Almost Classical

Apparently, Congress is populated by comedians with a penchant for satire. As evidence of this, they passed a "Fiscal Cliff" agreement that was supposedly all about protecting the middle class. Instead, it is 250-pages of muck. How bad is it? The New York Times offers one example: Fiscal Cliff Includes Big Favor to Big Drug Company   WASHINGTON — Just two weeks after pleading guilty in a major federal fraud case, Amgen, the world’s largest biotechnology firm, scored a largely unnoticed coup on Capitol Hill: Lawmakers inserted a paragraph into the “fiscal cliff” bill that did not mention the company by name but strongly favored one of its drugs. The language buried in Section 632 of the law delays a set of Medicare price restraints on a class of drugs that includes Sensipar, a lucrative Amgen pill used by kidney dialysis patients.  Read the full text of H.R. 8… it is depressing. It begins loftily enough, letting us know the Senate is adhering to the Constitution b...

Media chatter implies "the rich" are about to pay their "fair share" of taxes with the Fiscal Cliff agreement of early 2013. Such claims ignore reality, which is nothing new when it comes to media coverage of the intersection of economics and politics. First, "the rich" and the truly wealthy, those in the top half of one percent or so in personal net value, are unlikely to pay much more in federal taxes. Some might actually pay less with this agreement, depending on where and how they invest. How is this possible? The tax rate on earned income  is rising to 39.6% for households earning more than $450,000 annually ($400,000 for individuals). The new Medicare "supplemental" tax increase of 0.9 percent (which doesn't actually go to Medicare) is also based on household income  of $250,000 ($200,000 for individuals). But, what if your increases in personal wealth come from investing? Carried interest, dividends, and other wealth streams a...

This story only captures a small part of the new taxes households face in 2013. But, let us begin with this headline: Fiscal Cliff Deal Will Raise Taxes On 77 Percent Of Americans: Tax Policy Center Analysis By STEPHEN OHLEMACHER 01/02/13 07:49 AM ET EST Social Security is financed by a 12.4 percent tax on wages up to $113,700, with employers paying half and workers paying the other half. Obama and Congress reduced the share paid by workers from 6.2 percent to 4.2 percent for 2011 and 2012, saving a typical family about $1,000 a year. Obama pushed hard to enact the payroll tax cut for 2011 and to extend it through 2012. But it was never fully embraced by either party, and this time around, there was general agreement to let it expire. The new tax package would increase the income tax rate from 35 percent to 39.6 percent on income above $400,000 for individuals and $450,000 for married couples. Investment taxes would increase for people who fall in the new top tax bracket. H...

(This is Part Two of two. See Small Business for Part One) My previous post on the issue of taxes and small business focused on the nature of entrepreneurial risk and reward in our system. I do fear there is a tendency to punish success, viewing with suspicion those individuals who create and nurture businesses through rapid growth. Many people assume the worst of financially successful business owners, and that's ironic in a nation built on free market capitalism. A friend of mine recently commented that entertainers and athletes earning far more than most entrepreneurs seems to be excluded from such suspicions. Apparently, a $20 million film contract is okay, but earn $1 million running a business and we'll attribute the worst motives to you. President Obama and others have tried to use this public resentment and distrust of successful entrepreneurs by suggesting tax increases on "the rich" won't affect "small business" — because we all love sm...

The most popular (and unpopular) post on Almost Classical is on the 90 Percent Tax Rate Myth . In that post, I attempt to explain the obvious: When there was a 94% top rate in 1944-45, there were so many deductions and exclusions that the taxable income was not comparable to someone's entire income. First, the top rate started at $200,000, which today is equal to $2,413,059.90 — so the maximum EMTR would apply only to incomes of $2.5 million. But, that's still taxable income, not earned income.  In 1944, you could deduct business meals, all business travel, all forms of interest payments, and much more. You could even deduct spousal travel expenses on a business trip! (Why travel alone?) Companies could also "loan" or "provide" almost anything to an employee, from an apartment to standard benefits. It was possible to shelter tens of thousands of dollars from taxable income. Three-martini lunches and expense accounts were important realities, skewing tax ...

(Part One of Two) The most productive small businesses might be crushed as part of the "solution" to the "Fiscal Cliff" debates in Washington. For a year, our leaders have known the debt ceiling, sequestration, and other major economic nightmares — all self-inflicted wounds — were set to crash down upon us as the calendar changed. Raising taxes on "the rich" is a crusade for President Obama and many Democrats. Even more than a few Republicans have tacitly joined the march towards raising tax rates. I'd rather we simplify the tax system, before raising rates, but that's not the topic of this post. The president and some influential voices are dismissing the potential harm caused by narrowly focusing on "the rich" at a level that includes many small and growing businesses. Bloomberg News, of all places, published an editorial that conflates arguments about growing small businesses and small business in general. It is a rhetorical tr...