Where are we on the Laffer Curve?

[Crafter_Man]

For the U.S., that is.

Some people say we must raise taxes in order for the federal government to increase revenue. But will raising taxes automatically increase revenue? Based on where we are on the Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve), isn't there a real possibility that higher taxes could actually decrease revenue to the government?

I guess it all depends on "where we are" on the Laffer Curve. So where are we?

[Squink]

I guess it all depends on "where we are" on the Laffer Curve. So where are we?We are in Cloud cuckoo land (http://en.wikipedia.org/wiki/Cloud_cuckoo_land), on the Laffer curve.

[RealityChuck]

Even assuming the curve was correct (and I doubt very many people believe in it any more), it's impossible to tell.

[wmfellows]

For the U.S., that is.

Some people say we must raise taxes in order for the federal government to increase revenue. But will raising taxes automatically increase revenue?

In the short run, yes. There's no real doubt of that.


Based on where we are on the Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve), isn't there a real possibility that higher taxes could actually decrease revenue to the government?


Given your national prevailing tax rates, it seems rather

I guess it all depends on "where we are" on the Laffer Curve. So where are we?

From the wiki page is appears there is no unambiguous answer to that relative to the USA. Or perhaps anywhere.

Still compared to other OECD countries, you seem to have lower rates, it would appear that you have quite enough margin for raising taxes over a period to pay down debt, and there would also taking comparative examples, be little reason to fear 'reduced revenue.' Perhaps over more than a decade... but in any case, debt reduction has to come from increased revenues. Same thing the Greeks are learning right now.

ETA: I realise the US has a federalised tax system and the states have great leeway in taxing, so making US to say more centralised taxation system comparisons can be very difficult.

[wmfellows]

Even assuming the curve was correct (and I doubt very many people believe in it any more), it's impossible to tell.

I don't believe the curve in abstract form is considered incorrect, it merely states an obvious point, diminishing returns - and diminishing returns from BOTH taxation and tax cutting. Economically it make perfect sense that there might be a rate (or perhaps more sophisticatedly, a band of rates) which maximizes rate of return on taxation.

It appears from the reading that what is controversial are assertions re specific levels of taxation, assertions that seem in politics to be more about politics than empirical conclusions.

[Der Trihs]

Some people say we must raise taxes in order for the federal government to increase revenue. But will raising taxes automatically increase revenue? Based on where we are on the Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve), isn't there a real possibility that higher taxes could actually decrease revenue to the government?Given that America is known for its low taxes, especially on the people with the most money that is highly unlikely.

I guess it all depends on "where we are" on the Laffer Curve. So where are we?No one knows; no one even knows what the shape of the curve is, much less where we are on it.

[ralph124c]

I think we are at the point of declining returns (it is more profitable to evade taxation now). That is why we see guys like George Soros setting up operations in tax havens (like certain west indies islands) to avoid federal taxes.
I see the "underground' economy growing by leaps and bounds-my mechanic offered to do some work on my car for me: the price (cash, no receipt) was $60.00-if I paid via credit card, it would be $100.00.

[Stranger On A Train]

I guess it all depends on "where we are" on the Laffer Curve. So where are we?Somewhere in the middle. (http://en.wikipedia.org/wiki/File:Neo-Laffer-Curve.svg)

Stranger

[Der Trihs]

I think we are at the point of declining returns (it is more profitable to evade taxation now). :dubious: It's always profitable to evade taxation.

[wmfellows]

I think we are at the point of declining returns (it is more profitable to evade taxation now).

While doubtless it is impossible to address Americans' chronic sensation of being over-taxed, you appear to have substantially lower tax rate than any of the other wealthy, industrial countries.

That is why we see guys like George Soros setting up operations in tax havens (like certain west indies islands) to avoid federal taxes.


Well, someone like Soros does it because he can, and he operates mostly off-shore regardless. They do end up paying your taxes, however, when the money is repatriated to the investors (unless the investors are non-American, but then that's a reason not to be on-shore in any OECD country).

So, I shall have to opine that this anecdote illustrates nothing in particular about the concept one way or the other.

I see the "underground' economy growing by leaps and bounds-my mechanic offered to do some work on my car for me: the price (cash, no receipt) was $60.00-if I paid via credit card, it would be $100.00.

Have your tax rates actually changed of late (and in particular the tax rates that would effect a mechanic who is presumably in a low tax bracket)? And do you have an actual data benchmark. As I am afraid I have a very hard time taking such assertions seriously.

[ralph124c]

While doubtless it is impossible to address Americans' chronic sensation of being over-taxed, you appear to have substantially lower tax rate than any of the other wealthy, industrial countries.



Well, someone like Soros does it because he can, and he operates mostly off-shore regardless. They do end up paying your taxes, however, when the money is repatriated to the investors (unless the investors are non-American, but then that's a reason not to be on-shore in any OECD country).

So, I shall have to opine that this anecdote illustrates nothing in particular about the concept one way or the other.



Have your tax rates actually changed of late (and in particular the tax rates that would effect a mechanic who is presumably in a low tax bracket)? And do you have an actual data benchmark. As I am afraid I have a very hard time taking such assertions seriously.

Let me explain it to you (so that you can understand it). If my mechanic operates legitimately, he has to pay:
-the MA state sales tax (6.75%) on what he charges me (I of course would pay that)
-the Federal income Tax (his bracket is probably 20%)
-the State Income Tax (5.3%)
-the SS (FICA) tax on his earnings
-the the various environmental fees (disposal of used oil, antifreeze)
By working off the books, he saves himself about 40% on the transaction.
This appears (to me) to illustrate that the soct of evasion is now less than the cost of compliance.
As for Soros, his (American) clients can avoid capital gains taxes by maintaining accounts in places like Lichtenstein, Monaco, Switzerland, etc.)

[wmfellows]

Let me explain it to you (so that you can understand it). If my mechanic operates legitimately, he has to pay:
-the MA state sales tax (6.75%) on what he charges me (I of course would pay that)
-the Federal income Tax (his bracket is probably 20%)
-the State Income Tax (5.3%)
-the SS (FICA) tax on his earnings
-the the various environmental fees (disposal of used oil, antifreeze)
By working off the books, he saves himself about 40% on the transaction.
This appears (to me) to illustrate that the soct of evasion is now less than the cost of compliance.

And you have also a complex deductions regime, so what he actually pays is.... different.

Regardless, 40% puts you in the average area of OECD country headline taxation rates, including countries with apparently low levels of evasion. Thus empirically we can't merely assert that level is on the declining end of a Laffer Curve type analysis. I suppose culturally it might be, but equally it might not.

One rather suspects your mechanic will evade at any and all levels of taxation (as he is so small that the likelihood of being caught and punished is doubtless trivial), and ergo is not an argument under a Laffer curve type analysis for any particular level. This person will always make more money in dodging taxes (although one supposes in dodging his retirement contributions he's cheating himself in reality, but I am not familiar enough with that system). There will always be economic actors who will dodge taxes regardless of their level (while doubtless always engaging in rationalisations along the way).

You also did not answer my question about change in tax rates. I do believe on this type of person I read the tax rate went down, correct?

As for Soros, his (American) clients can avoid capital gains taxes by maintaining accounts in places like Lichtenstein, Monaco, Switzerland, etc.)

If they are private clients (and if Soros accepts private clients, versus institutionals), perhaps, but the recent Swiss bank to-do highlights that this is not as easy as it sounds. Very wealthy ratepayers are generally what inland revenue authorities love to track down, the payoffs are generally quite large.

[DanBlather]

I think we are at the point of declining returns (it is more profitable to evade taxation now). That is why we see guys like George Soros setting up operations in tax havens (like certain west indies islands) to avoid federal taxes.
I see the "underground' economy growing by leaps and bounds-my mechanic offered to do some work on my car for me: the price (cash, no receipt) was $60.00-if I paid via credit card, it would be $100.00.Yep, it just happened too. Not 90 years ago when the highest tax rates were 90%, or 5o years ago when they were over 50%, but now that we have reduced taxes they are too high. Do you even think about the words before you type them?

[doubled]

Yep, it just happened too. Not 90 years ago when the highest tax rates were 90%, or 5o years ago when they were over 50%, but now that we have reduced taxes they are too high. Do you even think about the words before you type them?

Is is astonishing how Fox News and the tea party movement have convinced people that Obama raised their taxes, when in reality he actually lowered them. While it's true that **starting in 2 years**, taxes will be raised on the richest 2% of america, to date federal taxes haven't gone up a dime for even one single person; and in fact, have actually gone *down* for most americans over the past year. But for some reason, most people seem to not understand that.

[doubled]

I guess it all depends on "where we are" on the Laffer Curve. So where are we?

Really, I don't understand how any honest person still believes the Laffer Curve is a useful concept. Sure, it's true that if taxes are 100% then no one will work and the government would be better off cutting taxes. But outside of that exact case, it's a much harder to claim the Laffer Curve says anything useful.
Ask yourself -- you already have a job working 40,50,60 or however many hours a week. Now suppose your taxes were cut 10%. Would you then go out and get a second job? Would you start working more hours at work than you already do? No? Honestly, the vast majority of people would not.
What about the other way around? Suppose someone raised your taxes 10%. Would you quit your job then? No? Well, since the alternative to working is to starve, then most people wouldn't do that either.

So if raising and lowering the tax rate +/- 10% really won't affect most people's decision to work or not, then doesn't that count as some pretty serious evidence against the Laffer Curve?

[Ravenman]

Look, the Laffer curve has some use as an illustrative model, but not as a predictive one.

But to ralph124c's point, his mechanic isn't paying 40% taxes. For one thing, his state income tax is deductible from his federal taxes, and what's more, that 20% (notional) tax bracket does not apply to all income. According to the CBO, (http://www.cbo.gov/publications/collections/tax/2009/summary_table_2006.pdf) not even the richest one percent of Americans have an effective Federal income tax rate of 20%. (see page 4) Odds are pretty good that the amount of his paycheck that he's actually paying in Federal income taxes is somewhere around 6-12% -- which is a more accurate measure of taxation than just throwing around tax bracket numbers.

[Johnny L.A.]

What's the equation for the Laffer Curve, anyway?

[Ace309]

It's not an equation, per se. It's just a parabola with two positive roots at 0 and 100, a 0 y-intercept, and a maximum somewhere between 0 and 100. It's not a mathematical formula, just a picture you can point at and say "if you're here, and raise taxes, you'll lose revenue."

If you wanted to approximate it, one way would be to look at the places where the revenue (which I'll call f(x)) is 0 (x = 0, x = 100), and multiply it out: f(x) = (x - 100)*(-x - 0) = -x2 - 100x, which gives you the correct roots; a maximum at x = 50 (f'(x) = -2x - 100 = 0); and the correct concavity (f''(x) = -2x < 0 for strictly positive x). Still, that's reasoning out from the properties we want to the function, not starting with the formula and finding useful properties of it.

[Ace309]

And in editing I failed to correct a functional mistake I made, which is that the function should be -x2 + 100x. That leads to the correct maximum at x = 50 (-2x + 100 = 0) and leaves the concavity untouched.

[Rand Rover]

I think the point of the Laffer curve is to show that tax revenue will not necessarily increase as tax rates increase. It's just a way of saying "don't count your eggs before they hatch."

So, the Laffer Curve is a meaningful concept without knowing where we are on it (or even knowing how to determine where we are on it).

[bashere]

:dubious: It's always profitable to evade taxation.

Really? So I should pay my accountant $20,000 to avoid a $5,000 tax bill? That doesn't sound profitable :dubious:

[Scruff]

Really? So I should pay my accountant $20,000 to avoid a $5,000 tax bill? That doesn't sound profitable :dubious:

It is if you are the accountant! :p

[wmfellows]

Really? So I should pay my accountant $20,000 to avoid a $5,000 tax bill? That doesn't sound profitable :dubious:

Normally when one speaks of evasion, one is speaking of using extra-legal means. Paying an accountant to reduce your tax exposure is not typically thought of as evasion.

[ivan astikov]

My take on this, and I am admittedly far from knowledgeable in the field of economics, is that if someone is rich enough to have vast amounts of spare cash accumulating large interest rates, it is in the best interests of the state to encourage that money to go back into the economy. If that means "encouraging" them with 95% tax rates on all such profits, then so be it.

What am I missing?

[wmfellows]

My take on this, and I am admittedly far from knowledgeable in the field of economics, is that if someone is rich enough to have vast amounts of spare cash accumulating large interest rates, it is in the best interests of the state to encourage that money to go back into the economy. If that means "encouraging" them with 95% tax rates on all such profits, then so be it.

What am I missing?

You're missing even a remote understanding of economics.

Money held in accounts is going back into the economy, it will be lent out again. So your presumption under a modern economy starts from utterly false premises (it makes sense only in the context of hoarding of say physical bullion). While the "middle" of the Laffer curve is quite ambiguous, it is not ambiguous relative to a 95% tax rate.

[Chief Pedant]

Given that America is known for its low taxes, especially on the people with the most money that is highly unlikely.



Known by whom? People who don't read any actual data? Are you just making stuff up, or what? Well over half my income goes to various taxes, including about 40% to Federal and state taxes alone (not including Social Security, Medicare, sales tax...)

As to the implication that the distribution of taxes is not skewed toward those with higher incomes:

In 2007 in the US, the top 5% earned about 35% of income and paid about 60% of all Federal Income tax. The top 1% earned about 20% of income and paid about 40% of Federal Income tax.

The bottom 47% this past year paid no Federal income tax it all.

I agree add that we have no mechanism , current or proposed, to tax wealth per se, but that hardly justifies promoting the idea that our taxes are low or that we do no preferentially tax those with higher incomes.

[ivan astikov]

You're missing even a remote understanding of economics.
I mentioned that right at the beginning. And it would seem from recent economical blunders by "experts", that I'd be in good company.

Money held in accounts is going back into the economy, it will be lent out again. So your presumption under a modern economy starts from utterly false premises (it makes sense only in the context of hoarding of say physical bullion). While the "middle" of the Laffer curve is quite ambiguous, it is not ambiguous relative to a 95% tax rate.

So, do the persons providing the money for the banks to lend out get a cut of the bank's profits, when they make a particularly good investment, or do they just get their fixed interest rates?

[wmfellows]

Known by whom? People who don't read any actual data?
If you take a moment to review OECD analyses on income tax, the US does not come out at the top of the leagues. Indeed overall pay rate is near bottom. That is data.

Der Trihs being rather hard left of course views that as a bad thing.

On the other hand, my impression is Americans are particularly tetchy about any tax paid at all.


Are you just making stuff up, or what?

You can consult the OECD website for comparators.

but that hardly justifies promoting the idea that our taxes are low or that we do no preferentially tax those with higher incomes.

On the 2nd I have no opinion, but on the first, the data do say that relative to other high income nations, your taxes (income and total taxation) are in fact low, comparative to peers.

[wmfellows]

I mentioned that right at the beginning. And it would seem from recent economical blunders by "experts", that I'd be in good company.

Which experts would those be?

Economists don't run banks.

Regardless, the very basic point about diminishing returns and real world examples of effects of tax rates toward 95% are not particularly controversial.

So, do the persons providing the money for the banks to lend out get a cut of the bank's profits, when they make a particularly good investment, or do they just get their fixed interest rates?

Your example was of wealthy persons putting money into bank accounts and earning interest. That would be bank accounts, as such they would earn a fixed rate - that is what bank accounts are.

But in any case, that is beside the point relative to your original presumption and point, that assumed that money in the bank earning interest was somehow not in circulation, back in the economy. With few exceptions (say Post Bank accounts, as in Japan) that is far from accurate. Thus your logic for such a tax rate was entirely fallacious.

[SmartAlecCat]

In 2007 in the US, the top 5% earned about 35% of income and paid about 60% of all Federal Income tax. The top 1% earned about 20% of income and paid about 40% of Federal Income tax.


The percentage of all income taxes they pay, while interesting, it is kind of a red herring to consider only income tax.

What is their personal overall tax rate, including payroll taxes, sales taxes, etc.

Is it possible that someone making $100m in long term capital gains with no other income has an overall tax rate lower than someone who makes $100k in earned income?

[Ravenman]

Known by whom? People who don't read any actual data? Are you just making stuff up, or what? Well over half my income goes to various taxes, including about 40% to Federal and state taxes alone (not including Social Security, Medicare, sales tax...)How do you figure 40%? Are you just adding up your tax brackets? Because as I discussed before, adding the percentages of tax brackets gives one a simply incorrect view of your tax burden. See my previous post and the CBO study on tax burdens.

For example, my income places me somewhere around the top 18, maybe 15% of earners in the country. Adding up the actual amount I pay, just a shade under 19% of my total salary goes to Federal and state income taxes. Unless someone is making a lot more money than me, has no mortgage, and takes the standard deduction, I have a hard time figuring out how people get to paying 40% of their income to income taxes.

Let me make another point more on-topic to the OP: let's say the Laffer curve as illustrated was, in fact, ground truth on tax rates, in which the government gets no income at 0% or 100% taxation, and optimal taxation were somewhere in the 50% range. Again, according to my CBO citation, the current average burden of Federal taxation across all income groups is currently 20.7%, including income, payroll, corporate, and excise taxes. ETA: and below is a citation showing that the average state tax burden is about 10% of income.

That would seem to indicate that we could nearly double taxation and have much more revenue coming in to the Treasury.

http://www.taxfoundation.org/taxdata/show/335.html

[Ravenman]

Just to provide another citation, here's a Forbes PDF from 2006 which shows that the total tax burden for Americans - including Federal, state and local taxes -- totaled to 25% in 2004. Link. (http://images.forbes.com/media/2006/05/Overall_Tax_Burden_Governemt_Spending.pdf)

Again, it seems we could nearly double taxation if the Laffer curve as typically drawn were to be taken literally.

[bashere]

Normally when one speaks of evasion, one is speaking of using extra-legal means. Paying an accountant to reduce your tax exposure is not typically thought of as evasion.

Fair enough, although I would point out that many of the forms of extra-legal means require the use of an accountant (all the charity-based evasions I know of do). The point remains that if the cost of evasion is greater than the cost of paying the tax, it ceases to be profitable to evade the tax, legally or extra-legally.

[DSeid]

Few economists take the Laffer curve very seriously (minimally there is no way to ever know where one actually is on the curve, or how the curve is actually shaped or if it shifts), at least not without some serious modifications, but perhaps the best way to answer the question of the op is to go to Laffer himself (http://www.humanevents.com/article.php?id=35341) - he thinksthe economy is headed for a sharper decline next year when tax rates are expected to jump sharply, sending the economy into a new tailspinBut then one suspects that Laffer would state that any taxation puts us on the wrong side of his curve.

More than that is not GQ but GD I think ...

[wmfellows]

Fair enough, although I would point out that many of the forms of extra-legal means require the use of an accountant (all the charity-based evasions I know of do). The point remains that if the cost of evasion is greater than the cost of paying the tax, it ceases to be profitable to evade the tax, legally or extra-legally.

I presume you mean use of an accountant for knowing fraud, as opposed to merely ending up on the wrong-side of a tax analysis.

Evidently for complex and serious frauds, the amounts evaded - if purely relative to tax - would have to be important to justify the bother (rather than merely not paying).

In any case, I believed his point was excepting the implicit and probability weighted cost of getting caught... (which for the example should likely to be near zero).

Few economists take the Laffer curve very seriously (minimally there is no way to ever know where one actually is on the curve, or how the curve is actually shaped or if it shifts), at least not without some serious modifications, but perhaps the best way to answer the question of the op is to go to Laffer himself (http://www.humanevents.com/article.php?id=35341) - he thinksBut then one suspects that Laffer would state that any taxation puts us on the wrong side of his curve.

More than that is not GQ but GD I think ...

Well, the GQ resolution to the question may probably be stated that taking American taxation comparatively to historical and current examples of similar countries, there is no particularly strong reason to believe that a rise in tax rates in the US of some modest magnitude would genuinely have a Laffer Curve kind of effect.

The OP may find other reasons to argue against or dislike a rise, but this argument empirically does not seem arguable.

[DSeid]

But wmfellows that as an answer presupposes that the curve has some validity to begin with, which is itself, at best, a matter of debate. OTOH it may be a valid answer to the question of "Is there any empirical basis to claims like those that Laffer currently makes that allowing some of the Bush era tax cuts for the rich expire, or for that matter even raising other taxes in America, would cause a decrease in total tax revenues collected rather than an increase? "

But then if one wants to go with empirical basis you can merely say that if Laffer says something it is more than likely wrong. Tax revenues did not increase during the Reagan era even as the economy rebounded. In 2006 he was cheerleading how the US economy "has never been in better shape", pretty much right before it collapsed. In 2008 (http://online.wsj.com/article/SB122506830024970697.html) he had changed his tune and was writing that the stock collapse was the start of a long term bear market, likely -6% per year for the next 16 years, and that "Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. ... We are now witnessing the end of prosperity." And prosperity's end came not because of the failure of the Bush era supply side approach, or inadequate oversight by regulatory bodies, nope, it was because Congress and Bernanke "panicked". Of course the stock market subsequently rallied nicely. In mid-2009 (http://online.wsj.com/article/SB124458888993599879.html) he was writing that we are due for interest rates rises and inflation unlike anything we have ever seen before. So he's called it wrong every time so far. Heck, even Ben Stein (http://www.nytimes.com/2006/05/28/business/yourmoney/28every.html), a conservative's conservative, saw that back in 2006.Arthur Laffer, a likable and intelligent man who, with no substantial backup at all in data that I am aware of, said that if you cut taxes on income, you would stimulate so much economic activity that you would collect as much in tax as you did when rates were higher. ...

... Supply side is fun in the same way it's fun to rationalize spending as if it were saving, and in the same way any theory is fun when it says that the easier, softer way is better than the hard way. But it doesn't work, or at least it hasn't worked yet.

"Tax and spend" was the old way, but people did not like to be taxed. The new way seems to be "don't tax, but keep spending and things will be fine."

Wouldn't it be pretty if it were true?

The best you can say is that may be some degree of "taxable income elasticity" such that a rise in tax rate may be met with some avoidance of reported taxable income by the very richest (for example by legally postponing the income as reportable until some later date that may have a more favorable tax environment, or reporting it in the year ahead of anticipated changes that would increase their tax rate) resulting in less revenue production than one would expect on a one to one basis. That's a far cry from vindicating the Laffer curve and supply side mysticism. All of which means the ops question is answered thusly - the evidence is that raising taxes will raise revenues, however sometimes by less than we might expect.

[Chronos]

Quoth Chief Pedant:Known by whom? People who don't read any actual data? Are you just making stuff up, or what? Well over half my income goes to various taxes, including about 40% to Federal and state taxes alone (not including Social Security, Medicare, sales tax...)

As to the implication that the distribution of taxes is not skewed toward those with higher incomes:

In 2007 in the US, the top 5% earned about 35% of income and paid about 60% of all Federal Income tax. The top 1% earned about 20% of income and paid about 40% of Federal Income tax.

The bottom 47% this past year paid no Federal income tax it all.So, the fact that nearly half of Americans pay no federal income tax is supposed to be evidence against the proposition that American taxes are low?

And where are the comparisons to other countries?

[DSeid]

And where are the comparisons to other countries?Well FWIW here (http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg) is a graphic that shows America in the lower portion for mean personal taxation but up there with Japan on corporate tax rates.

And here (http://moneycentral.msn.com/content/taxes/p148855.asp) is msn money's take on it.Believe it or not, Americans enjoy some of the lowest income tax rates in the world. ... For a family with one wage-earner and two children, only Iceland and Ireland have a lower income tax burden than the U.S., according to the most recent data for 2005 ...

And Forbes (http://www.forbes.com/global/2006/0522/032.html) ratings of marginal tax on the wealthiest puts America in the lower grouping as well.

[wmfellows]

But wmfellows that as an answer presupposes that the curve has some validity to begin with

That depends on if you mean the naive curve of the abstract analysis. I understand the naive and non-empirical curve was taken very seriously in the US, but that does not mean the diminishing returns analysis is baseless.

The rest of your comment is very American politics specific and I would suspect argumentative on that basis, although if you wish to highlight that it is not empirically sensible to take that curve literally, and that it should be seen as a simplistic expression of diminishing returns and tax policy elasticity... well fair enough. I don't believe that this materially is terribly different than what I wrote, but of course I am not sensitive to the US politics in this area.

[DSeid]

But wmfellows it does mean that there is no empirical basis for any definable curve.

As a matter of abstract theory, yes, there is very likely some taxable income elasticity, and therefore some degree of diminishing returns. In the real world that depends on the presence of many other factors such as legal means to defer income or to avoid reporting it as fully (often referred to as "loopholes") and perceptions of what future changes may bring to both the tax code and to the economy.

[DanBlather]

The bottom 47% this past year paid no Federal income tax it all.This seems to be the Republican talking point right now, but I'm not sure where it's going. Are they proposing lowering taxes for the wealthy or raising them for the less well off?

And as above, how does this git with the meme that US income taxes are too high?

[Quartz]

Really, I don't understand how any honest person still believes the Laffer Curve is a useful concept. ...
Ask yourself -- you already have a job working 40,50,60 or however many hours a week. Now suppose your taxes were cut 10%. Would you then go out and get a second job? Would you start working more hours at work than you already do? No? Honestly, the vast majority of people would not.

You're missing the point. Because people have more money in their pockets, they can spend or invest more, employing more people - who then pay taxes - and creating more wealth - which can also be taxed.

[Squink]

Because people have more money in their pockets...Which axis of the curve is that on?

[doubled]

You're missing the point. Because people have more money in their pockets, they can spend or invest more, employing more people - who then pay taxes - and creating more wealth - which can also be taxed.

The idea of "tax less and that money will be invested, thereby creating jobs" doesn't hold up -- by that logic, you'd get the exact same effect if the government taxed MORE and then invested those tax dollars in public works projects, new R & D initiatives, educational spending, scientific research and other efforts to create jobs. All that extra government spending would also (in your words) "employ more people -- who then pay taxes and create more wealth." So therefore, it doesn't matter whether we tax more or less, cause the money will get invested in job-creating programs either way, whether it's the government or private individuals.
But I assume you wouldn't be in favor in that plan of increased taxes & spending, even though it leads to (in your words) more wealth?

[pulykamell]

Look, the Laffer curve has some use as an illustrative model, but not as a predictive one.

But to ralph124c's point, his mechanic isn't paying 40% taxes. For one thing, his state income tax is deductible from his federal taxes, and what's more, that 20% (notional) tax bracket does not apply to all income. According to the CBO, (http://www.cbo.gov/publications/collections/tax/2009/summary_table_2006.pdf) not even the richest one percent of Americans have an effective Federal income tax rate of 20%. (see page 4) Odds are pretty good that the amount of his paycheck that he's actually paying in Federal income taxes is somewhere around 6-12% -- which is a more accurate measure of taxation than just throwing around tax bracket numbers.

I'm not exactly sure how all these numbers are calculated, but I can tell you, as a self-employed person (who is actually fine with the income tax rates as they are and who is not in the upper 15% or anything), in 2008, my federal taxes were 34.5% of of my taxable income, and 29.4% of my total adjusted income. In addition, there was another 3% for state tax. Now, Turbo Tax reports this to me as an effective 16.52% tax rate. I have absolutely no idea where this number comes from: when I add up my Schedule C gross receipts and all my other income (capital gains, interest, etc.), without any deductions, the income tax I paid is still 21.3% of all the money I had coming to me.

The numbers I have this year (with an accountant) are similar, and the small business owners I talk to all seem to have a similar 33-35% tax burden, all things considered. So I don't think that 40% "off the books" discount sounds completely bizarre. It seems a little much to me, but not that far off.

[Chief Pedant]

by Chief Pedant:
"Known by whom? People who don't read any actual data? Are you just making stuff up, or what? Well over half my income goes to various taxes, including about 40% to Federal and state taxes alone (not including Social Security, Medicare, sales tax...) As to the implication that the distribution of taxes is not skewed toward those with higher incomes: In 2007 in the US, the top 5% earned about 35% of income and paid about 60% of all Federal Income tax. The top 1% earned about 20% of income and paid about 40% of Federal Income tax. The bottom 47% this past year paid no Federal income tax it all."

So, the fact that nearly half of Americans pay no federal income tax is supposed to be evidence against the proposition that American taxes are low?

And where are the comparisons to other countries?

The point is that for most Americans income taxes are relatively low because of the fact that high-income earners pay such a disproportionate share of taxes. I was responding to this phrase (which I quoted, in an effort to make that clear) from Der Trihs:

by Der Trihs:
..."Given that America is known for its low taxes, especially on the people with the most money that is highly unlikely...."

The idea that high wage earners don't carry a significant load is not supported by data. As to whether or not taxes--particularly income taxes--are high on the proportion of our population that actually pays them...well, I suppose that's a matter of opinion. But as a high wage earner I am annoyed by the mindless repetition of this idea that high wage earners don't pay much in Federal Income tax.

[doubled]

by Chief Pedant:
But as a high wage earner I am annoyed by the mindless repetition of this idea that high wage earners don't pay much in Federal Income tax.

Warren Buffett (one of the three wealthiest men in the world) said: "“The 400 of us [ie, the Forbes 400 richest americans] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter."
Quoting from the following article: " Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent."

http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

THAT is why we say that America is known as a place where taxes are (relative to the rest of the world) low.

[Ravenman]

I'm not exactly sure how all these numbers are calculated, but I can tell you, as a self-employed person (who is actually fine with the income tax rates as they are and who is not in the upper 15% or anything), in 2008, my federal taxes were 34.5% of of my taxable income, and 29.4% of my total adjusted income. In addition, there was another 3% for state tax. Now, Turbo Tax reports this to me as an effective 16.52% tax rate. Because you're defining your tax burden in relation to your taxable income, whereas Forbes, CBO, and your accountant are talking about taxes in relation to total income.

[pulykamell]

Because you're defining your tax burden in relation to your taxable income, whereas Forbes, CBO, and your accountant are talking about taxes in relation to total income.

That number is still 21.3% of my gross. My taxes are 21.3% of all the money I saw in 2008. This includes money I paid to contractors, cost of goods sold, for equipment, etc. A lot of that money was not money that was mine to begin with. (For example, I have some associates that contract through me, and I keep $500 of a $2000 contract, but they get paid $1500. That entire $2000 is in my gross and part of the 21.3% number I'm giving you there.) That's still more than that 16.52% number Turbo Tax listed as my tax rate, and far more than the 6-12% number you've cited.

[DSeid]

Chief Pedant, again Forbes places the US as way down the list on their "misery index", the amount that the highest wage earners have to pay. In this case DT is correct: America's tax burden on individuals (not corporations) is relatively low compared to the rest of the world, if not especially for the highest earners, then at least for them as well as for the average tax payer.

In fact (http://www.thefourthbranch.com/tag/top-marginal-tax-rates/)clearly the top earners have seen the most significant tax reductions in the past few decades ...

And found through that link is this (http://voices.washingtonpost.com/ezra-klein/2010/04/do_the_poor_really_pay_no_taxe.html) article, which makes some very interesting points.The Earned Income Tax Credit, for instance, is an income-support program created by Richard Nixon and expanded by both Ronald Reagan and Bill Clinton. The underlying idea came from legendary conservative economist Milton Friedman. So this is bipartisan stuff. And it was designed to run through the tax code rather than just send recipients a separate check. So if your income is low, you may (1) owe very little in income taxes, and (2) get a check through the EITC. The result isn't that you don't owe anything in federal income taxes, but that your income tax liability is wiped out by your EITC check. The critics of the tax code don't seem to know this, but their problem is with programs like the EITC -- of which there are many, some of which help the middle class -- not income tax brackets.

That accounts for a lot of the people who don't owe federal income taxes. But it doesn't account for the bigger dodge here: Why are we talking about federal income taxes at all? ...

... Most people's tax burden has a very different composition. As David Leonhardt points out in a typically excellent column today, "about three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes." And that doesn't even mention state and local income taxes.The graphic on the link is telling.

Quartz, cutting taxes to stimulate the economy is one thing and that is basic Keynesian theory. The bit that doing so stimulates the economy so greatly as produce more tax revenues than is lost because of the cut has been shown to be false. Even the hold-outs at Cato no longer try to argue that point - they are reduced to trying to claim that the highest earners will reduce their taxable income to avoid paying taxes at "too high" of a rate and that will reduce tax revenues overall. But do you really think that high wage earners like CP works less because his top marginal rate is 35%?

[BigT]

Because you're defining your tax burden in relation to your taxable income, whereas Forbes, CBO, and your accountant are talking about taxes in relation to total income.

Which makes perfect sense. You're income that is not taxable is only not taxable because the government says it isn't. It's actually specifically designed to decrease your overall tax burden.

[pulykamell]

That number is still 21.3% of my gross. My taxes are 21.3% of all the money I saw in 2008. This includes money I paid to contractors, cost of goods sold, for equipment, etc. A lot of that money was not money that was mine to begin with. (For example, I have some associates that contract through me, and I keep $500 of a $2000 contract, but they get paid $1500. That entire $2000 is in my gross and part of the 21.3% number I'm giving you there.) That's still more than that 16.52% number Turbo Tax listed as my tax rate, and far more than the 6-12% number you've cited.

Also, just for fun, I went back to the 2008 taxes and eliminated every single business expense on my schedule C. My tax burden would have been 30.3% (not counting the 3% for state) of my total income (before the standard deduction or any other deduction) In other words, were I running a business with zero overhead, 30.3% of that income would go to taxes. I'm not complaining, but I'm saying the idea that a small business owner like the mechanic in the example is only paying 6-12% in tax is a bit optimistic. When I do a job I subtract about 1/3 to compensate for the money that is going to go to the feds (income tax and self-employment tax) and state income tax.

[pulykamell]

And, to be clear, the 30.3% number is line 66 (this is your total income tax) divided by line 22 (this is your total income) for the 2008 1040 tax form.

Perhaps you're not computing self-employment tax into your equation (which was 15.3% of 92.35% of Schedule C earnings under $102K in 2008?) (And, yes, you get a deduction of half of this amount to your adjusted gross income but, remember, my 30.3% number above is before this deduction.)

[Ravenman]

I'm not complaining, but I'm saying the idea that a small business owner like the mechanic in the example is only paying 6-12% in tax is a bit optimistic. If he's simply an employee making, say, $60 grand, perhaps with a couple of kids, it's a fine estimate.

However, you are not that person. Obviously this rough order of magnitude estimate won't apply to all small business owners (on one hand) or starving students working minimum wage jobs (on the other). If you think I said that everyone middle class, or that you in particular, should pay 6-12% in Federal taxes on gross income, you have misunderstood what I was saying.

ETA: I think we are somewhat talking past each other. I'm talking about an employee, you're talking about small business owners. I'm talking about gross wages, you're talking about taxable. If we clarify our terms, I don't think we're in too much disagreement.

[Chief Pedant]

Warren Buffett (one of the three wealthiest men in the world) said: "“The 400 of us [ie, the Forbes 400 richest americans] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter."
Quoting from the following article: " Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent."

http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

THAT is why we say that America is known as a place where taxes are (relative to the rest of the world) low.
This is probably true for the very wealthy; it is not difficult to offset income if you are extremely wealthy, in part because you don't need the income to live on. I made the point earlier that we don't tax wealth in this country at all (and I do think that is a glaring but possibly insurmountable issue). It's not true for the average high-income individual (if that's not too much of an oxymoron).
Nevertheless, if you take all comers, the highest 1% earn 20% of income and pay 40% of taxes, in round numbers. Feel free to draw your own conclusions about whether this is high or low. For those of us unfortunate enough to be the poorest of the top 1% ;) it is at least painful, particularly at tax time.

I nevertheless point out again that my complaint about the Der Trihs post was its implication the tax burden is not born by the high earners. Yes, it is. They may well be wealthy beyond proportion to that burden but they are nevertheless paying most of the Federal Income tax burden.

[Chief Pedant]

I should add that Mr Buffet's secretary was not taxed 30% of her income. If her taxable income was 60,000 and she was married filing jointly, she paid about 8,100 in Federal taxes. I'd bet she paid less.

Mr Buffet is the exception and not the rule. I suspect Mr Buffet is referring to his investment income. He does not really bother with a salary. Why should he when it just gets taxed away? He's clever enough to only use long-term capital gains rates. Like many super-wealthy folks, he does not need ordinary income on which to live, and to reiterate again, I agree that we do not tax wealth in this country very well. If you use this example of one guy ponying up 8 million while the next guy ponies up 8,000, it's definitely incorrect to imply that the "rich" are not paying most of the taxes. And as I mentioned, if you take the whole category of high wage earners, the top 1% are paying double in proportion to the percent of income they have.

[DSeid]

And I'll again point out that DT's actual statement was accurate: relative to most other countries America has low taxes, including for the wealthiest individuals.

You may want to review this old 538 post (http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-bracket.html). The highest earners historically have paid much more. the top marginal tax rate is now higher than it was under Reagan, but lower than it was under Clinton, and much lower than it's been at various other points in history. ... What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent -- but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today's dollars.

But today, the threshold where the top tax bracket kicks in isn't $75 million, or $5 million, or even $1 million ... it's a mere $357,700. The progressivity of the tax code stops there. ... The median top income tax threshold since 1913 -- adjusted for today's dollars -- is a little over $1.3 million, almost four times higher than it is now. This is one thing that advocates of more progressive taxation (of which I am one) need to keep in mind: although the top tax rates have been much higher throughout much of the country's history, they also kicked in at much higher thresholds of income than the ones we see today. ...And that post brings us back to the subject of supply side/trickle down. Would an additional higher top marginal bracket (as discussed by Nate), including perhaps some slightly higher capital gains rate for that bracket, raise more revenues, or would the very wealthiest (those that make you, CP, look like a pauper, even though they are only a fraction of a percentile higher up than you), find ways to keep that money from being taxable income in response to the tax rise?

[Quartz]

Quartz, cutting taxes to stimulate the economy is one thing and that is basic Keynesian theory. The bit that doing so stimulates the economy so greatly as produce more tax revenues than is lost because of the cut has been shown to be false.

Cite please. It worked well enough for Margaret Thatcher.

Even the hold-outs at Cato no longer try to argue that point - they are reduced to trying to claim that the highest earners will reduce their taxable income to avoid paying taxes at "too high" of a rate and that will reduce tax revenues overall. But do you really think that high wage earners like CP works less because his top marginal rate is 35%?

I never said he would. But what do you think that CP would do with the extra money in his pocket? Unless he lets it sit there, in his pocket, he's going to use it. Even putting it in the bank is putting it to use as the bank will lend it out.

[DanBlather]

Cite please. It worked well enough for Margaret Thatcher.

I never said he would. But what do you think that CP would do with the extra money in his pocket? Unless he lets it sit there, in his pocket, he's going to use it. Even putting it in the bank is putting it to use as the bank will lend it out.Right now we have an oversupply of production and not enough demand. Interest rates are already very low, so having more capital available is not helpful. Wealthy people have a lower marginal propensity to spend, so as their share of wealth has increased it has not resulted in as much demand as would be expected for a flatter distribution of wealth. Meanwhile, the deficit caused by the Bush tax cuts is causing economic uncertainty which makes banks less willing to lend. Cutting taxes on the wealthy has been a disastrous experiment.

[DanBlather]

In other words, were I running a business with zero overhead, 30.3% of that income would go to taxes. Wow, a small business with zero overhead. What do they do, sell air?

[Wesley Clark]

http://www.usgovernmentrevenue.com/yearrev1992_0.html#usgs302

http://www.taxadmin.org/fta/meet/05rev_est/platt.pdf

I am not sure how much was due to the ending of the recession in the early 90s and how much was just due to inflation, but after Clinton passed the budget in 1993 that involved several progressive taxes, revenues went up.

http://en.wikipedia.org/wiki/Omnibus_Budget_Reconciliation_Act_of_1993

# It created 36 percent and 39.6 income tax rates for individuals.
# It created a 35 percent income tax rate for corporations.
# The cap on Medicare taxes was repealed.
# Transportation fuels taxes were raised by 4.3 cents per gallon.
# The taxable portion of Social Security benefits was raised.
# The phase-out of the personal exemption and limit on itemized deductions were permanently extended.




In 1993 federal revenue was 17% of GDP, it grew after 1993 to reach 20% by 2000, then dropped dramatically under Bush down to 16% by 2005. Virtually all the revenue gain under Clinton came from the individual income tax.

[DSeid]

Cite please. It worked well enough for Margaret Thatcher.I have in previous posts and Wesley Clark has been kind enough to give some more primary sources.
I never said he would. But what do you think that CP would do with the extra money in his pocket? Unless he lets it sit there, in his pocket, he's going to use it. Even putting it in the bank is putting it to use as the bank will lend it out.Again, that much is basic Keynesian economics; the Laffer bit is to claim that the resultant growth raises more tax revenue back in than the tax cutting stimulus cost.

[Chief Pedant]

And I'll again point out that DT's actual statement was accurate: relative to most other countries America has low taxes, including for the wealthiest individuals.

You may want to review this old 538 post (http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-bracket.html). The highest earners historically have paid much more. And that post brings us back to the subject of supply side/trickle down. Would an additional higher top marginal bracket (as discussed by Nate), including perhaps some slightly higher capital gains rate for that bracket, raise more revenues, or would the very wealthiest (those that make you, CP, look like a pauper, even though they are only a fraction of a percentile higher up than you), find ways to keep that money from being taxable income in response to the tax rise?
And I'll point out again that since the top 1% pay 40% of the taxes, and since this is double in proportion to their income (they make 20% of the income) the notion that the US has low taxes for the highest income individuals is a canard.

The tax system here (and probably elsewhere) is much too complex to dissect out, but I'd be interested in cites which show for other countries what the actual national tax burden is for the top 1% of wage earners. It's meaningless to talk about marginal tax rates and shelters and capital gains, and so on.

Here's the statement I want to see someone defend: In other countries the top 1% of wage earners pays more than the 40% of the total income tax.

Is it your position that I am not correct in saying that, in the US, the high-income earners pay a large share relative to the rest of society and the rest of the world, or am I missing something?

[Quartz]

Wealthy people have a lower marginal propensity to spend

Surely that depends upon your definition of spending? Consumables, sure - one can only eat so much, but what about stocks and shares?

[Damuri Ajashi]

If we raise federal taxes right now federal tax revenue would go up.

Increases in tax rates may well result in a decrease in productivity but it is not likely to result in a decrease in revenue.

We can look at the revenue effect of the Clinton tax increase in the 90's and the Bush tax cuts and see how revenue was affected by changes in tax rates.

Tax rates need to be significantly higher before a marginal increase in rates results in a amrginal decrease in revenues.

BTW, I think the Laffer curve is a stupid artifact of an idiotic economic theory.

As for tax evasion, short of confiscatory taxes (I know some of you think all taxes are confiscatory but lets assume that away and jsut acknowledge that we are operating under a historically low tax regime) the level of tax fraud seems to correlate far more with tax enforcement than with tax rates. Ther are countries where the top marginal tax rate is 10% and the welathiest people in those countries still engage in tax planning and outright tax fraud in proportions higher than we see in the states.

[Damuri Ajashi]

You're missing even a remote understanding of economics.

Money held in accounts is going back into the economy, it will be lent out again. So your presumption under a modern economy starts from utterly false premises (it makes sense only in the context of hoarding of say physical bullion). While the "middle" of the Laffer curve is quite ambiguous, it is not ambiguous relative to a 95% tax rate.

So if the marginal tax rate on investment income were 95%, are you saying that people would bury their money in their back yard or are you saying that people would demand a higher pre-tax return to achieve an acceptable post -tax return? The notion of taxation and its effect on investment activity is somewhat different than the effect of taxation on productive activity.

[Damuri Ajashi]

I agree add that we have no mechanism , current or proposed, to tax wealth per se, but that hardly justifies promoting the idea that our taxes are low or that we do no preferentially tax those with higher incomes.

I think we can all agree that we have a progressive tax system but I think we can also all agree that our tax system is significatnly less progressive than it used to be.

[Damuri Ajashi]

The percentage of all income taxes they pay, while interesting, it is kind of a red herring to consider only income tax.

What is their personal overall tax rate, including payroll taxes, sales taxes, etc.

Is it possible that someone making $100m in long term capital gains with no other income has an overall tax rate lower than someone who makes $100k in earned income?

An interesting fact is that the year after Bush lowered the capital gains rate to 15%, we saw a lot of folks sell their businesses and other long term capital positions.

Then when bush gave corporations the opportunity to repatriate their foreign earnings at a 5% rate we saw a lot of companmies do that as well.

This gives people like me the impression that all these folks thought the tax cuts were likely to be temporary as people figured out that the federal government needed that icnome to pay its soldiers and senior citizens.

[Damuri Ajashi]

I made the point earlier that we don't tax wealth in this country at all (and I do think that is a glaring but possibly insurmountable issue).

We tax wealth once at death if you have more than 3.5 million in wealth when you die.

For those of us unfortunate enough to be the poorest of the top 1% ;) it is at least painful, particularly at tax time.

LOL, I suppose being in the top of the poorest 1% is better around tax time?

[Damuri Ajashi]

Why should he when it just gets taxed away? He's clever enough to only use long-term capital gains rates. Like many super-wealthy folks, he does not need ordinary income on which to live, and to reiterate again, I agree that we do not tax wealth in this country very well.

Whoa? Wait a minute. You are saying that there is no incremenetal value to Buffett if Bufett draws a higher salary? As long as the marginal tax rate was not higher than the inverse of his ownership in BRK, he is better off taking the salary than selling shares and I don't think Buffett owns anywhere near 65% of BRK.

[pulykamell]

Wow, a small business with zero overhead. What do they do, sell air?

It was not meant to be a real-world example: I was trying to eliminate the distinction between business receipts and gross income, making them one and the same. I gave my real numbers before: my taxes were 21.3% of my gross receipts (which is not income), and 29.4% of my gross adjusted income (which, for me, is business profit minus health insurance costs minus half of self-employment tax.) If you eliminate those deductions and just go by the total income number, we still see 27.9% of my money going to the feds. Those last two numbers are the closest to what I would consider the real tax rate for me and that's the number a business person would use when figuring out, were they trying to skirt their taxes, what they might charge a cash-paying client.


ETA: I think we are somewhat talking past each other. I'm talking about an employee, you're talking about small business owners. I'm talking about gross wages, you're talking about taxable. If we clarify our terms, I don't think we're in too much disagreement.

Perhaps. But I'm still not sure. Yes, I am talking about self-employed person, because, given the mechanic example, I assumed that person would have been self-employed. I thought this was all in relation to the mechanic who charged a $60 cash rate for a $100 job. But it seems that's a subtopic in this thread, so apologies for not making it clear.

But I'm not just talking about taxable wages. I gave all the numbers: In 2008, I paid 29.4% of my adjusted gross income. 27.9% of my total income (unadjusted gross) in taxes. Add 3% for state tax, and you get what equals to me about a 30-33% tax rate. So, while the mechanic giving a 40% discount for paying cash (with the assumption it's off the books) may be overestimating his bottom line tax burden, it's not by much. Were I to charge $600 off the books for $1000 worth of labor, given my numbers, it would be better off keeping it on the books. However, if I were to charge $750, assuming there's no significant extra deductible expenses to go along with that job, I'd be slightly better off.

[md2000]

The real question for the mechanic was not total tax paid but marginal tax rate. If on each extra dollar he earned, he paid 30% tax, plus 6% sales tax - he can make more than one-third profit by collecting unreported cash.

There is a substantial difference between final overall tax rate and marginal tax rate, espcially the more you make.

As a practical counterpoint example - in Canada, I typically pay about 25% - 30% of my income as income tax. Below about $70,000 the marginal tax rate is about 35% for each extra dollar, above that about 42%; depends on the province, but outside of Quebec the feds collect the provincial tax too. It used to be as high as 55% marginal rate until a while ago.

If I were a contractor, I would have to collect/pay around 13% combined provinjcial and federal sales taxes (GST and PST) depending on province. So your Canadian mechanic would have to charge $1.13 to take home 58 cents if he has a decent income. Any wonder the small contractor market is rife with cash deals? Please tell me you Americans are overtaxed...

OTOH, I pay zero / nada / zilch for health care; it's rolled into those taxes. What does the average American family pay? I hear horror stories of $5,000 to $12000/year. Maybe Buffet was adding in his secretary's health insurance costs, since that's part of taxes in the first world even if not in the USA.

When Margaret Thatcher took over in Britain, the marginal rate was 83%. The Beatles song Taxman summed it up:
Let me tell you how it's going to be...
One for you nineteen for me...
Cuz I'n the taxman, yeah!
OK, so Lennon exagerrated a little, but do you wonder why he moved to the States? In those days benefits were not taxed, so It was more effective for a company to give a middle manager a car and driver, or club membership, than to give him more money.

The Americans - especially the rich - are nowhere near the apex of their Laffer curve. The only better locations either (a) are special tax havens so their tax policy is not representative of what the government needs, (b) are trying to attract investment because they are dirt poor, or (c) have some special income like oil revenue to offset missing taxes.

Oh, and Buffet and Bill Gates have not relocated to Monaco or the Bahamas, so the rates can't be that horrible...

[pulykamell]

The real question for the mechanic was not total tax paid but marginal tax rate. If on each extra dollar he earned, he paid 30% tax, plus 6% sales tax - he can make more than one-third profit by collecting unreported cash.


Sure. I was keeping sales tax out of it (which is why I used the word "labor," which is not taxed here. Also, prices are generally reported before sales tax, so if somebody tells me something is $100, I assume they mean before any sort of sales tax is added.) But, yes, agreed on everything.

[BlinkingDuck]

Known by whom? People who don't read any actual data? Are you just making stuff up, or what? Well over half my income goes to various taxes, including about 40% to Federal and state taxes alone (not including Social Security, Medicare, sales tax...)

As to the implication that the distribution of taxes is not skewed toward those with higher incomes:

In 2007 in the US, the top 5% earned about 35% of income and paid about 60% of all Federal Income tax. The top 1% earned about 20% of income and paid about 40% of Federal Income tax.

The bottom 47% this past year paid no Federal income tax it all.

I agree add that we have no mechanism , current or proposed, to tax wealth per se, but that hardly justifies promoting the idea that our taxes are low or that we do no preferentially tax those with higher incomes.

What % of social security taxes did that top 1% pay? What % of property taxes?

[Ravenman]

So, while the mechanic giving a 40% discount for paying cash (with the assumption it's off the books) may be overestimating his bottom line tax burden, it's not by much. I find it difficult to believe that a mechanic would have a tax burden 33% higher than you (40% vs. 30%-ish) unless he was doing something something wrong in filing his taxes. I mean, your taxes are already about 33% over the "average" American with 2.3 children, 3.9 limbs, and a typical income, so the idea that there are folks who pay twice the amount of taxes than such an "average" person with a similar income isn't outside the realm of possibility, but it is stretching my understanding of the system quite a bit.

But regardless of your own situation, or that of this fictional mechanic, you must understand that the data indicate that you appear to pay more in taxes than the "typical" American. That doesn't make your wallet any less sore, but you also cannot conclude that most Americans would be in your shoes come April 15.

[pulykamell]

I find it difficult to believe that a mechanic would have a tax burden 33% higher than you (40% vs. 30%-ish) unless he was doing something something wrong in filing his taxes.

Yes, it seems an weirdly high discount for just using cash. But if, as md2000 points out, sales tax is included in the $100 for this calculation, it might not be so far off reality. Sales tax here in Chicago is 10.25%, for instance. But, yes, now we're throwing in sales tax, which is slightly beyond the scope of this discussion, but may help us understand where the numbers for the 40% discount come from.


But regardless of your own situation, or that of this fictional mechanic, you must understand that the data indicate that you appear to pay more in taxes than the "typical" American. That doesn't make your wallet any less sore, but you also cannot conclude that most Americans would be in your shoes come April 15.

Like I said, I have no problem with it, but I was using my circumstances in order to discuss the mechanic that was mentioned upthread (who, from my reading, is not at all fictional or hypothetical). It seemed to me, given some posts, that there was some doubt that it was plausible that 40% of his income was going to taxes. I assumed he would be self-employed or otherwise the owner of the business if he had the authority to be making offers of cash discounts. I am not arguing at all this is the position of most people. I am merely saying that the mechanic's tax situation is not completely implausible. It seems about 5-10 percentage points higher than I'd expect, but who knows.

[Lemur866]

by Chief Pedant:
The point is that for most Americans income taxes are relatively low because of the fact that high-income earners pay such a disproportionate share of taxes.

Again, you keep conflating "income tax" with "tax". It's true that low and middle wage earners pay very little in income tax, because there are substantial deductions for home mortgages, earned income tax credit, dependents, and on and on. So by the time you add it all up you might owe no income tax. INCOME TAX. Which doesn't include social security tax, or medicare tax, which are straight payroll taxes with no deductions at all. And note that since your employer pays another 7% social security payroll tax, your effective SS payroll tax is 14%, not 7%, as anyone who has self-employment income knows.

This is an extremely common talking point lately, but everyone who brings up how much taxes the rich pay, and how little taxes the poor pay, always seem to only talk about income tax and never talk about other payroll taxes.

[Lemur866]

I am merely saying that the mechanic's tax situation is not completely implausible. It seems about 5-10 percentage points higher than I'd expect, but who knows.

The real possibility is that he's got some sort of judgement against him, and reportable earnings will just go to his creditor, while cash will go into his pocket. Or he could be trying to hide income for child support reasons.

[pulykamell]

The real possibility is that he's got some sort of judgement against him, and reportable earnings will just go to his creditor, while cash will go into his pocket. Or he could be trying to hide income for child support reasons.

This would certainly make more sense. If you're going to offer a cash discount, anyway, what would the incentive be to make it exactly your marginal tax rate? You might as well report it, since it's exactly the same amount of money to you. More likely, if you were actually being taxed 40%, you'd offer something like a 20% discount. If you're going to be a tax dodger, why the heck would you do it for no net profit?

[spinky]

Here's the statement I want to see someone defend: In other countries the top 1% of wage earners pays more than the 40% of the total income tax.
You're very focused on this "portion of the total income tax" angle. Why? It's completely meaningless in a discussion of whether our taxes are "high" relative to other countries. All it does is demonstrate that taxes of the top 1% of wage earners in the US are high relative to the taxes of the rest of the US. Which is by design: that's the way a progressive income tax works.

[md2000]

You're very focused on this "portion of the total income tax" angle. Why? It's completely meaningless in a discussion of whether our taxes are "high" relative to other countries. All it does is demonstrate that taxes of the top 1% of wage earners in the US are high relative to the taxes of the rest of the US. Which is by design: that's the way a progressive income tax works.

Yeah, if you can afford a Ferrari or a Mercedes, they you should pay a bigger share of society's police costs; you benefit more from a social system where things are less likely to get stolen, where unlike some South African neighbourhoods you didn't need a 10 foot barbed wire fence around your suburban home, or flamethrowers under the car to prevent carjackings. (The latter didn't work so well, apparently the result was to encourage thugs to shoot you from a relatively safe distance and then approach the car. )

Before anyone comments about crime rates - boo hoo, compared to many places in time and history most North Americans are very safe and their possessions sit unmolested while they are at work. In many other societies, the filthy rich need to pay for an army of bodyguards simply to move around; kidnapping of the children of the rich is a common crime. Here, the most that bodyguards usually need to worry about are paparazzi.

Similarly, the rich benfit from the road network - not just driving, but also they buy more and all that extra stuff is delivered by road. They fly more - so should pay more for airports and air traffic control. Etc. Even welfare and unemployment; the money society distributes to the unfortunate (or just plain lazy) means they are that much less likely to form rampaging mobs just to find food. As the french aristocrats found, the rampaging mobs tend to go after the rich.

The rich use more of society's services and benefit more form society so they should pay more. Even if Bill Gates paid 75% income tax (not on assets, just income) then he would still be a multi-billionaire.

[DSeid]

Okay, let's start with some fact checking (http://www.factcheck.org/askfactcheck/what_percent_of_taxes_does_the_top.html).The top 1 percent of all households got 18 percent of all personal income and paid nearly 28 percent of all federal taxes in 2005 ...

... The share now borne by the top 1 percent is the highest it has been since 1979, the earliest year for which CBO has figures. And surprisingly, it is larger than in 2000, the last year of President Bill Clinton's administration, before President Bush signed a series of tax cuts that benefited upper-income taxpayers by cutting the top rate on federal income taxes, cutting the rate on capital gains taxes and reducing the estate tax. One reason is that the top 1 percent now receive a greater share of income than at any time covered by CBO's statisticsSo the top 18% of income shoulders 28% of the tax burden. And as the rich have gotten richer their share has increased as well. Yeah, that's what I'd expect with a progressive tax system. Seems fair to me and I am also at a high tax bracket.

As to your question, CP, I have no idea what percent of the budget of France, or England, or Canada, or where ever, is paid for by the top 1%, or by the top 18% of all income, so I have no idea how paying 28% of the nation's budget compares. Do you know? Or are you just making it up? If your claim is that the wealthiest 1% of Americans pay more of their nation's budget than do the wealthiest 1% in other countries, or have a bigger share of their incomes going to the government, then I'd ask you to support that claim, not ask me to disprove it. I really doubt it but no one has claimed anything about that issue other than you so the burden is on you to prove it. What I have shown to you is that an individual wealthy American pays less of his or her income to taxes in America than does the individual wealthy individual in most of the world, at least according to Forbes and several other sources.

If you object to the idea of the earned income tax credit, if you want to argue that the poor and the middle class should pay more of the total tax burden because having a progressive system is, boohoo, unfair to the very rich, then argue those points. But the fact is that Americans, including the wealthiest Americans, are taxed sparingly compared to the wealthiest in other countries of the world. Honestly if they are so much wealthier than others of the world that it adds to a greater portion of the total bill then I really don't care.

[spinky]

Yeah, if you can afford a Ferrari or a Mercedes, they you should pay a bigger share of society's police costs; you benefit more ...

Even without getting into whether or not a progressive tax is morally just or whatever, I'm just saying that the stat that Chief Pedant keeps throwing out is completely useless for comparing our tax burden to other countries. It's a number that's highly dependent on the skew of the income distribution. If Bill Gates and I formed our own country, the top 1% of wage earners would pay a shitload more than 40% of the taxes, and that factoid would say exactly nothing about how high taxes are in this hypothetical country.

ETA: Bill, PM me if you're interested.

[Voyager]

Here's the statement I want to see someone defend: In other countries the top 1% of wage earners pays more than the 40% of the total income tax.

Is it your position that I am not correct in saying that, in the US, the high-income earners pay a large share relative to the rest of society and the rest of the world, or am I missing something?

Not quite that but here is a pdf poster (http://image.guardian.co.uk/sys-files/Guardian/documents/2009/03/13/inequality.pdf) giving some information about income inequality for many countries. The measure is how much greater are the earnings for the top 20% than the bottom 20%. The US is first by far with the top earning 8.5x the bottom. It is 7.2 x for the UK, 5.2X for Germany, and 3.4 X for Japan. There is also a chart showing how inequality for the UK shot up under Thatcher.

This article (also pdf) (http://www.ief.es/publicaciones/revistas/hacienda%20publica/Articulos/168_Atkinson.pdf) gives some information on income distribution in England. On page 127 (page 5 of the pdf) shows the income share of the top 1% pre-tax is 13%, post-tax is just over 10%. On page 130 we see the distributions for several countries - with lower numbers being more inequality. The US is way ahead, with a great increase in inequality during the Reagan years. There is some discussion of tax rates later on, but I couldn't find a diagram or a table giving the information you want.

But in any case with the income of the top 1% so much lower overseas, we'd expect the amount they pay would be lower also. If you want to equalize the tax burden, a good thing, all you need to do is to support policies that tend to equalize income.

You should also be asking what is the marginal utility of an extra dollar for the top 1% versus someone in the middle, let alone someone at the low end. If it is more less than half the average, the top 1% are getting off easy. I rather expect it is much lower than 50%.

[Voyager]

As to your question, CP, I have no idea what percent of the budget of France, or England, or Canada, or where ever, is paid for by the top 1%, or by the top 18% of all income, so I have no idea how paying 28% of the nation's budget compares. Do you know? Or are you just making it up? If your claim is that the wealthiest 1% of Americans pay more of their nation's budget than do the wealthiest 1% in other countries, or have a bigger share of their incomes going to the government, then I'd ask you to support that claim, not ask me to disprove it. I really doubt it but no one has claimed anything about that issue other than you so the burden is on you to prove it. What I have shown to you is that an individual wealthy American pays less of his or her income to taxes in America than does the individual wealthy individual in most of the world, at least according to Forbes and several other sources.

I took his numbers at face value. Silly me. But, since the top 1% have a share 50% greater than that in England, which is now a country with relatively high income inequality, his question is more or less meaningless, since it assume that the top 1% have equal shares across countries.

[md2000]

Even without getting into whether or not a progressive tax is morally just or whatever, I'm just saying that the stat that Chief Pedant keeps throwing out is completely useless for comparing our tax burden to other countries. It's a number that's highly dependent on the skew of the income distribution. If Bill Gates and I formed our own country, the top 1% of wage earners would pay a shitload more than 40% of the taxes, and that factoid would say exactly nothing about how high taxes are in this hypothetical country.

ETA: Bill, PM me if you're interested.

True, and this is why Lichenstein or Monaco or the Bhamas or any other tax haven can operate. A yatch-load of extra billionaires contributing a pittance to the local economy is just icing on the cake for any regular economy - especially if they don't actually live there to add to the burden of services.

Many people seem to be up in arms over Obama's promise to tax people higher if the make more than $250,000 a year. How many people here come CLOSE to $250K/year? When I worked at a place where my bonus-induced pay peaked over $100,000/yr, I suspect there were only 2 or 3 people out of the 1500 there who made more than $250,000. Of course, the head office would be a different story...

And the 47% who paid zero taxes? There really are not that many tricks to get out of paying actual taxes on money you take home to spend. So think what little you have to make and how many kids you have to support with that little money to pay zero taxes. Minimum wage earners? Seniors with only Social Security? I seriously doubt they could pick up the tab so millionaires could pay less.

Of course, minimum wage is low so millionaires can keep more of the income others earn for them; another benefit society provides the rich.

Distribution is everything.

[DSeid]

... his question is more or less meaningless, since it assume that the top 1% have equal shares across countries.Yup. If true all it would mean is that the top 1% in America have so much more of the income coming to them that even with a lower tax rate than upon the wealthiest of other countries they still end up paying more taxes. Which makes what point?

Anyway the canard here is the bit that implies that the lower half, and in particular the poor, get off without paying a sizable chunk of taxes. That our progressive taxation system leaves 40% or more getting a free ride carried by the wealthiest. That is a crock (http://www.ctj.org/pdf/taxday2009.pdf) (warning: pdf).
The total federal, state and local effective tax rate for the richest one percent of
Americans (30.9 percent) is only slightly higher than the average effective tax rate for
the remaining 99 percent of Americans (29.4 percent). ... Claims that the richest one percent are paying far more than their fair share usually focus only on one type of federal tax paid (the federal income tax) while ignoring other regressive federal taxes, like the payroll tax, which is more significant for most taxpayers. They also ignore state and local taxes, which tend to tax low- and middle-income families more heavily than well-off families. As these figures make clear, the richest Americans are not being “overtaxed” relative to other Americans or relative to their share of national income.Interestingly enough, according to this source the group that pays the biggest share are the moderately well off, percentiles 90-95, with an average income of $144K. They pay at a rate of 32.2% of their total income to total taxes. But the next 4% up and the next 10% down also pay a larger percent of their income to taxes overall than does the top 1%. And the lowest 20% of income earners still pays 18.7% of their income to taxes overall.

[Chief Pedant]

Yup. If true all it would mean is that the top 1% in America have so much more of the income coming to them that even with a lower tax rate than upon the wealthiest of other countries they still end up paying more taxes. Which makes what point?

Anyway the canard here is the bit that implies that the lower half, and in particular the poor, get off without paying a sizable chunk of taxes. That our progressive taxation system leaves 40% or more getting a free ride carried by the wealthiest. That is a crock (http://www.ctj.org/pdf/taxday2009.pdf) (warning: pdf).
Interestingly enough, according to this source the group that pays the biggest share are the moderately well off, percentiles 90-95, with an average income of $144K. They pay at a rate of 32.2% of their total income to total taxes. But the next 4% up and the next 10% down also pay a larger percent of their income to taxes overall than does the top 1%. And the lowest 20% of income earners still pays 18.7% of their income to taxes overall.

Sigh...your liberal knee jerk reactions are kicking my shins. In self defense I will try one last time:

My posts refer to the assertion by Der Trihs that the wealthy in the US are not taxed differentially:

Here's that statement from Der Trihs again:
"Given that America is known for its low taxes, especially on the people with the most money that is highly unlikely..." (emphasis mine)

Now then...ahem...
THE US DOES NOT HAVE LOW TAXES "ESPECIALLY ON THE PEOPLE WITH THE MOST MONEY." IT MAY HAVE LOW TAXES OVERALL, BUT AS A MATTER OF FACT, THE WEALTHIEST 10%--BY INCOME, AT LEAST--IN THE US PAY MOST OF THE FEDERAL TAX BURDEN. THIS IS PARTLY BECAUSE THEY HAVE THE MOST MONEY AND PARTLY BECAUSE OUR PROGRESSIVE SYSTEM ASSIGNS TO THEM AN AMOUNT ABOUT DOUBLE--AT LEAST FOR THE TOP 1%--IN PROPORTION TO THEIR INCOME.

Read that at few times, put it in your liberal income redistribution pipes, smoke it, inhale it, digest it, and stop with the blather over these points, which I am NOT making and am uninterested in debating in a GQ thread:

The US has lots of rich people, who should be paying even more in taxes.
Sort of a matter of opinion. Utterly unrelated to the point in caps above. Suppose the top 1% are all Bill Gates and everyone else is the janitor. Suppose Bill has a trivial marginal tax rate but is so filthy rich his group's 1% is 60% of all taxes. HIS GROUP STILL PAYS MOST OF THE TAXES. The fact that an assortment of fiscally liberal re-distributionists think he should pay even more for his "fair share" has NOTHING to do with the numbers showing his wealthy group pays most of the taxes, and calling them "low" only has any meaning if it's your opinion they should be higher. It has no meaning when you look at how much money you extracted out of the guy. You only think it's "low" cuz he has lots left to re-distribute and your paradigm is that society should be allowed to take that, too. :dubious:
There are lots of taxes besides Federal Income tax (such as Social Security and real estate taxes.
Yes there are; yes there are. Most of these are not directly progressive, although their tax deductability can get phased out. The rich still pay more of them in absolute numbers; a rich guy typically owns a more expensive house,e.g.

The only thing that brings any credence to the idea that the wealthy in the US pay "low taxes" is an a priori assumption that taxes should be progressive and that from each should come taxes according to his ability to pay. This is a lovely topic and perhaps suitable for Great Debates (the opposing view wouldn't get far on this board) but, sadly, is unrelated to "high" and "low" taxes, and which chunk of folks pay them. In terms of total federal tax in the US, the top 1% pay about 40% of Federal Income tax and about 28% (by DSeid's cite, IIRC) of all federal taxes. That does not lend credence to an idea that taxes for the wealthy are somehow "low" unless you buy into the notion (it may be genetic for fiscal liberals) that tax must be progressive to be considered high or low. That way if the guy making a billion pays a million in taxes and the guy making 100,000 pays a thousand in taxes, you can complain the billionaire's taxes are "low."

And before you get too floofed up, I believe in progressive taxes. As I've pointed out, the top 1% pay double in Federal Income tax relative to income; the bottom 47% paid none at all this year. Now that's Progressive! ;)

Oh yeah; one thing more. Europe, at least, has higher tax burdens. However this is because a lot more of them pay a lot more taxes. I am unable to find a system anywhere where the top 1% carry as high a proportion (relative to income) or an absolute percentage of the national tax burden as the US. I do not say it doesn't exist, but if it does, I need help finding it. Our rich--and thank goodness there are so many of them--are carrying us (well, and our grandkids, too, but that's another GD...). I'm just moaning about this notion that our rich have "low taxes" as if they are skating, somehow and as if our system is not progressive.

Now get out there you paupers, and pony up some more. I need my moolah for my yacht.

[spinky]

That does not lend credence to an idea that taxes for the wealthy are somehow "low" unless you buy into the notion (it may be genetic for fiscal liberals) that tax must be progressive to be considered high or low.

Sorry, this is nonsense. Taxes must be progressive to be considered high or low? That makes no sense at all. Let's use your (non-progressive) example:

That way if the guy making a billion pays a million in taxes and the guy making 100,000 pays a thousand in taxes, you can complain the billionaire's taxes are "low."

I'm going to go out on a limb and say that in this example, everyone's taxes are "low." The effective rate is one tenth of one percent. That is rock bottom low. And not because it isn't progressive. It could be a progressive tax going from 0 to 5% and guess what? That would be "low".

[DSeid]

Meh, I get called liberal, I get called conservative ... all I am is a stickler for what is accurate. And in GQ the facts are what matter.

DT's statement. We agree then that the first clause is completely accurate, as you shout "IT MAY HAVE LOW TAXES OVERALL". As to the second - I think by now you accept my cites (such as Forbes) that show that a wealthy individual will be taxed less in America than in most other Western countries, and for the same level of wealth sometimes dramatically so. And that the highest marginal rate is lower now than it has typically been in this country. What else does "is known for" mean other than relative to the circumstances in other countries (or perhaps to our own country's historic norms)? If you choose to (mis)read that phrase as that the wealthy are taxed low relative to the poor, then I'd question your reading comprehension skills but not argue the point. No, they are indeed taxed at a higher rate than the poor are.

I don't know what is in your pipe, but you must be smokin' something potent. This is a matter of what the facts are, not what your (or my) politics are or are not. Per my last cite, looking at the complete tax burden (all Fed to local), the top 10% is actually just shy of half of the tax revenue stream (49.4%) and is also about the same of the total income stream (46.6%). If you want to look at the top 1% of earners then, per that cite, they cover about 23% of all tax revenues on 22.2% of the total income (2008). You don't want to count state or local taxes for some reason? You limited yourself to Federal you say? Fine. My previous cite showed that just looking at the complete Fed taxes picture gave that top 1% credit for paying 28% of Fed tax revenues while producing 18% of the county's income (2005 numbers). The 2008 report had it at 22.2% of the total income and 23% of the total tax revenues. So your claim about the top 1% being assigned double relative to their income is a falsehood. Your continued conflation of income tax with total tax burden after the error has been pointed out to you multiple times bespeaks a certain disingenuousness about this subject apparently motivated by a political agenda.

Agreed that who should be paying what is a matter of opinion. And agreed that that debate is best had at another location. The issue related to your "point in caps above" is merely that the richest are indeed taxed relatively low per unit income in America compared to most of the rest of the world and to America's own historic norms, and that no matter how many caps you use, NO, THE TOP 1% DOES NOT PAY MOST OF THE TAXES.

And NO, THE RICH DO NOT PAY MORE SOCIAL SECURITY AND REAL ESTATE TAXES IN ABSOLUTE NUMBERS. They pay, for example, a mere 4% of the total Social Security and Medicare revenues. That aint "most".

In summary: Stop Making Shit Up In GQ.

[Colibri]

This has probably entered GD territory anyway. Moving from GQ.

Colibri
General Questions Moderator

[DanBlather]

Meh, I get called liberal, I get called conservative ... all I am is a stickler for what is accurate. And in GQ the facts are what matter.

DT's statement. We agree then that the first clause is completely accurate, as you shout "IT MAY HAVE LOW TAXES OVERALL". As to the second - I think by now you accept my cites (such as Forbes) that show that a wealthy individual will be taxed less in America than in most other Western countries, and for the same level of wealth sometimes dramatically so. And that the highest marginal rate is lower now than it has typically been in this country. What else does "is known for" mean other than relative to the circumstances in other countries (or perhaps to our own country's historic norms)? If you choose to (mis)read that phrase as that the wealthy are taxed low relative to the poor, then I'd question your reading comprehension skills but not argue the point. No, they are indeed taxed at a higher rate than the poor are.

I don't know what is in your pipe, but you must be smokin' something potent. This is a matter of what the facts are, not what your (or my) politics are or are not. Per my last cite, looking at the complete tax burden (all Fed to local), the top 10% is actually just shy of half of the tax revenue stream (49.4%) and is also about the same of the total income stream (46.6%). If you want to look at the top 1% of earners then, per that cite, they cover about 23% of all tax revenues on 22.2% of the total income (2008). You don't want to count state or local taxes for some reason? You limited yourself to Federal you say? Fine. My previous cite showed that just looking at the complete Fed taxes picture gave that top 1% credit for paying 28% of Fed tax revenues while producing 18% of the county's income (2005 numbers). The 2008 report had it at 22.2% of the total income and 23% of the total tax revenues. So your claim about the top 1% being assigned double relative to their income is a falsehood. Your continued conflation of income tax with total tax burden after the error has been pointed out to you multiple times bespeaks a certain disingenuousness about this subject apparently motivated by a political agenda.

Agreed that who should be paying what is a matter of opinion. And agreed that that debate is best had at another location. The issue related to your "point in caps above" is merely that the richest are indeed taxed relatively low per unit income in America compared to most of the rest of the world and to America's own historic norms, and that no matter how many caps you use, NO, THE TOP 1% DOES NOT PAY MOST OF THE TAXES.

And NO, THE RICH DO NOT PAY MORE SOCIAL SECURITY AND REAL ESTATE TAXES IN ABSOLUTE NUMBERS. They pay, for example, a mere 4% of the total Social Security and Medicare revenues. That aint "most".

In summary: Stop Making Shit Up In GQ.Please run for office. I'd vote for you in an instant. This sort of fact-based analysis is what the press should be doing instead of having two angry people yelling at each other, with at least one side lying through their teeth.

[BrainGlutton]

The problem is that nobody really knows what a Laffer curve is supposed to look like, and efforts to quantify it with empirical data to determine the optimum revenue-maximizing level of tax have yielded widely varying results. (http://en.wikipedia.org/wiki/Laffer_curve#Research.2C_Quantification_and_Empirical_Data)

[erez]

And Forbes (http://www.forbes.com/global/2006/0522/032.html) ratings of marginal tax on the wealthiest puts America in the lower grouping as well.

Wrong. Here is a newer comparison by Forbes: http://www.forbes.com/global/2009/0413/034-tax-misery-reform-index.html. Only USA/Texas is in what you might call the "lower grouping." USA/Illinois is near the middle and USA/New York City is in the top third. Most U.S. states do have progressive personal income tax rates, unlike Illinois or Texas, so they would be higher on the chart than Illinois. This chart does not account for the health care bill, which will move the US higher. And it does not account for the likely expiration of the Bush tax cuts, which will move it higher still.

[DSeid]

erez,

1) It is unclear to me if that newer chart addresses the same specific question, looking specifically at the tax burden for the wealthiest. But let us assume it does.

2) In that chart overall "USA" is placed in the lower third. And indeed USA-Texas in in the lower grouping. Of the Western nations USA-Illinois is only above Ireland and Australia and is below all other Western countries listed.

3) One out of three USA-(state)s listed is indeed at the edge of the upper third and above several Western countries (as well as still below about as many others): New York. Pertinent to this op it is interesting that that (relative to other American states) higher tax burden of the wealthiest has not hobbled that state which is, to this day, still home to our financial centers.

4) Indeed, no fact based analysis of how things are includes speculative predictions about what will or won't happen in the future.

Meanwhile there is also this WSJ article (http://online.wsj.com/article/SB121677287690575589.html)the richest 1% of Americans in 2006 garnered the highest share of the nation's adjusted gross income for two decades, and possibly the highest since 1929, according to Internal Revenue Service data.

Meanwhile, the average tax rate of the wealthiest 1% fell to its lowest level in at least 18 years.

[md2000]

Great Debate time...
A person on minimum wage or near it - let's say $7/hr - makes $14,000 a year assuming they actually get full time work. What percentage of their income do they pay in the USA? How much if you count Social Security?
(I'm from Canada - here they would pay close nothing in taxes and maybe a small percent of the $3000 max. of Canada Pension and Unemployment Insurance - perhaps $1000.)

The average industrial wage in Canada is about $40,000; I assume the median wage is not far off. This person will pay $3000 for CPP and UIC, plus probably a little less than 20% of their wages in fed/provincial income tax... So about say, $10,000 give or take in payroll deductions.

What taxes would a person making $40,000 pay in the USA? How much more should they pay so that a millionaire can afford a bigger yatch? Again, keep in mind the taxes in Canada full cover health care costs that your bottom-of-barrel citizens have to arrange themselves. I assume a $40,000 household does not qualify for Medicare there?

And again - how many dopers here make more than $250,000 a year personally or per household? Just how big is this group that is going to pay somewhat more to ease the burden for the Medicare crowd?

The problem is that society is so complicated that there are huge numbers of services that only a centrally-controlled public service can easily (efficiently?) provide. The illusion that most public services are rife with waste is far from the truth, and in my experience lage corporate organizations - that the right would love to have come in and replace those government services - are no better organized.

[Ravenman]

Great Debate time...
A person on minimum wage or near it - let's say $7/hr - makes $14,000 a year assuming they actually get full time work. What percentage of their income do they pay in the USA? On average, meaning that single, married, no kids, lots of kids, abled, disabled, etc., someone with that income would pay several hundred dollars in taxes to the Federal government. Virtually all of it would be payroll taxes, probably offset by a negative Federal income tax.

What taxes would a person making $40,000 pay in the USA?Again, averaging out kids, no kids, married, not married, the average is about 10% in Federal taxes, so about $4 grand. They would generally not qualify for Medicaid, which is government sponsored health care for poor people.

And again - how many dopers here make more than $250,000 a year personally or per household? You didn't ask it, but someone making this amount would probably pay about 25% in Federal taxes.

Please note that I haven't found a good, authoritative source for how state taxes break out by income levels. My WAG is that the poorest would pay a few percentage points (primarily sales taxes) and the very upper end would pay in the neighborhood of 15%, depending heavily on which state they live in. (Citations for Federal income tax burdens come from my previously posted cite.)

[Really Not All That Bright]

Cite please. It worked well enough for Margaret Thatcher.
Margaret Thatcher inherited a top marginal rate of 83%, and the top British wage earners were all buggering off to America and the Bahamas to avoid paying it.

That is not exactly the case here - though I suppose you could use the Thatcher government as evidence that the top of the Laffer curve is somewhere between 0 and 83%.

[Damuri Ajashi]

The real question for the mechanic was not total tax paid but marginal tax rate. If on each extra dollar he earned, he paid 30% tax, plus 6% sales tax - he can make more than one-third profit by collecting unreported cash.

Tax evasion is much more sensitive to changes in levels of enforcement enforcement than to chamges in tax rates (especially when youa re talking about 33% vs. 25%).

There are industrialized nations where the top marginal tax rates are in the 10% - 15% range where the tax evasion is rampant. Raising marginal tax rates from 35% to 39.6% is not going to have a noticable effect on compliance.

[Damuri Ajashi]

The problem is that nobody really knows what a Laffer curve is supposed to look like, and efforts to quantify it with empirical data to determine the optimum revenue-maximizing level of tax have yielded widely varying results. (http://en.wikipedia.org/wiki/Laffer_curve#Research.2C_Quantification_and_Empirical_Data)

There are onloy two points ont the laffer curve that we know are fixed, 0% and 100% and the 100% point is open to debate.

[Damuri Ajashi]

THE US DOES NOT HAVE LOW TAXES "ESPECIALLY ON THE PEOPLE WITH THE MOST MONEY." IT MAY HAVE LOW TAXES OVERALL, BUT AS A MATTER OF FACT, THE WEALTHIEST 10%--BY INCOME, AT LEAST--IN THE US PAY MOST OF THE FEDERAL TAX BURDEN. THIS IS PARTLY BECAUSE THEY HAVE THE MOST MONEY AND PARTLY BECAUSE OUR PROGRESSIVE SYSTEM ASSIGNS TO THEM AN AMOUNT ABOUT DOUBLE--AT LEAST FOR THE TOP 1%--IN PROPORTION TO THEIR INCOME.

Low is either a subjective term or a relative term. There is no point in debating our subjective opinions about what is low. However, relatively speaking, we can compare the relative tax burden on the rich here to the tax burden on teh rich in other countries.

The only thing that brings any credence to the idea that the wealthy in the US pay "low taxes" is an a priori assumption that taxes should be progressive and that from each should come taxes according to his ability to pay.

Or we can compare their tax burden to the tax burden in other countries or the tax burden they would have shoudlered in the past.

This is a lovely topic and perhaps suitable for Great Debates (the opposing view wouldn't get far on this board) but, sadly, is unrelated to "high" and "low" taxes, and which chunk of folks pay them.

Sadly, neither is your argument.

continued...

[Damuri Ajashi]

In terms of total federal tax in the US, the top 1% pay about 40% of Federal Income tax and about 28% (by DSeid's cite, IIRC) of all federal taxes.

Here are the effective tax rates in 2007.

www.urban.org/publications/1001091.html

That does not lend credence to an idea that taxes for the wealthy are somehow "low" unless you buy into the notion (it may be genetic for fiscal liberals) that tax must be progressive to be considered high or low./quote]

No, taxes must be progressive to be considered fair.

[quote]And before you get too floofed up, I believe in progressive taxes. As I've pointed out, the top 1% pay double in Federal Income tax relative to income; the bottom 47% paid none at all this year. Now that's Progressive! ;)

That is a flaw in our tax system. Everyone should pay something even if it is 1%. I understand that 1% might mean the difference between hot dogs or roast chicken for dinner for some people but it is not generally a good idea to have people entirely detached from the cost of government.

Continued...

[Damuri Ajashi]

[/quote]Europe, at least, has higher tax burdens. However this is because a lot more of them pay a lot more taxes. I am unable to find a system anywhere where the top 1% carry as high a proportion (relative to income) or an absolute percentage of the national tax burden as the US.[/quote]

And you don't think concentration of wealth has anything to do with this?

www.taxfoundation.org/news/show/250.html

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[Damuri Ajashi]

A lot of the extra tax burden carried by the top 1% is a matter of higher incomes.

For example in 1980, the top 1% of taxpayers earned 138 billion while the bottom 50% earned 288 billion (the top 1% earned about half what the bottom 50% earned). The top 1% paid about 47 billion in income taxes compared to 18 billion paid by the bottom 50% (the top 1% paid about 2.5 times as much as the bottom 50%), this doesn't count payroll taxes, sales taxes or any other taxes than the most progressive of our taxxes, the income tax.

In 2007 the top 1% earned about 2 trillion while the bottom 50% earned about 1 trillion. The top 1% now earned twice what the bottom 50% earned.

So if you earn between 100 and 500K you are carrying more than your historical share compared to the bottom 50% (who arguably need the money) and the top 1% (who arguably do not need it as much).

I do not say it doesn't exist, but if it does, I need help finding it. Our rich--and thank goodness there are so many of them--are carrying us (well, and our grandkids, too, but that's another GD...). I'm just moaning about this notion that our rich have "low taxes" as if they are skating, somehow and as if our system is not progressive.

We're not progressive relative to other developed countries

www.mpifg.de/pu/workpap/wp06-1/tab_1.gif

Of course none of this takes into account other taxes that are not nearly as progressive as the income tax (which, btw account for the majority of federal tax revenue).

What we need are more tax brackets at the top (say at the 500K, 1MM, 2MM, 5MM, 10MM levels etc.) and at least SOME tax liability at the bottom of the scale (even if it only 1%).

continued...

[Damuri Ajashi]

These charts show that while the wealthiest among us carry a large share of the tax burden, it also shows a shifting concentration of wealth into fewer and fewer hands.

continued...

[Damuri Ajashi]

The top 1% saw their effective tax rate drop from 34% in 1980 to 22% in 2007. The bottom 50% saw their effective income tax rates drop from 6% to 3% but others saw very little in the way of tax relief. The folks in the top 10% who aren't in the top 1% din't see very much tax relief.

(sorry about all the serial posting. There is something in one of my sentences that is offensive to the filter and I am trying to figure out which words to remove)

[Chief Pedant]

The top 1% saw their effective tax rate drop from 34% in 1980 to 22% in 2007. The bottom 50% saw their effective income tax rates drop from 6% to 3% but others saw very little in the way of tax relief. The folks in the top 10% who aren't in the top 1% din't see very much tax relief.

(sorry about all the serial posting. There is something in one of my sentences that is offensive to the filter and I am trying to figure out which words to remove)

I realize on a board this liberal everyone is desperate to teach me how much the rich skate in the US...and how much wealth the rich have in the US (I'm pretty sure this is related to why other people want to move here, but that's a different story too...).

Has anyone found any good chart on what the top 1% pay as a share of total taxes in their country for any other country? That, and not all this other bs, is what precipitated my comments. At issue (as far as my posts go) is this:

Do the rich in the US have low taxes compared with with other countries?

Not: "Relatively" low tax rates cuz they are so stinking rich. Low taxes.
Not: Disproportionately low taxes compared to how much of their wealth we should be re-distributing.

Just plain ol' low taxes. Low, as in less money per person or low, as in a smaller share of all total taxes than the top 1% elsewhere. I want to see a defense of the notion that in the US it's "especially the rich" who have low taxes. I realize we may all be skating and borrowing, but I don't get the idea that in the US it is "especially the rich" who are skating.

[spinky]

Just plain ol' low taxes. Low, as in less money per person

I am confused. Are you now suggesting we need a regressive tax so the top 1% don't pay taxes proportional to their income? Because a few posts ago, you said you support progressive taxes.

[erez]

erez,

1) It is unclear to me if that newer chart addresses the same specific question, looking specifically at the tax burden for the wealthiest. But let us assume it does.


Right on top of both links: "Our 2006 Tax Misery & Reform Index," "2009 Tax Misery & Reform Index." Can't get much clearer than that.

2) In that chart overall "USA" is placed in the lower third. And indeed USA-Texas in in the lower grouping. Of the Western nations USA-Illinois is only above Ireland and Australia and is below all other Western countries listed.

Are you saying that state taxes are not taxes? Unless you are, state taxes do count if you compare the tax burden on individuals, so using just "USA" when tax data for states is known and clearly presented is misleading. Note that in the few cases where other countries impose such regional taxes, they are included too, for example "Canada/Ontario." Why are you ignoring what I said about the top marginal state income tax rate in most states being higher than in Illinois and Texas? Here is the link if you don't believe me: http://www.taxadmin.org/fta/rate/ind_inc.pdf. There are only 10 states with the top tax rates lower than Illinois. Therefore you were absolutely wrong in claiming that the US is in the lower part of this chart.

3) One out of three USA-(state)s listed is indeed at the edge of the upper third and above several Western countries (as well as still below about as many others): New York. Pertinent to this op it is interesting that that (relative to other American states) higher tax burden of the wealthiest has not hobbled that state which is, to this day, still home to our financial centers.

You may want to read http://news.bbc.co.uk/2/hi/business/8563525.stm. NYC was the undisputed financial capital of the World. It is not so undisputed anymore. So if that's the criteria you want to use, the facts are arguing against you. Here is an interesting stat from http://www.census.gov/compendia/statab/2010/tables/10s0013.xls: New York lost 1,575,864 people to domestic migration from 2000 to 2008, the most of all states. California (another state with one of the highest top income tax brackets) was second on that list.

4) Indeed, no fact based analysis of how things are includes speculative predictions about what will or won't happen in the future.

The health care reform bill and its associated future tax increases are not some speculative predictions but the current law of the nation.

[DSeid]

erez clearer would be if the newer chart also stated that it was explicitly reporting the highest rates, rather than merely sharing a title. But again, I assume that you are correct and it does.

And you are correct that state taxes should be counted and that this newer version by Forbes gives a more complete picture than the older one that I had found. It would be disingenuous of me to make the point that the wealthiest's share of total taxes including state and local is not so high and that that number is more meaningful than just all Federal taxes (let alone just income tax) and then not apply that same logic here.

I ignored what you said about the other states because I did not have access to the chart that proved your point and had no idea if your statement was accurate or not. You have now shown it to be accurate and I acknowledge it. Counting state income taxes, as we should, the US is pretty middle of the road on Forbes list. (Especially given that the largest population centers are in higher tax states such as New York and California.) Not high, but not particularly low either.

OTOH New York has had relatively high state taxes for a long time now and such has never gotten in the way of it being "home to our financial centers". Your statement about it no longer being undisputed world leader is unrelated to that statement. And it had no problem growing in population while it had a higher tax rate either. Also reporting absolute size population movement means little when discussing the two most populous states. Percent change is what matters. (A 2% change in California is the same as a 1005 change in Vermont.) And your link didn't work. Per this one (http://www.factmonster.com/ipka/A0004986.html) though New York grew by 0.6% from 2003 to 2006 and California grew by 2.9% in that same time period. Hard to make too much out of that.

And I may be mistaken but I thought the tax impact of the healthcare reform package was still very much to be determined despite some statements by some on both sides to the contrary.

Finally getting back to the op, this graphic (http://www.balloon-juice.com/wp-content/uploads/2009/03/graph.jpg) is cool. Look at when top marginal rates were high and when they were low and think about what the economy did during each of those times. Most generously put there is no empirical evidence here for any Laffer curve. Like many of CP statements, it was just a made up falsehood.

[Ravenman]

Has anyone found any good chart on what the top 1% pay as a share of total taxes in their country for any other country? That, and not all this other bs, is what precipitated my comments. At issue (as far as my posts go) is this:

Do the rich in the US have low taxes compared with with other countries? Just to clarify what you seem to be arguing, you are saying that because the receipts from high income earners constitutes a significant to large percentage of the grand total of tax collections each year from all sources, therefore the wealthy do not pay "low taxes."

(I'm not trying to skew your argument in any way, I simply want to insure I'm understanding you correctly.)

If I stated your case somewhat accurately, let us imagine a tax system in which there is a 5% marginal tax rate on income above a million dollars a year, and no taxes on income below that.

If that were the case, then 100% of tax revenue would come from high income earners. Does that mean in your view that the wealthy would not be paying "low taxes?"

[Damuri Ajashi]

Has anyone found any good chart on what the top 1% pay as a share of total taxes in their country for any other country? That, and not all this other bs, is what precipitated my comments. At issue (as far as my posts go) is this:

Do the rich in the US have low taxes compared with with other countries?

One of the links (either in this thread or in this one: http://boards.straightdope.com/sdmb/showthread.php?t=561046&page=4 )has a chart of the US effective tax rates compared to other industrialized countries, which shows the US with relatively low effective tax rates, but it doesn't segregate by percentiles. However I wold suggest that the fact that we have lower top marginal tax rates than other countries it stands to reason that the wealthy in other countries have higher effective tax rates.

[furt]

Many people seem to be up in arms over Obama's promise to tax people higher if the make more than $250,000 a year. How many people here come CLOSE to $250K/year? When I worked at a place where my bonus-induced pay peaked over $100,000/yr, I suspect there were only 2 or 3 people out of the 1500 there who made more than $250,000. Of course, the head office would be a different story...Nitpick: IIRC, the detailed pledge was for couples over $250,000, or individuals over $200,000. So a couple making 130K each would be among those getting their taxes raised, if they were married and filing jointly.