Taxes That Don't Benefit You Directly Can Still Benefit You Indirectly

[Debaser]

*Originally posted by jshore *
**
That’s because the vast majority of the money resides in the top 50%! And, note, from your cite on the federal budget that social security taxes which you seem to not like to talk about (although you love to talk about paying of social security) account for 34% of the federal government’s revenues…that’s almost as much as individual income tax revenues at 48%. So, looking only at income tax revenues is ignoring quite a bit! **

Well, the OP of this debate is whether or not the top 50% get enough indirect benefits from the taxes that they are paying, especially regarding social programs.

Sure, the vast majority of money resides in the top 50%. So, they pay the vast majority of the taxes. You can argue all day long about it being fair. I would disagree with that. But, you will have trouble even making a case that they get indirect benefits from this that equals the amount that they are paying, which is more in line with this debate.

This page has some charts that are a little more current.

They show that individual income taxes are 40% of revenue.

On the outgoing side, it shows that 50% of the budget are direct payments to individuals. This would be medicare, medicaid, social security.

So, if we dropped these social programs entirely, there would be so much money freed up that no one would have to pay income taxes anymore. And, we would have money left over.

Now, you will be quick to point out that this plan wouldn’t be “fair”. The only thing left besides corporate taxes is Social Security (Social Insurance Reciepts = Social Security IIRC) and this would be regressive, burden would fall on the poor, ect.

But, can anybody make a case that the benefits that the top 50% are paying for that they are not using are worth it to them? It’s not. This system is a charity, pure and simple. Someone in that top 5th quintile is paying money that they are never going to recover in benefits.

[Dangerosa]

Actually, quite a bit of the direct payments to individuals is the government pension program - especially miltary pensions. It isn’t just social security, Medicare, Medicaid and Welfare.

I’m in the top quintile. I get benefit from my taxes that do not directly benefit me. My grandmother does not live with me or my mother thanks to the taxes I pay. Since she is the raving bitch from hell, this is worth every penny I pay in taxes. Moreover, I’m not worried about bailing out my irresponsible brother in law. If he does manage to lose his house through mis-spending and bad decisions, he won’t be living in my basement.

(Yeah, I could let my 75 year old grandmother live on the street, she could share a box with my brother in law - but I don’t think I would. And taxes are cheaper and less of a headache than keeping additional households for my kooky relatives)

[Apos]

—IANAS (statistician), so maybe I am reading it wrong. The quintiles are just breaking all earners into 5 equal groups by income. The fact that it starts negative, I assumed, was because those earners are getting back more money (earned income tax credit) then they are paying in.—

Right, and what happens in cumulative percentages when things start negative? You’re reading of “50% don’t pay income tax” out of that graph is what’s wrong. The proportion of income tax paid by the lower quintiles is indeed dwarfed by the higher ones: but that graph does NOT have then all paying “none.” Cumulative percentages are not the same thing as a graph showing percentages paid. Look in the chart that underlies the percentages. The bottom quintile as a whole indeed pays out negative income taxes (but even that doesn’t mean that EVERYONE in that quintile does, and no one there pays any income taxes), but the second lowest quintile pays a positive portion income taxes. Again: dwarfed by how much the rich pay, but that’s not the same thing as “no.” The best approximation of that chart data is more like “somewhere around 20% don’t pay income taxes.” America is not so impoverished and non-middle class that half our population can’t even make enough money to have income tax kick in.

—Substitute the word “them” for “their income tax” and my argument stands.—

No, it’s still just as misleading. As you said, income tax is not the only way people pay taxes. It is not the only way government services are financed. It is indeed the largest way, but then it wouldn’t matter if it was the only way and everyone did pay income tax: the rich would STILL bear the vast majority of the burden in a progressive system.

What’s so sad is that I agree with you: the progressive income tax is not fair. It’s inequitable for precisely the reason that it places different obligations on different members of society depending on what they choose to do. If I work my ass off, a huge portion of my income is taxed away. But if I lie around all day, no one taxes my leisure. That makes no sense. If I have an obligation to help the poor gain more income and in-kind goods, then I should have it regardless of whether I become a stock trader or a layabout.

[jshore]

*Originally posted by Debaser *
The fact that 50% of wage earners are not paying this tax is relevant to this debate.

As Apos has tried to point out to you, this is not the case. The fact that the bottom 50% are paying a small fraction of the cumulative taxes paid is in large part a reflection of the fact that they are getting only a small fraction of the total income, i.e., in some sense that they are getting only a rather small amount of benefit out of society (well, excluding the non-taxable and non-monetary benefits they get). Hell, even if the income tax rates were flat or even somewhat regressive, they would still be paying a fairly small fraction because the income distribution in our society is so unequal.

So following this logic, only people with children should pay for education?

No, it is you who are getting hung up on the idea that everyone must get out exactly what they put in. I am in the top quintile (or close) and pay my taxes cheerfully even if they go for things that it may seem like I do not benefit from directly (e.g., I have no kids in school).

I am merely trying to point out that it is not so clear how one measures how much each person “gets out”. In fact, it seems logical to conclude that those who are the wealthiest are generally getting the most benefit out of society. Sure, they may be getting wealthy partly due to hard work and ingenuity…but you can bet that they wouldn’t be nearly as wealthy if they lived alone on a desert island. They are the ones benefitting the most out of our various societal constructs and infrastructure. I mean, consider Bill Gates…He benefits not only from his own education but the education of his entire workforce and customers. He also benefits from the road system that transports all of his products. And, he benefits from the government agencies that enforce his patents and from the police who protect his considerable assets from being stolen.

[g8rguy]

I don’t disagree with you, jshore, but I have to question your shift from getting fair benefit out of your tax dollars to getting benefit out of society. The two don’t seem to be remotely the same to me, and while you don’t mind possibly not getting fair benefit out of paying your taxes (a praiseworthy stance, by the way), this does not mean that it’s okay to force people who do mind to pay for more than their fair share (if, of course, this is the case, which we have hardly established).

I haven’t given this deep thought, but it would appear to me that by far the most important benefit Bill Gates gets out of society is that without he wouldn’t have customers or a work force and with it he does; this doesn’t seem to really be a function of his contribution to the government’s coffers. I am not particularly convinced that he gets much benefit, if any, out of his customers getting Medicare.

That Gates benefits more from the road system than I do is undeniable, but also isn’t necessarily relevant, since presumably he pays more towards its maintenance than I do. It’s not at all clear to me that my tax dollars are paying not only my share of road development and maintenance but also part of his share, and not vice versa. If we could establish that, one way or the other, then we’d have something, but the mere fact that he gets more benefit from the existence of something be pays more for doesn’t really seem too significant to me. I mean, really, if he did not get more out of society than I do, what justification would there be for asking him to pay several orders of magnitude more in taxes than I do?

[ElJeffe]

We also don’t have 10.8% of our children and 14% of our population without health coverage (admittedly, this number is falling, but that’s still millions of people).
http://www.ucpa.org/ucp_channeldoc....1431-11431/3907
What kind of love do you have for the HMO system?

That’s all well and good, but can you show me a number that represents how many people both want health coverage and do not have it? Take me, as an example. I currently have health coverage, only because my wife’s job provides benefits for an extremely low cost. Prior to about a year ago, I had no coverage. It’s not that I couldn’t afford it, I just didn’t care. I’m young, I’m healthy, and I see no need for it. I hardly believe that I’m alone in this reasoning, as many people I know are in the same boat.

Bottom line is, even if everyone in the country were a millionaire, the number of people without health coverage would still not be 0%. So give me a number that accurately represents the problem, and then we’ll talk.

jshore:

Your broken links are lovely and all, but don’t do much to support your case.
Jeff

[Apos]

—Prior to about a year ago, I had no coverage. It’s not that I couldn’t afford it, I just didn’t care. I’m young, I’m healthy, and I see no need for it. I hardly believe that I’m alone in this reasoning, as many people I know are in the same boat.—

This could still provide an efficiency rationale for government subsidy: your health choices affect more people than just yourself, so there is every reason to expect that you would underinvest.

However, that doesn’t automatically make the preffered method of financing: coercive taxation, kosher.

[flex727]

*Originally posted by jshore *
**By the way, looking at the percentage of income tax paid by different income groups without looking also at the percent of the total income that they receive can be very deceiving!

I once got in a debate with someone on these boards **

I’m still around from time to time!

**who claimed that taxes are getting more and more confiscatory at the top because the percent of tax paid by the top 1% had nearly doubled over like the last 30 or 40 years. Well, it turned out that this increase was not due to the top 1% getting taxed more heavily but rather to the fact that the fraction of the total income that the top 1% earned had gone up so dramatically. In fact, it had more than doubled. And, thus the income tax (at least at the top) must have gotten less progressive over that time.
**

I had a discussion with a friend recently where he suggested that perhaps we should fund the Federal Government with property taxes instead of income taxes. At first I thought that was stupid and unfair, but as I thought about it, it’s making more sense to me. I’ll start a separate thread on this topic, as I’m really interested in SDMB member comments on this.

[jshore]

*Originally posted by ElJeffe *
Prior to about a year ago, I had no coverage. It’s not that I couldn’t afford it, I just didn’t care. I’m young, I’m healthy, and I see no need for it.

So, if you had gotten hit by a car and were lying there bleeding on the pavement, should they have just left you there? As you know, right now those without health care still do get at least minimal emergency care which often ends up being subsidized by the rest of us anyway. One problem is that they don’t receive the sort of preventative care which could be both more cost-effective.

jshore:

Your broken links are lovely and all, but don’t do much to support your case.

Yeah, I would tend to agree. I guess copying the links in the way I tried to do didn’t quite do the trick, did it? Act I, Take 2:

http://www.cmwf.org/fellowships/anderson_intrntl_healthcare_255bn.asp
http://www.worldpolicy.org/americas/econrights/canada-health.html
http://www.umanitoba.ca/centres/mchp/cprkives/cprkiv11.htm
g8guy: Actually, I agree with you that we haven’t established that Bill Gates gets more than proportional-to-income benefit out of the taxes that he pays. This is actually a hard question to answer…How much benefit one gets. And, thus, I am content just to point out that it is a difficult enough question that it becomes sort of silly to argue that any sort of absolutes such as “anything beyond flat tax is unfair…” One just doesn’t know what fair is even if one can agree on a definition of fairness (such as you pay for what you get).

I will only note, however, that my “desert island” comparison suggests to me that those who do really well could not have done nearly so well without the trappings of society that government makes possible. So, lacking any better evidence, I tend to believe that the benefits that they have received are somewhat out of proportion to what others have received.

flex727: Good to see you again!!!

[g8rguy]

Ack! I hate it when I get a reply all typed up and then the board has randomly logged me out and I lose it! I’ll try this again…

g8guy: Actually, I agree with you that we haven’t established that Bill Gates gets more than proportional-to-income benefit out of the taxes that he pays. This is actually a hard question to answer…How much benefit one gets. And, thus, I am content just to point out that it is a difficult enough question that it becomes sort of silly to argue that any sort of absolutes such as “anything beyond flat tax is unfair…” One just doesn’t know what fair is even if one can agree on a definition of fairness (such as you pay for what you get).

Oh, I agree with you absolutely (heh). Maybe with a society of, say, 20 people we could do this, but I, at least, am certainly not qualified to say how much benefit I get out of society, let alone to attach a monetary value to this.

I will only note, however, that my “desert island” comparison suggests to me that those who do really well could not have done nearly so well without the trappings of society that government makes possible. So, lacking any better evidence, I tend to believe that the benefits that they have received are somewhat out of proportion to what others have received.

Fair enough, and I agree with you, although I think you ought to amend the statement to note that these same people who’ve received disproportionate benefit also pay disproportionate taxes (which doesn’t bother me a bit). Whether these disproportionate taxes counterbalance the disproportionate benefit or not is, as you said, more or less impossible to ascertain, but they certainly must at least help do so.

[gex_gex]

originally posted by gr8guy
I haven’t given this deep thought, but it would appear to me that by far the most important benefit Bill Gates gets out of society is that without he wouldn’t have customers or a work force and with it he does; this doesn’t seem to really be a function of his contribution to the government’s coffers. I am not particularly convinced that he gets much benefit, if any, out of his customers getting Medicare.

Well, for a start they have more money to spend on Microsoft products because they’re not spending it on health cover.

[Debaser]

Back to the 50% paying no income taxes thing…

I have found a couple of cites on this subject.
(remember, that first site wasn’t even mine, someone posted it to refute my statements.)

First of all, let me clarify some terms. By saying “50% of american’s pay no income taxes” I meant working americans. If we included everyone, even retirees and children, it obviously would be way less than 50%. But, I won’t go there.

This cite says:

this year 48.6 million Americans will file tax returns, meaning that they had income, but pay no income taxes. This constitutes 34 percent of the 142 million returns that will be filed

This cite

According to the IRS, the top 1 percent of income earners pay more than one-third of the total income tax burden.The top 10 percent pay more than two-thirds. And the bottom 50 percent of income earners? They pay barely 4 percent of income taxes. That’s why it’s virtually impossible to cut taxes without letting the “rich” benefit.

And finally, this page also has the same figure.

The “wealthiest 1 percent” (above $269,496) of Americans pay 35 percent of the tax revenue. The top 50 percent of income earners (above $25,491) pay 96 percent.

Also, as far as the rich paying more because they make more. The newsmax article mentions an interesting stat on this.

and the top 1 percent pay 35.9 percent of the total income-tax burden. For reference, it should be noted that the top 1 percent of tax filers reported only 17.2 percent of total income.

It looks like they are paying their fair share to me.

But, I digress. I repeated a “fact” that I read somewhere a couple of times that turned out to be not exactly true. The bottom 50% of wage earners pay 4% of the income taxes. While the bottom 35% of wage earners pay no income tax at all. Also, the bottom 20% of wage earners actually get money out of the system because of rebates and tax credits.

I apologize for not clearing this up sooner. But, like I stated earlier, somebody else posted those other links earlier that seemed to verify my figure for me. Now I see that it makes sense that the 4% of the total tax that the lowest 50% of earners are paying was offset by the rebates that the lowest 20% are getting back.

So, some individuals in the bottom 50% are paying taxes. Its just that if you look at them as a group, they are taking out as much as they are putting in.

[DrDeth]

*Originally posted by Debaser *
**
The charts on the page you linked to show quite clearly that the lowest 50% doesn’t pay income taxes. Take a look at the first graph they show titled Cumulative Percentage of Individual Income Tax Paid (1999 Estimated)

So, rather than proving my 50% figure a wild claim, your cite makes my case. Thanks. **

Not quite. They show the bootom 20% paying nothing. Th enext 20% paying 1%, and th enext 20% paying 8%. Dividing that last in half, and it seems that the lowest 50% pay something on the order of 5% of INCOME taxes- not a large amount, but certainly more than nothing. Now, if you had said “lowest 40% pay only insignificant income taxes (as a % of total taxes collected)” then you’d have been right. But as it was, you’re wrong.

However, note also that the lower income goups pay a much larger % in sales taxes, and “indirect” taxes.

[Debaser]

Read the whole thread before you post, DrDeth. I conceded that point in the post directly before yours.

[Kimstu]

december: Taxes that aren’t taken from you directly can still hurt you. Examples that come to mind are […] taxes on business that produce high unemployment (as exists now in most of Western Europe)

The automatic association of European-style higher tax rates with high unemployment is a very popular piece of conventional wisdom, but I think it may be less applicable than many people believe. After all, according to a July 2002 Forbes ranking of unemployment rates in 49 industrialized countries, the seventeen nations that have lower unemployment than the US include Western European nations such as Iceland (lowest worldwide!), the Netherlands, Switzerland, Norway, Austria, Portugal, Sweden, Ireland, and Denmark. Unemployment rates in the UK, Belgium, and Germany are less than three percentage points higher than ours. Only Greece, Spain, and Poland among the Western European countries have unemployment rates higher than 10%.

In addition, many of these higher-taxing Western European countries use their tax revenues to provide quite good-quality universal education (including university-level education for some students), universal health care, universal child care and family/medical leave, and universal pension benefits, among other things. (Not to mention the standard four to six weeks annual paid vacation! :))

So I think the “high unemployment” boogeyman should perhaps be given a sabbatical from the taxation debates; it’s by no means clear that higher taxes do produce significantly higher unemployment in “most” of the countries that enact them—even if you ignore the question of whether the superior public benefits would make it worth while to endure somewhat higher unemployment rates.

[jshore]

Debaser,

You did a lot of research to discover what most of the rest of us already knew. Yes, the federal income tax is a progressive tax so that the top 1% pay a higher percentage of their income to taxes than the average Joe. This accounts for the fact that they pay about twice as large a percentage of the total personal income tax as they have a percentage of their total income. [It is worth mentioning that I believe these figures are based on “adjusted gross income” which means income after deductions and all.]

Other taxes (the payroll taxes, state income taxes, sales taxes, …) tend to range from less progressive to quite strongly regressive. So, studies that have looked at the entire tax structure as a whole have concluded that it is mildly progressive at best.

Also, the thing that ought to shock you, IMHO, is that the top 1% rake in somewhere approaching 20% of the total income. Worse yet, this figure has about doubled over the last 30 or 40 years!

To use a phrase from “Billionaires for Bush or Gore” ( http://www.billionairesforbushorgore.com/ ), tax cuts for the wealthy are a good idea if you believe that inequality is not growing fast enough!

Speaking of this, an excellent article by Paul Krugman on the subject of this growing inequality and why it is a bad thing appeared in the New York Times Magazine this past Sunday: http://www.nytimes.com/2002/10/20/magazine/20INEQUALITY.html

[Debaser]

If you think I didn’t know that the top percents of income in the US are wealthy, you are mistaken.

I was defending my assertation that the bottom 50% of earners in the US pay next to nothing in income tax. They pay 4%, while about 4% is given back to them in rebates. Exactly what would make this sytem fair? Should only the top 1% pay taxes?

The fact that the top 1% have doubled thier earnings in the past 30 or 40 years, I agree is a bad thing. Where we differ, is that I feel that fixing this problem is not the responsablility of the federal government.

When did it become the job of the IRS to level the playing field?

CEO’s are now making hundreds of times the earnings of regular workers. Decades ago it was only 10 or 20 times the workers earnings. This is a problem. I don’t know how to fix it. But, I know how not to fix it: Have the government punish these people with higher and higher taxes.

[Kimstu]

Debaser: I was defending my assertation that the bottom 50% of earners in the US pay next to nothing in income tax. They pay 4%, while about 4% is given back to them in rebates.

To make a fair comparison, of course, we’d have to figure out how much money the wealthier taxpayers “get out of the system” too, in subsidies, tax credits, etc.

*The fact that the top 1% have doubled thier earnings in the past 30 or 40 years, I agree is a bad thing. Where we differ, is that I feel that fixing this problem is not the responsablility of the federal government. *

Well, the cause of the problem seems to be at least partly due to the federal government and its tax policy: income/wealth inequalities have skyrocketed precisely while the top marginal tax rates have been slashed (from over 70% in the 1970’s to less than 40% now). Moreover, if it’s the federal government’s responsibility to help create a productive and healthy society, and if (as many economists argue) high inequality levels correlate to decline in a society’s health and productivity, I don’t see why it shouldn’t be considered the federal government’s responsibility to fix the problem.

When did it become the job of the IRS to level the playing field?

If you consider progressivity in the income tax to be “leveling the playing field”, then the IRS has had that job for well over half a century.

CEO’s are now making hundreds of times the earnings of regular workers.

Nearly 500 times, on average.

Decades ago it was only 10 or 20 times the workers earnings. This is a problem. I don’t know how to fix it. But, I know how not to fix it: Have the government punish these people with higher and higher taxes.

Naturally, if you view highly progressive tax rates as “punishment” for making a large income, you’re not going to consider them moral. That’s more of a personal belief than a valid basis for policy, though, since plenty of other people don’t have the same reaction. For example, as someone in the lower-middle-class tax bracket, I’m taxed at a higher rate than poor people; jshore, with about double my income, is taxed at a higher rate than I am. I venture to say that neither of us sees that as a “punishment” or considers it an illegitimate way for the government to distribute the tax burden.

Even if we all agreed on that, though, would it be relevant? The question in this thread, after all, is not whether you see particular tax strategies as immoral, but whether and how their broader effects may actually be beneficial to you in the long run—even if the only immediate direct effect you notice from them is a punch in the pocketbook. If highly progressive taxation restrains the growth of inequality, and if growing inequality is harmful to society, then there is obviously an indirect benefit to highly progressive taxation, even if you personally don’t find it morally acceptable.

[ElJeffe]

Well, the cause of the problem seems to be at least partly due to the federal government and its tax policy: income/wealth inequalities have skyrocketed precisely while the top marginal tax rates have been slashed (from over 70% in the 1970’s to less than 40% now). Moreover, if it’s the federal government’s responsibility to help create a productive and healthy society, and if (as many economists argue) high inequality levels correlate to decline in a society’s health and productivity, I don’t see why it shouldn’t be considered the federal government’s responsibility to fix the problem.

First of all, I don’t think that link shows that “many economists” believe income inequality leads to a less healthy society. It shows that two studies coming out of two of the nation’s most liberal campuses have found a correlation between income equality and health. Secondly, there is no mention of any mechanism by which causation could plausably occur.

Think about what this is saying: If we both get wealthier, but you get wealthier by more than me, then even though both our buying powers have increased, and even though both of our standards of living have gone up, we’re both going to die sooner. That’s absurd, and until someone comes up with a logical mechanism to explain this, I think it’s safe to say the assertion is stupid.

If highly progressive taxation restrains the growth of inequality, and if growing inequality is harmful to society, then there is obviously an indirect benefit to highly progressive taxation, even if you personally don’t find it morally acceptable.

…and IF monkeys could fly, and IF flying monkeys could be sold for large sums of money, and IF I had a crate full of flying monkeys, THEN I would would be wealthy. We can play the “if” game all day.
Jeff

[Apos]

Debaser, your concession is noted.

The reality is, the rich pay far far far more in taxes for two different reasons: both that they, obviously, make way way more income and secondly that their proportion paid is much higher. We can talk about the justice of both effects, but the reality is that these effects are primarily the reason for the tax burden being different, not that poorer end of the spectrum is getting away with murder. If we want to talk about tax justice, we have to talk about those two effects, not about the reality that, given those effects, people who make way way less income will end up paying much less.

—Also, the thing that ought to shock you, IMHO, is that the top 1% rake in somewhere approaching 20% of the total income. Worse yet, this figure has about doubled over the last 30 or 40 years!—

Why? And why should this necessarily mean anything as to how we tax people? Especially if that top 20% of income is earned.