I essentially consider myself rich now. I’m not living paycheck-to-paycheck, I can afford travel a few times per year, I have enough discretionary income that I can attend the entertainment of my choice, and I spend almost no time worrying about how I’m going to pay for things that I need. And we make less than six figures per year, FTR.
The idea that “rich” means “not having to work” or being able to buy whatever you want is simply bizarre to me. The idea of someone making six figures saying, “Oh, we’re not rich” is just… I mean, I can tell you’re being serious with this, but some part of me thinks that you must be pulling a prank, because that seems a little bit crazy.
But anyway, this is all off the main topic. Not only do I think the super-rich don’t pay enough in taxes, I think the rest of us don’t either.
We already tax capital gains from the sale of real estate or collectibles as “regular income.” Do we index for inflation there? If not, what’s so special about bonds?
Nope, I tried. It happened to me and several thousand of my fellow employees.
We worked without a contract for over seven years. And while my income stayed steady during this period, the cost of living went up. And there was no possible avenue for me to index my tax burden to reflect the effect inflation was having on my income.
We did finally get a contract in 2008. It didn’t go all the way back to when the last contract ended but we did get a large settlement for retroactive back pay. So I got a check in 2008 for salary I had earned from 2003 to 2007. It was a pretty big check and knocked most of us into a much higher bracket for that year.
A lot of us consulted tax lawyers to see if we could do anything about this. Could we get credit for inflation? No. Could we retroactively amend our returns for previous years and spread the income across the years we earned it rather than having it all go on a single year’s return? No. Could we submit claims for interest for the years between when the money was earned and when it was paid? No.
Well, you’re not alone in finding it crazy. I’m well-off; there’s no doubt about that. It’s obvious that I live a qualitatively different life from someone in poverty–like you, I don’t spend much time thinking about how to pay for necessities or small luxuries.
But it’s also obvious that I live a qualitatively different life from what I’d consider rich people. I have far more in common with people making $30k a year than I do people making $3M a year. I have to work for a living. A major medical expense, coupled with losing health insurance, could bankrupt me. Lots of fairly everyday events would be a major setback.
Anyway. Rachellelogram was correct in that different people have differing opinions on what it means to be rich, and that this could have a strong effect on the meaning of the poll. Mostly, I was disputing the use of the word “delusional”, when I can’t afford what would be a distinctly middle class lifestyle in other parts of the US.
What percent of income taxes do you think the top 20% of earners should pay:
20%
40%
60%
80%
100%?
You’d get a lot of answers in the 20% and 40% category, a few in the 60% category, but very few in the 80% or 100% category.
But the top 20% pays something like 80% of federal income taxes.
Perhaps you could make it a bit more informative if you included the % of income that the top 20% make. I think that is something like 60%. Someone can correct me if I’m wrong on that. But even in that case, I don’t think you’d get a lot of answers in the 80% category.
I know you can’t do it now. But you should be able to. Well, maybe you shouldn’t because its really only going to get taken advantage of in terms of deferred comp programs for the wealthy - and the rare exception for your sort of situation. Individuals don’t get to do accruals.
A $100,000 income in New York City is comparable to a $55,062 income* in the suburbia town in the South where some of my family lives. With $55K income there I would consider someone middle class, but not rich.
That same $100K New York income is comparable to $111K in Honolulu, HI so there are places more expensive than the Big Apple.
There are all sorts of mechanisms that hedge funds managers use to try and convert trading gains into long term capital gains. It is especially popular among “program traders” Mitt Romney probably didn’t have a whole lot of short term capital gains but the 15% rate is very low.
Yes but if the tax brackets are supposed to be indicators of specific points on the marginal utility curve then it makes sense to increase brackets with inflation or something like it. That way you don’t earn the same amount in real dollars but get taxed at ever higher brackets as inflation eats away at your buying power.
Long term gains on collectibles are taxed at 28%, real estate at 20% (after your $500K exclusion if its your primary residence (shared with your spouse)).
The difference between people who make 5 digits, the people who make 6 digits and people who make 8 digits is that the people who make 5 digits work to pay the bills, the people who make 5 digits are working to fund their retirement and the people who make 8 digits don’t really have to work at all.
Not surprised and not offended. The top 20% is paying a larger share of the income tax over time because they earn a larger share of the income. But iots not the top 20% that we are really talking about, or even the top 5%. The top 1% of Americans have seen their share of income more than double over the last few decades, while each of the bottom 4 quintiles have seen their share drop. And frankly the bottom 19/20ths of the top quintile has been fairly stagnant and only gets dragged up because of the top 1%.
We’re not going to have a cost of living adjustment to the tax code. better to make certain aspects of the higher cost of living tax deductible (like rent or a mortgage interest deduction, probably the largest component of the gap in cost of living).
I don’t have any way of knowing if the poll in the OP is talking only about the top 1%. And I don’t know that the proposal Obama has put forth only affects the top 1%. Or, that various polls reflect only the electorates discomfort with the taxes paid by the top 1%.
If you have info or data that clarifies that, I’d be interested in seeing it.
The real point, as I see it, is that there’s no contradiction here.
The poll BrainGlutton linked to said people think the rich should pay more in taxes. The poll John Mace linked to said that people favor lowering the top rate. Seemingly contradictory but only if you think the top rate accurately reflects the amount paid.
You could lower the maximum rate from 35% to 30% while at the same time changing the laws that allow people to pay at a 15% rate. You’d have lowered the tax rate and you’d be collecting more money.
Somebody call Arthur Laffer and tell him we’re going to give his curve another shot.
The original poll involved subjective opinions of what it means to be rich, upper-middle-class, etc. A “twenty percenter” hardly has the ring of riches to start with, and that number grows rapidly if you talk about the demographics of coastal cities.
The income distribution in Mississippi is as irrelevant to my subjective experience of wealth as that of Bangladesh.
Interesting. Perhaps the data I saw was old, or there were differences in computation (PPP vs no, etc.). At any rate, a $30k household is still easily a 10%er in worldwide terms.
A federal tax applies to all fifty states so Mississippi is part of the system; Bangladesh is not.
Subjectively, you may not feel rich. But objectively, it’s hard to see an argument that the top 20% isn’t rich just as it’s hard to argue the bottom 20% isn’t poor. Objectively, the most reasonable division is the top 33% are rich, the bottom 33% are poor, and everyone else is literally middle class.
The Sorites paradox and Relative Deprivation Theory explain why few people ever see themselves as rich. Check out either of Jamie Johnson’s documentaries and there’s perhaps one person with “class awareness” in each.
I think this highlights one of the issues with “understanding taxes” for most people.
When we talk about how much tax people pay, we have a number of ways we discuss it. Your example is “what overall proportion does the top 20% contribute.” And its high. And the bottom 20% (plus) are paying nothing at all! Then there is the “what is the top marginal federal tax rate.” But marginal rates are confusing to people - “what is your effective federal tax rate” is a somewhat more real question to me. Finally, their is the "what is an individuals total proportional tax burden (including FICA, State, Sales, Property, et. al., or cut to simply be the federal tax burden, leaving state out of it). Which, if you are taking about fairness at the lower end (the working poor), is how they pay all their taxes - and usually end up with a higher burden (between FICA and sales tax) than 13%.
Each of these questions paints a very different picture, if you don’t understand the context. And I really don’t think many people do. I’m on another board where I know 80% of the people don’t get the difference between “marginal” and “effective” tax rate. And we’ve explained it here more than once.
I think the answers to all these questions across multiple income levels paints the best possible picture for evaluating fairness.
John Mace, of course the top quintile pays a large portion of the nation’s total tax bill. It’s for the same reason that Willie Sutton robbed banks: Because that’s where the money is. If you want to spread the burden over more people, then the way to do that is to improve income parity, so more people have the money to pay taxes.
I have a related cite handy. In 2007, the top 20% paid 68% of the tax share and had a 55% share of after-tax income. This suggests that the pre-tax income share is, indeed, pretty close to the tax share, which implies that taxes are overall relatively flat. The political effort spent over the 30 years to push taxes in a regressive direction has clearly been seeing success.
Because of that, the poll results mentioned in the OP aren’t surprising. By the cites above (check the PDF) the bottom 80% of earners have been seeing their overall share of income decline faster than their overall share of taxes have, while the top 1% has seen their income share increase much faster than their tax share. Most of this change has happened since around 1993, so we’re talking current events.
When you factor in that budget problems have been a heavily discussed part of the political noise lately, and the shortfalls are due in large part to regressive tax cuts while all the suggested expenditure cuts are in programs that disproportionately benefit the lower 80%, it’s not hard to see why people might get the impression that the highest earners aren’t paying their fair share anymore…because compared to the status quo even just 30 years ago, they’re not.
2007 and 2008 were outliers due to the recession. I’ll see if I can get some numbers from other years that are more typical.
Chronos: I’m not making an argument about tax policy here, just pointing out that polls give you widely different results on this depending on how you phrase the question. Not surprising because they always do, but tax policy is particularly complicated.