Tax the Rich

Well, the Democrats are hoping to make another big gain this next election cycle. And they're already talking about how they're going to increase taxes on the rich. They need to pay their fair share!

Well, what would their fair share be? According to data released by the US Treasury:

• The top 1% pay 40% of all taxes
• The top 5% pay 60% of all taxes
• The top 10% pay 70% of all taxes
• The bottom 50% pay 3% of all taxes

Gee, seems like the rich really aren't paying their fair share.

 

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And the Republicans will win the elections again.

 

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The REAL rich people don't pay taxes at all. Their corporations do that for them...

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Then we need a flat tax syatem with everyone that makes over 30,000.00 paying 15 percent a year on whatever they earn.

 

Guess what? We have a tax system over here (Estonia) that taxes 22% of everything over about 2200$ a year (and moving to 20% of everything over 3200$ a year over the next two years). It seems that according to some people, we really really need a progressive tax system to tax more of the rich

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The rich aren't paying their fair share, when you consider the massive inequality of income in America.

The top 1% of Americans account for 57% of income in America, which means that their 40% tax contribution is indeed too low. The top 5% account for 73% of income, making their 60% tax contribution lower still. The 3% tax contribution of the bottom 50% isn't at all surprising, since the bottom 50% only accounts for 3% of the wealth. Hmm...it looks like the bottom 50% is the only group that is actually paying a proportional amount of taxes!

In fact, if you were to make the top 1% pay just 10% more in taxes you could completely eliminate taxes for the bottom 50% of Americans! If you doubled the current taxes paid by the top 1%, you could eliminate taxes for the bottom 95% of Americans! Since the top 1% is receiving 58% of the nation's income, I somehow suspect that they could afford it.

 

There's also the question of what's "fair." The flat tax people tend to thing that paying a flat percentage of income is fair. Under more extreme definitions, paying the same amount per person is fair, regardless of wealth (hence not paying an "income" tax at all). From the standpoint of "sharing the burden equally" I tend to think that the rough goal is to impose some roughly equal guesstimate of the disutility generated by taxes on each taxpayer.

Under that version of "fairness" It tend to think that the rich (in which I include myself) should be paying a higher percentage of the taxes than the poor. If you earn $1MM per year and pay a 30% tax...that's a lot of money, but it still leaves you with a net income of $700K for that year. Assuming you're reasonably sane and have no extraordinary expenses, that is a lot of money by most people's standards and the difference between how happy you'd have been with $1MM and how happy you are with $700K is probably not overwhelmingly large. All things have a diminishing marginal utility, even cash, especially when you get past the point where all your basic needs and basic desires for comfort are met (and $600K is well beyond that point for most people).

If your earn $50,000 and pay a 30% tax, you're left with just $35,000. If you were to take the difference in your utility function (U(x)) between x = $50K and x = $35K, and I suspect that difference would be a *lot* greater than the difference between x= $1MM and x = $700K.

In real economic terms, as a result, flat taxes are a boon to the wealthy, because they ignore the law of diminishing marginal utility with respect to cash. Then again, the whole income tax system really ignores "wealth" in general. which in some cases skews the results (especially if estate taxes are eventually eliminated or the current moratorium extended). From the standpoint of utility, the "source" of the income doesn't matter, as the cash in fungible. So to be completely "fair," in my view, we should probably consistently tax all significant wealth transfers as if they were income.

 

A bit of trivia: Did you know that income tax was unconstitutional until the early 20th Century?

 

As far as I know its still unconstitutional.

 

I wish! 16th Amendment took care of that.

 

You are treading into the dangerous waters of those who believe it was never properly ratified, and that there's a conspiracy to conceal that "fact."

 

Yah, I know there's a whole counterculture out there that believes paying income tax is unconstitutional and purely voluntary. Had a client once who sought advice on avoiding taxes on such grounds. Provided me a bunch of literature, and as I read it, all the cites to US Supreme court holdings were taken out of context and antiquated to pre-16th amendment conjecture and dicta. It was like reading the Book of Mormon (no offense to Mormons); you just kinda go, "huh??"

BTW, I and my managing partner at the time declined representation.

 

'Flat tax' systems don't exist in isolaton. They are implemented in economic systems that use entitlements to maintain progresive social systems. The issue has been tosed about more in Canada and Europe where there are monthly child paymnets, universal health care, maternity benefits for mom and dad, fitness encouragement credits, etc. Otherwise: a family may pay 20% in flat taxes...lets say $5,000 a year but they also receive back $15,000 in direct checks from the government. A wealthier person pays 20% in flat taxes ...lets say $15,000 a year but only receives back $3,000 in direct entitlements.

No modern economic system is going to implement a tax that changes the balance line at the bottom of the national budget. There is revenue and spending... if more is spent than taken in then the national debt increases andthere is even LESS room for tax changes. The American government needs to take in MORE revenue if it insists on staying in Iraq and spending 190 billion annually for the privilege ...or even in peace time spending a half trillion on the military. Yesterday in Canada the federal gvernment announced more tax cuts BUT this is because of over a decade of federal government surpluses. Australia is in the same position with federal government surpluses and tax cuts. The USA, in contrast has massive deficits in recent years and that demands more money increases in expenditure to service the growing debt. Tax cuts by the US governmnet are suppose to be offset by increased economic growth but that only makes sense when the government also decreases spending....it hasn't. ... the pot is empty. The US government needs foreign support by China, Arab governments etc. to finance the current American debt or the dolar will collapse further and along with it the real value of american assets such as housing.

 

I wouldn't look at it as an increase, rather as rolling back the major tax cuts the Republicans recently passed for the rich. Some call them the elite, Bush calls them his base. (He really said that).

 

I think the subject would be quite popular among populist parties (perhaps not with the system US has, but more elsewhere), that could claim to remove all taxes for the majority of the population, and I would suspect that even though major businessmen and corporations would oppose the idea completely, the support from the general population would be enough win elections by a large margin, if it were not for the problem of tax-evasion that would most certainly arise as soon as the system was implemented. I would expect the tax-collections to fall by tens of percentages even if very strict rules were used to keep people from evading taxes.

 

Maybe...but on the other hand, if the IRS only had to process and investigate 1% as many tax returns as they currently do, they could probably do a much better job catching tax evaders and enforcing the tax laws.

 

Most flat tax plans have a level below which you pay no taxes. Suppose you have a 20% flat tax with no deductions, but it doesn't start until you hit 20k. So your 50K dude would pay taxes on only 30k. His tax burden would be only 6k or 12%. Leaving him with 44k.

Your millionaire would pay taxes on 980k. His tax burden would be 196k or 19.6%. So his tax rate is 1.6 times that of the 50k guy.

See, even a flat tax is "progressive".

 

i don't think you understand his logic

 

Sure I do. I just don't buy it.

He's bitching because the millionaire is left with more money to spend after paying his taxes. What the fuck does he want, 99% taxes above 50k?

I'm just pointing out that a flat tax is actually progressive.

I'd say the millionaire paying nearly 200k in taxes while the other guy pays only 6k is more than fair.

 

Tax the Dead