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Does Per Cent Of Tax Matter?
Old 01-06-2006, 11:34 AM   #1
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Does Per Cent Of Tax Matter?

On the twisted thread "Ten Things To Stop Doing In 2006 there seemed to be a tax discussion emerging:
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Originally Posted by MasterBlaster
Yrs2Go:



I have no data, but I read that the total tax bite for most people is around 40-50 percent when you add it all up.
And a lot of wringing of hands about taxes, tax rates and our future going to hell in a handbasket (whatever that metaphor is).

But I wonder, how important is the percentage of taxes we pay?

One way to look at this is that we are all wealthier than generations before us. Even the poorest on welfare are better off than folks many generations ago.

I think this may be a matter of political philosophy or opinion. Lets say you are making $50K a year and your taxes are 20% so your take home is $40 K. Now lets say that the economy develops and in constant dollars you are now making $100K but the tax is now 40%. So you take home $60k. Now some folks would be on the warpath that their taxes have doubled. Others could say they are making more than they ever have.

Europe, Japan and some other places have higher taxes but more services are included including govt medicine and education. So employeers pay is less but what is the workers purchasing power take home? I lived in Europe for a number of years and it seemed as prosperous as the US.

I'm just wondering what really counts; the percentage of taxes paid? Whether services are provided by the Govt or privately? The amount of tax paid? Or the amount and buying power of your resources regardless of the time, tax structure and political structure.

Now, as a reference, I have some *really* conservative relatives in rural Wisconsin who, as a matter or principle, would say no Govt services and low taxes as a % regardless of their actual quality of life, income and residual asset value.

But for me a I think a lot of folks I look at my quality of life and my disposable financial resources and not so much at tax rates and who provides services.

Another part of the thread I liked was
Quote:
Originally Posted by . . . Yrs to Go
Do the math my friend. For a 20 year old if we assume 3% inflation, 4% spending growth, 5% wage growth, and 8% market returns an initial savings rate of 15% of income will result in a 4% SWR situation by his/her 55th birthday. These are not crazy assumptions. Early retirement is perfectly achievable for almost anyone who wants it and plans for it early enough. That people don't do it is irrelevant to the question of whether or not they can, or could have.
[/quote

This seems a rational way out of political/economic issues: save some % of what you make and when it is 25X what you need to live then you are FI. This would seem to work in any modern countries political/economic structure.
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 12:11 PM   #2
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Re: Does Per Cent Of Tax Matter?

Quote:
Originally Posted by yakers
I'm just wondering what really counts; the percentage of taxes paid? Whether services are provided by the Govt or privately? The amount of tax paid? Or the amount and buying power of your resources regardless of the time, tax structure and political structure.
I think what counts is the perception of whether or not you're getting value for your tax dollars. Even if you're not Jack Abramoff.
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 01:30 PM   #3
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Re: Does Per Cent Of Tax Matter?

Yakers...

The marginal tax rate is very important... using your example, we double our income, but 60% of that went to the gvt... pretty high. Now, do you REALLY want to work that extra hard to earn those last dollars if 60% or more is not going into your pocket?

I remember way back when.. in economics that the pay slope (supply/demand) is curved backward... that is, people are willing to work more for more money until they get to a certain point and then they not... that is offering more money you have fewer takers because you have to work 'more' to earn that amount of money (I can not remember what the time component was on the graph... it was over 20 years ago)...

If you remember the Beetle's song, the tax man.. they were in the 95% tax bracket... makes you want to leave your country and establish legal residence somewhere else, like a tax haven!!
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 01:41 PM   #4
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Re: Does Per Cent Of Tax Matter?

Here is a link to some historical marginal tax rates from 1916 to 1993. Notice that the highest rates were over 90% from 1945-1964. In the 1964, it was reduced to 70%.

http://home.att.net/~Resurgence/TaxTimeline.htm
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 01:55 PM   #5
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Re: Does Per Cent Of Tax Matter?

I can definitely remember a period of time before the Reagan tax cuts when certain earners would basically stop working and earning at the end of the year because the marginal rate was so high.

So yes, the top marginal rate does have a direct effect.
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 02:33 PM   #6
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Re: Does Per Cent Of Tax Matter?

Quote:
Originally Posted by uncledrz
I can definitely remember a period of time before the Reagan tax cuts when certain earners would basically stop working and earning at the end of the year because the marginal rate was so high.

So yes, the top marginal rate does have a direct effect.
Well, I am probably closer to what Nords said its about value for money. If there was public medicine (and it can work, especially for those who are not high income) and public universities I might be just as well off with higher taxes as trying to pay for these myself. And as to tax rates, if you won the lotto and "lost" half to taxes but doubled your income would you feel good or bad? The high earners who stopped working because of the tax rates *could* stop working becauce they had adequate income and financial resources. I am sure some folks continued to work, some did in the UK when their upper tax rate was 98%! So is it *greed* to not want to work for the extra $1M because the Govt will get half of it?
It does seem some people work because they want to (why would Buffett & Gates keep working?) some because there is enough financial incentive as cited by uncledz. But some of it is IMHO misguided motivation in that if one really has enough then why keep pushing for that last, top dollar? It seems to me that RE people are more about value and getting enough.
Now there are folks like some of my rural relatives where it is a principle that govt should be minimized regardless of other financial and service provider issues. And they would happily live with no services. But it seems interesting to me that people complain about taxes but if our personal resources are growing and good services are being provided from public or private sources then why does it really matter that I am paying a higher % in tax if my real buying power is going up. If today someone offered me $1M but I had to pay 60% tax on it, I would take it gladly has it would more than double my income.
I was just throwing this out as an issue because I was pondering taxes, income and net worth and what are financial issue ahead for me (one son still before college, maybe a big bill). I think I should have titled this thread "Is Hating Taxes Irrational?" We have some good thinkers here and I am trying to avail myself of their insights. So far I go with Nords value idea but uncledz comment is worth pondering.
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 03:32 PM   #7
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Re: Does Per Cent Of Tax Matter?

>>Now, as a reference, I have some *really* conservative relatives in rural Wisconsin who, as a matter or principle, would say no Govt services and low taxes as a % regardless of their actual quality of life, income and residual asset value.


Just curious, and not picking on your relatives, but do you happen to know which govt services they take advantage of? (i.e. besides roads/schools etc that everyone uses)...I know LOTS and LOTS of supposed "real" conservatives...and in general, they are on welfare, get food stamps, housing subsidies, or their health care is paid for by the govt for one reason or another...and while they are cashing there govt checks on day, they complain about :"big govt" the next....

IMO, you cannot be a "real" conservative and then take advantage of every govt program you can find, or marginally qualify for....to me its the same thing as a priest preaching to the parish the virtues of a good/wholesome life and screwing his alterboy's every night...



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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 03:47 PM   #8
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Re: Does Per Cent Of Tax Matter?

In the same vein as farmered's comment, can you be a good liberal and dislike a tax?.... any tax? You can always find someone who is needy. So why would you allow someone to keep his/her income or assets, if someone is really in need of it? Seems to work both ways, IMHO. Surely there's some balance somewhere. Surely there's a limit to what government needs and to what government can/should do.
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 04:23 PM   #9
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Re: Does Per Cent Of Tax Matter?

Yankers...

The problem is how are you viewing this... if I was doing the same job and someone offered me $50,000 and someone else offered me $100,000... well of course I would take the $100,000 job and pay the higher taxes...

But, let's say I have to work twice as long or twice as 'hard'... then I might not want to work that long or hard to get the $100,000, but will work 60 hours insted of 80 to get to $75,000.. now, that last $25,000 and 20 hours is worth something, but if they took 80 percent in taxes then I am only taking home $5,000 for those 20 hours (per week) which is $250 per hour... now, I was making $50,000 or net $40,000 for my first 40 hours which is $1,000 per hour.. so, why would I want to work LONGER OR HARDER for LESS PER HOUR?
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 08:01 PM   #10
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Re: Does Per Cent Of Tax Matter?

Taxes matter from the perspective that the private sector more efficiently allocates capital than does the government. *The greater share of the economy held in private hands the greater the efficiency. *Furthermore, the private sector invests capital to expand productivity and profitability, the very things that lead to the higher standards of living you talk about. *Government, on the other hand, has entirely different motivations for spending money many of which do not lead to higher aggregate living standards.
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Re: Does Per Cent Of Tax Matter?
Old 01-06-2006, 08:12 PM   #11
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Re: Does Per Cent Of Tax Matter?

Quote:
Originally Posted by . . . Yrs to Go
Taxes matter from the perspective that the private sector more efficiently allocates capital than does the government.
Except for social programs like welfare, Medicare, & SS. The private sector may be very efficient but it's inadequate.
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