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Old 06-20-2010, 10:04 PM   #61
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I think the chart highlights what I said. Looking at the rate alone is only part of the picture. Over the past 60 years, tax shelters have almost been eliminated for the small investor, health care exp. use to be 100% deductible. There are many other things. So while the rates have changed drastically, collections have remained fairly stable.
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Old 06-20-2010, 11:09 PM   #62
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Originally Posted by ziggy29 View Post
I've been saying for a while now that I think we're entering an economic era where financial planning for retirement will increasingly emphasize making moves to need less money in retirement rather than simply maximizing your retirement portfolio. Yes, there will still be emphasis on growing your money but in a tougher economic environment with this many headwinds, it will also be important for many to reduce expenses, reduce taxes and protect future means-tested health insurance subsidies if a decent retirement is still in the cards (particularly for the pensionless).

In other words, if someone is totally debt free, owns their home mortgage-free and has a relatively non-material lifestyle, in the next few years they may be able to live just about as well on a $35,000 AGI as someone with a mortgage, a fair bit of consumer debt and a $60,000 AGI -- especially factoring in the impact of graduated income tax and future health insurance subsidies at lower income levels.

Our laws and policies are increasingly discouraging working longer and harder to amass more wealth, and is instead starting to encourage pulling the plug when you have "just enough" to make it for the rest of your life. And I think this concept will be more and more a part of mainstream financial planning -- developing a lifestyle that creates an income "sweet spot" where much less income threatens retirement security and drops one below an acceptable lifestyle, but much more results in diminishing returns on continued work due to progressive income taxes and loss of health insurance subsidies (and perhaps loss of means-tested SS in the future, too).
This pretty much describes my approach. I'm not sure that laws and policies pushed me in this direction but I very much enjoy "flying under the radar" - A satisfying outward middle class lifestyle while having a sufficient net worth to sleep well at night. To me the essence of FI/ER. I think Western Europeans in particular discovered quite a while ago that presenting a nondescript low key approach to the rest of the world while having the important things in our own private world was a useful thing.

Some Western European countries have had long experience with confiscatory and overreaching governments of all kinds as well as wars, revolutions and other cataclycisms which somehow they have survived while at the same time by and large maintaining a reasonable standard of living. Maybe some worthwhile lessons there.

Just some nutty thinking - my apologies.
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Old 06-21-2010, 12:15 AM   #63
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This pretty much describes my approach. I'm not sure that laws and policies pushed me in this direction but I very much enjoy "flying under the radar" - A satisfying outward middle class lifestyle while having a sufficient net worth to sleep well at night. To me the essence of FI/ER. I think Western Europeans in particular discovered quite a while ago that presenting a nondescript low key approach to the rest of the world while having the important things in our own private world was a useful thing.

Some Western European countries have had long experience with confiscatory and overreaching governments of all kinds as well as wars, revolutions and other cataclycisms which somehow they have survived while at the same time by and large maintaining a reasonable standard of living. Maybe some worthwhile lessons there.

Just some nutty thinking - my apologies.
Your thinking is not nutty at all. I think you understand how Western Europeans think. "Flying under the radar" helps us keep the tax man at bay first of all. But many Europeans also feel ambivalent about "wealthy" people, they envy them and despise them at the same time. So I think it makes sense to downplay your wealth or at least hide it behind tall hedges.
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Old 06-21-2010, 07:01 AM   #64
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Why not just use the fact that the overall effective rate is lower today and stop using the (IMO, intentionally) misleading "70-90% tax rate" stuff?
Because the differences aren't as large as you allege . . .



Note: The chart says "Rates" but if you look at the actual study, what they are calculating is effective tax rates based on individual tax returns.
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Old 06-21-2010, 07:20 AM   #65
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The chart seems to imply that GDP growth has boomed despite attempts to throttle business (and individuals) with taxes. Either that or tax rates are the lowest in 60 years.

I'm trying to see the problem here...
Exactly.

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Change the data range to FY2015 and it goes back up.
Yup, because the CBO assumes current law remains unchanged . . . meaning no ATM fix and bye, bye to the 2001 tax cuts.
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Old 06-21-2010, 11:54 AM   #66
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As opposed to conveniently forgetting that with those punitively high rates came an almost infinite ability to avoid them with all the deductions, loopholes and shelters available before the Reagan-era reforms?

I'm not arguing against tax increases where they are necessary but I grow very tired of hearing about past tax rates as an example of why taxes are too low now, all the while not acknowledging all the deductions and shelters which accompanied the high rates of the past.
Glad you brought it up. I have been meaning to look into this.
Here are the average (I assume this means effective) tax rates by descending cohort.
Avg Tax Rate.gif
and here is the share of adjusted gross income
AGI Share Top.gif
The avg. tax rate for the top 1% went from 33% to 22% from 1986 to 2007, while their share of income went from 11% to 22%.

This doesn't capture the ability of high income folks to avoid taxes, but it is the best I have been able to do so far.

source:
Historical Returns with Positive AGI, by Descending Income Percentiles
A look at the bottom cohort next.
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Old 06-21-2010, 12:32 PM   #67
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And here is the data for the bottom income percentages.
Average tax rate
tax rate bottom.gif
Share of AGI
bottom AGI.gif
Source
Historical Returns with Positive AGI, by Ascending Income Percentiles
Unfortunately, the source doesn't give numbers for the bottom 1%, 5%, etc.
Maybe inconvenient for the site's politics? I dunno.
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Old 06-21-2010, 03:39 PM   #68
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Here is the share of income taxes paid, by income percentage.
FIT share top.gif
Historical Returns with Positive AGI, by Descending Income Percentiles
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Old 06-21-2010, 04:41 PM   #69
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The socialism hyperbole wears a little thin... American Small Business will survive.


IMO - on the political front... Granted there are a few people on the extreme edges of the left or right. But the vast majority of us are center oriented. No matter how one slices it... most Americans want some sort of social floor. Most of us do not want to live in a third-world USA. That type of disparity could lead to anarchy and corrupt/oppressive regimes... while there is a lot of rhetoric and back room deals, our government is not flat out corrupt (although politicians on all sides often will sell out their political morals for a campaign contribution).
I snipped a section on the bush cuts, something on that shortly...

Small business needs to flourish, not just survive, for the economy to feel the boom like it did when Clinton was President.

I hardly think that under Bush 50% of americans ("most" as you put it) were close to living a 3rd world standard of living.

If you take the poorest union workers in the USA and put them in Mexico, India or most african countries, they would probably be among the richest 75% of the people which lived there.

My #1 philosophy is keep what you earn... this is the true measure of wealth. If you see someone earning more, or saving more, it is not up to government to be the great equalizer.

Government does not need to tax the rich to redistribute to the less wealthy
Government does not need to regulate the rich (small businessman) so his competitor can compete.

Government can try to regulate the corrupt, but that just creates a new level of corruption LOL
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Old 06-21-2010, 07:09 PM   #70
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Amen Jimoh! Amen Brother.
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Old 06-21-2010, 07:18 PM   #71
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My #1 philosophy is keep what you earn... this is the true measure of wealth. If you see someone earning more, or saving more, it is not up to government to be the great equalizer.

Government does not need to tax the rich to redistribute to the less wealthy
Government does not need to regulate the rich (small businessman) so his competitor can compete.

Government can try to regulate the corrupt, but that just creates a new level of corruption LOL
I philosophically agree with you but... be careful of what you wish for. I have lived in third world countries where basically the government is so impotent that business rules the roost with really no regulation to speak of because business can "buy" any enforcers of any rules they don't like. The end result of that is a strange world. A few have a lot and live like kings, a lot have very little. If you happen to be one of the kings great, otherwise not so good.
But even the lives of the kings are not so good. Not very pleasant to go out of your castle and have beggars trailing you constantly. Plus there is always that little unpleasantness the french uncorked in 1796 or thereabouts
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Old 06-21-2010, 08:40 PM   #72
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Well, depending on your leanings, we have way too much or not nearly enough government...
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Old 06-21-2010, 09:41 PM   #73
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I am not sure how to interpret the graphs. Does it mean "in 2006, the top 1% of incomes had about 23% of the money and paid about 23% of the taxes" or "in 2006, the bottom 50% of incomes had about 15% of the money and were taxed at a rate of a little under three cents for each dollar of AGI".
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Old 06-22-2010, 08:01 AM   #74
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I philosophically agree with you but... be careful of what you wish for. I have lived in third world countries where basically the government is so impotent that business rules the roost with really no regulation to speak of because business can "buy" any enforcers of any rules they don't like. The end result of that is a strange world. A few have a lot and live like kings, a lot have very little. If you happen to be one of the kings great, otherwise not so good.
But even the lives of the kings are not so good. Not very pleasant to go out of your castle and have beggars trailing you constantly. Plus there is always that little unpleasantness the french uncorked in 1796 or thereabouts
I am not asking for no regulation
I am suggesting regulation is not the answer to force the wealthy back to middle class (its OK to be wealthy).

Like I said, if you regulate the corrupt, then a new breed of corruption is created. You cannot regulate corruption (really), just punish it when you find it, but otherwise don't prevent people from getting wealthy by making laws, or trying to redistribute the wealth of the rich to the less rich.
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Old 06-22-2010, 09:55 AM   #75
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I am not sure how to interpret the graphs. Does it mean "in 2006, the top 1% of incomes had about 23% of the money and paid about 23% of the taxes" or "in 2006, the bottom 50% of incomes had about 15% of the money and were taxed at a rate of a little under three cents for each dollar of AGI".
I think the answer is yes to both.
In 2006 the top 1% had 22.06% of the AGI and paid an average tax of 22.79%. In the same year, the bottom 50% earned 12.51% of the income and paid just 3.01% average tax rate. Also in that year, the top 1% paid 39.89% of the FIT while the bottom 50% paid only 2.89%.

At least that is how I read it. I may well be wrong. At any rate (pun intended), I think these charts deserve some serious pondering. The share of taxes paid is drastically different, and can has been used to claim that "the rich" are paying too much, just as the share of income is drastically different and has been used to claim that the "the rich" make too much.

I just noticed that G4G's posting
How to Blunt Rising Taxes - Barrons
was about effective rate and not top marginal rate. Just eyeballing the top 1% lines, it seems that G4G's chart agrees with mine.
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Old 06-22-2010, 09:59 AM   #76
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In all, taxpayers—mostly those in the highest brackets—could be forking over an extra $1 trillion or more over the next decade.
This seems like such a small amount considering the federal deficit is 1.5 trillion just this year.
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