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Old 02-23-2010, 05:01 AM   #21
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A good comment on taxing the rich

Bar Tabs and Tax Cuts « Consider the Evidence
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Old 02-23-2010, 11:11 AM   #22
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and digging a little deeper you can find this Taxes at the Top « Consider the Evidence which as a summary says

Quote:
To sum up: The effective tax rate on the incomes of the top 1% of Americans is substantially lower now (31%) than it was in the late 1970s (37%) and in the mid-1990s (36%). When the rate is higher, the federal government tends to collect a larger share of the national economy in taxes. And the experience of the past several decades suggests that higher rates have had no adverse impact on growth of the economy.
This evidence is by no means conclusive. But it lends credence to progressive hopes that a somewhat higher rate of taxation on the richest Americans would not only be fairer but also enhance the government’s ability to provide valuable services and benefits.
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Old 02-23-2010, 11:17 AM   #23
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Quote:
To sum up: The effective tax rate on the incomes of the top 1% of Americans is substantially lower now (31%) than it was in the late 1970s (37%) and in the mid-1990s (36%). When the rate is higher, the federal government tends to collect a larger share of the national economy in taxes. And the experience of the past several decades suggests that higher rates have had no adverse impact on growth of the economy.
This evidence is by no means conclusive. But it lends credence to progressive hopes that a somewhat higher rate of taxation on the richest Americans would not only be fairer but also enhance the government’s ability to provide valuable services and benefits.
The real question is... What exactly is the shape of the Laffer curve (taxation versus government take). At what taxation level do diminished returns start.

The quoted item above fails to explain the Reagan-era prosperity. In that case lower tax rates are widely seen as jump starting the economy.
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Old 02-23-2010, 11:36 AM   #24
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Originally Posted by FIREdreamer View Post
Yes, the party is over for the "rich". I think that tax-deferred investments are already popular with high income earners, but there are limits on how much money can be sheltered in such investments and high income earners can exceed these limits very quickly. It sounds like the only way to avoid getting hosed by the coming tax hikes is to minimize your income to stay below the $200K/$250K income limit. That's why we have maximized our ordinary income in 2009 and doing it again in 2010 (cashing in boat loads of stock options) in hope that we can stay below the limit starting in 2011.
That is essentially what we are doing. We can easily stay below the $250K married couple limit from what our investments throw off in terms of interest and dividends. But we still have some unrealized gains that I need to take this year, stock prices permitting, and sometimes that throws us above the threshold (and also makes us pay extra in terms of AMT).

The other huge motivator is the expectation of the capital gains rate to reset from 15% back to 20%, and for dividends to lose their qualified tax status (15%).

Basically we are trying to position ourselves for lower annual income 2011 and onwards.

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Old 02-23-2010, 11:40 AM   #25
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Quote:
Originally Posted by MasterBlaster View Post
The real question is... What exactly is the shape of the Laffer curve (taxation versus government take). At what taxation level do diminished returns start.

The quoted item above fails to explain the Reagan-era prosperity. In that case lower tax rates are widely seen as jump starting the economy.
Just to point out that the Clinton era was very prosperous as well, even though taxes increased during the Bush Sr and Clinton presidencies.

Whereas the aggressive tax cuts failed to generate similar prosperity during the Bush Jr. administration.

So I suspect it's just not that simple!

And more muddying details.....

And late in the Reagan era capital gains tax rates were increased from 20% to 28% as part of the 1986 "tax reform act" overhaul to match the new lowered top marginal tax rate. Later CG rate was lowered back to 20% in 1997 under Clinton.

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Old 02-23-2010, 11:46 AM   #26
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Originally Posted by FinanceGeek View Post
Does anybody know if the medicare tax would apply to capital gains?

Thinking that this could alter investor preference for c.g. over dividends, and perhaps even firm's earnings retention policy.

Guess its good I have managed to accrue so many years of loss carry forwards, the value of which seems destined to go only straight up!
That's what I got from the article - that cap gains rate would go from 15% to 22.9% in 2011. The long-term cap gains rate was already scheduled to increase to 20% in 2011 due to the expiration of the GW Bush tax cuts.

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Old 02-23-2010, 12:05 PM   #27
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Originally Posted by audreyh1 View Post
Just to point out that the Clinton era was very prosperous as well, even though taxes increased during the Bush Sr and Clinton presidencies.

Whereas the aggressive tax cuts failed to generate similar prosperity during the Bush Jr. administration.

So I suspect it's just not that simple!

Audrey
I agree its not that simple. Bush Sr. and Clinton raised taxes during an economic expansion that ended with the dot-com bubble burst in 2000. Bush Jr. had to deal with that and a year later 9-11 that threatened to shut down the economy. IMO he did the right thing in reducing taxes along with the Fed reducing interest rates. What's debatable is what followed, two wars, creation of homeland security and Medicare expansion. In addition, we had 7 seven major hurricanes and finally ended the decade with another bubble burst. Now the question is with slow economic growth and 10% unemployment is this a good time to be increasing taxes?
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Old 02-23-2010, 04:15 PM   #28
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Originally Posted by Bikerdude View Post
Now the question is with slow economic growth and 10% unemployment is this a good time to be increasing taxes?
That's why tax increases are not going to be "across the board", but rather will likely target those who benefited the most under the GW Bush tax cuts - or at least those still remaining at those income levels after all these crises!

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Old 02-23-2010, 05:47 PM   #29
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Use the right tool for the job at hand.

In the late seventies the economy was hit by a supply side shock (oil embargo) coupled with high tax rates and intrusive regulations like nothing we have today (wage & price controls to name just one). All of this conspired to reduce the productive capacity of the U.S. Against a reduced capacity for output, the government tried to spur demand with monetary and fiscal policy. Output couldn't increase because supply was constrained so government induced demand just caused prices to rise. The right policy response was "supply side" in nature. Breaking the oil embargo, deregulating, and cutting taxes to free up the supply constraints and tighter money to beat inflation.

In 2010, the problem is completely different. Excess productive capacity was built to meet artificial demand created by super loose credit. When the credit bubble burst, demand disappeared but all of that productive capacity remains. So we have a deflationary overhang of excess capacity coupled with asset price deflation due to deleveraging. The right policy response in this environment is to support demand with government spending and fight deflationary pressures with loose monetary policy. (To die-hard supply siders I ask, what do we need more supply of? Houses? Homebuilders? Banks? Auto manufacturers? . . . )

So it's not a matter of "liberal" or "conservative" but rather using the right policy for the problem. It's unfortunate but people box themselves into corners with these labels (liberal/conservative, Republican/Democrat) and use them as an excuse to just stop thinking. Just because something worked when Ronald Reagan was president doesn't mean its the proper response to conditions that are completely different today.
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Old 02-23-2010, 06:11 PM   #30
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Quote:
Originally Posted by audreyh1 View Post
Just to point out that the Clinton era was very prosperous as well, even though taxes increased during the Bush Sr and Clinton presidencies.

Whereas the aggressive tax cuts failed to generate similar prosperity during the Bush Jr. administration.

So I suspect it's just not that simple!

And more muddying details.....

And late in the Reagan era capital gains tax rates were increased from 20% to 28% as part of the 1986 "tax reform act" overhaul to match the new lowered top marginal tax rate. Later CG rate was lowered back to 20% in 1997 under Clinton.

Audrey
This all sounds to me like evidence that we're somewhere to the left of the kink in the Laffer curve. The Reagan era tax cuts took marginal rates from 70% down to 28% and the impact on federal revenues as a % of GDP is fairly small (even with a recession in the early 80's far deeper than the one in 2001). Tax increases in the Bush/Clinton years clearly grow the government's take. Meanwhile the Bush tax cuts, which took rates from 39.6 down to only 35% appear to have had a much greater impact on revenues than the far larger Reagan cuts.
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Old 02-23-2010, 06:28 PM   #31
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Note the trend. As I understand it this chart represents all government spanding including state and local spending.
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Old 02-23-2010, 06:34 PM   #32
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Originally Posted by MasterBlaster View Post
Note the trend. As I understand it this chart represents all government spanding including state and local spending.
Yes..

Please go back to that site and click the button that says "Federal" instead of "Total" (which includes state spending) and repost the chart. If you do it from 1960-2009 it looks like this . . .

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Old 02-23-2010, 06:52 PM   #33
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Do your numbers include social security and medicare and the SS trustfund spending ?

here's how the budget numbers shake out this year.

feds - $3.7 T (Trillion)
xfer pmts - 0.5 T (thats SS medicare, Medicaid and other xfer pmts)
States - $1.4 T
Local - $1.8 T

Total - ~ $6.5 Trillion

If we call the GDP as $14.5 trillion then the total Government spending is around 44% of the total.

Those numbers jive with my posted chart.

Your charts 25% number (I believe) only reflects the "normal" federal spending
($3.7T/$14.5 T) = 25%.

Keep in mind all of the "Off budget" spending that has taken place.

The trend doesn't look good.
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Old 02-23-2010, 07:31 PM   #34
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Originally Posted by . . . Yrs to Go View Post
Use the right tool for the job at hand.

In the late seventies the economy was hit by a supply side shock (oil embargo) coupled with high tax rates and intrusive regulations like nothing we have today (wage & price controls to name just one). All of this conspired to reduce the productive capacity of the U.S. Against a reduced capacity for output, the government tried to spur demand with monetary and fiscal policy. Output couldn't increase because supply was constrained so government induced demand just caused prices to rise. The right policy response was "supply side" in nature. Breaking the oil embargo, deregulating, and cutting taxes to free up the supply constraints and tighter money to beat inflation.

In 2010, the problem is completely different. Excess productive capacity was built to meet artificial demand created by super loose credit. When the credit bubble burst, demand disappeared but all of that productive capacity remains. So we have a deflationary overhang of excess capacity coupled with asset price deflation due to deleveraging. The right policy response in this environment is to support demand with government spending and fight deflationary pressures with loose monetary policy. (To die-hard supply siders I ask, what do we need more supply of? Houses? Homebuilders? Banks? Auto manufacturers? . . . )

So it's not a matter of "liberal" or "conservative" but rather using the right policy for the problem. It's unfortunate but people box themselves into corners with these labels (liberal/conservative, Republican/Democrat) and use them as an excuse to just stop thinking. Just because something worked when Ronald Reagan was president doesn't mean its the proper response to conditions that are completely different today.
sooo does your post support higher taxes on the higher income individuals (and households)? just trying to keep up here.
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Old 02-23-2010, 07:48 PM   #35
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sooo does your post support higher taxes on the higher income individuals (and households)? just trying to keep up here.
I think he's supporting higher taxes for folks hiding behind trees......... Or something like that.
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Old 02-23-2010, 07:57 PM   #36
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I think he's supporting higher taxes for folks hiding behind trees......... Or something like that.
Aren't we all.
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Old 02-23-2010, 08:07 PM   #37
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I think he's supporting higher taxes for folks hiding behind trees......... Or something like that.
i dont know, i thinking those higher income people can afford to pay some more of the cost of this bailout and recovery, they dont seem to be losing income, in fact the income gap is widening

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If all the benefits of investment and capital formation go to the very top of the income ladder, then the rest of us would prefer that they pick up more of the tax tab. Since we've seen widening income gaps over the last 30 years, it seems that is a plausible result.

The IRS just released their report on the 400 highest income families in 2007. Average income was $345 million, mostly from dividends and capital gains, average tax rate was 16.6%. I don't think the rest of us would see anything negative if that rate were 30% instead. http://www.irs.gov/pub/irs-soi/07intop400.pdf

and maybe we could use some disincentive on the high end. Something good about higher marginal tax brackets
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Old 02-23-2010, 10:18 PM   #38
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What with the global economy in full swing, I wonder if raising the taxes on high income earners and corporations will cause any significant shift off shore. Is there a plus for a corporation to stay in the USA if they can be financially better off elsewhere.
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Old 02-23-2010, 10:48 PM   #39
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What with the global economy in full swing, I wonder if raising the taxes on high income earners and corporations will cause any significant shift off shore. Is there a plus for a corporation to stay in the USA if they can be financially better off elsewhere.
lol do you really think that these high income people can just pick up a corp and move it off shore? and even if they could, do you actually think they would give up their US citizenship? i dont think so and if not they will still pay US income taxes
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Old 02-24-2010, 06:21 AM   #40
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Most major corporations have offices around the world, so changing the headquarters and just keeping a skeleton office here isn't all that unrealistic. How many companies have moved out of California over the last few years.
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