So, I was reading the Wall Street Journal.  An article by John McKinnon. It was to explain a plan developed by Martin Feldstein (Harvard University, Chairman of Council of Economic Advisors under President Reagan), that “demonstrated” how a plan (now espoused by Speaker of the House John Boehner)  to limit tax breaks would actually raise revenue.  Except that the “sample data” was as realistic as having a jet plane land on my driveway.

You will notice from the attached graphic, that scenarios are presented for the top 0.1%, 1%, and 2 to 6% of earners in America.  The top 0.1% earners have incomes of $ 2,682,257 or more.   While it was not stated in the article, it is safe to assume that this is adjusted gross income.  And , as the graph shows, we are to believe that  the current tax burden is 35.2%.  (It’s not- I’ll get to that soon.)  The primary  potential  scenarios would limit deductions to 2% of adjusted gross income or capping deductions at $ 25K.

Except for the real scenarios.  The top 0.1% earners do not make their money from wages.  They make the bulk of their money from dividends and capital gains- or even from tax-free interest.  The taxes on qualified dividends are 15%.  The taxes on long-term capital gains are also 15% (Most of these folks earn their income from qualified dividends; non-qualified dividends are indeed taxed at the marginal rate of the taxpayer. ) While the tax rate on qualified dividends can be 5%, that’s only for us lesser mortals, whose income is much lower.  Which is why folks like Warren Buffet pay such lower tax rates than mere mortals.

(The same scenario obtains for the top 1% of earners, too.  I don’t have enough data to discuss those that are in the top 2 to 6% of earners, except to agree that their income ranges from $ 227K to almost $ 600K.  You can see income breakdowns here.)

Given the elaborate graphs and discussions, one has to wonder what the goal of this exercise was.  Did Marty Feldstein think he could fool most of the Americans?  (Actually, since most Americans have not a clue about taxes, that is entirely possible!)  Or, was this yet another bait and switch game, making one think that change was being proposed- but in reality, the tax rates would still stay at ridiculously low rates for the top 2%?

It’s like the ads ExxonMobil posted for a year or so.  Showing us where there $ 1 of revenue went.  Which, of course, had little bearing on reality.  Or, listening to big corporations complain about the 35% tax rate that exists in America- yet, so many of the largest companies in America paid $ 0.00 in income taxes for the year!

So, no matter what we do about deductions, without changing the tax rate on dividends for those top 2%, there will be little if any change in any taxes paid.  And, without imposing a minimum tax on corporations (say, equal to the amount they pay out in dividends, which is supposed to be after-tax income), that 35% corporate tax rate also has no bearing on reality.

This is exactly why Mr. Boehner has decided upon “Plan B” and to discontinue discussions.  Because the hoopla about changing the tax rates on all those ABOVE $ 1 million will affect not 0.89% as he claims but 0%.   The change it includes about dividends and capital gains to 20% will affect them.  But, it’s not clear if that also removes the 3.8% to be collected via Obamacare, which may be why it’s deliberately unclear.  Oh- and there is NO change to any spending whatsoever!  (Wasn’t his demand that expenses be cut and revenues be unchanged?  Now, it’s a itsy bitsy revenue change and NO spending change?)

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