# What is a fair amount of tax for the rich to pay?

**URL:** <https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416>\
**Category:** Great Debates\
**Created:** [April 26, 2010, 4:52pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416 "2010-04-26T16:52:59Z")\
**Posts on this page:** 13\
**Page:** 23

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**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\
**Post date:** [May 13, 2010, 3:17pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/441 "2010-05-13T15:17:07Z")

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> [@Honesty](#):
>
> I’d much rather see more taxes on corporations than on individual citizens

Why? Corporate taxation always ends up hitting individuals anyway, either in reduced dividends or increased prices.

I used to work for the US subsidiary of a UK company. US corporate taxes are higher than the UK. So what did we do? Wherever there was leeway to do so, we made profits in the UK rather than the US. It only made sense - our shareholders would not be happy with a line that we made them less money so that we could pay the US taxes instead of UK. By trying to get more money in taxation, the US ends up getting less.

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**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\
**Post date:** [May 13, 2010, 3:59pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/442 "2010-05-13T15:59:13Z")

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[http://www.progressive.org/mp/collins082108.html](http://www.progressive.org/mp/collins082108.html) When the corporations and execs escape taxes ,the burden is shifted to us. It doesn’t lower the money the government needs. it simply takes from someone who is not connected enough to get exempted from taxes.  
In the 1950s half the taxes were paid by corps. That goes down year after year until the middle class has a huge burden to pay for those who are connected enough not to.

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**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\
**Post date:** [May 13, 2010, 4:12pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/443 "2010-05-13T16:12:29Z")

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> [@DSeid](#):
>
> I have heard that “rich” is someone who makes four times what you make (or reasonably expect to make). Consequently it may be that a larger percent of the American population is rich in the mind of some here but a much smaller number seem rich to you. When people discuss higher taxes on the rich they generally mean those who are that abstract concept that they don’t actually know, not Uncle Voyager.
> 
> Now personally I don’t consider myself “rich” but I do not mind paying a larger share than a significantly lower wage earner, in fact I think that I should. And I do. Even though my nth dollar has a pretty big utility. OTOH I think someone who really _is_ rich (to my perspective) should in turn pay significantly more than me.

Sounds pretty reasonable. We shouldn’t confuse philosophy with policy. Since those who consider a middle class person rich don’t make policy, we don’t really have to worry about what their definition of rich is. The major point is whether those who everyone agrees to be rich should pay a larger percentage of their income than those who everyone agrees isn’t. Once we have agreement on that (which we don’t have for some people in this thread) we can determine the actual taxes. Since we can experimentally approximate marginal utility curves, I prefer that over measures such as luxury cars and McMansions.

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**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\
**Post date:** [May 13, 2010, 5:02pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/444 "2010-05-13T17:02:50Z")

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The mess we are in was telegraphed by Nordquist. He told us their plans were to gut the social programs. How do you do that? Easy, you make it impossible to support them. Then everybody would have to agree the social programs have to cut. So Bush starts 2 wars. But he doesn’t fund them. That is unheard of. But it helps get them to where they want to go. Then he has huge tax cuts concentrated in the wealthy class. Now we are getting some place. We are getting broke. We are spending money at an incredible rate and not supporting supporting new programs.  
Now we are in a financial hole. Medicare , Social Security, unemployment medicade and other programs can not be afforded any more. We are zeroing in on them. They will be slashed in one desperate last ditch attempt to balance the budget or half heartedly keep them alive while cutting them.  
It was a rapid redistribution of wealth , but we have not gotten where they want to go until all social programs are gone. Then a plutocracy, governing by the few to benefit theselves will be the rule of the land. They won. They have already done the heavy lifting. The beauty is they have convinced the masses of people they are acting in their interests. They are dumb enough to buy it.  
Your jobs, your homes, your programs and your support are of no interest to them. They don’t see America as a special place at all.,just another market . They have work to offshore and programs to cut. They have no patriotic drive. It is about money. Money equals power.

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**Author:** ![spazattak](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@spazattak](https://boards.straightdope.com/u/spazattak)\
**Post date:** [May 13, 2010, 5:13pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/445 "2010-05-13T17:13:37Z")

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> [@amarone](#):
>
> I got to 12k per month left after 401(k), tax (Fed & State) & Social security (I assumed two incomes, so each person has to reach the cap), so we are not far out there.
> 
> We were very close on the home costs if that was just for the mortgage. I added some for maintenance on the vacation home, extra property taxes and insurance. And extra insurance for luxury cars on top of what I pay for our 100k+ mile cars.
> 
> But the biggest differences are in schooling. The original email referred to the “best private schools.” I only looked up one, which happened to be Westminster in Atlanta. Tuition is $20k/year. I have 3 kids, so that gives $5k/month versus your $2k. So your $2k/month buffer has now gone. We are at -$4k per month counting the $1k difference in money available per month (I used a 1040 spreadsheet available online to calculate the tax, so I am pretty confident of that).
> 
> So we need an extra $4k per month. Plus I don’t see anything in your budget for vacations - rich people take lots of those, even in addition to owning a vacation home - insurance, gas, clothing, gifts, recreation and more.
> 
> My comment about needing $400k/year gives an extra $150k before taxes, which would be about $90k, or $7.5k/month after taxes. That still looks right to me.

I’ll defer to everyone else here and Voyager makes a good point. My own experience (in the midwest) was coloring my view on this a bit too much maybe. Housing seems to be a big factor - but all this is a bit of a distraction from the main point, and that’s been that there’s a general (not total) consensus of progressive taxation.

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**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\
**Post date:** [May 13, 2010, 6:10pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/446 "2010-05-13T18:10:31Z")

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[http://www.google.com/hostednews/afp/article/ALeqM5hkg5VhwETJHWaiIqxwwj\_PsHQ2Dg](http://www.google.com/hostednews/afp/article/ALeqM5hkg5VhwETJHWaiIqxwwj_PsHQ2Dg) Iceland is rounding up the bankers for prosecution. I think they have a better understanding of what happened than we do.

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**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\
**Post date:** [May 13, 2010, 8:24pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/447 "2010-05-13T20:24:31Z")

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[$108 Million Income = No Taxes | HuffPost Los Angeles](http://www.huffingtonpost.com/dave-johnson/108-million-income-no-tax_b_475638.html) This is the Dodgers owner and his wife in divorce court explaining they made 108 mill and pay no federal or state taxes. It is the poor and unwashed who pay.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [May 13, 2010, 9:01pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/448 "2010-05-13T21:01:46Z")

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> [@amarone](#):
>
> Why? Corporate taxation always ends up hitting individuals anyway, either in reduced dividends or increased prices.
> 
> I used to work for the US subsidiary of a UK company. US corporate taxes are higher than the UK. So what did we do? Wherever there was leeway to do so, we made profits in the UK rather than the US. It only made sense - our shareholders would not be happy with a line that we made them less money so that we could pay the US taxes instead of UK. By trying to get more money in taxation, the US ends up getting less.

There is an entire tax discipline connected with that called trnsfer pricing. For the most part it is not as easy to source income where the taxes are lowest instead of where the income is earned.

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**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\
**Post date:** [May 13, 2010, 9:20pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/449 "2010-05-13T21:20:07Z")

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> [@Damuri\_Ajashi](#):
>
> There is an entire tax discipline connected with that called trnsfer pricing. For the most part it is not as easy to source income where the taxes are lowest instead of where the income is earned.

I do know this subject. Transactions between the corporations in different countries have to be done on an “arm’s length” basis, i.e. transactions between subsidiary companies have to be done on the same basis as between separate companies. But there is always wriggle room.

For example, let us say we do programming services for our clients at typically $150/hr. Some clients may negotiate hard and get us down to $120/hr. This now sets a range of what we do with our external customers.

Now, let us suppose that we do some programming services for our UK sister company. If taxation is higher in the US, we can charge $120/hr to maximize profit in the UK. If taxation were higher in the UK, we could charge $150/hr and maximize profit in the US. Both charging rates are legitimate and would stand up to scrutiny because we can show that we charge those same rates to non-related cmpanies.

In many areas there is no black and white answer. There are valid shades of grey. You just pick a part of the grey area that suits you best.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [May 14, 2010, 2:48pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/450 "2010-05-14T14:48:44Z")

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> [@amarone](#):
>
> I do know this subject.

Sounds like you know at least the basics, maybe more, a lot more.

> [@](#):
>
> But there is always wriggle room.

So we are talking about transfer pricing around the edges? Hardly sounds like a reason for racing to the bottom. If the numbers ever get very big, you can bet that both the IRS and Inland revenue will be taking a closelook at the pricing.

> [@](#):
>
> In many areas there is no black and white answer. There are valid shades of grey. You just pick a part of the grey area that suits you best.

In grey areas large corporations fequently try and get an Advanced pricing agreement (an agreement between teh affected governments and the company about how income is going to be allocated).

Your basic prmise is that income flees to the jurisdiction with the lowest tax rates on that income. Does that mean a race to the bottom, if not then why not?

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**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\
**Post date:** [May 14, 2010, 8:06pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/451 "2010-05-14T20:06:45Z")

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> [@Damuri\_Ajashi](#):
>
> So we are talking about transfer pricing around the edges? Hardly sounds like a reason for racing to the bottom.

The thing is, manipulating around the edges can be all you need, because whataver you do goes straight to the bottom line. In my example I showed that services pricing could easily be justified in the range $120 - $150/hr. Let us say that on avaerage we make $135/hr and our net margin is 15% (which is what my company made).

15% net margin on $135/hr is about $20. Now we can see that the ability to move $15/hr between countries (by cross-charging at $120 - $150) results in most of the profit (and therefore taxes) also moving between countries.

> [@](#):
>
> Your basic prmise is that income flees to the jurisdiction with the lowest tax rates on that income. Does that mean a race to the bottom, if not then why not?

You will have to define “race to the bottom” for me - it is not a term I have used.

I know that high corporate taxes in one country will drive profit, and therefore taxes, overseas. If my little \<$50m company can do it, I am sure that large multinationals with expensive lawayers and accountants will have little problem.

One example - Daimler-Chrysler structured themselves to pay taxes in Germany rather then the US because of more favorable corporate taxes.

There is competition for lower taxes even within the US. States attempt to attract major corporations by offering tax breaks. NCR is relocating HQ from Ohio to Georgia - one of the reasons is the tax breaks offered by GA.

Major corporations set up operations to minimize expenses. We all know this - we have seen call centers and programming outsourced to India and other places. Taxes are an expense (I don’t mean in a strict accounting sense - I mean in a real world “what is deducted before getting to shareholders profits” sense). If a company can reduce this expense by structuring its business differently, you can bet that many will do so. Companies don’t headquarter in Bermuda because of the nice beaches.

Many people seem to think that taxing corporations is a free and easy way to raise money without impacting ordinary people. This is nonsense. I think the average American would benefit by zero corporate taxes. Capital and jobs would flood to the US. Companies would have more money to pay dividends and there would no longer be a double-taxation argument for taxing dividends more lightly. Companies would pay bigger dividends and they would be taxed as normal income (again). People make more and more tax revenue is raised. And Germany and the UK and others pay for it.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [May 14, 2010, 9:12pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/452 "2010-05-14T21:12:56Z")

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> [@amarone](#):
>
> The thing is, manipulating around the edges can be all you need, because whataver you do goes straight to the bottom line. In my example I showed that services pricing could easily be justified in the range $120 - $150/hr. Let us say that on avaerage we make $135/hr and our net margin is 15% (which is what my company made).

What you seem to be saying is taht because transfer pricing focuses more on revenue than income you can have some dramatic shifts in income. I think transfer pricing takes that sort of thing into account.

> [@](#):
>
> You will have to define “race to the bottom” for me - it is not a term I have used.

If increasing taxes will drive away corporate income then lowering them will attract income. While production and jobs are not a zero sum game, taxable income is. in other words taxable income to one country is that much less taxable income to another country so nations would be competing for corporations to source income in their jurisdiction and because even a little tax revenue is better than none at all, the corporate tax rate would eventually drop to almost nothing, leaving the tax burden on other forms of income.

> [@](#):
>
> Many people seem to think that taxing corporations is a free and easy way to raise money without impacting ordinary people. This is nonsense. I think the average American would benefit by zero corporate taxes. Capital and jobs would flood to the US. Companies would have more money to pay dividends and there would no longer be a double-taxation argument for taxing dividends more lightly. Companies would pay bigger dividends and they would be taxed as normal income (again). People make more and more tax revenue is raised. And Germany and the UK and others pay for it.

I think you can make a very good argument for elimination of the corporate tax (along with the elimination of special treatment for dividends and capital gains from stock) and if we had a system entirely funded by corporate taxes, we would effectively be instituting a flat tax or consumption tax regime depending on what we did with capital gains and dividends.

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**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\
**Post date:** [May 14, 2010, 9:40pm UTC](https://boards.straightdope.com/t/what-is-a-fair-amount-of-tax-for-the-rich-to-pay/537416/453 "2010-05-14T21:40:10Z")

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> [@erez](#):
>
> This is a terrible argument (I guess that’s not surprising considering low knowledge of economics among liberals, as proved by a recent study 😉 ). Even if all these things you listed were actual benefits to entrepreneurs or other “rich” people, what percentage of government’s spending do you think goes to these activities? Very low. Largest portions of the US government’s spending (Social Security, national defense, unemployment, welfare, Medicare, Medicaid, debt interest, transportation, Veterans, HUD, education) are things that do not benefit rich people much more than than their proportional income and some of them even benefit them less.

It’s more honest to leave social security and Medicare out of it. SS is paid for out of a flat tax paid on the first dollar of wages with a cap of around $90k. Medicare is paid for out of a flat tax on wages with no cap.

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