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Midas and I have stayed pretty quiet on the whole Warren Buffett "the rich should pay more taxes" thing, so we thought we'd lay it out there in this week's show. Let us know if you think we're way off base here.


PREVIOUS EPISODES:
NSFW Episode 31: DOWNgrayedd
NSFW Episode 30: Oslo Bombing, Amy Winehouse
NSFW Episode 29: Phone Hacking, Debt Ceiling
NSFW Episode 28: DSK for President, Lagarde Rocks
NSFW Episode 27: How To Ruin Your Life
NSFW Episode 26: Groupon, Bilderbergs, #Weinergate
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NSFW Episode 18: Japanese Earthquake & Tsunami, Tax Policy with Bill Gross, NFL Lockout
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NSFW Episode 7: All-Nighters, Bush Tax Cuts, Crash JP Morgan
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NSFW Episode 5: Lehman Bankruptcy, TSA, Black Friday
NSFW Episode 4: Silver, Welfare Reform, Winter Inflation
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NSFW Episode 1: QE2, Housing, Commodities

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Comments (44)

  • GoodBread's picture

    I'm siding with Eddie on this one. Superb point on skin in the game and our armed services. All the ideological stuff we hear about taxes being unfair, blablabla... happiness is based on relative wealth, not absolute. Who cares if you're paying higher taxes, you're making more money than the guy paying less and you can afford more. Poor people don't want to raise taxes because they hope that someday they will be in those brackets. The fact of the matter is people who are religiously opposed to higher taxes on the rich are pussies. They're afraid they won't be able to hold on to what they made. Guys like John Paulson don't worry about how much taxes they'll have to pay at the end of the year, they just aim for the highest performance possible. The guys who worry are like Phil Falcone, they're one trick ponies who can't perform consistently enough to cover their tax bill.

    Corporate welfare isn't paying for anything. If it was, our roads and bridges wouldn't be crumbling. The billions lost in loopholes aren't benefiting anybody.

    IMO, what would make sense would be:
    1. Restructuring Medicare, Medicaid and Social Security. The fact of the matter is, the current system is a slowly unfolding disaster. There's trillions in unfunded obligations creeping up on us and we have to find a way to make it sustainable. I'm not a policy expert so I can't say exactly what a restructuring would look like, but it has to be done.
    2. Raise taxes. You can't pretend you support a balanced budget and a reduction of debt if you won't raise revenue. Solely cutting spending depresses GDP and makes it impossible to make any headway as far as debt reduction goes. I'm not talking about the 70%-90% rates we once had, just tossing the Bush tax cuts.
    3. Overhaul the tax code. We can't have GE paying $0 in taxes. An overhaul closing loopholes and significantly reducing the rate (is it any wonder corporations spend so much trying no to pay taxes?) would likely increase revenue significantly.
    4. Pour that revenue into infrastructure projects. These projects are too costly and long-term for the private sector to invest in. Do it for them and you've got more consumers and a greatly improved infrastructure for companies to use. Not bad for firing a few tax specialists and paying a low rate of corporate taxes.

    In sum, I think this idea of "class warfare" is stupid. Nobody's asking for a punitive increase in taxes. Just a rise in revenue that will make debt reduction possible and some reforms that will help the lower half in the long-run. After all, the people who get hurt by Medicare, Medicaid and Social Security being unfunded are the poor, not the rich.

  • imnottheonlyone's picture

    Edmundo: 10/10
    Midas: 4/10

    paraphrase: Corporate Welfare for Multi Billion Dollar Companies ends with them paying more in taxes, hiring more
    people and paying for bridge and tolls.

    Sorry, I disagree with all three:

    1) consumer products company GE paid nearly 0% in taxes last year, oil and gas companies routinely get tax breaks on the subsidies (welfare) they already get, heavy manufacurting company Boeing had 5-year avg. of 0.7%, financial companies have tax havens that rival the rates of our poorest.

    2) find me a single economic research report from a *university or government economist* (not biased Cato or Heritage Foundation press releases) that shows the link between corporate welfare and hirings. This is as bad as the fallacy Edmundo pointed out (corporate welfare to banks did not lead them to lending more to consumers). TAKEAWAY: Corporations are rational profit-maximizing agents- they are not government policy agents. They will hire people when it is economically viable- not just because they have cash to burn (as evidenced by the huge amount of stockpiles of cash companies like Apple are holding onto right now).

    3) private companies paying for bridges and tolls is just silly. No, they get municipal funds to pay for that. When a company builds an office on the side of the city, then the city/county may pay to build a road for them. When someone wants to build a sports arena, the county/city/state will pay a portion of the development costs (often the vast majority acutally as evidenced by Rick Perry's history).

    My own analysis:

    I think the central issue that everyone is avoiding is unemployment. That should be issue #1 and yet people still talk about revenue/debt/taxes/class warfare. The US economy is powered by consumer spending. We aren't going to change the dynamics of that. As long as unemplyment is high, consumer spending won't bounce back. As long as consumer spending doesn't bounce back, companies won't hire, innovate or produce (you can give them all the tax breaks and subsisides you can- unless they know they can make more money by hiring and producing- they'll just pocket it instead). It's typical of having only a tiny piece of cake left and everyone is fighting over it and arguing whether someone is getting more than their fair share without working for it -- instead we should be talking about how to increase the size of the cake.

  • D M's picture

    First one of these I've actually watched. Definitely with Midas on a lot of this, but Eddie hit it home, too. Now i'm going back to watch the old ones...

    "You stop being an asshole when it sucks to be you." -IlliniProgrammer
    "Your grammar made me wish I'd been aborted." -happypantsmcgee

  • The Man's picture

    All this talk about people paying their fair share of the tax burden, as though giving the government money served some kind of legitimate purpose. The deficit itself is not the only, or even the biggest, problem. The deficit only becomes a problem when it interferes with other government spending via large interest payments. In the meantime, the biggest problem is what the government spends the money on. To suggest that a dollar spent by the government is better for the economy, the rich, the poor, and people not even in America than a dollar spent by Warren Buffet is completely absurd. Take a simple example, many of the poor today are out of work, but it is a simple fact that the government cannot create jobs. So why are you trying to take more money away from ambitious, risk taking investors and giving it to the one entity on earth who by definition can't actually help?

    Also, all this talk about the different classes does not have much basis in reality. For instance, most of the people counted as low income in census data are the early twenties children of every class in America, they simply haven't had time to gain experience that leads to higher pay. But the do eventually. The reality is that there is a great deal of movement between the various income levels, so all this talk about class warfare and rich versus poor is really baseless.

    Finally, I find Eddie's rant about rich people not being in the military bizarre. It's not as if most or even a tiny fraction of the poor or the American people in general work for the armed forces. There is no basis in reality for the idea that the rich live the good life while the poor get shot to protect it.

  • ERGOHOC's picture

    I just don't think increasing tax will ever solve the debt problem.
    The government is overextended. Yes, maybe taxing the top 100 richest might help the government out for a few years but then what. US needs a permanent solution, not a one-time-get-reelected-promotion

  • ThaVanBurenBoyz's picture

    I don't think it's the ultimate solution to our deficit issues, but there's a couple of things we could change (on top of closing all loopholes for both individual income and corporate taxes):

    1) Add a couple of brackets. It's ridiculous that the highest is $380k+. We could probably do with another at $1mm, and a second at $5-10mm.

    2) Lower corporate taxes to a globally-competitive 28% (again, with all loopholes closed) for companies that operate/produce/manufacture domestically. For those that produce abroad, 45%. Job creation, anyone?

  • In reply to ThaVanBurenBoyz
    SchmidtN23's picture

    ThaVanBurenBoyz:
    I don't think it's the ultimate solution to our deficit issues, but there's a couple of things we could change (on top of closing all loopholes for both individual income and corporate taxes):

    1) Add a couple of brackets. It's ridiculous that the highest is $380k+. We could probably do with another at $1mm, and a second at $5-10mm.

    2) Lower corporate taxes to a globally-competitive 28% (again, with all loopholes closed) for companies that operate/produce/manufacture domestically. For those that produce abroad, 45%. Job creation, anyone?


    +1 For both theses. But I'd still opt for a move to a consumption based tax system (only truly equitable way to do it).

    Edmundo, I'd just clarify that there is a big difference between; A) placing more of a burden on the poor by asking for that 50% to pay some sort of taxes and B) overhauling entitlement programs, decreasing the length of unemployment benefits, and aligning incentives to give this less off group more responsibility for their well being.

  • West Coast rainmaker's picture

    Watch the Daily Show? Jon Stewart made very similar points.
    http://www.hulu.com/watch/269537/the-daily-show-wi...

    I would argue that we don't necessarily want to raise taxes, particularly not on the ultra-rich. Both Jon Stewart and Eddie are talking about wealth, not taxable income. In truth, the bottom 50% earn around 13% of income in this country.

    The US has become steadily less attractive as a business environment. High taxes (both corporate and individual), regulatory burdens, etc. all contribute to this issue. For people that use Europe as a counter-point, do we *really* want to be Europe right now?

    The low-hanging fruit for increasing tax revenues is getting our unemployment back to historic levels. Having a massive percentage of the population unproductive is definitely impacting our tax revenues.

    We cannot begin to increase tax revenues enough to cover our current spending, let alone pay down the debt.

    This is admittedly a flawed article, but its point stands: tax revenues as a % of gdp have stayed relatively constant. While I doubt we are on the Laffer curve, this historical data says something about our ability to raise the top line on our federal government's budget.
    http://blogs.marketwatch.com/fundmastery/2010/07/0...

    Massive spending cuts are needed. We might be able to get a little more revenue from taxes, but that will not be what gets us out of this hole. Defense, entitlements, stimulus, and nation building all need to be on the chopping block. Somehow we need to lure jobs into this country at the same time...

    There is no easy solution. I just hope Obama's job plan doesn't add to the deficit, and consists of more than handouts to Dem pet projects that have little hope of becoming engines for growth (green jobs and high speed rail, for instance).

  • imnottheonlyone's picture

    2) Lower corporate taxes to a globally-competitive 28% (again, with all loopholes closed) for companies that operate/produce/manufacture domestically. For those that produce abroad, 45%. Job creation, anyone?

    Good point. Did you know currently about 1/3 of the cost of moving a US job overseas is a business expense that is tax deductible? How perverse is that. Couple that with tax holidays for income earned overseas and the end result are VERY strong incentives to not hire Americans.

    100% Agreed. The first step is increasing corporate taxes- at 0-10%, we have no leverage to incentivise companies. The H.I.R.E. Act of 2010 promises tax breaks for hiring certain kinds of unemployed workers- but too many corporations have maxed out their tax breaks already.

  • In The Flesh's picture

    Glad to get in before ANT discovers your point of view, Eddie! It's gonna get dangerous in here. :)

    I respectfully disagree, Eddie. It's definitely true that a disproportionate share of our military comes from poor and disadvantaged backgrounds. However, I think that says more about the lack of legitimate opportunity in those areas than it does on any effort by the military to necessarily exploit or take advantage of them. If it's the only way out, then it's the only way out. I could be wrong.

    Although it's true that a majority of our military comes from poor backgrounds, it also doesn't mean that most of the poor are military families. What about those poor that don't serve in the military?

    Here's the thing: the harder you try to turn the screws on the rich, the more the rich end up turning the screws on you. They can afford the best tax advice to help them get around any punitive rise in taxes. If everyone pays a flat tax of no more than 10% and close all loopholes (except the ones on charitable donations), the incentive to cheat will be removed, everybody's paying the same rate, and everybody's happy.

    Metal. Music. Life. www.headofmetal.com

  • GoodBread's picture

    I don't think Eddie's equating all the poor with the military. The fact of the matter is, the wars of this past decade really turned the screws on the poor. All of the sudden, the best way out of poverty became incredibly dangerous and had a high potential for causing lasting damages. Thanks to the wars and the Bush tax cuts which blew up our debt-to-GDP, cutting these people's benefits is becoming increasingly politically acceptable.

    Furthermore, the Greenspan/Bernanke put is killing the elderly, another big part of the people on the lower end of the income distribution. The 10s are hovering at 2% for goodness' sake. Factor in the latest CPI and you'd almost wonder when we'll start putting people should they reach the age of 65.

  • TNA's picture

    I'll watch when I get home, but I'll keep my rants to other battle grounds. God bless you if you think the government spends the money you work hard for wisely. There is so much waste in Washington right now it makes me sick. Regardless, it is always politically favorable to demonize the rich and I don't see that changing.

  • rls's picture

    These arguments about "taxing the rich" have so many moral and economic problems with them that they boggle the mind. I will simply refer you to Bastiat's "The Law" - and ask whether this country is about plundering other classes or not. I work for my paycheck- it is not "distributed" and no one is entitled to a single drop of sweat from my brow (figuratively speaking- I work indoors in a climate-controlled environment)- I am not rich, but I'm trying to get there, and the additional weight of a higher tax burden, in addition to funding welfare programs (Medicaid, Medicare, and Social Security- and, yes, they are welfare programs- I would be happy to go over the numbers and legal arguments in a post, if challenged) I will never benefit commensurate to my contribution, are making a difficult task, herculean. And all of this is, fallaciously, given some 'authority' by certain billionaires who, although publicly advocated for increasingly progressive tax policies, privately pursue tax and income shelters. And I am not hypocritical enough to suggest that this lessens the logic (or rather, illogic) of their arguments. Good for them- I think it is not only natural but good for each person to attempt to keep justly acquired property. I would suggest, however, they should be more honest about their conduct. This "laws for thee, but not for me" is really off-putting. And for those, including unnamed billionaires, whose consciences are so agonized over the thought that they are not nearly taxed enough- feel encouraged to write a check to:

    Gifts to the United States
    U.S. Department of the Treasury
    Credit Accounting Branch
    3700 East-West Highway
    Hyattsville, MD 20782

    Website: http://www.fms.treas.gov/faq/moretopics_gifts.html

    By the way, it is not tax-deductible, although that would defeat the point...And don't give me the "I won't do it because it won't make a dent" argument. The "goodness" or "morality" of an action is not defined by the number of people who follow a "moral" path.

    Bene qui latuit, bene vixit- Ovid

  • IlliniProgrammer's picture

    I think it's time to raise taxes.

    If you are taking home more than $30K/year, you have a pretty comfortable existence. We need to raise the 25% tax bracket to 26%, 28% to 30%, 33% to 36%, 36% to 40%, and create a new tax bracket for earners north of $2 million at 42%. This is much better for the average rich man than the 1981-1986 Reagan tax schedule, and with additional spending cuts, allows us to balance the budget.

    Cutting tax loopholes is also important. Hedge fund managers and Private Equity folks need to be taxed at the rate of ordinary income on carried interest. Everyone else who works for a living pays 35%; I am all for rewarding the rich for the fruits of their labors, but they should pay taxes on the same terms as everyone else.

    We also need to have a simple 7% tax on corporate foreign income. Want to enjoy the trade and sovereign risk advantages of being a US company? Fine, but we are going to charge you up to 7% on foreign income taxed at less than 35%. While the US has a fairly high nominal corporate tax rate, our effective corporate tax rate is much lower than most of the G-20. If you don't like it, I guess you can move to China, but it's going to suck when the Libyan rebels sieze your assets. Or you can live in the US and pay a fairly modest premium to help support the world's most capable Navy and Air Force.

    Have a family of 4 and earn $250K/year as a whiney Chicago professor? Worried that you won't be able to afford private school for your kids? We won't be able to afford K-12 public school soon unless we start raising some tax revenue. I spent 16 years in public school and things worked out fine.

    Bottom line is that the fiscally conservative pendulum is at its far swing- at least on tax policy. Yes, we do need further government belt tightening on top of the $1.9 Trillion in cuts- particularly by reforming Medicare (we will probably have to end up with the Ryan plan by the time we are done), but part of the solution also includes hiking revenues.

  • In reply to rls
    IlliniProgrammer's picture

    rls:
    These arguments about "taxing the rich" have so many moral and economic problems with them that they boggle the mind. I will simply refer you to Bastiat's "The Law" - and ask whether this country is about plundering other classes or not. I work for my paycheck- it is not "distributed" and no one is entitled to a single drop of sweat from my brow (figuratively speaking- I work indoors in a climate-controlled environment)- I am not rich, but I'm trying to get there, and the additional weight of a higher tax burden, in addition to funding welfare programs (Medicaid, Medicare, and Social Security- and, yes, they are welfare programs- I would be happy to go over the numbers and legal arguments in a post, if challenged) I will never benefit commensurate to my contribution, are making a difficult task, herculean. And all of this is, fallaciously, given some 'authority' by certain billionaires who, although publicly advocated for increasingly progressive tax policies, privately pursue tax and income shelters. And I am not hypocritical enough to suggest that this lessens the logic (or rather, illogic) of their arguments. Good for them- I think it is not only natural but good for each person to attempt to keep justly acquired property. I would suggest, however, they should be more honest about their conduct. This "laws for thee, but not for me" is really off-putting. And for those, including unnamed billionaires, whose consciences are so agonized over the thought that they are not nearly taxed enough- feel encouraged to write a check to:

    Gifts to the United States
    U.S. Department of the Treasury
    Credit Accounting Branch
    3700 East-West Highway
    Hyattsville, MD 20782

    Website: http://www.fms.treas.gov/faq/moretopics_gifts.html

    By the way, it is not tax-deductible, although that would defeat the point...And don't give me the "I won't do it because it won't make a dent" argument. The "goodness" or "morality" of an action is not defined by the number of people who follow a "moral" path.


    This argument has been used ad-nauseam. Fact is that a lot of folks have made gifts to the treasury, including Warren Buffett. It's one thing to give money to the government telling them to spend more, but the fact is that government is spending money whether or not we hike taxes. And the fact is that when max marginal tax rates were 70%, we had better infrastructure and better education than now at 35%. I'm not saying that we should go back to 70%, but the one thing worse to this financial sector guy than unbounded spending is unbounded deficits.

    Cut medicare, raise taxes. If we do that, unemployment may go to 13%- possibly for a few years, but we'll give our children the financial future they deserve.

  • Getgo's picture

    great episode.

    will have to agree with poster above that i'm going to go back and watch the other eps

  • In reply to IlliniProgrammer
    eokpar02's picture

    IlliniProgrammer:
    I think it's time to raise taxes.

    No, its not. Government spending has increased by 63% since 2000. The only way for us to have bridged the gap between government spending and revenues would have been to increase income by 63%.

    There are massive wasteful and useless projects that our government has undertaken. Why not take defense spending back to where it was before we started our middle eastern imperialistic garbage? 350 billion dollars. Why not get rid of the department of homeland security? 50 billion.

    Medicare fraud is 50 billion dollars, the department of education spends 71 billion dollars, yet doesn't increase academic performance. The DEA's wasteful war on drugs costs the American taxpayer billions why not end that?

    IP, I respect you a lot, but the government needs to cut all but a few of its functions because what ever it does it does wastefully and poorly.

    I am not cocky, I am confident, and when you tell me I am the best it is a compliment.
    -Styles P

  • Edmundo Braverman's picture

    If you're under 30 and you're not a liberal, you have no heart. If you're over 30 and you're not a conservative, you have no brains.

    - Winston Churchill

    @eokpar02 Your signature line reminds me of something I have to tell my youngest with some regularity:

    "Don't let that alligator mouth overload your canary ass, boy."

  • In reply to IlliniProgrammer
    rls's picture

    IlliniProgrammer:
    rls:
    These arguments about "taxing the rich" have so many moral and economic problems with them that they boggle the mind. I will simply refer you to Bastiat's "The Law" - and ask whether this country is about plundering other classes or not. I work for my paycheck- it is not "distributed" and no one is entitled to a single drop of sweat from my brow (figuratively speaking- I work indoors in a climate-controlled environment)- I am not rich, but I'm trying to get there, and the additional weight of a higher tax burden, in addition to funding welfare programs (Medicaid, Medicare, and Social Security- and, yes, they are welfare programs- I would be happy to go over the numbers and legal arguments in a post, if challenged) I will never benefit commensurate to my contribution, are making a difficult task, herculean. And all of this is, fallaciously, given some 'authority' by certain billionaires who, although publicly advocated for increasingly progressive tax policies, privately pursue tax and income shelters. And I am not hypocritical enough to suggest that this lessens the logic (or rather, illogic) of their arguments. Good for them- I think it is not only natural but good for each person to attempt to keep justly acquired property. I would suggest, however, they should be more honest about their conduct. This "laws for thee, but not for me" is really off-putting. And for those, including unnamed billionaires, whose consciences are so agonized over the thought that they are not nearly taxed enough- feel encouraged to write a check to:

    Gifts to the United States
    U.S. Department of the Treasury
    Credit Accounting Branch
    3700 East-West Highway
    Hyattsville, MD 20782

    Website: http://www.fms.treas.gov/faq/moretopics_gifts.html

    By the way, it is not tax-deductible, although that would defeat the point...And don't give me the "I won't do it because it won't make a dent" argument. The "goodness" or "morality" of an action is not defined by the number of people who follow a "moral" path.


    This argument has been used ad-nauseam. Fact is that a lot of folks have made gifts to the treasury, including Warren Buffett. It's one thing to give money to the government telling them to spend more, but the fact is that government is spending money whether or not we hike taxes. And the fact is that when max marginal tax rates were 70%, we had better infrastructure and better education than now at 35%. I'm not saying that we should go back to 70%, but the one thing worse to this financial sector guy than unbounded spending is unbounded deficits.

    Cut medicare, raise taxes. If we do that, unemployment may go to 13%- possibly for a few years, but we'll give our children the financial future they deserve.

    Well, well- I hooked one.

    First, you wrote - "Fact is that a lot of folks have made gifts to the treasury, including Warren Buffett." I call BS. Look up the statistic provided by the Treasury- a meager $2,840,466.75 was donated to the Treasury in 2010. And don't get your hopes up- donation peaked in 2009 at 3,063,057.05. So, that statement is false (if Warren gave a penny, I don't know, but I doubt you know he did either).

    Second, "but the fact is that government is spending money whether or not we hike taxes." I don't mean to blow your mind, but there is no unspoken mandate that the government must spend more each year. That is what must change. The government today is nearly twice the size it was 10 years ago, and it was an unwieldy monstrosity then.

    Third, "And the fact is that when max marginal tax rates were 70%, we had better infrastructure and better education than now at 35%." I love me a "post hoc ergo propter hoc" fallacy. I will simply refute by asking- are you suggesting that the 70% income tax rates caused better infrastructure to exist? If so, would an 85% bracket yield even better students? Your logic and reasoning are flawed.

    I'll even one-up you. During WWII and part of the 1950, there was a 90% tax bracket- guess who ended up in it? No one. The deductions and write-off were so plentiful that no one paid 90% of their income in taxes. You are fixated on the nominal tax rate, a common mistake. Look at the effective tax rates, and you will be astonished as to the actual rates compare to the nominal rates. And to preempting all of the data, a thought experiment would do nicely- Who would work for 10 cents (my example) or even 30 cents (your example) on the dollar? What you high-tax bracket supporters forget is that there is a opportunity value for leisure. Remember, you are targeting the well-to-do. If I already have $10 million dollars in the bank and you raise my tax rates to 70%, am I going to put in the same amount of effort to generate another $10 million, and only get $3 million net of taxes? I'm sorry, but I'm sticking with the beach.

    Lastly, "Cut medicare, raise taxes. If we do that, unemployment may go to 13%- possibly for a few years, but we'll give our children the financial future they deserve." Now this is a sentence I can partially agree with. We need to cut Medicare. I would add Medicaid, Social Security, FDIC (bank welfare program), and a whole host of government programs. We need to, as Jim Rogers put it, take a chainsaw to government spending. And it is unavoidable that there will be economic pain as a consequence for past stupidity- we both agree on that. However, there is no need for new taxes. The government collects an ungodly sum of money, and yet they are constantly demanding more- enough is enough. I should not pay for the increasing exorbitant promises of politicians so they can be re-elected. Medicare, Medicaid, and Social Security have a net present value of $66 trillion (figure from PIMCO's Bill Gross). This has to stop- Our future, yours and mine, depend on it.

    Bene qui latuit, bene vixit- Ovid

  • IlliniProgrammer's picture

    @ Eddie- I thought it was 25. Oh well, I went from being a Howard Dean liberal to more of a libertarian when I got my first bonus check and saw all of the withholdings, NY State tax in particular (vs Illinois' 3% flat tax). They took out WHAT???

    No, its not. Government spending has increased by 63% since 2000. The only way for us to have bridged the gap between government spending and revenues would have been to increase income by 63%.

    This would be consistent with 4.5%/year inflation since 2000, which is probably about the case. You know what's not consistent with 4.5% inflation? Revenues. They've increased nominally, but not enough to keep up with inflation.

    Nobody is saying we need to have social programs like we did in 2000, but for all of the complaining we do about expenditures, the fact is that the scope of the federal government hasn't really increased- it hasn't kept up with economic growth- in fact, just barely with nominal GDP. So you're really trying to blame "inefficient liberal spenders" for inflation's problems.

    Broaden the tax base at the top- particularly on the issues of carried interest and the 40/60 rule on STCG futures treatment, and start thinking about shifting us more towards the Reagan tax schedule. If poor families are going hungry and the country is going bankrupt, I am OK seeing my marginal tax rates raised from 33 to 36%. I'm even OK paying 18% on my dividends.

    The question is what kind of country do we want to live in? I am OK settling for the kind of country that Reagan and Goldwater envisioned when they advocated cutting maximum marginal tax rates to 50% or 40%. It's a country where our military can stand up to China when it exerts undue aggression, our roads, bridges and commuter trains get maintained, poor people may have it tough but don't go hungry or uneducated, and our maximum marginal tax rates stand at a relatively modest 40%.

    My only fear is that 40% isn't where the tax hikes stop. Mayor Koch- who was elected in the middle of NYC's fiscal crisis put it best. If you have a bunch of tax hikes that the rich see as unfair, they'll all move out to the Suburbs. The middle-class will stick it out as long as the roads stay passable, but eventually they'll leave too, along with the jobs. Eventually all you'll have left are poor people, and we would have turned into Detroit. So the first thing we had to do was cut spending.

    If we go back to 70% marginal tax rates while the rest of the world holds pat below 40%, we as a country are going to turn into Detroit. So I think there needs to be a strong consensus among liberals that we can't afford to have tax rates as high as- or even approaching- the rest of the world if we are going to consider hiking taxes.

  • In reply to rls
    IlliniProgrammer's picture

    rls:
    Well, well- I hooked one.

    First, you wrote - "Fact is that a lot of folks have made gifts to the treasury, including Warren Buffett." I call BS. Look up the statistic provided by the Treasury- a meager $2,840,466.75 was donated to the Treasury in 2010. And don't get your hopes up- donation peaked in 2009 at 3,063,057.05. So, that statement is false (if Warren gave a penny, I don't know, but I doubt you know he did either).


    Sure. But folks have been asking Warren to contribute more and he did contribute a sum that would be large for most people.

    Second, "but the fact is that government is spending money whether or not we hike taxes." I don't mean to blow your mind, but there is no unspoken mandate that the government must spend more each year. That is what must change. The government today is nearly twice the size it was 10 years ago, and it was an unwieldy monstrosity then.

    If we are to keep up with inflation, our choices are to spend more or deliver fewer services.

    Third, "And the fact is that when max marginal tax rates were 70%, we had better infrastructure and better education than now at 35%." I love me a "post hoc ergo propter hoc" fallacy. I will simply refute by asking- are you suggesting that the 70% income tax rates caused better infrastructure to exist? If so, would an 85% bracket yield even better students? Your logic and reasoning are flawed.

    Absolutely. How did we pay for the Hoover Dam? The GWB? Private industry didn't just come along and say, "Hey, we need a $3 Billion bridge here. Let's build it. " The states of NY/NJ, with federal funding, built it. And because we have lower taxes, the government is cutting federal highway spending. The net impact is that the average New Yorker paid $30/year more in taxes for 30 years but wound up saving $3/day on lunch and $20/month on groceries. So just about everyone won because of bridges and tunnels that couldn't have been financed by private industry.

    I'm not saying we need to keep building as much as we did in the 30s, 40s, 50s, and 60s, but any New Yorker can tell you that our infrastructure needs a lot of work.

    I'll even one-up you. During WWII and part of the 1950, there was a 90% tax bracket- guess who ended up in it? No one. The deductions and write-off were so plentiful that no one paid 90% of their income in taxes.

    Actually, John D Rockefeller was in it in the 30s. So it did exist. And the average $ earned by millionaires is actually taxed at about 19% today- perhaps 25-30% if you factor in corporate taxes. This is largely a function of carried interest and 15% LTCG and dividends. We need to keep capital gains and dividend taxes relatively low to avoid double-taxation and encourage investment, but in 1950, there was no capital gains discount. In fact, there was an earned income discount that you reference, which actually wound up discouraging investment.

    You are fixated on the nominal tax rate, a common mistake. Look at the effective tax rates, and you will be astonished as to the actual rates compare to the nominal rates. And to preempting all of the data, a thought experiment would do nicely- Who would work for 10 cents (my example) or even 30 cents (your example) on the dollar? What you high-tax bracket supporters forget is that there is a opportunity value for leisure. Remember, you are targeting the well-to-do. If I already have $10 million dollars in the bank and you raise my tax rates to 70%, am I going to put in the same amount of effort to generate another $10 million, and only get $3 million net of taxes? I'm sorry, but I'm sticking with the beach.

    Sure. Actually, you are most likely going to repatriate to the Bahamas or Singapore if it gets to 70%. But for 40% taxes, you're not going to work that much less hard- certainly no less hard than you worked in the 90s when we had 45% maximum marginal tax rates and the economy was booming. And are you really going to leave over a 5% tax increase? Bear in mind that the US has the greatest food security on earth and Singapore could easily turn into London or Libya if food prices keep going up or there's a shortage and exporters start restricting trade.

    Lastly, "Cut medicare, raise taxes. If we do that, unemployment may go to 13%- possibly for a few years, but we'll give our children the financial future they deserve." Now this is a sentence I can partially agree with. We need to cut Medicare. I would add Medicaid, Social Security, FDIC (bank welfare program), and a whole host of government programs.

    Had it not been for the FDIC, we would have really never escaped the Great Depression. I am all for taxing banks for the economic value of the service provided by the FDIC, but savers need to know that their money is safe even when banks use it to make 15-year commitments on mortgages. I'll compromise at getting rid of Fannie Mae, Freddie Mac, and requiring that banks keep at least 20% of the mortgages they originate on their books like they did in the '50s.

    Social security is largely self-sustaining and is very popular- we just have to cut benefits by 1/4. At the end of the day, it is a contingency plan for idiots who can't save for retirement.

    Agree on the Paul Ryan plan for medicare. Sadly, we cannot afford to spend $500K on the last six months of peoples' lives as they lay comatose in a hospital bed because they forgot to put together a living will.

    We need to, as Jim Rogers put it, take a chainsaw to government spending. And it is unavoidable that there will be economic pain as a consequence for past stupidity- we both agree on that. However, there is no need for new taxes. The government collects an ungodly sum of money, and yet they are constantly demanding more- enough is enough. I should not pay for the increasing exorbitant promises of politicians so they can be re-elected. Medicare, Medicaid, and Social Security have a net present value of $66 trillion (figure from PIMCO's Bill Gross). This has to stop- Our future, yours and mine, depend on it.

    Sure. But at the end of the day, the only thing keeping an ambitious China away from our production of 1/3 of the world's grain is the US military. And the only thing keeping the riots in Libya and Egypt out of our backyards is a government that at least appears to care about the problems of the bottom 90% of the country (who only control 1/3 of the wealth right now.) In order for us to get there, we need 40% marginal tax rates- 10% lower than Reagan had. And in order for us to get to low tax rates and a gold standard, the first thing we need to start talking about doing is paying down the debt.
  • streetwannabe's picture

    Very good show.

    If someone would enlighten me though.
    Should we not raise taxes on for example; a single male who makes >$500k per year? What if he has two homes?
    It is my understanding that the masses argue he will stimulate the economy with the money he would have been taxed from 40% as opposed to 35%, however if I am not wrong, wouldn't this person (generally being money savvy) save? Invest? or otherwise not use this money to make purchases and help the consumer economy (which to my understanding is the basis for everything; stocks, inflation, jobs, etc.)?

    It seems to me illogical to do so, except the usual answer I receive "Nobodies stealing my fucking money"- when in fact to me you are merely returning it to the society that granted you this in the first place? People take such pride in our nation, yet are unwilling to submit an extra 5% on the wealthy for the sake of her economic health?

    Any thoughts?

    "History doesn't repeat itself, but it does rhyme."

  • IlliniProgrammer's picture

    It is my understanding that the masses argue he will stimulate the economy with the money he would have been taxed from 40% as opposed to 35%, however if I am not wrong, wouldn't this person (generally being money savvy) save? Invest? or otherwise not use this money to make purchases and help the consumer economy (which to my understanding is the basis for everything; stocks, inflation, jobs, etc.)?

    Bingo. Now, some folks will bring out the Laffer curve and argue that if you cut taxes, you increase revenues. This is true to a point, but it starts breaking down once federal + state + local taxes get below about 60%.

    It worked for Reagan- going from 70% marginal tax rates to 50%, but it didn't work for Bush going from 40 to 35%. 10 years after Bush cut taxes, revenues have declined on a real basis. So it's fairly clear that the Laffer curve peaks north of 35% marginal federal tax rates.

    People take such pride in our nation, yet are unwilling to submit an extra 5% on the wealthy for the sake of her economic health?
    Any thoughts?

    Nobody wants to hike taxes. I certainly don't want to, especially when we can still make some commonsense cuts to medicare to keep costs from growing at 6% + CPI. But the fact is that even AFTER we cut medicare, we will still need to hike taxes simply to pay for our military healthcare obligations, debt service, and legal system. The Iraq and Afghan wars are going to wind up costing us at least $5 Trillion in terms of keeping our promises to wounded and disabled soldiers- the same folks who will need to continue defending US sovereignty and property rights in the future.

    If China decides that it wants to use its military to obtain US farmland, the last thing that we want to do is send soldiers (or untrained militia as the extreme libertarians would have it) into the field not knowing if we're going to back them up or throw them under the bus like Iraq and Afghan war veterans. If we need to borrow money to fund the war to defend the libertarians' property rights, we don't want the world saying that we defaulted on our debts once and we'll do it again. So in order for us to even talk about getting to this libertarian utopia of 10% FairTaxes and gold standards and property rights that are all a little more extreme than the libertarianism I signed up for in 2008, we are probably going to need to increase revenues a little bit before we get there. (Yes, we need to fix medicare/medicaid first).

    In order to have the libertarian utopia, you need a government and a military to say who's land is who's and that mobs of people can't go around bursting into peoples' houses and stealing the gold, guns, MREs, and water purification tablets they have under their mattresses when they are sleeping. In order to have that, you need taxes. Oops, now we're at 40% marginal tax rates if you factor in our $14 Trillion debt burden.

  • TNA's picture

    I find the moral relativism on this site to be shocking and sickening.

    This isn't medieval England where the poor are taxed and treated like slaves. We have opportunity, safety nets and the bottom 50% paying nothing to the Federal gov.

    Now yes, someone making millions won't miss an extra 500K, but does that make it morally right? Why not just take all of the top 5%'s wealth. That would put a nice dent in our debt.

    I mean Buffet is work ~40B ish, you could give every poor American $1MM with plenty left over. Why not do that?

    I apologize that I try and have a consistent moral basis. The USA provides free education, welfare, medical for the poor, food stamps, pell grants, tax credits for the poor, for kids, etc. The poor don't pay federal taxes, most likely little state tax. Low cost state schools and private schools that provide need based aid. We've implemented affirmative action to try and close the race gap. We have companies with female, minority and gay initiatives.

    I mean WTF more do we have to do before we can say enough. How about forcing college graduates to raise and mentor inner city kids.

    The hand is always out. Looking for more. The goal is to make more people poor, not make more people rich.

  • txjustin's picture

    Ant nailed it.

  • In reply to TNA
    IlliniProgrammer's picture

    ANT:
    I find the moral relativism on this site to be shocking and sickening.

    LOL ANT, looks like you chose the wrong industry! :D

    Now yes, someone making millions won't miss an extra 500K, but does that make it morally right? Why not just take all of the top 5%'s wealth. That would put a nice dent in our debt.

    We have trillions in medical expenses to pay for our soldiers coming out of Afghanistan and Iraq. Wars are expensive. Would you rather take away a poor man's sandwich to pay for it, $1 from a rich man's bank account, or maybe it's just fair to take away a corner of the poor man's sandwich and $0.90 from the rich man's bank account. Taxes should be based on ability to pay, and if I have to take away your food to pay, you don't have much ability to be taxed.

    I apologize that I try and have a consistent moral basis. The USA provides free education, welfare, medical for the poor, food stamps, pell grants, tax credits for the poor, for kids, etc. The poor don't pay federal taxes, most likely little state tax. Low cost state schools and private schools that provide need based aid. We've implemented affirmative action to try and close the race gap. We have companies with female, minority and gay initiatives.

    And in order to provide all of this, we have to borrow. Nobody is saying we should be providing more. I am just saying that even after we cut $1.9 Trillion from this system and reform medicare, we will still need more revenues.

    The hand is always out. Looking for more. The goal is to make more people poor, not make more people rich.

    Sure, but the hand was grabbing Cadillacs and inpatient medical care in the '70s and now it is only able to grab a few foodstamps, a corner to beg from, and maybe a few antipsychotic pills for its schizophrenia if it is lucky.

    We've moved beyond the America of 40% taxes and an honest day's wages for an honest day's work that Goldwater and Reagan envisioned to an America out of the vision of the Tea Party. Reagan would be called a RINO today and Goldwater would be accused of Socialism. We need to keep cutting to balance the budget, but after we reform medicare, there needs to be a discussion about tax hikes. When we get stuck on one ideology and demagogue the issue as though it is a UT vs. Oklahoma football game, we lose sight of the fact that the football has already made it into the endzone and we're now in a huge fistfight between teams and fans at the 250 yard line.

  • IlliniProgrammer's picture

    Q for ANT. We have thousands of soldiers coming home that are suffering from parapalegia, quadrapalegia, head trauma, and various other very expensive diseases that are going to haunt them for the rest of their lives- and the VA for that matter. This is going to cost us trillions of dollars, and between paying for those costs, having a Navy that can mount a vigorous defense against China, and servicing our $14 trillion debt, we might not have enough revenues coming in to pay for all of that. Assume we eliminate all wasteful spending and only have those expenses left. Where do you suggest we cut? Or should we raise taxes above 35%?

  • freroht's picture

    Let's put it this way:
    Govt Revenues are at 14% (lowest level ever)
    Govt Spending are at 24% of GDP (highest level ever since WW2).

    I think Republicans had the right solution by reducing expenses, but they blew it by not raising revenues as well. If revenues went up 19-20% while expenses got reduced to the same level, it would have solved the LT debt problem.

    As far as taxing, in all my econometric studies, I have never seen any relationship between higher tax for the rich and economic growth. Actually, when tax is reduced, disparity of income grows larger. I think Buffet is right out there.

  • TNA's picture

    This is what you do. You cut some federal agencies, you slim line some, you increase the SSI, you means test Medicare, you reduce tax credits and you reign in spending.

    When times improve and tax revenues increase, you keep spending low. You pay down the debt, you shore up social programs and you become a better nation.

    How about we stop these wars. Or how about we make these nations pay us for the security we provide. Or better yet, how about we make Europe share the burden.

    I am 100% fine with a temporary increase in taxes if the added revenue ONLY goes to paying down the debt. Once the debt is at a reasonable level, tax increases will be ended and revert back to normal levels.

    But we all know this wont happen. Taxes will increase, that money will go to a juicy entitlement that will ensure voters vote one way or another and when a Republican comes in power and eliminates the "temp" tax increase he will be demonized by Democrats as lowering taxes on rich (aka the only people actually paying taxes).

    I am sorry, but I have a dim view of the current government we have. They will piss the money away, waste it on one pork barrel program or another.

    I came from a poor background. I paid for everything myself and work myself to the bone. I am not from some ivy tower and never experienced adversity. I fucking had asthma as a kid and almost died twice because my family didn't have money for the doctors.

    Why am I a conservative??? Because liberals don't give a FUCK about the poor. You think Obama, Clinton, Rachel Maddow, etc would want a normal, poor black family anywhere near them? You think their kids would ever step foot in a public school? This is 100% about control. The poor are being used as pawns to keep the people who feed them freebies in power.

    It is sickening. I want to see opportunity grown. But it can't grow unless the government allows it. Some people will always fail. We cannot control that. All we can do is make sure those who are hungry, those who want to climb up, those people have the chance to do so. This is why Mexicans risk their lives to illegally come to the US. This is why millions leave their mother land to come to the USA. We provide opportunity.

    Entitlements will not create opportunity. They will only create complacency.

  • Edmundo Braverman's picture

    You hit on something there ANT, perhaps inadvertently.

    I firmly believe people would actually use that Treasury donation if they could say where their money went. If we could send in money and know for a fact it was going to pay down debt and not be used for some other senseless bullshit, I think a lot of people would actually do it.

  • In reply to TNA
    GoodBread's picture

    ANT:
    I find the moral relativism on this site to be shocking and sickening.

    I guess I don't understand why that's a problem when it comes to politics. I'm a devout Christian and while I'm perfectly tolerant of others' beliefs, I have convictions on what's right, who God is etc.. However that's not the way I operate in any other sphere of life. While my religious beliefs lead me to believe charity towards the poor should be an important part of my life, that's not what I base my political opinions on.

    Looking at politics from an ideological perspective is unlikely to produce the desired results. The neocons are a striking example of this. This normative belief that the US could nation-build and create a host of new allies in the Middle East is a major reason the country is in such dire fiscal straits today. That a guy like Cheyne could walk into a meeting a few weeks after 9/11 and say "We have to go into Iraq" despite the fact that there was no legitimate security concern at the time is appalling (this was before we were presented with slam-dunk evidence). The guys at AEI, the Heritage Foundation or ideological hacks like Ben Stein or Kudlow will say the stupidest stuff and put out the most unscientific of research because they are so beholden to their beliefs.

    What is so wrong about being pragmatic? My suggestions in that first post aren't some policy manifesto or the definite answer to all our problems, just some things I think will do more good than what we are doing now. The beautiful thing about the markets is that not being pragmatic and intellectually honest lands you at the cleaners. That happens far too rarely in politics and probably only happens after you die when it comes to religion.

    The people here advocating the rich pay more taxes have no intention of sticking it to them. In fact, a lot of people here are either in the highest bracket or know many people who are. The fact of the matter is, asking the bottom 50% to pay taxes won't do much to our deficit. Many of these people are poor enough that we pay them money as opposed to taxing them. Considering that Social Security is such a small part of the deficit, how much can we really expect to gain from taking some of that back? Studies show that cutting back on social spending leads to riots (http://www.theglobeandmail.com/news/world/what-hap...) and when you consider that there is so much else we can cut/reform, the ROI is awfully low. I'm not saying that there aren't Social Security reforms to be made, just that the disproportionate focus some put on SS reform goes to show how ideological the debate has become.

    Finally, why in the world does slightly raising the rate on the country's richest become "might as well take all their money?" Nobody's going to be poor from paying slightly higher taxes. You'll still be making more than the guy who used to be making less than you, and you'll still be making less than the guy making more. If you're over-leveraged and a slightly higher rate is just too much, you'll just have to learn to not be an idiot.

    Moral relativism isn't the biggest problem of this country's political system. Blind, ideologically-driven partisanship has probably done far more to get us to our current place. Too many people seem to have "package-deal" beliefs. There seem to be a lot of "austerian/low-tax/state's rights/no, i'm not racist!/islam is bad/global schwarming" and "entitlements are sacred/wealth should be capped at 1 mil/the vampire squid caused all this/i'm wrestling with my identity as an oppressed minority/religion is the opium of the masses, haha/the earth is melting!" type people, but not a whole lot of guys just looking for a way to make things work, even if it means doing stuff they weren't raised to believe in. Maybe it's because ideology breeds passion and makes people louder. Whatever the cause, the American people are suffering because of it and that's a real shame.

  • cphbravo96's picture

    Eddie, or anybody, can you provide some actual data about the enlistment rates of poor in the military? I'm not trying to be a dick, I would actually like to see some numbers. I realize it's a common assertion that the poor go to war, but the middle class seemed to have been glossed over throughout the whole episode. That is to say, if the poor only hold ~2% of the country's wealth, that doesn't necessarily mean that the other 98% is held by the "rich", unless your definition of rich include the middle class.

    Additionally, why do people constantly bring up the term "wealth". What does one person's wealth have anything to do with the next? People seem to be operating under the assertion that the world is a zero sum game...and it just isn't. Wealth can be created and transferred. The poorest person can become the richest and vice versa. People want to point the finger at the wealthy and ask how the poor can become rich when such a small percentage of Americans hold such a large portion of the wealth. Well, they can get an education and work hard and hopefully have some opportunities their parents never had and live a better life...something that many of the members here are doing...many of whom didn't come from prep school backgrounds and Ivy League backgrounds.

    At any rate, I would certainly like to see the breakdown of military enlistments by class, if anyone knows where to find it. My guess is the military is actually largely supported by the federal income tax paying middle, or lower middle, class but I could be wrong.

    Regards

    "The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
    - Ronald Reagan

  • watever's picture

    For those who are for raising taxes...
    Do u really think that the government is NOT going to increase spending after we eventually fix the deficit?
    its really just a chain reaction where politicians want to get reelected and refuse to keep a balanced budget. If we do raise taxes to fix this mess, what would happen next? Increase spending and ask for even more taxes.

    I'm for raising taxes if the government wasn't so corrupt in that way. The answer is for the government to be responsible and control what they spend. For now, politicians spend as much as possible to look good and expect the next person to pay. That mentality works nowhere but Washington.

  • dwight schrute's picture

    goodbread fucking owns this thread.

    @cphbravo96, maybe this is what you were looking for:
    http://www.econ.berkeley.edu/econ/ugrad/theses/rya...

    The study compares recruit's median income per zip code (exact family income was not available) to the population at large:

    $0-30,849 is under-represented

    $30,850-$57,835 is over-represented

    $57,836-$66,328 is equally represented

    $66,329+ is under-represented

    page 12 has a good graph illustrating it

    Making money is art and working is art and good business is the best art - Andy Warhol

  • Edmundo Braverman's picture

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  • In The Flesh's picture

    Metal. Music. Life. www.headofmetal.com

  • In reply to Scott Irish
    streetwannabe's picture

    "History doesn't repeat itself, but it does rhyme."

  • In reply to Edmundo Braverman
    cphbravo96's picture

    "The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
    - Ronald Reagan

  • In reply to Cardinal
    cphbravo96's picture

    "The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
    - Ronald Reagan