I suppose if the barons of industry are too big to fail, they are also too big to contribute to the health of the country.
I still think historically we’ve used two different systems: tax the shit out of the poor for the benefit for the rich. Tax the shit out of the rich for the benefit of the poor.
Let’s try a third way: tax the middle class in proportion to what the want, can afford, and need. Don’t decide dinner based on the richest person at the table (which I think at some point becomes unfair) and obviously there is no point having the poorest person pick up the tab.
Look at that 75% of the population between the lowest 20% and the richest 5%. It’s the most populated group, and the ones contributing and benefiting from society. Let the policies be based for, of, around them.
Right, let’s stick average people with paying the highest tax rates. Because poor people are pitiful and rich people are special. I understand what you’re saying.
It works out really well for rich people, and it serves as a perfect distraction. All the class anger would be from Middle Class against Poor, while the ever increasing share of the pie held by the top 1% goes ignored.
But you said, “share of the pie.” Why is their share ever increasing? Is there no upper limit to what one individual is expected to contribute?
If you have 10 people at the table, 1 poor, 8 middle income, 1 super rich. As long as there aren’t an excessive number of poor compared to middle income, the individual bill doesn’t go up by that much. Like taking a friend out to dinner for his birthday, if 20 people go and share his portion it’s much easier than one person having to carry it all.
And again I really need to try and making this point: Pick the restaurant based on what the middle 8 are willing to spend. Not on what the richest can afford. It’s the choice in government spending that needs to be addressed. There is no reason to spread the bill out proportionally to wealth, it seems petty to ask the poor guy for $1, and it seems rude to ask the rich guy for $100, when everyone else is paying $10.
If the middle are willing to pay $10, the bill should be closer to $90 than to $181. That’s right, it means fewer drinks, we should be okay with that. It might be time to stop expecting wealthier people to improve our lot in life.
Well, maybe we should just enact a head tax then. Everyone has to contribute, say, $10,000 to the government every year. Then things are perfectly fair.
John Paulson the hedge fund guy made $3.7 billion in 2007 and paid 15% tax on it, or at least the part of it he couldn’t defer indefinitely into the future.
You’d have a point if they earned all their money exclusively through the product of their own efforts and didn’t earn their money on the backs of the poor and middle class. If the CEO of Walmart has to pay higher taxes so that his workers can have decent health care, I’m not going to shed any tears over it.
By ‘share of the pie’, what are you talking about? Income? Or overall wealth?
And are you of the opinion that there’s a pie of fixed size, and if my income is bigger it must be at the expense of someone else? What if I have a higher income because I’m creating more value than you are? Does that not affect the calculation?
As for the appropriate tax rate, there are a number of factors to consider:
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The higher the rate, the more tax avoidance behavior you get. This is inefficient, because it causes private capital to move based on tax implications rather than on where it would otherwise do the most good.
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Capital flight. The higher the taxes, the more likely it is that Americans and others will move their income-earning activities to other countries.
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Work disincentive. The higher the marginal rate gradient, the less incentive there is for people to take risks or work harder to earn more money.
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Brain drain. Make your taxes too high, and the people who can be expected to earn the most money will move elsewhere. Americans don’t have a good sense of this, because they’ve largely been the beneficiaries of brain drains from other countries. But ask a resident of the UK or Canada about it. It’s incredibly destructive to a country to have its best and brightest leave because others are trying to milk them too hard.
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Private sector capital accumulation. Small businesses drive job creation. And just how are small businesses created? With private sector capital. You go to your rich uncle and ask him to invest. Or you save your own money and build a business with your savings. Or you take out a small business loan and the bank gives you money deposited by other private savers. Raise the marginal rate to 90%, and you’ll kill small business growth, and with it innovation and job creation.
This is not the 1950’s. The world is now global. Markets are intertwined. Capital flows freely. Internet age businesses can move quite easily. People can work remotely. The barriers to moving capital and people around have fallen dramatically. That means governments themselves operate in a sort of quasi-market - people are free to pick and choose their governments to a much greater extent than they ever have before.
The rest of the world has been figuring this out. Europe has dramatically dropped its business taxes. Canada has downsized both its government and its tax bite. While the U.S. has 40% business tax rates, we have a tax rate that is at something like 18% now, and will be 12.5% in 2012. Yes, American businesses have effective tax rates close to the the rest of the world’s, but they only get there by engaging in all kinds of tax-avoidant activities, and/or jumping through government hoops to get all the tax credits politicians have thrown their way. That creates deadweight overhead.
But you guys go ahead and raise the top rate on the rich to 70% or more, and increase the tax burden on businesses. As a Canadian, I look forward to the influx of high-wealth immigrants, and I expect business investment in Canada to grow dramatically. At the expense of America, but hey, you make your own choices, and you live with the consequences.
If you think this won’t happen, I suggest you have a look at the dynamic going on between the states in the U.S. right now. Look at the rates of business investment growth in California and New York, where taxes and regulations are high, and compare that to the rate of business growth in Texas, North Carolina, Florida, Georgia, and Tennessee, which are the five most business-friendly states in the U.S. Look at internal migration statistics.
Here, let me help you out. Below is a list of the ten states that have the largest number of people moving INTO the state from other states. Below that is the top ten states that have the most people leaving for other states.
Beside each state, I’ve added the state’s ranking of economic freedom, as reported by the Fraser Institute
The top ten states with the biggest net internal migration to the state, as of 2004:
Florida (20)
Arizona (20)
Nevada (7)
Georgia (4)
North Carolina (4)
Texas (3)
Virginia (14)
South Carolina (26)
Tennessee (9)
Washington (38)
The top ten states with the biggest net migration out of the state to other states:
New York (42)
California (26)
Illinois (18)
Massachussetts (14)
New Jersey (31)
Ohio (31)
Michigan (26)
Louisiana (14)
Kansas (20)
Utah (9)
Economic freedom average of the states with the most net internal migration gains: 14.5
Economic freedom average of the ten states with the most losses of population to other states: 23.1
Let’s look at another correlation: Business taxes. Here are the same states again - this time, the number in parentheses is the state’s rank in business tax rates:
The top ten states with the biggest net internal migration to the state, as of 2004:
Florida (13)
Arizona (29)
Nevada (1)
Georgia (8)
North Carolina (22)
Texas (18)
Virginia (8)
South Carolina (12)
Tennessee (11)
Washington (19)
The top ten states with the biggest net migration out of the state to other states:
New York (30)
California (39)
Illinois (15)
Massachussetts (36)
New Jersey (50)
Ohio (37)
Michigan (49)
Louisiana (34)
Kansas (45)
Utah (5)
Average Business Tax Ranking of the states gaining the most people: 14.1
Average Business Tax Ranking of the states losing the most people: 34
If you weight this by the size of the movements, it gets even more stark. New York State should be a model for democrats - big government, high taxes, lots of unionization, lots of regulations, people packed into big cities. It has all kinds of natural advantages, having one of the biggest seaports in the world and being a transportation hub and plenty of resources. And it’s bleeding population like crazy - from 2000 to 2004, about 186,000 people per year moved out of New York for other states.
California is much the same - it should be a left-wing paradise. It’s got big government, high taxes on the rich, all kinds of government investments and subsidies of business, ‘green’ initiatives up the wazoo, lots of unions. It has the most progressive tax code in the U.S. But it’s the second-biggest loser of population in the United States.
On the other hand, Texas should be a disaster if you believe the left. Low taxes, low regulations, less government. But Texas is gaining in population dramatically. Businesses are fleeing California and setting up in Texas and North Carolina where taxes are low and the government leaves them alone.
You can do this same analysis for just about any metric of governmental and societal health. The states with the biggest governments and the most regulations tend to also have the highest debt, the weakest job growth, the weakest GDP growth, etc. And they’re not even socialist paradises where the people are happier but poorer, because people are voting with their feet and leaving the states with biggest governments and moving to the states with smallest governments.
Now, consider a global world, where people can choose to leave the country completely if the federal government becomes too big and taxes too high. You’ll see the same thing in the U.S.: Lower growth, bigger debt, and more innovation and innovators leaving and settling elsewhere.
And while I’ve got these lists of the ten best and worst states, I thought this was interesting:
Here’s the same list, only this time the number in parentheses is the state ranking in terms of debt per capita. In this case, the bigger number is better.
Florida (40)
Arizona (46)
Nevada (43)
Georgia (48)
North Carolina (37)
Texas (49)
Virginia (31)
South Carolina (17)
Tennessee (50)
Washington (21)
The top ten states with the biggest net migration out of the state to other states:
New York (8)
California (23)
Illinois (12)
Massachussetts (1)
New Jersey (6)
Ohio (34)
Michigan (20)
Louisiana (19)
Kansas (38)
Utah (35)
Data from 2007
Average ranking of best states: 38.2
Average ranking of the worst states: 19.6
Liberals claim that the solution to debt is higher taxes. Yet the first group of states, which have lower personal and business taxes, rank among the best states in the U.S. for debt. The states in the bottom list are almost all high-tax states, and yet they are among the worst states in the U.S. for debt.
Wow, Sam, that’s a very convincing vomit of opinions, tenuously drawn conclusions, and think tank “research” you’ve buried us with. We’ll all be sure to read that.
I just can’t stop…
I suggest everyone read the Fraser Report on Economic Freedom They have lots of interesting comparisons there.
For example, the top five states for economic freedom have on average 29.9 patents per 100,000 people. The bottom five states for economic freedom have 8.8
The top five states for economic freedom have a per-capita venture capital investment rate of $138.74. The bottom five states for economic freedom have an average of $15.57.
The growth rate of sole proprietorships in the top five states is 4.2%. For the bottom five states, it’s 2.8%
I could go on. The bottom line is that high taxes and big government lead to less innovation, less business investment, less job growth, higher debt, and ultimately, the flight of the population.
Consider this when thinking about just how high your taxes should be.
In other words… “lalalalalalalalala I can’t hear you lalalalalalalala”
You’re more than welcome to present countervailing data. I look forward to it. If my data and conclusions are so wrong, this should be an easy task for you.
Good thing the United States is consistently at the low end of taxation in comparison to other countries! That’s a point that might be missed if one were to only read your last couple of posts.
Actually, I alluded to that. I said that you guys don’t understand how destructive high taxes can be because you’ve consistently been the recipient of the benefits from other country’s high taxes. That’s the whole reason I brought up the state-to-state comparison in the first place. The dynamics you see between the high and low states are repeated between countries at a global level.
My other point is that this dynamic between countries is getting stronger, because the barriers to capital flight and human capital flight are getting lower all the time. So, by looking at the states, where the barriers to movement are very low, you can see what might happen to the U.S. should it do what some of you want, and raise its taxes and size of government dramatically.
For example, ten years ago Canada’s government was significantly bigger than the U.S.'s as a percentage of GDP. Our taxes were higher as well. The result was that we were continually losing business investment, doctors, and engineers to the United States. You guys benefited from our short-sighted government policies.
We learned our lesson. We’ve decreased our size of government from 44% of GDP to 34% of GDP. We’ve cut our business taxes, and we’ve been cutting business regulations. Provinces like BC which elected left-wing governments and imposed high taxes and regulations got creamed in the market, and now mostly have conservative governments. So we’re heading in the direction of more freedom and lower taxes.
This year or next, the U.S.'s size of government will surpass Canada’s. When the Bush tax cuts expire, your overall level of taxation will be higher than ours, as will your level of tax progressivity. You have the highest business taxes of any major country in the world (I think Luxembourg is higher, and that’s it). And you’re talking about raising taxes dramatically in spite of the fact that you’re already in a poor competitive position with respect to your main economic competitors.
Then you wonder why you’re losing manufacturing jobs and business investment. I’m telling you that if you continue down the high-tax, big government path, this is going to get worse. If you respond to that by stimulating unionization of your work force, you’re going to hurt yourselves even more. You can’t regulate yourself to prosperity. Nor can you tax and spend your way to competitiveness with the rest of the world. If you keep going in the direction some of you want to go, the U.S. is going to get hammered. Fifty years from now, you’ll be has-beens - much like what happened to Britain when it embraced that kind of model after WWII.
The US is losing its manufacturing base because of high taxes? Really?
Honest question: what’s it like living in a manufactured reality?
If you’re trying to get at what’s fair in the present régime, then I feel I have insufficient information. I mean, I know that $10 million per annum is in a high percentile, so his taxes should be above average, but what number exactly is a function of a larger context.
Do you want, as some people seem to want, a pure & general answer, on the order of, “This is what someone should be taxed in any given time or place.”? If so, the answer is that there is no such answer. If there is a war, & our rich friend has a duty to save his nation from extermination, then he may be paying a very high tax rate indeed. If his country is some sort of lawless state where the “government” is a pure extortion racket, he may arguably have no moral duty to pay tax. But I can say, in general, that income taxes generally should not exceed 100% of income. Is that helpful?
If I had to come up with a general rule for an ideal society, while conceding to a cultural prejudice toward clear flat rates, I would suggest that income taxes be set at 50%, less a negative income tax (which would be a fixed stipend per person in household, sort of an inverse capitation tax). Thus one keeps one-half of one’s income as personal economic incentive while putting the rest into the community. This draws a line neatly halfway between an extreme individualist ideal (0% tax) & total egalitarian communism (100%, less defined allowances per person).
But as a practical matter, I think the tax base should incorporate wealth taxes, as those are more resistant to recession. So there would be two taxes. And I think wealth taxes really should be progressive, with a large personal exemption.
So if State X decides that it will give, say, Hyundai $600 million in tax breaks to open a factory there, but maintains its standard rate of taxation on small businesses, you would call them a business-friendly state because new companies are relocating there, right?
Both.
I have a way of addressing poverty and inequality this that wouldn’t neccesarily involve higher levels of taxation, but to post about it would be a major hijacking of this thread so I’ll post about it later on.
Sure, that’s possible. In fact, it’s the case more often than not. But I have a Utilitarian view on public policy. It’s not of primary importance to me whether or not the rich deserve every penny of what they earn, or whether the poor deserve to be poor because they are lazy. The main question that I ask is: how can we structure society in such a way as to minimize suffering and maximize happiness amongst the populace? And I place particular emphasis on mitigating suffering because the deprivation of poverty is ever so much more painful than the deprivation of having to wait a few extra months to get a second yacht.
Your question is more along the lines of “how do we maximize GDP?” Sure, GDP does play a factor in overall happiness but it’s not the only consideration in play.
I’m willing to take some hits in GDP growth if they mean that nobody has to go to bed hungry, go without a roof over the head, or languish without a basic level of health care.
I never said that. I said that you’re already losing manufacturing (for a number of reasons), but that higher taxes will make it worse.
Where is this coming from? I said nothing about subsidies. I pointed out that there are all sorts of correlations that show that high taxes and regulations are bad for business, bad for the economy, and bad for the people. I said nothing whatsoever about subsidizing business (which I oppose). I suspect you’re trying to change the subject.
If you want a more general answer, I’d say that the $600 million is coming from either other businesses or the public. That will require tax hikes, and is ultimately not a good thing.
Is it your assertion that the states on the ‘best states’ list above engage in more of this kind of subsidy? None of the data I offered references business subsidies at all. My guess is that the ‘best’ states actually have lower levels of business subsidy, since they have lower taxes and lower debt, so there just isn’t that much money available. I also know that California subsidizes businesses like crazy, and it doesn’t seem to be helping.