Some of the Wealthy Asking to Be Taxed

[Ghent12]

Re: Some of the Wealthy Asking to Be Taxed

Top marginal income tax rate today is 35%. In 1981, the top marginal income tax rate was 69.125%

It always amazes me when people quote the "top marginal tax rate" as if it has any meaning in a vacuum whatsoever. The "top marginal tax rate" is not the actual tax rate that anybody pays, and therefore is largely irrelevant except in helping to calculate what people actually pay.

When the federal government lowers taxes, many state governments are willing and able to swoop in to pick up the slack, so a federal marginal tax rate is only a tiny part of a large story.

[c1ue]

Re: Some of the Wealthy Asking to Be Taxed

It always amazes me when people quote the "top marginal tax rate" as if it has any meaning in a vacuum whatsoever. The "top marginal tax rate" is not the actual tax rate that anybody pays, and therefore is largely irrelevant except in helping to calculate what people actually pay.

This is a very curious belief.

If the top marginal income tax rate doesn't matter, then why has it been getting diced and sliced ever since Reagan took office?

As for state governments, I don't see any indications whatsoever that the state governments are making up for the Bush tax cuts by increasing state taxes to compensate.

[Thailandnotes]

Re: Some of the Wealthy Asking to Be Taxed

Buffett is hardly a demagogue and if he's parroting anyone it's himself. It's not as if he has had an epiphany. His beliefs about redistribution of wealth (label it class warfare if you want) go way back.

[Thailandnotes]

Re: Some of the Wealthy Asking to Be Taxed

Higher income taxes on income don't disadvantage potential competitors. Higher income taxes reduce the potential for competitors. Business creation is less easy when capital is siphoned away by the state.

Eric Jackson made this arguement today in the Wash Post. He got clobbered in the comments section.

http://www.washingtonpost.com/nation...dlK_story.html

[Ghent12]

Re: Some of the Wealthy Asking to Be Taxed

This is a very curious belief.

If the top marginal income tax rate doesn't matter, then why has it been getting diced and sliced ever since Reagan took office?

As for state governments, I don't see any indications whatsoever that the state governments are making up for the Bush tax cuts by increasing state taxes to compensate.

I didn't say it's meaningless, I said it is basically meaningless by itself. Many wealthy people subject to the 35% marginal tax rate pay over 50% of their income in taxes currently. Cutting the marginal tax rate is certainly good from a "free market" perspective, but it is just one of many aspects and not all of them are on the Federal level.

Buffett is hardly a demagogue and if he's parroting anyone it's himself. It's not as if he has had an epiphany. His beliefs about redistribution of wealth (label it class warfare if you want) go way back.

He may be steadfast in his beliefs, but he is hardly an informed person on some of the things he opines about. My example specifically highlights one thing he has no clue about.

[c1ue]

Re: Some of the Wealthy Asking to Be Taxed

I didn't say it's meaningless, I said it is basically meaningless by itself. Many wealthy people subject to the 35% marginal tax rate pay over 50% of their income in taxes currently. Cutting the marginal tax rate is certainly good from a "free market" perspective, but it is just one of many aspects and not all of them are on the Federal level.

Fair enough. But of course, the original thread was on the overall subject of taxes - and was oriented onto the question on the top marginal income tax rate by DSpencer, which was in turn answered.

He may be steadfast in his beliefs, but he is hardly an informed person on some of the things he opines about. My example specifically highlights one thing he has no clue about.

Interesting - so you believe the rich are also fighting in Afghanistan and Pakistan? There are Rockefellers, Kennedys, Frickes, Pritzkers, Bushs and so forth battling the Taliban?

Or are you asserting that the middle class is fighting to make ends meet?

[DSpencer]

Re: Some of the Wealthy Asking to Be Taxed

Top marginal income tax rate today is 35%. In 1981, the top marginal income tax rate was 69.125%

http://ntu.org/tax-basics/history-of...ividual-1.html



This might sell well with the bottom income quintile voters, but ultimately it still represents a massive subsidy to the upper quintile(s), or a massive burden to the middle quintile, depending on the actual rate.


The one area I do agree on: the tax code is much too complex. While I do not think going to a flat tax helps - I do think that removing 90% or more of all the ridiculous exemptions and loopholes would benefit most everyone. One simple way might be a straightforward applicability test: if a proposed exemption cannot be added unless it covers some reasonable percentage of the population - say 1%.

I guess I didn't word the question clearly enough. What I meant is: of all the federal income taxes received by the fed gov, what percent of that amount should come from the top 5%? As in what would be the fair share of this group relative to total taxes paid by everyone else.

I don't understand your usage of the word "subsidy" in this context. They would still pay the most in taxes.

I like the idea of closing loopholes but don't know why they shouldnt just be closed completely. Home mortgage interest deduction passes your test, do you advocate keeping it in place?

[DSpencer]

Re: Some of the Wealthy Asking to Be Taxed

This depends on the form of government. If we are talking about multi-party constitutional republics, particularly with direct representation, I would say yes. For autocratic regimes it is not necessarily so important or proper.

I think it's fair to say that every true constitutional republic in the modern age has used taxation to "redistribute wealth" with no exceptions (at least I know of none). From the enlightenment to the modern era this has been so. Progressive taxation (taxing at higher percentages further up the income scale) was originally supported by the likes of Adam Smith, Karl Marx, and the Marquis de Lafayette. An overwhelming majority of modern American economists support it as well.

Adam Smith and the classical liberals were particularly concerned with wealth accumulating over generations and recreating the European class/caste nobility system. This was the impudence behind land and inheritance taxation.

At the very least re-distributive taxes were supposed to be the bulwark of "equal opportunity" (not equality of results). They are still probably the best bet.

There are Austrian School economists that would argue with this, of course. I do think that there is room along the scale of progressive taxation to have a more or less progressive system depending upon the time and place.

I think that concepts of flat taxes and regressive taxes with popular support in a constitutional republic are generally little more than idealistic fantasies that never occur in practice.

You need a one-party state like Singapore or Pinochet's Chile to pull off a system where taxes do not redistribute wealth, otherwise you're out on your butt come election day.

I guess I see a difference between taxing those who can afford to pay at a higher level and a system whose end goal is to redistribute wealth.

To attempt to illustrate my point:
Imagine a scenario where there are two groups of people - the rich and the poor. The rich pay 100% of taxes and the poor pay nothing. The budget is balanced with no deficit. Should taxes be raised and the money simply given to the poor?

Also I'm not asking what is politically feasible but just your philosophical stance.

[dcarrigg]

Re: Some of the Wealthy Asking to Be Taxed

Also I'm not asking what is politically feasible but just your philosophical stance.

I figured I'd address this first. I believe that I can be best classified philosophically as a pragmatist. As such, my philosophical stance cannot be separated from what is politically feasible.

I guess I see a difference between taxing those who can afford to pay at a higher level and a system whose end goal is to redistribute wealth.

To attempt to illustrate my point:
Imagine a scenario where there are two groups of people - the rich and the poor. The rich pay 100% of taxes and the poor pay nothing. The budget is balanced with no deficit. Should taxes be raised and the money simply given to the poor?

In your scenario, without further information, I would say no (and hence agree with you).

I don't think that the end goal should be to redistribute wealth, but a goal of taxation in a (classical small L) liberal republic is to prevent the familial accumulation of wealth in perpetuity. There is a difference between that and the dictatorship of the proletariate (direct wealth transfer).

It is the old dichotomy between equality of opportunity and equality of result. Some on the extreme end of the libertarian scale may add a third option - elimination of equality all together in favor of pure social darwinism.

If faced with these three options:
1. Equality of Opportunity
2. Equality of Results
3. Social Darwinism

I will go with Number 1.

[c1ue]

Re: Some of the Wealthy Asking to Be Taxed

I guess I didn't word the question clearly enough. What I meant is: of all the federal income taxes received by the fed gov, what percent of that amount should come from the top 5%? As in what would be the fair share of this group relative to total taxes paid by everyone else.

One easy measurement would be disposable income.

Let's contrast the 'Average Joe' with the 'Joe Hundred Thousandaire' using data from the BLS:

ftp://ftp.bls.gov/pub/special.reques...009/income.txt

Average Joe:
Household income = $59,009
Annual expenditures = $48,900 broken down as follows:
Food = $6420
Housing = $16788
Apparel = $1608
Transportation = $8352
Healthcare = $3452
Entertainment = $2611
Insurance and Pensions = $4888 <-- this is overwhelming Social Security = $4605
other expenses are relatively small.

Disposable income = $10,109

Taxes paid: $1399
Federal income tax paid: $818

If we isolate the taxes paid + Social security and add it to disposable income (i.e. disposable income before taxes), and use this total as the denominator, we get a relative percentage of:
1 - $10109/$16113 = 37.2% tax rate on disposable income.

Using the same data for the only higher bracket noted: the 'above $70000' bracket, the relative numbers are:

Income: $129528
Spending: $82060
Taxes paid: $5823
Federal income taxes paid: $4187
Social Security paid: $11634

Disposable income = $47468
Taxes + SS = $17447
Ratio as above = 26.9% tax rate on disposable income.

You can see even for the much higher spending by the $70K and over bracket, the percentage of disposable income paid is far less.

The further up you go, the more disproportionate this ratio gets because the vast majority of taxes paid is Social Security, and this disappears once a single wage goes over $100K (or so).

To put in perspective what an 'equal' playing field would be like - the $70K bracket would have to pay a total of $24,111 in taxes+SS in order to equal what their lower brethren pay. Since SS won't change, this means $12,477 in other taxes.

Or more than double what is paid today.

Note in this example - the non-tax spending by the 'upper' bracket is 67% more while income is 120% more, so this is hardly a case of forcing everyone to live like "Average Joe"

I don't understand your usage of the word "subsidy" in this context. They would still pay the most in taxes.

One major trick of the flat tax, or lower numbers of brackets, is to squeeze significantly lower income groups with the high income brackets. This way if you set the rate high, it hurts more (relatively) lower income people and makes them vote against such proposals resulting in a generally lower rate for those at the upper end of each bracket. These 'high enders' then get the relatively lower tax rate.

I like the idea of closing loopholes but don't know why they shouldnt just be closed completely. Home mortgage interest deduction passes your test, do you advocate keeping it in place?

The proposal was simply to weed out whether a given exception was to be even considered.

Merely because a specific exception passes this criteria doesn't itself guarantee that the exception should be granted.

[DSpencer]

Re: Some of the Wealthy Asking to Be Taxed

C1ue,

Is entertainment not considered to be disposable income?

So your idea of fair is just calculate everyones disposable income and have everyone pay the same tax rate on it? Assuming that things like capital gains are included as income?

I don't understand how someone paying the same rate and a higher absolute amount of taxes is getting a subsidy from someone paying less. I don't think that fits the definition of a subsidy.

[charliebrown]

Re: Some of the Wealthy Asking to Be Taxed

confused ...

We make less than Joe 100,000 aire, and pay a heck of a lot more taxes than this.
Last year I think I paid north of 10k in fed taxes, and 6K in SS tax (my half). I don't want to divulge too much personal
info here, so I am going to be a bit dodgey about actual numbers. But your fed tax paid is way too low.

And before all those tax the rich people start piling on, even though the federal marginal rates have been cut, the states and local governments have moved to squeeze the last nickels out of the population.
Back with the "high" federal rates before Bush, was it 27%? for Joe 100,000 aire?? My state tax rate was 2.5%, and my property taxes were 5%, sales tax was 6.75%.

Now my state tax rate is 5%, my property taxes are 8%, and my sales tax rate is 8%. There is a laundry list of little taxes that have been added, that is too long to list here, license plates, utility taxes, drivers license, tolls, etc have all doubled in the last decade.

I am almost Joe 100,000 aire and nearly half of my money is taken away.

25% marginal fed rate.
7% SS.
8% Property tax
5% state tax.
2% sales, utility, fees etc.
===
47% marginal tax rate.

At all levels of gvt, fed, state, local they are spending money like 2008 didn't even happen. No one has clue about our future. My little town of 8000 people now wants to build a "river walk" that is going to cost 4 million dollars. I talked with one of
our trustee's about circling the wagons, saving our money for when the SHTF and he looked at me like I had lobsters crawling
out of my ears.

The middle class is broke, don't you get it? I can't spend any money because I have none left! I have no job security. The only money I have left is from savings from previous decades of hard work and frugal living. My current paycheck is spoken for between necessities and taxes.

===============
And as for that Gvt shill Buffet, tell him and his crummy little toady Munger, to shove it, and take it like A man when Wells Fargo goes under, instead of running to the gvt asking for a bail out like a whining child. If he's pissed that his his secretary is paying a higher rate of taxes than himself either open up his checkbook and stoke a check to the IRS, or better yet, pay his secretary so much money that she cap's out her SS, and give her an equity position in the company so she can pay at capital gains rates too.

I'm in agreement with some of the other posts here that the only reason some of the rich are asking to pay more is because they know they can weasel out of it with some kind of tax shell game, off shore accounts, foundations, trusts, capital gains only income etc, etc, and only the kind of rich like the 250kers, or the 100kers are going to take it in the throat.

Sorry, for the venting but I've just about had it with the gvt flushing capital down the toilet. We really need an adult conversation about what we want to spend collectively and how to most justly pay for that. I'm sick of the demogogery.
(sorry don't know how to spell that one).

[Thailandnotes]

Re: Some of the Wealthy Asking to Be Taxed

I’m not going to search for it, but I’d love to see it…

Stats that shows the median family income wage earner in 65, 75, 85, 95, and 2005 with pie graphs showing where his/her wages went. It’s probably right under my nose here on itulip. I suspect that total taxes and fees to government have gone down slightly as a percentage of wages while, insurance (house, health, etc), servicing credit card and education debt, and so-called entertainment (which includes basic phone & TVservice) have ballooned.

Just curious Charliebrown, if your property taxes are 8 K, what is the property tax rate? That seems enormous to me. My wife and I pay 1,800 on a house assessed at 500 K

[charliebrown]

Re: Some of the Wealthy Asking to Be Taxed

Taxes are roughly 2.5% of market value. The assessor has the market values jacked up and I have argued successfully to reduce it a few times over the course of the last two decades but it is a never ending fight. I estimate the real price I could get for my house is probably about 15% less than what the assessor says. At least half of the prop tax bill goes to schools.

I have more house than I should, I did not picture our family income actually decreasing over the last decade. If I could move without cost, I would reduce the size of my house by about 20%, but the time, effort and transaction costs would probably wipe out any cash I could get out of the deal. With job instability, I may find myself forced to move anyway.

total taxes and fees gone down slightly ... no way. maybe at the fed level, I think those Bush tax cuts cut my federal bill by a few K, but like I said local taxes and fees have probably filled that hole and then some.

[dcarrigg]

Re: Some of the Wealthy Asking to Be Taxed

I’m not going to search for it, but I’d love to see it…

Stats that shows the median family income wage earner in 65, 75, 85, 95, and 2005 with pie graphs showing where his/her wages went. It’s probably right under my nose here on itulip. I suspect that total taxes and fees to government have gone down slightly as a percentage of wages while, insurance (house, health, etc), servicing credit card and education debt, and so-called entertainment (which includes basic phone & TVservice) have ballooned.

Just curious Charliebrown, if your property taxes are 8 K, what is the property tax rate? That seems enormous to me. My wife and I pay 1,800 on a house assessed at 500 K

I don't have the pie chart, but I do track the BLS nubmers on this. For the last few years the trend of increasing insurance and healthcare costs on a percentage basis are evident. Of course, the median income is down (even in nominal terms) so this has something to do with it. Now that gas prices have gone up again, I will be curious to see what falls out.