50 years of tax cuts for the rich failed to trickle down, economics study says

[Seattle]

https://www.cbsnews.com/news/tax-cuts-rich-50-years-no-trickle-down/

These aren't really "studies". They're just pushing a perspective, which is "we've decided that the rich should be taxed more just because that's the way we feel".

They say something to the effect that after studying tax cuts for the rich, they have determined that the wealth of the rich goes up and not down. Who ever suggested that a tax cut on the wealthy would make them less wealthy?

Undoubtedly, the economy did improve and everyone benefits from a healthier economy. The average person benefits and the wealthy benefit even more simply because they have more assets invested so of course they benefit more.

That's why they're rich, they have more assets than you do. That's not a problem however.

The common progressive argument is like playing a game of basketball with Michael Jordan. He scores 30 points and you score 10 points and you don't think that's fair because it's not equal. It's not equal because he is better at basketball than you are.

The wealthy are better at investing, starting businesses, etc. than you are. That's how they get wealthy. You can try to do it yourself but most won't do as well. Most won't score as much as Michael Jordan either.

To continue with the analogy, if you want to get better at basketball, you need to worry less about what Michael Jordan can do and work on improving your basketball skills.

Currently, many WNBA players are upset that they don't make as much as the NBA players. That's because no one watches WNBA games and therefore there is less advertising money to end up in player's pockets. It has nothing to do with the NBA and everything to do with the WNBA.

If the middle class doesn't think it makes enough money, it has nothing to do with how much money the upper class is making.

 

[TheVat]

No economist, but I just had this notion that the rich should pay their fair share of taxes, given all the benefits they derive from being a part of this nation. The average tax paid by billionaires is around (per an OMB analysis) 8%. That is ridiculous. As for the idea that fair taxation should happen just because some pollicymakers feel that way, erm, kind of a Straw Man. Fairness and everyone paying their share are basic tenets of human civilization. When people see them violated, it tends not to end well. Roll out the tumbrels.

 

[Seattle]

No economist, but I just had this notion that the rich should pay their fair share of taxes, given all the benefits they derive from being a part of this nation. The average tax paid by billionaires is around (per an OMB analysis) 8%. That is ridiculous. As for the idea that fair taxation should happen just because some pollicymakers feel that way, erm, kind of a Straw Man. Fairness and everyone paying their share are basic tenets of human civilization. When people see them violated, it tends not to end well. Roll out the tumbrels.

8% of what? It's not 8% of legal income since there is no rate that low. Long-term capital gains starts at 15% and quickly goes to 20% (quickly for someone who is wealthy).

If it's saying that certain tax strategies and exceptions and tax credits shouldn't be allowed then they shouldn't be allowed for everyone else if we're being "fair".

Is is just "unfair" when someone worth $1 billion uses those tax laws but not when someone with $1 million uses them? How about someone with $500k?

Why does "fairness" only apply to percentages? How about absolute figures? The OMB report cited was about billionaires. Let's say that they all had $1 billion in income and paid 8.2% in taxes. That would be one individual paying $82 million in taxes each year. Does that seem particularly "unfair"? It might be unfair to the tax payer paying that much but it doesn't seem very unfair to society. Hardly something to roll out the tumbrels for.

Look at the original reasons for the long-term capital gains rate being lower. It was to encourage investment. No one is going to take the risk, wait years for a return and then pay a high tax rate. Most of the return is just inflation anyway.

When you go to work, you take no risk, you will get paid. The two are not the same. If the original reason was to encourage investment, why would you now do the opposite and not encourage investment?

 

[Sarkus]

I think the 8% would be something like the effective tax rate they paid over all their earnings, by using whatever tax loopholes their accountants come up with.
To me that is part of the problem: those with money can pay expensive accountants to come up with schemes to reduce tax bills that are simply not available to Joe Public. So while JP pays c.20-30% on their wages, or whatever it is, the wealthy find ways to pay single-digit %s.
Couple this with the disproportionate focus that, at least in the UK, the inland-revenue give to chasing and penalising non-payment by Joe Public, while making deals with the wealthy that still seems them ultimately pay disproportionately less %.

I get that wealth makes wealth, and I generally don't begrudge people making vast amounts (esp. if I see what they do as benefitting society), but I am a socialist to the degree that I'd like to see a fairer tax system, not just in higher earners paying.an increasingly higher tax %, but actually more in seeing an end to loopholes and schemes that really only benefit the wealthy. Schemes that give tax breaks for benefitting society, sure, not an issue (in general) but I'm more talking the straight tax avoidance for the sake of improving their own net income.
The UK has been lax at closing tax loopholes, loopholes that are, on the whole, not available to Joe Public because they can't afford the people who set them up, or advise on them. So they benefit the high earners disproportionately, resulting in higher earners not paying their dues while Joe Public pays a higher %.
Personally I think it's a result of a tax system that's far too complex, inviting the loopholes. But that's maybe an entirely different thread.

Then there's a question of who exactly these higher earners are, and what they're doing to earn their money. The only issue I have with these would be those that are given huge bonuses based on short termism that can directly affect the public, when longer term performance should be the incentive.
E.g. a.fund manager whose fund grows 50% one year, then loses 66% the next... that manager might get a massive bonus one year, but not have any real penalty then next, while Joe Public who invests in his fund suffers.
Sure, simplistic, but hopefully gets my point across.

On the whole, I can see the benefit of tax cuts, but I'm certainly one for fairness as to who they're aimed at. The system isn't fair in most countries as it benefits those who can afford to make use of loopholes. But as an economic strategy, sure, tax cuts can benefit all, and the wealthy will, even without such loopholes, likely benefit more.

 

[Seattle]

I think the 8% would be something like the effective tax rate they paid over all their earnings, by using whatever tax loopholes their accountants come up with.
To me that is part of the problem: those with money can pay expensive accountants to come up with schemes to reduce tax bills that are simply not available to Joe Public. So while JP pays c.20-30% on their wages, or whatever it is, the wealthy find ways to pay single-digit %s.
Couple this with the disproportionate focus that, at least in the UK, the inland-revenue give to chasing and penalising non-payment by Joe Public, while making deals with the wealthy that still seems them ultimately pay disproportionately less %.

I get that wealth makes wealth, and I generally don't begrudge people making vast amounts (esp. if I see what they do as benefitting society), but I am a socialist to the degree that I'd like to see a fairer tax system, not just in higher earners paying.an increasingly higher tax %, but actually more in seeing an end to loopholes and schemes that really only benefit the wealthy. Schemes that give tax breaks for benefitting society, sure, not an issue (in general) but I'm more talking the straight tax avoidance for the sake of improving their own net income.
The UK has been lax at closing tax loopholes, loopholes that are, on the whole, not available to Joe Public because they can't afford the people who set them up, or advise on them. So they benefit the high earners disproportionately, resulting in higher earners not paying their dues while Joe Public pays a higher %.
Personally I think it's a result of a tax system that's far too complex, inviting the loopholes. But that's maybe an entirely different thread.

Then there's a question of who exactly these higher earners are, and what they're doing to earn their money. The only issue I have with these would be those that are given huge bonuses based on short termism that can directly affect the public, when longer term performance should be the incentive.
E.g. a.fund manager whose fund grows 50% one year, then loses 66% the next... that manager might get a massive bonus one year, but not have any real penalty then next, while Joe Public who invests in his fund suffers.
Sure, simplistic, but hopefully gets my point across.

On the whole, I can see the benefit of tax cuts, but I'm certainly one for fairness as to who they're aimed at. The system isn't fair in most countries as it benefits those who can afford to make use of loopholes. But as an economic strategy, sure, tax cuts can benefit all, and the wealthy will, even without such loopholes, likely benefit more.

The problem is that no legislative body enacted something called a "loophole". It's a "loophole" either when you don't understand it or when it doesn't apply to you because it's not useful to you.

There are business or economic reasons for any tax reduction. You can agree with or disagree with the reasoning but it's there.

In the US. you would have a personal exemption on your tax form, you would be able to deduct mortgage interest payments, if you sell your house you don't pay tax on the first $250k of capital gains and if you are married you exclude $500k in capital gains.

You have a 401k at work that isn't taxable and a Roth IRA that isn't taxed when you take the funds out. You also have exemptions on your tax return for dependents and if you are lower income you would have child care tax credits.

You could shelter a good deal of your income if you wanted to. Is that "fair"? Most of the services go to "you" and you pay for very little of it via taxation.

You have a job because someone is investing in the economy. You can't like a growing economy but then decide that you don't like the tax provisions that enable that growing economy. It doesn't work that way.

The services largely go to the lower and middle class and not to the rich and yet they pay millions of dollars in taxes but some don't like the percentage they pay. They are still just one person. A very productive person. The middle class don't want to pay any more for anything.

They also pay taxes that don't get talked about. They, potentially, have payroll taxes, property taxes, their part of social security taxes for employees and the list goes on. No one talks about that when they are worried about "fairness". Biden wants to greatly increase corporate taxes all the while pledging to not increase any taxes on any individual who makes up to $400k a year. $400k!

Is any of that "fair"? Is anyone really trying to be "fair" here? Do most people who want the rich to pay their "fair" share even know enough about the subject to know if the rich aren't paying their "fair" share?

The laws that get enacted as a result of this sort of "outcry" generally don't have much impact on the rich and it just increases certain taxes on the more productive members of the middle class. The ones who invest. The ones who live where $250k doesn't cover their home equity. The ones who at retirement might sell assets for retirement and now have higher taxes that were intended to make the "rich" pay more.

It doesn't matter how much someone's salary is, how much their bonus is. Government isn't in the business of micro-managing businesses, telling them how much to pay people, how much their bonus should be, how much a credit card late fee can be, etc. That's not their job and they don't have the knowledge, expertise and data to be micro-managing a company like that. It only leads to bad (and stupid) outcomes.

The government wanted to "help" those who couldn't afford a house to buy houses in the early 2000's. They didn't give them more money, they just convinced banks to write sub-prime mortgages. How did that work out? It didn't. It almost brought the entire financial system down.

Then they gave loans to students so that everyone could go to college but many didn't graduate and many incurred more debt than their degree could ever earn. Now the government is having to "forgive" those loans. It's entirely predictable and stupid.

So, why pass tax law to encourage investing and then turn around when it's politically expedient to "tax the rich" more on those some laws? Again, it's stupid to both encourage and discourage the same act.

The only reason people are saying that the rich don't pay their "fair share" is because that narrative is constantly repeated in the media and with articles that appear to show some correlation but no causation. "Look , house prices are high and the rich are doing well, that's not fair, they must not be paying their fair share!" Keep repeating this and suddenly it must be a fact.

Nothing good comes from populism whether it's on the right or on the left. Joe Public, as you put it, isn't particularly well informed on how the system works and making decisions based on his emotions isn't good, long-term public policy. There is a case to be made for a term limited benevolent "dictator" (with appropriate laws limiting personally benefiting from such an arrangement).

I'm not actually pushing for that, especially in the age of Trump, but it works in companies, the military and in certain unruly countries (to a degree) What we have now is just a clown show. The US is the obvious example but the UK is not doing well economically and Brexit was stupid and a result of populism.

 

[billvon]

The common progressive argument is like playing a game of basketball with Michael Jordan. He scores 30 points and you score 10 points and you don't think that's fair because it's not equal. It's not equal because he is better at basketball than you are.

Right. And then Michael Jordan slips the ref $200 and continually knocks you down so you can never get the ball at all. But it's all fair, right? If you had enough money you could slip the judge $300 and have HIM penalized.

It's not 8% of legal income since there is no rate that low.

Uh - you do understand that there is a difference between a tax bracket and the actual rate you pay, right? The lowest income tax bracket is 10%. So if you stay within that bracket, take a few deductions and then pay your taxes it would be no problem to hit 8% of your legal income. Likewise, if you sold stocks, made ten million dollars from the sale in capital gains, and then claimed six million in losses, then your effective tax rate would be 8%.

A few simple schemes to accomplish paying close to zero taxes:

You create a foundation. You contribute to it and take the tax deduction. The foundation then buys stuff for your use. Cars, for example. They _belong_ to the foundation, and can only be used for official foundation business, but of course the board of directors (which is you, your wife and your best friend) have decided that your use of them is an official purpose. Or art, which is owned by the foundation and merely stored on your property where it's safe.

Or just use debt. Once you have, say, a billion dollars, then you just get loans and live on them. The banks will loan you as much as you want of course, since you have excellent collateral. You never pay it back. When you die, your basis on the stock you own resets, and your heirs now just sell stock (paying no taxes with the new basis) and pay off your loans.

"But that's a loan, not income!" You are exactly right. But to someone with $35 in the bank, being able to get $250K loans every year and never pay them back looks like income - an income source he does not have available.

It's a "loophole" either when you don't understand it or when it doesn't apply to you because it's not useful to you.

It's a loophole when you can get an advantage over other people in a way the law or rule does not intend, but did not anticipate or could not prevent.

For example, an airport security loophole for the first five years after 9/11 was that you could just print out a fake boarding pass and get into the secured area of an airport. Now they check; thus that loophole has been closed.

Do most people who want the rich to pay their "fair" share even know enough about the subject to know if the rich aren't paying their "fair" share?

To me it has nothing to do with being fair. Life's not fair.

However, the government needs money to operate. That comes from taxes. It should come from taxes that damage the economy the least. And higher taxes on people who make over $400K a year (to use your example above) are less damaging to the economy than higher taxes on someone who makes under $40K a year.

 

[Seattle]

What the government "needs" is fiscal responsibility. Scapegoating the "rich" isn't responsible. I agree life isn't fair so let's focus more on personal responsibility instead of spending someone else's money.

 

[billvon]

I agree life isn't fair so let's focus more on personal responsibility instead of spending someone else's money.

All governments spend someone else's money. It's how they work. The goal should be to do it with as little damage to the econony as possible. That means getting money primarily from rich people. That doesn't mean rich people are bad. It doesn't mean they are scapegoats. It doesn't mean that it's making life fair.

It's simply a fact of life. If you are making 40K a year, and you lose half of it to taxes, then you're not going to be able to keep your car, which means potentially a lost job. Certainly you'll spend far less in your hometown; you simply don't have it to spend.

If you are making 400K a year, and you lose half of it to taxes, you might not be able to put as much in your 401k. But you'll still be able to work, support your family, and spend $$$ into the local economy.

 

[Seattle]

All governments spend someone else's money. It's how they work. The goal should be to do it with as little damage to the econony as possible. That means getting money primarily from rich people. That doesn't mean rich people are bad. It doesn't mean they are scapegoats. It doesn't mean that it's making life fair.

It's simply a fact of life. If you are making 40K a year, and you lose half of it to taxes, then you're not going to be able to keep your car, which means potentially a lost job. Certainly you'll spend far less in your hometown; you simply don't have it to spend.

If you are making 400K a year, and you lose half of it to taxes, you might not be able to put as much in your 401k. But you'll still be able to work, support your family, and spend $$$ into the local economy.

If you are making 400k and lose more than half to taxes you'll also move and find a better solution. Anyway, that's already pretty much the situation. With state and federal taxes and local property taxes, if you make 400k you are already losing half to taxes but you want them to pay even more.

If you are making 40k and have a family you already probably aren't paying taxes. That's the current policy that we have. You say that the wealthy should pay even more. I disagree. At a certain point you have to quit spending instead of promising more and more "free" stuff. It's easy to give away someone else's money.

Regarding truly rich people, there aren't enough of them to fund the entire government and when the burden gets too high, they just move or quit taking the risk to start a company. What you seem to want, in reality, is everyone working for the government but that's not a very vibrant economy.Ultimately there would be less "services".

I get that it's what you want and that's fine. It's what Bernie Sanders wants too. It's not what I want.

 

[Sarkus]

The problem is that no legislative body enacted something called a "loophole". It's a "loophole" either when you don't understand it or when it doesn't apply to you because it's not useful to you.

To be clear, what I mean by "loophole" is the unintended means that exists within legislation, not those rules intended to help you reduce your tax burden that you may just not be aware of or that apply to you.
For example, imagine if the government decided not to tax dividend income so as to encourage Joe Bloggs to invest in the stock market. The intention would be that Joe Bloggs would save some of his already taxed income and buy shares. However, what the government wouldn't have intended would be those people who are in a position to set themselves up as a private company with themself as sole shareholder, and then reduce their income tax to nil (no tax to government) and pay themselves purely as dividends.
This would be a loophole, because it is an unintended scheme designed solely to reduce the person's income tax bill - and it would only be open to those who could afford to do it. Joe Bloggs couldn't, because they're in jobs that pay salaries subject to income tax, not ones that will hire you under a service contract from a company you own.
Note, this is a simplistic fictitious example to make a point.

Schemes that are open to the general public (like ISAs in the UK that are tax-free when you take money out) or Pension funds, etc, are not "loopholes", even if you aren't aware of them or don't make use of them.
It is the loopholes, the unintended (by government) means of reducing tax liabilities that are disproportionately available only to the wealthy, to those who can afford accountants to find and set up these schemes, that I am commenting about. General tax avoidance through official schemes provided by the government for the intention of just that are not.

 

[Seattle]

To be clear, what I mean by "loophole" is the unintended means that exists within legislation, not those rules intended to help you reduce your tax burden that you may just not be aware of or that apply to you.
For example, imagine if the government decided not to tax dividend income so as to encourage Joe Bloggs to invest in the stock market. The intention would be that Joe Bloggs would save some of his already taxed income and buy shares. However, what the government wouldn't have intended would be those people who are in a position to set themselves up as a private company with themself as sole shareholder, and then reduce their income tax to nil (no tax to government) and pay themselves purely as dividends.
This would be a loophole, because it is an unintended scheme designed solely to reduce the person's income tax bill - and it would only be open to those who could afford to do it. Joe Bloggs couldn't, because they're in jobs that pay salaries subject to income tax, not ones that will hire you under a service contract from a company you own.
Note, this is a simplistic fictitious example to make a point.

Schemes that are open to the general public (like ISAs in the UK that are tax-free when you take money out) or Pension funds, etc, are not "loopholes", even if you aren't aware of them or don't make use of them.
It is the loopholes, the unintended (by government) means of reducing tax liabilities that are disproportionately available only to the wealthy, to those who can afford accountants to find and set up these schemes, that I am commenting about. General tax avoidance through official schemes provided by the government for the intention of just that are not.

Is it a fact that this is a major issue which is resulting in a major loss of income to the government? Note, I'm not asking is there is any abuse in the system, that's obviously the case whether you are rich or not so rich. I'm asking is that a major problem that is actually occuring and actually resulting in large losses of tax revenue? Or is most of the lower effective rate that the rich pay just because they are paying capital gains on stocks just like all of us can do and just as was intended or taking proper deductions for actual capital loss on stock as was intended?

 

[Sarkus]

It's a fair question and not one I have an answer to. The optics certainly don't look great. And, because the tax system is so complicated, there probably is no clear answer. There is certainly some tax lost to the government, otherwise people wouldn't be exploiting the loopholes in the first place, but to what extent? No idea. More than zero, less than trillions.
But a government should at least be seen to act fairly.

 

[Seattle]

It's a fair question and not one I have an answer to. The optics certainly don't look great. And, because the tax system is so complicated, there probably is no clear answer. There is certainly some tax lost to the government, otherwise people wouldn't be exploiting the loopholes in the first place, but to what extent? No idea. More than zero, less than trillions.
But a government should at least be seen to act fairly.

Exactly, the middle class should be paying their fair share

 

[billvon]

If you are making 400k and lose more than half to taxes you'll also move and find a better solution.

Perhaps. Or perhaps they will decide that 200K is enough to live on. Seems like most people who make that much do.

And if what you say is true - that people will move to avoid taxation - then everyone would move to Bahrain or one of the other dozen or so countries with no income taxes. But they don't. They make decisions based on a lot of variables, like taxation, services, crime rate, education, infrastructure etc etc.

You say that the wealthy should pay even more.

Yes. To be accurate, make the tax scale more progressive.

Regarding truly rich people, there aren't enough of them to fund the entire government

Right. "Truly rich" people do not. EVERYONE does. Truly rich people just pay more than the average person.

What you seem to want, in reality, is everyone working for the government.

Nope, that's a strawman and a lazy way to debate. I could just as easily claim that you want the rich to pay no taxes because you are so impressed with their work ethic. But that would be a strawman too.

 

[Seattle]

Perhaps. Or perhaps they will decide that 200K is enough to live on. Seems like most people who make that much do.

And if what you say is true - that people will move to avoid taxation - then everyone would move to Bahrain or one of the other dozen or so countries with no income taxes. But they don't. They make decisions based on a lot of variables, like taxation, services, crime rate, education, infrastructure etc etc.

Yes. To be accurate, make the tax scale more progressive.

Right. "Truly rich" people do not. EVERYONE does. Truly rich people just pay more than the average person.

Nope, that's a strawman and a lazy way to debate. I could just as easily claim that you want the rich to pay no taxes because you are so impressed with their work ethic. But that would be a strawman too.

Are you interested in practical solutions or pushing an agenda? I'm not accusing you, I'm asking. For example, if I suggest that the progressive policies toward homeless encampments aren't working so let's try a city run camp on the edge of town. Is that a no-go just because there are a lot of aspects that you don't like? Or would you agreed that most of the problems that could be raised are even worse problems under the current "solutions"?

What about a camp where the able bodies help build their own shelters, grow their own food, police their own camp and where social services could centrally coordinate. There are a lot of problems with this approach but I would you agree that there would be a lot less problems than what we are currently doing that isn't working and it would at least be much better for the rest of the community.

No one is considering that approach even though the current approach has been a total failure for years, everywhere.

It's the same with taxation. Taxes are progressive and the rich do pay a lot. The middle class are never asked to pay more even though middle class services only go up and the debt only goes up.

Isn't it at least reasonable to consider that everyone that currently pays taxes needs to pay a little more and most expenditures need to go down at least a little? No one is pushing that. Everyone who makes below $400k is treated like a victim and everyone who is above that is the problem.

That's not a balanced view, is it?

 

[Mr. G]

The tax codes were written by rich people.

Surprise!!

How many tax loopholes were written for the commoners?

 

[Seattle]

The tax codes were written by rich people.

Surprise!!

How many tax loopholes were written for the commoners?

There is the child care tax credit, the personal exemption, the mortgage interest deduction, the $250k exemption (per person) for capital gains on your house. How's that for starters? If you are really common, you don't even pay Federal Income Tax.

You can also shelter income with a 401k, IRA, and programs for sheltering savings for healthcare and saving for college education for your kids.

 

[Sarkus]

There is the child care tax credit, the personal exemption, the mortgage interest deduction, the $250k exemption (per person) for capital gains on your house. How's that for starters? If you are really common, you don't even pay Federal Income Tax.

You still don't seem to understand what is meant by the term "loophole". If the tax-break / deduction is intended then it is not a loophole. Everything you're exampling is an intended tax-break. If you're going to reply about "loopholes", probably best you refer to actual "loopholes"?

Or maybe it's a "lost in translation" thing?

 

[parmalee]

You still don't seem to understand what is meant by the term "loophole". If the tax-break / deduction is intended then it is not a loophole. Everything you're exampling is an intended tax-break. If you're going to reply about "loopholes", probably best you refer to actual "loopholes"?

Or maybe it's a "lost in translation" thing?

Hint: It's all in the name! Like a snag in a carpet, or a loose bit of yarn in the weave--it ain't supposed to be there.

 

[Pinball1970]

I thought tax cuts for the rich were for the rich?