New proposed tax on income from interest/dividends

[Gone4Good]

The govt is QUITE IGNORANT to think that the wealthier folks are TOO STUPID to drop their income down enough to avoid any extra taxes.....

If that were the case they wouldn't already be paying 60% of the taxes.

 

[clifp]

The topic of this thread is a tax on dividend and capital gains income (presumably on assets outside of 401ks and IRAs). Even with this tax, dividends and capital gains would be taxed at lower rates than regular labor income. But somehow you've converted this tax into a "cap" on the possible earnings of engineers and accountants, doctors and lawyers (the likely goals of your top 5%). I don't get it. Why would a HS kid see a tax on dividends and then conclude it's not worth the effort to earn $150k per year as an accountant?

We're sliding into the broader topic of graduated taxes in general. I see a wide disparity in income and wealth in the US. I think that graduated taxes beat the alternative, so I expect to see more taxes from the higher income end. As the income disparity grows, the tax disparity will grow. To me they are linked, I can't complain about the concentration of taxes while ignoring the concentration of income.

At the very top end of the spectrum, the disparity is clearly too wide to be the result of hard work, it's mostly dumb luck. Lots of the dumb luck is currently funneled through capital gains rates, which are lower than regular income rates. Is that the best tax policy? I don't like the idea of telling those bright HS kids they'll have to pay 25% on their six figure wages so hedge fund managers can pay 15% on their nine figure bonuses.

I agree we do have a large disparity in income in this country. The marginal utility of an additional $ of income is much lower for somebody making a $1 million than for somebody making $100K and way less important than for somebody making $10/hour with a kid. So I think the progressive nature of the taxes is a good thing, and I am not anxious to change it-- nor do I believe that having a wide disparity in income is a particularly bad thing.

I also think we have to look at overall federal taxes not just income taxes. Social Security is a very regressive tax, not paid by either those earning very high wages, nor by retired folks. Medicare tax is not quite as bad but close.

The obscene complexities of the system result in massive discrepancy between people making similar incomes. I think this is a very bad result which leads me to support simplification ideas like a national sales taxes, with a poverty exemption.

However, the reality is as much support as such proposal may have in forum like this, there isn't a snowball chance of getting in passed in the next 4 years and not much in 10 years.

I don't think we have 10 years to address the fiscal problems the country has faced. For the last decade both sides got their way, the Republicans got lower taxes and the Democrats got more entitlements and since it didn't involve sacrifice their was tacit bipartisan support for both. (I am generalizing here I don't want to turn this into political discussion)

At this point I think we are left with choosing between the lesser of 3 evils, running massive deficits, raising taxes, or cutting spending. It is easy to say cut spending, I think Years2Go showed that it is hard to actually identify what should be cut, much less get the political will to actually do it. Not to mention if there ever was a time to make an argument for Keynesian spending the last couple of years have been it. So that basically leave raising taxes or increasing the deficit in the next couple of years. Given those two choices I vote for taxes. I'd say that increasing the taxes on dividends while a bad idea, is less bad than the alternatives.

 

[FinanceDude]

If that were the case they wouldn't already be paying 60% of the taxes.

Some of them don't have a choice, like the big salary folks. However, I have a fair number of clients that own businesses that can easily change what they pay themselves.......

The tax code is the issue.........a flat tax would make sure everyone pays something...........whether that is fair or not is in the eyes of the beholder...........

 

[youbet]

I'd say that increasing the taxes on dividends while a bad idea, is less bad than the alternatives.

It's good to have that issue settled!

Now, let's make an effort to get ahead of the curve. What should the next new source of funds for gov't spending be? A new tax? An increase in the rate of an existing tax? Seizure of assets (wealth tax)?

When we finally arrive at a 100% tax rate for all, what will we do then to facilitate additional, necessary increases in gov't spending?

 

[jdw_fire]

I am drawn more and more to the concept of a flat tax with no exemptions (except a poverty level base) for anything. If people want to have children, that's their decision (we chose to), if they want to own a house, that's also their decision. I would also do away with all tax free income - no more muni bonds or the equivalent. No loopholes of any kind - a simple half page tax return - what did you earn, here is the tax rate, this is what you paid, this is what you owe. No speacial rates for dividends, stock transactions, etc. No Roth IRAs, no exemptions of any kind. Will it ever happen - no.

End of diatribe.

but determining what you earned is the trick. it is easy if your only income is from a job, but what happens when you buy an piece of investment real estate? is all the rent collected added to your what you earn? do you get to deduct maintenance and repair expenses from the collected rent before adding? what about depreciation? and then what about running a small business? you see, the complexity is in determining just what it is that you earned.

A sales tax in place of an income tax makes much more sense to me. But that's another story.

-ERD50

well if you want the people who have higher incomes to be picking up more of the tax burden this wont do it. this will be a tax more like FICA is now, letting the high income earners off the hook and paying less of the fed taxes collected. this would just widen the already large disparity between the high income earners and everyone else and may lead to a class war

 

[beowulf]

There may be some people who have high incomes because of large inheritances - that's what I would call dumb luck. Anyone who started with very little and created a lot of wealth almost always does it through hard work, willingness to take far more risk than the average person, very long hours and, in many cases, a lot more brains than those at the bottom of the scale. I'm sorry if this is not politically correct, but you if have no ambition, no education and no willingness to work hard, the only way luck will help you is if you win the lottery. Your chances are far better of getting hit by a meteorite.

I don't think Ross Perot, Bill Gates, Warren Buffet, etc., got where they are by dumb luck. OTOH, if Donald Trump's father had not been a real estate magnate in NYC, I don't think the Donald would have done as well as he has.

Look at all the owners of small stores who put in un-godly hours and end up with a chain of stores - they become millionaires. How about all the folks who buy one investment property, then another, etc? That's not dumb luck, that's hard work. I have no proof, but I'll bet that the top 5% (which i think I saw starts at $160K?) are more the result of hard work than luck of any kind. OTOH, I was lucky that I had parents who valued education, pushed me in school and had high standards. That was luck of birth - but nothing we can do about that except to make education available to all, which we do.

I still favor the flat tax as the best way to raise large amounts of revenue and cut out all the gaming and fraud that goes on now.

 

[beowulf]

well if you want the people who have higher incomes to be picking up more of the tax burden this wont do it. this will be a tax more like FICA is now, letting the high income earners off the hook and paying less of the fed taxes collected. this would just widen the already large disparity between the high income earners and everyone else and may lead to a class war

This is assuming that individuals with extremely high incomes pay taxes at a higher overall rate than the poor Joe who works for a living and earns less than $100K. That's been shown again and again to be untrue. The truly rich have the resources to hire plenty of help to minimize thwir taxes, and they do. Under a flat tax with no exemptions, the rich would pay a much higher total amount than they do now, to include total burden. The percentage may be the same across the board, but 20% of $1,000,000 is $200K, and 20% of $70K is $14K. The philosophy of the value of those dollars to each party is another issue. FYI, I use TurboTax and it's a pretty decent program for folks with non-complex returns.

 

[ERD50]

RE: a National Sales Tax...

well if you want the people who have higher incomes to be picking up more of the tax burden this wont do it. this will be a tax more like FICA is now, letting the high income earners off the hook and paying less of the fed taxes collected. this would just widen the already large disparity between the high income earners and everyone else and may lead to a class war

In addition to what Beowulf pointed out, the plans for a real NST to replace the income tax calls for a "pre-bate" to offset taxes for the first $X of spending (which is the same as $X of income for low income earners). So that warps the curve to look more like the traditional 'progressive' tax system. The difference being that we could actually infer something from the curve, which we can't do by looking at the current marginal rates and brackets, because of all the exemptions/loopholes/credits, etc.

It ain't gonna happen though, and neither will any other meaningful tax reform.

-ERD50

 

[jdw_fire]

well if you want the people who have higher incomes to be picking up more of the tax burden this wont do it. this will be a tax more like FICA is now, letting the high income earners off the hook and paying less of the fed taxes collected. this would just widen the already large disparity between the high income earners and everyone else and may lead to a class war

This is assuming that individuals with extremely high incomes pay taxes at a higher overall rate than the poor Joe who works for a living and earns less than $100K. That's been shown again and again to be untrue. The truly rich have the resources to hire plenty of help to minimize thwir taxes, and they do. Under a flat tax with no exemptions, the rich would pay a much higher total amount than they do now, to include total burden. The percentage may be the same across the board, but 20% of $1,000,000 is $200K, and 20% of $70K is $14K. The philosophy of the value of those dollars to each party is another issue. FYI, I use TurboTax and it's a pretty decent program for folks with non-complex returns.

well i think you misread my post cus the part of my post you quoted was talking about a national sales tax, not a flat tax. this is what i said in response to your post about a flat tax

but determining what you earned is the trick. it is easy if your only income is from a job, but what happens when you buy an piece of investment real estate? is all the rent collected added to your what you earn? do you get to deduct maintenance and repair expenses from the collected rent before adding? what about depreciation? and then what about running a small business? you see, the complexity is in determining just what it is that you earned.

 

[jdw_fire]

RE: a National Sales Tax...

well if you want the people who have higher incomes to be picking up more of the tax burden this wont do it. this will be a tax more like FICA is now, letting the high income earners off the hook and paying less of the fed taxes collected. this would just widen the already large disparity between the high income earners and everyone else and may lead to a class war

In addition to what Beowulf pointed out, the plans for a real NST to replace the income tax calls for a "pre-bate" to offset taxes for the first $X of spending (which is the same as $X of income for low income earners). So that warps the curve to look more like the traditional 'progressive' tax system. The difference being that we could actually infer something from the curve, which we can't do by looking at the current marginal rates and brackets, because of all the exemptions/loopholes/credits, etc.

It ain't gonna happen though, and neither will any other meaningful tax reform.

-ERD50

beowulf wasnt talking about a NST but a flat tax (see my previous post).

but even with the "pre-bate" the NST is not progressive in nature. after said "pre-bate" the lower income people will pay a higher percentage of their incomes in taxes than the higher income people. while the last dollar earned has much lower utility to the high income person than the lower income person the higher income person will pay less tax on it. i think one of the reasons a progressive tax structure is fairer is this fact that the last dollar earned by a high income person has lower utility to him than the last dollar earned does to the lower income person. a couple of other reasons include 1) the higher income person is likely getting a high income due in part to his company/enterprise taking more advantage of the infrastructure the government has provided and 2) he has more to lose if this government collapsed or even if some of the government provided services no longer existed (eg police and fire department).

 

[clifp]

.

I still favor the flat tax as the best way to raise large amounts of revenue and cut out all the gaming and fraud that goes on now.

The flat tax probably wouldn't reduce the complexity or gaming of the system, certainly in the age of computer it isn't difficult to figure out how to pay X+25% over $68,000 or $Y+28% over $137,500. It is as JDW points out figuring out what is the real income.

Using your 20% example (which is probably too high)

Joe officer worker get paid $50,000
Robert my handymen get paid $2,000 from me and the same from 24 other folks earning a a total of $50,000
My sister the artist sells 50 paintings at $1,000 each also making $50,000
I assume all of these people pay $10,000 taxes?

The guys who sells collectibles on Ebay sell $500,000 worth of bennie babies, cabbage patch dolls, and such. He pays $100,000 taxes is this right?

 

[JPatrick]

I see a lot of concern about taxes. I've seen little about cutting spending.

You can't cut taxes without cutting spending. In fact, even if we left taxes as they are, we still have to cut spending (the whole debt/deficit thing).

Or we could pull an Argentina.

Oh I tried the cut spending approach several posts back. I got the congressional response...Oh that amount is so small it doesn't matter. Repeat that statement a couple of hundred times, and by golly, looks like we need to raise taxes...

 

[Texas Proud]

I see a lot of concern about taxes. I've seen little about cutting spending.

You can't cut taxes without cutting spending. In fact, even if we left taxes as they are, we still have to cut spending (the whole debt/deficit thing).

Or we could pull an Argentina.

I would LOVE to see a cut in spending... let's start with..

Cut SS in half.... yes, it IS not going to happen... but if we want to address the real problem... this is one of them

Get rid of the unfunded drug program... sorry if you or grandma dies because you can not afford the drugs... (yes, I am serious on this... it is a big cost... if you want it PAY for it)....

Cut some of the other welfare programs... yes, I am mean.... and yes, I have some relatives of an inlaw who is on the system (in fact, many in that family)....

Have a special tax for the war.... if we want to go to war, we should PAY for it... with a special tax... always... yes, we can pay for the common defense with our normal tax... but once a shooting war starts... congress passes a spending bill and then allocates those costs as a special assessment to everybody to pay... this might keep us out of some of the many shooting wars if we knew how much we were paying for them...

There are a lot of other places you could cut... but it requires you to cut services to some... so be it... we are more than helping the truly needy... and helping out a huge number of people....

 

[Gone4Good]

The tax code is the issue.........a flat tax would make sure everyone pays something...........whether that is fair or not is in the eyes of the beholder...........

I wouldn't confuse "flat" with "simple". Six tax brackets isn't what makes our system a mess. It is the myriad deductions, credits, tax favored accounts, special rates on certain income, phaseouts, a springing Alternative Minimum Tax and the like that are the problem. All of these breaks, credits, phaseouts, and special rates create incentives that distort economic decision making and create huge and unnecessary compliance costs. This stuff is way worse in many ways than a progressive marginal rate that tops out at a relatively low 35%.

A simple and consistent tax policy is a better tax policy from a purely economic perspective. So if that is the goal, applying the medicare tax to all income is actually a small step in the right direction. Which brings me all the way back to posts #9 and #17.

 

[Gone4Good]

Oh I tried the cut spending approach several posts back. I got the congressional response...Oh that amount is so small it doesn't matter. Repeat that statement a couple of hundred times, and by golly, looks like we need to raise taxes...

No. The response you got back was a question ("Please identify the spending cuts that would balance the budget without raising taxes") to which we're still waiting an answer.

Here are some rough numbers to help out (because I know you won't look this stuff up on your own). If we were to eliminate every government program in 2010 except National Defense, Social Security, Medicare, and Interest payments we'd spend $2,576,346MM. Tax receipts are budgeted at $2,165,119MM this year. These four budget items are expected to grow to $3,388,427MM by 2015. Tax receipts under the current code hit a pre-recession bubble peak of $2,568,001MM.

So the opening bid is . . . cut every program 100% except the 4 listed above and then cut those 4 by 20%. See how easy that is?

 

[Independent]

You are correct, it has drifted from the OP. But not entirely unrelated - it is mostly those high income earners that are going to have significant dividends, so it is a further limit on what they can earn with the money they have saved and invested from their hard work. I'm not saying it is a huge disincentive, but all these marginal disincentives add up.

Any tax has some disincentive on someone, somewhere. I think that 999 out of 1,000 HS kids thinking about pursuing productive careers aren't going to worry (most won't even know) about a tax a dividends and cap gains that they might pay in some distant time when they've built up lots more savings then most people. So it looks like a non-issue to me.

Really? I'm not so sure - is it really so unexpected that the top 5% of earners would be making an average of $540,000? Or 1.6M for the top 1%? And those numbers will be high because some of those are no doubt through luck. I'd like to see the median number.

I'm not sure what you would consider 'good' numbers. Let's say half of that. Would you really want to tell a 21 YO that even if they work hard and are the most successful (or even luckiest) person in a group of 20 others, that they are unlikely to make more than $270,000 a year? Because we just don't think it's right for some to make much more than others, no matter what the reason? I dunno, but I don't think I want to do that.

Another thing is, I've read that those top 1% and 5% rotate around. Might be a business that had a good year after barely breaking even for the past 5 years. You want to 'punish' that person for their success after so much hard work? It is different than someone making $540,000 5 years in a row.

I'll agree that single year snapshots tend to overstate differences. Unfortunately, I don't know where to get multiple year sums.

My comment was that some differences in income are too big to be explained by hard work. We can all think of cases where one person earns $30k and another $50k, and we can imagine a 5:3 ratio in work effort. But when the numbers are $30k vs. $600k, I can't get close to to visualizing a 20:1 work effort. I've had the experience of working on the same day with people at both ends of that spectrum. I find it plausible that the higher paid person worked twice as hard, but nothing close to 20x as hard. Most of that differential is dumb luck - genes, parents, being in the right spot when the merger happened, ....

TP seemed to think that high income people already pay "too much" tax. Do you agree? and if so, how do you arrive at that result? Maybe I was too flippant in just accepting his judgement without writing a much longer discussion. Here it is:

In my "fair" economic world, we'd have equivalent (but not identical) luck. The only difference in incomes would be effort. If I earn 50% more than you, it's because I'm working 50% harder. We'd probably see that lifetime incomes top out at about twice the median, because that's about the limit of human capacity. In such a world, the "fairest" tax might be regressive - most gov't would be supported by a fixed dollar (head) tax. Why should someone who chose more leisure pay less tax than someone who chose more work?

In our real world, there is a tremendous disparity in luck, and therefore income. It's so big, that the only reasonable tax for an expensive gov't is progressive, so high income/wealth people are going to pick up a big chunk of the bill because they'll pay a higher rate on their high incomes. We may not "like" that, but it's the best we can do in an imperfect world.

I'm not promoting that idea that we should put a cap on earned income. I can't imagine how the gov't could possibly do that. I do think graduated tax rates make sense, and it makes sense to tax capital income at the same rates as labor income, which we're not doing today. Sure, both of these reduce the incentive to work for some people, but note that those people still have after tax hourly earnings above (or very far above) median hourly earnings, and so they still have plenty of incentive.

I've got a confusing sidenote: In a small number of cases, some very profitable economic activities hurt the greater good (think monopolies, pollution) and we should limit or tax these activities. The fact that something is profitable for some private interest doesn't guarantee that it's enhancing our society. People who want to keep making the money often claim that others are merely jealous and looking to "punishing success". In some cases that's true, in some it isn't, we need to look hard to see which is which.

Well, this gets to my often-stated dislike of the complexity of our tax code. It would be tough to make 'fair' under the best of circumstances, and our twisted, illogical, counter-productive tax code just makes it worse. It makes almost any discussion of overall 'fairness' pointless. A sales tax in place of an income tax makes much more sense to me. But that's another story.

-ERD50

I think we've agreed on this point before. I saw this tax on dividends/cap gains as a small step in making the result more rational, but I'd much rather have a dramatic change. (However, I'd definitely prefer a dramatically simplified income tax instead of a NST.)

 

[ziggy29]

Any tax has some disincentive on someone, somewhere. I think that 999 out of 1,000 HS kids thinking about pursuing productive careers aren't going to worry (most won't even know) about a tax a dividends and cap gains that they might pay in some distant time when they've built up lots more savings then most people. So it looks like a non-issue to me.

Heck, I'm more financially savvy than most and was in my teens and early 20s, and I (unfortunately) didn't even consider the value of pensions and retiree health insurance when choosing careers and employers. So certainly nuances of possible tax changes decades from now didn't even appear on the radar.

 

[Independent]

Probably not. In underdeveloped countries great income inequality has been shown to facilitate social unrest. In developed countries, that is less clear. But whether income inequality encourages growth or discord largely depends on income mobility, or at least the perception of mobility. The US has high income mobility so inequality probably facilitates growth.

I've seen some research on this that says European mobility is actually higher (sons have a greater chance of being in a different income quintile than their fathers). But, the perception of mobility is higher in the US, and that's what matters for social stability.

I think, but I don't have any facts to support it, that this perception is eroding in the US.

 

[beowulf]

Independent - I don't understand what you mean by "work." It seems you are equating work to physical effort - if you carry one ton of hod and make $100, then you should earn $200 for two tons. Or if you work X hours, you should get that much more for X + 5 hours. Not sure what country you are referring to, but it's not the US. Most people who do well in this country don't perform truly measurable work. That's why it's not a function of luck, with the simple exception of being born here in the first place. I may (and probably am) wrong, but I've had the impression that most people who are able to retire early (whenever that is) are not blue collar workers - whose output can be easily measured.

Those of us who are decision makers, analysts, in short, people who work with their minds and not their hands, can't be judged by the same standards of productivity. I can make one decision in 5 minutes that saves my company $1M. I many have nothing to do for the rest of the day - does that mean I should get paid for 5 minutes? The concept of "working harder" is generally irrelevent to many knowledge workers. What concerns me is that you appear to be linking compensation and tax burdens to the following statement: "From each according to his ability, to each according to his need." I think we all know where this comes from. No hints now.

 

[beowulf]

With regard to cutting spending - I am 100% in favor of eliminating all earmarks, all federal preferences for social programs that have costs associated with them, a 10% across the board cut of ALL programs, regardless of effect, elimination of 20% of the federal workforce (which will have no effect at all), cut of 50% (to start) in ALL foreign aid across the board (actually, I'd go for 100%, but you have to work yourself up - it's insane to borrow money from one country (China) to give it to another), all programs that result in expenditures of funds that benefit illegal aliens, deportation of all llegal aliens, elimination of federal programs that have not produced the intended result or have outlived their usefulness (why are the Rural Development Electric Programs still operational when 99% of the US is electrified?), and many more.

I would also raise import duties on goods that could be produced in the US, but are not as we have let our industrial capacity die. I'm not stuck on a flat tax - a VAT (with elimination of our current tax code and a rebate for those under certain income levels) could work well also.

But, as has been stated, this is all idle speculation. None of it will happen. Guaranteed.

 

[Gone4Good]

Heck, I'm more financially savvy than most and was in my teens and early 20s, and I (unfortunately) didn't even consider the value of pensions and retiree health insurance when choosing careers and employers. So certainly nuances of possible tax changes decades from now didn't even appear on the radar.

Absolutely. But it's not just high school kids. Most decisions ordinary people make aren't based on any tax rate considerations whatsoever. Certainly there are exceptions, but as a general rule people don't turn down promotions, or job opportunities, or fail to pursue entrepreneurial ambitions because they may have to pay 35% of each incremental dollar to the federal government. Naturally as that rate increases the number of people factoring tax burden into decisions will grow. But the strange notion that any marginal rate increase from any starting position, no matter how small or from how low a rate, is always extremely destructive is simplistic at best. I'd categorize that view as more an element of political faith than reasoned economic thought.

In fact, members of an Early Retirement Forum might consider the possibility that an Anti-Laffer Curve exists in very rich countries like the U.S. In other words, workers who are productive enough to generate sufficient wealth to retire early can drop out of the work force sooner the lower the tax rate is. Conversely, the higher the tax rate the longer they have to work before they can retire.

Lets hear it . . . Higher Taxes for Growth!!

 

[ERD50]

Independent, lots of topics there - let me respond to a bite-size chunk or two. I'll try to answer another chunk later, but first...

My comment was that some differences in income are too big to be explained by hard work. We can all think of cases where one person earns $30k and another $50k, and we can imagine a 5:3 ratio in work effort. But when the numbers are $30k vs. $600k, I can't get close to to visualizing a 20:1 work effort.

Allow this sports agnostic person to make an Olympics analogy - Does the winner in a race work 20x harder than the 4th place person? Probably not, but the winner gets the gold and the 4th place gets zero.

If two companies are competing to get a new product out into the market place, one company may be marginally more efficient or effective, or work marginally harder, but being first to market can easily make a 20:1 difference in reward. But it wasn't a 20:1 difference in 'effort'.

As beowulf mentioned, it's tough to say what 20:1 "effort" is when it comes to these things. But yes, I can visualize it this way: It is unlikely that a group of twenty workers at the $30,000 level could co-ordinate a business plan that brings a new product to the market that creates new jobs. But some people earning $600,000 do exactly that. Yes, they rely on some of those $30,000 wage earners to get the job done, but those $30,000 people didn't create the product or the jobs. They just don't have the skill sets or experience or motivation, even if they put in the same 'effort'. Maybe substitute 'capability' for 'effort'? I think I could say that many entrepreneurs have 20x the 'capability' of many $30,000 'wage slaves'.

TP seemed to think that high income people already pay "too much" tax. Do you agree?

I actually have no opinion on this - since our tax code is so convoluted, we really don't know what anyone pays in taxes based on their 'income' (we can't even agree on what 'income' is), so I can't say. I do have a problem with the numbers that say ~ 50% pay no Fed Income tax at all. But I don't know what to make of *that* number either, since some of those are getting credits, and it only accounts for people who actually filed taxes.

I'll add some numbers to demonstrate that a NST with pre-bate *is* a progressive tax. For demonstration, let's say the NST was 30% and the pre-bate offset the first $30,000 in spending. Then we have:

$30,000 spent = 0% effective tax rate.
$50,0000 spent = .3(50K-30K) = $6K tax = 12% eff tax rate.
$100,000 spent = .3(100K-30K) = $21K tax = 21% eff tax rate.

Going from $50K to $100K results in a 3.5x tax payment, on 2X the spend. Maybe you think it should be steeper, but I like the fact that I know it would actually be collected (and collected from people who pay zero income tax now from illegal/unreported activities).

And yes, I think a measure of what one spends would be a far simpler and far more accurate (on average) measure of their ability to pay taxes than some complex convoluted measure of their 'income'. And if some wealthy person wants to save/invest it instead of spend it, fine - I thought we wanted to encourage savings and investing, and make money available for credit for others?

-ERD50

 

[Texas Proud]

TP seemed to think that high income people already pay "too much" tax. Do you agree? and if so, how do you arrive at that result? Maybe I was too flippant in just accepting his judgement without writing a much longer discussion. Here it is:

I don't think I said anywhere where the high income people pay "too much" tax... maybe I will have to look back and see... I think that I pointed out that the high income people pay the vast majority of the revenue of the country...

One of the things that I have been thinking.... money if fungible.... if we can tax the heck out of people to pay for the trillions of dollars for health care... then we can scrap this health care stuff and only do the taxes... this will pay for everything that we currently spend money on and then some.... it will take care of the deficit... so why not enact the tax, and get a balanced budget...

THEN... once we have gotten our debt lower... we decide what we want to spend that money on... you can move it around, but not tax any more...

But... I do agree that the tax level of all taxing authorities are to high.... many years ago in a Reader's Digest article they said the very big vast majority of the country thought that the amount of 'government' should be 20% (maybe 25%... but I think it was the lower number).... this was not just federal, but ALL government... we are a lot higher than that....

 

[ERD50]

OK, let me touch on this one now...

Heck, I'm more financially savvy than most and was in my teens and early 20s, and I (unfortunately) didn't even consider the value of pensions and retiree health insurance when choosing careers and employers. So certainly nuances of possible tax changes decades from now didn't even appear on the radar.

Agreed. However, that is based on past and present rates. Independent is saying that the $540K and $1.6M is "too high". So what is "just right"? I threw out cutting them in half.

If we cut them in half, that might start getting it on the radar screen of some young people.

I'll go back to the Olympics. If we gave three Gold Medals to the top three in each event, with no distinction between the three, and four Silver Medals and 5 Bronze medals - don't you think that would change the dynamics of the event? Would people really work so hard to be "the best", when all they could hope for it to be lumped in with two other competitors, and no acknowledgment for actually being better than the other two?

No, it doesn't mean people would stop competing. But I do think it could affect how much top talent is attracted, and it could marginally affect just how hard they are going to work towards a diluted goal.

This seems to be the kind of redistribution of risk/reward that Independent is in favor of. I think there are negative consequences to it. Do those outweigh any positives? Hard to say. There are some examples from history that didn't work out to well.

One more sports analogy - how many kids work really hard at some of the high-profile sports? If the top athletes were not making millions, I bet it would be far fewer. That might be a good or a bad thing, but you'd be hard pressed to convince me that it isn't a motivational factor.

-ERD50

 

[Independent]

Independent - I don't understand what you mean by "work." It seems you are equating work to physical effort - if you carry one ton of hod and make $100, then you should earn $200 for two tons. Or if you work X hours, you should get that much more for X + 5 hours. Not sure what country you are referring to, but it's not the US. Most people who do well in this country don't perform truly measurable work. That's why it's not a function of luck, with the simple exception of being born here in the first place. I may (and probably am) wrong, but I've had the impression that most people who are able to retire early (whenever that is) are not blue collar workers - whose output can be easily measured.

Those of us who are decision makers, analysts, in short, people who work with their minds and not their hands, can't be judged by the same standards of productivity. I can make one decision in 5 minutes that saves my company $1M. I many have nothing to do for the rest of the day - does that mean I should get paid for 5 minutes? The concept of "working harder" is generally irrelevent to many knowledge workers. What concerns me is that you appear to be linking compensation and tax burdens to the following statement: "From each according to his ability, to each according to his need." I think we all know where this comes from. No hints now.

I'm calling "work" time and energy. I know that some times I'm more "intense" at work than other times, so I can't just look at hours. I'm calling genes, parents, mentors, being in the right place at the right time, good health, ... "luck". The person making $400k isn't putting in 20x the time/effort of someone making $20k, so much of the difference in income is "luck".

If you can save $1 million with 5 minutes of attention, then your company should pay you accordingly - you're going to have a very high "hourly" rate (assuming there are very few people who can do what you do). I've got no problem with that. In the days of muscle work, the big healthy guy could lay twice as much rail in a day as the smaller weaker guy. I'm not suggesting they should be paid equally. I am saying that the difference in their day's output and wage (assuming that both made the same effort) is due to luck.

I see the same thing with brain work. I am (was) a financial analyst. I made 3 or 4 times the median wage. But I could look at median wage earners I knew and say I didn't work a lot more hours or with a lot more intensity - I was born with a gift and had the opportunity to develop it. Given the investment I made in my skills, I could "work justify" an income of maybe 2x the median. But I was delivering economic value that was 3-4 times the median. My employer didn't care why, they paid me based on what I did for them. For this discussion, I think the extra resulted from "winning the birth lottery".

If you're opposed to the "from each according to his ability" part of that quote, how do you think we should pay taxes? I said that in an ideal world I'd be okay with everyone paying the same dollar amount, is that your preference for the world that we live in?