I did. Theresa is the breadwinner in that family.
We were talking about marginal tax rates. What you are suggesting is more analogous to a flat tax, which is a whole 'nother thread.
Regards,
Shodan
My example was people who work for a living, not people who invest for a living.
The only reason is the empirical evidence suggests otherwise. The effects are small, but individuals on lower incomes tend to work (slightly) more (where possible) when tax rates rise. Work is acting like a Giffin good - when taxes go up, it’s “price” rises, and yet some people consume more of it.
It’s not a moral judgment on people at all - far from it. The simple fact is the wealthy can more easily afford to work less if their take home pay falls. The working poor may be compelled to work more simply to keep their heads above water.
Well, there’s a great start. Way to poison your example from the jump. Hey, do you have any money invested in the stock market? If so, you’re a leech, stealing money from the hard workers who make it for you.
Sorry, I was just following your lead.
Not my lead. Those who live off their investments can off-shore them to avoid taxes, per **Shodan’s ** example. But there is a large portion of the somewhat rich (+200k per annum) who live by the service or product they provide. They are the ones I was using in my example.
But, by all means, rage on, if that’s what floats your boat.
The people get a guaranteed return on their labor so they’re leaching off the investment risks of others. Yes, it’s an ugly road to go down.
How many of the ultra-rich actually take salaries anyway? The Kennedy clan (friend of the working man) have a trust fund, which is largely invested in municiple bonds (non-taxable). They have no taxable income this way, so marginal tax rates don’t affect their behavior anyway.Very waelthy people also tend to own vast amounts of real estate-which they can use (depreciation) to offset earned incomes. Then there are the experts (like the late Roy Cohn). For years, Cohn never paid a dime in income taxes-he hid assets and took only a token salary (from the law firm that he owned). instead, he took non-taxable expense reimbursements from the business.
I read (in Nick Von Hoffman’s biography of him) that Cohn was in and out of tax court, but never paid anything.
I think the answer (and thusly, my opinion) largely centers around what taxes are being increased. From what I remember in my tax class in law school, the tax rates on the margins, i.e. (lowering the dollar amounts to the higher brackets), or, increasing the taxes within the brackets (e.g. between certain dollar amounts) these tax increases will have a chilling effect on the economy. However, for the institutional rich, i.e. those that don’t actually work but collect rents and dividends, this type of tax will probably be neutral for them.
If we’re talking capital gains tax, then those that do invest more and make a living off investments will be greatly affected, and cause a chilling effect with regards to investing and those will cause an overall slowing of the economy. Those with 401(k) and 403(b) type investing can offset the tax by keeping their investments in these funds, but anyone who makes enough to max out (or wants to try and more efficient approach to investing) will also feel the chill of investment as taxes eat into their gains.
Gotcha. Point taken.
I was going to add a different slant to the thread. The wealthy people I know who work for a living already put in rediculous hours. I’m talking about 12 hour days at the office 5 days a week and often on Saturday. I imagine they would be forced to move their investments in a way that would compensate for any income lost to higher taxes.
The arguments being made are too simplistic. We’re not talking about trophy wives and rich fatcats who will suddenly stop working because they’re paying 10% more in tax.
The effect of higher tax rates works its way into the economy in many forms. For example:
[ul]
[li]An increase in tax sheltering activity. This hurts the economy because the money flows to a place other than where it would go if the tax wasn’t there.[/li][li]Brain Drains. People who are capable of earning high incomes are more likely to move to a country which is less punitive of their ability. These people are especially valuable to society - doctors, engineers, entrepreneurs, businessmen. [/li][li]Disincentive to become rich in the first place. Let’s say there’s a possible promotion in your future, which will give you an additional $10,000 over your $50,000 salary. Should you work harder to get it? The answer is different if you pocket all $10,000 than if you pocket $10,000 minus 35% income tax, minus social security tax, minus various other taxes. Now you’re taking on $10,000 worth of extra work an responsibility, but only being compensated to the tune of $5,000 or $6,000. A highly graduated tax can slow upward mobility and keep people from becoming more productive in the first place.[/li][li]Reduction of investment. If I can earn 5% risk free in a mutual fund, or 10% by investing in a company at higher risk, I need the reward to be worth the risk. However, if I make my 10% profit, but 30% of it is taxed as a capital gain, I may decide it’s not worth the extra risk, and keep my money out of the market.[/li][li]Disincentive to work on the low end. If the highly graduated taxes are used to provide more benefits to the poor, the poor will have less incentive to move up the income ladder.[/li][li]Distortion of the market. Similar to tax sheltering and the reduction of investment - in an economy where the government has increasingly high taxes - and therefore also has increasing numbers of subsidies, tax breaks, and other directed money streams, capital flows change to take advantage of the government interference. If you accept that markets generally allocate capital pretty efficiently, then government interference makes the economy less efficient and less able to generate wealth.[/li][/ul]
These effects happen over time, and on the margins. Not all people stop working harder - only those whose decision was already very close. Not all investment changes direction - only that investment where the difference between the two courses was already relatively small, and the change pushed it over the edge. But these small changes add up - especially as they multiply over time.
And the same analysis applies. If the money taken home for cleaning a floor drops from $100 to $50 as a result of a tax hike, many people may be forced to take on twice the number of cleaning jobs to survive. It’s what happens, for example, when marginal tax rates rise because exemptions for the poor fail to keep pace with inflation.
Since when is investing not work? I realise that THK has people to do that for her, but in the general case, investing is a lot of work (mainly research) and a significant risk, so why shouldn’t you get a return on your effort?
That sounds like, if we wanted to raise productivity, we should increase taxes on the poor and middle class, which is the direct opposite of what Obama wants to do.
But your example of the poor having target take-home incomes would suggest that they would reduce their work efforts if their tax rates were reduced.
That’s a fair question. Obama suggests $80 billion in tax relief (cite). (He also suggests a plan whereby the IRS fills out your tax forms for you. :eek: ) To pay for this, he will [ul][li] Raise the top tax rate from 35% to 40%[/li][li] Raise the small business tax rate from 38% to 55%[/li][li] Raise the capital gains tax from 15% to 28%[/li][li] Raise the dividends tax from 15% to 40%/ul](Bloomberg Politics - Bloomberg)[/li]
Regards,
Shodan
Which would be relevant if I had commented on Obama’s plans in either a positive or negative manner might be a relevant response to my comment. Also, as I stated earlier, the incentive effects of changes in marginal tax rates have been shown to be minimal, assuming of course the changes in tax are within a certain spread - double marginal rates and you might get a big swing.
Overall, most people simply don’t control the amount they work, and so can’t adjust it in response to changes in marginal tax rates. Where there is a more noticeable effect is in the influx of certain groups into the labor force - such as women with children, where enough needs to be earned to cover childcare. Of course, provision of state subsidized or provided child care is a more direct and effective way of addressing that than fiddling with tax rates, but that would be socialism at work. Since I was studying this in the 1980’s, many poor mothers have been forced back into the workforce anyway by economic circumstances, so I don’t know if there is a pool of non-working mothers to make this effect noticeable.
No - again, we are talking about marginal tax rates. What effect would a tax increase on the rich have on work they may not otherwise do? How likely, in other words, are rich people to work harder just to stay in the same place?
You suggested above that they aren’t likely to do so. If you are discussing what a tax increase would have on rich and poor, then rich and poor would have to pay the same rate. That is not what Obama is suggesting.
Now above you claimed -
Obama claims his tax plan will target high earners and not lower earners. Ergo, his tax plan will have the effect of reducing productivity among high earners and have no effect on lower earners. Unless, that is, the answer to my previous question about target take-home income is No, the poor will keep working and try to get into the upper classes. In which case the disincentives Sam Stone mentions all start to kick in.
As well as the overall depressing effect on savings and investment, when earners get to keep less of the rewards they receive for risk-taking. I think that is a different thread as well.
Regards,
Shodan
I’m not sure that this accurately reflects Dewey’s thinking process.
Let’s say Dewey currently takes home $500 an hour for 60 hours of work, or $30 grand a week. (We are talking about the rich here.) If Uncle Sam takes a bigger bite of his check, maybe he’d only take home $450 for his 60 hours of labor, or $27 grand a week.
If Dewey were only to bring home $450 an hour, why would he cut back his hours to 50 a week, so that he’d only take home $23 grand a week? In other words, is Dewey so readily going to give up $4,000 in income on top of the $3,000 that the government has already taken?
So long as the tax increases are not confiscatory (let’s use our imagination for what that means), Dewey would probably increase his grumbling and enthusiasm for voting Republican, rather than be forced to change his car lease from a BMW 7 series to the more pedestrian 5-series because he no longer feels the need to work so much overtime.
Personally, I think that people generally choose their working hours based on social matters (how much free time they like, how much they feel fulfilled by doing their jobs, how great their family responsibilities) rather than financial, except in the case of poverty.
Just to be fair to Mrs. Kerry, this was discussed in a long New Yorker profile on her during the 2004 election. She invests her money in municipal bonds, not to hide it, but out of loyalty to Pittsburgh, a place very important to her first husband. Any minimally competent investor can beat the returns on municipal bonds even after taxes. My father is irrationally averse to taxes, and has had all his money in them, and I’ve beaten his returns - and Mrs. Kerry can do a lot better than I can.
So her investment is more a philanthropy than an investment strategy.
The problem is that you’re thinking generally, whereas the effects of these changes happen on the margin. A marginal case might look more like this:
A new promotional job position is open at work. Bob is probably the best employee for it, but he’s going to have to compete with others for the job. He knows that being considered for the job means he has to demonstrate his commitment to the company by putting in some extra weekends and evenings. But Bob is already in hot water from his wife for working too much, and he’s committed some of his weekends to charity work. As such, his family needs an additional $1000/mo for a ‘payoff’ for his extra work. Without the tax hike, the payoff would be just barely there. With it, it just barely isn’t. What was already a close decision becomes a decision against working harder rather than a decision for working harder.
Or, Bob is a single dad looking at applying for the new management position, which offers $5,000 per year more than his current job. However, he will have to work longer hours and the occasional weekend, so he calculates that the job will cost him $4,000 in child care. Still, he’s considering the move because the extra $1,000 would help him save for his kid’s college education. But suddenly the marginal tax rate on that money goes up, and takes a $250 extra bite out of his $5,000. Now he’s only earning $750 more for all that work and time away from his kids, and that extra $250 hit pushes his decision over the edge. So he stays where he is, the company loses the extra productivity he would have brought and has to settle for a lesser employee in the roll, and he saves less for his kid’s college education.
Changes happen on the margin. People in this thread keep concocting scenarios that are more stereotypes of the greedy rich than marginal cases.
And many of these “rich” people are management level people at large corporations who have little control over how much time they work. I’m self employed now, but when I was working for Big SemiConductor, I was making very good money and there is no way I could adjust my hours based on the tax code. In my current situation, I work as little or as much as I want, but I can’t imagine a small tweak in the tax code having an effect one way or another.
Now, if the tax rate on certain investments changes, then I will absolutely look at moving those investments to other places if the total return looks more promising. Those dividend paying stocks are probably going to look much less attractive under Obama’s tax plan. Whether that’s a good thing or a bad thing is debatable.