Speaking of Impossible Math...

[g5000]

Joe Biden claimed last night that it was mathematically impossible to pay for the 20 percent tax rate reduction Romney is proposing without closing the mortage interest deduction and the health care deduction the middle class uses.

It is, in fact, not impossible to do so, though it would be difficult. However, I am actually in favor of eliminating the mortgage interest deduction, and so is just about every economist, left and right.


But let's talk about some math that actually is impossible.

Obama-Biden plan on balancing the budget by raising taxes on millionaires.

Here's Biden last night:

BIDEN: Just let the taxes expire like they’re supposed to on those millionaires. We don’t — we can’t afford $800 billion going to people making a minimum of $1 million. They do not need it, Martha. Those 120,000 families make $8 million a year.

So Biden and Obama believe those 120,000 families can pay "a little bit more" (as Obama is fond of saying), and that will balance the budget.

Here's Obama:

When it comes to deficit reduction, I think we have to have a balanced approach that says folks like me can pay a little bit more and go back to the Clinton rates that we had that created 23 million new jobs. (Applause.) I’m not going have millions of students pay more for college, or kick kids off of Head Start, or voucherize Medicare, in order to pay for a tax cut for myself or for millionaires or billionaires. That’s now how you grow an economy.

All right.

So how much is that deficit those millionaires and billionaires are going to be paying down?

US budget deficit tops $1 trillion for fourth straight year

It's been as high as $1.4 trillion under Obama, but let's gift him a little bit and round down to an even trillion bucks.

Biden says "120,000 families". Well, let's fact check that.

http://www.irs.gov/uac/SOI-Tax-Stat...tical-Tables-by-Size-of-Adjusted-Gross-Income

Open the spreadsheet for "Size and Accumulated Size of Adjusted Gross Income" for 2009 (latest year available).

When you add up all the returns for everyone who earns a million dollars or more a year, you come up with 236,883 returns filed.

So what does "a little bit more" mean in ObamaSpeak™?

$1 trillion divided by 236,883 comes out to an additional $4,221,493.31 each filer would have to pay in income taxes.

That's on top of what they already pay.

Obviously, someone who "only" earns a million won't be able to pay an additional $4,221,493.31.


But nevermind all that.

Look at the total income of everyone who earned more than $1 million in 2009. And remember that 2009's deficit was $1.4 trillion.


That's right. The total income of everyone who earned more than $1 million was $726,910,880.

If you taxed everyone who earned more than a million dollars at 100%, you would only pay for seven one-hundreths of one percent of the deficit.

If you cut ten dollars of spending for every dollar you raised their taxes, you would only lower the deficit by 7 tenths of one percent.

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[Dont Taz Me Bro]

I'll support eliminating the mortgage deduction if they lower tax rates across the board. I'm not on board with handing more of my money over to politicians to buy special favors with.

 

[BillyV]

Joe Biden claimed last night that it was mathematically impossible to pay for the 20 percent tax rate reduction Romney is proposing without closing the mortage interest deduction and the health care deduction the middle class uses.

It is, in fact, not impossible to do so, though it would be difficult. However, I am actually in favor of eliminating the mortgage interest deduction, and so is just about every economist, left and right.

But let's talk about some math that actually is impossible.

Obama-Biden plan on balancing the budget by raising taxes on millionaires.

Here's Biden last night:

BIDEN: Just let the taxes expire like they’re supposed to on those millionaires. We don’t — we can’t afford $800 billion going to people making a minimum of $1 million. They do not need it, Martha. Those 120,000 families make $8 million a year.

So Biden and Obama believe those 120,000 families can pay "a little bit more" (as Obama is fond of saying), and that will balance the budget.

Here's Obama:

When it comes to deficit reduction, I think we have to have a balanced approach that says folks like me can pay a little bit more and go back to the Clinton rates that we had that created 23 million new jobs. (Applause.) I’m not going have millions of students pay more for college, or kick kids off of Head Start, or voucherize Medicare, in order to pay for a tax cut for myself or for millionaires or billionaires. That’s now how you grow an economy.

All right.

So how much is that deficit those millionaires and billionaires are going to be paying down?

US budget deficit tops $1 trillion for fourth straight year

It's been as high as $1.4 trillion under Obama, but let's gift him a little bit and round down to an even trillion bucks.

Biden says "120,000 families". Well, let's fact check that.

SOI Tax Stats - Individual Statistical Tables by Size of Adjusted Gross Income

Open the spreadsheet for "Size and Accumulated Size of Adjusted Gross Income" for 2009 (latest year available).

When you add up all the returns for everyone who earns a million dollars or more a year, you come up with 236,883 returns filed.

So what does "a little bit more" mean in ObamaSpeak™?

$1 trillion divided by 236,883 comes out to an additional $4,221,493.31 each filer would have to pay in income taxes.

That's on top of what they already pay.

Obviously, someone who "only" earns a million won't be able to pay an additional $4,221,493.31.


But nevermind all that.

Look at the total income of everyone who earned more than $1 million in 2009. And remember that 2009's deficit was $1.4 trillion.


That's right. The total income of everyone who earned more than $1 million was $726,910,880.

If you taxed everyone who earned more than a million dollars at 100%, you would only pay for seven one-hundreths of one percent of the deficit.
If you cut ten dollars of spending for every dollar you raised their taxes, you would only lower the deficit by 7 tenths of one percent.
.

I was curious about the “impossible math” myself. If you look at the same IRS table (Size and Accumulated Size of Adjusted Gross Income (“AGI”)), you would get $1.965 trillion in AGI for those taxpayers earning over $200,000 for 2009. Itemized deductions for those over $200,000 in 2009 totaled $317 billion, or 16.14% If you assume AGI minus itemized deductions times 35% (current top tax rate) is the tax amount due from these taxpayers, the tax bill would be $576.5 billion. On the other hand, if you assume the entire $1.965 trillion is instead taxable at 28% (the 20% reduction from 35%), the tax bill would be $550 billion. With just a little tinkering those could be brought into line to make it revenue neutral (maybe an additional 2% for a top rate of 30% for over $5 million). Difficult politically? Hell, yes. Included in those deductions are the following:

Medical after limit $2.5 billion
State and Local Taxes $150.8 billion
Interest $78.7 billion
Contributions $59.1 billion
Casualty/Theft $0.5 billion
Limited Miscellaneous $13.4 billion
Unlim Miscellaneous $12.1 billion

Is it realistic to assume this could be passed? You could easily limit the itemized deductions for those over $200,000 without affecting those below, and I’m not sure as a group the lower rate wouldn’t be attractive enough to give up the deductions. No, the problem is the industries that rely on those deductions, mainly the housing industry (mortgage interest and property taxes) and the charity industry (contributions). They will fight tooth and nail to keep those in place. And these kinds of wholesale changes tend to lead to unintended consequences unless they are phased in over a number of years. However, there are distinct benefits to having the economics of a transaction be more important than the tax effect; more rational decisions can then be made.

By the way, you need to add a few zeros to the end of your incomes over $1 million; those figures are in thousands. Therefore, the amount of revenue you would get at 100% rates (if you could; it would completely remove any motive to earn income over $1 million) would be $727 billion, about half the deficit. You would, however, likely destroy the economy, to everyone’s detriment.