Regressive Taxes

[Hentor_the_Barbarian]

@greenslime1951

Saying that money is worth less to rich people and therefore taking more money from them is justified is not much of a solution either.

But everyone already pays the same tax rates. How is that not fair?

Bill Gates and I paid the same rate for all of my income. If I had more, we would continue to pay the same rate.

Seems pretty equitable to me.

Besides, I don’t see any way around taking more money from people with more income, unless you want to say that at a certain level of income, you don’t have to pay any further taxes. That doesn’t make much sense to me.

[Swords_to_Plowshares]

The purpose of a tax is not always to raise revenue; it might be to influence behavior. In the case of a soda tax, it’s to discourage excess soda consumption; same for cigarettes. So while I am in favor of a progressive tax system, I think those sorts of taxes would be “fair” from an economics standpoint. No comment on whether I would actually want a soda tax implemented.

[Hentor_the_Barbarian]

@Swords_to_Plowshares

The purpose of a tax is not always to raise revenue; it might be to influence behavior. In the case of a soda tax, it’s to discourage excess soda consumption; same for cigarettes. So while I am in favor of a progressive tax system, I think those sorts of taxes would be “fair” from an economics standpoint. No comment on whether I would actually want a soda tax implemented.

I agree. The term “regressive” does not apply to what are typically called “sin taxes”. The latter are not supposed to be progressive in any way.

[Kearsen]

My take on progressive taxes:

For them to work you(they) have to stop focusing on the top 1% and you(they) start to include a whole lot of middle class to find the money you(they) need to keep growing government.
You(they) will keep expanding on the definition of ‘upper class’ to keep revenue streams sufficient to run the bloated government.

[denquixote]

@greenslime1951

You were making a pretty good point up until this. For some reason you then decided to recite a populist shibboleth regarding eeeeevil corporations blah blah.

What on earth is “corporate welfare”? And are you aware that most of the “shareholder types” of a major company aren’t wealthy? They hold shares in retirement portfolios, person funds, college savings accounts, etc. The beneficiaries of whatever corporate welfare is are the ordinary joes who own stock in the company that receives it.

Just for a start - crop subsidies, oil depletion allowances, buying and selling of tax credits etc. etc. etc. And, while it may be true that most shareholders are not wealthy, they also hold a very tiny portion of the shares outstanding. The majority of shares in most corporations is held by insiders.

[Evil_Captor]

@adaher

The thing is, regressive taxes raise revenue better than progressive taxes because they are harder to avoid, more economically efficient in most cases, and there are just more middle class people than rich people.

If Democrats want to pretty much shield the middle class from taxation, and that seems to be where they are headed, what with even cutting the payroll tax now, then they will have to accept a pretty small government.

Actually, the top ten percent own by far the bulk of the wealth in this country, what we need to do is tax them and their wealth. Hell the one percent own enough that just taxing them would do it. Then we’d all be much better off.

Here’s a nice little graphicto clear up your thinking on this topic. We don’t need to tax the middle class and the poor at all, if we tax wealth. They have a very small portion of it.

[adaher]

The problem with taxing wealth is that first, it penalizes saving. You tax the money when they earn it, then you punish them if they don’t spend it. The other problem is that some retired folks have a pretty awesome nest egg even though they never were more than median or slightly above median earners. There is no easy way to separate these kinds of savers from people who just control massive amounts of wealth like Donald Trump. By the time you’ve created all the exemptions, you haven’t raised much money.

Actually, your graphic leaves out a very important fact. By far the largest landowner is the US government. Anyone who truly supports land reform would choose the most proven way to help people get wealthy: open up federal lands to settlement. People can claim X number of acres as their own just by getting their first, if they qualify(as in, they aren’t currently wealthy landowners.)

[puddleglum]

@Randvek

This is an old argument. Since it was made by Adam Smith, you could say that it is actually older than capitalism.

I haven’t seen anyone address this argument in quite the same way Smith did, so let me attempt to get his point across. The reason you can say that the rich benefit more from government is from a pretty easy hypothetical. Take a wealthy person, and now take a poor person who owns nothing. Now collapse the government. Having nothing to lose, the poor person loses nothing, and indeed may have an easier time procuring capital through theft, violence, whatever. He wins, in theory. The wealthy person has a lot to lose, and how does he defend himself? There are no police, there is no military, and the currency he might use to pay bodyguards is worthless without a government to back it.

Not to go on a complete tangent, but this is one of the main purposes of welfare, food stamps, etc. As much as some people like to decry “freeloaders,” it’s really about taking people with nothing to lose and raising their standard of living to the point where they actually do have something to lose. Desperate people do stupid things, and social nets reduce the number of desperate people.

But if you look at the marginal benefit of tax money almost all of it goes to the poor. Poor people are much more likely than rich people to be the victim of a crime, they are more likely to use public transportation, use welfare, use public schooling, depend on social security etc.
The part of government that benefits the rich could easily be provided by taxing the rich at the same level as everyone else.
The only real reason for progressive taxation is that just as government has a diminishing marginal utiltity so does money.

[clairobscur]

@Left_Hand_of_Dorkness

Indeed, but this is something of an investment tax. There’s excellent research showing that, the higher the tax on smoking, the less people smoke. And the less people smoke, the less they pay in medical bills for smoking down the line. So even setting aside the misery-cost of getting rid of these taxes, it makes sound economic sense.
.

That’s not so obvious. A study made in the Czech Republic soon after the fall of communism showed that smoking was a net gain because smokers, dying earlier, were costing less in health and retirement benefits (a large part of health expenses occurs during the last year of life. Dying from a lung cancer at 50 because you smoked won’t cost more than dying from another kind of cancer when you’re 75. And meanwhile, you’re acumulating other health care expenses during those extra 25 years)

[puddleglum]

@Evil_Captor

Actually, the top ten percent own by far the bulk of the wealth in this country, what we need to do is tax them and their wealth. Hell the one percent own enough that just taxing them would do it. Then we’d all be much better off.

Here’s a nice little graphicto clear up your thinking on this topic. We don’t need to tax the middle class and the poor at all, if we tax wealth. They have a very small portion of it.

Your graphic does not show what you think it shows. Income is different than wealth and is both much greater and much easier to tax. If you confiscated all of the wealth from the 4.75 million people who made more than $200K in 2008 you could fund the government for a little over 9 months.
Conversely the Top 10% of income earners in 2010 were those making over $113K and they made 45% of total income earned.

[Whack-a-Mole]

@greenslime1951

I don’t see any real justification for a progressive tax, in that the rich man doesn’t breathe more air, need more army to protect him, need more post office to deliver his mail, more CDC to keep him from contracting Ebola, etc. In fact, poor people consume far more government resources per capita than rich people.

I realize that in order to work, the existing system has to be strongly progressive. But that isn’t ipso facto justification for it.

When the government builds a road UPS gets FAR more use out of those roads than I ever do.

A very strong military protects my house but it also protects vast business interests which have substantially more value than my house.

Businesses make far greater use of the court system than I do

When OWS was protesting whose side were the police on?

Big oil, among the most profitable businesses in the country, get billions in subsidies. I don’t get that.

Big banks can borrow money from the government at zero or near zero percent interest rates then get to loan the money back to the government at a higher interest rate. Basically free money for the banks coming out of my pocket.

In short, the wealthy who profit most from the above get a great deal more from government than the poor do.

The Devil’s greatest trick was convincing the world he doesn’t exist. Wealthy people’s greatest trick is in convincing people it is the mythical welfare queen who is sponging off the system and not them.

The distinction regarding the regressive taxes that you correctly point out are disproportionately imposed on the poor, is that those taxes are consumption-based and voluntary. If you don’t want the tax, you don’t buy the associated good. Now, this would be unfair if there were no, in economist-speak, “substitute goods.” But in the cases of cigarettes and soda, substitute goods definitely exist. In fact, a tax on such goods is a perfect way to incentivize reduced consumption of them.

Saying all purchasing is voluntary obscures the issue. People need to eat and clothe themselves and have shelter. They can make choices about those things but those things are unavoidable. So the poor cannot avoid sales taxes. Sure they may not buy an iPod but that is more because they cannot afford one because all their money is spent on necessities.

Besides, taxes are nowhere near as progressive as people assume them to be. Yes, income taxes are progressive but when you consider all taxes people pay the picture actually becomes close to flat.

Considering all taxes — federal, state, and local — the bottom 20 percent of households pays an average of 16 to 17 percent of their incomes in taxes. The next 20 percent of households pays about 21 percent of income in taxes, on average. [21]

In fact, when all taxes are considered, the share of taxes that each fifth of households pays is similar to its share of the nation’s total income.[22] ITEP data show that in 2011, the bottom fifth of households received 3.4 percent of the total income in the nation and paid 2.1 percent of the total taxes. The middle fifth of households received 11.4 percent of income and paid 10.3 percent of taxes. The top 1 percent of households received 21.0 percent of income and paid 21.6 percent of taxes. The tax system as a whole is only mildly progressive.[23]

SOURCE: http://www.cbpp.org/cms/index.cfm?fa=view&id=3505

[Voyager]

@greenslime1951

Saying that money is worth less to rich people and therefore taking more money from them is justified is not much of a solution either. At the very least, it leads to class warfare. And who is to say that a given amount of tax is “negligible” for a given person?

I did mention that a negative income tax could redress an imbalance in the fixed-percentage tax.

Where is the money going to come from? You are increasing spending while decreasing revenue. The reason to tax the rich is, to quote Willy Sutton, is that’s where the money is. Getting more revenue is a solution.

I guess a well to do person who can’t handle money and is in debt even with a $200K income would feel the taxes. Tough. As for me, if my taxes went down to 10% I wouldn’t spend a penny more, and would just save more. That isn’t what the economy needs now. When you have enough money to buy whatever you want, and have no worries, the tax is negligible. During the bubble I had enough income to get me into the next bracket, and I didn’t mind a bit, I assure you.

You think Mitt would suffer if his effective tax rate went up to gasp 20%?

[Left_Hand_of_Dorkness]

@puddleglum

But if you look at the marginal benefit of tax money almost all of it goes to the poor. Poor people are much more likely than rich people to be the victim of a crime

That goes to show that they benefit less from government, not more: the police, when they’re functioning well, prevent you from being the victim of a crime.

they are more likely to use public transportation

Again, they’re benefiting less: at least where I live, the overwhelming government expenditure on transportation is on public roads. Which causes more wear and tear on a road: one bus, or thirty private cars?

use welfare, use public schooling, depend on social security etc.

As others have implied but not made explicit, the rich benefit from these services by not facing execution at the hands of a revolutionary mob. The entire structure of private property is something set up by government to determine who gets to use what; without government, we’d be in a red-in-tooth-and-claw setting, and while that generally doesn’t work out well for anyone, the very few rich at the very top often find it the most immediately painful, as they’ve got giant targets painted on them. By instituting a social safety net, and by moderating the artificial construct of private property, we avoid poor folks’ deciding to revolt.

Clairobscur, fair point. We’ll have to limit the rationale for cigarette taxes to common good reasons, not strictly economic ones.

[adaher]

Poor folks make up 15% of the population. A successful revolt by a tiny minority isn’t very likely to be successful and the middle class would gladly turn the guns on the poor.

[greenslime1951]

@denquixote

Just for a start - crop subsidies, oil depletion allowances, buying and selling of tax credits etc. etc. etc. And, while it may be true that most shareholders are not wealthy, they also hold a very tiny portion of the shares outstanding. The majority of shares in most corporations is held by insiders.

OK, but “corporate welfare” is a loaded term and not appropriate for a serious discussion.

And you have an extremely distorted view of the distribution of common stock ownership in the United States. Your last two statements are grossly incorrect. I can see how they might have been generated by a populist, anti-big-evil-business mentality.

[greenslime1951]

@Voyager

You think Mitt would suffer if his effective tax rate went up to gasp 20%?

Let’s extend that argument to its logical conclusion. Could a person live on 5% of Romney’s income? Sure, comfortably, even. So let’s tax him and his ilk at 95%, because it doesn’t really hurt him anyway. Wait, we have a deficit this year! Let’s make it 97%! He’ll still be OK. Oops, it’s gonna have to be 99.7% next year…

I still have to resist the idea that we can justify high tax rates on the rich by saying that the money doesn’t do 'em much good anyway. That’s akin to stealing your neighbor’s luxury car because he never drives it anywhere.

I’d also think that if you leap on the rich and wrestle that money away from them that they don’t really need/want/use, they won’t be back next year, holding their money out so we can take it again.

[Evil_Captor]

@greenslime1951

Let’s extend that argument to its logical conclusion. Could a person live on 5% of Romney’s income? Sure, comfortably, even. So let’s tax him and his ilk at 95%, because it doesn’t really hurt him anyway. Wait, we have a deficit this year! Let’s make it 97%! He’ll still be OK. Oops, it’s gonna have to be 99.7% next year…

I still have to resist the idea that we can justify high tax rates on the rich by saying that the money doesn’t do 'em much good anyway. That’s akin to stealing your neighbor’s luxury car because he never drives it anywhere.

I’d also think that if you leap on the rich and wrestle that money away from them that they don’t really need/want/use, they won’t be back next year, holding their money out so we can take it again.

I am dubious about these claims, though I agree taking money from the rich just because they have it is dubious grounds. I was taught to treat others fairly, and not to take their stuff. And that’s the basis of property rights. Just because Richie Rich rides a solid gold bicycle to school, that doesn’t give me the right to swap out my battered Walmart special for his bike.

But I was also taught that you shared with others who had less than you. And you know, I NEVER see conservatives and/or libertarians following that teaching. Seems to me if we are to respect property rights, the conservatives and libertarians ought to be be all about sharing. Does not seem to work out that way though.

In any event, your argument is a huge slippery slope.

[Evil_Captor]

@greenslime1951

OK, but “corporate welfare” is a loaded term and not appropriate for a serious discussion.

Sez you.

[puddleglum]

@Left_Hand_of_Dorkness

That goes to show that they benefit less from government, not more: the police, when they’re functioning well, prevent you from being the victim of a crime.

Again, they’re benefiting less: at least where I live, the overwhelming government expenditure on transportation is on public roads. Which causes more wear and tear on a road: one bus, or thirty private cars?

As others have implied but not made explicit, the rich benefit from these services by not facing execution at the hands of a revolutionary mob. The entire structure of private property is something set up by government to determine who gets to use what; without government, we’d be in a red-in-tooth-and-claw setting, and while that generally doesn’t work out well for anyone, the very few rich at the very top often find it the most immediately painful, as they’ve got giant targets painted on them. By instituting a social safety net, and by moderating the artificial construct of private property, we avoid poor folks’ deciding to revolt.

The reason that the poor are more likely to be victims of crime is not because police in rich neighborhoods are more effective it is because poor people live closer to criminals. Thus the police are more useful to them. Also as has been pointed out, rich people could buy private security people, and middle class people can buy guns. Thus they do not depend on the government as much.
The overwhelming government expenditure for transportation is on roads but most of that comes from gas taxes and other fees that people who own cars pay. There is a small subsidy of road building from general government funds, but the subsidy per rider on a bus is much more than the subsidy for each car owner. Also in the absence of government roads the rich and middle class could use toll roads. If the poor had better alternatives to buses they would likely be using them already.
As you point out in a situation where we are in a state of nature nobody does. But at least if that situation ever happened the rich and middle class would have resources to barter with. However the real point is not just who benefits the most from taxation overall but who benefits the most from each marginal dollar of taxation. The answer to that is obviously the poor, there was a time in this country where there was no federal income tax and most tax revenue came from liquor taxes. There was no revolution of the poor at that time and there were relatively much more of them and the weapons the rich could buy were not nearly as good as they are now.

[puddleglum]

@Evil_Captor

I am dubious about these claims, though I agree taking money from the rich just because they have it is dubious grounds. I was taught to treat others fairly, and not to take their stuff. And that’s the basis of property rights. Just because Richie Rich rides a solid gold bicycle to school, that doesn’t give me the right to swap out my battered Walmart special for his bike.

But I was also taught that you shared with others who had less than you. And you know, I NEVER see conservatives and/or libertarians following that teaching. Seems to me if we are to respect property rights, the conservatives and libertarians ought to be be all about sharing. Does not seem to work out that way though.

In any event, your argument is a huge slippery slope.

You need to look harder a national survey of charitable giving found that :
Although liberal families’ incomes average 6 percent higher than those of conservative families, conservative-headed households give, on average, 30 percent more to charity than the average liberal-headed household ($1,600 per year vs. $1,227).

– Conservatives also donate more time and give more blood.

– Residents of the states that voted for John Kerry in 2004 gave smaller percentages of their incomes to charity than did residents of states that voted for George Bush.

– Bush carried 24 of the 25 states where charitable giving was above average.

– In the 10 reddest states, in which Bush got more than 60 percent majorities, the average percentage of personal income donated to charity was 3.5. Residents of the bluest states, which gave Bush less than 40 percent, donated just 1.9 percent.

– People who reject the idea that “government has a responsibility to reduce income inequality” give an average of four times more than people who accept that proposition.