This seems to be the Republican talking point right now, but I’m not sure where it’s going. Are they proposing lowering taxes for the wealthy or raising them for the less well off?
And as above, how does this git with the meme that US income taxes are too high?
You’re missing the point. Because people have more money in their pockets, they can spend or invest more, employing more people - who then pay taxes - and creating more wealth - which can also be taxed.
Which axis of the curve is that on?
The idea of “tax less and that money will be invested, thereby creating jobs” doesn’t hold up – by that logic, you’d get the exact same effect if the government taxed MORE and then invested those tax dollars in public works projects, new R & D initiatives, educational spending, scientific research and other efforts to create jobs. All that extra government spending would also (in your words) “employ more people – who then pay taxes and create more wealth.” So therefore, it doesn’t matter whether we tax more or less, cause the money will get invested in job-creating programs either way, whether it’s the government or private individuals.
But I assume you wouldn’t be in favor in that plan of increased taxes & spending, even though it leads to (in your words) more wealth?
I’m not exactly sure how all these numbers are calculated, but I can tell you, as a self-employed person (who is actually fine with the income tax rates as they are and who is not in the upper 15% or anything), in 2008, my federal taxes were 34.5% of of my taxable income, and 29.4% of my total adjusted income. In addition, there was another 3% for state tax. Now, Turbo Tax reports this to me as an effective 16.52% tax rate. I have absolutely no idea where this number comes from: when I add up my Schedule C gross receipts and all my other income (capital gains, interest, etc.), without any deductions, the income tax I paid is still 21.3% of all the money I had coming to me.
The numbers I have this year (with an accountant) are similar, and the small business owners I talk to all seem to have a similar 33-35% tax burden, all things considered. So I don’t think that 40% “off the books” discount sounds completely bizarre. It seems a little much to me, but not that far off.
by Chief Pedant:
“Known by whom? People who don’t read any actual data? Are you just making stuff up, or what? Well over half my income goes to various taxes, including about 40% to Federal and state taxes alone (not including Social Security, Medicare, sales tax…) As to the implication that the distribution of taxes is not skewed toward those with higher incomes: In 2007 in the US, the top 5% earned about 35% of income and paid about 60% of all Federal Income tax. The top 1% earned about 20% of income and paid about 40% of Federal Income tax. The bottom 47% this past year paid no Federal income tax it all.”
The point is that for most Americans income taxes are relatively low because of the fact that high-income earners pay such a disproportionate share of taxes. I was responding to this phrase (which I quoted, in an effort to make that clear) from Der Trihs:
by Der Trihs:
…“Given that America is known for its low taxes, especially on the people with the most money that is highly unlikely…”
The idea that high wage earners don’t carry a significant load is not supported by data. As to whether or not taxes–particularly income taxes–are high on the proportion of our population that actually pays them…well, I suppose that’s a matter of opinion. But as a high wage earner I am annoyed by the mindless repetition of this idea that high wage earners don’t pay much in Federal Income tax.
Warren Buffett (one of the three wealthiest men in the world) said: ““The 400 of us [ie, the Forbes 400 richest americans] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter.”
Quoting from the following article: " Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent."
THAT is why we say that America is known as a place where taxes are (relative to the rest of the world) low.
Because you’re defining your tax burden in relation to your taxable income, whereas Forbes, CBO, and your accountant are talking about taxes in relation to total income.
That number is still 21.3% of my gross. My taxes are 21.3% of all the money I saw in 2008. This includes money I paid to contractors, cost of goods sold, for equipment, etc. A lot of that money was not money that was mine to begin with. (For example, I have some associates that contract through me, and I keep $500 of a $2000 contract, but they get paid $1500. That entire $2000 is in my gross and part of the 21.3% number I’m giving you there.) That’s still more than that 16.52% number Turbo Tax listed as my tax rate, and far more than the 6-12% number you’ve cited.
Chief Pedant, again Forbes places the US as way down the list on their “misery index”, the amount that the highest wage earners have to pay. In this case DT is correct: America’s tax burden on individuals (not corporations) is relatively low compared to the rest of the world, if not especially for the highest earners, then at least for them as well as for the average tax payer.
And found through that link is this article, which makes some very interesting points.
The graphic on the link is telling.
Quartz, cutting taxes to stimulate the economy is one thing and that is basic Keynesian theory. The bit that doing so stimulates the economy so greatly as produce more tax revenues than is lost because of the cut has been shown to be false. Even the hold-outs at Cato no longer try to argue that point - they are reduced to trying to claim that the highest earners will reduce their taxable income to avoid paying taxes at “too high” of a rate and that will reduce tax revenues overall. But do you really think that high wage earners like CP works less because his top marginal rate is 35%?
Which makes perfect sense. You’re income that is not taxable is only not taxable because the government says it isn’t. It’s actually specifically designed to decrease your overall tax burden.
Also, just for fun, I went back to the 2008 taxes and eliminated every single business expense on my schedule C. My tax burden would have been 30.3% (not counting the 3% for state) of my total income (before the standard deduction or any other deduction) In other words, were I running a business with zero overhead, 30.3% of that income would go to taxes. I’m not complaining, but I’m saying the idea that a small business owner like the mechanic in the example is only paying 6-12% in tax is a bit optimistic. When I do a job I subtract about 1/3 to compensate for the money that is going to go to the feds (income tax and self-employment tax) and state income tax.
And, to be clear, the 30.3% number is line 66 (this is your total income tax) divided by line 22 (this is your total income) for the 2008 1040 tax form.
Perhaps you’re not computing self-employment tax into your equation (which was 15.3% of 92.35% of Schedule C earnings under $102K in 2008?) (And, yes, you get a deduction of half of this amount to your adjusted gross income but, remember, my 30.3% number above is before this deduction.)
If he’s simply an employee making, say, $60 grand, perhaps with a couple of kids, it’s a fine estimate.
However, you are not that person. Obviously this rough order of magnitude estimate won’t apply to all small business owners (on one hand) or starving students working minimum wage jobs (on the other). If you think I said that everyone middle class, or that you in particular, should pay 6-12% in Federal taxes on gross income, you have misunderstood what I was saying.
ETA: I think we are somewhat talking past each other. I’m talking about an employee, you’re talking about small business owners. I’m talking about gross wages, you’re talking about taxable. If we clarify our terms, I don’t think we’re in too much disagreement.
This is probably true for the very wealthy; it is not difficult to offset income if you are extremely wealthy, in part because you don’t need the income to live on. I made the point earlier that we don’t tax wealth in this country at all (and I do think that is a glaring but possibly insurmountable issue). It’s not true for the average high-income individual (if that’s not too much of an oxymoron).
Nevertheless, if you take all comers, the highest 1% earn 20% of income and pay 40% of taxes, in round numbers. Feel free to draw your own conclusions about whether this is high or low. For those of us unfortunate enough to be the poorest of the top 1% 
it is at least painful, particularly at tax time.
I nevertheless point out again that my complaint about the Der Trihs post was its implication the tax burden is not born by the high earners. Yes, it is. They may well be wealthy beyond proportion to that burden but they are nevertheless paying most of the Federal Income tax burden.
I should add that Mr Buffet’s secretary was not taxed 30% of her income. If her taxable income was 60,000 and she was married filing jointly, she paid about 8,100 in Federal taxes. I’d bet she paid less.
Mr Buffet is the exception and not the rule. I suspect Mr Buffet is referring to his investment income. He does not really bother with a salary. Why should he when it just gets taxed away? He’s clever enough to only use long-term capital gains rates. Like many super-wealthy folks, he does not need ordinary income on which to live, and to reiterate again, I agree that we do not tax wealth in this country very well. If you use this example of one guy ponying up 8 million while the next guy ponies up 8,000, it’s definitely incorrect to imply that the “rich” are not paying most of the taxes. And as I mentioned, if you take the whole category of high wage earners, the top 1% are paying double in proportion to the percent of income they have.
And I’ll again point out that DT’s actual statement was accurate: relative to most other countries America has low taxes, including for the wealthiest individuals.
You may want to review this old 538 post. The highest earners historically have paid much more.
And that post brings us back to the subject of supply side/trickle down. Would an additional higher top marginal bracket (as discussed by Nate), including perhaps some slightly higher capital gains rate for that bracket, raise more revenues, or would the very wealthiest (those that make you, CP, look like a pauper, even though they are only a fraction of a percentile higher up than you), find ways to keep that money from being taxable income in response to the tax rise?
Cite please. It worked well enough for Margaret Thatcher.
I never said he would. But what do you think that CP would do with the extra money in his pocket? Unless he lets it sit there, in his pocket, he’s going to use it. Even putting it in the bank is putting it to use as the bank will lend it out.
Right now we have an oversupply of production and not enough demand. Interest rates are already very low, so having more capital available is not helpful. Wealthy people have a lower marginal propensity to spend, so as their share of wealth has increased it has not resulted in as much demand as would be expected for a flatter distribution of wealth. Meanwhile, the deficit caused by the Bush tax cuts is causing economic uncertainty which makes banks less willing to lend. Cutting taxes on the wealthy has been a disastrous experiment.
Wow, a small business with zero overhead. What do they do, sell air?