Progressive Nature of Tax Code

[ziggy29]

I remember reading an cover story in a Reader's Digest years ago... it was a poll taken on what is the appropriate level of taxes... I can not remember if the poll results were 20% or 25%.... (this would be the TOTAL tax burden... income, sales, excise etc.)

BUT... the main surprise was that no matter which subgroup you looked it was almost the same... no difference between Repubs and Dems... ethnicity did not matter... age did not matter...

I can believe this. But if the question went further and asked HOW the taxes should be levied and who has to pay a disproportionate share, *that* is where the disputes will begin.

 

[FIREd]

We pay a large percentage of our income in taxes (top 5-10% AGI, no kids, few deductions) and while I sometimes get angry at the amount of taxes we pay and how that money is being squandered by inept politicians, I also remember that it could be a lot worse. We still have relatively low income tax rates (compared to other countries) and the government leaves us enough to feel like our hard labor is paying off. In some countries the tax rates are so high that the value of work is slowly eroding. Why become a doctor or an engineer, if, after taxes, you end up with an income barely superior to that of a mechanic who, in addition to paying low taxes, receives a ton of government handouts?

As a side note, I do get why Europe adopted progressive tax codes: the rich pay for the poor and that is very consistent with a socialist ideology. But I think that a progressive tax code has no place in the US, a country proud of its capitalistic culture. I think we can find a better way.

 

[Abreutime]

sam, a good question.. BUT is it possible to run a modern society w/o taxes of any kind? I don't think so. So the minute you institute a tax of even a penny, under whatever regime, you open up discussions of fairness. To some minds, working even one extra day is too much, so where is the appropriate cutoff in your mind? 5%, 10%, 20%, 25%, 30%??

It depends on what your government is "running." Just because you can't imagine how a minimalist government would operate does not make it impossible. I can imagine how it would be run, and people would pay for the services that they require. I don't want to derail the thread too much, but assuming that the status quo is the only way to operate is pretty closeminded. I dare to dream.

Is a poll tax fair? (everyone pays $Xk/year) Probably not.

Paying for access to democratic process seems unfair, I agree. Having a voice in the system is something that most Americans can agree with. However, the way that elections are set up now (with large campaign costs offset by donations), there is a certain amount of pay-to-play potential for abuse. While everyone can vote, only the candidates with money can afford to get their message out. Having one of the 2 political party affiliations also is a huge advantage when running for office.

Is a sales tax fair? (people who make beyond what they need to spend will get that money tax-free, so that's not fair).

I'm not following your logic. Why is it unfair that some money is not immediately taxed?

Besides, all money is eventually taxed under a consumption/sales tax. All money is eventually spent, if you look at a long enough time frame. The time frame needed is shorter if you include an estate tax in conjunction with a sales tax, as all money is taxable over the course of one's life. This seems fair to me, as people are taxed on their lifestyle (lavish living costs more), instead of their productivity. This encourages savings, which is something the people of the US do little of.

Is a flat tax fair? (everyone pays x%) Maybe, but only if you eliminate all other taxes that are regressive -- remember the conceit above of how the lower-end regressive taxes and the higher-end progressive income tax complement each other.

I think that's reasonable all around. I think a flat consumption tax above a certain spending level seems fair. Check out Americans For Fair Taxation: Frequently Asked Questions Answers for how this could work. This is much to brilliant of a taxation platform for this to be implemented in my lifetime, but it would be amazing living under it.

Whichever way you institute a tax will seem unfair to someone. What gets me is how high earners are still complaining, even now that the tax climate is more favorable to them than in any time in living memory. There's not much perspective.

When you work at your job for XX hours a week, whose money are you earning? This is the crux of the argument, and it is not restrained to the highest income earners. The steady climb in government spending, and the expansion of entitlement attitudes from both government officials and beneficiaries are drivers behind some of the discontentment.

This country was founded on ideals of freedom from government coercion. What were the main issues behind the colonies seceding from England? Do you realize how high the tea tax was (look it up; the number may shock you) that led to the Boston Tea Party (see edit)? Where's your perspective? Somehow, in the last 90 years, it has become accepted by most Americans that the government has the RIGHT to take however much of your income that they deem necessary. They say 90%, it becomes 90%. They say they want to pay for a war, it happens. There is no war, well, there are other programs that need to be paid for. They'll even make it the law to take it directly from your paycheck. No one had to agree to give up the right to their income; the government just took it during WWI and never gave it back. Now, I think it's reasonable for people to try to take it back from the government, within the democratic process. I applaud these people. And when you think about all the taxes we pay (income tax, sales tax, property tax, capital gains tax, estate tax, transfer tax, SS tax, payroll taxes, city wage tax, gas tax, cigarette tax), the number comes out to a lot higher than 25%. Only by bringing in the tax from so many sources makes it even possible for the government to get away with such high overall tax rates.

I find it sad that many people are willing to simply accept any policy under the rationale "It's been worse" or "Other countries are worse." Well what do you want it to be?

I'm nowhere near the top 1% of wage-earners; I just think people should be able to keep the money they earn. Crazy, I know. I don't have a problem with people getting rich in lawful ways by providing goods and services. In fact, I expect them to be deeply compensated for their ingenuity, risk-taking, and productivity.

EDIT: I looked for the tea tax rate, to verify the 3% that I thought. It's not that cut-and-dry. See here for a discussion: http://www.philaahzophy.com/2007/12...amount-of-tea-tax-inspiring-boston-tea-party/

 

[clifp]

My analysis is simple:

Tax brackets in 1999 were 28/31/36/39.6
Tax brackets in 2007 were 25/28/33/35
Subtracting the two: 3 / 3/ 3/4.6
4.6 > 3 therefore the rich are getting a better deal.

If you aren't going to make simplistic comparisons at least use the proper data

Tax brackets in 2000 (same as 99) 15/28/31/36/39.6
Tax rates in 2007/2008 10/15/25/28/33/35
Differences 5/13/6/8 and between 1 and 4.6% for people at the top brackets. So your analysis the poor got a better deal, since 5 and 13 > 1 and 4.6,

For a couple with an AGI of 45K and 65K (which I believe is ~20% of all couples) their marginal tax rate dropped by from 28% to 15% which means tax cut of up to $2600 pretty significant.

 

[ladelfina]

It depends on what your government is "running." Just because you can't imagine how a minimalist government would operate does not make it impossible. I can imagine how it would be run, and people would pay for the services that they require. I don't want to derail the thread too much, but assuming that the status quo is the only way to operate is pretty closeminded. I dare to dream.

I would love to opt out of the Iraq war; tell me where I can sign up for that. I don't feel that I "require" it.

 

[CitricAcid]

I would love to opt out of the Iraq war; tell me where I can sign up for that. I don't feel that I "require" it.

I agree with your sentiment on more transparency, and that is what I believe Abreu is suggesting. He is saying that a more minimalistic government is possible, for some that would be less wealth distribution, social security and national healthcare/Medicare, others would be less defense spending, faith based initiatives and the such.

Let me go on record saying I agree with what most people have said that it is impossible to pin down a fair number. Sure, you can live fine on 40% marginal tax rate. And, you can do fine at 45%, and 50%, and can live at 65% and the highest you can handle is 80%. So, should you be charged 80% at the benefit of others? Maybe, not up to me to decide. When much of the SPENDING goes to disparate ends and benefits, it is tough to see who benefits from the spending and how others are hurt. The biggest issue to me is that since the money must come from somewhere and the rich have the money (and are, in essence defining rich as relative, less than 5% of the population) they can be voted to give it up for disparate amounts of benefits. Is this a benefit because of the amount of wealth they have or is it a difficulty with democracy because of the inequality in tax codes being applied, it is up to you to decide.

 

[Pete]

If this is true, we can all stop worrying about those ultra rich.
Most companies in US avoid federal income taxes - Yahoo! News

 

[ERD50]

If this is true, we can all stop worrying about those ultra rich.
Most companies in US avoid federal income taxes - Yahoo! News

Did you actually read the article and analyze what it said, or just the headline?

There is no substance there. Guess what, a company that makes no profit pays no taxes - surprised?

increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.

It said companies may escape paying such taxes due to operating losses or because of tax credits.

The tax code allows this. So let's all complain that businesses are complying with the tax code. What do you expect them to do?

Stupid, stupid article.

BTW, I'm in favor of eliminating corporate taxes - to *benefit* the consumer.


-ERD50

 

[ziggy29]

If this is true, we can all stop worrying about those ultra rich.
Most companies in US avoid federal income taxes - Yahoo! News

In the end, all the financial benefits to corporations go to individuals anyway, and their profits ultimately show up as taxable income to the individual in some form -- so one way or another it comes back to all of us...

 

[Pete]

a company that makes no profit pays no taxes - surprised? -ERD50

The article said "Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress"

If this is true, 2/3 of our corporations made no profits between 1998 and 2005? We're in worse shape than I thought.

 

[ERD50]

The article said "Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress"

If this is true, 2/3 of our corporations made no profits between 1998 and 2005? We're in worse shape than I thought.

Ok, do us all a favor. Research that and report back - I need to go cut the grass.

-ERD50

 

[deserat]

Ladelfina,

I am late to this thread, however, I do live in CA - and I am a middle class earner - I pay property tax, sales tax, state income tax, federal income tax and FICA. CA is one of the most over-taxed states in the US and frankly what I get for my taxes in this state is a travesty - I calculate with Quicken what I pay and it is 55-60% of my income in all of the combined taxes - that is very similar to the burden in Europe and yet what do I have to show for it? I have a mass-transit system in the state which only works/runs in the urban areas and isn't on time - however, even with the latest housing downturn, I would still need >$500K to purchase a home in that urban area to use the mass transit - as it is, I commute 45 miles one way and have commuted 80 miles one way to get to my job - in a car - oh and I pay bridge toll (which have increased over 400% since I've moved here - supposedly they were setting that money aside for maintenance of the bridges, but OOOPS, we put it in the general fund!). My gas taxes are .30-.50 cents more per gallon than any other state (just did a road trip in the US west and suffered sticker shock upon returning to CA-prices were similar to those I paid in Germany!). Did you also see they can't get past a $15B budget impasse in this state?

So with my rant above - I am leaving this state - I can't afford to have a middle-class life where I don't spend most of my time on the highway going to-from my job. Oh, and I'm an engineer with two degrees....the type of person that CA wants to keep so they can tax me! Good riddance to this state - it is a beautiful place, but if you didn't buy your house early or if you are fortunate like CFB or some of the other posters here who live in CA who have already retired and figured this out - it's not worth it to live here.

 

[Notmuchlonger]

Ladelfina,

I am late to this thread, however, I do live in CA - and I am a middle class earner - I pay property tax, sales tax, state income tax, federal income tax and FICA. CA is one of the most over-taxed states in the US and frankly what I get for my taxes in this state is a travesty - I calculate with Quicken what I pay and it is 55-60% of my income in all of the combined taxes - that is very similar to the burden in Europe and yet what do I have to show for it? I have a mass-transit system in the state which only works/runs in the urban areas and isn't on time - however, even with the latest housing downturn, I would still need >$500K to purchase a home in that urban area to use the mass transit - as it is, I commute 45 miles one way and have commuted 80 miles one way to get to my job - in a car - oh and I pay bridge toll (which have increased over 400% since I've moved here - supposedly they were setting that money aside for maintenance of the bridges, but OOOPS, we put it in the general fund!). My gas taxes are .30-.50 cents more per gallon than any other state (just did a road trip in the US west and suffered sticker shock upon returning to CA-prices were similar to those I paid in Germany!). Did you also see they can't get past a $15B budget impasse in this state?

So with my rant above - I am leaving this state - I can't afford to have a middle-class life where I don't spend most of my time on the highway going to-from my job. Oh, and I'm an engineer with two degrees....the type of person that CA wants to keep so they can tax me! Good riddance to this state - it is a beautiful place, but if you didn't buy your house early or if you are fortunate like CFB or some of the other posters here who live in CA who have already retired and figured this out - it's not worth it to live here.

Moving out of CA at retirement so ya I get what you are talking about. Just better financially to move out when you are done working. Plenty of others who feel the way you do. However, its worth it to stay for some. Thats the choice we all make. Look at what CA state workers can get. That juicy pension and healthcare. Then if they want to move out of state and save on the cost of living

 

[FIREd]

Ladelfina,

CA is one of the most over-taxed states in the US and frankly what I get for my taxes in this state is a travesty - I calculate with Quicken what I pay and it is 55-60% of my income in all of the combined taxes - that is very similar to the burden in Europe and yet what do I have to show for it?

Then come on over to Alabama! Property tax, sales tax, state income tax, federal income tax and FICA = <23% of our gross income (147K) last year!

Fed, 25% tax bracket
State, 5% tax bracket (top bracket)
Property tax, 0.57% of assessed property value
Sales tax, 8% on everything in my county, food included (ouch!), but if you LBYM it's really not that bad...

You won't pay much in taxes and you won't get much in return either!

 

[NW-Bound]

My biggest problem is the complexity of the tax code. All this stuff is based on filings and AGI - what if some super-rich are using loopholes to get around this. There is no way for me to know that, and it could turn everything on it's ear.

-ERD50

My suspicion exactly, as I tried to point out in an earlier post. We have so many loopholes, so many "special treatments" in our tax code.

I think our best-paid forum members are still just good wage earners, and not the true super-rich CEOs, or the ones who inherit great fortunes. Therefore we fret about how we already pay plenty of taxes (as a percentage), but do we know the tax percentage that the true super-rich are paying?

If you have statistics or info on taxes paid by centimillionaires and billionaires, please share it. Thanks.

 

[CitricAcid]

You won't pay much in taxes and you won't get much in return either!

To whom little is given, little is expected.

 

[FIRE'd@51]

It's interesting that so many of the proponents of a more progressive tax system are those who have already made their money (or inherited it). I doubt that Jon Corzine was calling for higher marginal tax rates when he was making his money at Goldman Sachs.

When I began my working career, marginal tax rates were 70%. The reason I was able to become financially independent was, in a large part, due to the tax policies of Ronald Reagan - cutting the top rate to 28% and allowing me to contribute 30K a year to a 401K. This is the main way for someone who starts with nothing (as I did) and doesn't have parents or in-laws to loan/give money for the down payment on a house, to build significant capital. It is also why so many middle class folks favor lower taxes. They want to have an opportunity to migrate upward.

 

[FIREd]

To whom little is given, little is expected.

Exactly and I like it (great place to build wealth if you can find a highly compensated job). It looks like in CA it's "to whom much is given, little is expected"...

 

[whitestick]

To whom little is given, little is expected.

Public education that is among the best in the world - and access to higher education that you finance either through grants or through your own borrowings, at an attractive interest rate - since you will be benefitting from that education, and through your application of that knowledge gained
Access to some of the best medical services in the world, ranging from free, to what you are personally willing to pay for, right here at home
Opportunity to work for some of the worlds smallest and largest corporations and succeed if you are willing to extend the effort that others have done, to compete for available positions and money
Opportunity to start your own entrepreneurship and succeed or fail based on your efforts and decisions and competing in the marketplace alongside those existing small and large corporations
Opportunity to elect representatives rather then have to accept a one party system, and if you don't like the choices, then run yourself
Opportunity and access to financial markets and leveraging of your resources to better your life now, and in the future
Opportunity to own your own home and even second and third homes (notwithstanding the arguments of paying off those mortgages or not)
Access to informations sources, second to none - libraries, newspapers, magazines, seminars, forums, etc. which we take for granted, but are not available in a non-redacted format to much of the worlds population, so we can make our own decisions, and form our own opinions, and discuss them in open forums - electronic and non-electronic
And finally the freedom to complain on public forums about how the rich who have availed themselves of the above, should now pay more for those who chose not to, - and not get locked up or forced into work camps for expressing those opinions.

In this country and at this time, the expectations for all citizenry is and should be extremely high, and all should participate fairly. If poor and/or bad choices resulted in the lack of attainments, that's the result of those choices and should not be supported by those who chose differently.

 

[CitricAcid]

Ummmm, it was a joke... I think you'd recognize my feelings from other posts (go check out the post about "stupid people in CC debt")

 

[OAG]

Anybody remember the administration of 42 floating the trial balloon of taxing the rental value of your residence. It went something like if rents were 2K a month in your area you got 24K of "implied income" to put on your tax return and pay taxes on every year. Makes Real Estate taxes appear tame in comparison. Did not go far but it was actually something someone dreamed up. Wonder if that concept will be "studied" again in the near future.

 

[lets-retire]

Ladelfina--

I just wanted to touch on an issue you brought up in the beginning of this thread. Bangladesh is a signatory to receive special treatment from the US for tariff purposes. So are most of the countries in Africa and the underdeveloped countries in the Caribbean. There are many different treaties we have with various other countries that provide for no tariff to be assessed for most items coming from a country.

I must admit I only briefly scanned some of the articles you linked, since I am familiar with the workings of the HTS. As stated some of the policy behind the tariffs is to lessen the demand for items from certain countries. More frequently the amount of tariff is based on the item's contents and the ability for the US to actually manufacture the item. Things such as silk pajamas are not easily produced here, since we don't have a large silk producing capability and as such have a lower tariff. It is also interesting that the more high end items are not easily produced here so they have the lower tariff, it has nothing to do with "the man sticking it to the poor". I think the result of not being able to easily produce certain items here has the tendency to make the item more desirable, but that is the chicken and egg argument.

If you ever get a chance to look through the HTS you will see it is a very comprehensive book. It actually lists every item made in the world and is about 1.5-2 feet thick. Reading, comprehending, and applying the correct amount of tariff is the responsibility of import specialists. At larger ports of entry the import specialists are specialized and only deal with a single section of the HTS. I have attended courses designed to become familiar with the reading and application of the schedule. The mechanics of it are very simple, but the actual application is very involved and requires a great amount of time in training, mostly due to the treaties we have entered into and the courts rulings on certain items.

 

[whitestick]

Ummmm, it was a joke... I think you'd recognize my feelings from other posts (go check out the post about "stupid people in CC debt")

np, not directed at you personally.

 

[laurence]

Ladelfina,

I am late to this thread, however, I do live in CA - and I am a middle class earner - I pay property tax, sales tax, state income tax, federal income tax and FICA. CA is one of the most over-taxed states in the US and frankly what I get for my taxes in this state is a travesty - I calculate with Quicken what I pay and it is 55-60% of my income in all of the combined taxes - that is very similar to the burden in Europe and yet what do I have to show for it? I have a mass-transit system in the state which only works/runs in the urban areas and isn't on time - however, even with the latest housing downturn, I would still need >$500K to purchase a home in that urban area to use the mass transit - as it is, I commute 45 miles one way and have commuted 80 miles one way to get to my job - in a car - oh and I pay bridge toll (which have increased over 400% since I've moved here - supposedly they were setting that money aside for maintenance of the bridges, but OOOPS, we put it in the general fund!). My gas taxes are .30-.50 cents more per gallon than any other state (just did a road trip in the US west and suffered sticker shock upon returning to CA-prices were similar to those I paid in Germany!). Did you also see they can't get past a $15B budget impasse in this state?

So with my rant above - I am leaving this state - I can't afford to have a middle-class life where I don't spend most of my time on the highway going to-from my job. Oh, and I'm an engineer with two degrees....the type of person that CA wants to keep so they can tax me! Good riddance to this state - it is a beautiful place, but if you didn't buy your house early or if you are fortunate like CFB or some of the other posters here who live in CA who have already retired and figured this out - it's not worth it to live here.

I'm so sorry you feel that way, and so sorry you are leaving!

I and my wife, and my 5 siblings have all benefited greatly from California's education system and public Universities. DW is a UCSD alum and well respected in the Bio tech community, and my brothers and I have all gone engineering and CS/CIS with great success due to our educations here.

When my daughter Tori stopped breathing, the paramedics siren was audible as I hung up with 911. I had a half dozen trained specialists in my house moments later tending to my baby.

Tori's heart surgery was a about 4 months ago, I took a break from this site preparing for that day. It was going to be a day that life really started or it ended for me. The pediatric cardiothoracic surgeon who performed the surgery was amazing. Tori's surgery finished ahead of schedule despite the fact that her heart defect was much larger than the echo and other scans showed. Her ability to deftly adjust to a more complicated situation (including taking advantage of the larger hole to repair the second issue rather than making a second incision) was due to her expert training and residency in our famed California medical institutions.

Tori is doing great, people would never know she ever had a problem if she wasn't so proud about showing off her 10"" scar.

So when I send off my state tax check, it's with a big "Thank you, thank you." And since I know your tax dollars were involved as well, I say thank you deserat. I hope you know you did some good.

It's easy to take a low tax, let me be attitude when you are strong and don't need anyone else. For those of us who have been weak, we appreciate those of you who have thought otherwise. DW and I are trying to pay you all back.

 

[aenlighten]

Generally the total of all taxes are fairly flat with income while the income tax is mildly progressive, but one can consider SS and Medicare as benefits as well as taxes yielding a mildly progressive tax scheme. Most people are not middle class. The middle class is only the tail end of an income distribution that has its mode in the working class.

The top has been doing extremely well and this is leading to rising inequality. As wealth is power, this presents a danger to democracy, the economy, and society. Democracy since laws to maintain and extend that power are passed. The economy since it leads to low growth and stagnation. Society since the plutocracy tends to reinforces itself. So while wealth creation is most important, massive inequality is not without concern.

This may be a transitory state where previous opportunities have been fully exploited leading to those inequalities but newer technologies have yet to be developed to critical mass and a lack of valuable investment opportunities leads to lagging growth.