The New Rich

[jon-nyc]

And that's the problem, isn't it. Some don't want their SS cut, some don't want to have their cap gains taxed as ordinary rates, and I don't want to pay a penny more in taxes on my large income.

Russell Long said it best - "Don't tax you, don't tax me, tax that fellow behind the tree!"

 

[Midpack]

Midpack, no snark intended. Just a strong believer that government should not try to 'equalize' as inefficiency and less liberty will surely result.

Does this make sense to you? Don't get me wrong, I'm a lifelong fiscal conservative and taxing the rich more is not the solution, I've argued that point here several times over the last few years. People who think taxing the rich and corporations more is the solution to all our problems have their heads buried in the sand. It's going to take sacrifice from (almost all) of us to right the fiscal ship.

People who work hard and make more should be rewarded, but that shouldn't include paying an ever lower percentage than the bulk of taxpayers in the middle. The trends are disturbing IMO. Our Federal government has helped facilitate this trend through campaign finance and tax code nonsense for starters, free market capitalism won't fix it.

 

[Hamlet]

I'd be in favor of this, and I'd take it one step futher--

I'd like to essentially end the corporate income tax at the same time. It's down to about 9% of Federal revenue, and it is creating ridiculous distortions as our multi-nationals run most of their revenue through a post office box in Ireland to avoid taxation. It now has the effect of discouraging investment (or the payment of larger dividends) by encouraging companies to hold silly amounts of cash offshore. It also creates an unlevel playing field between a small local company that has to pay our full tax rates and a multi-national that is able to pay a fraction of the rate using accounting tricks.

The only big concern I would have is preventing the wealthy from setting up corporations that just hold their cash to avoid taxes on interest, so we might need to keep some sort of corporate tax on interest and dividends.

I'd love to see the CBO estimate the cost of making this change.

Cap gains at the regular income rate: I'd be fine with that, as long as we index them for inflation (so we're really taxing "gains"). A lot of people object to this, citing a big paperwork headache, but I think it would be relatively simple given the present data handling systems. We already have to know/tell what we paid for the item being sold and when we bought it, applying the CPI change since that time is trivial.

 

[Hamlet]

So if the government split the income tax into a dozen different categories and sent us an itemization of costs that had some of us paying zero for some categories, would you feel like those people were freeloaders on the system?

Ultimately, they are both taxes out of someone's income. The label that the government puts on them doesn't change that.

Well, one reason is the government calls it out separately on our paychecks. And we get a statement that shows what we paid in to the system, and we have options on how we can take the payments. I can't think of anything like that in the rest of the budget.
-ERD50

 

[samclem]

So if the government split the income tax into a dozen different categories and sent us an itemization of costs that had some of us paying zero for some categories, would you feel like those people were freeloaders on the system?

Ultimately, they are both taxes out of someone's income. The label that the government puts on them doesn't change that.

If a person contributed nothing to SS but paid FIT (like some municipal employees do), but found a way to claim SS benefits when they retired, wouldn't you say that person was freeloading on SS? The pots are segregated for a reason: People who pay into SS get a direct benefit, people who don't pay in are excluded.
A person who pays no FIT does absolutely nothing to support the Park Service, USDA (food inspectors, food stamps), ATF, border security, the FBI, NASA, block grants of all types, etc, etc. Nothing. And, as a voter, they have no direct reason to oppose federal spending of any kind: They get the benefits and pay nothing for it. Woo-hoo, bring on the cake and circuses! Some powerful interests are eager to create more voters like that.

When lower income workers pay into SS, often that is the only retirement plan they have (and it is supplemented liberally by other SS participants, not the general fund). So, if "contributions to retirement plans that benefit me directly and accrue credits that directly result in retirement payments to me" is going to "count" as my contribution to paying taxes that support the rest of the government (which it obviously should not), I'd like "credit" for all the money I'm putting into IRAs and 401Ks.

And Midpack's recent charts (thanks!) include these segregated and specific SS and Medicare contributions/taxes when portraying the tax burdens by various income groups, they are unconvincing for the same reason.

 

[Independent]

I'd be in favor of this, and I'd take it one step futher--

I'd like to essentially end the corporate income tax at the same time. It's down to about 9% of Federal revenue, and it is creating ridiculous distortions as our multi-nationals run most of their revenue through a post office box in Ireland to avoid taxation. It now has the effect of discouraging investment (or the payment of larger dividends) by encouraging companies to hold silly amounts of cash offshore. It also creates an unlevel playing field between a small local company that has to pay our full tax rates and a multi-national that is able to pay a fraction of the rate using accounting tricks.

The only big concern I would have is preventing the wealthy from setting up corporations that just hold their cash to avoid taxes on interest, so we might need to keep some sort of corporate tax on interest and dividends.

I'd love to see the CBO estimate the cost of making this change.

There's a practical solution to this. Keep the corporate income tax (in a simpler form) and allow corporations to deduct dividends paid from their taxable income.

That allows a corp to eliminate corp level taxes by simply paying its income to shareholders, who then pay individual taxes at their normal rates (not a special reduced rate). Corps that retain income pay corp tax in the year the income is earned, and their shareholders pay again when the earnings are finally distributed. Not an efficient choice.

The shareholders who get taxable dividends can, of course, choose to reinvest their after tax dividends back into the company that paid them.

 

[Hamlet]

That sounds fine as well.

The key is that I want to remove the incentive for companies to hoard cash offshore.

There's a practical solution to this. Keep the corporate income tax (in a simpler form) and allow corporations to deduct dividends paid from their taxable income.

That allows a corp to eliminate corp level taxes by simply paying its income to shareholders, who then pay individual taxes at their normal rates (not a special reduced rate). Corps that retain income pay corp tax in the year the income is earned, and their shareholders pay again when the earnings are finally distributed. Not an efficient choice.

The shareholders who get taxable dividends can, of course, choose to reinvest their after tax dividends back into the company that paid them.

 

[ERD50]

Does this make sense to you? Don't get me wrong, I'm a lifelong fiscal conservative and taxing the rich more is not the solution, I've argued that point here several times over the last few years. People who think taxing the rich and corporations more is the solution to all our problems have their heads buried in the sand. It's going to take sacrifice from (almost all) of us to right the fiscal ship.

People who work hard and make more should be rewarded, but that shouldn't include paying an ever lower percentage than the bulk of taxpayers in the middle. The trends are disturbing IMO. Our Federal government has helped facilitate this trend through campaign finance and tax code nonsense for starters, free market capitalism won't fix it.

The trouble with your tax rate chart is that it includes SS. That is capped for higher income workers, but so are the benefits (see parallel discussion on that).

It looks like they include both employee and employer in there? So that's 12.4% on most of the income in the first few groups. That sure changes the slope on that chart.

And some significant number are getting overall credits.

-ERD50

 

[youbet]

I long to find away to get into some victim class.

+1

My life seems to have been a series of situations where I just barely edge into income/wealth categories that qualify me for higher taxes and/or denial of free/subsidized benefits.

The latest treat was moving into higher Medicare Part B premiums due to a MAGI just over the limit.

It seems like there are so many "cliffs" these days. An extra dollar income and your ACA subsidy disappears or your Medicare premium skyrockets, etc.

 

[Hamlet]

Except that we've been using the SS payments to pay for the general fund for decades. Now that SS is starting to run deficits instead of surpluses, we're pulling money from the general fund into SS. We pretend that there is a separate SS fund and have made up goofy Treasuries that only the SS fund can own, but it's all just accounting sillyness.

Young people today don't have any guarentee that they will get SS in the same form as retirees today, and if you ask young people, they aren't confident of getting SS. If Congress decides that SS payments are too high, they can reduce them and use FICA to pay for other things like they have done in the past.

People paying into FICA are providing 40% of our governments revenues on the hope that they might get SS one day. I wouldn't call them freeloaders.

At any rate, we're probably not going to come to any agreement on this, so I'll stop beating the horse.

If a person contributed nothing to SS but paid FIT (like some municipal employees do), but found a way to claim SS benefits when they retired, wouldn't you say that person was freeloading on SS? The pots are segregated for a reason: People who pay into SS get a direct benefit, people who don't pay in are excluded.
A person who pays no FIT does absolutely nothing to support the Park Service, USDA (food inspectors, food stamps), ATF, border security, the FBI, NASA, block grants of all types, etc, etc. Nothing. And, as a voter, they have no direct reason to oppose federal spending of any kind: They get the benefits and pay nothing for it. Woo-hoo, bring on the cake and circuses! Some powerful interests are eager to create more voters like that.

When lower income workers pay into SS, often that is the only retirement plan they have (and it is supplemented liberally by other SS participants, not the general fund). So, if "contributions to retirement plans that benefit me directly and accrue credits that directly result in retirement payments to me" is going to "count" as my contribution to paying taxes that support the rest of the government (which it obviously should not), I'd like "credit" for all the money I'm putting into IRAs and 401Ks.

And Midpack's recent charts (thanks!) include these segregated and specific SS and Medicare contributions/taxes when portraying the tax burdens by various income groups, they are unconvincing for the same reason.

 

[ERD50]

So if the government split the income tax into a dozen different categories and sent us an itemization of costs that had some of us paying zero for some categories, would you feel like those people were freeloaders on the system?

Ultimately, they are both taxes out of someone's income. The label that the government puts on them doesn't change that.

There were other good answers, but I'll just add - you asked :'... But my question is why do we single out just SS payouts to be treated separately from the rest of the Federal budget?', and I think that answers the question 'why' - whether it is justified or not is another question.

-ERD50

 

[Dash man]

It's a great country where we can disagree but do it in an intelligent way. I think there is an argument that the lower rate on cap gains helps to stimulate the economy. I know many don't.

The vast majority of capital gains are reinvested as capital, thereby growing the economy. For example, a company constructs a building to conduct business, and the business grows and needs a larger building. They buy a larger building and sell the older building, using those proceeds to pay for the new building. If they had to pay capital gains taxes, they wouldn't be able to afford the new building and can't grow the business. It's similar with homeowners, who sell one home that has grown in. Value and reinvest the money to buy a new home. If they had to pay tax on that money, they couldn't help the economy by buying the larger home. Stocks and mutual fund gains aren't much different with most people reinvesting any capital gains into other companies. The higher the tax,the less to invest, so stock prices are lower because of less demand. Less demand for stock and companies have trouble raising new capital. So the economy doesn't grow.

 

[haha]

The vast majority of capital gains are reinvested as capital, thereby growing the economy. For example, a company constructs a building to conduct business, and the business grows and needs a larger building. They buy a larger building and sell the older building, using those proceeds to pay for the new building. If they had to pay capital gains taxes, they wouldn't be able to afford the new building and can't grow the business. It's similar with homeowners, who sell one home that has grown in. Value and reinvest the money to buy a new home. If they had to pay tax on that money, they couldn't help the economy by buying the larger home. Stocks and mutual fund gains aren't much different with most people reinvesting any capital gains into other companies. The higher the tax,the less to invest, so stock prices are lower because of less demand. Less demand for stock and companies have trouble raising new capital. So the economy doesn't grow.

Sure, but all the fun is in occupying someone and taking his money. Economy Schmeconomy, to the ramparts! When it's all over, maybe the Chinese will send us care packages. An ironic aspect to this thread and its title is that the "New Rich" are diagnostic of an economy that is dynamic and working. DId we have new rich is the 19th and early 20th centuries? Yes! Did we have them in the 17th century? Not many of them! All levels of our society are immeasurably better off than 50 years ago. But levelers are more interested in damaging those they perceive to be above them than in improving their own absolute status

Humans pay little attention to the tale of the golden goose; that is why over and over we mess up and kill that goose.

That was Ha's favorite nursery rhyme; and you can bet I taught it to my children. Not a Commie among them!

Ha

 

[Independent]

+1

My life seems to have been a series of situations where I just barely edge into income/wealth categories that qualify me for higher taxes and/or denial of free/subsidized benefits.

The latest treat was moving into higher Medicare Part B premiums due to a MAGI just over the limit.

It seems like there are so many "cliffs" these days. An extra dollar income and your ACA subsidy disappears or your Medicare premium skyrockets, etc.

If I understand the Medicare Part B rules, the MAGI limit for a couple is $170,000. The additional Medicare premium is $1,008 annually, or about 0.6% of their annual gross income.

For a single person the numbers are $85,000 and $504, for the same 0.6%.

 

[Independent]

The vast majority of capital gains are reinvested as capital, thereby growing the economy. For example, a company constructs a building to conduct business, and the business grows and needs a larger building. They buy a larger building and sell the older building, using those proceeds to pay for the new building. If they had to pay capital gains taxes, they wouldn't be able to afford the new building and can't grow the business. It's similar with homeowners, who sell one home that has grown in. Value and reinvest the money to buy a new home. If they had to pay tax on that money, they couldn't help the economy by buying the larger home. Stocks and mutual fund gains aren't much different with most people reinvesting any capital gains into other companies. The higher the tax,the less to invest, so stock prices are lower because of less demand. Less demand for stock and companies have trouble raising new capital. So the economy doesn't grow.

If I understand this correctly, the same argument can be made about taxes on wages. If I go out and w*rk and produce something that somebody else values, I'll earn some money. When I spend that money, I "grow the economy". If I pay some of my wages as taxes, I don't spend as much, so I don't "grow the economy" as much.

Therefore, we shouldn't tax wages .

 

[youbet]

If I understand the Medicare Part B rules, the MAGI limit for a couple is $170,000. The additional Medicare premium is $1,008 annually, or about 0.6% of their annual gross income.

For a single person the numbers are $85,000 and $504, for the same 0.6%.

Yes, that's right. Of course, the $170k income doesn't necessarily mean you're living on a regular annual income of $170k. Roth conversions, realized capital gains, RMD's, retirement buyouts or bonuses, etc., all count towards the MAGI.

So, bottom line, doing something to accomodate an early retirement status like a Roth conversion or taking a realized CG to make an AA move can result in not only more income tax but also higher health insurance premiums. And the $1,008 annual health insurance penalty occurs even if you exceeded the $170k limit by a few dollars and only one year.

 

[samclem]

If I understand this correctly, the same argument can be made about taxes on wages.

+1. I've heard (and used to make) the argument about special treatment of CG being beneficial to the economy, but now I see it as just another tax code loophole/special deal. Interest, dividends, wages, CG: If it is income, tax it the same. And that should mean we can lower the overall rates on earned income (if we keep revenue neutrality. And that's the rub . . .)

 

[Theduckguru]

Sorry, but if 90 percent of the wealth was with one family we would be living in an aristocracy, which we are not. No sense in such an example.

We have never had "unbridled capitalism" as you call it. There have always been laws and market forces. The market forces are far more efficient. This "term d'jour" of income inequality is just nonsense designed and brought up again recently to create class envy for political benefit. Using an example of the Depression is another red herring. We are nowhere near that.

By the way, there is no 'guarantee of income equality' in the U.S. Constitution. I checked with my handy copy on my desk. How would you propose achieving it? Government? We all see how well that has worked out (i.e. Communism, and large failed/failing government programs).

"From each according to his ability, to each according to his need."
-We don't want to go there again.

Don't forget, the people that this article calls "the new rich" pay nearly all the income taxes and collect the fewest entitlements.

Best to keep government and desperate politics out of it, as government is usually the problem.

One family already controls the majority if wealth in the world, their last is Inc. Corporations are family my friends.

 

[Texas Proud]

One family already controls the majority if wealth in the world, their last is Inc. Corporations are family my friends.

Corporations are 'people', not families...

 

[Texas Proud]

It was interesting that on the national news tonight they had a segment on the FIT that is paid....

They said that the top 40% pay 106% of ALL federal income taxes... (again, this is income taxes and not any other kind of federal tax).... yes, you read that right... because of all the refundable credits etc., the bottom 40% has a negative 10% rate.... and there were a good number of people that had a negative 15% rate...

As the person said, they pay more than their 'fair share'...

 

[Greencheese]

It was interesting that on the national news tonight they had a segment on the FIT that is paid....

They said that the top 40% pay 106% of ALL federal income taxes... (again, this is income taxes and not any other kind of federal tax).... yes, you read that right... because of all the refundable credits etc., the bottom 40% has a negative 10% rate.... and there were a good number of people that had a negative 15% rate...

As the person said, they pay more than their 'fair share'...

You know what they say, What's Mine is Mine and what's yours is Mine!

 

[Malcolm2]

The best way increase available revenue is just to reduce the excessive spending of the Federal Government.

It is a sad commentary on the great country that America is that dependence on government is encouraged, especially recently.
There is no real reason for this explosion of dependence other than it is useful for the government to promote it and easy for some to accept it.

Granted SS is an earned benefit, but after a few years it becomes a simple entitlement as amounts paid in are dwarfed by benefits.

Looking for more ways to tax is not the answer. Leaving a huge bill for our kids is not either.

 

[MichaelB]

Thanks for a lively discussion

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