Tax the Rich

Discussion in 'Business & Economics' started by madanthonywayne, Oct 18, 2007.

  1. Repo Man Valued Senior Member

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    Ted Rall had a good cartoon about ten years ago. In one of the panels, a man sitting in a run down room was saying to his friend, "The rich shouldn't have to pay any taxes. That way, when I'm rich, I won't have to pay any taxes!"

    The tax cut in 1963 dropped the top tax rate from 91% to 70%. That seems almost confiscatorily high by todays standards, but that's how it was during the "good old days".
     
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  3. Pandaemoni Valued Senior Member

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    Though deductions were more numerous under that system, to the 91% was somewhat misleading if you implicitly thinking of it as being akin to a 91% tax rate under today's regime (which was largely put in place in 1986).
     
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  5. iceaura Valued Senior Member

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    http://www.compensationstandards.com/nonmember/EdWoolard_video.asp

    The guy doesn't mention taxes - but obviously when the tax system was less friendly to ridiculous payouts for executive talent, companies (and the executives themselves) were more sensible.

    There's a lot of reasons to tax the rich, in the way of simply keeping the economy healthy and well-ordered.
     
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  7. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Except for the first sentence of your last paragraph, I agree 100% with your correction to MadAnthonyWayne's very misleading (well let’s be honest -down right false) four line table. The top 1% does not pay 40% of ALL THE TAXES. True number is closer to 4% than 40% for reasons you point out. At end of this post I will illustrate just how successful the lobbyists have been in structuring the system to favor the very rich at the expense of Joe American.
    I had never thought about how even car insurance is transferring wealth from the poor to the rich, by not fairly pricing in the cost difference of the two crashes you illustrate. Your point on immigration policy is very valid, but incomplete (fails to mention the domestic effort). I.e. GWB's strong opposition to effective birth control (including the years of delay via his appointed head of the FDA of "Plan B" a "day after" pill, even after ALL of several scientific panels and FDA staff recommended its approval.) is also part of the scheme to keep the supply of poorly educated workers large for rich factory owners etc. (Catholic church does it share in this scheme also, especially here in Brazil.)

    Now for my example:

    The Cargill Company is, I think, the largest privately owned corporation in the world. Certainly, they have no share holders - I learned that years ago when I tried to become one. (I owned share in their main completion, Bunge, and still do, which was a Brazilian company when I first bought into it.) Cargill is extremely profitable, in part because there is no need to pay dividends or comply with SEC's complex reporting regulations etc.

    Cargill is among other food stock things converting grains into alcohol. (And expanding its facilities, especially in Central America. (Because they have so much political influence, that gives me reason to hope that the 50cents /gallon import duty against importing cheaper sugar cane alcohol will be at least reduced when their new plants outside of the US come on line, but probably they will work out some "bi-lateral free trade" agreement so Joe American still will not benefit from Brazil's cheaper alcohol, while they import theirs duty free.)

    Currently there is the corn subsidy (largest of all the farm subsidies, 90+% percent going to the wealthy corporation of "agri-industry" not the "family farmer" used to justify this transfer of Joe American's taxes to the already rich.) But that is not enough, for the greedy feeding off of Joe. There is also the direct subsidy given on each gallon of alcohol produced. When all this help for the rich is added up, it means that Brazilian alcohol must overcome a barrier of at least $1.50/ gallon to be "pump priced" competitively.

    In addition to making Joe's fuel for his car about $1.50/gallon more expensive, Joe gets the following "benefits"

    (1) His taxes are higher so Cargill and others very rich can collect billions, but they do have big campaign contribution expenses and lobbyist s to pay - so that seems OK.

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    (2) Alcohol fuel is used less, so CO2, SO2 and other petro chemical smog is increased in the air for Joe and his kids to breathe, but that is OK as doctors get more income and they are not always rich.

    (3) Joe's food cost are sharply rising as his salary's real purchasing power is dropping but that is OK as agri-business's profit are way up and they do pay taxes on the higher income.

    (4) A good part of the huge sums Joe pays for gasoline is sent to Saudi Arabia, and increasing annually, but that is OK, not only do the Saudis help the Bush family hold on to political power, but the Saudis have considerable expense with their "religious schools" that indoctrinated 80% of the 9/11 crew. (It is really "16 of the 20" = 80%, not "15 of the 19" as one was in jail and not able make it to his assigned plane.)

    (5) Because of above, especially items (1) & (3), Joe has had to cut back on his purchases, even at Wal-Mart. This, is causing the current recession, and many of Joe's friends have lost their jobs and then their houses, to the banks, but that is OK as some of the banks got burned by Joe's friends walking away from their "under-water" mortgages. The true value of Joe's salary (it purchasing power) is now dropping even faster as the dollar declines, and he can no longer make ends meet by tapping the capital gain on his house. (That has turned negative at about a 10% rate annually now has home prices fall). But it is good that Joe's bankers, who worked so hard to invent all those new mortgage type (“liar loans” “teaser rates” etc.) do not go bust as they would if the FED did not step in with $200 +30 billion of new money (from taxes or inflation) for them as Joe would not want the financial system to go bust (or would he, when he has little benefit from it? :shrug

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    SUMMARY:
    When the truth is told, including all the “equivalent to taxes” effects of how the system is structured (dare I TRUTHFULLY SAY “RIGGED”?) to favor the already rich, Joe is paying much more than his share. Under GWB, wealth has been transferring up from Joe to the high income groups so rapidly that their incomes are now with double digit positive real growth, while Joe’s income growth in real terms is, for the first time in eight decades, negative. I.e. GWB has significantly widened the income gap between rich and poor in the US (perhaps in the world, but I do not have data to proof that speculation).
     
    Last edited by a moderator: Mar 23, 2008
  8. Repo Man Valued Senior Member

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    Do you know what the net top rate would have been? Or were the laws too complicated to even be able to make an approximation?
     
  9. Barry Flannery Registered Member

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    Billy,

    Well said and point taken. I don't have evidence to support it but with respect to the top 1% of the rich, I think you will find a large majority worked hard for their wealth. From Bill Gates to Carlos Slim...

    With respect to the ditch digging versus easy life argument I do understand where you are coming from but you do neglect the difficulties of the ''easy life'' such as succeeding in academia is rather difficult and it is not easy to equate it to manual labor.
    In MY opinion I still feel that people who's jobs are harder should get payed more. The person who gets up at 5.30 to clean things by no means has an easy job but I believe scrubbing a toilet bowl should receive less payment (with respect to tax relief) than for example designing an aircraft or managing a global corporation...

    Taxing the rich in a way sounds like communism to my ears but I'm sure you will change my views as soon as you reply with your standard epic posts!

    All the best,

    Barry
     
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I agree, and it is the case by a approximately a factor of 50 that the toilet bowl cleaner gets less pay than top aircraft designer or CEO. Even if there were a "flat tax" (instead of the progress rate one that does exist) they would pay more to the IRS in linear proportion to their income, IF that were all there were to the tax laws.

    I forget exact data, but the tax laws run to at least 10s of thousands of printed pages, because of all the special interest group benefits build in. (Such as deductions for oil well depletions, payments for not planting crops, etc.) Thus the wealthy, aided by "tax lawyers" and having mainly capital gain incomes, etc. often end up paying a lower percent of their incomes than Joe American does with his income 100% from salary. Joe's mortgage interest deduction is also much less than the rich man's estate home in the country also. Hell, I bet there is even some part of the current tax law the rich man can exploit to reduce the cost of his stable of riding horses!

    One of my cousins inherited several million dollars and used part of it to build a fancy beach house right on the ocean. (I have stood on the porch and thrown stones into the ocean, but could never make one "skip" because of the waves. Not legal to build them thru the dunes anymore.) He pays very little* for the government flood insurance as the government has special program for properties so close to the ocean. Last time I looked, none of his beach house neighbors could be described as "Joe American." If my father had been a very successful real-estate dealer, who married the very rich daughter of the owner of several coal mines in West Virginia, instead of a country doctor, I would have done the same. - I blame the US's "reward the rich" system, not him for taking what it provides.

    Not only is the current complex tax basically unfair, designed for the rich, etc. but it is also a great and foolish exercise in usually stupid "central planning" that the old USSR would have been proud of. For example, a well paid, but childless lady lawyer, married to a stock broker MUST buy that 6 bedroom country estate to help shelter their high 6 figure total incomes via a big mortgage and then get low capital gain tax rate when selling it. This makes a great distortion of the economy, and only one example of stupid "central planning" via the tax laws -They should be living in the city in a fancy high-rise apartment near their offices instead of making CO2 driving their Mercedes and BMW separately into work, for a total of two hours of frustration in traffic each day.

    Few recognize how much "central planning" is hidden in the IRS tax laws. To a large extent the unlimited mortgage deduction has made many cities into slums. Only local funding of schools had done more to make US cities so undesirable. (Look at Europe, for example Paris, to see how much more equal and desirable urban living can be.)

    To take slight detour: I could write better tax laws on a 3 by 5 inch index card (but admit I would need both sides.) If there is some "social engineering" to do, like assistance for better insulation in your home's attic, or buying an electric car hybrid, deduction for home owner's mortgage etc do it OUTSIDE of the tax laws, with specific legislation, which HAS A SUNSET time limit, requiring it to be renewed.

    I do not understand your meaning with: "(with respect to tax relief)" as you were speaking about salaries. Perhaps you are referring to things like the ability to defer salary by putting it into 401 and 403b retirement plans and "medical set-asides"? They do reduce your current taxable income and encourage savings for old age and help with health care/insurance plan expenses. They might be part of even my simple tax laws (why I would need the back side to the 3x5 card.) but probably can be done by general specific grants also. Before, more comments, I will wait until I am surer of your intent.

    *Was $100/ year, about a decade ago. I do not know cost now, but it does not begin to cover the risk.
     
  11. Barry Flannery Registered Member

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    It's my simple ?uninformed way of saying if you were to reduce taxes on the poor it would technically increase their AVAILABLE income hence tax relief.

    By all means comment further. I'm hear to learn and will change my viewpoint as soon as I have been swayed (which I am in the process of...)

    Barry
     
  12. CIEan Registered Member

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    31
    Pandaemoni I completely agree with your idea of how taxes should be paid (page 2). I only recently learned of the "law of diminishing marginal utility". I believe that if it were used as the basis upon which tax payments were assessed, causing everyone to feel equal "pain", then we'd be living in a more equal world. I don't know too much about taxation, but in contrast to some other argements I've heard, your model would have to be the best.
    I sincerely hope that some person or group will carry out the necessary research to determine these ammounts. Then maybe the Gov. can implement it.
    I will remember your idea.
     
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    ok, now I understand what you were saying. Yes taking less away (via taxes) is same as increase in income. The things I incorrectly guessed (tax deferred retirement plans, etc.) you were speaking of do that also, especially for the upper middle class.

    For example, my retirement plan contributions over 30 years totaled only about $80,000 but the company matched part (I always put in the max the law permitted) and after 30 years, that had grown to about two million! (but ex-wife got half, as is fair IMHO, as she was a “stay at home mom,” until kids were in college.)

    Typical Joe American will never get the tax breaks I got. - Not even close! - And I had lower net worth than Joe until about age 25 or so, as I was a very poor "almost starving" (at times when fraternity where I washed dishes for my food was closed for vacations.) full-need scholarship student.

    Someone "born to wealth" got tax breaks that made mine look like pocket change. Joe cannot even dream of such big government gifts as the truly rich get, especially under GWB's changed tax policies on capital gains etc..

    Thus, I do not think we need to tax Joe more and the truly rich less. I tend to think the current progressive tax rates are about correct and fair. What is wrong, very badly wrong, (and I am not speaking about morally or "justice") is the complex tax codes with all the special interest built in. This, as I illustrated in my last post is "central planning" in disguise. - And badly done at that, (probably worse than USSR did with intentional planning) as there is no coordination, no "sun shine" law expiration in the tax laws, so what may have made sense for 1920s society needs is still there in the tax code rewarding the rich with tax lawyers who know how to "milk the system" - read that as "transfer tax burden" to Joe.

    SUMMARY: before we try to "fine tune" the progressive rate schedule of the income tax code. - Lets make it to be just that - an income tax code. Not "disguised central planning," not "job support / welfare" for an army of tax lawyers, not "social engineering," even for things that may be needed for a few years. Let's get the tax law on my 3 by 5 inch index card first! (And treat all income equally - not have more flavors of "income" that Heinz has products with its 57 different varieties!)

    Hell, even as unfair as it would be, a "flat tax" would be better than the economy distorting central planning mess we now have. People should make economic decisions, such as which house to buy (or to rent and invest), on their economic merits, not on their "tax consequences"!
     
    Last edited by a moderator: Mar 23, 2008
  14. Roman Banned Banned

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    The problem with the American tax system is how complicated it is. The more complex a system, the easier it is to find loopholes. The appeal of a flat tax is that it would completely eliminate tax evasion. Do you really think the superwealthy are paying anywhere near to 10% of their income or whatever?

    It's far cheaper to spend several million dollars cheating the system than it is to actually pony up the taxes.
     
  15. Pandaemoni Valued Senior Member

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    There is a "devil in the details" in that determining everyone's exact utility curves would be prohibitively expensive (and they likely change over time...).

    You will have to make a tradeoff between determining a "close enough" model of the representative person's utility curve for money, and the cost of making it accurate. The current system, and all graduated taxation schemes are a very rough estimate, but likely better matching reality than a flat tax.

    One arguable advantage of a flat tax (at least according to some) is that it provides a net benefit to the wealthy, relative to the middle class, in terms of having a lower tax payment due and a total disutility associated with that tax than a graduated tax raising the same revenue. The argument, if you believe in supply-side (aka "trickle-down," or "voodoo") economics, is that the rich may then spur economic growth. The resulting growth rate might eventually make everyone happier in the long run, but the data suggesting successes on the part of supply-side policies is not terribly robust. Not bad enough to "debunk" the theory entirely, but kind of close. (You do, strangely, still hear supply-side-esque claims that every time you cut taxes, you see an increase in government revenues...but that's generally politicians rather than economists.)
     
    Last edited: Mar 25, 2008
  16. iceaura Valued Senior Member

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    He can run a certain number of designer cattle in a side field (the black and white ones that look like a Hampshire hog, not Holsteins, are popular now) and write off the entire land and infrastructure and vet bills etc as "farm expenses".

    I've heard a couple of corporations in Texas do that on their headquarters lawns.
     

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