About these tax-day tea parties: It's obviously fine if citizens want to exercise their first amendment rights and hold protests. Admirable, even. And if these protests are underwritten by corporate backers or supported by various media organizations (there seems to be some debate about this), that's OK too. First Amendment rights all round! But what I don't understand is why these rallies are being held to protest, among other things, "higher taxes." (Higher spending is another matter.) There is a widespread perception that Obama is raising taxes willy nilly, so maybe this is worth clearing up. As far as I know, there are five individual tax provisions in the
president's budget that could be described as a tax increase. So yes,
there will be some higher taxes. What's confusing to me is that the
vast majority of these taxes affect only those households with an
annual income of greater than $250,000. And the vast majority of these
increases would have happened anyway if the Bush tax cuts were allowed
to expire on schedule.
But let's go through them one by one. The five tax increases that I see are:
1. Eliminating the Advance Earned Income Tax Credit. This isn't a proposal to eliminate the EITC -- it's just a proposal to eliminate a particular way of claiming the EITC that is extremely complicated, that almost no one uses, and that leads to a high level of tax error. As far as I know, eliminating this is not controversial.
2. Letting the top two income tax rates revert from 33 to 35% and from 36 to 39.6%, respectively. This is obviously a tax increase. But it is also (1) Something that would happen anyway were the Bush tax cuts to expire on schedule; (2) Something that isn't happening till 2011; (3) Something that Obama repeatedly said he would do; and (4) Something that will affect only those households with annual income over $250,000.
3. Eliminating the phaseout of personal exemptions and itemized deductions for high-income taxpayers. (This is complicated because it involves ... a phaseout of a phaseout of a complicated law. Explanation here.) But the end result will affect the exemptions and deductions of only those households that earn more than $250,000 a year.
4. Limiting the top charitable deduction rate to 28%. I've written about this many times elsewhere and I think it's a tempest in a teapot.
5. Increasing the top capital gains and dividends tax rate to 20%. Again, this (1) will start in 2011; (2) would have happened were the Bush tax cuts allowed to expire on schedule; and (3) affects only those families with annual income above $250,000. And for a sense of how this top rate compares historically, consult this chart (particularly the Reagan years):
So are the majority of the protesters worried about taxes that won't affect them? Perhaps when the tax-day protesters worry about higher taxes, they mean to protest anticipated future taxes that will result from higher present debt. (I'm certainly concerned about that!) But I'm not sure a protest in favor of the abstract notion of Ricardian equivalence has the same drama as a protest against higher taxes. Or am I missing something?