School of Visual Arts               The Fiscal Cliff
School of Visual Arts               The Fiscal Cliff                                                             or       ...
School of Visual ArtsThe Fiscal                                                                            Cost of Renewal...
School of Visual Arts                                                                                                     ...
School of Visual Arts                                               Norway2009 Corporate                           Luxembo...
School of Visual Arts                                        Denmark                                         Sweden       ...
School of Visual Arts                                      100%Top U.S. Federal                      80%Income TaxRates on...
School of Visual Arts                                  100%                                         Income Tax            ...
School of Visual Arts                                                          94% in 1944                                ...
School of Visual Arts                                                            94% in 1944      Income Tax   91% in 1952...
School of Visual Arts                                       100%Top U.S. Federal                       80%Income TaxRates ...
School of Visual Arts                                        60%Share of                                50%Federal Tax    ...
School of Visual Arts                            2012 Tax RatesHere is a summary of theindividual tax rates that   10% on ...
School of Visual Arts                             2013 Tax Rates   (if nothing happens)This is what the tax rateswill look...
School of Visual Arts                                                   This is what the taxes are                        ...
School of Visual Arts                                                      This slide shows what happens                  ...
School of Visual Arts                              Taxable    Income       20122013 Tax Rates                             ...
School of Visual ArtsDiscretionaryOutlays vs. TaxExpenditure                             1500                             ...
School of Visual Arts                             Largest Tax Expenditures in FY 2011, in Billions of DollarsThe two large...
School of Visual ArtsNumber of                         70,000                                            58,935Tax Returns...
School of Visual Arts                             Actual Cost per Employee for 2010 and 2011                $15,000       ...
School of Visual Arts                                                     This would be everyones new                     ...
School of Visual Arts                                                                      The Imputed Income Healthcare  ...
School of Visual Arts                                                                                    This shows your n...
School of Visual Arts                                                                                                 This...
School of Visual Arts                               Taxable    Income     Imputed Income   New Taxable   New Income   Incr...
School of Visual Arts                                              2012 Tax Rates            2012 Tax Rates   2013 Tax Rat...
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The Fiscal Cliff

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David Rhodes' presentation form the All-Staff Meeting on Thursday, August 23, 2012.

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The Fiscal Cliff

  1. 1. School of Visual Arts The Fiscal Cliff
  2. 2. School of Visual Arts The Fiscal Cliff or Taxmaggedon The Fiscal Cliff or Taxmaggedon is the confluence of tax increases summarized in the next slide caused by among others the expiration of the Bush tax cuts, the 2% Social Security payroll tax cut, the sequestration mandated by the Budget Control Act, which was approved as part of the package to increase the debt ceiling to ensure that the U.S. did not default on its debt and a set of other tax provisions, the largest of which is the Alternative Minimum Tax fix that has to be renewed annually.
  3. 3. School of Visual ArtsThe Fiscal Cost of Renewal (Fiscal Years)Impact of 2013 2013-2014 2013-2022Policies That 2001/2003/2010 Tax Cuts $110 billion $340 billion $2.8 trillionExpire orActivate in or Alternative Minimum Tax Patches $125 billion $225 billion $1.7 trillionAfter 2012Together, these simultaneous Jobs Measures $115 billion $150 billion $150 billionchanges amount to $455 billion,for 2013,which would appear togo a long way to closing thebudget deficit over time. Doc Fixes $10 billion $30 billion $270 billionHowever, even the most hawkishof the deficit hawks realize thatat 3.5% of the Gross DomesticProduct, the effect of these The Budget Control Act Sequester $65 billion $160 billion $980 billionsudden increases in taxes andreductions in expenditures will beto decrease growth by at least3.5%, pushing the economy into Tax Extenders $30 billion $60 billion $455 billionnegative growth, or a recession. TOTAL $455 billion $965 billion $6.355 trillion Source: Committee for a Responsible Federal Budget
  4. 4. School of Visual Arts Cost of Renewal (Fiscal Years) 2013 2013-2014 2013-2022The Fiscal 2001/2003/2010 Tax Cuts $110 billion $340 billion $2.8 trillion Expiration of American Opportunity Tax Credit $3 billion $15 billion $125 billionImpact of Reduction of Child Tax Credit from $1,000 to $500 per child $7 billion $40 billion $350 billion Expiration of Child Tax Credit enhanced refundability $0 billion $10 billion $90 billionPolicies That Expiration of EITC expansion $0 billion $10 billion $95 billion Elimination of 10% bracket $30 billion $80 billion $450 billionExpire or Increase in rates from 25 | 28 | 33 | 35 to 28 | 31 | 36 | 39.6 $40 billion $95 billion $730 billion Restoration of phased outs for itemized deductions and personal exemtions (Pease and PEP) $6 billion $20 billion $165 billion Expiration of reductions in marriage penalties $5 billion $10 billion $55 billionActivate in or Increase in capital gains taxes from 15% to 20% and dividends taxes from 15% to being taxed as ordinary income $15 billion $25 billion $315 billion Expiration of various education and other tax benefits $1 billion $5 billion $20 billionAfter 2012 Increase in estate tax from 35% over $5 million to 55% over $1 million $5 billion $35 billion $430 billion Alternative Minimum Tax Patches $125 billion $225 billion $1.7 trillionAlthough it is possible that Cost relative to current law $90 billion $130 billion $805 billionsomething will happen to Interaction with extension af 2001/2003/2010 tax cuts $35 billion $100 billion $920 billionameliorate the situation, it is Jobs Measures $115 billion $150 billion $150 billionnot clear what. Much of the Expiration of 2% payroll tax holiday $90 billion ~$120 billion ~$120 billionpolitical discourse centers on Expiration of expanded unemployment benefits $25 billion ~$30 billion ~$30 billionthe idea that tax rates arealready as high as they should Doc Fixes $10 billion $30 billion $270 billionbe so they should not be The Budget Control Act Sequester $65 billion $160 billion $980 billionincreased except for the very 2% reduction to Medicare providers $5 billion $10 billion $90 billionwealthy or alternatively tax Other manditory reductions $5 billion $10 billion $45 billionrates should be decreased, the 10% reduction in defense spending (down 8.5% by 2021) $30 billion $80 billion $510 billiontax base broadened so that 8% reduction in non-defense discretionary spendong (5.5% by 2021) $25 billion $55 billion $335 billionoverall tax collection remainsthe same. Tax Extenders $30 billion $60 billion $455 billion Subpart F for active financing income $5 billion $10 billion $80 billion R&E tax credit $5 billion $10 billion $65 billion Alcohol fuel tax credit $10 billion $10 billion $60 billion Other extenders $10 billion $30 billion $250 billion TOTAL $455 billion $965 billion $6.355 trillion Source: Committee for a Responsible Federal Budget
  5. 5. School of Visual Arts Norway2009 Corporate LuxembourgIncome Taxes Korea Czech Republicas a Percentage Switzerland New Zealandof GDP Italy SwedenBut are taxes too high? Slovak RepublicAlthough the top U.S. corporaterates are higher than our United Kingdomindustrial competitors, very few Israelcorporations pay those rates as Belgiumcan be seen in this chart, whichshows corporate taxes as a Canadapercentage of the Gross IrelandDomestic Product (GDP). Denmark JapanAs you can see only Iceland hasa lower effective tax rate.  In Hungaryother words, although the Spainnominal U.S. tax rate may be Finlandhigher than the rest of theindustrialized world, U.S. Turkeyloopholes are so large that SloveniaU.S. corporations pay far less Austriain taxes than do their foreigncompetitors.  France GermanyEven in a notorious tax haven United Stateslike Luxembourg, corporationspay 3 times the effective tax Icelandrate that they do in the US.  2% 4% 6% 8% Source: thinkprogress.org
  6. 6. School of Visual Arts Denmark Sweden Italy Belgium FinlandTotal 2009 Austria FranceTaxes as a Norway HungaryPercentage Slovenia Luxembourgof GDP Germany Czech RepublicThis chart shows total taxes United Kingdompaid—federal, state and local— Icelandby individuals as a percentage Israelof Gross Domestic Product. CanadaOnly the citizens of Chile and New ZealandMexico are less heavily taxed Spainthan U.S. citizens are. Switzerland Greece Slovak Republic Ireland Korea Turkey United States Chile Mexico 10% 20% 30% 40% 50% Source: thinkprogress.org
  7. 7. School of Visual Arts 100%Top U.S. Federal 80%Income TaxRates on Regular 60%Income andCapital Gains 40% Top Tax RateThis chart gives an historicalperspective on the top tax rates on Regularon personal income and capital Incomegains from 1916 through today.As you can see, by historicalstandards, tax rates are low today. 20% Top Tax Rate on Capital Gains 0% 1916 1926 1936 1946 1956 1966 1976 1986 2006 2012 Source: data360.org
  8. 8. School of Visual Arts 100% Income Tax DuringTop U.S. Federal 80% World War IIncome TaxRates on Regular 60%Income andCapital Gains 40% Top Tax RateYou can see how tax rates spikeduring the First World War and on Regularagain during the Second World IncomeWar, where the highest marginalrate in 1944 was 94%. 20% Top Tax Rate on Capital Gains 0% 1916 1926 1936 1946 1956 1966 1976 1986 2006 2012 Source: data360.org
  9. 9. School of Visual Arts 94% in 1944 100% Income Tax DuringTop U.S. Federal 80% World War IIncome TaxRates on Regular 60%Income andCapital Gains 40% Top Tax RateThat rate was deliberately enactedby the Roosevelt Administration on Regularto ensure that there were no "war Incomemillionaires." The rate applied toincome above $200,000 about$2,000,000 today. 20% Top Tax Rate on Capital Gains 0% 1916 1926 1936 1946 1956 1966 1976 1986 2006 2012 Source: data360.org
  10. 10. School of Visual Arts 94% in 1944 Income Tax 91% in 1952-60 During Under President Korean War Eisenhower 100% Income Tax DuringTop U.S. Federal 80% World War IIncome Tax Income Tax During Vietnam WarRates on Regular 60%Income and Income Tax DuringCapital Gains Iraq War 40% Top Tax RateRates fell briefly after World War IIand then were raised during the on RegularKorean War, and held steady during IncomePresident Eisenhowers terms, aperiod of sustained economicgrowth, were reduced slightly under 20% Top Tax RatePresident Kennedy and then reduced on Capitalagain by President Johnson as wewent into the Vietnam War. GainsJohnson set the precedent for not 0%paying for a war by cutting taxes,which George W. Bush’s 1916 1926 1936 1946 1956 1966 1976 1986 2006 2012Administration followed by cutting Source: data360.orgtaxes after the Afghanistan and Iraqinvasions.
  11. 11. School of Visual Arts 100%Top U.S. Federal 80%Income TaxRates on Regular 60%Income andCapital Gains 40% Top Tax RateOne final thing to notice is that theCapital Gains Rate has fallen below on Regular20% twice. In both those cases, Incomethose cuts were soon followed by afinancial panic as in 1929 and 2008. 20% Top Tax Rate on Capital Gains 1929 2008 0% 1916 1926 1936 1946 1956 1966 1976 1986 2006 2012 Source: data360.org
  12. 12. School of Visual Arts 60%Share of 50%Federal Tax Individual Income TaxesRevenue 40% Payroll TaxesHere we see that from 1950 through2006, the share of governmentrevenue paid by corporations fell 30%from 30% to 10% while the share offederal revenue coming from payrolltax has increase from 10% to 40%.In other words, taxes on income—which were 50% of government 20%receipts in 1950—are now 80% ofgovernment revenues.Since the tax rates on the highest 10%incomes have fallen and the tax rates Corporateon earned income (Social Security) Income Taxeshave risen, it is not surprising thatmany of those who work for a livingmay feel overtaxed. 0% 1950 1958 1966 1974 1982 1990 1998 2006 Source: Office of Management and Budget; Historical Tables; Budget of the U.S. Government, Fiscal Year 2012 and Staff of the Joint Committee on Taxation Calculations.
  13. 13. School of Visual Arts 2012 Tax RatesHere is a summary of theindividual tax rates that 10% on taxable income from $0 to $17,400, plusare in effect now. 15% on taxable income over $17,400 to $70,700, plus 25% on taxable income over $70,700 to $142,700, plus 28% on taxable income over $142,700 to $217,450, plus 33% on taxable income over $217,450 to $388,350, plus 35% on taxable income over $388,350 Source: about.com
  14. 14. School of Visual Arts 2013 Tax Rates (if nothing happens)This is what the tax rateswill look like if Congress 15% on taxable income not over $59,300does nothing. 28% on taxable income over $59,300 but not over $143,350 31% on taxable income over $143,350 but not over $218,450 36% on taxable income over $218,450 but not over $390,050 39.6% on taxable income over $390,050 Source: about.com
  15. 15. School of Visual Arts This is what the taxes are Taxable Income at the current rates forCurrent Tax Rates Income Tax people at the top of each tax bracket.10% $0 – $17,400 $17,400 $1,74015% $17,400 – $70,700 $70,700 $9,73525% $70,700 – $142,700 $142,700 $27,73528% $142,700 – $217,450 $217,450 $48,66533% $217,450 – $388,350 $388,350 $105,06235% over $388,350
  16. 16. School of Visual Arts This slide shows what happens Taxable Income to people of the same income2013 Tax Rates Income Tax if the tax brackets change.15% $0 – $59,300 $17,400 $2,61028% $59,300 – $143,350 $70,700 $12,08731% $143,350 – $218,450 $142,700 $33,08736% $218,450 – $390,050 $217,450 $55,395.5039.6% over $390,050 $388,350 $116,916
  17. 17. School of Visual Arts Taxable Income 20122013 Tax Rates Difference % Difference Income Tax Taxes15% $0 – $59,300 $17,400 $2,610 $1,740 $870 50%28% $59,300 – $143,350 $70,700 $12,087 $9,735 $2,352 24.16%31% $143,350 – $218,450 $142,700 $33,087 $27,735 $5,352 19.3%36% $218,450 – $390,050 $217,450 $55,395.50 $48,665 $6,730.50 13.83%39.6% over $390,050 $388,350 $116,916 $105,062 $11,854 11.28% This slide shows the difference in dollars and percentage. Youll note that the percentage increase declines as income increases. This is generally described as regressive taxation.
  18. 18. School of Visual ArtsDiscretionaryOutlays vs. TaxExpenditure 1500 TotalEstimates Discretionary Outlays 1200in Constant Sum of TaxDollars 900 Expenditure Estimates($ Billions) 600To prevent tax rates from going up,some are urging that the tax base bebroadened by eliminating taxpreference items, deductions, credits 300and exclusions that are commonlycalled “tax expenditures.” 0As you can see from this chart thesepreference items are quite large, 1985 1991 1997 2003 2009estimated to be almost a trillion Source: subsidyscope.orgdollars in foregone revenue in 2009.But many of these preferences areactually quite popular, as the nextchart will show you.
  19. 19. School of Visual Arts Largest Tax Expenditures in FY 2011, in Billions of DollarsThe two largest are the Provision Amountexclusion for employer-sponsored health insuranceand the mortgage interestdeduction. Exclusion for employer-sponsored health insurance $177 Mortgage interest deduction $104.5 401 (k) plans $67.1 Deduction for state and local taxes other than property taxes $46.5 Step-up basis of capital gains at death $44.5 Lower rate on capital gains $44.3 Charitable deduction (other than education and health) $43.9 Pensions (defined benefit) $44.6 Exclusion of net imputed rental income $37.6 Capital gains exclusion on home sales $31.3 Source: U.S. Budget Analytical Perspectives, Fiscal Year, 2011
  20. 20. School of Visual ArtsNumber of 70,000 58,935Tax Returns 60,000 49,945(thousands) 50,000by Marginal 40,000Statutory Tax 30,000 26,295 24,380Rate in 2011 20,000This chart shows the marginalrates of all those who filed taxreturns in 2011. The question 10,000 4,628to ask is if we broaden the 1,537 869base, who pays more taxesand how much more? The 058,935,000 who paid no 0% 10% 15% 25% 28% 33% 35%income tax or the 869,000 Source: Joint Committee on Taxationwho were in the 35% bracket?
  21. 21. School of Visual Arts Actual Cost per Employee for 2010 and 2011 $15,000 $11,250 Paid by SVA, $10,000 I want to give you an example of how “broadening the base” $7,500 might affect you: In this example, to “broaden the base” means eliminating the exclusion on employer paid health care plans, (in other word, the health benefits $3,750 paid by SVA on your behalf would become part of your taxable income). The example assumes that tax rates are kept at 2012 levels. This is what SVA pays on everyones behalf for health $0 care every year. 2010 2011
  22. 22. School of Visual Arts This would be everyones new Taxable Income taxable income at the old ratesCurrent Tax Rates Income Tax10% $0 – $17,400 $17,400 $1,74015% $17,400 – $70,700 $70,700 $9,73525% $70,700 – $142,700 $142,700 $27,73528% $142,700 – $217,450 $217,450 $48,66533% $217,450 – $388,350 $388,350 $105,06235% over $388,350
  23. 23. School of Visual Arts The Imputed Income Healthcare Taxable Income Imputed Income shows what would be added toCurrent Tax Rates Income Tax Healthcare each employees taxable income.10% $0 – $17,400 $17,400 $1,740 $10,00015% $17,400 – $70,700 $70,700 $9,735 $10,00025% $70,700 – $142,700 $142,700 $27,735 $10,00028% $142,700 – $217,450 $217,450 $48,665 $10,00033% $217,450 – $388,350 $388,350 $105,062 $10,00035% over $388,350
  24. 24. School of Visual Arts This shows your new Taxable Income Imputed Income New Taxable taxable income.Current Tax Rates Income Tax Healthcare Income10% $0 – $17,400 $17,400 $1,740 $10,000 $27,40015% $17,400 – $70,700 $70,700 $9,735 $10,000 $80,70025% $70,700 – $142,700 $142,700 $27,735 $10,000 $152,70028% $142,700 – $217,450 $217,450 $48,665 $10,000 $227,45033% $217,450 – $388,350 $388,350 $105,062 $10,000 $398,35035% over $388,350
  25. 25. School of Visual Arts This would be your new Taxable Income Imputed Income New Taxable New Income income tax.Current Tax Rates Income Tax Healthcare Income Tax10% $0 – $17,400 $17,400 $1,740 $10,000 $27,400 $3,24015% $17,400 – $70,700 $70,700 $9,735 $10,000 $80,700 $12,23525% $70,700 – $142,700 $142,700 $27,735 $10,000 $152,700 $30,53528% $142,700 – $217,450 $217,450 $48,665 $10,000 $227,450 $51,96533% $217,450 – $388,350 $388,350 $105,062 $10,000 $398,350 $108,56235% over $388,350
  26. 26. School of Visual Arts Taxable Income Imputed Income New Taxable New Income Increased PercentageCurrent Tax Rates Income Tax Healthcare Income Tax Tax Increase10% $0 – $17,400 $17,400 $1,740 $10,000 $27,400 $3,240 $1,500 86.21%15% $17,400 – $70,700 $70,700 $9,735 $10,000 $80,700 $12,235 $2,500 25.68%25% $70,700 – $142,700 $142,700 $27,735 $10,000 $152,700 $30,535 $2,800 10.1%28% $142,700 – $217,450 $217,450 $48,665 $10,000 $227,450 $51,965 $3,300 6.78%33% $217,450 – $388,350 $388,350 $105,062 $10,000 $398,350 $108,562 $3,500 3.33%35% over $388,350 This shows the increase in dollars and percentage.
  27. 27. School of Visual Arts 2012 Tax Rates 2012 Tax Rates 2013 Tax Rates plus Medical Expenses $1,740 $2,610 $3,240 $9,735 $12,087 $12,235 $27,735 $33,087 $30,535 $48,665 $55,395.50 $51,965 $105,062 $116,916 $108,562 You can decide whether this current exemption for employer provided health care benefits is a “tax expenditure” worth keeping. And, whatever your conclusion, I would suggest that you let your elected representatives know what you have concluded.
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