For this month's Readers' Review: "Drown" -- the debut collection of short stories by Pulitzer Prize-winning writer Junot Diaz. Twenty years ago, Diaz published ten heart-breaking tales about a fragmented family from the Dominican Republic finding their way in 1980s America.
In an interview on cbs sixty minutes last night, president Obama said the very rich can afford to pay a little more in taxes. In a major speech last week, he argued that even before the recent recession, Americans at the top of the income scale managed to keep their effective tax rates low and grow wealthier than those in lower brackets. Republicans accuse the president of engaging in class warfare. They say tax hikes on the wealthy would be a strike against those in a position to create new jobs. In this hour, a panel joins Diane to discuss taxing millionaires and the effect on creating new jobs.
- Tamara Keith NPR congressional reporter
- David Kocieniewski New York Times reporter, author of the series "... But Nobody Pays That"
- Eric Toder fellow, Urban Institute, and co-director, Urban-Brookings Tax Policy Center.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Some billionaires like Warren Buffet and Bill Gates are calling for an end to tax breaks on millionaires. President Obama says the wealthiest American should pay a little bit more, but Republicans say tax increases on the rich would harm the economy and cost jobs. Joining me here in the studio to talk about the ongoing debate over taxes on the wealthy, Eric Toder, co-director of the Tax Policy Center, and NPR congressional reporter Tamara Keith.
MS. DIANE REHMJoining us from a station in West Windsor, N.J., WWFM, New York Times reporter David Kocieniewski, and, throughout the hour, I'll welcome your calls. Before we begin, just let me say how much I appreciate all the calls, the emails about my husband, and I'm happy to tell you he is doing better. Good morning to all of you.
MS. TAMARA KEITHGood morning.
MR. ERIC TODERGood morning.
MR. DAVID KOCIENIEWSKIGood morning.
REHMDavid, let me start with you. I know you've been working on a series called "But Nobody Pays That." How much truth is there to the idea that the tax code for the 1 percent is different from the tax code for the 99 percent?
KOCIENIEWSKII think if you look at IRS data and you talk to tax practitioners, it's pretty clear that, because the way income is taxed in the U.S., there are more strategies for people at the very top of the income scale to defer their income, to shelter their income and to pay -- to have more control over how much they pay now or how much they pay later or how much they pay at all. There have been a lot of examples in the past year. Frank McCourt, the owner of the Los Angeles Dodgers, is one that comes to mind.
KOCIENIEWSKIHe and his wife, between 2003 and 2008, paid no state or federal taxes because they used a variety of different strategies. They borrowed against their holdings so they could pay back -- live off the cash without actually selling their interest and having to pay taxes. And I recently wrote a story about Ron Lauder, the heir of the Estee Lauder fortune, who used a variety of complicated offshore techniques and stock transactions, so it allowed him to minimize his U.S. taxes.
REHMEric, turning to you. Help us out with some definitions. Who exactly is a millionaire?
TODERWell, of course, if you went to the traditional definition back from the 1950s, remember there's a TV program about somebody becoming a millionaire by surprise. I think we thought it was somebody who had $1 million in assets, but a huge number of people have $1 million in assets. That's not a lot of wealth these days. What people are generally talking about is having $1 million dollars or more in annual income in this discussion. And that's what we seen -- are looking at in our tax data, people whose income is a million or over.
REHMAnd what is the difference between marginal and effective tax rates?
TODEROK. So there's all kinds of differences. There's marginal. There's statutory and effect -- there's marginal and average, and there's statutory and effective. So when you look at statutory, you'd say, well, the top tax rate is 35 percent on your taxable income. However, if the amount of taxable income that you report or are allowed to report is less than your actual income, your economic income, then your effective tax rate is going to be less than 35 percent. Marginal refers to what you pay on your last dollar of income.
TODERAverage is what you pay on all of your income. So we have a graduated system so your first dollars are taxed at 10 percent, your top dollars at 35. So if you've just hit the 35 percent bracket, you're going to pay an average rate, a good deal lower than 35.
TODERBut if you have a lot of income in the 35 percent bracket, if you're really, really rich, a lot of taxable income, then the rate will get close to 35.
REHMBut then that excludes older people, for example, who've been saving for a lifetime of retirement, who have put that money into IRA, say, who are drawing on that IRA, which may be more than $1 million. You're talking about earned income.
TODERNo, no. You're talking -- I'm talking about taxable income. And the amount you draw down from your IRA, at least most IRAs people have -- there are other kinds of IRAs where you prepay. But if you've deducted what you put into your IRA, then when you take it out, it is taxable income. So most people's pension income is taxable, and that would be counted as part of income.
REHMOf course. But what you're also talking about for tax purposes and defining a millionaire is someone who earns...
TODERNo, no, no. We're talking about somebody who has income of a million. So it could be from working, it could be from pensions.
REHMOK. I got it. I got you.
TODERIt could be from interest in dividends. It's any source of income.
REHMAll right. Tamara Keith, turning to you. How is this latest battle between Democrats and Republicans over taxing the wealthy? How is that playing out?
KEITHThe current argument is how to pay for some tax cuts for a broad swath of Americans, the payroll tax holiday that's in effect this year. Democrats in particular, but actually many Republicans want to extend it into next -- through next year. Also, unemployment insurance, the doc fix, there's all kinds of things that need to be paid for. What Democrats have said is, hey, let's pay for it with a surtax on income over $1 million a year, the millionaire's surtax. Republicans are saying, no, we don't want that. That would hurt job creation. That would hurt job creators.
REHMAnd that's the question that many, many people have. David, can you talk about the relationship between those whose income is more than $1 million and job creation?
KOCIENIEWSKICertainly. You know, I think, given the concern about unemployment in the country now, it's not surprising that every argument would kind of use that as a rationale for whatever point of view people have on it. And I think, you know, trying to find a direct link, there's -- it's not necessarily there. If you look at most small business owners, many are taxed as -- at individual rates, so they would be affected by a surtax.
KOCIENIEWSKIHowever, only about 3 percent of small business owners -- excuse me, only about 3 percent of small business owners would be affected by the top tax rate increases. And I think if you look -- if you talk to most business owners, they say that what affects job creation and investment is the demand and that taxes play a very small role in it.
KEITHYes. So I did this story that aired Friday on "Morning Edition" that got right at this question of what do the job creators think and who are these job creators who bring in more than $1 million a year. The argument from Republicans and others is that many small businesses are set up as corps or other types of corporations, where the profits from the business pass through to the individual and show up on their individual taxes.
KEITHSo, in theory, someone who is not excessively wealthy but who has a very successful small business could have $1 million show up on their annual taxes as income, and, thus, they would be taxed on that. So I went to the Republicans in Congress who have been making this argument most strenuously, and I said, please put me in touch with some of the people who would be affected.
KEITHAnd this is a pretty standard thing. You'd go to members of Congress or you'd go to interest groups and you say, you're making this point, give me the human...
REHMThey're the job creators.
REHMSo tell us...
KEITHGive me the human interest story. I want to talk to these people. Well, it turns out they couldn't produce anyone. I called very early last week and said, please help me. The members of Congress directed me to a group called the Tax Relief Coalition, also the NFIB, the National Federation of Independent Business, the Chamber of Commerce. So I went to these groups early in the week and I said, please help me find someone to talk to. And they couldn't find anyone. All week long they couldn't find anyone.
REHMAnd your specific request was for?
KEITHFor a small business owner or a business owner earning more than $1 million a year, who would be reporting more than $1 million a year of income on their taxes, basically someone who would be affected by this millionaire's surtax. And they could not produce anyone. At one point, the Tax Relief Coalition vice president told me, well, you know, people just don't want to talk about their very personal taxes on national radio.
KEITHSo I went to Facebook to the NPR Facebook page and put out a request and said, you know, are there any millionaires out there who would be willing to talk to me? It was just kind of a shot in the dark. And I got about 30 responses, which is remarkable. However, basically everyone who responded said that the surtax would not affect hiring because what affects hiring is their business conditions, whether they have enough business to need another employee.
REHMDavid, can you add to that?
KOCIENIEWSKIYes. You know, one of the other tax implications we've heard this year from corporations is that they would like a tax holiday. They have -- corporations are not taxed on money that they earn overseas if they don't bring it back to the U.S. They're asking -- there's now more than $1 trillion that U.S. corporations have, and they're saying, if you give us a tax holiday and let us bring that back at 5 percent instead of 35, there'll be all kinds of hiring, and that will help spur the economy.
KOCIENIEWSKIThey're actually trying to sell it as a private sector stimulus. However, if you look at what happened when the similar policy was tried in 2004, just the opposite happened. Some of the biggest corporations brought money back, and the companies who brought the most money back actually laid off workers. So I think...
REHMDavid Kocieniewski, he's New York Times reporter and the author of "Nobody Pays That." It's a series in The New York Times. We'll take a short break here. We've got lots of caller already on the line. We'll open the phones.
REHMI'm not surprised that we've got all kinds of reactions, both on the phone and on email. Here's the first from Jerry in Kalamazoo, Mich. He makes a number of points. He says, "I'm a small business person, and it makes me furious to hear all these lies. Number one, he says, only 1 percent of what we consider small business takes in enough to pay all their expenses and still have $1 million profit. That's not small business at all. It's just the lower end of big business." Eric Toder, do you want to respond to that?
TODERI think what he's saying is that most small business people don't get $1 million of profits -- and he's absolutely right -- so that if you were raising the taxes, the taxes are not imposed on the revenue. They're imposed on the profit -- actually, the profit added to all their other income. So if the individual has less than $1 million of income, they would not be affected by this proposed surtax.
REHMBut then why is it that we keep hearing about small business and how it would be affected by this surtax, Tamara?
KEITHBecause small business has been elevated to a very special status in the political discourse. Listen to the debates with Republican candidates. Listen to President Obama last night on "60 Minutes." Listen to any politician for about five minutes, and you'll hear the phrase small business repeated over and over and over again because America has a love affair with small business.
KEITHAnd, in fact, truly small businesses do create jobs. There's a bit of a dispute about how much of the share of job creation comes from small business. But Americans love small business, so they're -- it's like mom and apple pie. You don't want to hurt mom and apple pie.
REHMAnd here's the second point Jerry makes. He says, "Only 14 percent of people who take in $1 million are small business. In other words, when it comes to job creation, 86 percent of millionaires are really the idle rich." Would you agree with that, Eric?
TODERI wouldn't agree that they're the idle rich. I mean, that that's...
REHMTake out the word idle.
TODER...that's -- let's take that word out. I mean, there are many people who make $1 million in many different ways. You know, they might be lawyers, they might be corporate executives, they might be -- you know, they are not necessarily idle. Some are, but most, not.
REHMAll right. His third point is, "Business people are not job creators. Our goal and purpose is to eliminate jobs. Jobs are an expense, and business seeks to eliminate expenses. Employees are seen as a necessary evil. We only hire when we have to. Consumers are the real job creators. All we do is fill the jobs." David, do you want to comment?
KOCIENIEWSKII've never heard workers called unnecessary evil before, so I think it's an interesting and eloquent way of putting it. You know, I think the real core and what this listener is really tapping into is that there's a strange anomaly in the way that the U.S. tax code treats businesses because they can be S corps and have the money flow through and be taxed as individuals. What counts as a small business can be multi-billion dollar enterprise, like Kohlberg Kravis or you can -- huge law firms.
KOCIENIEWSKIAnd so I do think that that's that because they're all wound together. It makes for a lot of inequities and it makes no sense, and it's not surprising that a real small business owner who feels he's being taxed too high is going to get that kind of angry response.
REHMAll right. Here's an email from Newbold (sp?) in Alexandria, who says, "No one has explained how the 2 percent tax would be calculated. Would it be on net or gross income or income from self-employed persons on income from, say, an owner of three dry cleaners in town or on folks with inherited wealth?" Tamara.
KEITHMy understanding is that it is all income over $1 million. And this would -- at least in some of the proposals, would include capital gains, any income that comes in over $1 million. For a business though, let's say you're a small business owner, you are operating -- you have lots of employees, you have -- you buy a machine. All of that comes out of your gross revenue.
KEITHIs deducted. This would only be on personal income. So if you're an S corp...
TODERPlus the profits.
KEITHRight. So this would be -- if you're an S corp and you have pass-through income...
REHMWhat's an S corp?
KEITHIt's a type of corporation that is typically the setup used by small businesses.
KEITHAnd so they -- their profits from the business at the end of the year are passed through to your personal taxes. So the 2 percent surtax would be on income reported on your taxes over $1 million a year. So let's say you earn $1 million. You don't pay the surtax. If you earn $2 million, then it's, what, $20,000 of additional tax?
TODERThat would be on $1 million, 2 percent.
TODERI'm going to do some quick math. I think $20,000 is right.
KEITHOK. Yeah, don't trust me to do math.
REHMAll right. And, David, here's one for you. It says on today's show, "Please ask the panel to explain -- and this carries on -- that the tax would apply to taxable income, not gross income. Normal expenses for a business would be allowed, and for individual's deductions such as charitable would also be allowed before calculating the tax." That's where the Lauder article, David, was so interesting.
KOCIENIEWSKIWell, I think that is -- when you talk about people at the very top of the income scale, you know, finding out what is actually taxable income is the real game. And, you know, Warren Buffet has made a lot of discussion, a lot of headlines this year, talking about the effective rate of him and most of the wealthy being 17 percent, which is about half of the official rate. But the reality is their rate is probably much lower because a lot of the income that the very wealthy have, there's ways to shelter it. They can defer it for years. They can take it in stock options.
KOCIENIEWSKIThere are different life insurance and other trusts that they can use to keep it from being declared as taxable income this year, and they can pay taxes later when it's more favorable to them. They can also put it in certain trusts and accrue, you know, capital gains on it and not be taxed on it until way down the line. So I think when people talk about the very top of the income scale, that's what the real issue is, is how do you account for what is taxable or what's not.
REHMWere you able to discern, after all you're reporting on Lauder, who is, of course, the heir to the Estee Lauder empire, what tax rate he was paying?
KOCIENIEWSKIYou know, that we never got to that because he doesn't put his tax -- doesn't make his tax returns public. Back in the '90s, when he ran for U.S. -- for New York City mayor, he put out his tax return, and I think he said he paid in the high 20s. But if you look now, there's no way of telling exactly what amount it was. We could tell that a lot of the income he made from the corporations he owns in Eastern Europe is sheltered because the companies are run -- they have television stations in Eastern Europe, but its headquarters is in Bermuda.
KOCIENIEWSKISo that's a way to allow the company to avoid some taxes. And the variable (unintelligible) forward this complex stock derivative deal he did allowed him to get $72 million, and you won't have to pay taxes on for years.
REHMNow, what about the 15 percent, 13 to 15 percent rate on capital gains? How does that play into this whole question of how much millionaires, billionaires pay in taxes?
TODEROK. So I think -- just to comment on what David said, certainly he's done a very valuable service in explaining how certain people can avoid, and the techniques people can avoid tax. However, our data also shows that a lot of taxes are being paid by high-income people. And it really depends a great deal on how you get the income. So income from earnings or if you a run a genuine small business with profits, you will be paying rates up to 35 percent.
TODERIf you have capital gains, your tax -- top tax rate is 15 percent. If you could figure out ways of not cashing in the capital gains, your rates are going to be even lower than 15 percent. So it is very variable how different high-income people get taxed. Some people pay very high rates. Other people are able to pay low rates in a very straightforward way 'cause they have capital gains. Other people avail themselves of high-pay tax advice to exploit anomalies in the system and get their rates even lower.
TODERSo I think it's a little bit dangerous to say let's just raise rates on everybody. You really -- if you want to have a fairer system, you really want to think about how people are avoiding the tax and how to correct those problems.
REHMHere's an interesting email, which says, "It's now become a slogan, but worth repeating that the term class warfare tends only to be used in the sense of the poor attacking the wealthy, not in the sense of the wealthy consolidating their wealth by inflicting poverty and suffering on others." Tamara, as a reporter, haven't we seen that term class warfare used in both directions?
KEITHYes. This is becoming a favorite phrase, especially in recent months. Class warfare, class warfare, class warfare, and it's unclear exactly what it means. At times it seems like it's just being used as a means of name-calling, just to say, class warfare. It just gets blurted out. I think one thing to mention here that is worth considering is that, yes, the very super wealthy get a lot of their income from capital gains and things -- and just being super wealthy.
KEITHMost Americans -- and even Americans who a lot of people would consider wealthy, people who maybe make $200,000 a year -- most Americans are getting the majority of their income from wages. And wages are tax -- the tax rates that we know and love that go up to 35 percent, maybe not love, but that we know well. And that is very different from capital gains, which is taxed at a much lower rate. And so the vast majority of Americans are taxed in a different way than the small minority of Americans.
REHMTamara Keith. She's NPR congressional reporter. Eric Toder is co-director of the Tax Policy Center. David Kocieniewski is a New York Times reporter and author of the series titled "But Nobody Pays That." And you're listening to "The Diane Rehm Show." David, I want to come back to you because I'd be interested in some of the strategies that we've sort of referred to, that affluent people such as Ronald Lauder used to lower their taxes. You've talked about family trust and deferred income. Tell me about rabbi trusts.
KOCIENIEWSKIRabbi trusts are -- they originally started in, I believe, the '70s, and the first one was formed. It was for a rabbi, where he was paid, but his pay was deferred him over the years. It's since become a more widely used strategy. And at this point, a lot of corporations will pay their CEOs and other executives for more rabbi trusts, which the company will control. The income will be put in the trust for the CEO or the executive, and it'll be deferred, it'll be paid later.
KOCIENIEWSKISo then it can accrue gains from investments and tax-free, and it won't be taxed until years later when the CEO or executive takes it out and uses it. It's become very popular with a lot of different corporations.
REHMAnd what about borrowing against the future value of stocks?
KOCIENIEWSKIThat, I found, is even more widely spread among CEOs. I mentioned earlier Frank McCourt, the owner of the Dodgers. He and his wife did that. Ron Lauder, when we looked at his holdings in Estee Lauder, there were -- about $400 million of his stock was used in escrow as a line of credit. So he had access to the money without selling the stock and incurring taxes and, you know, had excess, could live off that money. There are many CEOs and founders of different corporations do that as a way to get used to the money without actually paying taxes.
REHMAll right. I want to ask you now about charitable deductions because all of us make charitable contributions that are, in fact, deductible. But do the charitable deductions of the very wealthy offer them loopholes that essentially force other taxpayers to underwrite donations to their pet causes?
KOCIENIEWSKII think that that happens in some cases, although that was, to me, one of the interesting things looking at Mr. Lauder. He is a big philanthropist. He's given, I think, a quarter of a billion dollars in the past five years to various causes and, you know, museums in New York. He gives to a lot of causes for rebuilding Jewish communities in Eastern Europe.
KOCIENIEWSKIAnd while a lot of people use those kind of donations to write off their business gains, I think he -- his appear to be almost the opposite, where he takes a very aggressive line on his businesses and is a philanthropist who gives extensively, and there was no evidence we found that his were tax-motivated.
KOCIENIEWSKIThere are other art collectors, other donors to different causes who do use different techniques, where they take private art collections and say that they're public, but they're only accessible to the public for a few hours a year, and they get tax write-offs because of that. That was not the case in Mr. Lauder, but I think those strategies are out there, and they're used by, you know, by assorted members of the very wealthy class.
REHMAnd one last tax that I think all of us are familiar with -- that is, the mortgage interest and property tax deductions. Do they, from your reporting, seem to benefit the rich more than other income groups?
KOCIENIEWSKII think that studies done actually by the Tax Policy Center, Eric's group, and others have shown that, you know, mortgage deduction does go disproportionately to the wealthy and the upper middle class. One of the things I think is -- for the ultra wealthy, they can use it for vacation homes, and they can use it for yachts.
REHMI see. David Kocieniewski, New York Times reporter. Also here, Eric Toder of the Tax Policy Center, Tamara Keith of NPR. Short break, right back.
REHMAnd we're ready now to open the phones, your questions comments for Eric Toder of the Tax Policy Center, Tamara Keith, NPR congressional reporter, and David Kocieniewski of The New York Times. Let's go first to James, who's in Naples, Fla. Good morning. You're on the air.
JAMESGood morning, Diane.
JAMESI am a solid Republican, all the way down the line except maybe on social issues. And the thing about the -- taxing the wealthy people -- most of my good friends are all solid Republicans.
JAMESAnd the feeling amongst most of my -- the people that I know is that if -- they would be agreeable to taxing the guys making over a million bucks with no problem if that money was going to be absolutely taken and used to reduce the deficit and cut spending as opposed to all of these so-called savings on so forth and so on. But, if they were going to cut spending, I don't think hardly anybody would object to that. The problem is that the Democrats will not cut spending.
REHMAll right. Eric Toder, your response.
TODERWell, you know, I think we have a very long-run budget problem, where our budget is seriously out of balance. I'm not worried about the deficit that we have now when there's 9 percent unemployment. I think this is not a good time to tighten up today. But if you look down at the future, we need to put ourselves on a different growth path because we have an aging population. We have rising health care cost.
TODERThe things that government are -- is doing, it's becoming more and more expensive over time. And we will need to cut taxes. We're -- I'm sorry. I said that wrong.
TODERWe will need to cut spending, cut the growth of these entitlement programs, and we will need to raise taxes on the middle class as well as the rich if we're going to bring the situation into balance over the long time.
TODERSo I agree with the caller that the millionaires should contribute, but I think I would go much further than him in saying that the sacrifice has to be a lot broader.
REHMAnd, Tamara, the argument that some Republicans have made is that if you give a Democratic Congress more money, they will simply spend it.
KEITHI think that the history is that if you give a Republican Congress more money, they will also simply spend it. You know, it's -- the momentum in Congress is to do more, not less. There's a lot of talk about wanting to cut the deficit, and I think there's a lot of genuine concern about the deficit in Congress among both Democrats and Republicans now. And I think that there is an agreement that something needs to be done about these long-term deficits.
KEITHGetting there is really hard because every single program, every single line item has a constituency. And that is why spending grows much more easily than it shrinks.
REHMDavid, do you want to comment?
KOCIENIEWSKIWell, I think it's clear that it's not a problem that can be solved simply by raising taxes on the wealthy or just by cutting. And everyone said something needs to be done. One of the most interesting things to me is that one of the ways to stop or to address the problem is to do nothing by the end of 2012. And that's one option that's out there because if the Bush tax cuts, which were extended at the last year, expire for everyone at the end of 2012, that would take a big chunk of the problem away.
KOCIENIEWSKIAnd the tax rates would go back to what they were in the Clinton administration, and a large part of the problem would be solved. I think there are longer-term problems, but this -- the immediate-term problem that we'd deal with politically, that's a big problem because the Republicans don't want to raise taxes on anyone, and President Obama has promised not to raise taxes on the middle class.
KOCIENIEWSKIBut the reality is if they don't come to any agreement and just do nothing by the end of 2012, about 35 or 40 percent of the problem -- revenue problem would be solved right there.
REHMAll right. To Rindge, N.H., good morning, Frederick.
FREDERICKOh, yeah. Great. It's great to have me on. Thank you so much for the show. I want to make a -- I want to refer to an old adage called necessity is the mother of invention. And as far as wealthy people being job creators, I disagree that they are. They're not. It's not necessity for them to do so, to innovate. That's what we need to create jobs. We want manufacturing jobs. We want innovators. We want tinkerers. We want hungry people doing -- and those are the people that are the innovators, hungry.
FREDERICKAnd that's what Steve Jobs said, too. Stay foolish. Stay hungry. And I'm an innovator. I'm a small business owner, a machinist, self-taught machinist. I've got innovations coming out my ears, but I've got no money to work with them. And so, you know, I'll tell those Republicans to put that in their pipe and smoke it.
REHMAll right, sir. Thanks for calling. Now to Glen in Dallas, Texas. Hi there. You're on the air. Glen, are you there?
GLENYes. I'm a small business owner myself, and you all keep talking about small business owners. But small business owners are not the people that have 50 or more employees. It's the people that have less than that. And, you know, Bank of America categorizes small business owners as people who have $100,000 in their business account at all times. So if I had that much in my business account at all times, I'd be, you know, a medium-sized business.
GLENAlso, corporations are sending jobs overseas to Brazil, India, those kinds of places, and then they're letting their employees go here and hiring them back a month later at less wages, no benefits and calling that job growth. And so, you know, what -- those are two completely different issues I know, but at the same time, those are parts of the problem. In the construction industry, which is what I'm a part of, banks are not loaning. They're requiring 25 percent deposits.
GLENSo construction is still very low. And, you know, construction is one of the big things that has job growth here in the U.S. So, you know, those are three issues that, I think, need to be addressed that I don't think the people are really understanding, you know? And when you talk about small business, a lot of small business is not 50 employees or higher.
REHMAll right. Eric Toder.
TODERWell, I think he certainly identified an important issue and particularly with regard to small businesses getting financing. I'm not an expert on that, but I know that that's very important.
KEITHAnd -- is the caller still there?
KEITHI have a question for him, which is what is it that makes you hire? What is it that will allow you to hire a new person?
GLENFor me, it's more projects. I mean, I have a small interior design firm. We do commercial and residential. But I can't hire new people unless there's projects out there. And we're -- you know, we're marketing and networking as much as possible. And, you know, if the jobs would come through this year, in the new year, then, you know, I'll probably need to hire new people. But that -- a lot of it still depends on the construction industry because my job is (unintelligible).
GLENI have a small business as far as the metal tile business. I have 42 distributors around the country. And we're pretty much about to close because of the EPA stuff and then also with the construction industry 'cause we're directly tied to that.
REHMSo you're saying that regulations are getting in your way.
GLENI'm sorry. Say that again?
REHMYou're saying that regulations are getting in your way?
GLENWell, we have -- we produce a metal tile, which is hand-cast pewter, and 4 percent is lead. And when you take lead out of pewter, it becomes tin. And so with all the regulations and stuff, my manufacturers -- and I was manufacturing here in the States with all the regulations of OSHA and everything else, their manufacturing -- they just basically closed. So we're in negotiations right now to, you know, to try to get another manufacturer here in the States rather than taking it overseas, but...
REHMAll right. And that is another part of this very big problem. Glen, thanks for calling. Let's go to Knightdale, N.C. Good morning, Ben.
BENHi, yeah. I just want to know if anyone in the panel has estimates for how much money all these taxes will actually raise.
BENHow much it would actually do to balancing the federal budget?
REHMYou mean taxes on millionaires?
REHMOK. Eric Toder, can you comment?
TODERNot off the top -- I can't give you a figure off the top of my head, but I could say, as far as balancing the budget, it will not be enough.
KEITHThese most recent proposals have been all about paying for additional spending. The idea of a millionaire surtax earlier these couple of months ago first came up as a way of paying for the president's jobs bill and then has been scaled back. It started out as 7 percent, and most recently we're talking about 2 percent. And that -- a 2 percent surtax over a 10-year period, I think, they were saying would raise something around $180 billion, but that is not to reduce the deficit. That is simply to pay for a one year extension of the payroll tax holiday.
REHMAll right. To Columbia, Md., good morning, Julian.
JULIANHi. I have -- I keep hearing about this income in equity and tax in equity, and I went on the IRS website and found that the top 1 percent of the earners in this country, those making $500,000 and more, pay, at least in 2008, paid a third of the total income tax while the bottom 50 percent paid almost no income tax. And it seems like if we're a country of the people, by the people and for the people, then that bottom 50 percent also has to pay income tax. While at the same time it seems like the top 1 percent, 10 percent, however you divide it, is paying more than their share of income tax.
TODEROK. So we've looked at statistics of how much different income groups pay, and we've looked at all the taxes, the payroll tax, the corporate income tax, the income -- personal income tax, the estate tax. Low-income people don't pay income tax generally, but they do pay payroll taxes. Eighty percent...
REHMLow-income people, meaning those who are earning less than the top...
TODERYou know, moderate and low-income people.
TODEREighty percent of people pay more in payroll tax than they do in income tax.
TODERThe income tax is very concentrated at the high end. If you look at all the taxes, it is true that people at the higher end pay somewhat more in their share of taxes than their share of income so that the average tax rate at the higher end of the distribution is higher than the average tax rate at the lower end of the distribution, but is nowhere near as extreme as the caller indicates by just looking at the IRS data on personal income taxes.
REHMDavid, do you want to comment?
KOCIENIEWSKIYes. And I just like to add a couple statistics that the percentage paid by the people at the very top has been falling. The top 1 percent in 1985 paid about 29 percent effective rate, and as of 2008, it was down to 23. And the top 400 taxpayers of 1985, they paid about 30 percent effective rate, and by 2007, that had fallen to the 17 percent that Warren Buffett likes to talk about. So it has been declining of a portion of their income.
TODERYou know, and I would say, you know, when we look at the percentage, the top 1 percent, we count not only the individual income taxes but the extent to which the corporate income tax burdens them. So our figures for what the top 1 percent pay is somewhat higher than what David cites.
REHMAll right. I hope that answers it, Julian. Let's go to Seward, Ill. And let me just remind you, you are listening to "The Diane Rehm Show." Eric, you're on the air.
ERICYes. I have a question. I was curious if -- I'm a -- most people, you know, are not rich. I'm not rich. I run a small business. But my question is if I'm really rich and I get taxed more -- you know, I run a small a business. If I have to have more input cost or more taxes, even in my place, it's a simple situation. I just simply have to pass that along to my customers. I like (unintelligible) may not be extremely rich, but it could be better than the next poor guy.
ERICI guess I'm wondering is this, how do you know that by taxing the rich, you're simply just simply taxing the poor through anything that they have to sell in goods and services to the poor?
KOCIENIEWSKIYou know, I think that that is an argument that a lot of business people make. And I think there's some merit to that, but I think if it is raised on, you know, there's also a competitive aspect where if it's raise in all other businesses that there's only a certain amount that can be passed on to the customer.
TODERYeah. I mean, I think that's generally a very fundamental argument in taxation, how much of it does get shifted to other people. As David said, if it's general, it's not going to affect your business more than any other business. If you tax the rich more, they may work a little bit less. You may get a little bit more -- less saving in the economy, and that could eventually be passed on to other people. But I think most of the studies show that for the kind of tax increases we're talking about, those effects wouldn't be very big economy wise.
REHMAnd finally to Birmingham, Ala., good morning, Dave.
DAVEGood morning. I have a small wheelchair business in Birmingham, and I recently tried to expand my business by taking on another salesperson and taking in more market shares. And unfortunately, I have to shut that down, and one of the main reasons I did is I could not finance the expansion of my business. I couldn't borrow any money. A bank that I had a relationship with for 10 years that helped me buy the business in the first place, a bank I've never been late on any payments at all would not come off a dime for me when I needed them the most. That's my problem.
REHMAnd that is the subject of a whole other kind of program. And, Dave, at some point, I think we'll be able to take that up. The question of whether banks will actually lend to help businesses grow is, as I said, a whole different issue. But I do wonder whether there are tax breaks for the average taxpayer that are comparable to those that millionaires are taking and whether this whole issue is going to go by the boards, whether it is going to have an impact. Tamara, what's your thinking?
KEITHWell, there are tax breaks throughout the tax code. You know, there's the earned income tax credit. There's the child tax credit. There's the mortgage interest deduction. There are tax breaks pretty much everywhere for everyone. Obviously, you know, a bit of mortgage interest deduction isn't the same as being able to shelter millions of dollars. But it's a matter of scale. And, obviously, the tax breaks that exist for low and middle-income Americans are very valuable to them.
REHMDavid, do you think this argument is going to continue or just fall by the wayside?
KOCIENIEWSKII think it's inevitable that it has to be dealt with. The path, as Eric has pointed out, you know, today and with all the stuff that Tax Policy Center has done, the path we're on is not really sustainable over the long run. So I think there'll be, you know, something done about the payroll tax this year. Whether or not they agree with it or not, I think, will be a big campaign issue next year. And whoever is elected in 2013, I think, there will be -- there's going to be some sort of consensus, hopefully, come through the election that of a change to deal with things.
REHMAll right. David Kocieniewski of The New York Times, Tamara Keith, NPR congressional reporter, Eric Toder, co-director of the Tax Policy Center, thank you all so much.
TODERThank you very much.
KOCIENIEWSKIThanks for having us.
REHMAnd thanks for listening, all. I'm Diane Rehm.
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