I don’t think the wealthy are taxed too much (currently), as I’ve said, but I’d say the answer to your question is when you are trying to stimulate growth, such as when we are in a recession. However, there is no silver bullet formula for raising or lowering taxes. For instance, from what I understand when the housing crisis hit, that was NOT a good time to lower taxes to attempt to stimulate growth, because this wouldn’t have really had that effect. So…it depends.
It’s also not going to have an instant effect…in fact, it can take years before things start to shift. It’s more like changing the rudder on a huge ship than moving the stick on an air plane…it takes a lot of time before things start to shift into new directions. I think that’s where a lot of confusion comes in.
Depends on what else is happening during the surplus. Are we in a period of great economic growth and expansion a la the 90’s? If so, then that would mean that taxes could and should be raised, not lowered. Are we in a depression or recession and you’ve arrived at a surplus only through draconian cuts? Then you might want to consider lowering taxes in the short run in order to stimulate economic growth.
Like I said, there aren’t any silver bullets or sure fire formulas to run to ensure you always get the optimal result. It’s all a balancing act.
Again, it depends. Not all debt for a nation state is a bad thing, and SOME debt is necessary. But overall, if I understand what you are asking, then I agree…we should try and run the government within our budget and not run large deficits for long periods.
Guaranteeing income is generally a horrible idea. Like it or not most people work because they need the money and once you take that away then most people would rather stay home and play with their kids.
Anything more than subsistence levels of aid will reduce natural incetnives in a capitalist society.
All money is either spent or saved. I can understand robbing Peter to provide Paul with basic nourishment and medical care, I can’t understand robbing Peter to provide Paul with a reasonable standard of living, Paul has no right to live better than he earns, we as a society have decided that we don’t want to see him starve or suffer but if he wants more than that, he is goingn to have to work for it.
Right now the bottom 50% of the country pays less than 3% of all income taxes. Their burden is basically limited to payroll taxes, sales taxes and imputed taxes. Their effective overall tax rate is probably somewhere in the 15% range. but their effective federal tax rate is close to zero and for the bottom 20% they have a negative tax rate.
The majority of voters are not completely disconnected. The income tax is not the only tax. However I would agree that it would be a healthier democracy if everyone paid at least 5% of their income in taxes.
I think there is ONE poster who thinks it should be drastically more progressive. I think the rest of us would like to see tax rates revert to Clinton era rates or maybe even early Reagan era rates.
I think this was more a matter of government cooperation to prevent a race to the bottom on tax rates and other things.
You keep forgetting the government’s ability to borrow and print money. If you want to address government spending then address governemnt spending. Don’t pretend taht cutting taxes will reduce government spending, “starve the beast” hasn’t worked in 30 years it simply creates deficits.
It is generally not considered healthy for a democracy or for citizenship in a democracy to divorce the cost of government from those who choose their government.
I agree with this except the last sentence. We are not taking from the producers to give to teh spenders. We are taking more from those who capture the most value from production in this economy to spend spend on things society thinks is valuable.
I guess I don’t believe that people necessary earn what they deserve or deserve what they earn. Much of it is supply and demand, I think a teacher like Jaime Escalante probably does a lot more to increase wealth than an investment banker like Fabrice Tourre and yet Fabrivce Tourre made ten or twenty times more at the age of 31 than Jaime escalante ever made as a teacher.
With that said people who make a lot of money generally work very hard and are very capable but their efforts are not the sole source of their productivity.
We are still trying and one day we will get there.
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Now it wants to be the distributor of funds and programs to the population, whether they’re rich or poor. It wants to punish the rich and give the money to the middle classes, well into the upper middle classes.
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for example?
agreed.
Are you saying that medicare and social security benefits should be subject to a needs test? What other middle class benefits atre you talking about? Public schools? Federally funded highways?
Heh. That’s one hell of a presumption, because every time there’s even a mild economic downturn – which is to say once or twice a decade – there are calls for a new “one time” stimulus. Bush did it, Clinton did it, Reagan did it, Carter did it, and back farther than that. They vary in the specifics and the results, but what’s for sure is that they keep getting bigger. Even if the stimulus worked exactly as Obama hoped (and it hasn’t so far), it’s a given that we’re going to face another downturn sooner or later … and once again, people in office will want another “one time” stimulus to deal with this totally unexpected event.
Our politicians are like the children that keep saying that if we give them this one toy, they’ll never ask us for anything else again, ever, honest. And we’re the saps that keep giving it to them, even as we go broke.
And TARP is now precedent. The next time an important (read “politically influential”) corporation goes broke doing stupid crap and wants a handout, do you really think our politicians are going to have the sack to tell them no? If Ford goes broke, you really think they won’t get the GM bailout treatment?
At confiscatory levels of taxation, you get something cvalled capital flight. Its mild (almost non-existent) when you go from 35% to 39.6% top marginal tax rates, it is pronounced when you go from 35% to 99% top marginal tax rates. But there’s probably some sort of middle ground.
No, it’s not if you want a balanced budget, if you want to get out of debt, and/or if you’re a Keynsian, which a lot of people claim to be, and which evidence shows we are at least much of the time.
Sam’s point, the one you called misleading, was that we are in a massive debt hole that will take decades to get out of. It must be taken into account that at some point during those decades, we are going to have lean periods where tax revenue drops and we engage in countercyclical spending. It’s foolish to assume we will get back to “normal” and then stay there for any significant period. One of Keynes’ fundamental principles, little talked about, is that you have to run a surplus during the flush years so that you can afford that countercyclical spending during the downturn.
If the structural taxation and expenditures are not set up to run a surplus in the good years – a big one – we will be getting deeper into the hole in the bad years.
Of course, our budget as its set now has us going further and further into debt even in the good years, so I suppose it’s a moot point.
(And mind you, I’m not especially Keynsian; I don’t expect us to ever get out of that debt hole, and expect us to be like Greece within my lifetime. I’m just saying that if you are trying to set a course back to fiscal solvency, you have to plan for the bumps ahead)
You tell me that getting more money is greater economic incentive. Well, yes, that’s tautological & thus meaningless. That’s what incentive means in that case.
That doesn’t mean that more money paid, or more money made, creates more productivity. If it did, market competition would be useless, since consumers would always get more value for a higher price. It is often possible to do the same work for slightly less, & this is generally a successful business plan when it works. If you think that you always get a result perfectly proportionate to what you pay for, you’re what conmen call a “mark.”
Now you may say that’s not what you meant. Maybe you meant that because investors, highly trained professionals, & persons of high status are “highly mobile,” we have to pursue low-tax “race to the bottom” policies to lure them to our country.
This sounds irresponsible to me. A serious government, run by the people for the common interest (a.k.a. democracy, a word they apparently don’t have in Alberta) will, if intelligent, try to train native professionals that stay in the country out of patriotism–or, if necessary, encourage professionals into its country by positive inducements rather than simply shrugging in their general direction. And low-tax, low-service economies are little more than a shrug of indifference toward workers in any sector (other than the precious few that get gov’t, political, or gov’t-subsidized jobs).
And how mobile is a landowner, or a corporation with investment in a trained workforce, really? It’s not like we can each plug into phone line & magically physically end up in Sark.
As for “where the money comes from,” you sure talk a lot about economic growth for someone who doesn’t know what it is. Income is not wealth. GDP is not money supply. And even the money supply grows (temporarily) as banks store credit. An economy grows as more business is transacted. There are finite resources in the world, sure, but the size of the economy is (to a limited degree) inflatable.
I wonder whether people on the right realize just how great in number the people are whose work “freely” subsidizes the rich?
Income taxes, like wealth taxes, are designed to only tax the upper half of incomes. And if most of the wealth and most of the income are in the hands of a few, then even a flat tax would result in most of the tax being paid by that few. Even taxes, that is, capitation taxes, just don’t last, Sam. You end up with low receipts, a weak (& therefore cheaply corruptible) government, & the productive in debtor’s prison.
What makes us susceptible to revenue losses due to income shocks and recessions is actually relying so heavily on transactional taxes (on income & sales). That’s why we need a regular tax on net worth (not our current rather silly practice of taxing estates only at death). We can lower the income tax & add a small wealth tax, & be more stable.
And if your arguments about high mobility are correct, then in fact I suppose we do need a world government.
No, it’s a lousy idea. Every time the estate tax is revised it creates an incentive to have grandma die in a particular year & not another.
I would exempt ~$100K, & then have it be somewhat progressive past that. Can we agree on a marginal system, 0.4% of estates past the first $100K, rising by increments of 4% at thresholds of $1M, $10M, etc.?
You are mistaken, I very much understand the concept of risk; I don’t explicitly mention it because it is, I hope, to much of us, implicitly understood.
What you are not getting is the difference between income and capital appreciation as separate parts of evaluating an investment choice and how tax rates potentially affect them. (Please note: I am not arguing for or against “confiscatory rates”; only pointing out that this example doesn’t make sense and why it does not.)
Perhaps it can be made clear with a modified hypothetical. Imagine that I have an income of over a million dollars per year and live in a system in which there is an additional marginal bracket for $1,000,000 and over of 90%. And say long term capital gains up at 50% for that income level. I also have a million dollars to invest. I have some choices of where to invest it. I will however not just put it in a mattress. I don’t even consider a savings account(s) as an option - a few percent of it as income that then gets taxed at 90%? Safe perhaps but produces only maybe two thousand a year net after tax income.
Option one: a rental property in a stable neighborhood with a stable business tenant that after expenses and real estate taxes nets $100K/yr (“triple net” they call that). The property has very little risk of appreciation or of loss. It produces income which will be taxed at 90% so my actual net will be 10K/yr.
Option two: a risky investment in a start-up. Could lose it all. Could return 50-fold. Or anywhere in between. I think it will succeed, or at least has a 50:50 shot of it, but I don’t know. Maybe I’m reading the market wrong and it has a much smaller chance, but that is my read. It will be taxed when I sell it, if it makes it, and only then. If I never sell it it is part of my wealth, which I can borrow against if I want. Assuming it succeeds at the 50-fold level and I do sell it then I make a $49,000,000 profit which gets taxed at 50% capital gains. A loss offsets my other investments’ profits, so potentially saves me 50% of the loss back as tax that I otherwise would have had to have paid.
How should I invest? Does a “confiscatory” marginal income tax at that level make it more or less likely that I choose to invest in the riskier choice?
Now of course in the real world no one is talking about these taxation levels and the real investment choices would factor in real likely appreciation scenarios, real perceptions of risk, and real tax numbers. But since the safer investments tend to produce income more than roll the dice for capital appreciation, any tax structure that taxes income more than capital gains by any margin will encourage higher risk for higher gain investing.
There is no reason to assume that investment in riskier ventures is diminished by a higher income tax.
Another point: I have a nice income and pay a high marginal rate. I also have expenses that I am now committed to. A mortgage on a house in nice neighborhood in a great school district and a home equity loan to have funded its renovation after we bought it. Putting my second through college in a private institution and him not qualifying for loans or grants because I make too much. Two more to go after him. Etc. Imagine now my taxes get raised by another 3% so my net after tax income is down. Sorry I am not going to work less; I am going to see if there are any ways for me to work more to make up that loss so that I can still fund my expenses.
Damuri, I am not arguing for 90% taxation but capital flight can only happen if it has somewhere to fly to that is a significantly better option. It is again a question of how the investment compares to the net effect of other options available, not any static number is isolation.
I didn’t make that distinction because Sam Stone’s post sounded like a businessman counting on pulling an increased salary (hence income tax) from the growth of the business. In this situation, capital gains wouldn’t enter into the picture unless he structured it with equity stock and sold some or sold it the whole business outright.
To continue, I think your distinction between income tax vs capital gains tax (while accurate) seems out of place in this particular thread.
For discussions of this type, people don’t really distinguish between income vs capital gains. I can’t read pkbite’s mind but the tone of his post didn’t sound like he expected to rigorous.
When people (who are not rich) want the wealthy to pay more tax on “income”, the “income” usually means “salary income” + “capital gains” + “inheritance money from dead grandmother” + “royalties from oil fields” + “everything else” + etc etc etc.
If we account for the common man’s all-encompassing usage of the wealthy’s “income”, confiscatory rates will lead to reduced investment.
Also, this rental property example just muddies the conversation because the example you and Sam were talking about was “growth” opportunity. A single piece of rental property isn’t what we typically pegged as “growth” (barring bubbles in San Fran, Florida, and Las Vegas).
Edited to add…
Well, that’s your approach. My approach would be to look for additional tax deductions to offset the 3% instead of working extra hours.
You people do know that corporations have been cutting jobs for a decade or more in America. It is small business that created the jobs of late. They should get tax breaks. I really don’t think Paris Hilton and her sister deserve tax breaks. I fail to see the jobs she brings. Ever watch the programs with the spoiled demanding rich kids ? I suppose rich people are just better than we are. They were born rich and certainly should be free of taxes.
