, Rush’s huge savings would be reversed.

No wonder he wants President Obama to fail.

Methodology and notes after the jump. More »« Less

Over 80% Of Charitable Contributions Unaffected By Obama’s Slight Change To Deductions

In order to responsibly fund far-reaching health reform, President Obama’s budget includes limiting to the 28% rate itemized deductions for the very richest Americans. This means that the very wealthiest taxpayers used to saving $350 in taxes per $1000 deduction would save only $280, the same as over 98% of American taxpayers with marginal tax rates at or below 28%.

There have been concerns that this proposal would adversely affect charitable contributions, which are deductible from taxes. But new numbers from the Tax Policy Center show that over 80% of individual charitable contributions are given by those at or below the 28% bracket, meaning they are totally unaffected by the proposal.

The remaining 18.2% or so would be subject to exactly the same tax benefits as those offered to over 98% of Americans.

A conservative estimate by the Center on Budget and Policy Priorities finds that this tax change would likely reduce projected charitable contributions by only 1.3%, but “help finance universal health coverage, which would greatly reduce burdens on the charitable sector to provide uncompensated health care to millions of Americans who lack insurance.”

In fact, because of the impending tax increase, Chad Alderman suggests we may see a spike in charitable giving over the next two years before the tax change kicks in, exactly the kind of counter-cyclical boost needed to get America’s charities through these tough economic times.

As Peter Orszag explains, “even to the extent that charitable contributions are affected by tax considerations, the budget contains other proposed changes (including retaining an estate tax) which will create stronger incentives for giving. Above all, though, the best way to boost charitable giving is to jumpstart the economy and raise incomes – and the purpose of the Recovery Act enacted earlier this month was to do precisely that.”

STUDY: Married Same-Sex Couples Denied Thousands Of Dollars In Vital Federal Benefits And Protections

Yesterday in Boston, 15 Massachusetts residents represented by Gay and Lesbian Advocates and Defenders filed suit against the Commissioner of the Social Security Administration and other federal agencies, challenging the constitutionality of the federal government’s decision not to recognize their marriages.

In 1996, Congress passed the Defense of Marriage Act. The act has two substantive sections: Section 2 reinforces a state’s right not to recognize another state’s same-sex marriage, while Section 3 denies federal recognition of marriages between couples of the same sex. The law marked the first time the federal government overruled state determinations of marriage.

When passed, the law did not tangibly affect anyone, because no state issued marriage licenses to same-sex couples. Today, however, there are more than 10,000 married same-sex couples in Massachusetts alone, with many more in Connecticut and New York — all of whose marriages are entirely valid and unquestioned under state law. Another 18,000 couples were married in California, and their marriages are currently under review by the California Supreme Court in the wake of Proposition 8.

A new study by the Center for American Progress finds that a same-sex couple with average characteristics will be denied more than $8,000 in Social Security spousal survivor benefits because the federal government doesn’t acknowledge their marriage. After paying a lifetime of payroll taxes into a system that is supposed to provide retirement benefits for married couples, same-sex couples who marry are denied thousands of dollars in Social Security retirement benefits, survivor benefits, and lump-sum death benefits, simply because they are married to a person of the same sex.

The Social Security benefits we analyzed are only one of hundreds of federal privileges and benefits extended to opposite-sex married couples but denied to legally married same-sex couples. A 2004 report by the Government Accountability Office found “1,138 federal statutory provisions classified to the United States Code in which marital status is a factor in determining or receiving benefits, rights, and privileges.”

At a time when more and more families are struggling to pay their bills, this discrimination is depriving couples of vital benefits in retirement and financial protections in the wake of a tragic loss of a loved one. That’s not pro-family, that’s not good economics, and it’s just plain wrong.

Read the full study here.