Progressive Nature of Tax Code

[ikubak]

Per the Internal Revenue Service, in calendar year 2006, the Federal Individual Income Tax share paid by the top 10% of income earners (AGI > $108,904) was 70.79%.

The share paid by the top 1% (AGI > $388,806) was 39.89%.

The share paid by the bottom 50% (AGI < $31,987) was 3.01%.

If the rich aren't paying their fair share, I wonder how much they "should" be paying?

[stephenandrew]

Quote:

Originally Posted by Pete I look at this very different from most people. The rich in this country are soooooo rich they can afford to pay 900 times the tax the poor pay, and still get richer. WOW.

My own thoughts on this are somewhat different than yours, in that what they can afford to pay is really not relevant. Seems to me that (as a previous poster pointed out) that differences such as these have trhe potential to discourage the most productive workers from staying in the workforce. I am not opposed to the "rich" paying more in taxes than the "poor", but I just never realized until I saw these numbers what a disparity there is between what different income cohorts paid.

[ladelfina]

If I saw the really wealthy working as hard --buying lobbyists and leaning on politicians.. threatening not to go to their $5k/plate fundraisers unless they work to reduce gov. spending and not just on social programs but on ag./oil subsidies and defense contracts and so forth-- working as hard on THAT side of the equation as they are on the tax cut side.. THEN I might take some of their arguments slightly seriously. All I hear is tax cut, tax cut, tax cut. Taxes are at the lowest point in decades and decades, but the spending is record, and the "tax cut" party spends more than its opponents and opted us into an endless war to boot. How in any way can more tax cuts on the top 5% make sense? Only if you figure that it's highly likely that more of the really wealthy benefit enormously from gov. spending than not, and they don't wanna stop that gravy train.

The guy I quoted had it right: "The tax cut is a funny way of managing a household. It's like deciding that you are spending too much money, so you ask your boss for a wage cut."

I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit. But damn.. make those lucky $15k bastards pay 35% like me.. WTF? Pay up the 4% difference. Tax the damn Walton/Hilton heirs, etc.; they didn't work for that money.. ya got billions and billions right there. Which they accumulated by paying their workers so little that Wal*Mart even counseled them on how to get food stamps and Medicaid!!! argh.

[dm]

The amount I was paying in taxes helped me make the decision to ER. Ive alway's lived below my means and now with no debt I can get down below the top 10% and still live well. I was not in the top 1% but Ive been in the top 10% for a number of years.

I just need to figure out where the sweet spot will be for me as far as taxes are conserned. Maybe next time I can qualify for one of those stimulus checks.

[CitricAcid]

Quote:

Originally Posted by ladelfina If I saw the really wealthy working as hard --buying lobbyists and leaning on politicians.. threatening not to go to their $5k/plate fundraisers unless they work to reduce gov. spending and not just on social programs but on ag./oil subsidies and defense contracts and so forth-- working as hard on THAT side of the equation as they are on the tax cut side.. THEN I might take some of their arguments slightly seriously. All I hear is tax cut, tax cut, tax cut. Taxes are at the lowest point in decades and decades, but the spending is record, and the "tax cut" party spends more than its opponents and opted us into an endless war to boot. How in any way can more tax cuts on the top 5% make sense? Only if you figure that it's highly likely that more of the really wealthy benefit enormously from gov. spending than not, and they don't wanna stop that gravy train. The guy I quoted had it right: "The tax cut is a funny way of managing a household. It's like deciding that you are spending too much money, so you ask your boss for a wage cut." I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit. But damn.. make those lucky $15k bastards pay 35% like me.. WTF? Pay up the 4% difference. Tax the damn Walton/Hilton heirs, etc.; they didn't work for that money.. ya got billions and billions right there. Which they accumulated by paying their workers so little that Wal*Mart even counseled them on how to get food stamps and Medicaid!!! argh.

True Reagonomics and Bushonomics (not in action) is to lower spending so that you are at a surplus and then cut that amount in taxes. Did that actually occur? Of course not, people need the bureacracies. Government agencies like to have hierarchies, someone to work above and below. When you are pushing for a bottom line in a business, a lot of the needless jobs and positions are eliminated. In government agencies, there is NO incentive to cut costs. Actually, you can do whatever you want, spend more money and you will GET more money. There is an incentive to spend MORE because you have an unlimited source of funds at your disposal (at least in your mind).

ladelfina, you mention NAFTA as something that only benefits the rich, and then also mention that on the low cost shoes, the tariff is the largest. Shouldn't all tariffs be eliminated in this sense as it hurts any consumer at the expense of an entitled few? I believe that tariffs hurt the poor the most, they are the ones who spend most of their money on necessary items.

Sin taxes are tough because they are very muddled with class issues as well, as people do not separate them as well. I mentioned on another thread the belief about cigarette/alcohol taxes. Most people, if they want to discourage smoking/drinking/shooting hoops, will want to raise a tax. But, because they are addictive (similar to oil/gasoline), raising the price 100% may only decrease usage 5% or so. The amount bought does not reflect the quantity changed. This is good as you can raise some important revenue for the state, from something you don't care for, AND discourage some smoking. But consider, however, that poor people smoke at a much higher rate on average than wealthier people. Also, they pay a lot higher percentage of their income on the cigarettes/alcohol. Does this make it a lot tougher to decide whether you should raise tobacco taxes? Maybe, maybe not. This is similar to lotteries... they pay for some local taxes, but it is essentially a stupid tax (or a tax on the poor), the only ones who spend their money on lotteries/scratch tickets.

[FIRE'd@51]

Quote:

Originally Posted by Hamlet He's counting both halves of FICA. Remember, your employer is forced to pay the same FICA as you are to have you as an employee. If you're self-employed, you have to pay both halves yourself.

IF this is what he's doing, his methodology is bogus. Unless his secretary is self-employed and contracting her services to Buffett, she's not paying that part of the FICA tax - the company is, and it's a tax deduction for the company. Incidentally, this was the historical justification for taxing up to 50% of SS benefits (Clinton raised it to 85% in 1993). In fact, one could argue that the employer part of the FICA tax (which, after all benefits the employee ultimately) should actually be added into the denominator along with company-provided health insurance, pension contributions, matching 401k deposits, etc. which would result in a lower (not higher) rate of tax on income, since these items are really part of one's overall compensation.

[MichaelB]

Quote:

I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit. But damn.. make those lucky $15k bastards pay 35% like me.. WTF? Pay up the 4% difference. Tax the damn Walton/Hilton heirs, etc.; they didn't work for that money.. ya got billions and billions right there. Which they accumulated by paying their workers so little that Wal*Mart even counseled them on how to get food stamps and Medicaid!!! argh.

I'm not sure what people believe. Probably that they can continue to live the "American Dream' of a materially wealthy existence without really increasing the value of their skills or productivity, or that lower cost labor overseas is somehow not really their problem, or that they can demand lower prices for the goods they consume while demanding higher wages, or that our aggregate deficits will all be resolved through growth. The most mind boggling belief - that the US has engaged in sound economic policy by "alone in the world making the sacrifice to offset net saving elsewhere by producing a trade deficit to sustain consumption and therefore stimulate the global economy, which otherwise would suffer". Get it? It's a policy and a sacrifice.

The really scary part is not what the people believe, but instead what the leadership believes. For that, read Ayn Rand. Extreme Laissez Faire, individual rights over all other. Those that can, should - and without restraint. Greenspan, Goldman Sachs people everywhere - it's not going to change, it's going to get worse.

I would make a political comment about the upcoming elections, but that would be a real Pandora's box. Clearly, I need a break.

Michael

[Hamlet]

I don't think its bogus. Every employee is really paying the employer half of FICA-- it is just out of wages that don't exist because of the FICA tax.

If employers didn't have to pay their half of FICA, they would be able to pay higher wages, and the market would drive them to pay those higher wages.

But then, there are no taxes that I consider more evil than FICA, so I may be biased

Quote:

Originally Posted by FIRE'd@51 IF this is what he's doing, his methodology is bogus. Unless his secretary is self-employed and contracting her services to Buffett, she's not paying that part of the FICA tax - the company is, and it's a tax deduction for the company. Incidentally, this was the historical justification for taxing up to 50% of SS benefits (Clinton raised it to 85% in 1993). In fact, one could argue that the employer part of the FICA tax (which, after all benefits the employee ultimately) should actually be added into the denominator along with company-provided health insurance, pension contributions, matching 401k deposits, etc. which would result in a lower (not higher) rate of tax on income, since these items are really part of one's overall compensation.

[Pete]

The rich seem to be doing just fine and they don't seem to lack motivation. Stats show they keep pulling away. I know some of those super rich. They tell me not to worry about their taxes. Most of their money is offshore.

[ziggy29]

Quote:

Originally Posted by ladelfina I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit.

And I'm astounded that people drink the partisan Kool-Aid and believe it's as simple as who -- and what party -- is in the White House.

First, the problems are related to *spending*, not revenue. I believe supply siders are somewhat vindicated in that the preponderance of the evidence shows that tax cuts do rev up the economy, and create more taxable economic activity which can, in fact, increase revenue.

The problem is that SPENDING is out of control.

Secondly, to some degree economics are cyclical, and tax policy influences behavior. Clinton benefited from a strong economy and a rising dot-com bubble that generated unbelievable (and unsustainable) amounts of capital gains revenue. That was a fortunate accident, IMO -- not at all related to a president's tax policy. Also, a lot of taxes were paid in 1998 to 2000 from previously more generous Roth conversion rules. Again, this was an unsustainable source of revenue.

So as satisfying as it may be for some to make it political, and to associate surpluses and deficits with particular political parties and particular tax policies, I don't see it that simplistically. The bottom line is that budget deficits and surpluses are a function of revenue and spending, and the tendency is for too many people to ignore the spending side, which (IMO) is where the problem is. We tend to focus on tinkering with the revenue side even as we ignore the expenditures side as it barrels out of control.

My personal belief is that tax rates should be left alone for a long time, whether they are slightly "too high" or "too low" according to the Laffer Curve or other perceived 'optimal' target. I think the economic cost in individuals and businesses making suboptimal economic decisions for tax reasons -- and not making long-term investment decisions for fear of future tax law changes hurting them -- far exceeds a delta in revenue by tweaking the rates. I believe you'd see a lot of economic activity develop just by making it clear that the decisions we make about our finances *today* won't screw us in 5-10 years because of tax law changes.

It is *spending* policy, not *taxing* policy, which is in greater need of discussion and reform.

[eridanus]

Quote:

Originally Posted by stephenandrew My own thoughts on this are somewhat different than yours, in that what they can afford to pay is really not relevant. Seems to me that (as a previous poster pointed out) that differences such as these have trhe potential to discourage the most productive workers from staying in the workforce.

Does anyone know of a billionaire that stopped working just to avoid paying taxes? Not counting characters in fictional Ayn Rand novels.

[Pete]

I am a leech on this giant economic beast. I am smart enough to know the beast must survive.

Concentration of wealth makes the beast weaker. The funnest most active part of the monopoly game is the beginning when all are equal. The game becomes very stale in the end.

We must find a way for all of us to run this economic race feeling free from unnecessary burden. But we must cross the finish line together.

[Hamlet]

People appear to be confused about rich and RICH. The rich people on this board are "working class rich". They pay high marginal income tax rates (35%+state+medicare). They may also get hit by AMT.

RICH people get the bulk of their income from dividends and capital gains that are taxed at 15%+state.

In general, I'm opposed to higher taxes. I would prefer a much smaller government to the one we have. I would like us to cut spending.

However, given that the majority of Americans seem to want their bread and circuses, I think that its a mistake to continually run massive budget deficits.

If no one is willing to cut spending, taxes will have to be raised at some point. I don't think a higher marginal income tax is reasonable. We are already pushing up against 50%(35+state+medicare), and there is something unwholesome about having the government get more of someone's work than they get.

That leaves taxing the poor/middle class more, which isn't going to happen politically.

Or dividends and cap gains could go back up to 20%. I would suspect that that is going to happen.

[stephenandrew]

Quote:

Originally Posted by ladelfina I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit. But damn.. make those lucky $15k bastards pay 35% like me.. WTF? Pay up the 4% difference. Tax the damn Walton/Hilton heirs, etc.; they didn't work for that money.. ya got billions and billions right there. Which they accumulated by paying their workers so little that Wal*Mart even counseled them on how to get food stamps and Medicaid!!! argh.

If I am not mistaken, tax revenues under the Bush cuts resulted in the government bringin in record levels of revenue (I don't know that for sure, but believe it to be true--perhaps someone can validate this or correct me if I am mistaken.) I am right, it would seem to me we have a spending problem, not a revenue problem.

[CitricAcid]

stephenandrew, I believe that is incorrect, and even if it were correct, GDP grows over time (real GDP AND nominal GDP) so a higher tax revenue would be offset with a higher spending which also grows based off of real and nominal GDP.

I would say more on this topic, but ziggy said everything I have to say about the topic.

Oh, and the Laffer Curve is pretty much overstated as an example of why lowering taxes raises revenues. If marginal tax rates were at 99% and were lowered to 98%, I would expect a greater tax revenue as your income effectively doubles, which would boost the economy. Where the point where tax revenue is the greatest on marginal levels would probably be around 75-80%. Yet, this does not mean that it is best to just get the most revenue (and tax at 75-80%), it would be more advantageous to cut spending AND taxes to keep the economy growing.

[ikubak]

Quote:

Originally Posted by ladelfina I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit. But damn.. make those lucky $15k bastards pay 35% like me.. WTF? Pay up the 4% difference. Tax the damn Walton/Hilton heirs, etc.; they didn't work for that money.. ya got billions and billions right there. Which they accumulated by paying their workers so little that Wal*Mart even counseled them on how to get food stamps and Medicaid!!! argh.

President Reagan signed tax cuts into law, which stimulated a doubling in total tax revenues (from five hundred billion to one trillion dollars) during the period from 1980 to 1990. However, during this period the national debt more than tripled (from $908 billion in 1980 to $3.2 trillion in 1990). Spending was out of control then and it is now. The budgets submitted by congress during the mid to late 1990s held spending in check much better than today.

Income tax revenue in 2007 was at its highest ever in the the US. In my opinion, the spending side of the equation is the problem.

[MichaelB]

Quote:

Originally Posted by stephenandrew If I am not mistaken, tax revenues under the Bush cuts resulted in the government bringin in record levels of revenue (I don't know that for sure, but believe it to be true--perhaps someone can validate this or correct me if I am mistaken.) I am right, it would seem to me we have a spending problem, not a revenue problem.

We need a new poll

Do we have a spending problem
Do we have a revenue problem
Do we have a fairness problem
Do we have all three
Is it all just an illusion and I like it like this

[stephenandrew]

Quote:

Originally Posted by stephenandrew If I am not mistaken, tax revenues under the Bush cuts resulted in the government bringin in record levels of revenue (I don't know that for sure, but believe it to be true--perhaps someone can validate this or correct me if I am mistaken.) I am right, it would seem to me we have a spending problem, not a revenue problem.

LOL--I want to apologize, my last sentence should have read, "If I am right, it would seem we have a spending problem." The way I wrote my post really came across wrong. Again, my apologies.

[Texas Proud]

Quote:

Originally Posted by ladelfina I'm just astounded that people think the US can keep going down the Reaganomics/Bushonomics supply-side road. Clinton had the top rate at 39% and we had a surplus. Now it's at 35% and there's an $800 billion deficit.

Just for a bit of truth in this debate... and I am not saying most of what you have is wrong... but Clinton never really had a surplus. If you took out the excess SS payments, he was always in a deficiet... just not as bad as others and it was going in the right direction...

But he also had the 'peace dividend' that helped him do it... cut the defense budget to get there... I don't think his domestic programs were cut... but I could be wrong...



OHHH, and just to throw in one of my pet peeves.... I still have never figured out that if someone in a previous admin put in a ridiculous high growth rate for some program... and the new prez said, instead of a 10% increase, let's increase it only 3%.... and get accused of CUTTING the program.... that math does not add up for me....

[Abreutime]

The National Budget, Debt & Deficit :: MarkTAW.com

Here's a bunch of cool graphs, showing revenue and government spending (real and nominal, gross and as % of GDP). What I am struck by is the steady upward trend of spending. It is soooo difficult to cut a program that already exists, and that's what scares me the most about our current budget trends. Is government going to continue to increase spending indefinitely, at a rate far exceeding the rate of inflation? The idea of creating a series of increasing entitlement programs bothers me, since government at its root is not about entitlement. Government should not be one's primary provider of goods and services, and I'm afraid more and more people will come to rely on government in the coming decades. It's not a sustainable model, nor do I want this to be the future of US govt.