Raising taxes on the rich

[sedonaman]

… If you have complaint, it is really with the Congress that has decided to single our some tax payers as more deserving than others of the taxes they legislate for all.

The complaint is really with his fellow citizens who want to “get even with” the rich. But you are closer when you said,

Personally, I see it as a game the US Governemnt plays with its citizens.

But then you are farther when you say,

Those who know the rules (existance and proper utilization of a loophole) will always do better than those who don’t.

This should be “Those who are in a position to make the rules will always do better than those who aren’t.” I can hire someone who knows the rules and prepares my tax return, but what good does that do me?

There is a lot of psychology in the current system. When you boil it down, it is like a circle of people, each with a dollar, and the government goes around the circle and taxes everyone 50 cents. The people would get angry and rebel. But if the government taxed everyone a dollar and then refunded each one 50 cents, they’d all be happy. This is why people at tax filing time ask, “Do I have to pay, or do I get some back?” The correct answer to that question is, “You always pay.”

For whatever reason (surely it isn’t economic) we have rewarded those who play this arcane game - by buying the services of those who specialize in arcane sciences of tax accounting and tax law.

Of course there is a reason why we as a society have chosen to reward this truly unproductive activity (getting around the laws we make) - but, I really do not know what it is. But, whatever it is - it has managed to withstand the efforts of many to introduce logic and a reason into the US Tax Code.
…

As I posted before, it is because there are enough people who are willing to shovel sand against the tide in a futile attempt to “get” the rich whatever the cost.

 

[MarkInOregon]

Just for interest sake, I pulled up stats from NYTimes and the top 1% paid more in taxes than the bottom 95% combined, in 2007. In 2008, the top 10% of earners paid 70% of federal income taxes in 2008. Interesting differences, no?

Not really all that interesting. Even with a flat tax of 10% the guy making a million will pay $100,000 and the guy making $10,000 will pay $1,000. Who is paying most of the tax? The guy making a million paid 99% of the tax for these two people–why? Because he’s the one with all the income! Are you going to argue this isn’t fair to the guy making a million based on the %age of total tax paid?

Based on AGI (adjusted gross income) for 2008 from IRS data on income taxes:

The top 1% (income split point is $380,354) paid 38.02% of income taxes.
The AGI (in millions) of the top 1% was $1,685,472

The top 50% (income split point >33,048) paid 97.3 % of income taxes
The AGI (in millions) of the top 50% was $7,352,111

The bottom 50% paid 2.7% of income taxes
The AGI (in millions) of the bottom 50% was $1,074,514

The top 1% have more AGI than the bottom 50% combined. Roughly 157% of the bottom 50%'s income.
The top 1% paid (in millions) $392,149 in income taxes.
The “bottom” 95% paid (in millions) $425,794
So at least in terms of federal income tax it is incorrect to say that the top 1% paid in more than the bottom 95%.

Of couse the top %age pays the most–they have most of the income. The top 50% had over 87% of the AGI in 2008. And lets not forget that AGI doesn’t include exempt muni interest and retirement plan payins. We have clients who get up to $100,000 in nontaxable muni interest–not included in the above income #'s. We have clients who are able to put away in excess of $200,000 into certain types of retirment plans–not included in the above income #'s.

Peace,
Mark

 

[sedonaman]

Not really all that interesting. Even with a flat tax of 10% the guy making a million will pay $100,000 and the guy making $10,000 will pay $1,000. …
Peace,
Mark

This whole debate revolves around what is “fair”? Someone once told me that fairness doesn’t exits. Even if you define it as equal treatment or equal outcomes, it still doesn’t exist because people have different wants and needs. There is an old comrades and commissar joke that went like this:
Commissar: “When the revolution is over, comrades, we will all be eating strawberries!”
Comrade: “Comrade commissar, what if we don’t like strawberries?”
Commissar: : “When the revolution is over, we will all like strawberries!”
There was one of the twelve tribes of ancient Israel that was given no land because that tribe had the job of running the government and the Temple. God mandated a 10% tithe [a tax, if you will] on the rest. Now if a 10% tax was fair to the Lord, why isn’t it fair to liberals who are constantly demanding more taxation? Do they know more than God?

Since people do have different wants and needs, it follows that they have different priorities. As a consequence, people do not even want equality. Why would they work hard to excel if they are going to end up the same as the next guy? This is why socialistic economic systems don’t work in modern economies. [An ironic thing here is that among those who agitate most for equal outcomes are university professors, those who are already at or near the top of the economic pyramid.] We tried this at my office about 15 years ago. At annual performance review time, every employee was given the same cash bonus regardless of performance, the theory being that people are more motivated when there is less competition, but guess what. The good people stopped being so motivated. Why put in the extra effort for $0 in return?

So, to those who still believe in wealth re-distribution, see my signature.

 

[copperblade]

I just want to stop privatizing the profits while socializing the losses. If I’m going to have to pay for the losses, then I’d like to have some of the gains too. This is what is really going on, on the bigger picture. It happened in the housing market, with the banks, and now it’s happening in Greece.

This is where some of the cognitive disconnect is for some people: no man is an island. Why did we bail out the banks? It wasn’t because we were just being nice. It’s because it was better for us to do so than to let the banks suffer and take us down with them. It’s all about how tight the coupling is–and in a society you are always interdependent with other people. I’ll give a couple of examples.

If I own a house and my friend buys the house next to me, what he does to his house might affect the value of my house. You may consider this loosely coupled, because if he accidentally damages his carpet, it doesn’t affect me much. Only things that happen on the outside of the house might affect me. If he forecloses on his house due to lack of payment, it might also affect the value of my house, but probably not enough that I’d be willing to take over his mortgage payment.

If instead, my friend and I decide to buy a larger house together, then we are more tightly coupled. If he loses his job and cannot pay his half of the house, it might not only be a legal requirement that I make up for it, but it might actually be better for me economically to pay for his problem. When he was making money, I had no say in how he spent it or invested it or whatever, but when he isn’t making money I get drug along.

Unless you build your own self-sustained commune, you’ll always be interdependent on other people. Their success or failure affects you. Greece is a good example of tightly coupled but loosely regulated. There was no way to make sure Greece wasn’t lying about their numbers, and now look at what happened? No one got any say in how Greece spent its money, even though Greece’s fiscal irresponsibility is distributed among the other countries.

 

[tqualey]

Hi, Copperblade,

While Greece may be illustrative for a number of reasons - the real lessons may come from Minnesota … ( mnprogressiveproject.com/diary/5134/the-minnesota-budget-crisis-by-the-numbers ) just what will happen when we eventually get to August 2 and the budget limit crisis hits!

There just does not seem to be enough taxes to keep all the politicians happy.

God bless

I just want to stop privatizing the profits while socializing the losses. If I’m going to have to pay for the losses, then I’d like to have some of the gains too. This is what is really going on, on the bigger picture. It happened in the housing market, with the banks, and now it’s happening in Greece.

This is where some of the cognitive disconnect is for some people: no man is an island. Why did we bail out the banks? It wasn’t because we were just being nice. It’s because it was better for us to do so than to let the banks suffer and take us down with them. It’s all about how tight the coupling is–and in a society you are always interdependent with other people. I’ll give a couple of examples.

If I own a house and my friend buys the house next to me, what he does to his house might affect the value of my house. You may consider this loosely coupled, because if he accidentally damages his carpet, it doesn’t affect me much. Only things that happen on the outside of the house might affect me. If he forecloses on his house due to lack of payment, it might also affect the value of my house, but probably not enough that I’d be willing to take over his mortgage payment.

If instead, my friend and I decide to buy a larger house together, then we are more tightly coupled. If he loses his job and cannot pay his half of the house, it might not only be a legal requirement that I make up for it, but it might actually be better for me economically to pay for his problem. When he was making money, I had no say in how he spent it or invested it or whatever, but when he isn’t making money I get drug along.

Unless you build your own self-sustained commune, you’ll always be interdependent on other people. Their success or failure affects you. Greece is a good example of tightly coupled but loosely regulated. There was no way to make sure Greece wasn’t lying about their numbers, and now look at what happened? No one got any say in how Greece spent its money, even though Greece’s fiscal irresponsibility is distributed among the other countries.

 

[luangwa]

people should get paid based on how much work they do. then it would be fair for everybody. manipulating in order to get more money for less work is unjust.

 

[Monte_RCMS]

Monte,

I am read up. Do you work with businesses and individuals on their taxes? Or is you knowledge of the tax system based on wikipedia and anti-tax media outlets and anedots from people you know?
There is nothing new in this article and it doesn’t address my question–it even points it out as an issue. I see nothing here that hasn’t been discussed for at least the past 20 years.

How do you define taxable income? That’s where the complexity is–unless you are advocating a gross receipts tax–which has it’s own unfairness problems.

What kind of flat tax are you advocating for? The Forbes plan has been around for years–and it has its own problems and issues.

The federal tax code is complex and can be costly to comply with–as your business grows and expands–especially if it grows overseas. Or as your investments become complex. But for the vast majority of americans their tax returns are rather simple to complete and involve little to no complexity.

More costly to businesses than complying with the federal tax code–is complying with all the various and ever changing state and local taxes. It’s harder to get information on them, their instructions and guidance are terrible and today you are not subject to the tax, but tomorrow you may well be. Uniform state tax law–would be a huge help to small businesses–especially in the internet age–where with the changing of what gives you nexus–more and more businesses are going to find themselves subject to other state taxes.

Tax simplification would be good but people always say just tax income at x% without really having a clue what “income” is. And given the size of the federal government today–your not going back to a federal goverment supported by tariffs anytime soon. You want to shrink the federal goverment–you better put in a 100 year plan now–it took us that long to get to this point and its going to take that long to wean ourselves from the various social safety nets if that is indeed what people want to do–and I don’t see broad support for this–when it comes down to it.

Peace,
Mark

23 countries have made the Flat Tax work.

And here is how it would work for corporations and for individuals … and with a 17% rate.

So, I guess more reading is needed.

Flat tax with deductions [from Wiki]
US Congressman Dick Armey has advocated a flat tax on all income in excess of an amount shielded by household type and size. For example, draft legislation proposed by Armey would allow married couples filing jointly to deduct $26,200, unmarried heads of household to deduct $17,200, and single adults, $13,100. $5,300 would be deducted for each dependent. A household would pay tax at a flat rate of 17% on the excess. Businesses would pay a flat 17% rate on all profits. Others have put forth similar proposals with various rates and deductions. Armey defined income to include only salary, wages, and pensions; capital gains and all other sources of wealth appreciation were excluded from taxation under his proposal.[4]

While campaigning for the American presidency in 1996 and 2000, Steve Forbes called for replacing the income tax - which would have included a repeal of the 16th Amendment - by a tax at the flat rate of 17% of consumption, defined as income minus savings, in excess of an amount determined by the type and size of the household.[citation needed] For example, the exempt amount for a family of four would be $42,000 per year.

Modified flat taxes have been proposed which would allow deductions for a very few items, while still eliminating the vast majority of existing deductions. Charitable deductions and home mortgage interest are the most discussed exceptions, as these are popular with voters and often used.

Link: en.wikipedia.org/wiki/Flat_tax

 

[Monte_RCMS]

people should get paid based on how much work they do. then it would be fair for everybody. manipulating in order to get more money for less work is unjust.

Should it be based on how much work that they do? Or on how successful they are when they do their work?

You can rake leaves with a blower, with a manual rake or with a fork. The person with the fork will do more work, but will have less results to show for it.

A person working in sales and being paid by commission may not do a lot of “work”, but if that person brings in a lot of sales for the company, then he or she is having a great positive effect. So, should that successful sales person receive more pay?

 

[tqualey]

Hi, Luangwa,

How do you quantify how much work some one does in order to determine a just payment?

As a practical example, here are two men: a civil engineer and a manual laborer. The engineer designes a pipe system for transporting water into homes and sweage out of homes and makes sure that these pipes do not mix. The laborer digs trenches where these pipes will be laid. Both men and the services they provide are needed. At the end of one week, both men have worked a total of 40 hours. Based on your view, how much would these men be paid in order to be just?

Looking forward to hearing from you.

God bless

people should get paid based on how much work they do. then it would be fair for everybody. manipulating in order to get more money for less work is unjust.

 

[mary_bobo]

people should get paid based on how much work they do. then it would be fair for everybody. manipulating in order to get more money for less work is unjust.

And who decides what the amount of work will be and how much pay will be given for that work? Will this be for all jobs?

 

[tqualey]

Hi, Monte REMS,

I am having a hard enough time just trying to QUANTIFY work performed so as to find out what amount to pay in a just manner. At the moment I am still awaiting an answer on how this will come about … fortunately, I am not holding my breath!

If you are asking to QUALIFY this work by asking quesitons involving success - this is an entirely different and far more complex can of worms to be opened!!! Really if we do not get through the QUANTITY swamp we will never make it up the mountain of QUALITY!

Ah, but in any case … government will find a way to tax them so that penury is evenly spread throughout the land!

God bless

Should it be based on how much work that they do? Or on how successful they are when they do their work?

You can rake leaves with a blower, with a manual rake or with a fork. The person with the fork will do more work, but will have less results to show for it.

A person working in sales and being paid by commission may not do a lot of “work”, but if that person brings in a lot of sales for the company, then he or she is having a great positive effect. So, should that successful sales person receive more pay?

 

[sedonaman]

people should get paid based on how much work they do. then it would be fair for everybody. …

Fairness doesn’t exist. See my post # 321.

 

[Monte_RCMS]

This whole debate revolves around what is “fair”? Someone once told me that fairness doesn’t exits. Even if you define it as equal treatment or equal outcomes, it still doesn’t exist because people have different wants and needs. There is an old comrades and commissar joke that went like this:
Commissar: “When the revolution is over, comrades, we will all be eating strawberries!”
Comrade: “Comrade commissar, what if we don’t like strawberries?”
Commissar: : “When the revolution is over, we will all like strawberries!”
There was one of the twelve tribes of ancient Israel that was given no land because that tribe had the job of running the government and the Temple. God mandated a 10% tithe [a tax, if you will] on the rest. Now if a 10% tax was fair to the Lord, why isn’t it fair to liberals who are constantly demanding more taxation? Do they know more than God?

Since people do have different wants and needs, it follows that they have different priorities. As a consequence, people do not even want equality. Why would they work hard to excel if they are going to end up the same as the next guy? This is why socialistic economic systems don’t work in modern economies. [An ironic thing here is that among those who agitate most for equal outcomes are university professors, those who are already at or near the top of the economic pyramid.] We tried this at my office about 15 years ago. At annual performance review time, every employee was given the same cash bonus regardless of performance, the theory being that people are more motivated when there is less competition, but guess what. The good people stopped being so motivated. Why put in the extra effort for $0 in return?

So, to those who still believe in wealth re-distribution, see my signature.

It’s actually worse than that: if some talented do-gooder takes it upon himself or herself to do more, even for the same compensation, then the others will get angry because the “do-gooder” has made them look bad.

So, even if the good people did not stop being so motivated, the other notsogood people would work overtime to demotivate the good people.

Happens all the time.

 

[sedonaman]

It’s actually worse than that: if some talented do-gooder takes it upon himself or herself to do more, even for the same compensation, then the others will get angry because the “do-gooder” has made them look bad.

So, even if the good people did not stop being so motivated, the other notsogood people would work overtime to demotivate the good people.

Happens all the time.

Yes. In fact I read about this in a book written by a Russian jet pilot who defected. In his biography, he told of a welder in a factory where they both worked who would work for two hours to meet his quota and then spend the rest of the day getting drunk. The pilot, a youth at the time, asked him why he didn’t use the rest of the time to exceed his quota and become a hero of the party. The welder laughed and said if he did that, his quota would increase, and the quotas for all his co-workers as well. He would be left friendless.

 

[Monte_RCMS]

Yes. In fact I read about this in a book written by a Russian jet pilot who defected. In his biography, he told of a welder in a factory where they both worked who would work for two hours to meet his quota and then spend the rest of the day getting drunk. The pilot, a youth at the time, asked him why he didn’t use the rest of the time to exceed his quota and become a hero of the party. The welder laughed and said if he did that, his quota would increase, and the quotas for all his co-workers as well. He would be left friendless.

Absolutely true.

In fact, if anyone interested gets a book, “Scientific Management” by Frederick Winslow Taylor … it was first published around 1911 and has been republished and reprinted many times.

Employees would resent it when the company pushed them to work harder and produce more.

Taylor took a different approach. If employees followed his procedures … e.g., used equipment properly sized and designed for the work they were doing, rested BEFORE they got tired, etc, then at the end of the day they would go home still fresh and would produce much more than before. AND they would be paid much more … double in some cases. The individuals would be evaluated and given work suitable to their skills and talents. And the pay increases would be permanent.

It’s well written and an easy read.

Well worth being an addition to everyone’s home reference library.

 

[Captain_America]

It has always made sense to have progressive taxation, in which those who benefit the most economically from the present economic arrangement, are taxed more than those who do not.

 

[sedonaman]

It has always made sense to have progressive taxation, in which those who benefit the most economically from the present economic arrangement, are taxed more than those who do not.

Why doesn’t a flat tax accomplish that?

 

[Captain_America]

Flat taxes disproportionately hurt the poor. A pair of pants costs the same to both the Rich Man and the Poor Man—however it’s much more costly to the Poor Man as a percentage of effective income.

 

[tqualey]

Hold on a minute, ‘Cap’,

We are all riding down the same roads - speeds are posted, warning signs in place and police authority to enforce the motoring laws. We ALL benefit from this - rich and poor alike.

We are reasonably secure in our country from an invading army that would seek to conquer all of us. We ALL benefit from having a secure country - rich and poor alike.

We all have access to the US mail - buy a stamp and put it on a letter and that first-class mail is treated with the same dignity as any other first-class mail - no matter the economic circumstance of the person mailing it. We ALL benefit from our postal service - rich and poor alike.

There are many more examples of where we (rich or poor) benefit from the services provided by our local, state and federal governments. Actually, it is a commonly understood principle that what we achieve to easily we esteem too lightly. The poor in this country are effectively insulated from income tax - and as a result, have little appreciation for what is actually involved in paying for government. Because so many are tax insulated, the burden of taxation is not evenly shared - even in the faintest manner.

I really do not understand what ‘sense’ you are addrssing - just because it is progressive does not mean it makes sense. There are just too many variables (not all of them nobel) in our tax code. ‘Soak the rich!’ slogans can only work as long as there are those who are rich - then suddenly we see we have created a monster … others now consider us ‘rich’! The proof of such perverse thinking is the Alternative Minimum Tax - no inflation index, so government is the one who profits from debasing its own currency - more people paying still more tax - and now because they have risen into the ranks of the ‘rich’!

Now, this is shocking - it is one thing to have to pay more … but, to have now crossed the line and be considered ‘rich’ - well, this is more than most ‘progressives’ (socialists) can handle. This wold be like having to brand one’s 1040 with a ‘Scarlet R’!

Really, ‘Cap’, how do ‘progressives’ respond to the sales tax - an infamous regressive tax if ever there was one! Right? Funny, it is very much present in most states. By the way, ‘Cap’ the last time I looked, the ‘American Dream’ did not involve income redistribution.

God bless

It has always made sense to have progressive taxation, in which those who benefit the most economically from the present economic arrangement, are taxed more than those who do not.

 

[Captain_America]

Study all the workings of the federal government.

While things like postage stamps, and so forth, are used by many people, the rich consume, per capita, far more government services.

Should they not pay more?

In fact, the superwealthy have already indicated that they’re undertaxed!

It’s risible to be called a “soak the rich” person; name-calling, it feels. But seriously, read WHY economists through history find “progressive” (the use of this word here refers to staggered, proportionate taxation, and not contemporary political liberalism) taxation just. This can be an emotional argument without good background.