1/6/11

We debate tax policy quite a bit here on WSO, and it is often mentioned that marginal tax rates were as high as 90% during the Eisenhower administration. I ran across this interesting explanation of enormous tax rates and how modern economic theory (including the Austrian theories I so often espouse) are junk economics. Michael Hudson brings up a lot of interesting points, especially about how loopholes were written into the tax code to benefit the rich as early as the 1920's, and how those loopholes have led us today to be heavily indebted and have an average holding time of 22 seconds for stocks. I'm interested to hear what you guys think. Have we been dead wrong about tax cuts for the rich?

Comments (125)

1/6/11

Even if a lot of modern economic theory is junk science, that doesn't mean that super-high tax rates (on anybody, rich or poor) will not have serious consequences in terms of production/output. In fact, the argument doesn't depend on modern economic theory, but rather the simple economic theory that's been around for centuries. If someone only keeps 10% of their income by becoming an investment banker, entrepreneur, or CEO then why wouldn't they take a job that's much less stressful, offers significantly more leisure time, with only minor cuts in pay? While I don't support all kinds of tax loopholes for the rich -- or poor, or middle class, or anybody else -- I also don't support super-high tax rates on the rich. As far as I can tell, such proposals rarely stem from anything other than populism and envy. Legal scholar Richard Epstein eloquently addresses many of these issues in this podcast.

1/6/11

econ - are you saying that the higher tax rates in the upper brackets disincentives work (or at least work at that level)? I'm not disagreeing, just asking for clarification's sake. I know you have a more extensive background in the field so I'm curious.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

a lot of the loopholes are part of government policy to stimulate growth, spending, investment or any other government priority of the time. a good example of that is cca allowances in Canada that are constantly changing to reflect investment decisions the federal government wants to encourage.

at the end of the day higher tax rates for the rich are, as econ rightly pointed out, a disincentive for ambitious, hard working, risk-taking people to use the skills and qualities they have to improve the global economy and through the spending of these taxes, an incentive for risk-averse, lazy people to continue their ways and enjoy a higher quality of life in the short-term. Flat rates for income taxes is the closest thing to "fair" taxation other than a pay per use policy for government services.

1/6/11

I only hope that members here will be able to have a honest discussion about the tax rates/debates.

First thing, I spent couple Summers in the tax group in the firm I worked for; there are so many loopholes in tax system, rich, poor, rich corporations, small corporations-and etc.- that it makes tax planning pretty hard to do. I think it is an unnecessary burden on companies to always try to work the system to get nice returns; and get this 90% of the returns are not even verified by the IRS because they do not have enough staff to check them.

One more thing: when it is said that the highest bracket is 35%, it means usually that the tax paid in average is close to 28-30%; you would need to add all brackets.

Therefore, if a company does its due diligence, it should pay about 20% of its entire gross profit.

That said, if the tax code was reformed to remove those loopholes and shenanigans, it would have been better to have the highest tax bracket at 30% and hopefully in average corporation would have paid 25%. Companies would have paid less in tax preparations, the IRS would have done a better job finding cheaters.

As far as the tax rate for the rich, I don't see how we always want to combine people making 500K and small business owners. I know that when you have a business with employees you are required to have an EIN for each employee, thus my thought: why not giving the special rates to people who pay employees, and keep the greater rates on richer people?

The fact and the matter is, it is easier for someone making $1M to pay $300K in tax than someone making $30K to pay $9K in tax.

1/6/11

I don't think anyone disagrees that it's 'easier' for the guy that makes 1mm to pay 300k than it is for the guy that makes 30k to pay 9k as those are both ~30%. I think the big problem people have is that about half of this country pays zero income tax.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

jeremydos you sound like an accountant man, in which case you should be happy that there are so many loopholes otherwise most of the big 4 firms would be laying off thousands from its tax practice, arguably one of the best performers at an accounting firm.

1/6/11

Not that something like this would ever happen, but in my opinion, the ideal tax system would be:

Pay nothing on the first $40,000.00 earned, and then pay 25% of everything above that. That way people with low incomes aren't burdened with taxes at all, and someone making 100K still gets to keep 85K. The very high earning people will never have to turn over more than a quarter of their earnings, and so they'll have less of an incentive to try to "cheat" the system by evading taxes or finding loopholes.

-MBP

In reply to manbearpig
1/6/11
everythingsucks:

Not that something like this would ever happen, but in my opinion, the ideal tax system would be:

Pay nothing on the first $40,000.00 earned, and then pay 25% of everything above that. That way people with low incomes aren't burdened with taxes at all, and someone making 100K still gets to keep 85K. The very high earning people will never have to turn over more than a quarter of their earnings, and so they'll have less of an incentive to try to "cheat" the system by evading taxes or finding loopholes.

So you've read Friedman too huh?

If you include removing all but one deduction (costs to secure employment) you just described his negative income tax plan.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

Correct me if wrong, but if you hold a stock for 22 seconds, it's short-term capital gains--and STCG tax = income tax. Therefore his theory about speculation due to 15% capital gains tax collapses, no? Maybe not completely, but substantially...

In reply to happypantsmcgee
1/6/11
happypantsmcgee:
everythingsucks:

Not that something like this would ever happen, but in my opinion, the ideal tax system would be:

Pay nothing on the first $40,000.00 earned, and then pay 25% of everything above that. That way people with low incomes aren't burdened with taxes at all, and someone making 100K still gets to keep 85K. The very high earning people will never have to turn over more than a quarter of their earnings, and so they'll have less of an incentive to try to "cheat" the system by evading taxes or finding loopholes.

So you've read Friedman too huh?

If you include removing all but one deduction (costs to secure employment) you just described his negative income tax plan.

Haven't read Friedman. I'm a complete economics noob and have never taken a single course. Intuitively, this system seems more fair to me.

-MBP

1/6/11

It's kind of wierd - most of theories that our civilization bounces around are quite dated, or rehashes of older theories but still more or less effective for keeping the system going (more or less, lately.....less) but there has never been such a highly developed level of globalization. New circumstances lend themselves to new theories: I'm curious what the next decade of economics (and life in general) will come up with.

Get busy living

1/6/11

I don't agree in exempting the first $40,000 of gross income. The tax base should be as expanded as possible with as many people as possible contributing to federal revenue. We have far too many people--about 50% of the country--that pay no federal income tax. Therefore, half the country has an incentive to vote for people who support the welfare and entitlement state. To say that it's "fair" to exempt half the population from contributing to the Treasury yet allowing them to vote for tax increases on others is actually what's unfair.

Good tax reform should include mass simplification of the tax code, which includes lower marginal rates with far fewer--if any--deductions and the tax base should be as expanded as possible.

To the point about historical marginal tax rates: it is rarely pointed out that at the time we had 90% brackets, the inflation-adjusted highest bracket was in the neighborhood of $5-$10 million and there was a far smaller proportion of citizens who earned that kind of wealth at the time compared to now. Bureaucrats never sunset laws or adjust them to inflation (see alternative minimum tax).

1/6/11

Dogs react to punishment, children react to punishment, but people think adults are happy to keep working as more of their reward is stolen. This isn't economics, it is common sense. Taxes are wages taken by the government and inefficiently spent and wages are what you keep and efficiently spent. Pretty simple. Cut taxes and people will spend or save more. Both of those are better than letting the government have your money.

1/6/11

@Virginia Tech 4ever:

The fact of the matter is that rich people already pay most of the tax. The average person making 40K probably pays no (or so little that it doesn't make a real difference) tax after factoring in all the deductions. Might as well simplify the system so that by law, they are exempt from paying any taxes under 40K of income. This way, higher earning people also don't have to pay any tax on the first 40K. I'll make about 140-150K this year, and I think it is complete BS that i'll be paying almost 50K to the government. Under my proposed system, I would (happily) pay half of that.

I do agree that people who are not paying taxes should not have the power to vote for tax increases on others though. It's similar to a population of straight people voting on whether or not gay marriage should be allowed. It really doesn't affect them, so they shouldn't have the power to decide the outcome.

-MBP

1/6/11

So what you're saying is that we have a bad system now of exemptions and deductions on the first $40,000 anyway, so why don't we just codify it into straight-up law rather than beating around the bush? I disagree. I don't think you codify garbage into permanent law. In any case, a reduced tax base should not be part of tax reform because tax reform is fundamentally connected to the deficits and national debt. Any decrease in the tax base will simply exacerbate the problem with government spending and entitlements because politicians are being held accountable by fewer tax payers.

1/6/11

The premise that debt puts the brakes on the economy, and that excess national debt is a disincentive to savings makes sense. Obviously something happened, to turn the greatest economy the world has ever seen into a bonified shit show..Although I don't believe taxing should start with those making 250k, I think those in the stratosphere need to pay their fare share, being that a significant portion of their wealth has been derived through a subsidy in some form or another. If not, watch out because populism might begin to rear it ugly head.

Current economic policies that subsidize radical speculation are corrosive to the American economy and stifle real investment. A significant obstacle however is that...
When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.
P. J. O'Rourke
So get on board and lets ride this thing till the wheels fall offf!!jk

1/6/11

Would you be happier with this system?

0 - 40K: 10%
40K+: 25%

This ensures that everyone is paying something, but to me it seems like someone earning 35K a year with a family to support would find even 10% to be a huge burden. That 3500 dollars can go very far in their life. It could be the difference between being able to afford braces for their kids or not. I don't think it's fair to deprive them of that, even if the alternative fosters a sense of apathy toward government spending.

-MBP

In reply to manbearpig
1/6/11
everythingsucks:

Would you be happier with this system?

0 - 40K: 10%
40K+: 25%

This ensures that everyone is paying something, but to me it seems like someone earning 35K a year with a family to support would find even 10% to be a huge burden. That 3500 dollars can go very far in their life. It could be the difference between being able to afford braces for their kids or not. I don't think it's fair to deprive them of that, even if the alternative fosters a sense of apathy toward government spending.

Braces? Really? Hardly a necessity but I digress. The point is, if you don't pay taxes, you shouldn't be allowed to vote on increases or changes to the taxes that other people pay. If you make more than 15k (or whatever the poverty line is) you should pay something. Period.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

You don't think it's fair that voting citizens contribute to the revenue and operations of their government for which they receive services? There's obviously no way to debate this because we have a fundamental disagreement about what "fair" is or isn't.

In reply to happypantsmcgee
1/6/11
happypantsmcgee:
everythingsucks:

Would you be happier with this system?

0 - 40K: 10%
40K+: 25%

This ensures that everyone is paying something, but to me it seems like someone earning 35K a year with a family to support would find even 10% to be a huge burden. That 3500 dollars can go very far in their life. It could be the difference between being able to afford braces for their kids or not. I don't think it's fair to deprive them of that, even if the alternative fosters a sense of apathy toward government spending.

Braces? Really? Hardly a necessity but I digress. The point is, if you don't pay taxes, you shouldn't be allowed to vote on increases or changes to the taxes that other people pay. If you make more than 15k (or whatever the poverty line is) you should pay something. Period.

lol, ok, bad example, but you get my point. 3500 dollars is a lifechanging amount for someone with a low income. Even at 5%, 1750 is a very significant amount. So my question, how much should they be forced to pay?

-MBP

1/6/11

How much should a billionaire be forced to pay? Any answer is arbitrary. The correct answer is "something".

In reply to Virginia Tech 4ever
1/6/11
Virginia Tech 4ever:

You don't think it's fair that voting citizens contribute to the revenue and operations of their government for which they receive services? There's obviously no way to debate this because we have a fundamental disagreement about what "fair" is or isn't.

Look, I agree with you fundamentally. Everyone should contribute to their government in some way. But I'm sure you can agree with me that some people simply aren't able to contribute financially. To be honest, for me, paying 50K in taxes has a significant impact on my life so I'm not happy about it. But paying 25K in taxes wouldn't have a significant impact in my life, so I really wouldn't be concerned about paying it. When I'm earning 300K, I'm sure paying 75K in taxes won't really bother me. But I personally know people who are earning about 30K, paying 4K in taxes, who are barely able to buy groceries after paying for their rent and student loans. That extra 300 dollars a month that they wouldn't be paying in taxes would make their lives a lot more comfortable, and I don't think there is anything unfair about acknowledging this.

-MBP

1/6/11

The 40k nothing and then 25 percent doesn't make a whole lot of sense. It's regressive on middle income salaries. For example, 25 percent margin is a lot harder on someone making 50k than 150k. That extra 2500 might make a huge difference to the family making 50k, especially if they have 3 kids.

I like an income based approach where we tie the marginal tax rate to the Gini coefficient (http://en.wikipedia.org/wiki/Gini_Coefficient).

In reply to Virginia Tech 4ever
1/6/11
Virginia Tech 4ever:

How much should a billionaire be forced to pay? Any answer is arbitrary. The correct answer is "something".

They should pay 25% of their income. I don't know any billionaires, but I think we can safely assume that John Paulson wouldn't be affected in any way if he "only" got to keep 75% of his multi-billion dollar yearly payouts.

-MBP

In reply to monkeysama
1/6/11
monkeysama:

The 40k nothing and then 25 percent doesn't make a whole lot of sense. It's regressive on middle income salaries. For example, 25 percent margin is a lot harder on someone making 50k than 150k. That extra 2500 might make a huge difference to the family making 50k, especially if they have 3 kids.

I like an income based approach where we tie the marginal tax rate to the Gini coefficient (http://en.wikipedia.org/wiki/Gini_Coefficient).

Someone earning 50K in Canda is currently paying about 9K in taxes, so that 6500$ saving is hardly a bad deal for them.

-MBP

1/6/11

The problem isn't high tax rates in themselves, it's the process of going back to them which would seriously hurt the economy. Being used to the current rates, even letting the Bush tax cuts expire will hurt the economy unless we are experiencing very strong growth to begin with. In the meantime, we can focus on streamlining the tax system and making things tougher on K Street that has been bending over the American taxpayer for decades now. Guys like Darrell Issa who are asking business what regulations should be cut should be tar and feathered on the spot.

1/6/11

professional traders will report this income as trading business income = regular income, not capital gains (short term or otherwise). they will pay the normal income tax rate on this income.

fairness of tax rates notwithstanding, this guy is a marxist quack. he's espousing the labor theory of value and he wants to tell us about "junk economics." c'mon.

1/6/11

I strongly disagree with the notion that the money you get from land ownership belongs to everyone and not the person who owns the land.

I also find it silly that the guest speaker is saying how a pro-land tax politician was the opposite of a socialist because he only wanted to heavily tax land and the revenues derived from it. Taxing rental revenue at 90% is only a very small step from total socialization of land such as what the Soviets had.

If you chose to save your money and invest in real estate, you should be able to reap the rewards of passing up Coach bags, fast cars, and expensive liquor.

In reply to manbearpig
1/6/11
everythingsucks:
monkeysama:

The 40k nothing and then 25 percent doesn't make a whole lot of sense. It's regressive on middle income salaries. For example, 25 percent margin is a lot harder on someone making 50k than 150k. That extra 2500 might make a huge difference to the family making 50k, especially if they have 3 kids.

I like an income based approach where we tie the marginal tax rate to the Gini coefficient (http://en.wikipedia.org/wiki/Gini_Coefficient).

Someone earning 50K in Canda is currently paying about 9K in taxes, so that 6500$ saving is hardly a bad deal for them.

That's irrelevant. If you change the tax structure, you change the distribution of dollars and the value of money, so your 6500 is incomparable to my 2500. It might be worth more, it might be worth less.

I will say that if we had this tax rate it's almost certain less tax revenue would be raised so I don't know how we would cut spending.

Also - I just watched the video. The interviewee seems really pleased with himself about the tax rates going into 1920 but he doesn't seem to realize that at that period of time most of the uber wealthy were old money. The high marginal tax rates were just a way of keeping the upstart nouveau rich in their place while the Vanderbilts continued to wipe their asses with 100 dollar bills.

1/6/11

I think we should try and avoid steering this conversation in the direction of wealth distribution and the eventual 5:1 ratio of libertarian to socialist posting on that subject. Plenty of other threads to hit if that is your thing.

Let me preface my statement with saying that I HATE paying taxes. All kinds of taxes. I'm also in cohabiting relationship with a government bureaucrat that takes every other Friday off, is paid pretty well and wouldn't know what a 45+ hour work week looked like let alone a 80+ one. She knows to not even speak to me during the middle part of April. I do however really like this country and from time to time people have to make sacrifices for it to survive.

That said, the hard question I think you have to ask yourself is "do you want to balance the budget and reduce the deficit?" I do, not just because it appeals to my Presbyterian upbringing but because once we get it under control it will be a lot harder to pass wasteful spending. Right now the deficit and the budget are hitting cartoon numbers, to the point where nobody cares about increases because its attained a level of "biggness" that nobody cares about marginal movements.

To get this thing under control we have a choice of raising incomes, cutting spending or some combination of the two. Budget is 3.8 Trillion and income is 2.5 Trillion, so we have a loss of 1.3 Trillion (rough numbers). Of that 3.8 Trillion 70% is spent on Defense (900 B), Social Security (730 B), Medicare (490 B), Medicaid (300 B) and interest payments (250 B). I'm sure there some waste in all those programs, most of all defense (if you want to argue that point with me, send me a PM I can talk for days about waste and worse misallocation that gives POGs golf courses at the expense of body armor for grunts), but for the most part that stuff we have to pay. In no situation is the American voter going to elect a majority of officials that will do away or cut those above programs. So if you buy that, we are still in the red if you cut out the remaining 30% of the budget which would include all the infrastructure, education, disaster relief spending in addition to government organizations that I think are important (Intelligence, Department of State, Department of Justice, EPA, etc). So what are we suppose to do? We have to raise taxes and taxing households making under 50k a year isn't going to get us there. The meat is in the top 1% and corporations that avoid paying the majority of taxes. I'm not arguing whether it is right or wrong for the government to go after that money but eventually they have to go there if the objective function is to reduce the debt or at the very least balance a budget. Or we disenfranchise anyone over the age of 40 so we can abolish SS, Medicare, Medicaid and become isolationists. I honestly don't know which option is more politically feasible.

1/6/11

Aggravate - a level headed discussion about our tax policy and deficit problems. SB for you!

In reply to Aggravate
1/6/11
Aggravate:

I think we should try and avoid steering this conversation in the direction of wealth distribution and the eventual 5:1 ratio of libertarian to socialist posting on that subject. Plenty of other threads to hit if that is your thing.

Let me preface my statement with saying that I HATE paying taxes. All kinds of taxes. I'm also in cohabiting relationship with a government bureaucrat that takes every other Friday off, is paid pretty well and wouldn't know what a 45+ hour work week looked like let alone a 80+ one. She knows to not even speak to me during the middle part of April. I do however really like this country and from time to time people have to make sacrifices for it to survive.

That said, the hard question I think you have to ask yourself is "do you want to balance the budget and reduce the deficit?" I do, not just because it appeals to my Presbyterian upbringing but because once we get it under control it will be a lot harder to pass wasteful spending. Right now the deficit and the budget are hitting cartoon numbers, to the point where nobody cares about increases because its attained a level of "biggness" that nobody cares about marginal movements.

To get this thing under control we have a choice of raising incomes, cutting spending or some combination of the two. Budget is 3.8 Trillion and income is 2.5 Trillion, so we have a loss of 1.3 Trillion (rough numbers). Of that 3.8 Trillion 70% is spent on Defense (900 B), Social Security (730 B), Medicare (490 B), Medicaid (300 B) and interest payments (250 B). I'm sure there some waste in all those programs, most of all defense (if you want to argue that point with me, send me a PM I can talk for days about waste and worse misallocation that gives POGs golf courses at the expense of body armor for grunts), but for the most part that stuff we have to pay. In no situation is the American voter going to elect a majority of officials that will do away or cut those above programs. So if you buy that, we are still in the red if you cut out the remaining 30% of the budget which would include all the infrastructure, education, disaster relief spending in addition to government organizations that I think are important (Intelligence, Department of State, Department of Justice, EPA, etc). So what are we suppose to do? We have to raise taxes and taxing households making under 50k a year isn't going to get us there. The meat is in the top 1% and corporations that avoid paying the majority of taxes. I'm not arguing whether it is right or wrong for the government to go after that money but eventually they have to go there if the objective function is to reduce the debt or at the very least balance a budget. Or we disenfranchise anyone over the age of 40 so we can abolish SS, Medicare, Medicaid and become isolationists. I honestly don't know which option is more politically feasible.

One of the best posts I've read on a long while. +1 for DOD waste as well

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

Aggravate - maybe I'm being naive, but don't you think that increasing the tax brackets on corporations and super high earners will just encourage them to find newer and more innovative ways to get around paying taxes? And then the IRS will need to employ even smarter and more expensive people to counter this? I honestly think that if very high income earning people are taxed a fair amount, say 25% of their income, then they wouldn't bother with tax evasion or whatever, and government revenue might even increase. With a simpler system, it would also be a lot less expensive for the government to enforce the rules, and in turn, spending would go down.

-MBP

In reply to manbearpig
1/6/11
everythingsucks:

Aggravate - maybe I'm being naive, but don't you think that increasing the tax brackets on corporations and super high earners will just encourage them to find newer and more innovative ways to get around paying taxes? And then the IRS will need to employ even smarter and more expensive people to counter this? I honestly think that if very high income earning people are taxed a fair amount, say 25% of their income, then they wouldn't bother with tax evasion or whatever, and government revenue might even increase. With a simpler system, it would also be a lot less expensive for the government to enforce the rules, and in turn, spending would go down.

You really think that if the tax rate on people worth millions and millions is decreased they'll just up and say 'oh, hey, this is less than I was paying, forget having my taxes done and paying as little as I can, I'll just use turbotax'

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

Aggravate, I agree with much of what you're saying as I am a deficit hawk. However, balancing the budget is not absolutely necessary. So long as the GDP grows faster than or at the same rate as the federal deficit, we can go along pretty well given that by historical and industrialized world standards, our national debt is not yet out of control compared to overall GDP. The problem is that spending is fundamentally out of control, growing at 5% at normal clips and at 20+% in recent years. Even at 5% annual spending increases, the long-term outlook for our debt picture would be bleak given that 3% annual GDP growth is pretty good and to be expected from an advanced economy.

The problem is SPENDING. The problem is NOT revenue. And raising taxes, in fact, would be a drag on the economy, reducing overall GDP growth and exacerbating the debt problem (again, the absolute deficit is irrelevant in a given year). When government grows a minimum of 5% each year and GDP grows a max 3%, your issue is problem of expenditure, not revenue.

In reply to happypantsmcgee
1/6/11
happypantsmcgee:
everythingsucks:

Aggravate - maybe I'm being naive, but don't you think that increasing the tax brackets on corporations and super high earners will just encourage them to find newer and more innovative ways to get around paying taxes? And then the IRS will need to employ even smarter and more expensive people to counter this? I honestly think that if very high income earning people are taxed a fair amount, say 25% of their income, then they wouldn't bother with tax evasion or whatever, and government revenue might even increase. With a simpler system, it would also be a lot less expensive for the government to enforce the rules, and in turn, spending would go down.

You really think that if the tax rate on people worth millions and millions is decreased they'll just up and say 'oh, hey, this is less than I was paying, forget having my taxes done and paying as little as I can, I'll just use turbotax'

Maybe I only think this way because I'm not earning 7 figures or more. But at the moment, I feel like if I was earning 10 million a year, I wouldn't mind paying a quarter of it for the betterment of my country. I wouldn't try to find ways to pay less, because I think it's a fair amount. I would also gladly contribute a significant amount of what's left for philanthropic purposes. I don't feel a need to hoard wealth while the rest of the world is suffering. I just don't want to be forced to contribute half of my earnings to an inefficient government.

-MBP

1/6/11

I am sorry, giving the government anymore money will only lead to more waste. They are addicted to tax revenue. This needs to change. Cut spending and become more efficient. Zero new taxes and the goal should be a continual decrease in taxes.

Government workers should be target #1. No one should get a pension or have these cake jobs, especially not on my dime. Increase retirement age, start scaling back social security payments for future generations, cut DoD spending, cut the fat out of medicaid/care, etc.

I could have an orgasm thinking about the cutting I would do with public schools also.

Any talk on raising taxes is treason in my book. Does nothing to attack the root of the problem.

In reply to manbearpig
1/6/11
everythingsucks:

Aggravate - maybe I'm being naive, but don't you think that increasing the tax brackets on corporations and super high earners will just encourage them to find newer and more innovative ways to get around paying taxes? And then the IRS will need to employ even smarter and more expensive people to counter this? I honestly think that if very high income earning people are taxed a fair amount, say 25% of their income, then they wouldn't bother with tax evasion or whatever, and government revenue might even increase. With a simpler system, it would also be a lot less expensive for the government to enforce the rules, and in turn, spending would go down.

Corporations are always going to find away around paying taxes in order to keep up profit margins. And if they can't find a way around the tax code to achieve the profit margin they deem necessary than they are going to raise prices on services, cut spending (i.e. labor, etc.) in order to keep up profit margins. This type of thing would only hurt consumers (the poor and middle class) even more than a marginal increase in their income taxes would.

patternfinder:

Of course, I would just buy in scales.

See my WSO Blog | my AMA

1/6/11

My whole life I have looked down upon people who made less money than my family. My parents were never rich but they managed to make it to the middle class, maybe upper middle class without a college education, and I was convinced that with a college education I would make it even further. However, that all changed over the last few weeks when my father was diagnosed with emphysema and was told he could no longer do what he does. I will become what I have always hated, a beneficiary of entitlement programs. Sometimes it takes a situation like this to put things into perspective, and look at the world around you. Is Donald Trump's fourth yacht really more important than providing food and healthcare to thousands of children? A 90% marginal tax rate is quite excessive and in the long run would decimate most future productivity and output growth, but the line has to be drawn somewhere to set a basic standard of living for those who are least well off. I transferred out of SUNY Oneonta, and into Dowling College, where I have come to rely on the generosity of others to pay for my tuition. (I'm well aware this is a non-target, despite a few success stories, but it was the best choice given to me at the time given the financial situation of my family and the fact that the FAFSA form is going to take almost a year to accurately reflect the change in income of my parents.)

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.

-Niccolo Machiavelli

1/6/11

I think even on the laws currently on the books, execution is not matching intent. I don't think the intent was for corporations to be able to shuffle money made in the US overseas to avoid taxes or the myriad of loop holes that allow individuals to skirt taxes. My first instinct would be to go for cuts as well, but who finds where to cut (government employees?) and how do you get cuts passed through congress when cutting entitlement programs and defense crosses some of the most powerful interest groups and voting blocs?

What do you do to re-organize the government work force so you can replace all the lazy, terrible people with smart ambitious people? Increase pay and standards while firing people? It might work, but would be tough during that transition period because it would still be an awful place to work full of lazy idiots for the new blood. Historically, (over 50 years ago), people in government service were people with a stake in the country (wealthy elite) and it was something they did for a while because they had a sense of duty. People don't have that now, so we'd have to design some kind of other program. I have no idea what that program would look like. Though I've heard suggestions of a public service academy (like the military academies) but doubt it would get the same kind of candidates.

Also, I realize its your style Anthony, but the hyperbolic treason references are getting a bit stale. You called Assange a traitor even though he's not an American citizen (espionage you might be able to argue but not convict on). I know this particular topic gets your really riled up but words have meaning and the implication that anyone advocating tax increases is tantamount to treason is over the top. Personally I think anyone born between 1978 and 1988 who did not serve in the military in the past 10 years puts nothing above their own personal safety and wealth and therefore their loyalty to their country should be questioned and while I'm at it I might as well call them traitors. And their Dad's probably dodged the draft too.

See what a did there?

1/6/11

My style? Get real. The guy who helped Julian is a traitor. I never called Julian a traitor. I think he is an enemy of the state though.

Sorry guys, I apologize for my "hyperbole". Go pay more taxes because the government is now all of a sudden going to take that extra money and pay their bills. I'm a dick for thinking they will just piss it away.

Thoughtful, well worded arguments are nice, but that doesn't make them correct. Sorry for cutting through the verbose and getting to the point. Brevity is a skill you might want to learn.

Stop stealing from people who work and earn.

1/6/11

11:24, I just added "like a Chinese Menu" to my vocabulary

1/6/11

So who's going to fix operational inefficiencies in each government organization? Are you? They might give you a GS-9 and you can make 50k a year. You'd also be in an organization that cannot resists change in all forms and is institutionally trained to spend every dime they have in their budget, lest they get less the following year. Assuming those all got fixed that would just be the executive branch portions of spending. Cuts to all the entitlement stuff is never getting through Congress.

Saying you'd fix the problem by doing things that are politically impossible isn't a solution. Fixing all the systemic problems with the Federal and State governments is necessary but realistically is a pipe dream in the short to medium term. It will have to be a gradual process of cutting spending and raising taxes (or enforcing the spirit of the tax code and removing loop holes). Left in the hands of politicians and the whims of the easily manipulated masses, this will never happen. So basically we are screwed.

Given that reality, I think the only feasible option if you want a balanced budget is to raise tax revenue where we can, while unfair, at least we know any money the government takes in gets spent. Something that is not true of money made by the ultra-wealthy.

1/6/11

Hey aggravate, thanks for proving that socialism is a STD.

In reply to TNA
1/6/11
ANT:

I am sorry, giving the government anymore money will only lead to more waste. They are addicted to tax revenue. This needs to change. Cut spending and become more efficient. Zero new taxes and the goal should be a continual decrease in taxes.

Anthony,

I'm actually thinking about writing a post about this tomorrow, but since you brought it up I might as well get your feedback now. What do you think about the about-face the Tea Party crowd pulled on cutting the budget mere hours after being sworn in yesterday? After all the noise they made on the campaign trail about reining in spending, they get to DC and it's like, "Hey, funny thing. All that shit we promised on the campaign trail? Turns out you can't actually do any of it in this country. Who knew???"

Here's a link to what I'm talking about:
http://market-ticker.org/post=176569

Should the Tea Party supporters feel duped or betrayed? I know it's only tangentially related to the tax debate, but it is related.

1/6/11

You know what is politically feasible? Not raising taxes. I am sorry, all of your BS reasons still does not convince me that raising taxes will do anything but add to government waste. And since when did saving aka investing, become bad for the economy? Get real.

1/6/11

Aggravate, how can you argue with a straight face that there is a revenue problem in the United States? As I already mentioned, the federal government is growing at rates that far exceed GDP growth. Raising revenue will only incentivize more government spending and will actually be counterproductive in bringing the balance sheets back into line.

In reply to mike55555
1/6/11
mike55555:

My whole life I have looked down upon people who made less money than my family. My parents were never rich but they managed to make it to the middle class, maybe upper middle class without a college education, and I was convinced that with a college education I would make it even further. However, that all changed over the last few weeks when my father was diagnosed with emphysema and was told he could no longer do what he does. I will become what I have always hated, a beneficiary of entitlement programs. Sometimes it takes a situation like this to put things into perspective, and look at the world around you. Is Donald Trump's fourth yacht really more important than providing food and healthcare to thousands of children? A 90% marginal tax rate is quite excessive and in the long run would decimate most future productivity and output growth, but the line has to be drawn somewhere to set a basic standard of living for those who are least well off. I transferred out of SUNY Oneonta, and into Dowling College, where I have come to rely on the generosity of others to pay for my tuition. (I'm well aware this is a non-target, despite a few success stories, but it was the best choice given to me at the time given the financial situation of my family and the fact that the FAFSA form is going to take almost a year to accurately reflect the change in income of my parents.)

I guess this situation either turned you into a socialist or made you realize that you are one. I'm sorry for your fathers ailment, but it's nobodys responsibility to put you through school but yourself. Get school loans, private or government subsidized.

Your reference to Trump's yacht was weak. It is not my or anybody elses responsibilitiy to take care of the "least well off". This is what got us where we are today. Freaking entitlement after entitlement until it's spiraled out of control.

Just to be clear where I stand: phase out the ponzi scheme known as SS, drug test entitlement recipients, cut ALL giving to other countries, pull out of Iraq and Afghanistan, cut all spending across the board immediately by 10%, and total tax reform. I'm sure there are others, but I eating at the moment and can't think of them all.

In reply to Edmundo Braverman
1/6/11
txjustin:

I know you asked Ant, but I'll give you my Libertarian supporting opionion. If they don't make good on promises, I will absolutely vote against them come election time.

LOL.

That'll show 'em.

In reply to Aggravate
1/6/11
Aggravate:

So who's going to fix operational inefficiencies in each government organization? Are you? They might give you a GS-9 and you can make 50k a year. You'd also be in an organization that cannot resists change in all forms and is institutionally trained to spend every dime they have in their budget, lest they get less the following year. Assuming those all got fixed that would just be the executive branch portions of spending. Cuts to all the entitlement stuff is never getting through Congress.

Saying you'd fix the problem by doing things that are politically impossible isn't a solution. Fixing all the systemic problems with the Federal and State governments is necessary but realistically is a pipe dream in the short to medium term. It will have to be a gradual process of cutting spending and raising taxes (or enforcing the spirit of the tax code and removing loop holes). Left in the hands of politicians and the whims of the easily manipulated masses, this will never happen. So basically we are screwed.

Given that reality, I think the only feasible option if you want a balanced budget is to raise tax revenue where we can, while unfair, at least we know any money the government takes in gets spent. Something that is not true of money made by the ultra-wealthy.

You make some good points, but I still think excess spending is the biggest problem.

-MBP

1/6/11

I'd like to see a flatter (not quite flat) tax with virtually NO exemptions - The one tax I favor is the inheritance tax. I do not see a need for dynastic wealth.

FYI: No exemptions means no exemptions for charitable donations or mortgage interest payments.

Re: Trump's yacht:

I don't care about Trump or the super rich. The problem lies in drawing the line between "well off" and truly rich. According to many democrats, Those making over $250K are rich. Ask any 2nd year associate with $100K in MBA debt how rich he feels.

1/6/11

I am enraged at republicans. No one listens. I am against deductions. Eliminate them all. Nothing more than social engineering.

1/6/11

txjustin, what happens if the guy who lied is running against a socialist?

VirginiaTech, I'm not saying that revenue is the problem, I'm saying that cutting costs in the near term isn't going to happen and that the negative effects on the economy of taxing the top 1% are exaggerated. So if you really want to balance a budget, that is a way you could do it feasibly. Would this lead to elected officials just spending that incremental money on top of current deficit spending, I'd bet on it. However, politically it would be more difficult and just maybe it could work out. Bush got away with it because of 9/11, it would have been difficult to increase spending and cut taxes in any other environment starting from a balanced budget.

In reply to Aggravate
1/6/11
Aggravate:

txjustin, what happens if the guy who lied is running against a socialist?

VirginiaTech, I'm not saying that revenue is the problem, I'm saying that cutting costs in the near term isn't going to happen and that the negative effects on the economy of taxing the top 1% are exaggerated. So if you really want to balance a budget, that is a way you could do it feasibly. Would this lead to elected officials just spending that incremental money on top of current deficit spending, I'd bet on it. However, politically it would be more difficult and just maybe it could work out. Bush got away with it because of 9/11, it would have been difficult to increase spending and cut taxes in any other environment starting from a balanced budget.

Majority of the people I vote for are Libertarian. So, with that in mind, very few of the people who were voted in were voted in by me. I meant that metaphorically. I don't vote based on Republican versus Democrat. I am a big proponent of lesser parties, I.E. Libertarians. I don't vote for the lesser of two evils. Voting for the lesser of two evils is how these idiots keep getting elected year after year and have become career politicians.

1/6/11

There isn't $1.3 trillion among the top 1% to marginally confiscate. No idea how you could balance the budget by raising taxes on the top 1%.

In reply to Virginia Tech 4ever
1/6/11
Virginia Tech 4ever:

There isn't $1.3 trillion among the top 1% to marginally confiscate. No idea how you could balance the budget by raising taxes on the top 1%.

There are over 400 American billionaires. I think they can make a serious dent, not that I'm suggesting they should be forced to.

-MBP

1/6/11

txjustin, almost everything you said concerning cutting spending is ridiculously unrealistic.

1/6/11

You're right, Bush tax cut was supposed to cost 3.3 Trillion over 10 years and a decade of estate tax with debt service was about a trillion. So even if you bake in very aggressive assumptions on corporate tax revenue you would only be about three quarters of the way there. Guess I'll have to find something else to tax...

1/6/11

tax inheritance above $10m at 90-100%. problems solved.

In reply to manbearpig
1/6/11
everythingsucks:
Virginia Tech 4ever:

There isn't $1.3 trillion among the top 1% to marginally confiscate. No idea how you could balance the budget by raising taxes on the top 1%.

There are over 400 American billionaires. I think they can make a serious dent, not that I'm suggesting they should be forced to.

Sure, if you taxed their wealth and not their income. I doubt there are anywhere near 400 Americans who earn over a billion dollars in gross taxable income in a given year. Even if there were 400 Americans who earned $1 billion annually, taxing the entire amount of their income would leave you $1 trillion in the hole for the fiscal year.

1/6/11

Yawn, can we just give the Democrats 100% of what we make so they can fix everything.

Sure, let's tax Rich people because they don't own businesses, invest in companies or consume anything. Let's give more money to the poor so we can increase the sale of cheap beer and scratch off tickets.

Anyone seriously saying we should give this drunk, spendthrift called the government more money is delusional.

1/6/11

Although I generally do not agree with them, I can understand the points that taxes are inherently "unfair" and should be set as low as possible.

However, I have yet to see one logical explanation from those that want to minimize inheritance taxes. If you are truly a libertarian, this is one tax that should go against your beliefs because it sets people from different backgrounds at different starting points. This is an entitlement if there ever was one, given benefits due to being born to the right family. If the poor should not be entitled to benefits, then why should the rich?

Other than that, this is an issue that everyone will have different beliefs on and will never reach a consensus. Trying to claim that your opinions are "truth" and disparaging others is a waste of time.

In reply to numm
1/6/11
numm:

However, I have yet to see one logical explanation from those that want to minimize inheritance taxes.

This has been beaten to death on this site at least biweekly

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

I love the argument that cutting taxes is not a political reality. You know what is also not a reality? Giving the government even more money and expecting anything to change. Increases in taxes without debt ceilings or limits on spending will have no effect.

In reply to happypantsmcgee
1/6/11
happypantsmcgee:

econ - are you saying that the higher tax rates in the upper brackets disincentives work (or at least work at that level)? I'm not disagreeing, just asking for clarification's sake. I know you have a more extensive background in the field so I'm curious.

Yes. For simplicity, assume there are only 2 tax brackets: "low" and "high." Suppose that "low" earners pay no taxes, and "high" earners pay 50% income taxes. Also suppose that "low" earners are defined as those with less than $50K annual income and "high" includes anyone with more than $50K annual income. Suppose I'm an hourly employee, and I could work part-time for $30K a year, or full-time for $60K a year. Notice that my take home salary is identical for both jobs, so I'll just work the part time job; thus sacrificing all the extra production that would come with working twice as many hours. Or, suppose I'm contemplating between a $30K job that'd I'd love to do (like teaching English in Asia) vs. a $100K job that actually sounds kinda boring (like being a lawyer). If there was zero taxes (or a flat tax) then I'd get over 3 times as much for being the lawyer, and would be sacrificing $70K by taking the lower paying job. However, under this (highly progressive) hypothetical tax system, I'd only sacrifice $20K; so my "cost" of taking the lower paying job is not as high. This would give me more incentive to take the low paying job.

P.S. If this was a weak explanation, let me know, and I'll put up a more articulate and persuasive argument (probably on the Econ Group, which maybe I should do anyway).

In reply to TNA
1/6/11
ANT:

I love the argument that cutting taxes is not a political reality. You know what is also not a reality? Giving the government even more money and expecting anything to change. Increases in taxes without debt ceilings or limits on spending will have no effect.

We have debt ceilings, the problem is the people who spend and approach those ceilings are the ones who are able to raise them.

"Despite a voluminous and often fervent literature on 'income distribution', the cold fact is that most income is not distributed: it is earned."
-Thomas Sowell

In reply to econ
1/6/11
econ:
happypantsmcgee:

econ - are you saying that the higher tax rates in the upper brackets disincentives work (or at least work at that level)? I'm not disagreeing, just asking for clarification's sake. I know you have a more extensive background in the field so I'm curious.

Yes. For simplicity, assume there are only 2 tax brackets: "low" and "high." Suppose that "low" earners pay no taxes, and "high" earners pay 50% income taxes. Also suppose that "low" earners are defined as those with less than $50K annual income and "high" includes anyone with more than $50K annual income. Suppose I'm an hourly employee, and I could work part-time for $30K a year, or full-time for $60K a year. Notice that my take home salary is identical for both jobs, so I'll just work the part time job; thus sacrificing all the extra production that would come with working twice as many hours. Or, suppose I'm contemplating between a $30K job that'd I'd love to do (like teaching English in Asia) vs. a $100K job that actually sounds kinda boring (like being a lawyer). If there was zero taxes (or a flat tax) then I'd get over 3 times as much for being the lawyer, and would be sacrificing $70K by taking the lower paying job. However, under this (highly progressive) hypothetical tax system, I'd only sacrifice $20K; so my "cost" of taking the lower paying job is not as high. This would give me more incentive to take the low paying job.

P.S. If this was a weak explanation, let me know, and I'll put up a more articulate and persuasive argument (probably on the Econ Group, which maybe I should do anyway).

Ah, gotcha. Friedman's case against social programs/negative income tax plan. Love it

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In reply to econ
1/6/11
econ:
happypantsmcgee:

econ - are you saying that the higher tax rates in the upper brackets disincentives work (or at least work at that level)? I'm not disagreeing, just asking for clarification's sake. I know you have a more extensive background in the field so I'm curious.

Yes. For simplicity, assume there are only 2 tax brackets: "low" and "high." Suppose that "low" earners pay no taxes, and "high" earners pay 50% income taxes. Also suppose that "low" earners are defined as those with less than $50K annual income and "high" includes anyone with more than $50K annual income. Suppose I'm an hourly employee, and I could work part-time for $30K a year, or full-time for $60K a year. Notice that my take home salary is identical for both jobs, so I'll just work the part time job; thus sacrificing all the extra production that would come with working twice as many hours. Or, suppose I'm contemplating between a $30K job that'd I'd love to do (like teaching English in Asia) vs. a $100K job that actually sounds kinda boring (like being a lawyer). If there was zero taxes (or a flat tax) then I'd get over 3 times as much for being the lawyer, and would be sacrificing $70K by taking the lower paying job. However, under this (highly progressive) hypothetical tax system, I'd only sacrifice $20K; so my "cost" of taking the lower paying job is not as high. This would give me more incentive to take the low paying job.

P.S. If this was a weak explanation, let me know, and I'll put up a more articulate and persuasive argument (probably on the Econ Group, which maybe I should do anyway).

This is a trivial example and doesn't shed much light on the discussion. Under this hypothetical system, someone who earns 50K ends up with twice as much as someone who earns $50,001. It's obvious that under this system, no one would take any income between 50,001 and 99,999. Can you adapt your argument about the 50% tax applying only to income greater than 50K? So that someone who earns 60K ends up with 55K after tax, compared to the part time guy earning 30K and not paying taxes?

-MBP

In reply to GoodBread
1/6/11
GoodBread:

The problem isn't high tax rates in themselves, it's the process of going back to them which would seriously hurt the economy.

Both matter. I totally agree with you that changes can hurt, but high tax rates also cause a lot of otherwise productive activities to not be pursued in the first place. The only difference is what Bastiat called "the seen and the unseen" -- when rates change, it's easier to see the damage done as people adjust to them, while the harm caused by high tax rates aren't as obvious (such as the fact that many people haven't undertook productive projects that they otherwise would have).

1/6/11

^^That's addressed in the plan from which econ derived his example. Read Friedman! It should be mandatory for every college student before graduation, regardless of major.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In reply to manbearpig
1/6/11
everythingsucks:

This is a trivial example and doesn't shed much light on the discussion.

No, it's not trivial, it's just over simplified on purpose to illustrate the main point. Even if you make a more complicated example by adding more brackets, having more varying tax rates, etc. you'll still get the same conclusions (although they won't be as drastic and harmful). I know, precisely because the first time I was exposed to this logic in econ 101, we actually used the real tax system.

In reply to manbearpig
1/6/11
everythingsucks:

Maybe I only think this way because I'm not earning 7 figures or more. But at the moment, I feel like if I was earning 10 million a year, I wouldn't mind paying a quarter of it for the betterment of my country.

And why do you assume that the best way to "better your country" is to pay taxes? Maybe if you took that same amount of tax money, you could actually do much more good for "your country?" Such as, by donating it for the cause of improving education in low income areas, or cancer research. I don't want to get into this too much because it'll derail the thread, but I do want to point out you're taking a lot of things for granted, such as the role of governmental waste, private charity, and a whole host of other issues.

In reply to econ
1/6/11
econ:
happypantsmcgee:

econ - are you saying that the higher tax rates in the upper brackets disincentives work (or at least work at that level)? I'm not disagreeing, just asking for clarification's sake. I know you have a more extensive background in the field so I'm curious.

Yes. For simplicity, assume there are only 2 tax brackets: "low" and "high." Suppose that "low" earners pay no taxes, and "high" earners pay 50% income taxes. Also suppose that "low" earners are defined as those with less than $50K annual income and "high" includes anyone with more than $50K annual income. Suppose I'm an hourly employee, and I could work part-time for $30K a year, or full-time for $60K a year. Notice that my take home salary is identical for both jobs, so I'll just work the part time job; thus sacrificing all the extra production that would come with working twice as many hours. Or, suppose I'm contemplating between a $30K job that'd I'd love to do (like teaching English in Asia) vs. a $100K job that actually sounds kinda boring (like being a lawyer). If there was zero taxes (or a flat tax) then I'd get over 3 times as much for being the lawyer, and would be sacrificing $70K by taking the lower paying job. However, under this (highly progressive) hypothetical tax system, I'd only sacrifice $20K; so my "cost" of taking the lower paying job is not as high. This would give me more incentive to take the low paying job.

P.S. If this was a weak explanation, let me know, and I'll put up a more articulate and persuasive argument (probably on the Econ Group, which maybe I should do anyway).

Is this to assume that these tax rates aren't marginal then?

Also, I wonder if one could argue (this is me hypothesizing, not actually offering a viewpoint since I'm relatively inexperienced in this matter) that you actually lose some productivity by accepting the higher paying but dull job. I would imagine that if you were doing something you love, you would be putting in extra hours, researching related material, etc, whereas if you were in the field solely for the money but hated the job you would be ducking out of work early, going home to drink beer and watch the game instead of reading industry journals, etc.

"Despite a voluminous and often fervent literature on 'income distribution', the cold fact is that most income is not distributed: it is earned."
-Thomas Sowell

In reply to econ
1/6/11
econ:
everythingsucks:

This is a trivial example and doesn't shed much light on the discussion.

No, it's not trivial, it's just over simplified on purpose to illustrate the main point. Even if you make a more complicated example by adding more brackets, having more varying tax rates, etc. you'll still get the same conclusions (although they won't be as drastic and harmful). I know, precisely because the first time I was exposed to this logic in econ 101, we actually used the real tax system.

Dude, it is completely trivial. What you are suggesting is not a simplification of what I'm suggesting. It is a completely different (nonmonotonic) system. There's no point in discussing a sytem where earning an additional dollar has the net effect of cutting your income in half.

-MBP

In reply to mike55555
1/6/11
mike55555:

Is Donald Trump's fourth yacht really more important than providing food and healthcare to thousands of children?

Who should be allowed to decide that? More importantly, you're also taking things for granted, since it's entirely possible that by taxing Trump, he'll produce less (which has social costs, see Adam Smith) and even if we could take all of Donald's money, we still might not be able to achieve your lofty goal of providing food/healthcare for the people who really need it (due to excessive governmental waste).

In reply to manbearpig
1/6/11
everythingsucks:
econ:
everythingsucks:

This is a trivial example and doesn't shed much light on the discussion.

No, it's not trivial, it's just over simplified on purpose to illustrate the main point. Even if you make a more complicated example by adding more brackets, having more varying tax rates, etc. you'll still get the same conclusions (although they won't be as drastic and harmful). I know, precisely because the first time I was exposed to this logic in econ 101, we actually used the real tax system.

Dude, it is completely trivial. What you are suggesting is not a simplification of what I'm suggesting. It is a completely different (nonmonotonic) system. There's no point in discussing a sytem where earning an additional dollar has the net effect of cutting your income in half.

Dude, that is exactly what you suggested. Remember before when I said "You read Friedman too" well this is essentially his plan. It's not new or innovative.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In reply to moranges
1/6/11
moranges:

Is this to assume that these tax rates aren't marginal then?

No, even with a less severe change, you'd still discourage productivity (although to a less extent).

In reply to happypantsmcgee
1/6/11
happypantsmcgee:
everythingsucks:
econ:
everythingsucks:

This is a trivial example and doesn't shed much light on the discussion.

No, it's not trivial, it's just over simplified on purpose to illustrate the main point. Even if you make a more complicated example by adding more brackets, having more varying tax rates, etc. you'll still get the same conclusions (although they won't be as drastic and harmful). I know, precisely because the first time I was exposed to this logic in econ 101, we actually used the real tax system.

Dude, it is completely trivial. What you are suggesting is not a simplification of what I'm suggesting. It is a completely different (nonmonotonic) system. There's no point in discussing a sytem where earning an additional dollar has the net effect of cutting your income in half.

Dude, that is exactly what you suggested. Remember before when I said "You read Friedman too" well this is essentially his plan. It's not new or innovative.

Dude, that is not what I suggested. I suggested that the first 40K of income is not taxable, and everything above that should be taxed at 25%. Not that people who earn under 40K should not pay tax, and people who earn over 40K pay a quarter of what they earn. I'm not saying it's new or innovative. It's just something I personally feel is fair.

-MBP

1/6/11

Ahh sorry, I read the first part and then filled in the rest without reading. My bad, we had a pretty sweet string of dudes going though....dude

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In reply to happypantsmcgee
1/6/11
happypantsmcgee:

Ahh sorry, I read the first part and then filled in the rest without reading. My bad, we had a pretty sweet string of dudes going though....dude

Yeah dude, we sure did. lol

-MBP

In reply to numm
1/6/11
numm:

However, I have yet to see one logical explanation from those that want to minimize inheritance taxes.

Depends whether you're looking for a moral argument or an economic argument.

Moral argument: Why shouldn't people be allowed to leave money to their family? Didn't they make the money, so why are you telling them how to spend it (and yes, inheritance is a way of spending your money when you die)? What's the difference between leaving money to your family and spending money on your family? Maybe by your logic, we should also tax the shit out of the money people spend on their family, because after all, it's not fair that Suzy gets to go to a good private school, just because dad's rich.

Economic argument: The incentive problems can get ridiculous. Then rich people have a lot more reason to just give their family a shit-ton of money before they die, that way, they'll have less inheritance to be taxed.

In reply to manbearpig
1/6/11
everythingsucks:

Dude, it is completely trivial. What you are suggesting is not a simplification of what I'm suggesting. It is a completely different (nonmonotonic) system.

I'm not saying anything about your system, I'm just explaining how taxation effects productivity.

everythingsucks:

There's no point in discussing a sytem where earning an additional dollar has the net effect of cutting your income in half.

So to you, the results only depends on it being 50%? You don't think we'll get a similar thing happening (although, admittedly, less extreme) if we use a lower number? Even if it was only 5%, that might make the difference between me teaching English in Asia, vs. becoming a lawyer. Even it if was only 5%, that might discourage me from higher a couple employees, or increasing output by a few units. The economic logic is not dependent on the rate being so high, rather I used those numbers, because it is more clear to understand the general effect under that (unrealistic) scenario. It's like how you might illustrate arithmetic using 1+1=2, even though arithmetic holds regardless of the numbers used.

1/6/11

everything sucks, you're only taxed on the amount OVER 50,000 so in the example, you would pay 25% of every dollar OVER 50k not the whole amount

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

How about this argument. What right do you have to decide how much money I give my loved ones? Do you have the right to tell me what to give my wife on her birthday? My kids? How about you worry about your own income and stop trying to project YOUR beliefs onto other people.

Same thing with taxes. Large portion of our taxes are redistributed to various social programs. I agree that basic safety nets benefit us all, but the government goes far beyond that. Focus on your job and stop social engineering.

Please, someone tell me what right you hve to push your ideas and belief on another free human being?

In reply to happypantsmcgee
1/6/11
happypantsmcgee:

everything sucks, you're only taxed on the amount OVER 50,000 so in the example, you would pay 25% of every dollar OVER 50k not the whole amount

That's not what econ said. He said that a 60K pretax income is the same as a 30K pretax income, net of taxes. That is why the example is trivial.

-MBP

In reply to econ
1/6/11
econ:
everythingsucks:

Dude, it is completely trivial. What you are suggesting is not a simplification of what I'm suggesting. It is a completely different (nonmonotonic) system.

I'm not saying anything about your system, I'm just explaining how taxation effects productivity.

everythingsucks:

There's no point in discussing a sytem where earning an additional dollar has the net effect of cutting your income in half.

So to you, the results only depends on it being 50%? You don't think we'll get a similar thing happening (although, admittedly, less extreme) if we use a lower number? Even if it was only 5%, that might make the difference between me teaching English in Asia, vs. becoming a lawyer. Even it if was only 5%, that might discourage me from higher a couple employees, or increasing output by a few units. The economic logic is not dependent on the rate being so high, rather I used those numbers, because it is more clear to understand the general effect under that (unrealistic) scenario. It's like how you might illustrate arithmetic using 1+1=2, even though arithmetic holds regardless of the numbers used.

Bro I think you're being a bit of a condescending dick. I encourage you to carefully read what I wrote. No where did I write that I have a problem with the percentage. I have a problem with your system being nonmonotonic. To clarify what this means, you are talking about a system where a pretax income of 50K is better than a pretax income of $50,001. Because after tax, it's the difference between 50K and $25,000.50. Whereas in the regular case, $50,001 is still better than 50K, because after tax, it's the difference between 50K and $50,000.50.

-MBP

In reply to manbearpig
1/6/11
everythingsucks:

Bro I think you're being a bit of a condescending dick. I encourage you to carefully read what I wrote. No where did I write that I have a problem with the percentage. I have a problem with your system being nonmonotonic. To clarify what this means, you are talking about a system where a pretax income of 50K is better than a pretax income of $50,001. Because after tax, it's the difference between 50K and $25,000.50. Whereas in the regular case, $50,001 is still better than 50K, because after tax, it's the difference between 50K and $50,000.50.

Okay, well I'm not trying to be -- sorry you're taking it that way. In regards to the nonmonotonic part, I feel like most real world tax systems have that problem. And even when they don't, it doesn't necessarily matter, because all that's important is that the way in which you alter the incentive will lead people to choose different things. So, in my "trivial" example, even if you avoid the monotonicity part, you'll still be narrowing the difference between lawyer salary and teacher, in which case the incentive of being a lawyer is not as high, and you'll get more teachers. So, even when you preserve order, you still might have some incentive problems.

everythingsucks:

That's not what econ said. He said that a 60K pretax income is the same as a 30K pretax income, net of taxes. That is why the example is trivial.

You'll get similar equivalences elsewhere, including your own system.

In reply to TNA
1/6/11
ANT:

How about this argument. What right do you have to decide how much money I give my loved ones? Do you have the right to tell me what to give my wife on her birthday? My kids? How about you worry about your own income and stop trying to project YOUR beliefs onto other people.

Same thing with taxes. Large portion of our taxes are redistributed to various social programs. I agree that basic safety nets benefit us all, but the government goes far beyond that. Focus on your job and stop social engineering.

Please, someone tell me what right you hve to push your ideas and belief on another free human being?

I would argue (not because this is my belief, but just for the sake of argument) that you consent to the imposition of the majority's beliefs (as measured by voting results) by freely associating with fellow citizens of the United States (as is your specifically enumerated right).

Perhaps the answer is to concede that the libertarian way of thinking is all but dead in the U.S. and choose to associate yourself with the citizens of another country closer aligned to your core beliefs. This is what I struggle with almost daily. Not that France is a bastion of personal liberty, I just couldn't take the direction of the U.S. any longer.

In reply to Edmundo Braverman
1/6/11
Edmundo Braverman:
ANT:

How about this argument. What right do you have to decide how much money I give my loved ones? Do you have the right to tell me what to give my wife on her birthday? My kids? How about you worry about your own income and stop trying to project YOUR beliefs onto other people.

Same thing with taxes. Large portion of our taxes are redistributed to various social programs. I agree that basic safety nets benefit us all, but the government goes far beyond that. Focus on your job and stop social engineering.

Please, someone tell me what right you hve to push your ideas and belief on another free human being?

I would argue (not because this is my belief, but just for the sake of argument) that you consent to the imposition of the majority's beliefs (as measured by voting results) by freely associating with fellow citizens of the United States (as is your specifically enumerated right).

Perhaps the answer is to concede that the libertarian way of thinking is all but dead in the U.S. and choose to associate yourself with the citizens of another country closer aligned to your core beliefs. This is what I struggle with almost daily. Not that France is a bastion of personal liberty, I just couldn't take the direction of the U.S. any longer.

Eddie, not sure if you would be open to this but I think it would be interesting if you did a blog post about why you decided to move out of the US and what made you choose France vs. other countries, etc.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In reply to econ
1/6/11

Look, it's obvious that each additional dollar earned isn't exactly worth a dollar after tax. But as long as each additional dollar of your pretax income still adds to your net income, people will always have an incentive to take higher paying jobs and earn more, regardless of the fact that they would rather keep every penny they earn.

-MBP

1/6/11

A lot of you guys are saying that cutting entitlement programs is impossible but if we don't give the gov't more tax revenue, then it will eventually be forced to adapt austerity measures.

Britain recently cut all gov't spending except education and foreign aid by 25%

There were riots in the streets when students realized they'd have to contribute more money for their college educations just like in Greece. But so what? The laws changed because they HAD to change. Those pissed off students can drop of out college and the Greeks suckling at the state's nipple can go on a hunger strike but things are already changing.

In reply to Edmundo Braverman
1/6/11
Edmundo Braverman:

That sounds like a good idea, Happy, though I'm sure I'll get a lot of hate mail for it.

Fcuk 'em

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11

That sounds like a good idea, Happy, though I'm sure I'll get a lot of hate mail for it.

1/6/11

Liberty will die as soon as we all stop fighting And give the government all of our money.

It isn't as if we don't have an example of what can happen. Look at Europe. High tax rates, government taking care of you and they are broke.

End of the day, losers will always want to punish those who succeed. I will do everything possible to minimize the amount of money I have forcibly taken from me. I also will give zero to charity or anything else for that matter since all the charitable needs of this country are already taken care of by mom and dad government. I'll make sure to tell every homeless man that I would of given him money if not for being robbed by the government earlier.

In reply to TNA
1/6/11
ANT:

Liberty will die as soon as we all stop fighting And give the government all of our money.

It isn't as if we don't have an example of what can happen. Look at Europe. High tax rates, government taking care of you and they are broke.

End of the day, losers will always want to punish those who succeed. I will do everything possible to minimize the amount of money I have forcibly taken from me. I also will give zero to charity or anything else for that matter since all the charitable needs of this country are already taken care of by mom and dad government. I'll make sure to tell every homeless man that I would of given him money if not for being robbed by the government earlier.

Geez, Anthony, talk about flame bait. Are you trying to give SirBankAlot a run for his money? Or monkey shit?

In reply to TNA
1/6/11
ANT:

Liberty will die as soon as we all stop fighting And give the government all of our money.

It isn't as if we don't have an example of what can happen. Look at Europe. High tax rates, government taking care of you and they are broke.

End of the day, losers will always want to punish those who succeed. I will do everything possible to minimize the amount of money I have forcibly taken from me. I also will give zero to charity or anything else for that matter since all the charitable needs of this country are already taken care of by mom and dad government. I'll make sure to tell every homeless man that I would of given him money if not for being robbed by the government earlier.

This is a major tangent and not relevant to the discussion at all. I just wanted to point this out for your own personal betterment. It's 'would have', not 'would of'.

-MBP

1/6/11

Wow. Here's a shocker. Obama cuts DoD budget by $78 billion over the next 5 years and imposes the first military spending freeze since 9/11:
http://www.washingtonpost.com/wp-dyn/content/artic...

In reply to youknow
1/6/11
youknow:

txjustin, almost everything you said concerning cutting spending is ridiculously unrealistic.

Please explain to me why it's unrealistic. I may have jumped the gun a bit on the 10% thing, but people need to realize the government doesnt support them and we all have to take austerity measures.

1/6/11

I apologize for my mistake mom, iPhones are not the best to type on.

Also, it is not a tangent. Money flows from me to something or someone else. I believe in a limited government with people keeping as much as possible. You don't. Increase my taxes and as a result I have less to donate. People talk about taxing the rich to help the poor, well don't ask me for money, go ask your protector, the government.

Cause and effect.

Also, nothing I say is flaming. Please feel free to argue.

Honestly, is this site turning into the Huffington post? I talk about less wasteful spending and get bitched at as if I am taking candy from a baby. This is a finance site yet people argue about basic economics.

How about this. All the kids in school should sit this out and let people who pay taxes debate. If you feel strongly about redistributing income how about you start with your first.

That is the problem with you pro tax people. Can't walk the talk unless everyone is there holding your hand.

In reply to Edmundo Braverman
1/6/11
Edmundo Braverman:

Wow. Here's a shocker. Obama cuts DoD budget by $78 billion over the next 5 years and imposes the first military spending freeze since 9/11:
http://www.washingtonpost.com/wp-dyn/content/artic...

Fair point but the overall defense budget will still increase by 1% this year.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In reply to TNA
1/6/11
ANT:

I apologize for my mistake mom, iPhones are not the best to type on.

Also, it is not a tangent. Money flows from me to something or someone else. I believe in a limited government with people keeping as much as possible. You don't. Increase my taxes and as a result I have less to donate. People talk about taxing the rich to help the poor, well don't ask me for money, go ask your protector, the government.

Cause and effect.

Also, nothing I say is flaming. Please feel free to argue.

Honestly, is this site turning into the Huffington post? I talk about less wasteful spending and get bitched at as if I am taking candy from a baby. This is a finance site yet people argue about basic economics.

How about this. All the kids in school should sit this out and let people who pay taxes debate. If you feel strongly about redistributing income how about you start with your first.

That is the problem with you pro tax people. Can't walk the talk unless everyone is there holding your hand.

Lol, I was saying that my douchey post pointing out your typo was a tangent.

-MBP

1/6/11

Can we all agree that without legal or constitutional changes, giving more money to the government will just result in more spending. Government is rewarded by spending, not saving. I am a realist. We are not going to balance the budget. We will simply keep going until a Greek like crisis happens and then the government will use it as an excuse to grab power and rape us even more. Until then I am going to focus on minimizing te rape forced on me and prepare exit strategies.

America lives in my heart. This socialistic bullshit going on right now is not the USA.

Can't really complain, we as a nation have let the lower half of society grab control. What donyou expect when you have a base population calling the shots.

Let them eat cake.

In reply to manbearpig
1/6/11
everythingsucks:

Look, it's obvious that each additional dollar earned isn't exactly worth a dollar after tax. But as long as each additional dollar of your pretax income still adds to your net income, people will always have an incentive to take higher paying jobs and earn more, regardless of the fact that they would rather keep every penny they earn.

You're right they'll have incentive to earn more money, but as the opportunity cost between taking the higher paying job decreases, they'll have less incentive than before (and this change can be enough to offset their previous decision). It actually is probably just easier to think about this in terms of hourly employees. If I face no taxes, then I get to keep w (where w = my wage). If I face a tax rate of x, then I only get to keep (1-x)*w. So, now my incentive is not as much as it was before, and I'll probably chose to work less hours. (I'm pretty sure it can actually be "proven" that I'll always work less hours, if you make the standard economic assumptions -- an exercise that is beyond the scope of this discussion, and not necessarily meaningful anyways. In fact, the only assumption you might need is decreasing marginal utility -- which is just an economist's way of saying you get less satisfaction/happiness/whatever out of each additional dollar.)

In reply to Edmundo Braverman
1/6/11
Edmundo Braverman:

I would argue (not because this is my belief, but just for the sake of argument) that you consent to the imposition of the majority's beliefs (as measured by voting results) by freely associating with fellow citizens of the United States (as is your specifically enumerated right).

Perhaps the answer is to concede that the libertarian way of thinking is all but dead in the U.S. and choose to associate yourself with the citizens of another country closer aligned to your core beliefs. This is what I struggle with almost daily. Not that France is a bastion of personal liberty, I just couldn't take the direction of the U.S. any longer.

I know you're just playing devil's advocate Uncle Eddie, but let me address the point nonetheless (for those of you who find the above logic convincing). I think the key, is that one must also consider what rights an individual has. To take an extreme example, suppose that a democracy came up with the obscene/hypothetical policy of sacrificing one person every year. Most people would say, "No, that's not right. Who cares about majority rule, this is a situation in which majority rule doesn't matter, because the individual has a right to life." Well, some people think individuals also have a right to liberty and property, so they don't necessarily find it convincing that a majority of people want to take away their property, even if that policy came out of a democratic process. Put differently, just because something came out of a majority rule process, that doesn't necessarily justify the policy. As John Stuart Mill pointed out in his classic book "On Liberty" majority rule can lead to "tyranny of the majority."

1/6/11
In reply to TNA
1/6/11
ANT:

I love you Econ

Haha, thanks man, right back at cha.

1/6/11

Isn't it funny how two people with masters degrees in finance and econ are fighting against increasing taxes. It always blows my mind how the solution to the debt crisis is giving more money to the same fools who got us here.

Cut taxes, end the wars, reduce spending, become more efficient, etc and we will be fine.

In reply to TNA
1/6/11
ANT:

Isn't it funny how two people with masters degrees in finance and econ are fighting against increasing taxes.

Ironic. :)

ANT:

It always blows my mind how the solution to the debt crisis is giving more money to the same fools who got us here.

To quote Milton Friedman (from the debate section of episode 4 of "Free To Choose""Free To Choose"): I've never heard of a government program which was defective in which the people who ran it didn't say, "If only we had more money to spend on what we're not being able to accomplish with the amount we're spending now."

ANT:

Cut taxes, end the wars, reduce spending, become more efficient, etc and we will be fine.

Agreed.

1/6/11
ANT:

Isn't it funny how two people with masters degrees in finance and econ are fighting against increasing taxes.

Ironic. :)

ANT:

It always blows my mind how the solution to the debt crisis is giving more money to the same fools who got us here.

To quote Milton Friedman (from the debate section of episode 4 of "Free To Choose""Free To Choose"): I've never heard of a government program which was defective in which the people who ran it didn't say, "If only we had more money to spend on what we're not being able to accomplish with the amount we're spending now."

ANT:

Cut taxes, end the wars, reduce spending, become more efficient, etc and we will be fine.

Agreed.

In reply to TNA
1/6/11
ANT:

Isn't it funny how two people with masters degrees in finance and econ are fighting against increasing taxes.

Ironic. :)

ANT:

It always blows my mind how the solution to the debt crisis is giving more money to the same fools who got us here.

To quote Milton Friedman (from the debate section of episode 4 of "Free To Choose""Free To Choose"): I've never heard of a government program which was defective in which the people who ran it didn't say, "If only we had more money to spend on what we're not being able to accomplish with the amount we're spending now."

ANT:

Cut taxes, end the wars, reduce spending, become more efficient, etc and we will be fine.

Agreed.

1/6/11

the video is a joke. the guy dismisses economics as "junk" and then proceeded to go on a marxist rant. irony alert.

In reply to TNA
1/6/11
ANT:

Isn't it funny how two people with masters degrees in finance and econ are fighting against increasing taxes. It always blows my mind how the solution to the debt crisis is giving more money to the same fools who got us here.

Cut taxes, end the wars, reduce spending, become more efficient, etc and we will be fine.

Even though I just have a bachelors in finance from a non-target: Can I get some love too?

1/6/11

Plenty of love tx, the name of the school is not indicative of common sense. Children understand basic economics better than adults. Too much verbage IMHO. I blame mandatory essay length and word counts. Being concise should be rewarded.

In reply to TNA
1/6/11
ANT:

Plenty of love tx, the name of the school is not indicative of common sense. Children understand basic economics better than adults. Too much verbage IMHO. I blame mandatory essay length and word counts. Being concise should be rewarded.

I was just messin with you man. You are just a little more vocal than me. That's why a lot of times I just agree because you've said what I was thinking.

1/6/11

I used to be pretty hesitant, but I literally cannot be quiet now. This crap is outrageous. People talk about increasing taxes to balance the budget as if politicians will be good sports and say "hey guys, time to be nice, lets take this extra money and pay our bills". In reality, there will be a crisis or a special interest group that needs some grease and poof, there goes the money.

I would happily pay more taxes if there was a constitutional amendment that altered things. A binding contract if you will. The working class has been milked long enough. Also, this tax the rich bullshit is ridiculous. The rich pay plenty of tax and just because they can afford it, doesn't mean increasing their tax is right or correct.

Some people wont care about right or moral. If we are going to have no morals about it, why increase taxes at all? Just cut social programs.

In reply to TNA
1/6/11
ANT:

I would happily pay more taxes if there was a constitutional amendment that altered things. A binding contract if you will. The working class has been milked long enough. Also, this tax the rich bullshit is ridiculous. The rich pay plenty of tax and just because they can afford it, doesn't mean increasing their tax is right or correct.

.

I equate the idea of taxing the rich to poker, when playing poker just because you have more chips doesn't make sense to play hands like 2,7 because you can afford to throw away the chips. So how does it make sense in economics because someone can afford to throw the money away they should? What needs to happen with the government like you have said 10000 times Ant is to control spending DRAMATICALLY. How do we have a congress that isn't required to read the majority of bills signed into law? How do we have a congress that last year I believe only a hand full of 535 members of congress read the entire tax code? Yet people believe increasing taxes, will some how create a more balanced budget? That is like saying lets give a bully with a bat, a gun because the gun is cooler and he will be more likely to leave people alone and play with his gun?(extreme but you get the point)

The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee

WSO is not your personal search function.

In reply to TNA
1/6/11
ANT:

I apologize for my mistake mom, iPhones are not the best to type on.

Also, it is not a tangent. Money flows from me to something or someone else. I believe in a limited government with people keeping as much as possible. You don't. Increase my taxes and as a result I have less to donate. People talk about taxing the rich to help the poor, well don't ask me for money, go ask your protector, the government.

Cause and effect.

Also, nothing I say is flaming. Please feel free to argue.

Honestly, is this site turning into the Huffington post? I talk about less wasteful spending and get bitched at as if I am taking candy from a baby. This is a finance site yet people argue about basic economics.

How about this. All the kids in school should sit this out and let people who pay taxes debate. If you feel strongly about redistributing income how about you start with your first.

That is the problem with you pro tax people. Can't walk the talk unless everyone is there holding your hand.

lol, i was saying that me pointing out your typo was the massive tangent. Not the content of your post. My bad, should have worded it better.

-MBP

In reply to TNA
1/6/11
ANT:

Isn't it funny how two people with masters degrees in finance and econ are fighting against increasing taxes.

Oh, the irony isn't lost on me. :)

ANT:

It always blows my mind how the solution to the debt crisis is giving more money to the same fools who got us here.

To quote Milton Friedman: I've never heard of a government program which was defective in which the people who ran it didn't say, "If only we had more money to spend on what we're not being able to accomplish with the amount we're spending now."

ANT:

Cut taxes, end the wars, reduce spending, become more efficient, etc and we will be fine.

Agreed.

1/6/11

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1/6/11
1/6/11

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/6/11
In reply to Virginia Tech 4ever
1/6/11

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/7/11
1/7/11

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