I can be as socialist and stick-it-to-the-rich as the next guy…but the idea of a marginal tax rate over 50% is nuts IMO.
You are taking more money than he is keeping. That seems…wrong.
Sure, but when you consider what he’s keeping is enough to allow him to buy a private island, it’s still a deal I’d take. A marginal tax rate of 50% which kicks in at 350k is nuts, but one which kicks in at 5M? Eh, it’s pretty easy to live on 2.5M a year pretty much anywhere in the world. After a certain point the additional money is just keeping score. Making enough in a year to live on for a lifetime and provide for a generation or two of heirs to live in comfort, even if you’re taxed at 50%, is something I think sufficient numbers of people would aspire to.
Enjoy,
Steven
Not me! (I’m a tax lawyer.) Otherwise, I agree with everything you say (not just in this thread, either, really.
Increasing taxes discourages investment because taxes decrease the profit one can make from an investment without decreasing the costs to engage in it. Therefore, some investments become unprofitable when tax rates are raised. By “investments,” I don’t just mean buying stocks and bonds, I also mean starting a new business or building new real estate or infrastructure.
So, when you are weighing the positives and negatives of raising taxes, know that one of the negatives is less infrastructure, fewer jobs, lower property tax base, less economic activity in general.
This is a common argument, but it fails to consider the benefit of more tax revenue or a lessened tax burden on low wage earners. Ten dollars for a low income earner might be the choice between gas for the car or groceries. A fair distribution of the tax burden is a basic democratic concept.
It would be like church goers who agree to tithe 10% of their income and the person earning 100K feels resentment because he contributes more than a person earning 35K, so the person earning the higher salary decides he should only tithe five percent of his income.
It is also important to look at more than the marginal tax rate. Lower income earners pay a hefty FICA contribution on top of income tax, not to mention regressive taxes on gas, food, and clothing. Moreover, taxes are only paid on reported income. The wealthy have a myriad of ways to avoid declaring income and the money to pay tax attorneys to find the loopholes. In fact, there isn’t much of an attempt to hide tax evasion anymore.
The redistribution of income in the U.S. takes from the deserving and undeserving poor so the richest Americans can save. The consequence is a a concentration of wealth into the hands of a small elite class. This concentrated wealth controls the political process.
Capitol gains is 15%. Are you saying the higher the tax the less likely the mega rich will invest? If so, I don’t believe there is any empirical evidence to support this assertion.
And when a tax structure falls too heavily on most Americans to allow the super rich to save more, the income gap widens and inequality defines the socioeconomic structure. Extreme inequality is common in developing countries like Chili, Russia, and Mexico. Tax policies that protect wealth at the expense of everyone else create oligarchies and lead to the demise of representative democracy.
Is there a time in U.S. history when a high marginal tax rate created a disincentive to work? Did a higher marginal tax rate ever decrease savings?
The Constitution says nothing about protecting wealth or helping people get rich. The Constitution does focus on protecting Americans from tyranny.
I don’t have the vaguest understanding of the complex tax code, but my basic understanding of a marginal rate is that the highest rate only applies to the highest dollar earned. A marginal tax rate of 51% means that 51 cents is taken from the highest dollar earned not the entire income.
Please feel free to correct me. I know there are members with a much better grasp of tax code.
No, you are right. You do realize, though, that for the very rich, the overall rate becomes very close to the marginal rate.
If you make 5 million a year, 4,642,299 will be taxed in the highest tax bracket.
FICA contributions are decidedly different from income tax, or are supposed to be. Income taxes are supposed to go to help shoulder the burden of government for all, while FICA taxes are supposedly to pay for your own retirement. It’s not so much a tax as it is a foced savings plan, and saying you want to refund FICA taxes is basically saying you want to turn a self-funded retirement plan into a government entitlement like welfare.
Now, I understand that the current implementation of Social Security is far from a proper retirement program, but the principle is the same. Social Security is supposed to be self financing, with FICA deductions taken from individuals then given back to them at retirement with interest. It is not a regressive tax.
This is flatly untrue. The bottom quintile of Americans receives more in government payments than it pays in income tax. In terms of overall revenue, the bottom quintile is at -2.18% - net recipients of government funds. There is simply no wealth transfer from the poor to the rich occurring. There is a small wealth transfer from the rich to the poor. You just want to increase it.
Many. For example, in 1980, the top marginal rate was 70%. By 1988, it had been cut to 28%. However, in constant dollars, the total tax revenue collected from the top 1% of taxpayers increased by 50%, from $58 billion in 1980 to to $87 billion in 1990.
Another large problem with high marginal rates is that they increase tax-avoidance behavior. This causes a misallocation of resources away from where they would be most economically efficient to where they are most efficient given the distorting effect of the tax. This is a deadweight loss caused by the tax code.
A third problem with high marginal rates is that they move the nation’s capital from those who have demonstrated ability to invest it productively and moves it to people who have no such ability. Simply put, Bill Gates or Burt Rutan or Warren Buffet or Elon Musk is much more likely to put $20,000 to use in ways that benefit society or build wealth than is an average middle class or lower class person. Taking resources from the most productive and giving it to the least productive will lower overall productivity.
It is important to remember that only 1.50% of Americans earn an annual salary of 250,000 and higher. It’s impossible to get blood from a stone, and someone has to pay taxes. The bottom 98% have lived with decades of stagnate wages and rapidly increasing living costs. The bottom 98% of Americans carry their fair share of the tax burden. Perhaps a more equitable income distribution would justify a more gradual increase in the tax rate.
And as I mentioned up thread, tax havens, loopholes, unlimited deductions, and a host of other tax tricks keep the actual rate much lower. In 2006, the tax rate on the richest 400 incomes was 17%, reducing the tax structure to essentially a flat tax.
Social Security and Medicare are only taxed on the first 100,000, give or take a few thousand, of income. Some low income earners pay more in FICA than income tax.
Social Security is a serious problem for a number of reasons. First, it is not a pay as you go entitlement. Reagan changed the structure of Social Security, making it pay in advance to substantially increasing the amount of tax withheld. And, Social Security has been used for years to cover budget short falls caused by tax cuts.
Clinton also used the Social Security scare to continue the high premiums. Based on the money collected since the 1980s, Social Security should be solvent and healthy unless it is long gone.
I consider Social Security a sham tax to milk the least able to pay and least likely to collect in order to fund tax cuts for the wealthiest Americans.
Medicare will soon hurt low and moderate wage earners even more than Social Security because of Bush’s prescription drug plan –-a better description is Bush’s pharmaceutical industry tax giveaway. Whatever one chooses to call it, without reform, Medicare tax will be obscenely unfair to wage earners and unsustainable for the government.
These are workers who earn wages below the poverty line. These workers don’t own property. Most dropped out of high school and are likely functionally illiterate. This is the perpetual underclass, the weakest members of society and the most exploited by pay day loans and tax refund schemes. If these wage earners didn’t qualify for earned income credit, the U.S. poverty rate would *officially *be much higher.
Considering the little they get, the taxes paid to FICA, sales, gas, etc., it’s hardly wealth redistribution.
I don’t think increased income for the top 1% over a ten year period shows a correlation between tax rates and savings/investment. Reagan’s tax cuts were deep and concentrated at the top. Naturally, there was an increase in income. I could be wrong, but I don’t think there is any historical data to show a lower tax rate increases savings/investment. This is a consistent supply side truism, but there doesn’t seem to be any evidence to support the claim. There is more evidence to dispute it.
No one likes to pay taxes. Any legal way to avoid taxes is natural, but tax avoidance today is a serious problem, mainly because much of it is tax evasion and illegal. I attribute the rampant tax evasion to unenforced laws and a severely understaffed and underfunded IRS.
When Bill Clinton pushed to continue the EIC for the lowest wage earners, Republicans agreed only if Clinton increased funding for audits of tax returns from the working poor. Instead of fraud, most of the working poor made calculation mistakes and other errors, so resources that could have been used to catch true tax cheats evading millions were diverted to catch EIC cheats.
One last thought. It is obvious to anyone paying attention that G.W. Bush blatantly encouraged tax evasion with a wink and a node. Maybe this is a symptom of crony capitalism, or maybe it was Bush’s strategy to advocate for no taxes on the wealthiest Americans.
Okay, I have a number of problems with this argument. Supply side views investment as a private transaction for purely personal gain. If a capital owner invests in an entrepreneur, it is private and the gains are private. Social benefit doesn’t factor into the motivation to invest. If there is a social benefit to investment, what is the argument against the government regulating it or the government doing the investing?
Finally, why is Bill Gates better at determining what is beneficial to society than elected government? Bill Gates concentrates his charity work overseas. This isn’t a bad thing, but it does little for American society—arguably anyway. The Waltons spend a ton of money campaigning for school privatization, something I consider harmful to society. Both the Waltons and Bill Gates contribute heavily to conservative think tanks to lobby for economic policies that benefit wealth.
In my view, multi-multibillionaires like Gates use their astronomical wealth to influence policy for self gain and give little to benefit American society. At least the Gilded Age gave us an elite class and a legacy.
Do you have anything to back this up? Anyone who was paying attention would have seen what exactly? I hated GWB with a passion, so I paid close attention to anything that he did or said that would be scandalous. But I never saw anything that could be fairly characterized as encouraging (illegal) tax evasion, or for that matter even tax avoidance.
There is no doubt that GWB believed in lower taxes for the rich, but he seemed to want to do it through changes in the tax code, in which he was quite successful. As far as providing opportunities for (legal) tax avoidance behaviors by the corporations and wealthy individuals, LEGISLATORS both parties have done so much for so long along these lines, it is hard to blame one President.
Auditing the poor for EITC is easy and self funding. The rise of the refund anticipation loan created an incentive for tax preparers and their clients at the low end to generate returns with large refunds, even if they were playing the audit lottery. If 90% of the people get away with it, the RAL companies make money even if they have to write off the other 10%, because the fees are so high.
As a hijack, is it normal for graphs in Sweden to mark off axes every 11% rather than every 10%?
Maybe obvious is too strong. The Bush administration didn’t publicly announce its blind eye to tax evasion, but I expect there was an unspoken understanding between corporations and the administration. The fact that Bush’s White House never tried to police corporations to end or discourage tax fraud indicates complicity. Factor in ideology, Bush and Cheney’s business history, consistently underfunded regulatory agencies, a poorly staffed and underfunded IRS, and the purposeful decision not to protect whistle blowers.
Below are examples of Bush’s policy choices and business history that seem to indicate tax evasion wasn’t something he opposed. Bold is added for emphasis.
He was successful approaching it sideways. There wasn’t any public debate.
There is no doubt that protecting the deep pockets of the donor class is a full time bipartisan task.
The Bush administration pushed EIC audits, too. I can’t imagine much work involved in these audits, unlike the time and highly trained auditors needed to examine corporate books. It seems like a waste of resources to audit simple tax returns for a possible gain of a couple hundred bucks when a few strategic corporate audits will likely recoup millions. There are some estimates that value off shore hidden assets as high as 12 trillion.
Even your first cite makes no sense.
The article was published at the start of 2002, while Dubya came into power at the start of 2001. Even assuming 2001 is one of the years in which they paid no income tax, why are you blaming Bush when they did the same thing for three years under Clinton?
Not to mention there is nothing here that amounts to tax EVASION. This is legal, scandalous and scummy, but legal tax AVOIDANCE. That is the very definition of tax evasion, as opposed to avoidance. To be evasion, it has to be illegal.
I work in finance (not tax) for a giant global corporation. We have lots and lots of subsidiaries in tax havens, and we reduce our tax bill a lot by it. The IRS, state governments and foreign countries sometimes challenge the arrangements. But these are hardly hidden. The payments we are making from US and EU entities to the tax haven entities are listed on our books just like payments to FedEx and UPS are. And in fact they are a honey-pot for the tax auditors. The problem is that every single time they have been challenged by the IRS at least (I don’t know about European challenges) we have produced documents and explanations that have shown that they are perefectly legal.
On the other hand I know tons of people on the low end who are cheating ILLEGALLY on their taxes. We had two prospective nannies who wouldn’t work on the books. Carpenters and painters on our home remodels who offered big discounts for cash payments, maintenance folks at our company that moonlight for cash, and brag that even though the rate they are paid is only half the union scale, they don’t have to pay any taxes on it.
I just filed a state tax return on which I paid $47 for use taxes on mail order purchases, and a few hundred for the nanny tax (both employer and employee portions). I imagine there aren’t too many people who are paying that. Even my wife thinks I am crazy. But if I am going to complain about other people, that is the price I have to pay.
That is a funny definition of hidden. Off shore assets even in tax havens are for the most part right there on the books of major corporations. Some of the money is undoubtedly the result of illegal activity (drug smuggling, racketeering, kickbacks) but you can hardly lay that at the feet of Bush. When it comes to prosecuting garden variety criminals, the left has no business criticizing the right.
Most of the corporate audits fail. That is because they are well designed. And they are audited all the time. I can tell you this from personal experience working in corporate finance three large multinational firms over the last twenty years. Tax audits of one subsidiary or another are happening at the rate of more than one a month, and that is only in the US. Most of the time, something looks wrong to an auditor, but the explanation turns out to be quite innocent. The big issues are the arrangements that seem to have little economic value, but generate big tax savings. As long as you can maintain a veneer of economic justification, courts do not strike these down. What you would need to shut these down would be a much broader authority of the IRS to look at the overall situation and say this doesn’t make any economic sense and sustain that position in court. But since many of the arrangements are specifically authorized by legislation bought and paid for by the companies, the courts can’t really do much, if they are actually going to follow the law.
The big opportunity for finding and collecting unpaid taxes is in small businesses, not big ones. But once again this is hard to prove, because they tend to be family owned or closely controlled. You have the odd case of the wife turning in the husbasnd, or the son turning in his father, but if the evasion scheme is simple skimming of cash from the register, it is going to be hard to prove.
I should have explained why I included Enron. Bush is connected to some of the worst corruption seen in recent years. He is from a corporate class who refuse to pay taxes or follow laws that govern corporate behavior.
I am not blaming Bush for Enron’s tax tricks. The quote was meant to emphasize Bush’s business and personal relationship with a man who not only used complicated corporate structuring schemes to not pay taxes, but also engaged in unprecedented fraud to deceive and swindle stockholders and employees.
Ken Lay had a long relationship with the Bush family. In the H.W Bush administration, Wendy Gramm guided a ruling on energy trading to benefit Enron, and then resigned from public service to sit on Enron’s board. Other members left H.W. Bush’s administration and went to work for Enron, including James Baker.
G.W. Bush and Ken Lay formed a business partnership in the 80s. Gov. Bushed used the bully pulpit to push utilities deregulation; Ken Lay advised Bush and helped bankroll his 2000 campaign. I am sure most people know this story. But there is much more if anyone wants to revisit Enron.
TheMightyAtlas, I don’t have time right a thoughtful response. I will be back this afternoon.
I know most of the corporate tax schemes are legal, but they shouldn’t be and wouldn’t be if the government wanted to challenge them.
The difficulty the Obama administration has experienced finding people with clean tax records suggests money not political party affiliation drives tax policy. Corporate donations from heavy hitters like financial institutions and the pharmaceutical industry are usually split between both parties or favor the party in the majority. Corporate lobbying is a two party system and the reason government is incompetent and doesn’t respond to the public. There really is no government – kind of like the off shore corporate shells.
Bush didn’t create the tax problem, but his administration was unapologetically run by corporate lobbyists, and he did more to encourage legal tax evasion than he did to stop it. I know politicians from both parties cater to corporate interests, but I think G.W. was the first president to make no attempt to hide his corporate run government. It was in your face, and it sent a strong message.
I will take your word about the corporate tax audits, but my reading doesn’t support it. The criticism I have read focuses on the lack of IRS funding and qualified auditors, and as you mention, political will. Corporations intentionally create complexity to hopefully make audits time consuming headaches. Large corporate audits also require highly trained auditors who understand the complex rules used in corporate accounting. This requires funding.
The off shore corporate structure schemes only exists on paper. It is a legal and accounting trick. The government could easily expose the schemes and properly label them as tax evasion.
There are U.S. corporations that park intellectual property off shore in a pretend subsidiary and pay (themselves) to use their own property, avoiding taxes and enjoying a tax deduction instead.
Because a tax scam is creative or technically legal, isn’t a reason to allow it. The spirit of the law is important. Fairness and ethics are also important.
Presumably, the check on government growth would be the capitalization of the top 25%. Short of that, why would we want another check?