Speaker 1: All right, let's jump right in today with some meaty policy we have so much
to talk about today.
California recall is tonight will be streaming results live.
We have a new tax proposal.
We have new anti-tax mania.
We have all sorts of different things.
But let's start with some policy material from the Democratic Party.
Democrats are seeking to increase the corporate tax as well as income tax on the wealthy to
pay for this three point five trillion dollar plan about which Joe Manchin is talking, et
cetera, et cetera.
So let's start with a report from the Associated Press about the proposal.
We will then look at it item by item, and then we will then look at some of the I guess
I would call it hyperbolic, panicked reporting about if you make five million and live in
NYC, you'll pay 60 percent total.
OK, so we'll go through it piece by piece.
That's the way we like to do it.
House Democrats unveiled a sweeping proposal yesterday for tax hikes on big corporations
and the wealthy to fund Joe Biden's three point five trillion dollar plan.
The proposed top tax rate would revert to thirty nine point six percent on individuals
earning more than 400000 or 450.
For couples, there would be a three percent tax on wealthier Americans, with adjusted
income beyond five million a year for big businesses.
The proposal would lift the corporate tax rate from twenty one to twenty six point five
percent on incomes beyond five million, slightly less than the 28 percent rate the president
had sought in all.
The tax hikes are in line with Biden's own proposals and would bring about the most substantive
changes in the tax code since Republicans with then-President Donald Trump slashed taxes
in 2017.
Seventeen business and anti-tax groups are sure to object.
But Democrats are pressing forward.
All right.
So where do we start?
Well, what are the main provisions of the bill and how do they change from what we currently
have?
So let's look at it.
The top tax bracket would increase on individuals.
The top top tax bracket would increase from 37 percent to thirty nine point six percent.
This is that infamous two point six percent difference that Democrats and Republicans
have been arguing about for a long time.
Remember going from 37 to thirty nine point six, that's back to the pre Bush top bracket.
Before Bush, the top tax rate was thirty nine point six percent under Clinton, Bush lowered
it to thirty seven.
Obama let it go back up to thirty nine point six.
Trump went back down to 37 seven.
That's the scope here.
OK, it's a two point six percentage point gap that is the subject of the argument and
the debate.
Now, this the wording has been muddy and it's already been changed.
The bracket would start lower.
Right now.
That top tax bracket doesn't kick in until a couple makes six hundred and twenty eight
thousand a year together.
It appears as though under the Biden plan, under the Democratic plan, sorry, the House
Democrats plan that bracket would start lower at four hundred and fifty thousand dollars
in joint income per year.
OK, there would be a three percent tax on incomes over five million dollars a year.
OK, now it's you know, with all of these things, there's always a question of how much are
you capturing by doing this?
There is an argument to be made that a lot of people who make a ton of money are not
taking a salary above five million dollars a year, that a lot of that would be in stock
options or in other types of deferred compensation, and it would avoid that three percent tax.
But OK, we'll deal with that eventually.
Three percent tax on incomes over five million a year and a corporate tax increase from twenty
one percent to twenty six and a half percent only on incomes beyond five million dollars.
Now, remember, this doesn't apply to so many corporations, LLC S. S corporations, et cetera,
because those are what are called pass through entities and the income is taxed by the individual
stakeholders on their personal income taxes.
So this would apply to a small portion of corporations.
And remember, if you're currently avoiding a twenty one percent tax rate, you would then
just go to avoiding a 26 and a half percent tax rate unless we put in place a corporate
minimum tax or some other mechanisms.
Another issue that we've talked about many times, the estimates are this would raise
about two point nine dollars trillion dollars of the three point five trillion dollars that
the legislation that is being discussed would cost.
All right.
Now, there are some headlines that have been floating about, you know, in some states and
some cities with this proposal, individuals who make a lot of money could end up paying
around 60 percent.
For example, there's a CNBC, CNBC article which says top earning New Yorkers that the
New York City could face a sixty one point two percent combined tax rate.
Under the House plan, Californians could be paying a 59 percent rate.
How could this be?
Well, let's go through it.
First of all, you would have to be at the top level, OK?
You'd have to be at that five million a year level.
And by the way, if you're at five million a year, you actually don't pay the three percent
surcharge.
But let's because it starts at five million.
But you could be in New York City, right?
You pay thirty nine point six percent on income.
It's a marginal tax rate, three percent surcharge, three point eight percent net investment income
tax.
That would get you to forty six point four.
And then if you're in New York City, you could have a combined state income tax and city
income tax of fourteen point eight.
You combine the 46 and the 14 and it's sixty one point two.
Now, that's not your effective tax rate because remember, these are marginal tax rate.
It doesn't account for the standard deduction, other ways to reduce tax liability.
But that's where they're getting sixty one point two is an exaggerated.
Yes.
Are people who make that much probably going to pay a lot more if this passes?
Yeah, they probably will.
But remember, the unless you're really bad with money, when you make more and more money,
you're spending a smaller and smaller share of your income.
I've said before, I'm very conservative financially.
I save the vast majority of my income.
I don't spend it.
I live well below my means.
So if my income tax went up to three or four points, I'm saving less.
It's not actually affecting my day to day budget.
And it's important to understand that at these super high levels, if you're making 20 million
a year, unless you're doing really bad financial things, you're not even going to feel this.
Now, you can still argue that it's too high or it's that's a different argument.
But the argument that, you know, the vast majority of people that are going to be affected
by this should not be spending anywhere near what they make.
Still can debate whether this is, quote, right.
OK, California, similar example.
You could have that forty six point four total federal and then thirteen point three state.
That would get you to fifty nine point seven in New Jersey.
You could end up at fifty seven point two.
Hawaii, fifty seven point four.
One other issue is we don't know whether the limit on salt state and local tax deductions
is going to be removed.
This is just a proposal.
And for people saying this is too high, people are going to move out of New York City, they're
going to move out of California, the market will tell us, you know, if it passes and people
start leaving New York City in California.
At higher rates than people generally move in and out, then it will be a sign that it's
too high.
And remember that even if people move out the state but I'm sorry, the federal government
or even the state, depending on, you know, what's going on, they could end up with more
money because there is taxation is sort of on a curve and you could raise taxes and push
out taxpayers, but still take in more money in total.
That's a that's just a broad, you know, macroeconomic taxation concept here.
We're talking about federal, though, and important that this does nothing about the multinationals
that can use different accounting tricks to book revenue and profit in different countries
and to end up losing money on paper in the United States.
This won't change that.
You would need a total revamp.
And of course, this is only a proposal we're going to follow where it goes