I gave you the link to whitehouse.gov. You can download the federal budget stats year-by-year and see for yourself.
Not necessarily. In Europe, nobles have rebelled against the king over issues of raising revenue. Btw, the rich don’t necessarily have to use violent means or walk to Washington DC with pitchforks in their hands.
In any case, you seem predisposed to tax the rich into oblivion so I’m not sure any statistics would persuade you.
You misread me, my ruminating friend. I’m a fairly libertarian type and a fierce deficit hawk, in truth. But for years my job has been reading electorates and trying to predict their demands and behaviors before they do it. It’s like Ouija Board reading without the little tear-shaped thing.
As for challenging your numbers, above, I was challenging your assumption that the pattern of taxation as a percentage of GDP was a result of your defined ‘negative feedback loop’. In fact, my back-of-the-envelope shows little of that. In fact, even if taxes as a percentage of GDP went down, overall government income from taxation went up considerably!
In 1947 the federal government took in (from the link you provided) approximately $38 billion. By 1961 it took in $94 billion. In fact, here’s a small chart:
Tax %Change GDP %change
1945 $45B $221.4B
1963 $106B 135% $599.2B 170%
So you’re correct that GDP growth outstripped government revenue growth. But it’s not like that should be a bad thing, is it? With the highest marginal rates in American history we find that, over time, the economy is keeping a higher percentage of its production. It seems counter-intuitive to me, somehow.
% of taxation of GDP
1945 20.3%
1963 17.6%
So, while your thesis is correct that revenues as a percentage of GDP declined over time (Note: I was initially going to use 1947 - 1961 but saw that Ruminator had stated 1945 - 1963 so changed up.) I’m having trouble seeing that as a bad thing. The economy as a whole prospered, kept more of itself to itself (that is, in companies, individuals, and so forth) and government revenues increased 135% over the time period in question. In fact again:
If we calculate inflation based on the Consumer Price Index we find this:
1945 CPI 18.0
1963 CPI 30.6
For a percent change of 70%. That’s a lot of inflation, don’t get me wrong, but it’s still way behind tax receipts and GDP growth.
% change
Tax Receipts 135%
GDP 170%
Inflation (CPI) 70%
A clear win for the American economy as a whole, even with high marginal rates of taxation.
In short, your overall assertion that altering the highest marginal rate is somehow a downer for receipts and GDP is not born out by evidence during the times in which such were highest. There’s a lot of noise in the data, for example I would have liked, as I mentioned, to start later than 1945 to try to screen out the last year of WWII but I thought I should stick with the years you introduced into the discussion in fairness.
As for the whole demagoguery of ‘soaking the rich’ that you introduced there it is, simply untrue. Even with current top marginal rates going back to levels seen in the Clinton era that only means and increase of about 3% or so on the top level. Hardly a ‘soaking the rich’ vein when it still leaves that top marginal rate, as demonstrated in one of my earlier posts, far below other developed, first world countries.
I am also not, in any way, advocating a return of 90% top marginal rates. But I do think that higher rates across the board (remember my job, up in that first paragraph) will be both necessary and acceptable to the electorate in the near- and middle-term. A higher top marginal rate of 45% could easily be passed and accepted if presented properly. Hell, that would still be a lower top rate that for the majority of Ronald Reagan’s Presidency. If I’m reading the chart properly we’re looking at:
1982-1986 50%
1988 28%
1990-1992 31%
1994-2000 40%
2002 39%
2004-2008 35%
2010 40% (proposed)
So for most of the great communicator’s administration we found the highest rate to be 25% higher than the proposed rate for 2010 and beyond. I don’t think we’ll find much in the way of revolutionary fervor downstream at this level and even several points higher.
Whew! That was a lot of research for a Saturday night! And I don’t even drink. Well, not anymore, anyway.
in 1989 the top marginal tax rate in the Netherlands was 72% (actually, the way things worked with having to pay twice for medical insurance etc., it was actually higher than that, but who’s counting). I did what a large number of people with high earnings potential did - I left.
The people who actually aleady made a ton of money stayed, and figured out a way to not pay these taxes.
The “black” economy (transactions made with money hidden from taxes) was estimated by some to rival the size of the official economy (sorry, no cite, but cites on stuff people are hiding is hard to find). The government in turn spent more and more effort to find and tax this money. How taxes influenced transactions was a major factor in decision making.
When taxation becomes oppressive, at least some people will leave or break the law. There may not be much of that at 40%, but we’re really going to notice it at marginal rates over 60% imo.
Raising taxes would make people less able to afford to support themselves, which means they’d demand more government spending, restarting the cycle. At some point you have to tell people that they can’t afford what they want.
And that, as Sam and I have pointed out, above, is something that the American government is NOT designed to do. Given that fact we come down to either inflating the currency (which is sort of a form of taxation, if you think about it from a certain point of view) or raising taxes across the board but likely more on the highest earners.
Not really. Structurally, Canada is right about where the U.S. is in terms of overall government spending (actually, after Obama’s first term, we’ll be spending less as a percentage of GDP). We spend more on social programs, and less on the military, and it about evens out. But Canada has one of the least progressive tax systems around. For one thing, we have the federal goods and services tax (our national sales tax), which is basically a flat tax on everyone.
For example, according to the Tax Foundation, under Obama’s new budget the bottom three quintiles in the U.S. combined will only pay about 12% of all taxes, with the lowest quintile paying nothing at all (in fact, being net recipients of tax money), and the second quintile paying only 2.84% of all tax. Those two quintiles together make up over 40% of the population. In Canada, the bottom two quintiles pay about 6.7% of all tax.
(Source for Canadian Data: StatsCan)
The third quintile in the U.S. pays about 9.5% of all tax, and in Canada the number is about 12%. The 4th quintile pays about 17% in the U.S., vs 22% in Canada. And finally, the top quintile will pay about 70% of all tax in the U.S., vs only about 57% in Canada.
It will be very interesting to see how the dynamic between the U.S. and Canada plays out in the next decade. For the longest time, Canada was burdened with higher taxes and regulations than was the U.S. As a result, our standards of living diverged, with Canada falling quite a bit behind the U.S. We used to suffer brain drains of our best students and best professionals, and our dollar dropped to 75% of the U.S. dollar.
Today, all those trends are reversing. And in a very big way. Take corporate tax. In 2000, the U.S. had a corporate tax rate of 39.4%. Canada’s was 44.6%. Advantage: U.S. But Canada has been steadily lowering corporate rates, and plans to lower them even further. Today, corporate taxes in Canada are about 36%, and by 2012, they will be 28%. That’s an 11% gap between the U.S. and Canada by the end of Obama’s first term. We saw significant corporate flight to the U.S. when the differential was only 5% the other way.
I don’t think comparing marginal rates in the 1950’s to today works very well. For one thing, the picture looks completely different if you look at the share of total spending the rich pay today - it’s never been higher. But more importantly, the world is much more open today, and capital is much easier to move around. In the 1950’s, there weren’t a lot of places an overtaxed wealthy American could go. Today, the world is full of havens for the rich. Likewise, it was much harder to do business across international boundaries in past decades.
Canada will be a very interesting case study. In the next four years, we are going to have lower income taxes, lower business taxes, lower capital gains taxes, lower dividend taxes, and a stronger economy than the U.S. We also do not have an inheritance tax. If Obama continues his plan of making U.S. taxes more progressive, I think you’re going to see significant capital flight to Canada.
The following has nothing to do with your point about wealth relocation and the U.S. vs. Canada, but the above quoted bit made me wonder…so I looked it up (corrections and/or more recent numbers are welcome).
According to this page from UCSC, in 2001 the top quintile in the U.S. had 84.5% of net worth and 91.2% of financial wealth. In Canada in 2005, the top quintile had 69.2% of net worth.
Just to add a bit of perspective to things.
Interesting information there, Sam. I knew Canada had a less progressie taxation system with your Value-Added stuff but I didn’t know the extent of it.
Would you recommend a more progressive system, given the impact of things here? Could Canada absorb US capital flight? It’s not as easy as it looks, you know. For such to occur there has to be an almost unlimited amount of entrepreneurial activity in which to invest. And, in the end, Canada still only sports about 10% of the US population.
Still, that doesn’t get away from my main point that higher taxes all around are likely called for to deal with the mess we’re in, nor that raising the levels to even 45% for the highest bracket would lead to the inevitable decay of the American economy.
No, I personally wouldn’t recommend a more progressive tax system. I think it slows innovation and private investment and is bad for economic growth. Maybe even more importantly, I think it’s very destabilizing to have a situation where a near majority of voters are net recipients of government money in a Democracy. Why would they ever vote against tax and spending increases? To get reasonable decision making, the entire population should share in the pain of government financing with equal loss of utility. That doesn’t mean a flat tax - it means a progressive tax graduated so that the marginal utility of an added tax dollar is the same at all income levels. I actually think Canada is at just about the right mix at this moment.
When I say ‘significant capital flight’, I don’t mean trillions of dollars or anything. Change will happen on the margin. The effects are small in any given year - a percent or two of added growth, a change of a percent or two in distribution of head offices, that kind of thing. But it compounds over the years and makes a big difference - eventually. Look at how long it took for the U.S. to lose its dominance of the auto industry. Foreign makers have had significant advantages over the big three for 25 years, but only in the last year or two did Toyota finally surpass GM.
And to be completely honest about it, no one really knows how this is all going to shake out. You can point out macro forces and show that, all else being equal one country has gained specific advantage over another. But there are so many unknowns that no one can predict this stuff with any kind of certainty. This upcoming decade is likely to be the most volatile in which any of us have ever lived.
I do know that the U.S. is setting itself up structurally to have big problems. Spending is now completely out of control. China and Russia are calling for a move away from the U.S. dollar as the world’s reserve currency. The Fed is buying up the country’s debt - an inflationary move. Obama is raising taxes and driving spending to insane levels, while simultaneously issuing new regulations and new controls on business. This can not end well, in my opinion.
I don’t think this demonstrates what you are attempting to prove. The progressive nature of a tax system should be based on the percentage of one’s income one pays in (all) taxes relative to others at different income levels. You are basing it on the total amount each quintile contributes to the entire pie. That measure does not take absolute income and income disparity into account. Warren Buffet famously pays 17.7% of his income in taxes while his secretary pays 30%. By your logic, a system with just those two paying in would appear to be highly progressive when, in fact, the opposite in true.
Obviously, poor people can’t pay taxes when they don’t make much money. You can’t squeeze blood form a turnip. What matters is what percentage of their income a blue-collar mother of two will pay compared to some CEO. Your conclusions may be right, but your data does not speak to that.
The reality is that the middle-class and rich have far more untaxed “income” and perks than most poor people do. Whether is paid work retreats (read: vacations), employer healthcare, mortgage interest tax deductions, business tax loopholes, capital gain tax disparities, etc. The system is so full of holes that I think it would be very difficult to demonstrate what you are attempting to prove one way or the other.
That’s not correct. You have to be careful when interpreting that data because all sorts of weird sampling artifacts creep in when the income distribution becomes highly skewed. According to the Wall Street Journal
That means if the mean household income is $67K, then the mean income for the top 1% is $1,340,000 which is very different from the $418K quoted in the census link.
But what we really need to look at is overall tax burden here, the uSA is almost last, with only Mexico, Japan and Korea less:
Which, I think, backs up my central thesis:
Raising the highest bracket to 39%, or even as high as 50% is not going to utterly destroy the nation’s economy.
Capital flight, in the face of a rise in the highest bracket, is impractical as any other place worth moving to, either capital or physically, will provide a higher tax burden.
Hence my ‘Fuck you. Where are you taking that money? Good luck with that.’ attitude from government when the highest bracket goes up.
Those tax burden numbers are old. Here are the same numbers from 2007: OECD Tax Burden/GDP Stats. The U.S. climbed from 25.5 in 2004 to 28.3 in 2007.
Obama is adding 1.4 trillion in new taxes over 10 years (so far). That adds about .8% to the U.S. tax burden as percentage of GDP. But more importantly, deficit spending is a hidden tax, and your Federal government’s deficit this year is going to be 12% of GDP, by Obama’s 8th year would still be something like 8% of GDP. Somehow, that has to be paid back.
Canada, on the other hand, has been reducing taxes since 2006. The national sales tax has been lowered from 7% to 5%, our tax bracket ceilings have been bumped up (except for the top bracket), our personal deduction has been increased by about $700, and this year the government instituted tax free savings accounts where we can put up to $5000 per year in an account and collect interest or other capital gains tax free. I can’t find a number for the net lowering of our taxes, but I imagine it has to amount to at least 2% of GDP since 2006. That puts us right in line with the current U.S. tax system - except that our deficit 1/5 your size as a percentage of GDP, our debt is half, and we’ll be running surpluses again by 2013. Structurally, we have all the advantages over the U.S. right now.
Thanks for the newer cite.
Still, the nations are in the rough same order, USA is 4th from the bottom, with only three nations lower, and 28 or so higher. Turkey has replaced Korea, which has edged slightly over the USA.
In other words- taxes aren’t so bad here in the USA, in fact they are fucking great in comparison.
I love it when someone uses figures out of context like this…“The rich have never paid more than they do now!!!one” while completely ignoring the fact that they also have never owned a bigger percentage of the net wealth, either. And when it’s pointed out, you conveniently ignore it.
You’re a smart guy, Sam, which is why when you completely ignore the context of the numbers you are quoting, it really really shows that you’re not arguing honestly. You’d make a fine politician. (I hope that doesn’t cross the lines of insults in great debates)
For God’s sake - just because you don’t like the comparison does not mean I’m being ‘dishonest’. There are lots of ways to look at taxation, and looking at total tax burden is completely fair - especially since we already looked at marginal tax rates.
For example, showing that the absolute amount of taxes paid by the rich went up when marginal rates were lowered indicates that high marginal rates might not be the best way to look at how to raise tax revenue. You happen to look at the issue through the filter of ‘social justice’ or ‘fairness’, where the absolute wealth of the rich matters. Not all of us care about that. We just want to figure out how to fund government most efficiently.
This is irrelevant.
First, the primary means of taxation that this country agreed upon is the INCOME tax. It is not the ACCUMULATED wealth tax. The philosophy is to tax “activity” instead of “savings.” Therefore, you’re the one being dishonest by purposely redirecting the fairness of INCOME tax to the level of ACCUMULATED wealth. We do have a handful to taxes that deliberately attack accumulated wealth (such as the estate tax “death” tax) but these do not constitute the bulk of tax revenue.
Second, your phrase “% of net wealth” is meaningless because wealth is not a zero-sum game.
The rates are not nearly as important as the “real rate” after deductions. The richer have access to more deductions and more accountants to help them plan their income around those deductions.
Net wealth has nothing to do with this. If I make 100k at age 40 and have accumulated 400k in net worth, should I pay a much higher tax rate than someone who makes 50k at age 25 and has negative net worth because of college loans. Ten times higher, hundred times higher, a thousand times higher. Should the 25 year old have a negative tax rate?
Age, net worth and income are highly correlated. As people grow older (up to a point) they have higher incomes and net worth than they do when they are younger. So worrying about how much wealth people at different income percentiles is not just meaningless, it is fucking dishonest. Nobody could be dumb enough to make this argument honestly.