Let's Tax The Rich!!!

[Midpack]

Once again I see members in other threads here broadly proposing we first tax the rich more to solve our federal/state deficit problems. The rich already pay more taxes than most while getting fewer benefits (by design and universally accepted), the days of paying little to no taxes due to tax loopholes ended long ago.

So most here are very good with numbers, just exactly what would YOU propose for marginal rates for the top income level, or as many income levels as you care to modify?

If it's not obvious, while DW and I are nowhere near rich, I don't agree with the rich bashing. If you took 100% from everyone in the top bracket it would hardly make a dent in the deficit. Like some others, I'm afraid we are going to have to share the pain with considerably less spending (meaning fewer services & public benefits) AND considerably higher taxes for everyone.

It will be interesting to watch the reply to viewed ratio on this thread...

 

[Danmar]

Great data. Thanks for posting. Being Cdn I don't think I get a vote. But what would you do given the obvious requirement to raise taxes at least somewhat?

 

[samclem]

It's hard to discuss the rates intelligently without also discussing deductions, favorable tax treatment of certain types of income, etc.

We still do have lots of these special deals, and they aren't just for the rich. Mortgage interest deduction, charitable deductions, the standard deduction, the personal exemption, tax credits for child care, for putting money onto savings, etc. It's an incredible heap of carrots and sticks that obscures what people do pay and which justifiably increases everyone's suspicions about the fairness of the entire taxation process.

Rather than our present "mush" and unending struggles over who is getting cheated, who is paying too much, who owes what to who, I'd favor an explicit law (Constitutional amendment?) that the government is "due" 10% of all income. Everyone's income, and all corporate income. And "income" is defined in a very commonsense, understandable way (interest, cap gains, wages--it's all income). That's the price we pay to live in this society. If we want to support the poor, support savings, support various other wealth redistribution goals, then those would be distinct efforts whereby the government cuts checks and we see where the money goes. It keeps the lines clear: If you live here or are a US citizen, pay 10% starting with the first dollar.

While the idea that the government is "due" a certain percentage of what we earn may rub folks the wrong way (me included), that is the situation we have now (and have had since the income tax was enacted). So, let's make the obligation explicit and put a number on it. IIRC, 10% of all income would yield approx the same govt revenue as our current rat's nest of rules.

The poor could still receive assistance, but in a more aboveboard way.

I want to look around a big crowd and know that everyone there paid to support the programs for which we (or our representatives) voted. As a bonus, this simplification will encourage investment where it will produce the highest return without the distortions of the present tax rules. The improvements in productivity/GDP will be significant.

 

[missionfinder]

Lowering rates overall has shown to bring in more tax revenue and increase economic growth. The Fair Tax would be hugely positive, flooding investment dollars back into this country. We can't tax ourselves out of debt, tax incentive to spur massive economic growth (ala Fair Tax or other major tax reform) and drastic decreases in governmental spending will work. Problem is politicians don't look long term, because they get elected in the short term. For instance, printing money, historically, provides short term economic growth as money floods the market. Inflation trails the printed money by 2-4 years on average, usually long after the politician has left office and/or a long enough period of time that the politicians can blame it on something else. Any trip to the grocery store will illustrate that the money printing of the past two years is starting to catch up.

Decreasing tax burdens cause a short term decrease in governmental income, then economic growth takes off as a trailing indicator and tax intakes increase. I'm not talking about trickle down or trickle up philosophies, I'm talking about trickle all where the tax burdens of everyone is decreased. It worked with Kennedy and Reagan.

BTW... the Fair Tax gets rid of all deductions, and spurs investment since it taxes consumption not savings and investing. Considering the National Realtor's association is a top 3 political contributor, they'll put up a fight against taking away their gaming of the tax system! The Fair Tax also helps the poor through the prebate system.

 

[chinaco]

Yup... income tax across the board (progressive).

Although.... I do support boosting the estate tax rates and getting rid of loopholes (tax free life insurance benefit above a certain amount). The exempt amount should be set at a reasonable level ( 2M to 3M and indexed to inflation). After the exemption, the rate should be progressive.


Given a choice between high taxes when I am alive and high taxes after I am dead.... after death seems to be the less painful option. Of course the extremely wealthy of the country would disagree naturally. But they tend to not want to pay while they are alive either.... (which is shown for what it is in the political debate).

 

[target2019]

Once again I see members in other threads here broadly proposing we first tax the rich more to solve our federal/state deficit problems. The rich already pay more taxes than most while getting fewer benefits (by design and universally accepted), the days of paying little to no taxes due to tax loopholes ended long ago.

Where is the table that shows percentage of income paid to taxes overall? For instance, in this article, I found a reference to that issue:

More recently, Gates cites data from the national Institute on Taxation and Economic Policy that show Washington’s poorest 20 percent of earners pay the equivalent of 17 percent of their income in sales, property and other taxes. By contrast, the wealthiest 1 percent pay less than 4 percent of their earnings in taxes, which makes Washington the most regressive or easiest on the rich, hardest on the poor.

Now that is an extreme state, or case. But are you really portraying the entire story with just two tables?

 

[Midpack]

But are you really portraying the entire story with just two tables?

Not at all, you're free to do some research and thinking on your own. Looking forward to your answer?

 

[samclem]

BTW... the Fair Tax gets rid of all deductions, and spurs investment since it taxes consumption not savings and investing. Considering the National Realtor's association is a top 3 political contributor, they'll put up a fight against taking away their gaming of the tax system! The Fair Tax also helps the poor through the prebate system.

A National Retail Sales Tax ("Fair Tax') has some attractive points, but the boosters need to address at least four big hurdles:
1) Every candidate that ran on it last time got hammered badly. The campaign sound bites are devastating ("Candidate Bob has proposed raising sales taxes to 27% on everything, including FOOD!). Yes, the prebate takes the sting out of taxation of essentials, yes people will have more takehome pay, but, in politics, the rule is simple "If you are explaining, you are losing."
2) Very high taxation rates on goods and services presents a huge incentive for black-market trade. That breeds it's own costs (enforcement) and lawlessness.
3) New goods (taxed) vs used goods (not taxed): This will cause trouble as folks find ways around the systems. New car dealer sells the vehicle to his subordinate company for a sub-market price and pays the tax. The subordinate company sells the vehicle to a real buyer for a higher price and doesn't need to report this sale of used property. Or, "used" homes (not taxed) competing with new homes (taxed).
4) Fears that a NRST will be added to, rather than replacing, the income tax. Unless the same legislation enacts the NRST and kills the Income Tax/payroll tax in an ironclad way, the NRST won't attract support.

Taxing consumption via a "Fair Tax" has merits (you can find previous posts of mine where I supported it), but problems, too.

 

[missionfinder]

A National Retail Sales Tax ("Fair Tax') has some attractive points, but the boosters need to address at least four big hurdles:
1) Every candidate that ran on it last time got hammered badly. The campaign sound bites are devastating ("Candidate Bob has proposed raising sales taxes to 27% on everything, including FOOD!). Yes, the prebate takes the sting out of taxation of essentials, yes people will have more takehome pay, but, in politics, the rule is simple "If you are explaining, you are losing."

100% in agreement there.

2) Very high taxation rates on goods and services presents a huge incentive for black-market trade. That breeds it's own costs (enforcement) and lawlessness.

Our current system also has huge incentive to cheat on taxes. Under the current system it only takes one party to cheat. It think it'll be harder to cheat under a consumption tax since it requires two parties (buyer and seller) to collude to cheat the system and not have the other guy rat them out!

3) New goods (taxed) vs used goods (not taxed): This will cause trouble as folks find ways around the systems. New car dealer sells the vehicle to his subordinate company for a sub-market price and pays the tax. The subordinate company sells the vehicle to a real buyer for a higher price and doesn't need to report this sale of used property. Or, "used" homes (not taxed) competing with new homes (taxed).

I believe the 20+ years of research into the Fair Tax system took things like this into account. Currently, companies can cheat the tax system by moving assets to impact personal and corporate rates, and/or move the income into another income type completely (for instance, S-corps shuffling money to/from distributions, dividends and salaries). Also, the Fair Tax does not tax intermediaries like VAT does, only the final end consumer of the product.

4) Fears that a NRST will be added to, rather than replacing, the income tax. Unless the same legislation enacts the NRST and kills the Income Tax/payroll tax in an ironclad way, the NRST won't attract support.

That's another one of those having to explain it issues when it comes to politicians. The Fair Tax bill requires repeal of the 16th amendment before it becomes effective, until the repeal it is a null law.

Taxing consumption via a "Fair Tax" has merits (you can find previous posts of mine where I supported it), but problems, too.

Agreed. The transition phase will be disruptive for instance. And we'd end up with a lot of former IRS employees asking us if we want fries with our burger.

 

[Purron]

The problem is our political system. Given our current situation, I believe a combination of reduced spending and increased taxes spread among a majority of the population is a rational solution. The problem is, if you want to get elected, you need to make promises to your constituents for services while vowing to either cut taxes or not support tax increases for most Americans.

The reality is, the person with the solution to our financials woes would have little chance of being elected.

 

[sheehs1]

As others, I'm afraid is it way more complicated than just going with a VAT tax of flat tax. There are huge social and economic consequences for the removal of "some" of the current tax incentives. Ex: Housing market if the tax deduction on mortgage interest is eliminated. Can you imagine the social implications of this? Where is the incentive to buy over renting? O.K. - some might say no incentive is needed. But...can you imagine the companies that would go out of business if owning a home became passe? Or ...why would anyone want to pay $800 of interest and only $200 principle if they can't deduct that interest. I'd think the entire amortization of a loan would also have to change. Like I said, this can get so complicated that my head hurts!

 

[missionfinder]

As others, I'm afraid is it way more complicated than just going with a VAT tax of flat tax.

Just to be clear, the Fair Tax is not a VAT, its entirely different.

There are huge social and economic consequences for the removal of "some" of the current tax incentives. Ex: Housing market if the tax deduction on mortgage interest is eliminated. Can you imagine the social implications of this? Where is the incentive to buy over renting? O.K. - some might say no incentive is needed. But...can you imagine the companies that would go out of business if owning a home became passe? Or ...why would anyone want to pay $800 of interest and only $200 principle if they can't deduct that interest. I'd think the entire amortization of a loan would also have to change. Like I said, this can get so complicated that my head hurts!

The mortgage interest deduction is mostly a marketing pitch by Realtors and lending institutions. The vast majority of mortgages would have no tax impact by losing the deduction:

Ezra Klein - Who does the mortgage-interest deduction benefit?

The Tax Foundation - Who Benefits from the Home Mortgage Interest Deduction?

Is The Mortgage-Interest Deduction Really A Middle-Class Tax Break? | The New Republic

 

[Leonidas]

There are huge social and economic consequences for the removal of "some" of the current tax incentives. Ex: Housing market if the tax deduction on mortgage interest is eliminated. Can you imagine the social implications of this? Where is the incentive to buy over renting? O.K. - some might say no incentive is needed.

I believe the president is one of the people in that latter category. Not in a mood to research the proof this am, but I did hear some discussion about this yesterday and believe that Obama said that recently while discussing the budget. Maybe not eliminating it outright, but paring it back to some extent.

 

[Katsmeow]

Truthfully, midpack, I thought they should not have renewed the tax cuts and should have returned it to what it was. I could sort of see extending it for a year or two but after that it should have expired for everyone. And cutting the payroll tax by 2% for this year was lunacy.

 

[jebmke]

As others, I'm afraid is it way more complicated than just going with a VAT tax of flat tax. There are huge social and economic consequences for the removal of "some" of the current tax incentives. Ex: Housing market if the tax deduction on mortgage interest is eliminated. Can you imagine the social implications of this? Where is the incentive to buy over renting? O.K. - some might say no incentive is needed. But...can you imagine the companies that would go out of business if owning a home became passe? Or ...why would anyone want to pay $800 of interest and only $200 principle if they can't deduct that interest. I'd think the entire amortization of a loan would also have to change. Like I said, this can get so complicated that my head hurts!

What is probably needed is a fairly long phase out of all the subsidies (with possibly some grandfathering) to the housing sector (mortgage deduction, mortgage guarantees). Right now, there is too much capital tied up in housing because of the distortions.

 

[sheehs1]

[QUOTE=missionfinder;1039110

"The mortgage interest deduction is mostly a marketing pitch by Realtors and lending institutions. The vast majority of mortgages would have no tax impact by losing the deduction:"

I suppose it does depend on how it's implemented. All of it still gives me a headache but then anything Congress has done the last oh so many years has given me one.
Regarding the estate tax and continuation and increase of this......I don't think a lot of people in America realize that the 5 million dollar level was probably put in to protect family or small business owners and generational farms. Many had to liquidate just to pay the estate tax when it was at the $600K , 1 million and even 3.5 million dollar level. Should these businesses and farms fail due to federal tax requirements, more jobs are lost. If one looks at it from the individual level...yes it appears excessive but when one looks at all those affected and the possible ramifications it isn't.
Disclosure: My family owns a small 2nd and third generation family business. We employ a seasonal high of 50 plus employees. Had estate tax levels not been where they were when the first generation passed we would have had to liquidate to pay the tax. it seems to be an effort to preserve the jobs that small businesses and generational farmers have created. Does it also preserve the wealth of these families? Certainly. But which is the lesser of two evils? One maintains the wealth of small business owners such that they can continue to contribute to society. The alternative is to destroy that mechanism.

 

[Leonidas]

Eliminating the mortgage-interest deduction would probably do wonders for increasing urban density. Lots more people renting high rise apartments in the cities.

I heard an economist speak on that just the other day. He was very much in favor of it all, but I found it even more interesting that when he and his wife started having children they moved out to the suburbs.

 

[youbet]

I found it even more interesting that when he and his wife started having children they moved out to the suburbs.

The lioness leaves the pride to have her litter judging that the risks of isolation are less than the risks of her own mates. But she returns........

 

[youbet]

I'm not sure whether to just mention this here or start a new thread........

I'm in favor of progressive real estate tax rates. There should be variable rates growing higher with ascending home values. First $50k of acessed valuation = 2%. Next $50k of acessed valuation = 2.5%. And so on and so forth.

We should not be encouraging limited resources to be tied up in expansive housing by having flat rates for real estate taxes. So, while I'm definitely not a "tax the rich" person, I do feel that flat rates for real estate taxes go too far in not being progressive at all.

 

[BigNick]

The mortgage interest deduction is mostly a marketing pitch by Realtors and lending institutions. The vast majority of mortgages would have no tax impact by losing the deduction:

+1. The UK abolished mortgage interest deduction 20 years ago, and the housing market did not disappear because of it. And this in a country where people making over $70K/year are on a 40% marginal income tax rate.

 

[FIREd]

It looks like I will soon be kicked off the "Rich" bandwagon. I was growing tired of people knocking me for not paying "my fair share" anyways. Now I can join the pity party.

 

[braumeister]

I've long been in favor of a flat 15% tax, with no exemptions, no deductions, no loopholes of any kind.

The problem is how to get there from where we are now.

 

[GregLee]

I've long been in favor of a flat 15% tax, with no exemptions, no deductions, no loopholes of any kind.

The problem is how to get there from where we are now.

No way.

 

[Meadbh]

+1. The UK abolished mortgage interest deduction 20 years ago, and the housing market did not disappear because of it. And this in a country where people making over $70K/year are on a 40% marginal income tax rate.

There is no mortgage interest rate deduction on one's primary residence in Canada either. The payback is that you don't pay any capital gains tax on the sale of your home. Investment property mortgage interest payments are tax deductible. The housing market here is in good shape. Below are the Canadian federal and provincial income tax rates for 2011.

What are the income tax rates in Canada?

 

[nvestysly]

Simpson-Bowles "Zero" Plan

I really like the Zero Plan shown on page 23 of the Simpson-Bowles proposal. The marginal tax rates for individuals are 8%, 14% and 23% and the corporate tax rate is 26%. All are significant reductions compared to current tax rates.

The S-B proposal dramatically simplifies the tax code by eliminating many common incentives/tax breaks and the Zero Plan increases taxes on some items - gasoline for instance.

Some elected officials are giving consideration to versions of the S-B Zero Plan but the house bills that are circulating quickly get dilluted by adding back popular incentives such as the mortgage deduction, and other "expected" give-aways.