Political Compass #17: The rich are too highly taxed.

Great Debates
1

Many political debates here have included references to The Political Compass, which uses a set of 61 questions to assess one’s political orientation in terms of economic left/right and social libertarianism/authoritarianism (rather like the “Libertarian diamond” popular in the US).

And so, every so often I will begin a thread in which the premise for debate is one of the 61 questions. I will give which answer I chose and provide my justification and reasoning. Others are, of course, invited to do the same including those who wish to “question the question”, as it were. I will also suggest what I think is the “weighting” given to the various answers in terms of calculating the final orientation.

It would also be useful when posting in these threads to give your own “compass reading” in your first post, by convention giving the Economic value first. My own is
SentientMeat: Economic: -5.12, Social: -7.28, and so by the above convention my co-ordinates are (-5.12, -7.28). Please also indicate which option you ticked.

Now, I appreciate that there is often dissent regarding whether the assessment the test provides is valid, notably by US conservative posters, either because it is “left-biased” (??) or because some propositions are clearly slanted, ambiguous or self-contradictory. The site itself provides answers to these and other Frequently Asked Questions, and there is also a separate thread: Does The Political Compass give an accurate reading? Read these first and then, if you have an objection to the test in general, please post it there. If your objection is solely to the proposition in hand, post here. If your objection is to other propositions, please wait until I open a thread on them.

The above will be pasted in every new thread in order to introduce it properly, and I’ll try to let each one exhaust itself of useful input before starting the next. Without wanting to “hog the idea”, I would be grateful if others could refrain from starting similar threads. To date, the threads are:
Does The Political Compass give an accurate reading?
Political Compass #1: Globalisation, Humanity and OmniCorp.
#2: My country, right or wrong
#3: Pride in one’s country is foolish.
#4: Superior racial qualities.
#5: My enemy’s enemy is my friend.
#6: Justifying illegal military action.
#7: “Info-tainment” is a worrying trend.
#8: Class division vs. international division. (+ SentientMeat’s economic worldview)
#9: Inflation vs. unemployment.
#10: Corporate respect of the environment.
#11: From each according to his ability, to each according to need.
#12: Sad reflections in branded drinking water.
#13: Land should not be bought and sold.
#14: Many personal fortunes contribute nothing to society.
#15: Protectionism is sometimes necessary in trade.
#16: Shareholder profit is a company’s only responsibility.

*Proposition #17: * The rich are too highly taxed.

SentientMeat (-5.12, -7.28) ticks Strongly Disagree.

I’m afraid I find “trickle-down” largely illusory; the wealth of the rich has a curious habit of staying with the rich to a great extent. “Trickle-up” on the other hand, is as real as a smack in the face, with the richest 1% now owning a greater proportion of the total wealth than for many decades.

Of course, the rich do not keep their money from doing any good at all. Banks use it as credit for useful works, and even burning it effectively increases the value of everyone else’s money slightly. But it always finds its way back to them, it seems, and there are certain myths about the rich which require debunking.

The first is that the rich create all of their wealth and so, say some, they should keep almost all of it. Now, it is certainly true that wealth creation does occur somehow since economies grow over time, and that this has something to do vaguely with “innovation” in a general sense, and even that the activities of the rich are perhaps more responsible for this growth than those of the poor.

But the myth is that any rich person’s fortune was created in its entirety, from nothing. Most of Bill Gates’ personal fortune did exist when he was starting out; it was merely elsewhere. His innovation accrued most that wealth from the “competition” (in the widest sense of the word). Only a small part could be said not to have existed before. There are several models of precisely how wealth is created, such as every transaction creating a quantum of “value”, but all distinguish between actual creation of wealth and its mere accretion in one place from many others: only a small portion of any personal fortune could be said to have been truly “created”.

The second myth is that the rich use little or none of the tax pot since they meet their own needs privately; health, education etc, even private security. However, I’m afraid such private security would be quickly overwhelmed if we had even a single day without police, soldiers or prison guards. What the rich gain directly from their taxes is protection of their property rights. What they gain indirectly, from contributing to social welfare, education and healthcare, is that said less affluent teeming millions do not feel like testing that protection.

I believe that the tax pot should be contributed to fairly, ie. proportionally to wealth. That is not the case at the moment, where the tax burden is disproportionally on the poor and middle. In the UK, the richest 1% own 18% of the wealth but contributes much less than 18% of the tax, since so many taxes are not related to wealth or even income. In the US, the richest 1% own an incredible 40% of the wealth, with an even greater discrepancy in their share of the overall tax contribution.

Now, I am not suggesting that they should pay 40%, or even 18%, of the tax pot - I understand that taxation will never be perfectly progressive. But inequality is much higher than it has been for decades, and contending that the rich are still too highly taxed seems to be economic extremism comparable to that of Marx.

2

Skipping the part of tax actually being theft.

Well it certainly depends on where you think the rich are being tax too leniently. In Denmark for instance the rich (or rather everybody with an income exceeding $4500 a month) have an effective tax of around 70-75%. Which has resulted in a massive relocation of wealthy Danes to more favourable tax climates, mainly London – to the extend that London is now the fourth largest Danish city population wise. Most economics agree that the tax is not only counterproductive it’s directly stupid because a tax reduction would actually increase the tax-revenue, due to people not moving away and people having a greater incentive to work etc. However the tax once installed has proved itself exceedingly hard to get rid of, since all attempts inevitable result in shrieks of “taking from the poor and giving to the rich” or some such silly thing.

3

The movement of people to more favourable tax regimes is irrelevant to the question of whether they should pay a certain amount.
One could also make a case, theoretically, for stripping a person of their nationality if they are not prepared to contribute an amount their leaders decide upon.

4

Yes I suppose so. There are many ways this question could be discussed. If you want to restrict yourself to an exercise in philosophy, dislocated from any reality, or to the moral responsibility of the rich and how much they should contribute had they any shame in life, you can say real life consequences are irrelevant. These can be interesting discussions, however if you want to have a discussion which involve real life you can hardly say it’s irrelevant.

We don’t have taxes for their own sake, first one should agree on why taxes should be raised.

  1. To fund public expenditures. This is only going to work if increasing tax rates actually increase tax revenue enough to offset the other harming consequences on the economy. Experience tells us this only work up to a point. Where after higher taxes actually will decrease tax revenue.
  2. To reduce the wealth gap between rich and poor by making the richer poorer or driving them away. Sure higher taxes work.
  3. To reduce the wealth gap between the rich and poor by making the poorer richer? See 1)

As for morals: Taxes in some form will always be required unless you desire anarchy. However we should never forget all taxation rests on a foundation of might and violence. Your morals might tell you some filthy rich guy should pay more tax, his morals may be different. Do your morals also allow you to harm him and take from him what is his by violence should he prove reluctant? Are there anything besides wealth you believe you have a moral right to take from him with force? Further, for me taxes represent not just money, but time. I need a certain time to earn a living and provide for my family. The harder I’m taxed the longer hours I have to work. Hours taken from me, I’d rather have spent with my family or other things (instead of slavering away in these here damn goblin mines). Time is the most precious I have; yet the state has no qualms in stealing six hours a day from me. Some even go so far as to claim it is the only moral thing to do.

5

This question is entirely dependent upon what jurisdiction you’re taking about. If it’s “The rich in Alberta, or Ontario, or the state of Nevada,” I disagree. If it’s “the rich in Quebec, Sweden, or Massachusetts,” I would probably agree. Whether or not the rich are too highly taxed is quite obviously a function of how much they’re taxed.

In MY case - Ontario - I’d disagree. The tax system here is relatively fair; if we paid more I’d agree with the proposition, but at this point I’d say the rates make sense. Note that Ontario has the second-lowest rates in the country. I’d like to see the taxes SPENT a lot smarter than they are…

6

Strongly Agree.

I am assuming this to mean the rich in America.

I would also strongly agree with these statements:

The middle class are too highly taxed.

The citizens are too highly taxes.

Nobody should have to pay 50% of their income in various forms of taxes.

7

Yes, but one can separate out two issues here:

(1) the distribution of taxes.

(2) the total amount of taxes.

I interpretted the question as applying more to the first issue. If you want to consider the second issue, you of course have to explain specifically what spending you want to cut (or whether you want to run yet larger budget deficits).

Do you have any evidence that anybody does? The CBO gives us data on the effective federal tax rates on various people here and the highest effective rate (that for the top 1%) is 33%. Note that this also includes 6.4% in corporate taxes which are assigned on the basis of stockholding, which is probably an oversimplified assumption since some of these taxes are probably passed on to consumers. (Conservatives often like to claim all of them are when they argue for lowering corporate taxes, although this is probably unrealistic.)

Of course, this 33% doesn’t include state and local taxes but I can’t imagine they add enough to get the top 1% close to the 50% mark…In fact, Citizens for Tax Justice shows the top 1% paying state and local taxes at an effective rate of 8% on average over the nation. So, that gets you up to 41% total, and again, that is with over 6% coming from the assignment of the corporate tax to shareholders.

Note that these numbers are from 2001. We can expect this effective tax rate to fall under the Bush tax cuts…In fact, with the total federal taxes on the top 1% expected to fall about 15% under the Bush tax cuts, that will reduce the 33% effective federal rate to about 28% and the total effective rate for federal, state, and local taxes from 41% to 36%.

Note that these effective tax rates are determined by dividing total taxes by total income. The marginal tax rate on the last dollar earned may be somewhat higher…although that isn’t so clear because some of the taxes, like the sales and property taxes don’t scale with income.

8

6.88/-2.97 [henceforth I will report 7/-3, as it easier to remember]

Agree. [Assuming we mean the 1st world, Western Democracies in general]

Debaser covered my thoughts pretty well in his post. Taxes are too high for almost everyone.

And that 1% paid a shitload of tax on their way to gaining that welath. Are you proposing a wealth tax? I find that kind of tax to be extremely dangerous, and that’s exactly why Californians passed prop 13. If I buy a house and it jumps in value, why do I have to pay tax on that value **before ** the gain is realized in a sale? It’s wealth on paper only. Sure, it’s better than no wealth at all, but it has not increased my ability to pay taxes.

I have personal experience of being hit with such a “wealth tax” in the form of AMT (alternative minimum tax) on exercised stock options. It was nothing short of a tax on **future ** income. Absurd!

The tax code needs to be simplified so that like income pays like taxes. I certainly would agree that “the rich” get far too many tax loopholes to hide money in.

The fariest tax scheme I can think of is the flat tax with a generous personal exception. You pay nothing on the fist x% of income, and then everyone pays exactly the same after that. No deductions, no loopholes, no dodges, no special breaks for anyone. Make the “x%” deduction as high as you need it to be, and that will add as much “progressivity” to the tax code as you like.

9

And what would a tax thread be with jshore giving a link the CTJ? :slight_smile:

Look, their whole argument comes down to the fact that sales taxes are regressive. What do you say we just eliminate (or reduce) sales taxes and make the income tax flatter (per my suggestion)? If the tax code is broken because the states have screwed the poor with high sales taxes, let’s not “fix” that by raising federal income taxes.

10

Oops. That was supposed to be “without” not “with” in the first sentence.

11

A few things about Prop. 13.

First, if you do a renovation to your house, it gets reassessed and your property tax goes up, though you may not have a greater ability to pay.

Second, those who enter a rising market later pay more than those with an equal ability to pay who enter earlier. If property values go down, they would pay less, so it could work both ways. so we have the common situation of people on the same block, with similar incomes and similar house values paying wildly different amounts of property tax. If fairness is at all importance as a measure of the quality of a tax law, Prop. 13 fails badly.

Third, just as with rent control, Prop. 13 distorts the housing market. The elderly cannot afford to move out a large house that is inefficient for them into a smaller house. I agree that property tax protection for those on fixed incomes is a good thing, and many states have this, but there are more efficient ways of doing this than Prop. 13.

No property tax is based on the amount realized from selling a house, but instead on the current value of the house (with a good bit of buffering built in) as a way of allocating taxes across a population, with the assumption that those in more expensive houses are more able to pay. The total tax collected in most places is independent of assessment, as the tax rate is adjusted to provide the amount of tax revenue selected by representatives or by proposition. Prop. 13 caps this revenue (which was the entire point, of course) and manages to make the distribution of the tax burden unfair.

For the record, I strongly disagree with the statement, at least for the US today. It is possible to overtax the rich, but we are not even close to being there.

12

This is overstated, obviously, but the notion that most or all of the wealth of rich people was stolen from the poor is much more false than it is true.

Increases in real wealth are not created from nothing, but from greater productivity. In other words, from efficiency.

Consider a theoretical farmer. He raises a crop of some sort. To do so, he spends $25,000 - tractor parts, fuel, seeds, insecticides, fertilizer, whatever. At harvest, he sells his crop for $50,000. His net profit, or rather the cost of his labor, is thus $25,000.

Now he takes a correspondence course in efficient farming. Next year, he plants the same crop, but spends $30,000 - better fertilizers, more efficient ways of plowing, better seed, whatever. Now his crop is much larger, and he sells it for $60,000. His net profit this year is $30,000, or $5,000 more than last year. Where did the $5,000 come from? From the untapped potential market for his crop that he could not realize until he raised the productivity of his labor. But he didn’t take that $5,000 away from anybody - they wanted to buy the larger crop all along. They just couldn’t, because $50,000 was all the crop that was available. The farmer’s increased productivity will continue to return a greater profit up to the point that his ability to supply matches their demand. The market will then stabilize at that point. If the farmer can figure out a way to produce the same $60,000 worth of crop at a cost of less than $30,000, his profit and therefore his wealth will increase again - and again, at nobody’s expense.

The best deal is the one in which both the buyer and the seller go away convinced that they have more than they started with. That perceived increase in value drives the creation of all real wealth.

There are certainly instances in which people get wealthy at the expense of others. But to assume this as your default assumption is badly to miss the driving force of capitalism. Capitalism works because people want what it gives. And because the market is self-correcting and self-reinforcing.

As Rune points out, the idea that “the rich are taxed too highly” needs fleshing out. Too highly for what? Too highly to be efficient? Almost certainly. Government spending is almost always less efficiently allocated than private sector spending. Too highly to allow a large gap between rich and poor? Obviously not, since rich people do not sit still and allow their wealth to be taxes away. If they did, it would be worse for everyone, since motivation towards innovation and efficiency would be reduced, and lead to a slow-down or elimination of increases in real wealth.

The notion that “there is a big gap between rich and poor, and it is because the rich are stealing from the poor” drives much of the “tax system based on envy” beloved of many liberals. The first phrase of that is an observed fact, the second is an assumption not borne out by the facts.

Regards,
Shodan

13

Sure, but the test is a multiple choice, not essay. I could write up all the things that I think the government wastes money on, but that wasn’t the question. I stongly agree that the rich are too highly taxed. Just like I strongly agree that just about everybody who works in this country is too highly taxed.

If the question was worded like this:

The rich are too highly taxed, compared with everyone else.

Then I would see it being closer to your second point. But, as it’s written it seems like both points apply equally to me.

You’re looking at just income taxes. I’m talking about everything.

The 33% of income tax you mention doesn’t include payroll taxes (plus the other half of payroll taxes that the employer pays which is passed on to workers). There is also property taxes. (Rich people tend to own lots of property.) Cars, boats, etc are all taxed. I pay only $30 a year on my 1995 Ford Explorer, but I bet Jerry Seinfeld pays a pretty penny on his private garage in Manhattan full of expensive sportscars. Also, you have state taxes, depending on where you live. Then there is capital gains taxes on stocks and interest. Oh, and don’t forget gasoline taxes paid while topping off the tanks on the yacht!

There isn’t any way to calculate it for sure, but the rich in the US pay about 50% IMO, if you consider everything. Bill O’Reilly is rich, and he has stated that he pays 50%. I see no reason why not to beleive him.

14

Libertarian/Right
Economic Left/Right: 4.50
Social Libertarian/Authoritarian: -2.18

To complex of a question to be answered with the bounds set. If I HAD to answer, I’d probably tick somewhere between agree and disagree because of the complexities involved. I think the ‘rich’ in the US are taxed, generally, about right (relatively speaking, and if I buy into the fact that we really need all this government we are currently strapped with), considering the staggering amounts they SHOULD be paying countered by the loopholes they use so they don’t get totally soaked…and then comparing it to the actual amount they are taxed in the end.

Looking at the fact that the top 1% of earners (not population) in the US pay something like 26% (i.e. a couple of hundred thousand folks at most are paying 26% percent in a country of 2-300 MILLION people) of the TOTAL taxes collected in the US, I don’t see how anyone could say that they aren’t being taxed enough.

Then consider that the top 3% of earners (again, not of population) pay something like 40% of all the taxes, and the top 7% pay over 50% of the taxes. That means that the other 93% of earners (and the greater percentage of population) in the US are paying less that 50% of the taxes gathered. :eek:

(Extrapolated these rough figures from Uncle Cecils article on “Do the rich pay very little tax?” as well as googling up some rough figures from Statistical Abstract of the United States. Unfortunately I’m not willing to pay $40 for the 2003 addition and access to all the finer details, but I think my rough figures should be close, at least.)

However, I think our present tax system is a cluster fuck, and tend to agree that most people are being taxed too much…i.e. the government is too large, and is doing a lot of things that could be done better and more efficiently by the private sector.

I rather like John Maces take on a flatter tax, if it could be balanced well enough to actually bring in the funds needed so the government wouldn’t default. In the end, people would most likely pay essentially the same tax they are paying now, but things would be a lot less complex. And the tax industry would probably collapse over night. :slight_smile:

-XT

15

I can’t believe I’m going to do this…

No. The CBO cite that jshore gave does indeed attempt to include everything federal. It does not (as he mentioned) include state taxes. However, there is little evidence to believe that the states come so close to doubling everyone’s tax burden. Certainly the number is closer to 50% than 33%. That is, once you add in state and local taxes, you will certainly get a higher number than 33%. However, I’m not sure there is good evidence that the number is 17% of the top 1%'s income.

Having said that, I agree with your take on the question at hand. Everyone is taxed too high. Since this includes the rich, I ahve to answer Stongly Agree.

16

I know all about prop 13 (I live in CA) and you are missing my point. As long as real estate prices were rising at a low rate, no one was too bothered by the increased taxes. But when your house suddenly doubled in value in one year, people said “what the hey? I didn’t do anything and suddenly my tax bill is 2x!”

The issue was having your tax bill depend on something completely beyond your control…

And you know this before you renovate, so you can build that into the decision making process.

There are different levels of fairness. I think prop 13 has a lot of flaws, but it’s better than what preceded it. At least now, everyone knows what their tax bill will be and you can make decisions accordingly. Had we not had prop 13, some people would literally have had to sell their homes in order to pay their taxes. This was especially a problem for retired folks on a fixed income.

17

Strongly Disagree (with the qualifier that we’re talking about the US here). Everybody thinks that their group is overtaxed (Don’t tax you, don’t tax me, tax that feller behind that tree). But IF the rich were indeed too highly taxed, wouldn’t we see emigration of the wealthy? Wouldn’t we see rich people stop producing wealth if they didn’t think they were keeping enough of it? I just don’t see any evidence that this is true. If the wealthy were taxed too highly, I think you’d see stronger patterns of migration from high tax states to low tax states. New Yorkers and Californians pay a lot more taxes than Floridians, yet the majority of people in those high tax or progressive tax states choose not to pursue lower taxes elsewhere. I’m certainly no fan of our convoluted tax laws, but to say that rates are too high for the rich lacks evidence. When the government has enough money to pay for the services that we demand, and the national debt has been retired and there is a current surplus, then I’ll say taxes are too high.

18

I think this is a great example. The farmer is certainly not stealing from anyone. However, who pays for the correspondence course that enables this? It is most likely subsidized by taxes. By taking the course, the farmer makes more money, good for him, pays more taxes,. good for the state and paying back the investment of society in the course, and by being more productive tends to decrease the cost of food, which is good for everyone. So this is indeed a win-win.

Now, the class could be offered by a private company, but it would be a lot more expensive because the company would have to make a profit based only on the farmer’s tuition. A state offered class can be cheaper, because the investment is repaid by the farmer’s increase in income and thus tax payments later, and by social benefits. (Maybe lower welfare costs due to cheaper food.)

Your anti-tax person, who wants to cut taxes and cut spending on this course to pay for it is causing a lose-lose situation in the long run. I do admit that the ROI for Mr. Billionaire might not be as great as that for society on the whole.

19

I live in California too, and before that I lived in New Jersey, in a town with rising real estate prices and no Prop. 13. You are describing a situation where your taxes magically go up with the value of your house. That is not the way it worked in New Jersey. Your taxes stay more or less constant until there is a general reassessment. After that, the rate gets readjusted to be revenue neutral. So, if your house doubled in value, but everyone in town’s houses also doubled in value, you’d be paying no more tax after the reassessment. If only your house doubled in value that’s a different story. If you moved to a house worth twice as much as the one you sold, then your taxes do indeed go up, but probably less than they would in California. The people who sold us our house were paying only a few hundred bucks a year - I suspect they got socked with a much higher tax bill for a cheaper house.

Now, if the state or city keeps the tax rate constant after reassessment, then you do have a problem, but there are better ways of fixing that than Prop. 13.

[/quote]

The town I lived in in New Jersey tended to pass a lot of taxes, because we liked things like great city garbage collection. My taxes were pretty stable, though the value of my house almost doubled while I lived there. I don’t doubt California screwed it up - we screw up most things.

New Jersey had specific property tax relief for seniors, which is a very good thing. In California the previous owners of my house paid less taxes when they were working and more now they are retired. How stupid is that? In my neighborhood, anyhow, this has tended to make people stay put, which reduces the housing market and thus raise prices. This works for me, but I don’t think it is a good thing in general.

From what I see, the anti-tax people care nothing about fairness, but really want to starve the beast. And then they whine about the jobs going to India because Americans aren’t well educated.

20

That’s a pretty weak argument, Bob. A certain policy is OK as long as it doesn’t cause people to emigrate to another country. So,you must think the Patriot Act is perfectly good since no one has moved out of the country because of it, right? You must think John Ashcroft is a fine Attorney General. After all, his being in that office didn’t cause anyone to move overseass (not even Alec Baldwin :slight_smile: ). And while we’re at it, let’s get Judge Moore and his 10 Commandments back-- no one moved from Georgia to Massachusetts because of that.

That’s a bit better, but can we take that to mean that no one’s taxes are too high in the US?