oops. “soak the rich”, not “soad the rich”. 
You’d have a point if you were able to find a corporation that actually ‘pays’ taxes - as opposed to regressively passing them off into the cost of their goods and services.
Sure. I don’t consider poor people voting to increase taxes on the rich any different that private individuals voting to impose taxes on businesses or corporations.
It’s called the Gini Index. It’s a measure of how lopsided the distribution of wealth is in a given country. The closer to 1 you get, the more wealth is concentrated in fewer hands; the closer to 0, the more wealth is spread evenly. Cite. The Gini number for the US has risen from .403 in 1980 to .464 in 2003. Cite. It’s no reason to call for the overthrow of our government or anything, but the trend is measurable.
More poor people = greater demand on entitlements + fewer taxpayers = growing deficits (and probably rising inflation, too)
Well, that’s just like saying that if a voter asks five people who to vote for, and he gets five different answers, the voter might as well pick a random candidate because consensus does not exist. The benefits of exploring options and examining risk is not only a more reasonable approach, but I can’t figure out how one can argue that there is a downside to seeking informed debate on issues like taxation.
Wasn’t that what Hoover suggested?
Yes, expenditures have been pretty flat as % of GDP for some time now, but how did we get from the 3% of GDP 100 or so years ago to 20% of GDP 50 years ago? Seriously, if we instituted a flat tax today, and there was a rise in the amount of tax the middle class had to pay, do you not think that there would be a groundswell to reduce the size of federal expenditures?
We may not be “soaking the rich” now, but we sure as hell did exactly that for much of the past. Are you forgetting the many years when the highest tax bracket was 50% or highter?
The reason we haven’t had to “soak the rich” in recent years is that we’ve allowed the rich to get richer, so they can pay roughly the same amount of tax (as a percent of the total) even though they pay a lower rate than they used to, as a group. Chart 9 from this site* is a perfect example of this, comparing the taxes paid by the top 1% and 10% of earners in 1981 vs 1990-- those groups paid a higher percentage of the total tax in '90 compared to '81 even though tax rates were **much **lower.
*yes, it’s the Heritage Foundation, but if you dispute the numbers, tell us what you think they were
Yes, I understand that, and I’m not disputing that the rich are getting richer. But I still don’t see how that supports your claim that the poor are getting poorer. You claimed that the skew was towards both low and high incomes. It’s possible for the rich to be gaining wealth much faster than the poor are, and have an increasing gini index. That is, I believe, what is happening in the US, is it not?
OK, but I don’t see how a flat tax would increase the number of poor people. But maybe I’m completely missing your point…
True, and my previous statement was poorly worded. I do think we can predict the effect of **major **changes in the tax rates, like was saw in the 80s. But the little tweaks we’ve made since then (Bush, Clinton, then Bush) are mice nuts. It’s like the minimum wage. If you raise the MW from 5.00 to 5.05, it probably won’t have a measureable effect on the economy. Raise to 8.00 and it most certainly will. Same for changing tax rates from 32% to 31%, for example. And by that I mean to call “bullshit” on the folks who said Clintons tax increases would destroy the economy and that Bush II’s tax cuts would save it.
Is that what he actually did?
This is an incredibly lame cite, but I heard some guy on NPR the other day claim the imlementation costs of our current tax code add up to something like $140 billion per year. If that’s even remotely true, I’d say it’s a problem. Anyone got hard numbers on how much it costs to get our money each year?
I honestly don’t know if a flat tax system is the best or not, but I can say there’s plenty of room for improvement over what we’ve got now, in terms of simplicity and transparancey. My tax situation is quite simple, but my wife’s is a nightmare. She partly a freelance artist and grant-writer, and part time employed at a theater. She sings. She acts. She writes. She administers. She teaches. And so on. Trying to handle our taxes together is a full-time job, I swear. It’s insane. We pretty much need the accountant just to cover our asses against inadvertant tax fraud, it’s so complicated. My dad runs his own business, and my parents’ tax nightmare is about as onerous as ours. Quite frankly, I’d be rather willing to just gut the whole damn stinking edifice and start from scratch, because one massive dose of pain that never comes back is better than the chronic agony we experience when tax time rolls around. We’re fed up. I’d vote for a flat tax just to get some simplicity at this point; and I find the Rube-Goldbergian system we have now to be highly offensive to my sensibilities anyway. Nothing that absurdly complicated can be useful or good for anybody. It’s got to go. I don’t mind giving the money away. It’s the annual bout of formulated abuse I want gone.
I’ve seen estimates in $200B range (including corporate compliance cost). But that has nothing to do with the rates, and everything to do with defining taxable income and figuring out how many deductions you have.
Ah-hah! Found it! You can listen to the interview here, and indeed the figure was $140 billion.
And indeed, JM, it’s not a rates issue, it’s a complexity issue, and has about everything to do with deductions. As the argument goes, get rid of most of the deductions, flatten the rates, and the relative progressivity of the tax burden doesn’t actually change all that much. I haven’t a clue myself whether such figures and assertions are a load of b.s. or not, but apparently Bush’s panel thinks collecting taxes is indeed a mightily expensive process. Hence, I find the claims that the cost of our tax system is puny compared to the revenue it collects at least open to serious question, and very much worth considering if we really are talking hundreds of billions of dollars. The idea that process of collecting taxes costs more per annum than fighting a full-scale war in Iraq is worthy of some outrage, if true. That’s a spectacularly inefficient, wasteful system they’re describing.
I thought you were saying “sod the rich”.
Except if things are already somewhere between flat and regressive (which I contend they are if we look at all taxes together), why hasn’t this already happened?
I think how we got from 3% of GDP 100 years ago to 20% 50 years ago, was the Depression, WWII, Korea, and the early Cold War. But that’s off the top of my head; I haven’t grunged through the numbers to see where things stood in 1929.
In 1979, the top Federal tax rate on unearned income was 70%, but as the figures I’ve already produced showed, the average tax rate on the top 0.1% was more like 31%.
Maybe the rich were soaked to a greater extent during the Ike years when the top rate was 90%, but that’s a ways back.
I don’t dispute the numbers; I just find the spin to be unusual.
I mean, would you rather see your share of income and your share of taxes both rise, or would you rather see them both diminish? That’s a no-brainer. But you’re making it sound like the top 1%/10% who’ve been seeing both go up are somehow doing the rest of us (who are seeing both go down) a big favor.
Consider some ignorance fought. I had, in fact, been under the misconception that the tax rates in higher brackets applied to a person’s entire income rather than just that portion of it above the bracket’s cutoff. Thanks to Ravenman for clearing that up in post #49.
RTFirefly, while I think all of your posts in this thread have been excellent, #55 in particular was very persuasive. It’s the first time I think I’ve seen some kind of real justification for the two-fold manner in which a progressive tax takes more money from those with higher incomes. As well, the IRS data you cited is very interesting and counter to what I had believed- I think I’ll start doing some reading on the subject myself.
I’m coming from pretty much the same place John Mace is, I think. Tax simplification seems to me necessary in order to achieve any semblance of an elegant system, but there’s some food for though for me here on the issue of flat taxes.
Yeah, I left the t off that last “thought,” it slipped past a preview and a spell-check.
I just realized my post doesn’t really contribute anything to the debate here, so I guess I’m pretty much just cheerleading from the sidelines. Just in case you guys thought you weren’t getting anywhere :).
If the system is already flat, then that pretty makes the case for trashing our current system, getting rid of **all **deductions, and instituting a flat rate. It will accomplish the exact same thing, and save us all tons of time and billions of dollars.
Do the same at the state level, and get rid of state sales taxes. That’ll take a lot of the regressivity out of the system.
If it’s not worse than out current system, as you contend, and it clearly is more efficient, what reason would have to oppose it? Again, it might not be your ideal system, but if you had to choose between what we have now and the flat tax (with a personal exemption of ~$20k, and no deductions), which would you choose?
I know this question was addressed to RTFirefly, but I thought I’d chime in and say that if that were possible, I’d be perfectly willing to move to a flat tax of ~30% (or whatever it would take to produce basically the same level of taxation).
But it should be clear that for this to happen, we aren’t talking about a flat tax on wage income and nothing else. We’d have to get rid of FICA (since that was what led to the current system’s being relatively flat in the first place). We’d also have to tax estates, dividends, capital gains and all other non-wage income at the same 30% rate (I gather that in the cite that RT gave, they were calculating income brackets by overall income, not just wage income, as they mentioned the capital gains tax changes as affecting the numbers).
If you’ll agree to that tax system, I’m willing to line up right behind you to push for the change
[sub]It should be noted that I am, overall, in favor of a progressive tax system, but since the choice would be between what we have now (as opposed to a truly progressive system) and this other option, I’ll choose the latter[/sub]
I didn’t intend for the statistics to be wholistic. I mainly just put them up to show that what most people would inherently think, “Lower tax rates for the wealthy means the wealthy pay less” is not true. The wealthy paid more in nominal terms and in relation to the total tax burden of the country when taxes were lowered for them.
The statistis I presented do nothing to show why they paid a higher proportion with a lower rate, just that they did.
In all honesty I’m undediced about those stats. Most economists aren’t entirely sure how to interpret them, there is quite a lot of disagreement. I certainly wouldn’t implement policy decisions based on them without serious study and many other forms of evidence.
Completely aside from the flat-v.-progressive argument, I’m with you on the trashing the deductions, exemptions, exclusions, etcetera. Tax time is pretty easy with TurboTax, but I’d greatly prefer a world where TurboTax didn’t fill a need of any sort, and I’d be willing to give up every last tax break I get, in order to make it happen.
But there would really have to be nothing left out. No dividends, no capital gains, no inheritances or gifts from rich relatives (for practicality’s sake, you’d have to have an exclusion of the first, say, $500 of gifts, just so you didn’t have to worry about jotting down the value every time someone gave you a present; the point, after all, is to make tax time EASY), none of that would be excluded from income. And if not the same thing for corporations (if the same standards applied to them, they could be losing money hand over fist, and still have to pay serious taxes), something as close as feasibly possible: same tax rate, and what they could deduct would be pared to the bone. Plant, equipment, nonsupervisory workers’ salaries, supervisors’ salaries at maybe 3x the average nonsup. worker’s pay, and not a hell of a lot more. Advertising? Corporate jets? Golden parachutes for your execs? You can do all these things, but they don’t reduce your tax burden one iota.
NOW you’re talking! Of course, it would be impossible to do this in reality, since that’s 51 different state legislatures you’d have to convince - and a number of them have never had an income tax, and don’t want one. But if you and I could somehow sit down and negotiate the tax code for the whole country, your being willing to trade this would make me willing to give up a lot of progressivity in the Federal tax brackets.
Clearly, if we’re doing a complete tax reform, but just at the Federal level, I’m going to push for getting rid of the deductions and whatnot, but keeping as much progressivity in the tax brackets as I can get away with.
But I agree that your plan is better than what we have now; it’s just that I think simplification that includes at least a mild degree of progressivity is better.
But if I had to choose between what we have now, and a flat tax with the personal $20K exemption with all the details that you and I have come up with (state taxes, corporate taxes/deductions, no exclusion of cap gains, inheritances, and the like), I’d sign on the dotted line right now if the opportunity was there.
Of course, I’ve aded some things since your last post, so I don’t know if you would agree with everything I’ve added. So would you, or have I made any deal-breaking changes?
Thanks! One of those two observations - the one about utility of the next marginal dollar decreasing as income increases - is pretty standard econ stuff, so I can’t claim authorship. The same might be true, for all I know, of the part about the marginal dollar being easier to gain as income rises - but I’ve never seen it stated as such; it’s my own observation.
For that reference, I’m indebted to blogger Kevin Drum at www.washingtonmonthly.com . I’m happy to pass it along.
We seem to be having some sort of harmonic convergence here.
Why no gifts? How does that figure into the current system making it “flat”?
Why? Again, we’re only talking about comparing the current system of individual tax payers against a hypothetical one for individual tax payers.
As much as you could get away with? What if you could “get away with” instituting a 99% tax bracket? Is there no level of taxation that you think is simply not fair? [this is obviously outside the main thrust of this negotiation we’re having, but I am curious if you really meant that statement literally.]
I’ll wait to see your answers about the gift and corporate tax issues first.
Because I have included inheritances, which I hope meets your approval, and an inheritance tax without a gift tax is essentially useless: rather than wait until I die to give my heirs my assets, I can give them now, and take back a life interest.
My apologies - I thought we were talking about the whole shebang. But individuals and corporations - that’s pretty much the whole thing. If we’re going to ‘reform’ taxation only for individuals, and leave the corporate persons out of it, then corporate taxes would not be reformed until the next time taxation of flesh-and-blood persons gets so messed up as to need another wholesqale reform.
I made that statement in the thought that in a real negotiation, I’d be happy to ‘get away with’ a 5% graduation, lucky to get 10%, and astounded to get 15%. To get a 99% tax rate (assuming I wanted one), I would have to assume I was negotiating against a ventriloquist’s dummy, while being the ventriloquist.
Let’s save this for another thread, but since you asked, I’ll tell you sincerely: I do believe in rates going into the 90s - on astounding levels of income. Brackets as currently designed are far too close together for my comfort, but top out too early. I’d see an arithmetic progression of tax rates, applying to an exponential progression of incomes. I’d have a 40% bracket applying to income above $1M/year, 50% for above $10M, 60% for above $100M, … 90% for above $100B, and topping off at 95% for income above $500B/year, should anyone ever get there.
So yes, I believe rates above 50% are reasonable for those who make more in a year than all but a rare few will ever see in their lives. And I believe that 95% is a perfectly reasonable tax bracket on income above a half-trillion per year. Jared Diamond has pointed out that elites too far removed from ordinary circumstance are much more likely to make decisions that are harmful to most. Too great an inequality, too much power in too few hands too separate from the masses, is bad for democracy, bad for the fate of the citizenry. That’s what I believe.
I understand that, but why can’t the gift tax rules remain the same as they are now? What I’m getting at is unless the current gift tax rules are essential to making the current system “effectively flat”, why do they need to be changed in the new system?
No problem. The subject of corporate taxation is another thing altogether. I just think it complicates matter to include it. Similar to my point above, if it’s not part of what makes our current system “effectively flat”, we should be able to deal wth it seperately. If it is essential, then by all means we need to deal with it.
Absolutely. That has “open another thread” written all over it.