B_D:It’s the people making say 50k to 150k I worry about the most.
Fair enough, but most of them aren’t even in the top 10% of income earners, a category that begins with an income of $104k (and has an average income of about $256k)—the #10 guy of your restaurant fable.
What’s is really nice about this country is the middle class.
I agree. Which is why I think that the shrinking of the middle class due to continuing increases in inequality is probably not a good thing.
If we lose that we will become like Europe and lose the ability to jump from lower to upper class. Being able to take yourself to the top is what has made us a great country IMO.
Really? Most of Europe is actually more “middle-class” than we are, with fewer rich people and fewer poor people, so as we increase our inequality levels we continue to become less like Europe. And while I think class and income mobility is a good thing, I’m not convinced that the policies that make it easy for the already-rich to become richer are the same ones that make it easy for the poor to become middle-class. I think our success has been due less to the ability of a few people to become really rich than to the ability of most people to become moderately prosperous, and I worry that we’re hamstringing that ability with economic policies tailored to the advantage of the already-rich.
This is probably what is wrong with your story. It isn’t the top 10% that controls most of the money but those you mention are in the top bracket. A fairer system would have 100 people at a banquet and one person responsible for the entree, another 2% responsible for the dessert, etc. (I hope you get the idea).
As to those leaving the country, the bitch usually is that the top 1% pays the biggest share. If they are paying it, then they haven’t left.
B_D If you don’t know who William Buckley is I was wondering about Will Rogers and Mark Twain. Are they familiar?
Right. To strain the “dinner” analogy further, it’s like the manager decided to give the $20 discount in two ways- a 10% discount, and comp the caviar… which only the richest guy ordered & ate.
Oh, and Big Daddy? In terms of overall tax burden, CA is just about squarely in the middle, ie, it’s taxes are NOT “too high”.
Sure, some dudes do move their assets to a tax haven- and these are currently being investigated by the IRS, and the dudes are getting huge tax bills.
Of course- in some cases you can move yourself & your $ to a “tax haven”- but of course, some day that government may decide to confiscate all of your assets- and there would be nothing you can do about it.
So your solution to the problem of income inequality is to make sure people can’t become as rich, rather than trying to make the poor more wealthy? Umm… yeah, that’ll lower income equality, I suppose…
A shrinking middle class, in and of itself, isn’t a problem. If the people who leave the middle class are entering the upper class, then it’s good. If they’re entering the lower class, it’s bad. If they’re splitting off in both directions in equal numbers, it’s probably still mildly bad, in a long-term sense.
Does anybody have any numbers regarding the size of each quintile over the past decade? I know through the 80’s, the middle class shrunk as the upper class grew, but I don’t have any figures at hand for more recent times.
EJ:So your solution to the problem of income inequality is to make sure people can’t become as rich, rather than trying to make the poor more wealthy?
No. But IF the two effects–making rich people richer vs. making poor people richer—do require different policies to bring them about (and as I said above, I don’t know for sure, but I’m not convinced otherwise), then I think we should go for effect #2 in our policy choices.
After all, what would be the use of screwing the poor in order to benefit the wealthy if the wealthy then just pick up all their potential tax revenues and hustle them off to the Caymans? At least if you screw the wealthy to benefit the poor, the beneficiaries are more likely to stay in the country so we can tax 'em on it.
I think some of you might be missing the point I was trying to make in the dinner scenario. The point was that when you give a tax break it makes common sence that the bottom is not going to get as many $$$$ back as the rich but still some politicians beat this drum like there could possibly be any logic to it in an effort to make themselves seem more attrative to potential voters.
Switching gears later I stated that my biggest concern was on what I consider to be the middle class as they are taking on more of a burden than they should. One had nothing to do with the other.
B_D: *The point was that when you give a tax break it makes common sence that the bottom is not going to get as many $$$$ back as the rich but still some politicians beat this drum like there could possibly be any logic to it in an effort to make themselves seem more attrative to potential voters. *
The thing is, there’s no “common sense” or “logic” to ANY individual taxation measure taken out of context. “He has to pay less than I do! Unfair!” “She got more money back than I did! Unfair!” “I’m paying more than I can afford! Unfair!” “I have a bigger share of the total tax burden than you! Unfair!”
None of it is reasonable except in the context of considering tax policy as a whole: what tax revenues are needed, how the burden should be distributed, whether and why there should be changes in the distribution, what sort of taxation is “fair”. As I said, unless you’re declaring that taxes have to be flat, there’s no logical necessity for tax cuts to be flat either. Trying to justify a particular tax policy (and shut up its opponents) by claiming that it’s only “logical” or “common sense” just doesn’t wash.
Everyones taxes are too high, California’s are particularly high in several areas when it comes to running a business that’s why many businesses have left here for more business freindly environments like Texas.
2 & 3. You would have to be a lot more specific to solicit an intelligent response. Some structures have full on written approvals from the IRS called a no action letter like on a Pre paid forward sale. They gain 85% - 90% liquidity on large positions without incurring a taxable event for years and still retain much upside in their position. Others are in a little more grey area such as a monetizing equity structure but I don’t believe they will do anything about those either. If your reffering to offshore trusts and the like when you say tax havens then they are a lot like liquidity strategies in the sence that there are all types of them in varying shades of grey. When you say some day that government may decide to confiscate all of your assets and there would be nothing you can do about it you are absolutely wrong. If your offshore America would have to take over the world to conficate all your assets and that is not going to happen. America won’t do anything about it either for a couple reasons. The first reason is that they have these things set up for the super rich and no politician in his right mind is going to mess with those guys. The second reason is many politicians have these set up for themselves as well and it wouldn’t make much sence to shoot yourself in the foot like that now would it?
Of course you can make it wash. If I paid a million in taxes and you only paid 5k and the government gives us a tax break there is no way to justify giving us back equal amounts of dollars.
Blivid,
Of course you can cast your vote for that but it would never fly irregardless of how many people wanted it but I like your thinking.
I understood that point perfectly well and my response was basically twofold:
(1) You accerbate this problem if you focus your effort on cutting the progressive taxes, as Bush has, rather than the regressive ones.
(2) This is only true if you design your tax cut to give everyone, say, the same fraction of their taxes back. However, given that the rich have done absolutely outstandingly (in both pre-tax and post-tax real income gains) in a time when the middle class has seen only anemic growth in real income and the poor probably even less or none, I am questioning whether we should design tax cuts in this way. I think we should design tax cuts for the people who haven’t benefitted very much from the recent growth in the economy rather than the ones who have benefitted enormously. One way to do this, for example, is to cut only the lowest tax bracket rate. In this case, everyone would get the same dollar amount back except for those who are in the bottom bracket who will get less (this was basically what the rebate part of the tax cut was last year…the $300 per individual or $600 per joint return). Thus, the top 1% would only get a bit over 1% of the tax cut monies. Another way would be to make cuts to payroll taxes which are more regressive taxes in that they only tax wage income and only tax up to a certain limit.
Well, then you may want to write a nasty letter to the Bush administration which seems to be quite excited by the idea of putting more burden on the middle class and less on the rich because they worry that the top incomes pay too large share of the total income taxes. (The article about this appeared in the Dec 16th Washington Post and two of my links above…the CTJ one and the more recent CBPP one make reference to it.)
Actually, it unclear where exactly they want to shift from and to but apparently the specific qualms mentioned were with the share of taxes paid by the top 10%.
I would agree that if your only options were a tax policy that made the wealthy richer and the poor saw no benefit, and one in which the poor became richer and the wealthy saw no benefit, the latter would be preferable. However, I think it’s myopic to assume that those are the only options.
As you yourself stated, all classes, in real dollars, are becoming wealthier. It’s just that the upper classes are accelerating their wealth at a faster level. So it’s not a matter of some people becoming worse off, it’s a matter of all people becoming better off, but at different rates.
Now, the fact of the matter is that most wealthy people are wealthy for a reason: they’re good at making money. Of course, there are exceptions - lottery winners, heirs, those who just get lucky, etc - not everyone has earned their money, in the traditionally understood sense. But by and large, these people know what they’re doing, and no matter what tax system you lob at them, no matter how you try to re-engineer the economy, they are the ones who are going to make out. Trying to tailor a system that gets around this fact is like trying to rewrite the rules to basketball in such a way that the Lakers would lose against a high-school team. It could probably be done, but you’re going to end up with a game that looks very little like basketball. Similarly, if we rewrite the economy and tax code such that the upper classes don’t consistently outperform the middle and lower classes, we’re going to break the economy - or at least seriously hamper its growth. And that won’t benefit anyone, in the long run.
Sorry, but I have serious misgivings about a philosophy that is only interested in not driving people out of the country so that it can tax them. There’s such a thing as fairness, too. Can’t we adopt a system that doesn’t screw anybody? Perhaps one that’s more interested in equality of opportunity than equality of outcome?
EJ:As you yourself stated, all classes, in real dollars, are becoming wealthier.
In fact, real wages have been stagnant or declining for many lower-income workers for much of the past twenty years, and in some cases only began to rise in the low-unemployment boom of the late '90’s—and much of that gain is now being lost. In addition, real income growth over the past decade for middle-class families was largely due to increases in hours worked, and was accompanied by larger increases in household debt.
So I’m not sure I consider “all classes are becoming wealthier” an adequate synonym for “all income quintiles have experienced some increase in real income, but for the lower quintiles it was much smaller, required working more hours, and was accompanied by increased debt, while for the wealthiest taxpayers it was far greater and accompanied by large gains in overall wealth.”
Now, the fact of the matter is that most wealthy people are wealthy for a reason: they’re good at making money. […] But by and large, these people know what they’re doing, and no matter what tax system you lob at them, no matter how you try to re-engineer the economy, they are the ones who are going to make out.
Well then, if most rich people have the talent and ability to get rich under any form of tax system, why do we have to worry about taxing them too high? Let’s give them a nice 70% or 80% top marginal tax rate so they can really challenge themselves, why don’t we? Then they get to bask in the glow of real achievement and we all get more tax revenues.
Sorry, but I have serious misgivings about a philosophy that is only interested in not driving people out of the country so that it can tax them.
Well, I hope you didn’t seriously think that those two sentences were a sober expression of my entire philosophy on taxation.
There’s such a thing as fairness, too.
And there is no consensus on what constitutes a “fair” tax system. At present, the federal tax system is mildly progressive overall, which makes all the more puzzling B_D’s claim that “common sense” demands that tax cuts can’t be implemented progressively.
Many barely (and perhaps some not at all…We’d have to look at the statistics).
Way faster!
Well, you may be partly right if we restrict ourselves to the tax system only but if we do it as part of a more holistic program, we could probably make things balance out better. Other countries certainly have and we’ll never know if we don’t try.
Also note that it is not just that the rich are increasing their incomes in absolute dollars more than the middle and poor. It is that they are increasing their incomes on a percentage basies more than the middle or poor…And way more!
Oh yes, this theory that the rich must have their ever increasing windfalls in order that the poor and median folk get a few table scraps. But there is really little evidence to support this and, as I pointed out in the meritocracy thread, there are now arguments (e.g., in “The Winner Take All Society” by Robert Frank and Philip Cook) that in a society with a lot of winner-take-all markets such as ours, the tradeoff between efficiency and equity may not hold at all. There could be ways to grow the economy faster and decrease inequality.
At any rate, when you have the economy expand by 40% with the median household getting 10% of the gains, you have lots of room for improvement. Let’s say that your policies do lower economic growth to only 35% but now the median household gets 25% gains (while the top 1% no longer get their >150% gains)…Well, that might be a tradeoff that we want to make!
The point is that it’s not either-or. We lie a continuum and even if we can’t do anything to lower inequality without lowering economic growth (doubtful in my view), we may still want to move along that continuum in that direction of lower inequality. It is not written in stone that one has to maximize the GDP…which I believe roughly equates to the average household income…rather than, say, the median income (or, if you are a Rawlsian, the income of the least well-off…which I’ll admit I find a bit extreme). In fact, one of the point that Krugman made in his NY Times article on inequality is that while the GDP of Sweden is lower than in the U.S., the median individual may well be better off with the poor more definitively so.
I find this argument to be rather disingenius because unless you are interested in creating true and complete equality of opportunity, you are going to need to give consideration to outcomes…This doesn’t mean creating “equality of outcomes” but it does mean not being blind to outcomes and then trying to equalize outcomes somewhat when inequality gets extreme.
And, let’s face it, true equality of opportunity would mean:
(1) A completely confiscatory estate tax.
(2) Equally good schools for the rich and poor, which means more than equal funding since one of the most important determinants in an individual student’s success is not money per pupil apparently the percentage of students living in poverty in that individual’s school. So, we are talking some sort of bussing people around to equalize that.
(3) Even then, you are nowhere close to equalizing opportunities because people from well-off families just have so many freakin’ advantages over those from poor families. I look at my nephews and the way they are being raised and compare it to how I imagine kids being raised in poor neighborhoods and there is simply no doubt in my mind that my nephews how a humongous step up on these other kids…simply humongous.
So, unless you are willing to go for true equality of opportunity and, like I said, I don’t really know how you are going to do it, you are being disingenius to say that we will make some very feeble stab at equality of opportunity and then let the chips fall where they may. I, personally, do not and will not support such a policy.
There is no debate at all among any Libertarians, who are fighting to eliminate the income tax altogether, sponsored each session by Texas U.S. Congressman and ex-Libertarian presidential candidate Ron Paul.
If more americans had voted for Ron Paul, there would be no debate at all anymore on this very old an archaic idea of an income tax, since it would have long vanished from existance.
Susanann:There is no debate at all among any Libertarians, who are fighting to eliminate the income tax altogether
What does that have to do with this thread, whose purpose is to debate how tax cuts in the existing income tax structure ought to be distributed? We’re not talking about whether or why an income tax ought to exist at all—that’s a whole different debate.
