Tax Rates for the Superwealthy

[Chessic_Sense]

@Damuri_Ajashi

So how do you feel about Citizens United?

Perfectly fine with it. Citizens United was not about tax rates. Besides, it’s a myth that money buys elections anyway, so who cares?

[elucidator]

@Chessic_Sense

… Besides, it’s a myth that money buys elections anyway, so who cares?

Well. That certainly settles that!

[Damuri_Ajashi]

@erislover

For the record, my actual position on taxation goes something like this: there is no corporate tax, and all individuals are taxed the same way, under a progressively-structured negative income tax scheme (“income” is not just cash, any compensation is income). Value-added taxes are not out of the question but sales tax needs to go, too. (Sorry states!) My reasons are relatively simple

1. Taxing savings encourages spending. If your savings are going to be taxed away anyway, might as well get something for it and spend instead of save. That is not a sensible tax policy. Ideally we’d adopt a non-distortive head tax but this is just wildly impractical so I think a revenue tax is the next best thing, so long as it is applied consistently.
2. Corporations are not people and their primary responsibility is to help promote free trade. Taxes have a well-known effect on discouraging trade and I’d rather the rate be zero or almost zero. This goes doubly for sales taxes. The research I’ve read on VATs is more promising, though.
3. Negative income tax schemes avoid welfare traps very well.

aaaand you lost me.

@John_Mace

Well, lets say I also make the widgets and have pretty much the same cost structure you have. I decide to lower the price by $.30, and keep my margin the same. What do you do?

The price is whatever the market will bear, assuming someone can make it for that price. Sure, some items will sell for below cost, but you can’t have an entire economy run that way.

It’s also makes our products more competitive for export to countries with lower corporate tax rates.

Under your scenario, no company anywhere ever would make a profit above the cost of capital because competition would squeeze out all profits in a pricing race to the bottom between competitiors with optimal cost structures. We know this does not happen so lets ignore your theory for now.

Fact is that other than commodity businesses, noone competes on price and cost structure alone.

@Martin_Hyde

The thing people are missing is corporations aren’t real people. I don’t want to open a debate on corporate person hood. I’ll settle it, though: corporate person hood is right, it is necessary, it is universal in almost all of the world, and it is not injurious to society.

I think we are getting a bit of cross static from teh Citizens United arguments.

@erislover

I don’t have to question that. I would like to question distortions brought about by creating classes out of whole cloth from tax legislation. If we can rectify that, then we can discuss how much deadweight loss we’re willing to live with.

The thing that I keep hearing is taht taxes create deadweight losses. What I don’t hear quite as often is that if the taxes are well spent it can create more than enough value to overcome these deadwweight losses so the question is at what point do taxes create more deadweight loss than the improvement in welfare the government can improve with those taxes. Consider the deadweight loss as the WACC rate hurdle government must overcome to justify spending money on a new program.

[Damuri_Ajashi]

@Chessic_Sense

Perfectly fine with it. Citizens United was not about tax rates. Besides, it’s a myth that money buys elections anyway, so who cares?

No it has nothing to do witht ax rates but you seem to be making distinctions between corporations and people in one context and some people seem to be horrified that we might make other distinctions between corporations and people in another.

Politician seem to spend an awful lot of time chasing this particular myth. I wonder why that is?

[Evil_Economist]

@Terr

http://www.nber.org/papers/w14237.pdf

Figure 3, page 51. Note the charitable giving at all levels going up starting around 2000. As the tax rates went down. Also note that the giving is measured as percent of income, not in absolute terms, so the relative boom or depression at the time does not explain it directly.

An interesting paper. One quick question, though; in that paper, as the marginal federal tax rate goes up, does the price of charitable giving go up or does it go down? If the price of charitable giving goes down as the marginal tax rate goes up, doesn’t the paper say the opposite of what you think?

[Terr]

@Evil_Economist

An interesting paper. One quick question, though; in that paper, as the marginal federal tax rate goes up, does the price of charitable giving go up or does it go down? If the price of charitable giving goes down as the marginal tax rate goes up, doesn’t the paper say the opposite of what you think?

The price goes down. But as I showed you, the giving itself goes up. Which means that in general, as people have more money they give more. When you take people’s money away with taxes, the “I already gave, as taxes” thinking leads to less charitable giving.

[Fear_Itself]

@Chessic_Sense

CEOs don’t even enter the discussion, since CEOs are not corporations.

I’ll bet most of them are.

[erislover]

@Damuri_Ajashi

To be fair, with all the deductions and credits and exemptions, we have effectively given everyone a 30K or so exemption (WAG). Of course someone who makes 500K and spends 120K on rent might not think a 30K effective exemption is very fair but that’s what we have.

Why give any exemption at all? Let’s ask ourselves this. If everyone has to eat, everyone has to rent or purchase shelter—rich and poor, businesses alike—then why even bother with deductions? Why not just a lower tax rate, and be done with it? Let each man, woman, and business decide for himself whether doubling his housing costs are worth it, not the tax code.

I am talking out of both sides of my mouth in this thread and it has become very difficult to keep track of when I’m playing devil’s advocate and when I’m putting forward a serious position, and I’m sorry to everyone involved for that. My fault entirely. My position is simply that we should treat all entities consistently, if we consider them the same kind of entity. Income is income, no matter the source. If you want people to pay a revenue tax, and you think corporations are kind of sort of people in some ways, well, then they should pay a revenue tax, and a sales tax, and so on, like everyone else. If this is a problem for corporations, it’s a problem for me, because I also want shelter, furniture, and utilities, just like them. If revenue taxes are very stupid, then they’re stupid for everyone, not just businesses, and everyone gets to deduct rent and so on.

Personally, people are people, and corporations are not, so I am ok with zero taxes on corporations, and all taxes on people. But I’m happy if someone else thinks corporations are people, I’ll just tax them the same way. I’m an easy-going guy like that.

Eris is arguing that stuff like RENT and GROCERIES should be deductible. I don’t necessarily agree but these can be significant amounts.

Businesses seem to think they’re very important deductions for themselves, and being fictional entities they don’t even eat or sleep. One has to wonder why it isn’t so important for you or I.

[Jas09]

[QUOTE=Terr]
The price goes down. But as I showed you, the giving itself goes up. Which means that in general, as people have more money they give more. When you take people’s money away with taxes, the “I already gave, as taxes” thinking leads to less charitable giving.
[/QUOTE]
Just so nobody draws a more general conclusion than what the paper reports (and I’m making no claims about it’s methodology), here is a quote from the conclusion:

We find strong evidence of timing behavior in response to predictable future changes in the price of giving only when the sample is limited to very‐high income returns (with average incomes over time in excess of $500,000) and when identification for price effects includes particularly salient time‐series variation in federal taxes. Otherwise, point estimates of timing responses tend to be small, and are imprecisely estimated in the predictable tax change instrument approach. The estimates in our present paper do suggest that, for high‐income taxpayers at least, there is fairly robust evidence that charitable giving is fairly responsive to persistent changes in tax incentives.

So it only has moderate effect on extremely wealthy people, and even then only when the change is persistent and predictable.

And there is significant research that reaches the opposite conclusion.

[Evil_Economist]

@Terr

[QUOTE=Evil Economist]
as the marginal federal tax rate goes up, does the price of charitable giving go up or does it go down?

The price goes down. But as I showed you, the giving itself goes up.
[/QUOTE]

Wait, are you saying that giving goes up as marginal tax rates increase?

Which means that in general, as people have more money they give more. When you take people’s money away with taxes, the “I already gave, as taxes” thinking leads to less charitable giving.

No, I guess you’re saying the opposite (Your two sentences contradict each other). So, when the paper says, in the note to Figure 3: “charitable giving was typically a larger share of income early in the period when marginal tax rates were much higher,” the paper’s authors are mistaken?

I mean, when I look at the figure that you linked to, I see a huge drop in charitable giving as a percentage of income, starting in 1986, which coincided with a huge drop in the top marginal tax rate. I also see a drop in charitable giving in 2004-6, which would also coincide with a drop in the top marginal tax rate.

Are you sure the paper says what you think it says?

[Terr]

@Evil_Economist

Wait, are you saying that giving goes up as marginal tax rates increase?

No. The other way around. If you got that impression, then I misspoke.

No, I guess you’re saying the opposite (Your two sentences contradict each other). So, when the paper says, in the note to Figure 3: “charitable giving was typically a larger share of income early in the period when marginal tax rates were much higher,” the paper’s authors are mistaken?

The paper’s authors say that the tax rates increase has a temporary effect. The graph I showed you clearly shows that charitable giving starting in 2000 and later went up as the tax rates seriously decreased.

I mean, when I look at the figure that you linked to, I see a huge drop in charitable giving as a percentage of income, starting in 1986, which coincided with a huge drop in the top marginal tax rate. I also see a drop in charitable giving in 2004-6, which would also coincide with a drop in the top marginal tax rate.

Are you sure the paper says what you think it says?

The top marginal tax rate (in fact, all tax rates) went down from 2000 to 2006. Charitable giving went up for every tax rate level. That’s what the graph shows.

[Damuri_Ajashi]

@erislover

Why give any exemption at all? Let’s ask ourselves this. If everyone has to eat, everyone has to rent or purchase shelter—rich and poor, businesses alike—then why even bother with deductions? Why not just a lower tax rate, and be done with it? Let each man, woman, and business decide for himself whether doubling his housing costs are worth it, not the tax code.

I am talking out of both sides of my mouth in this thread and it has become very difficult to keep track of when I’m playing devil’s advocate and when I’m putting forward a serious position, and I’m sorry to everyone involved for that. My fault entirely. My position is simply that we should treat all entities consistently, if we consider them the same kind of entity. Income is income, no matter the source. If you want people to pay a revenue tax, and you think corporations are kind of sort of people in some ways, well, then they should pay a revenue tax, and a sales tax, and so on, like everyone else. If this is a problem for corporations, it’s a problem for me, because I also want shelter, furniture, and utilities, just like them. If revenue taxes are very stupid, then they’re stupid for everyone, not just businesses, and everyone gets to deduct rent and so on.

Personally, people are people, and corporations are not, so I am ok with zero taxes on corporations, and all taxes on people. But I’m happy if someone else thinks corporations are people, I’ll just tax them the same way. I’m an easy-going guy like that.
Businesses seem to think they’re very important deductions for themselves, and being fictional entities they don’t even eat or sleep. One has to wonder why it isn’t so important for you or I.

Yeah its a bit confusing when you play devils advocate to yourself. When people do this I can only conclude that you are still thinking about what the answer should be.

The classic definition of income is consumption plus savings (which can be negative).

A corporation doesn’t have consumption the same way that person does. They don’t need food, clothing and shelter, everything they do is to maximise profits. To the extent that executives have coopted some value in the form of lear jets and country club memberships, that is probably consumption on the part of the executive and therefore their income.

@Terr

No. The other way around. If you got that impression, then I misspoke.
The paper’s authors say that the tax rates increase has a temporary effect. The graph I showed you clearly shows that charitable giving starting in 2000 and later went up as the tax rates seriously decreased.

The top marginal tax rate (in fact, all tax rates) went down from 2000 to 2006. Charitable giving went up for every tax rate level. That’s what the graph shows.

Is it possible that charitable giving in 2000-2006 was the result of something other than tax rates? I seem to recall that last decade seemed to have some disaster every frikking year. Correlation /= causation and all that.

[Martin_Hyde]

Due to excessive fragmentation I can’t be bothered to quote Damuri Ajashi’s post #79 but I’ll say this in response:

1. erislover was hypothetically talking about basically levying a 35% excise tax on corporations (35% because that would be the rate any large corporation would pay, if I have my corporate tax rates memorized correctly I believe that is the top marginal rate.) I totally agree with you the pass through isn’t some automatic, uniform thing. I’ve even said that (in my example about how even in the same sector, businesses like Costco and Sam’s Club pass through costs at a different rate, due to a difference in business strategy.) But a 35% excise tax is simply too colossal for a substantial portion of it to not be passed on to consumers.

As a Harvard economics professor correctly states:

But before deciding that the corporate income tax is a good way for the government to raise revenue, we should consider who bears the burden of the corporate tax. This is a difficult question on which economists disagree, but one thing is certain: People pay all taxes. When the government levies a tax on a corporation, the corporation is more like a tax collector than a taxpayer. The burden of the tax ultimately falls on people—the owners, customers, or workers of the corporation.

Professor Mankiw’s blog post is a good quick read on this subject. I pretty much agree with him, I think in the short term a corporate tax will hit the shareholders initially (but again, erislover is proposing a massive excise tax, which would almost certainly mostly hit consumers right from the start), but over time I think the market adjusts so that the majority of the corporate income tax is eaten by average consumers and employees of the company, in the form of lost job opportunities and higher prices for the finished product.

Tax policy is complicated, and even though all taxes are paid by people, there are valid reasons to grab taxes from different forms of taxation (excise, property, income, estate, etc.) But people need to really understand how these different forms of taxation work and who they most impact.

2. An excise tax on net income is economically the same as an income tax, but income taxes were not constitutional when it was created, so it is a legal distinction. But it’s worth knowing that historically taxes on corporations started as an excise tax.

3. I made it clear when talking about gross revenue that I was talking about total revenue for a period. The reason it would be difficult to tax on that is because even if you had Wal-Mart pay such a tax every quarter or every month, Wal-Mart is constantly buying and selling its products. It is unlikely and unreasonable to expect a company that has $400+bn in annual gross revenue to have say, 35% of a quarter’s revenue (possibly $25bn cash) on hand to pay a tax bill at the end of the quarter. This problem is what I was referring to as taxing “gross revenue.” My belief earlier on was that erislover was advocating at filing time we tax companies on gross revenue, and I was explaining why that wasn’t feasible. We were talking about income taxes which are filed, not excise taxes. As the discussion went on, I realized eris was interested in seeing corporations pay a 35% excise tax, which is certainly more practical to collect.

I’m all for lower taxes, I think it’d be great if we could deduct 90% of our income from our personal income taxes. But I’m also for having a working and functional society. So I think erislover needs to answer a few solid questions for me to even begin to understand where he is coming from.

1. Do you think society’s tax burden should stay the same, increase, or decrease? I’ll note that we’re currently operating at a massive Federal budget deficit.

2. Do you think society’s tax burden should be born progressively, with the rich bearing more, then the middle class, and then the poor bearing the least of it, or do you think everyone should bear the burden equally?

3. Most likely if we allowed people to claim the same level of deductions as corporations, we would no longer be able to fund the Federal government. How do you propose we keep the lights on? We already aren’t funding the Federal government, but the biggest source of Federal tax income is the income tax, if we changed it to basically allow people to shelter 95%+ of their income from taxation which tax would you use to keep the government running?

[Martin_Hyde]

I would also like it explained, if you’re okay with corporations paying no tax, why is it only if they aren’t considered people?

How much do you know about corporate structure? How do you think corporations could exist without corporate person hood?

It needs to be understood corporate person hood is a 200+ year old legal concept.

Corporate person hood allows:

1. Investors to own stock in a company without being legally liable for actions taken by the company. If this was not the case, most people would not invest in stock. I could be worth $50m and put it all in IBM stock and I still wouldn’t have anything close to a controlling interest or even a substantial interest in IBM. So I would not be able to exercise oversight and control of the company, so if its officers committed torts or crimes it would have happened without my consent, probably without my knowledge, and without me having any effective way to have prevented it–but without corporate person hood I could still end up being sued for everything I own (more than just my investment) as one of the legal partners in IBM.

2. Allows corporations to buy assets held in the corporations name, instead of each thing a corporation owns being individually owned by n-number of individual owners.

3. Allows corporations to enter into contracts negotiated and signed by the officers of the corporation. Otherwise, all partners of the venture would have to sign off on the matter.

Basically it means it would be impossible for corporations to grow very large at all in size. It would even prevent more “liberal friendly” forms of corporations like co-ops from effectively operating in many ways (not to mention labor unions and potentially even political parties.)

[Evil_Economist]

@Terr

The paper’s authors say that the tax rates increase has a temporary effect. The graph I showed you clearly shows that charitable giving starting in 2000 and later went up as the tax rates seriously decreased.

The top marginal tax rate (in fact, all tax rates) went down from 2000 to 2006. Charitable giving went up for every tax rate level. That’s what the graph shows.

OK, I think you have fundamentally misunderstood what the paper’s authors are saying. In fact, I don’t know why you quoted this paper at all, given that it explicitly reaches the opposite conclusion from the one you’re arguing. I’m happy to explain what the paper actually says, if you’re willing to be open-minded enough about your beliefs to admit that you might be wrong. If you’re going to argue your pre-determined position regardless of what the data shows, then I won’t bother, and we can both move on.

[erislover]

Martin, I may not have been the hallmark of clarity in this thread, but you’ve not even tried to understand my position at all. Please continue in your fantasy land without me.

[Terr]

@Evil_Economist

OK, I think you have fundamentally misunderstood what the paper’s authors are saying. In fact, I don’t know why you quoted this paper at all, given that it explicitly reaches the opposite conclusion from the one you’re arguing. I’m happy to explain what the paper actually says, if you’re willing to be open-minded enough about your beliefs to admit that you might be wrong. If you’re going to argue your pre-determined position regardless of what the data shows, then I won’t bother, and we can both move on.

I quoted the paper to show you the graph. Do you agree that while the top marginal tax rate (in fact, all tax rates) went down from 2000 to 2006, charitable giving went up for every tax rate level?

[Terr]

Here’s more: http://oldfraser.lexi.net/publications/forum/1999/06/04_charitable_donations.html

"Figure 1 illustrates the relationship between total charitable donations and the top federal tax rate in Canada. It is evident from figure 1 that total donations10 increased as the top federal tax rate was falling, suggesting that higher disposable income due to lower marginal tax rates induced greater donations. "

“The US experience of the 1980s corroborates this interpretation of the data presented in figure 1 and creates further doubts about the applicability of the traditional marginal tax explanation of charitable donations. As marginal tax rates were decreased during the 1980s, from a top marginal rate of 70 percent to 33 percent, charitable donations increased by a total of 27.8 percent, or almost 4 percent annually between 1982 and 1989. Thus, evidence from both the United States and Canada refutes the traditional notion of the relationship between high marginal tax rates and charitable giving.”

[amarone]

@Martin_Hyde

1. erislover was hypothetically talking about basically levying a 35% excise tax on corporations (35% because that would be the rate any large corporation would pay, if I have my corporate tax rates memorized correctly I believe that is the top marginal rate.)

No he wasn’t - see post 21.

[Martin_Hyde]

@erislover

Martin, I may not have been the hallmark of clarity in this thread, but you’ve not even tried to understand my position at all. Please continue in your fantasy land without me.

You have not had a coherent argument here, that is for sure. But my responses to you have primarily been aimed at the simplicity of your positions. I have certainly tried to understand your position here, I’m sorry if you do not feel that is the case. It is easy to miss things on a message board (I did not notice until amarone mentioned it that you would have changed the corporate tax rate if you went to a revenue tax.)

All I can generally gather from you is you think corporations have “unfair benefits” in the tax code. And all I can say to that is that corporations are just proxies for people, the benefits they receive are designed to benefit individuals, as non-people corporations can’t really “enjoy” any benefits of anything. Further, changes to the tax code ultimately only affect flesh and blood people because they are the only ones paying taxes. I don’t really understand any obsession or even interest people have in “reforming” corporate income taxes. Instead I think people need to decide what level of tax burden society as a whole should have to bear, and that decision has to be based on what level of spending you think we should engage in as a society.

After that, it’s valid tax policy to try and decide which portion of society should bear what portion of the tax burden, but simplistic ideas like “make the code fairer between corporations and people” are a red herring. Almost irrelevant really.