Progressive Nature of Tax Code

[Notmuchlonger]

Few people argue that tax dollars shouldn't be used for emergency services such as 911. But how high should my taxes be to pay for these essential services?

As an analogy, how much should I pay a mutual fund company to provide essential services such as account maintenance and the purchase/selling of equities. Some companies charge a 2.5% annual fee and a 5% load (even for index funds). For the most part, companies selling these products are wasting my money. I can get a better overall product if I go with a company that has a 0.2% annual fee and no load. The government is like a mutual fund company. Unfortunately, their is no Vanguard equivalent when it comes to the government. Yes, the government provides essential services but it also wastes far more than it provides.

Four years ago, the State of California, with your tax-dollars, paid for the smog repairs for my car. I make over $180K/yr and my total net worth officially makes me a multimillionaire. Your tax dollars at work. I've owned two cars in my lifetime. I purchased one in 1982 and the other in 1985. In part, I purchased both cars using federally subsidized student loans. This was during the Reagan administration and its "war" against the educational system - students were forced onto the streets due to his evil administration. Thanks for the cars, Ron. Your tax dollars at work. Almost half of all college students in public colleges/university don't know the name of the vice president. Your tax dollars at work.

My marginal tax rate (all taxes) is almost 50%. If I get a raise, half of it goes to government. I paid about $70K in income-related taxes last year, compared to my own expenses of less than $30K. I gave more than twice what I spend on myself to the government. What incentive do I have to work hard and/or increase my productivity? In fact, the government gives me every incentive to decrease my productivity.

My plan is to early retire in less than 2 years when I'm eligible for lifetime medical benefits at 50. The cost-benefit isn't worth it. When I retire, my tax contributions will be reduced by more than a factor of 10. The government will get substantially less than it gets from me today. This is government incentives in action.

I don't buy your statement that you and your DW are trying to pay back the government for everything that the government has given to you. While yours is a feel good statement, your intentions suggest otherwise. A benevolent person wouldn't be a major contributor to an early retirement message forum. An able-bodied person who truly cares about all those essential tax-funded services provided by the government would insist on working until they're 67 and beyond. (And I'll wait until action before believing any claim about donating one's life to charitable work after retirement.)

Early retirement *is* selfish. Early retirement means less revenue for the government and is no different than those in the higher tax brackets wanting their taxes to be reduced (or wanting lower marginal tax rates). Perhaps the government should pass a law forbidding early retirement, or at least impute the incomes of those that do. The argument will be that if you early retire, you're not paying "your fair share." In fact, maybe the government should enforce a progressive retirement system. Those who squander their money or are otherwise financially dependent should be allowed to retire in their 50's. Those who are financially independent through hard work and life choices must work into their late 70's.

Me. I don't mind being selfish. I admit it. I'm much better able to decide how to spend my time and my money than the government.

Best thing Ive read. Someone admitting they are selfish. I am too!

 

[Texarkandy]

Well, in my simple thinking, if society breaks down and reduces the value of everything, the rich have more to lose than the poor...

If society breaks down the poor will lose their social safety net.

Then it may come down to who has more guns, better tactics, & is a better shot! (or can hire same)

If you lose everything it doesn't matter how much or little you had before.

 

[NW-Bound]

I will get back to my earlier post about "enlightened selfishness". I am no historian, but suspect that lack of the above attribute by the upperclass had a part in the French Revolution and the Russian Revolution. Some lost more than their possession, meaning their lives too.

 

[Notmuchlonger]

I will get back to my earlier post about "enlightened selfishness". I am no historian, but suspect that lack of the above attribute by the upperclass had a part in the French Revolution and the Russian Revolution. Some lost more than their possession, meaning their lives too.

Let them eat cake.

I would say let them eat pie. However pie is for the elite.

 

[haha]

If I share an apartment with roommate who makes half as much as I do, am I obliged to more of the electric bill?

I don't know. Does she sleep with you?

Ha

 

[haha]

Following your argument, since they pay more taxes should the police then not be officially/legally required to respond to a crime at their house with greater priority than at a poor man's house - or to double the amount of officers patrolling their neighborhoods.

Have you ever lived in Beverly Hills? This is in fact the way it works. I have a black friend who was dating a white woman in Beverly Hills. He rarely managed to get her out of town and into LA without being pulled over.

Ha

 

[NW-Bound]

Let them eat cake.

I missed a recent miniseries on the History channel on the French Revolution. Someone who watched it told me about how the French peasant women with pitch forks were able to overcome the elite palatial guards.

Much atrocity followed in following events, so that the guillotine was invented as a humane way of execution, instead of torturing and butchering the elite in the streets. If you are curious and read more about it, you would agree that facing the guillotine would be preferable to the fate at the hands of the street mobs.

 

[Texarkandy]

Have you ever lived in Beverly Hills? This is in fact the way it works. I have a black friend who was dating a white woman in Beverly Hills. He rarely managed to get her out of town and into LA without being pulled over.

Ha

You can find anecdotal instances that this is "in fact" the way things work out in selected locales - but that argument's a non-starter IMO also - because it's not a matter of intentional and official public policy/law/regulation as is progressive taxation.

It's more an unintended inequity of our system. Do two wrongs make a right?

(why inject racial profiling into the argument anyway?)

 

[Texarkandy]

I will get back to my earlier post about "enlightened selfishness". I am no historian, but suspect that lack of the above attribute by the upperclass had a part in the French Revolution and the Russian Revolution. Some lost more than their possession, meaning their lives too.

I have no data, but I rather suspect more of the poor & middle class lost their lives in the French & Russian revolutions than did members of the "upperclass"

 

[Texarkandy]

If I share an apartment with roommate who makes half as much as I do, am I obliged to more of the electric bill?

I don't know. Does she sleep with you?

Ha

Am I obliged to pay more if she does and is she legally required to do so in order to receive the benefit?

Hmmm, how should we relate that analogy to the rich, middle class, & poor in society?

 

[ladelfina]

I think Texarkandy should at least be paying tax on the imputed income (the market value of services rendered).

--
Large businesses of course consume more public resources than an individual or small business.. beyond mere defense: roads for trucking goods, courts to handle their patents and enforce their contracts, oversight of the financial markets that float their shares.. special deals on mining, grazing, timber and water rights. They get special infrastructure like off-ramps and sports stadiums. They have expropriational powers (Kelo vs. City of New London).

Texarkandy, the point is that police are more 'responsive' to issues real or percieved in wealthy areas. Ambulances and cops are on the scene a lot quicker in Central Park West than in the Bronx.

 

[lets-retire]

Texarkandy, the point is that police are more 'responsive' to issues real or percieved in wealthy areas. Ambulances and cops are on the scene a lot quicker in Central Park West than in the Bronx.

Many times that is due to a lower crime rate in the more affluent areas. Lower crime means the officers are not tied up on other things so they are free to respond. A city I used to work had a very low crime rate. This gave us the opportunity to go to all calls quickly. If we took longer than 5 minutes to respond any where in the city it was because we were busy. We did have rich and poor areas in our city, but response times were in fact quicker in the poorer areas. The reason for this was the way our city was laid out each officer had richer and poorer areas to patrol. The crime patterns in our city showed more crimes of opportunity in the poorer areas while we had more domestics in the richer areas. Due to this we spent more time patrolling in the poorer areas and our response times were much faster there than any place else in the city.

I can't talk about ambulances, because that is not my area of knowledge.

 

[Independent]

It seems to me that the same pros and cons show up every time someone says “progressive taxes”. Here’s my list of “pros”, with numbers for easy reference.
Note that the items are not necessarily independent or consistent, and the list probably isn't complete – these are just arguments that I’ve heard that seem plausible.
I’ll let someone else take the “cons”.

Practical arguments
1) Can’t get blood from a turnip
2) Got to go where the money is
3) Some gov’t spending explicitly supports the poor. It’s silly to tax the poor or lower middle for this spending

Incentive arguments
4) High earners make more per hour, consequently higher tax rates on them leave more level incentive to work
5) It’s better to tax dumb luck than hard work (this may be identical to (4), or may be a “fairness” argument)

Utility arguments
6) High income/high wealth have more to protect, hence should/would pay more for protective services
7) Same as (6), but expanded to entire social structure
8.) Low income get more utility from marginal income, hence we increase total utility by shifting taxes to higher income

Social structure arguments
9 ) Prefer more uniform distribution of income/wealth – don’t like societies with extremes of rich and poor
10) Concentration of wealth gives excessive power to a few (this also supports wealth taxes)

Fairness argument
11) Our system generates large (unfair) differences in opportunity, progressive taxes somewhat offset this

 

[NW-Bound]

I think Texarkandy should at least be paying tax on the imputed income (the market value of services rendered).

Texarkandy was just tossing this "head tax" (constant dollar amount per person) out for a lively discussion. Note his word "radical". I hope he is not serious.

I mentioned earlier that I read that some countries have taxes on assets, not just income. By assets, I think they mean stock equities, because real-estate taxes are already universally proportional to the valuation.

The one tax based on valuation that I do not understand is vehicle license tax. An expensive car does not tear up the road more than a cheap car. Why shouldn't it be based on weight?

Finally, it is true that more peasants died during any Revolution than the elite; there were just more of them. I'd rather it did not come to a head like that.

 

[ladelfina]

NWB, it was a joking reference to the roommate.

good list, Independent. I'm sure some people are ready to come up with their own list of "cons".. BUT we should all take into account the parallel systems of existing REgressive taxation (see one of my prior posts here with a link to a discussion of this symbiosis). Maybe the 'fairest' system will always be a blend similar to what we have now, and the issue needs to be focused on attacking unnecessary spending rather than squabbling over the bill that's already way past due. Seems like neither citizens nor politicians of either persuasion have any serious appetite for that, though. For example, Democrats might like to see social spending.. then Republicans just change the frame by funneling money to "faith-based" groups or establishing un-funded Federal mandates.. neither truly wants to see the spending total cut back (but one group is slightly more straightforward about it). I guess it is just human.. who wants to see their project cancelled, their job eliminated, their power diminished.. even in private enterprise?

 

[Abreutime]

Utility arguments
6) High income/high wealth have more to protect, hence should/would pay more for protective services
7) Same as (6), but expanded to entire social structure

Social structure arguments
9 ) Prefer more uniform distribution of income/wealth – don’t like societies with extremes of rich and poor
10) Concentration of wealth gives excessive power to a few (this also supports wealth taxes)

Fairness argument
11) Our system generates large (unfair) differences in opportunity, progressive taxes somewhat offset this

These are the ones I disagree with, to varying degrees.

6) I dont quite understand. They have more to protect, thus should pay more in taxes? I'm not sure what you mean. People with more wealth can afford to pay for protection privately. I would guess that the wealthy would rather pay less in taxes and receive fewer services. You think the wealthy prefer more taxes for more services?
9) I strongly dislike uniform distributions of wealth. That seems like a terrible societal structure to have as a goal.
10) I'm not sure what you mean by excessive power. Influence on government? Ability to force people into involuntary contracts? Ability to circumvent the law?
11) This is an empirical claim. Has the increase in progressive taxes altered the beginning states? Has poverty decreased? Is equality of opportunity being realized, and more importantly, is progressive taxation the best way to achieve this?

 

[FIREd]

I mentioned earlier that I read that some countries have taxes on assets, not just income. By assets, I think they mean stock equities, because real-estate taxes are already universally proportional to the valuation.

Indeed, some countries have a "wealth tax" system in addition to an "income tax" system. In some countries I am familiar with, you pay annual taxes on your networth (assets-liabilities). Taxable assets includes cash, bonds, stocks, real estate, but also cars, jewelry, art, furniture, stamp collections...

Now I am COMPLETELY opposed to such "wealth tax". Why? Because it simply amounts to double taxation. You basically pay taxes over and over on assets you already paid property or income taxes on. It's totally unfair, it encourages legal and illegal tax evasion (Wealthy people move abroad with their assets and their income or use loopholes to conceal assets), and it discourages wealth creation.

I am still a citizen of a country with such wealth tax and I am very careful to (legally) structure my assets in such a way that I am not subjected to that stupid tax.

 

[NW-Bound]

Indeed, some countries have a "wealth tax" system in addition to an "income tax" system. In some countries I am familiar with, you pay annual taxes on your networth (assets-liabilities). Taxable assets includes cash, bonds, stocks, real estate, but also cars, jewelry, art, furniture, stamp collections...

Bold facing of the above words was mine.

I am not really for it, just wondering how it would work in practice. I am somewhat pragmatic, and can see it creating such a logistic nightmare, requiring an army of tax assessors. And the incentive for people to hide their wealth is high, necessitating another army of tax police.

My, my, my... Taxation issues have been with mankind, probably ever since the Neanderthals decided to band together in the same cave. We are not going to solve it in this forum.

 

[FIREd]

Bold facing of the above words was mine.

I am not really for it, just wondering how it would work in practice. I am somewhat pragmatic, and can see it creating such a logistic nightmare, requiring an army of tax assessors. And the incentive for people to hide their wealth is high, necessitating another army of tax police.

My, my, my... Taxation issues have been with mankind, probably ever since the Neanderthals decided to band together in the same cave. We are not going to solve it in this forum.

The wealth tax system I am familiar with is based on people's honest assessment of their own wealth (haha!). So you can get away with underestimating your net worth, but off course if you get caught the penalties are steep. And by the way, quite a few socialist politicians have been caught fudging their net worth for the purpose of defrauding the wealth tax system (a system they themselves created), so to me that says a lot about their somewhat hypocritical view of "social responsibility"...

 

[haha]

(why inject racial profiling into the argument anyway?)

Well it isn't really an injection, so much as a statement of historical fact. I couldn't really tell the story without it. But perhaps you are more comfortable with pure speculation, unalloyed by reference to concrete experience?

Ha

 

[haha]

I think Texarkandy should at least be paying tax on the imputed income (the market value of services rendered).

Tex may be so studly that he has never faced this demand. But as a lesser gent I have at times felt the bite of the P-tax.

Ha

 

[explanade]

We shouldn't, but conversely we shouldn't be targeting them for their higher income either. I read recently (within the last year) that the trend among wealthy French citizens is to immigrate out of France because the tax rate is too high. These people leave the country also take a huge chunk of government revenue with them.

A lot of them move to the UK, which doesn't tax income earned overseas. (that's why they have a lot of Arab oil men and Russian oligarchs living in London)

But unless they renounce their French citizenship, they may not necessarily evade French taxes.

I think it's a similar situation for Americans. There is a certain exemption level but above that, I believe you pay income taxes, regardless of where you earned that income.


Certainly the rich (including rich Americans) are able to move anywhere they want. They could move to Monaco which has no income taxes (but I think the citizens get healthcare through the French system).

A lot of yachts owned by Americans spend a lot of time down there and the nearby Riviera. All they would have to do is renounce their US citizenship and stay in one of the most beautiful, expensive areas in the world.

Why don't they do it? Because despite the US taxes, there's still huge opportunities to make more money here -- and the rich who make money in Wall Street can now depend on the US govt. to socialize their losses.

 

[HFWR]

Tex may be so studly that he has never faced this demand. But as a lesser gent I have at times felt the bite of the P-tax.

Ha

The most ominous of taxes...

 

[Frugality_of_Apathy]

Opposing arguements
Practical arguments
1) Can’t get blood from a turnipDon't bite that hand that feeds you
2) Got to go where the money isThe candle that burns twice as bright burns half as long
3) Some gov’t spending explicitly supports the poor. It’s silly to tax the poor or lower middle for this spendingTo whom much is given much is expected

Incentive arguments
4) High earners make more per hour, consequently higher tax rates on them leave more level incentive to workIf businesses pay time and a half to encourage overtime; What do you suppose the government charging time and a half does?B]
5) It’s better to tax dumb luck than hard work (this may be identical to (4), or may be a “fairness” argument)Is a man not entitled to the sweat of his brow?

Utility arguments
6) High income/high wealth have more to protect, hence should/would pay more for protective servicesThe police are not their to protect you, they have no power until a crime has already been committed and you are bleeding in the streets. You must provide for your own protection.
7) Same as (6), but expanded to entire social structureThe rich send their children down private roads to private schools with their private security guards. Why should they have to pay the lions share for roads schools and social programs they will never use?
8.) Low income get more utility from marginal income, hence we increase total utility by shifting taxes to higher income The poor do not invest or create businesses with their extra income, How many jobs do ten thousand poor with an extra ten dollars each create compared to the business that could be founded from one rich person with an extra $100,000?

Social structure arguments
9 ) Prefer more uniform distribution of income/wealth – don’t like societies with extremes of rich and poor If the punishment for not working is the same as the reward for working, who would work?
10) Concentration of wealth gives excessive power to a few (this also supports wealth taxes) Those who have the most inv

Fairness argument
11) Our system generates large (unfair) differences in opportunity, progressive taxes somewhat offset thisFewer people play the lottery when the prize is smaller

 

[Abreutime]

Well it isn't really an injection, so much as a statement of historical fact. I couldn't really tell the story without it. But perhaps you are more comfortable with pure speculation, unalloyed by reference to concrete experience?

Ha

One time while driving on a highway, I was pulled over. No ticket given. And I am white. My hispanic friend has gotten 2 tickets, in the 2 times he has been pulled over. But he has a white last name. And he had a white passenger one of the times, and a brother with a white name as a passenger the other time. Draw your own conclusions about police. But the facts are the facts. Oh, and I was driving a Ford, and my friend was driving a Honda. And he was speeding, and I made a lane change with signaling.