Beware of the Class Warriors

[Midpack]

This topic has come up in several threads lately. I was reading this report http://www.alec.org/AM/pdf/tax/11rsp...thEdition1.pdf this AM, and stumbled on this passage. I agree that revenues will have to be increased but I'd advocate for higher rates at all income levels. I think our tax structure is already progressive enough with the top 10% paying almost 70% of all FIT - this has been shared several times before.

Several here have countered with 'yeah, but they make all the income so it's fair to expect them to pay even more' without bothering to first find something factual to base their argument on. FWIW, here's something along those lines...

Quote:

Beware of the Class Warriors There is a lot of talk in Washington and state capitals about how to promote equity and tax fairness. Figure 5 [pg 14 in linked pdf] shows that the rich do pay their fair share in federal taxes. The top 1 percent of earners nearly pays a larger share of federal income taxes than the bottom 95 percent (roughly 40%). This happened for the first time in American history in 2007, even after tax rates were cut under President George W. Bush. Some critics argue that the rich pay most of the taxes because they make most of the income. Indeed, the top 1 percent of earners makes about 25 percent of income, but their share of the federal income tax is much higher than their share of earned income. It is also worth noting that the bottom 50 percent of Americans now pays less than 3 percent of the total federal income tax.The U.S. tax system is highly progressive already. Further, increasing tax rates may cause the rich to pay a smaller share of taxes—the opposite of the intended result.71 We doubt the tax hikes aimed at the wealthiest residents are done. With deficits that may surpass $100 billion in the states for fiscal year 2012, we expect big pushes for tax increases in Connecticut, Minnesota, and yet again Maryland, California, and Hawaii. It is a good bet that liberal legislatures will continue to try to raise rates on businesses and high income residents. Class warriors often forget that many of these high income earners are actually small businesses, which, through subchapter S Corporations (S Corps), Limited Liability Partnerships (LLPs), and other “pass-through” entities, pay their taxes through the individual side of the tax code. In fact, these small businesses make up more than 90 percent of all businesses, employ more than 50 percent of American workers, and pay more than 40 percent of all business taxes. Millionaires taxes are often paid by small business owners and operators, making these misguided policies job killers, plain and simple. More troubling for the class warriors is the very real possibility that millionaires taxes will shift behavior and drive capital to more hospitable states and then suffer the Laffer Curve effect of revenue losses. We will explain later in greater detail why this approach is likely to be a failure in raising revenues and in helping a state economy. For now, we point out that one state that raised tax rates on millionaires in 2008, Maryland, already witnessed a 33 percent decline in tax returns from millionaire households, according to the Washington Examiner. Predictably, many misguided, left leaning pundits were quick to point out that this loss of millionaires was simply caused by the recession. However, a Bank of America-Merrill Lynch study of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states.The rich have literally disappeared from the state tax collector’s sights. State lawmakers almost always overestimate the popularity of tax hikes on the rich. Former governor Jon Corzine of New Jersey was defeated after raising tax rates on the rich twice.New Jersey voters were angry at the way Mr. Corzine had failed to create jobs, failed to balance the budget, and failed to ease the highest property tax burden in the nation.Thankfully, Chris Christie, his successor, who has emerged as a conservative star in the deficit plagued Garden State, vetoed a giant tax increase less than 30 minutes after the legislature passed it.He was cheered by voters and businesses across the state. We hate to keep picking on California, New Jersey, and New York, but they continue to be models of how not to govern a state—though Gov. Christie is heroically trying to turn things around in New Jersey and Gov. Cuomo has so far impressed us with his stance on fiscal discipline in the Empire State. These three states impose tax rates at or near the highest in the nation and about twice the national average. New York City mayor Michael Bloomberg once called Manhattan a “luxury good,” meaning that people are willing to pay a premium to live there. The pols in Sacramento say much of the same thing about living in the Golden State. But what these jurisdictions are discovering is that there are limits. The rich will pay more to live in Santa Barbara or Manhattan penthouses for sure, but not hundreds of thousands or even millions of dollars more—compared to the tax savings of living and running their business in Austin, Palm Beach, Nashville, Seattle, or countless other cities in states where there is no income tax at all. And, again, when the rich escape, they often take more than their own direct tax payments. They also take their businesses and jobs with them. That is the collateral damage high tax rates have on the middle class and poor. The result of these high tax rates has not been to balance state budgets or improve the financing of vital state services. Far from it. You cannot balance the budget on the backs of 1 percent of the most productive citizens of a state. They will leave, and as the 2010 census points out, they are leaving. The goal should be to bring them back, not drive them away.

[donheff]

No argument that the rich pay a huge portion of the FIT. A substantially smaller portion of overall revenues, but still huge. So what? The gap between the rich and the rest has skyrocketed over the past few decades so they are doing more than fine. They can take a hit consistent with the 90s when the gap was in full build with higher top rates. After all, the rich can't get rich without the rest of us. Lets ensure that America is a decent place for everyone to live in and grow old in so the rich don't have to hide in gated communities. That means universal health care, and a sensible social security system. That takes money. ALL of the revenues lost to the Bush cuts should be on the long term table. If so we will all take a hit which is fine by me. Tax simplification would make that hit more palatable. Tying the start date for increasing the rates to unemployment drops would make it more palatable for the world.

The no taxes mantra is not at heart about fiscal responsibility it is about the role of the Government. Drive taxes lower means drive out Government. Heck, they are talking about defunding the Webb Telescope. Toss aside our dreams so we can more slowly extricate ourselves from Afghanistan? No thanks, we are better than that.

[ERD50]

I would like to see the data including all taxes - FIT, payroll, state, local, sales, property, etc.

That will flatten the curve compared to solely FIT, but I don't know by how much. Anyone have a source for that?

-ERD50

[WM]

One thing I notice is that the passage is carefully worded. They key sentence is: Indeed, the top 1 percent of earners makes about 25 percent of income, but their share of the federal income tax is much higher than their share of earned income.

Note that it specifies "earned income." In other words, that doesn't include dividends, capital gains, and all the rest. I'd be more interested to see comparisons that include all income.

[MichaelB]

Maybe this helps

From here CTJ - Citizens For Tax Justice we have this http://www.ctj.org/pdf/taxday2011.pdf

[packrat44]

Beware of the Class Warriors

This should be required reading for all voters. What may sound like a good idea on the surface can have some very undesirable consequences in the long term.

[ChadR]

I am not a $250k earner (nor is my household) that is the latest cut off line for the "rich" classification in the discussion of taxes. However, I hope to be someday so I'm totally biased.

That said if they are sooo worried about this top 1% or fraction thereof why not institute a new tax bracker for those folks making $1m or more per year that in my opinion skew the data.

EDIT: And there does need to be some accountability regarding taxes from the low income folks too. Yeah the high income earner's earnings have sky rocked the last 30 years while the lower income earners have stagnated. But I read that the 2009 tax year 47% of all filers paid zero federal income tax and some of them even got credits back.

You can't have half the country paying zero federal taxes...

[MasterBlaster]

Capital is mobile.

Labor and government - not so much.

[donheff]

Quote:

Originally Posted by packrat44 Beware of the Class Warriors This should be required reading for all voters. What may sound like a good idea on the surface can have some very undesirable consequences in the long term.

What, like the 1990s?

[haha]

Quote:

Originally Posted by ChadR You can't have half the country paying zero federal taxes...

That is clearly not true. That may even be part of the plan, since these voters are safe votes for more of anything that the feds can transfer from Other People's Money.

Ha

[GregLee]

Being fair to rich people would be nice, but it's so far down on my list of priorities as to be hardly visible. I want the nation to have sufficient tax revenues to function well, and the great thing about getting money from rich people is that they have it. Why do we want to tax the rich? Because that's where the money is. (Paraphrased from Willie Sutton.)

[haha]

Quote:

Originally Posted by GregLee Being fair to rich people would be nice, but it's so far down on my list of priorities as to be hardly visible.

I am shocked, GregLee

[ERD50]

Quote:

Originally Posted by GregLee .... I want the nation to have sufficient tax revenues to function well, and the great thing about getting money from rich people is that they have it. Why do we want to tax the rich? Because that's where the money is. (Paraphrased from Willie Sutton.)

OK, but is there enough there? Enough to spend 1.4x what we take in now? How much would we need to raise taxes on income above, say $250,000 to hit those numbers?

I've read (don't have refs offhand) that a good % of the 'rich' only pop up there once or maybe a few times in their lives. If tax rates are very high, they will take more extraordinary measures to level their income and stay below the high margin threshold (we see evidence of this on this forum).

edit:

Quote:

Originally Posted by haha Quote: Originally Posted by GregLee Being fair to rich people would be nice, but it's so far down on my list of priorities as to be hardly visible. I am shocked, GregLee

heh-heh. To be honest, I try not to get too hung up on 'fair' either. Two people will seldom agree on what is 'fair', so sometimes 'equal' or 'workable' are more realistic targets.


-ERD50

[Stella_Barbone]

Normally I lurk. I'll go post an in introduction next, but this is a topic that gets me all worked up....

ChadR:"But I read that the 2009 tax year 47% of all filers paid zero federal income tax and some of them even got credits back. "

40-some percent of Americans don't pay federal income tax, but almost all of them pay federal taxes. My medical assistant, for instance, pays 7.65% of her income in FICA taxes, but receives an EITC. Since I make considerably more money than she does, I pay 5% of my income in FICA taxes. My -- even wealthier -- parents pay nothing in FICA taxes, pay no federal income taxes on their SS income and pay income taxes at the lower capital gains rate on much of their investment income. In fact, if you look at total taxes, the tax system is reasonably "flat" for people who earn between $20K and $500K with people at either end of the scale paying lower taxes than those in the middle. Fox News and it's political arm, the GOP, like to leave that part out of their analyses.

I applaud your plan to earn more than $250K someday. I've never made that much. I topped out at $208K one year, but there was no way that I could have sustained that level of effort for much longer. Surveys show that 30% of Americans expect to be millionaires someday, but only 3% actually accomplish the feat.

DH and I, however, have managed to make it into the top 1% thanks to his (non-physician!!) income for the past couple of years. We have had some very good luck indeed and are fortunate to have significant savings in our early 50s. We could call ourselves "self-made", but we'd be fooling ourselves. We've received a lot of investment over the years from taxpayers.

We actually believe that we should pay a higher tax rate than we currently do. I received a fine public school education including an undergraduate education at the cost of $238/quarter from one of the best university systems in the world. DH was the valedictorian in his public high school and received a 4-year full-ride at an Ivy, but his PhD is also from the University of California at minimal cost. We are able to make the high salaries that we do because the taxpayers from previous generations chose to invest in our educations. It's only right that we contribute to the education of the next generation. Both of us work in fields that are substantially supported by the Federal and state governments. I was a defense industry engineer in my first career (100% federal support!) and am now a physician (60% Medicare and a smaller percentage from MediCal).

We've worked hard and made good life decisions, but we've also been the beneficiary of good luck as well as public investment in our lives. I come from a well off family and benefited from well educated parents and early schooling in a wealthy public school system. DH is from a poor family and was hospitalized several times as a child for asthma at public expense as well as public education and subsidized lunches. The "pro-family" politicians don't want to pay for healthcare for children whose parents' can't afford or have no access to insurance. Fortunately, a more farsighted earlier generation saw fit to proved public health assistance to this poor child who would grow up to become a very productive member of society and pay back the investment many times over.

We are not "class warriors". We simply believe that our country will be a stronger, healthier, more productive and globally competitive country if we pay adequate taxes to support good infrastructure, good education, and good healthcare as well as all the other things that good government provides. We believe that it's fair to ask those of us who have received more to pay a little bit more. Call us un-American, but we believe that it is our patriotic duty to payback the investment that has been made in us. We may not always agree with the ways that the our tax dollars are spent (e.g. the Iraq war, the tax credits to oil companies, the bloated Pentagon budget), but we truly believe that a federal government that provides only for national defense would leave us with a weak country that would not be able to compete on global scale with other 21st century industrialized countries.

[pb4uski]

Taxes are not the problem - the problem is too much spending. We all live within our means, the government should as well, particularly in the long run.

Our level of revenue and debt was much less of a problem before Obama.

That said, I would not object to closing a lot of loopholes and subsidies and simplifying the tax code as long as the changes were revenue neutral.

[haha]

I understand why many rich people don't give a crap for the not-rich. Because the not-rich not only do not give a crap for them, many of them actively hate them.

Few rich people hate the not-rich.

Ha

[mb]

Quote:

Originally Posted by pb4uski Taxes are not the problem - the problem is too much spending. We all live within our means, the government should as well, particularly in the long run.

What do you suggest that we should cut?

[MichaelB]

Quote:

Originally Posted by Stella_Barbone Normally I lurk. I'll go post an in introduction next, but this is a topic that gets me all worked up....

Hi Stella Barbone, welcome to the forum. When you have a moment stop by the "Hi I am..." forum and tell us a little about yourself.

[sinjin]

Quote:

Originally Posted by haha I understand why many rich people don't give a crap for the not-rich. Because the not-rich not only do not give a crap for them, many of them actively hate them. Few rich people hate the not-rich. Ha

They (the rich) don't hate us they disdain us.

Or as you said they "don't give a crap for us"

[mb]

I mostly agree with Stella_B.

With regard to the budget, I think that spending should be cut AND taxes should be increased. (Allowing the Bush tax cuts to expire at all levels for example.)

Even The Economist magazine recently noted that taxes as a percent of GNP were near an all time low and stated that a tax increase is needed.