But you have no problem with taxes that start at the bottom but don’t creep upwards?
Yeah–let’s be clear business owners do have deductions that a person whose sole income is a W2 job do not have. But on “accumulations of wealth” a lot of taxes are not paid because wealth accumulation is not treated as income.
Note that there’s a difference between “not income” and “capital gains.” The tax code has earned income which covers things most ordinary people would recognize as “regular earnings for working a job”, these earnings are all taxed according to the regular income tax code. Realized capital gains, which is a type of income but not earned income (it is not directly related to being paid a wage for work done), is taxed using a different tax rate.
So there’s basically four broad scenarios that affect how much money the wealthy pay to the government in tax:
-Earned Income - Most wealthy people generally don’t make a significant portion of their annual earnings in this, a few do in certain categories. It’s not unusual for a wealthy person to maybe have a few million in earned income, but rare that they will have a ton more than that. On this income they are largely playing by the same rules we all do.
-Capital Gains - This historically is how most very wealthy people generate most of their income, and it is generally taxed at a separate rate from regular income that historically is usually a good bit lower than what the regular income tax rate would be. This is the culprit of “Warren Buffett pays a lower tax rate than his secretary”–his secretary earned low six figures on W2, Buffett was regularly earning 8 and 9 figures a year in capital gains–at the time, realized capital gains were taxed at 15%, which is lower than the marginal rate someone in the low six figures will typically pay. Note that dividends, which are not actually a form of capital gain, are taxed as capital gains.
-Complex Income Scenarios - A lot of businesses (real estate is one) are often operated as family partnerships or etc, there’s a number of industries that have complex earning scenarios and complex tax issues. People in these industries who are wealthy, generally have access to a broad array of tax deductions that are quasi-industry specific that most people cannot utilize. Some of these are why hedge fund managers and Donald Trump for example, can take some exotic deductions that a lot of tax payers cannot.
-Accumulation of Wealth that is not Income - Historically just because you got wealthier doesn’t mean you’ve experienced a taxable event, and we haven’t treated accumulation of wealth in and of itself as income. We’ve tended to treat converting accumulated wealth into cash via selling it as a taxable event, and we tax on the amount in that event. Many very rich people hold very large investments in companies, these appreciate tremendously over time. This is the vast majority of how individuals like Gates, Buffett, Musk etc went from being millionaires to super billionaires. Most of that earning occurred without a taxable event. When Gates wanted to divest himself from Microsoft to diversify his assets, he went through a structured series of sell offs of his Microsoft shares and created a “family investment” office that has like 100ish financial workers whose only job is to invest Gates’ money for him. He utilized complex elements of the tax code to achieve this without having to pay massive amounts of tax. While we don’t know the exact details because it’s private, Gates indicates he has paid around $10bn in taxes in his lifetime, and he also we know sold around $100bn or so in Microsoft stock and then moved it into other investments during his multiyear divestment plan. That means it is very unlikely Gates paid anywhere approaching even the 15% capital gains tax on his divestment, which means he was using some exotic tax rules.
Note that when I say accumulation of wealth is not historically treated as income, that isn’t the same thing as saying it isn’t historically taxed. In fact, I would argue that the historical norm before the 20th century is that most accumulated wealth was regularly taxed–the origin of property taxes is basically the concept of assessing a tax based on your wealth. For ordinary Americans, we are often regularly taxed on our wealth in the form of paying property taxes on the value of our home. But when the vast fortunes changed from being associated with owning land, to owning joint stock company shares, the practice of assessing levies on wealth accumulation didn’t transfer with it. That’s one thing I think many people forget.
That’s not at all what I said. If the problem is lower capital gains taxes, raise capital gains taxes. If the problem is special deductions for real estate investments, eliminate those special deductions. If the problem is loans that somehow get paid off after death but the income to pay those off is not taxed for some reason, fix that.
I want to identify and fix the problem, not try to stick another band-aid on it that treats the rich utterly different way just because they’re rich.
Again: why is it okay to craft exemptions that target the wealthy but not okay to craft taxes that target the wealthy?
Is that even true? I expect the amount paid on $200k is lower.
Please correct me if I’m wrong, but it’s not simply a matter of figuring out what rate applies to $200k, and applying that to the entire amount of taxable
Income, since we have a tiered tax system.
The idea that a tax is invalid because only the wealthy pay it is silly. The first income tax in America only targeted like the top 1-2% of income tax earners. These aren’t Bills of Attainder, they are taxes with high trigger points for being assessed, and there’s a number of taxes like that in our history.
No, I support subsidies, as long as the recipients are grateful and pull their social weight, which Musk does not do.
This is needlessly insulting and this isn’t the Pit. No warning but this is really inappropriate in IMHO, please don’t do this again.
RickJay
Moderator
How about if the problem is “untaxed wealth growth”, and we fix that by re-defining “property tax” to include anything of significant worth over a certain amount? That would include stock portfolios.
This makes a lot of sense IMO–when property taxes were first assessed, almost all “stored wealth” was land. So it’s actually a historical aberration that we aren’t taxing stored wealth.
Where did I say it was okay to craft exemptions that target the wealthy? I literally, in the post you responded to, said we should eliminate exceptions that target the wealthy.
The rich love that approach, because as long as people that make the law can’t agree on the solution(and with enough monetary influence they never will) then actually getting around to fixing the problem will never happen. Usually, people that publicly object to a solution that isn’t perfect are privately actually against any solution at all.
Using the 2020 1040, assuming $200k of income, single, no kids or other dependents, taking the standard deduction - so basically the worst tax situation imaginable - I come up with $41k in income taxes.
Just for starters:
https://edition.cnn.com/2021/10/26/economy/musk-world-hunger-wfp-intl/index.html
If Musk payed only 65,000 $ in taxes, there have been many years that I have paid more. Not as a percentage, but more dollars (Euros, actually, which by the way are still worth more).
He does. Stop adoring a false god:
And he crashes them, uninsured, which impresses other rich dumbkids.
You are absolutely right! Stop legal tax evasion, and don’t call it elusion, as if this was any better. As easy as that.
@Martin_Hyde post #63 and #70: Very well put.
I paid more in Euro when I earned €200k (I don’t earn that much every year, but some years I have been fortunate) applying the German tax rules for a married man with no children. Silly me I didn’t cheat? Should I move to the USA? At least I sleep well at night.
It’s called “trickle down economics.” That is, the ultrawealthy take a piss, it flows down through the just very wealthy who support them, and it trickles down to the proles who are supposed to lap it up and ask for more.
It’s all part of the New Great Society; entitlements and bailouts for the very wealthy are key to ensuring that their children are well-educated and have hefty trust funds.
As for proposals to just “eliminate deductions” and the notion that it is inherently unfair to tax “unrealized gains” (e.g. investments that are held but not sold for profit), it should be understood that the very wealthy shield their riches by putting them in trusts or other instruments that legally establish that they don’t own them even if they have total control over them. They draw small revenues or even just pay themselves by taking out “loans” against their de facto wealth, which actually allows them to claim liabilities against interest, hence how someone like Elon Musk can own multiple mansions, drive supercars, fly around the world in a private jet, and pay next to nothing in taxes while getting hundreds of millions of dollars of government handouts for his company to build luxury products for the very well off and claim he’s doing it all “for the environment”, which is such a risible dissimulation I’m surprised he can actually say the words without choking on his own laughter. Supposed “unrealized gains” are just a way of accessing the power of such wealth without having to pay any burden upon it the way ordinary people whose largest asset is a house or small business valued in the mid-six figures cannot, much less people living paycheck to paycheck on “minimum” wage.
As for the complaint that politicians are using “other peoples’ money”: tax revenues are all other peoples money which we pay to fund an infrastructure and provide services that private industry cannot or will not offer because they don’t have an immediate and direct return on development but are which (at least in theory) necessary to maintain the foundations of the market-based economy that makes these people so wealthy. By not paying their “fair share”, which should included a portion of the excessive profits they yield through the benefit of a “minimum wage” that is not enough to allow a worker to even live at the poverty line or having to pay for externalities, they are getting a free ride on the basis of costs that everyone else pays for them.
Of course, you can argue that much of what government does is wasteful, inefficient, and even a “redistribution of wealth”, and there are plenty demonstrate credible and concrete examples of this. The biggest ones are, of course, the military and military- and technology-supported industries where trillions of dollars are directly pipelined, often for systems and products that are of questionable benefit, are cancelled because they aren’t technically viable or have taken so long to develop that the threat they were designed for no longer exists, or just that the outright fraud and waste is too obvious to cover up. For instance, much of Musk’s real wealth (not the grossly exaggerated valuation of Tesla that it could not return on with decades of production even at optimistic growth factors) has come from government contracts and bail-outs, so the whinging about having to pay more than some notional tax is glorious hypocrisy befitting of a Roman emperor which Elon probably cosplays whenever he’s not putting on a pantomime about living in some matchbox house like a church mouse.
So by all means let’s streamline government and get rid of entitlements, starting with the biggest ones first. By the time we get down to the Forestry Service or Housing and Urban Development, we’ll have carved away so much fat that we can get a real understanding of what it actually costs to run a large nation efficiently when we aren’t pursing wars around the globe to justify having a large standing military and spending hundreds of billions of dollars on weapon systems that we never intend to use and that benefit the public in no material way.
Meanwhile, fuck Elon Musk. He can take his “Starship” and “Starbase”, put them someplace where he isn’t regularly violating public laws, denying people access to their own homes, and natural preserves at risk, and then fly himself to Mars where he can sit in a bunker under ten meters of Martian regolith and wonder why he doesn’t have readily available electricity, water, sewage, or internet access.
Stranger
But we are talking income tax. Property tax is paid to the state not the federal government. Are property taxes not being paid to the state? There are ways the rich get away from paying income tax (like not getting a pay check) but are they getting away from paying property taxes?
We have a bad habit in this country of acting like income tax is the only tax. Somebody doesn’t pay much income tax and they’re a ‘free rider’ or a ‘lucky duck’. All government revenues should be considered when trying to gauge a person’s (or group’s) tax payments.
The reality is that pretty much nobody gets out of paying property tax. The rich and the poor pay it, either directly or as part of their rent. I suspect that going all in on payments to the government isn’t going to show Musk in a better light compared to the rest of the country.
Almost certainly not.
That’s an effective rate of 34% in federal income tax alone, which few, if any, people actually pay.
Estimates give actual rates less than 30% in the US across income levels.
Quoting myself here from earlier today:
There are three exemptions that I know of in my state to reduce property tax. Be a veteran with 100% service connected disability and you are exempted from property tax. Very few rich people in that category. Working farms are taxed at a very reduced rate. Rich people do take advantage of this if the have enough land but they still have to meet the requirements. Senior citizens can have their amount frozen so it doesn’t increase. That’s pretty much it. Everyone pays if you own property. And we have the highest property taxes in the country so you are probably paying a lot.
They pay higher.
Look, these people have a lot of wealth, not income.
They own millions if not billions of stocks.
When they sell them, they pay taxes.
But no one pays taxes on stocks, etc they simply own.
Most of own stock in retirement plans, and have home equity. Do we want to pay taxes on those, forcing us to sell?
Now sure, the GOP has given the rich some nice tax breaks, like lower taxes on capital gains and what not, and sure, let’s get rid of some of them.