That is correct, the rich don't pay any taxes at all (whenever the can). The was a recent thread on HN regarding tax audits [0]. What I got from that is that the IRS cannot afford to audit the rich because their taxes are complicated and they don't have enough resources to do so. They choose to audit the poor instead because, it is simpler..
Careful. The two articles rely on vastly different cherry-picked definitions of who counts as rich, and neither claim is even remotely true anymore if you use the other definition. The top 1% are indeed audited at about the same rate as the working poor, but they also pay higher taxes than everyone else. This NYT article on the other hand picks out the top 400, who apparently pay lower taxes but are much more aggressively audited by the IRS than less wealthy people even with the funding cuts limiting their ability to do so. (According to the linked letter from the IRS, they heavily audit roughly the top 20,000 most well-off Americans.)
> The two articles rely on vastly different cherry-picked definitions of who counts as rich, and neither claim is even remotely true anymore if you use the other definition.
One of the most important things to understand about tax discussions is that there are two broad classes of "rich" -- high paid salaried employees vs. wealthy investors.
When you see claims like "the top 20% of people pay most of the taxes", that's mostly the high paid salaried employees. Cardiologists making six figure salaries pay high tax rates, and there are a lot of doctors and lawyers and engineers in the population, so they pay most of the taxes.
When you see claims about rich people paying low tax rates, that's corporations and wealthy investors hiring accountants to minimize their taxable income.
The distinction is really important because it means the problem isn't marginal rates, it's the complexity of the tax code which allows people with large fortunes to game the system. A simple VAT with some kind of dividend/UBI to make it more progressive would eliminate most of those games. It would also mean that individuals wouldn't have to file tax returns at all, which would save hundreds of millions of man hours every year.
The rich spend a smaller share of their income, so a VAT scheme would in practice produce a regressive taxation scheme, with the lowest incomes paying relatively the most, because they have to spend all of their income.
What's the possibility of implementing this in combination with a luxury rate adjustment that takes something like median values for product categories and then scales rates as you move above or below that?
Because it would seem to me that consumption of low-income earners will trend toward below-the-median while consumption of the wealthy will trend toward above-the-median, giving you an additional handle to make this taxation progressive.
Well, it all depends on how you define product categories. Is a macbook pro the same product category as a chromebook? You can slice the market in such a way that luxury goods would all be bucketed into “median” price range.
IMHO it’s easier to construct a “fair” tax system on the income side than on the expenditures side, provided you count all income equally. Currently income from labor is usually taxed higher than income from investment, and that’s not fair.
VAT means Value Added Tax. @Forbo's was talking about a transaction tax.
The difference can be explained by this completely made up example:
A steel mill buys iron ore for $1 a kilo and makes steel of that.
A nail factory buys steel for $1.50 a kilo and makes nails of that.
A distributor buys those nails wholesale for $2 a kilo.
A hardware store buys those nails from the wholesaler for $2.50 a kilo.
A contractor buys those nails from the hardware store for $3 a kilo.
The subcontractor bills $3.50 a kilo for those nails.
The general contractor bills you $4 a kilo for those nails.
With VAT you/the general contractor/all businesses involved pay taxes on a total of $4.
With a transaction tax, it would be paid on $17.50.
But the above is a simplified example. In the real world there are probably a lot more businesses (each specializing in their own niche) and therefor transaction involved in getting that nail into your wall.
The problem with it is that it creates a powerful incentive for vertical integration and puts everyone else out of business.
If you have a product that goes from mine to mill to factory to wholesaler to retailer to consumer, the tax is paid five times. But if the same company owns the mine as operates the retail store, it's paid only once.
That's an insurmountable advantage for vertically integrated companies, so no others remain and tax-wise you end up with the same result as sales tax or VAT (i.e. the tax is paid on the total final value) except that you've needlessly destroyed every non-vertically integrated business.
That is the problem that VAT solves, by giving longer supply chains the same tax treatment as vertically integrated corporations.
Simple answer? Economies perform better when money changes hands more frequently. Disincentivizing that is generally a bad idea. Additionally, taxes like that disproportionately affect the poor, who often have to spend their income as soon as they get it, and barely affects the rich, who have lots of money sitting around not being spent.
That's why you pair it with a UBI, as the poster above said - if you add in more than the average cost of taxes on the UBI among people making less than, say, $150,000, it becomes significantly more progressive, even if they spend the entirety of the UBI.
This is a very important point. Tax rates and taxes are very different.
We have a marginal tax system so effective rates should be higher for those that make more. Them paying lower tax rates (like Buffet said) is them having more loopholes in the system.
The problem is that "tax rate" is an ambiguous term because different kinds of income at taxed at different rates.
So, for example, if someone makes most of their money on dividends, then they pay capital gains tax, and it appears like they are unfairly paying a lower rate than everyone else. ...but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense.
In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed). ...and in some other countries, there is no tax on capital gains.
I've seen people claim that country XYZ has higher tax rates than the US, but then when you look closed, they have zero capital gains taxes.
> it's a different sort of income, with a VASTLY riskier risk profile
Yes, earning the money with labor is vastly riskier. Telling a financial advisor where to put money incurs no risk to your life.
Compare that to being a welder, tree feller, home builder, where your health or life is a daily concern.
I really don't understand why those who go out and work hard every day have to pay more in tax (as a percentage) than those that just sit on the couch and watch their wealth grow.
In the end the real tax rate is simply government spending as a percentage of GDP. Everything else is just shifting around who pays what and when not what the average ends up as. In the US that’s 41.6 percent GDP which is in line with Canada at 42%: https://en.m.wikipedia.org/wiki/Government_spending#As_a_per...
PS: Either lower taxes on capital gains or allowing people to deduct losses is reasonable in the name of risk, but we do both.
Really what we should do with capital gains is allow people to deduct losses including inflation, so that we tax the total real value gain at the ordinary rate, and do so when the money is actually divested rather than only moved from one investment security to another (because one of the arguments for lower capital gains rates is that higher rates causes money to be locked into securities the investor wouldn't otherwise continue to hold).
Or just use a consumption tax, which is largely the same thing but a lot less complicated.
> what we should do with capital gains is allow people to deduct losses including inflation
Yes, I've come to this conclusion too. The long-standing argument that capital gains rates should be low is about what happens, for example, if your gain on an investment exactly matches inflation: you'd pay taxes on it, but you haven't made any profit in real dollars. The right fix for that is not to divide your paper gain by some amount before taxing it; it's to subtract the loss due to inflation. In times of low inflation, as we have now, this won't make much difference, but if inflation picks up again at some point, it will make quite a large difference.
Of course, such a plan raises the question of exactly what inflation estimator one should use. I'm not enough of an expert to have a strong opinion, but the T-bill rate [0] seems like a reasonable first cut, since it's a good estimator for the risk-free rate of return. Paper gains from holding T-bills would thus not be taxed at all.
Whatever the inflation estimator used, the more important (and likely more controversial) aspect of the proposal is that gains beyond that amount be taxed as ordinary income. The argument is one of simple fairness: once the inflation problem is handled, how can one justify doing otherwise?
[0] https://www.investopedia.com/terms/t/treasurybill.asp -- Okay, I see there isn't just one rate, since the rate depends on the maturity interval, but we can go with the highest one, which is the one for the 52-week bill. This creates the oddity that holders of shorter-term bills will actually get a tax credit, but it will be small; I think we can live with this.
The problem there is that you effectively force liquidation in order to pay the taxes, even if you wouldn't have sold the asset. Not such a problem for index funds, but a big deal for small business owners who would have to sell a stake in their business as soon as it starts doing well in order to pay the tax on its higher current market value, which includes the net present value of expected future profits that haven't yet been realized and so can't be used to pay the tax today.
Having the government give people de facto interest free loans of their own money in order to continue to investing it is also optimal anyway, because the government borrows at an interest rate significantly lower than the average market rate of return. They actually come out ahead by lending the money to investors who are then collecting taxable interest on it, because the tax on the interest can be more than the rate the government pays to issue bonds in the meantime, not even counting the overall economic benefit of stimulating investment (i.e. more/better jobs for people who are themselves paying taxes).
I'm saying that you do the calculations retroactively on sale. No taxes are due until then. Even if the asset spikes, no taxes are due if ultimately sold at a loss.
> but that's not a fair comparison because it's a different sort of income, with a VASTLY riskier risk profile. Taxing it at the income rate wouldn't make sense.
Ah yes, the riskiest activities of them all: investing in fortune 500, government bonds, index funds and inflating real-estate prices. They all count as capital gains.
Most of those are higher risk than interest on cash or TIPS (not all government bods are safe) ask the shareholders of Thomas Cook or Going back a bit Enron about risk.
Yes, but you now don't have a job, even if you get paid for every hour you worked. Jobseekers is only a partial safety net. On the other hand, nearly everyone who saw their shares in Thomas Cook go to 0 had investments in a number of other things, so only took a minor hit.
The risk of investing is, in the large, "my £10,000 might be worth £9,500 tomorrow", not "tomorrow I might lose my job through no fault of my own and suddenly have to make a major lifestyle change".
> In the past, in the US, capital gains wasn't taxed at all because it was considered double taxation (since the investment was already taxed)
The same thing can be said about every tax ever. Every time you tax money as it changes hands, that same money has changed hands before and was probably taxed then.
True but all of this tax discussion is about perceived fairness. I may pay a few thousand and a billionaire will pay millions in taxes but if the overall tax rate is lower for the billionaire then I'm going to get upset. It's just human nature.
> They have constructed a historical database that tracks the tax payments of households at different points along the income spectrum going back to 1913, when the federal income tax began.
It may be reading the book for the full detail on methods and results. I plan to.
> The top 1% are indeed audited at about the same rate as the working poor, but they also pay higher taxes than everyone else.
But they don't. That's the point. Your conventional wisdom is wrong.
The USA has a large number of regressive taxes, which tax the poor more heavily than the rich. These have been steadily expanded. And it has one, only one, progressive tax - the federal (not state) income tax - which has been steadily made less progressive in recent years to the point where overall taxation is at best flat and more likely slightly regressive.
> The USA has a large number of regressive taxes, which tax the poor more heavily than the rich. These have been steadily expanded. And it has one, only one, progressive tax - the federal (not state) income tax - which has been steadily made less progressive in recent years to the point where overall taxation is at best flat and more likely slightly regressive.
Citation needed. Saying the US has "only one" progressive tax is a bit ridiculous. The income tax is by far the largest tax almost anyone pays. It's certainly the largest tax I, and everyone I know, pay. And that only increases as you get richer.
Correct. Which is why income is such a miniscule fraction of the 1% (and above's) earnings. It's all out there in the open. Pick any CEO in the top-100 corporations. Look at their income. Then look at their overall earnings. The bulk falls under capital gains due to stock. Then there is deferred compensation, where taxes are lowered even MORE if you agree to postpone being paid. There are so many clever ways for the very very rich to avoid taxes it boggles the mind.
So go ahead and keep talking about the income tax, they've got you distracted.
> However, the day Cook was awarded his multi-year payday Apple immediately withheld and sold 656,117 of Cook’s shares to cover his tax bill. All told, Apple sold $70.9 million in Cook’s stock at a price of $108.03, equivalent to or 52.1% of Cook’s total $135 million performance award.
You’re talking about a relatively small number of investors who derive most of their income from capital gains. (Capital gains account for just about 6% of total personal income.) It just so happens that many prominent examples (Trump, Buffet, Romney) happen to fall into that group. But even among CEOs, professional like Jack Welch (who pays over 30%) will take a lot or most of their compensation as ordinary income.
> Pick any CEO in the top-100 corporations. Look at their income. Then look at their overall earnings.
Warren Buffet is probably the easiest person to look at here. A quick google says that [0] he made $11m in 2016, and on that he paid $1.85m in federal income tax, and he claims a large portion of the remainder was paid in state tax. Even ignoring his state taxes, yes he paid a marginal rate of 16%, but he still paid more in income tax than the average 1%er's salary. I'm certainly not a right wing advocate, but the spin associated with the "rich are not paying enough tax" doesn't really help the conversation much.
>A quick google says that [0] he made $11m in 2016,
The amount he made in 2016 is the point of contention. Sure he made 11m in income, but for that same year, BRK.A increased a staggering 25% in share price. Even if Buffet owns a 1% of BRK.A, that represents a paper gain of 4 Billion dollars.
Now, sure, he might not have sold any stock so that won't count against his capital gains tax, but to me, its a bit deceptive to say that Buffet only made $11M.
What's your point? If my house goes up by 100k in a year, in most US states, my property taxes would rise accordingly, whether or not I realized the true value of the home. Housing is a poor analogy as stocks are treated better than housing in this situation.
(California is not one of those states, due to Proposition 13, which is also very controversial and is argued to be one of the causes of California's rising housing costs)
When it comes to "if the rich are being taxed enough", you bring up a good point - if my home rises in value I pay more - however Buffet makes several billion in paper gains, and his taxes are largely unchanged.
* FICA, which is strongly regressive at the higher end.
* Sales taxes, which are also strongly regressive since (citation needed) the poor likely pay more of their income on taxable goods. ("There's only so much filet mignon you can eat," according to a government professor I once had.)
Try sales taxes. The poor aren't excluded from them, yet someone who is poor is far more likely to spend a larger percentage of their income on them than anyone with enough income to save and invest.
I think there is a key language ambiguity here. Whatever your position on what the rich should pay, there is a question of what is being paid as a proportional rate of total income, vs what is being paid in absolute terms. Confounding that difference are also issues of income tax rate, vs capital gains rates and wealth vs income.
The wealthy pay in absolute terms, more dollars, but they pay a lower rate than others.
No, according to this article, the 1% continue to pay a larger percent of their income. It is only once you move into the 1% of the 1% that the rate again decreases.
All of this is true, but it's beside the point. The perception in America is that the rich pay more in taxes as a percentage of their income than the middle class do. The marginal tax rates imply that, with middle class people paying either the 22% or 24% marginal rate, and rich people paying at at 35%+ rate. Thus, people think that we have a progressive system.
However, if you look at the data in this chart, you can see it's not true any longer. The actual combined rate paid by most Americans is between 22-28%. (It's on the lower end for the poorest Americans, and for the wealthiest as well) Fundamentally, the total taxes paid is flat.
I think most people think that the taxes paid chart looks like what it did in the late 70s/early 80s. In that chart, the poorest Americans pay about 20%, and the richest about 45%. That's where we should be, instead of where we are now.
That's an indicator of wealth inequality, no? The top 50% are paying less as a % of their income, but because their income is rising faster (relative to the bottom 50%) than their total tax rate is falling, they end up paying more in total, mainly because the bottom 50% have less to give.
Is that the case if you include payroll taxes? (We could include sales tax too, but those are usually state and local, so we'd then have to add state income tax, and possibly property tax, and that would get complicated)
I’ll go ahead and preface this by saying “I don’t know” but for people at the very top, are there undisclosed tax incentives to encourage them to spend their money?
By undisclosed I mean negotiated. When you are trying to get somebody to spend a ton of money to open a business, donate to charity, bring a bunch of jobs, etc is there a negotiation that happens to provide lower tax options to encourage that spending?
The wealthy also receive the lions share of benefits from stability and especially international infrastructure maintained by the US state.
Some would argue that taxes are different because of the issue of fairness in society, and for the fortunate who have vastly more than needed to survive, more should be expected to help everyone else. This is in the self interest of the wealthy, as economic growth is actually stunted by inequality.
There are other ways to balance fairness other than progressive taxation, but those too are often anathema to ruling economic policy makers.
Paying taxes is not "buying the government" and paying higher taxes is not buying "more" of it, or buying it in bulk. For starters: bulk rates are lower, in part, as an incentive to get people to buy more of a product at once. Since paying taxes is (ostensibly) mandatory, this doesn't apply.
barely, and the point of the chart is that over the past 70 years the gap has gone from being being very progressive to almost flat or regressive based on income level.
Yup. That's the strategy the Military uses - https://www.rollingstone.com/politics/politics-features/pent...
"At a cost of $400 million, some 1,200 auditors charged into the jungle of military finance, but returned in defeat. They were unable to pass the Pentagon or flunk it. They could only offer no opinion, explaining the military’s empire of hundreds of acronymic accounting silos was too illogical to penetrate"
It’s a lot easier on your sanity to just accept that (insanely) crazy coincidences happen. If it helps, that number jumped to 6.5T a few years later and now stands at 21T and the military and Pentagon have simply stalled all attempts at enforcing audits. They have the gall to simply refuse to account for the discrepancies and believe they cannot be taken to task for misappropriated funds; they don’t need to blow up records when no one does anything if they simply refuse to make them available.
I do not doubt that the waste and accountability are a huge problem in the DoD, but $21T sounds extreme. The FY19 total military budget, according to Wikipedia, is a bit under $700B and you need to misappropriate 30 years of that to embezzle $21T. And that assumes everything is misappropriated (no salaries, no fuel to fly planes, etc.) and does not account for growth (30 years ago the budget was a lot smaller than it is today). My 2c.
The NYT article claims that’s the absolute value of cooked assets and liabilities rather than the net amount but in truth it’s misappropriation so many levels deep (and recursive in parts) that you can’t even tell whether dollars are being made or lost. Purposely, I can only presume.
What would you think about the whole thing if the missing money announcement came on the 9th of September ("can you believe it came less than 48 hours after Rumsfeld came public with this info!?)? The 8th? The 4th? The 1st?
The 10th of September, 2001 was a Monday. What percentage of announcements are delayed until the start of the business week? How close did this particular announcement come to being delayed to Tuesday (in which case it wouldn't have even happened)? There are so many factors that pivot on the most tenuous or whimsical of things that it actually is borderline ridiculous to read too much into any one single aspect of it.
Yes, Rumsfeld did make this speech on the day before the attacks. It's actually a great speech too! He talks about the cumulative bureaucratic waste of the previous few years of the Department of Defense, and poor auditing.
But the section of the Pentagon that was hit was not the "accounting wing". There is (and was) no "accounting wing".
The specific areas that were hit were mostly "Naval Command Center" and "Defense Intelligence Agency", but even then, the area was relatively unoccupied due to renovations that started in 1998.
Forgot to note that, the money wasn't "missing" in the sense that it disappeared. It was definitely spent, over many projects, over many years. The problem he was trying to point out was that the auditing and tracking is poor and it is difficult to retroactively see where it was spent. I'm not trying to downplay it too much, because it obviously was (and IS) a huge problem. But there wasn't any implication of nefariousness or intentional fraud. (Caveat: There may have been smaller cases of fraud to make up that number, but the $2.3trillion itself wasn't implied to be all fraud).
It wasn't "wait, wtf happened to all this money? >:( ".
It was more "ah crap, we didn't do a good job tracking all this money... :*("
The nuance is subtle and easily hand-waved away by truthers, but such is politics.
I don't buy into this particular conspiracy theory, but the answer to your question is really simple. Try to imagine the US government as a mob. "Helpful" services it runs are like fronts. So when the government builds a library, it's like the mob running a garbage collection company. The helpful services are fronts for complex murderous organizations with many factions. Once you see it that way, it's easy to see why one faction might tattle or fight against another faction within the mob, even though they are still all kind of in on the game together.
As though the US government would have to orchestrate several terrorist attacks just to obscure some bad finances which are basically meaningless anyway.
Yeah, that's the funny thing, we're supposed to trust that the Rumsfield thing is 100% legit but then they'd turn around and run a plane into the records to "hide" it.
They could have just like not said shit.
It's amazing how often conspiracy theories rely on the Illuminati DMV
Conspiracy theories are always so impractical. It would’ve been way easier to just ship all of the documents to an incinerator and yeah, just not say anything.
Alternatively, the terrorist attack didn't actual hit the records in question (or at least not as many as are implied) and is unrelated, but was used as a convenient cover for bad finances that are basically meaningless anyway.
I do recall that, and recall discussion of it after 9/11.
As for what I infer is an implication of the 9/11 attack being motivated by a desire to cover this up, I can't find any reference to the outer ring of the west wing of the Pentagon being "the accounting wing". Even if it were, I can't imagine that we're doing our federal accounting in the 21st Century on paper that's stored only in one central location.
That said, the military is in fact missing a ton of money and is not in compliance with laws that require annual audits of all federal departments. That's a huge problem that should be addressed, but I see no evidence whatsoever that it's in any way related to 9/11.
> I can't imagine that we're doing our federal accounting in the 21st Century on paper that's stored only in one central location.
I'm not a conspiracy theorist, nor do I even remotely believe the idea that there's some sort of cover-up. But I will say one should _never_ assume the federal government doesn't do almost everything in the most backward, ancient way possible. Certainly they have tons of meetings, task-forces and plans to update things. Yet mostly they just flounder and keep on using ancient technology... like paper.
Money continued to disappear and in fact keeps disappearing and the Pentagon just says “oops, e we don’t know where it went, we’ll just permanently offset the books to balance them,” with no further accountability than that (across three administrations). They are basically untouchable even with records physically around; they do not need to resort to destruction of physical evidence so long as the military industrial complex is alive and well.
as mentioned elsewhere, the part of the pentagon that was destroyed was not "the accounting wing" which is also not even a concept that makes sense.
Pretty much every 9/11 truther cites "facts" but then has trouble when the facts turn out to be not true or are willful, limited misinterpretations of reality.
This is just a single example but it was eye opening when my friend told me about one of his clients. He is the chief mechanic at an exotic car dealership and one of their biggest customers is an active duty general in the Marines, this guy has millions of USD worth of cars.
Each general is the CEO of a multi-thousand person organization. Whether CEO pay is reasonable is a different discussion, but it would be surprising if generals were not paid well.
According to [0], a major general (O-8) makes something like $160k, depending on years of experience. I'm sure there's additional hazard pay and such, but you wouldn't expect a general to be making millions through their core pay.
Yeah but that doesn't include their kickbacks, consulting fees, etc. Can active duty generals sit on the board of directors of companies? I seem to remember a startup I worked at had one either on the board or heavily involved as a consultant but I can't remember if he was active duty at the time.
Active duty personnel aren't allowed to take on a second job, side hustle, etc. without written permission, and I understand that that permission is relatively uncommon. That doesn't completely answer your question (maybe generals get that permission more often), but it may point directionally.
The other thing that can confuse this issue is that Generals and Admirals generally (sorry) keep their titles after retirement. So if you have "Gen. James McClinton" on your board, that doesn't speak to whether or not they're active.
I believe some positions get a stipend (particularly if they are expected to entertain dignitaries) but are generally (ha) not allowed to serve outside positions that might be a conflict of interest. I couldn't find details yet of a specific article in the Uniform Code of Military Justice (UCMJ), but there are some memos out:
I know a marine general (just retired) and he drives a ten year old Ford Escape. Generals are paid well relative to the rest of the military but definitely are not paid obscene amounts.
Generals are not paid that well, at least not compared to a Silicon Valley software engineer's salary. I think they make ~$200k (https://militarypay.defense.gov/Portals/3/Documents/ActiveDu...), so if any of them are obscenely wealthy, best guess is they make a lot of money off of "speaking events" like any other person with political connections.
They also have many other benefits, including housing subsidies, commissary access, essentially free health care, etc. Officers especially are compensated very well.
seems like a general with a 40 year career who could (and did) save all of his money could have accumulated a few million dollars in cars without very many shenanigans, if that was their sole financial goal in life.
It’s not as high social status as the UK, but there are plenty of officers who come from relatively wealthy families. The officer corps skews upper middle class, with 40% of ROTC recruits coming from the top quantile of households in terms of income. (At Harvard or Stanford, 65% are from the top quantile.) The other major entry point for officers, the service academies, requires excellent test scores and two letters of recommendation from the Vice President or a Member of Congress.
By no means are officers all from wealthy families, but those folks are definitely over represented.
> The other major entry point for officers, the service academies,
Of academy, ROTC, OCS, and direct appointment, I'm relatively certain that, unless things have shifted recently, the academies are the least significant source of commissioned officers in the US military overall, rather than the second major entry point.
Forgive me if I am misinterpreting, but wouldn't the taxes of an individual general in the Marines be completely different from the Department of Defense itself?
> To afford millions worth of automobiles, the general must have misappropriated funds.
Or have, or at least have once had, a lucrative side business (military personnel can do this, legally.)
Or have inherited money.
Or have a spouse with a greater income or inheritance.
Or restore cars, such that the market value of their vehicles vastly exceeds the purchase price.
Or purchase cars that have significantly appreciated in value for other reasons (lots of high-end luxury cars that are limited run not only are pricey but limit sales to selected buyers, and the market value of the cars is almost immediately much higher than the purchase price and appreciates rapidly.)
xapata's interpretation of solotronics's post is that "Pentagon's impenetrable, unauditable accounting" + "Reports of trillions of dollars missing" + "General with a multi-million-dollar sports car collection" = The sports cars were paid for by embezzlement.
Of course, it's also possible the general saved up, or made lucky investments, or married into money, or there was an exaggeration or misunderstanding.
The Pro Publica link you provided does not show they "audit the poor instead". It shows that the IRS audits poor and rich at the same rates. Unfortunately it seems Pro Publica is succumbing to the same forces as other journalistic outlets and has started to engage in sensationalist headlines.
Here is their title verbatim:
> IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor
Here is the article's first sentence, verbatim:
> The IRS audits the working poor at about the same rate as the wealthiest 1%.
They go on to say this:
> ProPublica reported the disproportionate audit focus on lower-income families in April.
Per their own sentence, the poor and rich are audited at the same rate yet they go on to label this "disproportionate". That makes no sense.
Furthermore, they have defined rich and poor in arbitrary ways - the top 1% of taxpayers by income versus EITC recipients. The latter group is 25 million people - 7.6% of the US. So per capita, the "rich" are getting audited more frequently.
"As we reported last year, the IRS audits EITC recipients at higher rates than all but the richest Americans, a response to pressure from congressional Republicans to root out incorrect payments of the credit. The study estimates that Humphreys [County, Mississippi], with a median annual household income of just $26,000, is audited at a rate 51 percent higher than Loudoun County, Virginia, which boasts a median income of $130,000, the highest in the country."
The article doesn't define rich as "the top 1% of taxpayers"; it simply notes that EITC recipients are audited more frequently than all but that top 1%.
"The five counties with the highest audit rates are all predominantly African American, rural counties in the Deep South. The audit rate is also very high in South Texas’ largely Hispanic counties and in counties with Native American reservations, such as in South Dakota. Primarily poor, white counties, such as those in eastern Kentucky in Appalachia, also have elevated audit rates.
"The states with the lowest audit rates tend to be home to middle income, largely white populations: places like New Hampshire, Wisconsin and Minnesota. Generally, the IRS audits taxpayers with household income between $50,000 and $100,000 the least."
From the article more directly linked with the clickbaity headline, in fact, that headline is also supported if you keep reading the article:
"On the one hand, the IRS said, auditing poor taxpayers is a lot easier: The agency uses relatively low-level employees to audit returns for low-income taxpayers who claim the earned income tax credit. The audits — of which there were about 380,000 last year, accounting for 39% of the total the IRS conducted — are done by mail and don’t take too much staff time, either. They are 'the most efficient use of available IRS examination resources,' [IRS Commissioner Charles] Rettig’s report says.
"On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, 'the rate of attrition is significantly higher among these more experienced examiners.' As a result, the budget cuts have hit this part of the IRS particularly hard."
Considering the rich have far higher tax liabilities and custom complex accounting (vs the poor whose income is usually reported by employers as an automatic check against self reports), "proportionate" auditing should be closer to per-dollar than per-person.
> Per their own sentence, the poor and rich are audited at the same rate yet they go on to label this "disproportionate". That makes no sense.
They point out that while the rates may be similar, the impact is disproportionate. The rich have the means to hire a tax attorney, probably have a CPA who kept detailed records, etc. EITC recipients don't even know where to start in responding, and as the article indicates, many don't as a result.
> Per their own sentence, the poor and rich are audited at the same rate yet they go on to label this "disproportionate". That makes no sense.
60% of 1000 is less than 60% of 2 million. The cost/benefit of auditing the poor is likely inverted at a small scale. At a large scale, it's the right call. It makes sense, from a particular point of view.
Fortunately four states lost a lawsuit[0] attempting to overturn the 2017 Tax changes, specifically they went after the cap on deductions allowed that could be deducted off Federal taxes with regards to taxes paid to states and cities.
In effect what they wanted was for their citizens to be able to write off a much higher level of state and local taxes against the Federal tax debt owed. This is how high tax states in turn claw back money their citizens would other pay to the Feds, by being able to write it off Federal taxes State taxes can be increased and the burden passed along.
Not much different than some subsidies that favor wealthy households over all others in the form of "saving the environment". Watch how holier than thou a hand out is defended with to understand how money is given back to those least needing it. I am guilt of accepting the $7500 handout TWICE for EVs. I have always though that it should have been restricted to much less expensive cars to encourage their development but instead the Federal credit has no limit, car price or income level. IF you pay that much Federal Tax you got it back.
So don't just focus on how much the "rich" pay or don't pay, also focus on all the handouts to people with good to great incomes just masked behind feel good names. (education - in particular master and higher degrees is a subsidy to the same)
Speaking as someone in a higher-tax state whose taxes went up as a result of the state tax deduction restriction in the 2017 tax bill, I wouldn't mind that if the difference were visibly going to help educate children in poorer states. Instead, it seems that a lot of it is being pocketed by people who already have a lot more money than I do. So although I can see the argument for restricting or eliminating SALT deductions, on the whole I still think the bill was terrible.
I don't think you should feel bad about accepting the EV tax credit. The purpose of that is to help jump-start the industry; restricting it by income level would have diminished the desired effect. I haven't bought an EV (yet), but I'm glad you have.
A fund? To what, pay the IRS to target specific individuals? After the IRS targeting controversy [0], I would highly doubt the IRS would accept that money.
I've pushed for this before. Your idea: haven't read linked article yet. Mine was an organization that obfuscated working- to middle-class finances as much as rich. It would operate at cost with most legal stuff done as templates and accounting comouterized. It could be a public-benefit company, foundation, or co-op. They'd just charge annual fee to be in, consulting for anything complex, and everything external at cost plus minimal labor.
Consumption is a smaller percentage of wealthy household incomes, and that plan doesn't do anything to address equity or other forms of lucrative wealth generation.
I don't agree with that definition of "fair", and I think it would further exacerbate wealth inequality.
Why do we need the fair tax plan to create a flat rate, when the graph in this chart shows that the rate is already pretty flat? Today, most people pay between 22 and 28% taxes.
Seems like the correct thing to do is just to send the very rich person the bill for the costs of investigating their tax arrangements if it is substantially obscure. This would both make investigating these arrangements financially viable and disincentivise people from setting up arrangements like that in the first place.
I suppose the question is "which tax payer?" Which is unclear because really it's the "employee" (in the sense that an organisation could be considered an employee at any rate) of a democratically elected government which in principle predominantly represents people who pay tax in general but also some who can't or don't.
And one of their roles is in ensuring the interests of those lower down the income scale (which in this case even includes senior salaried professionals and only moderately successful business owners) such that they do not have an undue burden simply because somebody with far, far greater means has decided to arrange themselves some kind of labyrinthe with the express purpose of ensuring they outwit the rest of society. In this case it of course makes sense to make them feel the burden of their own creation rather than burdening the rest of society with it.
I think even most people mocking Bernie for saying "there should be no billionaires" are more open to much higher estate tax rates.
At least when a wealthy person dies it's easier to count their wealth because there are strong incentives on the parts of the people who stand to inherit their wealth to make sure it's all counted correctly.
The IRS can audit everyones tax returns via automated algorithms, it is just that those kind of audits are very effective on simple tax returns and very not effective on complicated ones.
It's well known that despite the high marginal tax rates of the past, very few people ever paid those. Deductions abound that have since been eliminated.
What you should really look at is real effective tax rates by income level.[1] What you'll find is that the top 1% make 19% of all income, but pay 37% of all taxes, with an average tax rate of 27%.
The bottom 50% earn 11% of all income, but only pay 3% of all taxes, for an effective rate of 3.73%.
But when the politicians use this stuff to change the law it will most certainly be the first two (expanded far more broadly) who will be targeted.
They always say hand wavy stuff about billionaires whenever they get asked about paying for grand projects. But we’ve all seen how that works out in real life every time. I highly doubt that sort of categorization will ever carry over when it matters.
You’re being wildly optimistic if you think the first two (the top 1%) will ever be meaningfully impacted by any tax law change. There’s a reason the super rich all line up in support of “higher taxes”: they know that these policies always affect the middle class and never touch the upper class. That makes it harder for anybody else to break through from middle class to upper class, which is exactly what the (upper class) politicians are shooting for when they pretend they’re going after “the 1%”.
You’ve got it exactly backward. Taxes on the top 1% aren’t dramatically different in the US than in say Germany or the Netherlands. It’s taxes in the middle class that are dramatically lower.
> There’s a reason the super rich all line up in support of “higher taxes”
Uh, they don't all do that, so there can't be a reason that they all do. Some of them do, some of them fund tax protest groups that work to shift he tax burden further from the rich to the working class.
Billionaires pay low tax rates because capital gains is taxed at lower rates. That’s true not just in the US, but in most of Europe as well.
So what’s the point? Even confiscatory 100% taxes on billionaires wouldn’t raise much money (about $127 billion per year, compared to the multi-trillion cost of social programs on the table). And getting rid of preferential treatment of capital gains would risk departing from what’s become an international consensus.
Ah take examples from liberal democracies only if it fits your agenda. How about single payer healthcare system? Do you like that as well? It is very well established that it works well.
I assume you mean universal health care. Single payer is just one way to do it, and not the dominant one. (The Dutch model, for example, is closer to Obamacare than it is to single payer.) But yes, I do think we should have universal health care. And we should pay for it the way other liberal democracies pay for it—taxes or mandatory insurance premiums on the middle class.
A) This is implied to mean people of working age, so under 20 doesn't count.
B) The 0.01% is not all billionaires, but they are all extremely high-net-worth individuals. These are people that are not only set for life, but with proper money management and tax planning, could carry on for generations without having to do a lick of work.
There are over 500 billionaires. My point being that OP's point comes off as an emotional argument as opposed to a data-based one.
Edit: I now understand the OP meant "100-millionairs". Even so, the math is still off. As of 2015 there were ~5000 100-millionaires and billionaires in the US[1]. That's 0.0015% of the population.
Slow down for a second. You're misreading the language.
By "100 millionaires" he means hundred-millionaires, that is, people who have one hundred million dollars or more. By "100 millionaires and billionaires", "hundred-millionaires as well as billionaires".
Billionaires usually own most value in stock (and usually in a company they own or founded). The majority of the Forbes 400 are there due to founding a company that was found so useful to others, that the owner is worth billions.
When they sell ownership they get taxed at very high rates, and this is after their company being taxed (which is simply an income tax on owners, but called corporate tax). If they give the ownership to others (like children), they get taxed.
> Income taxes aren't on wealth; they're on income.
What about estate taxes?
Say a billionaire is holding 3,412,037 shares of SPY. 0 transactions buying or selling for the full fiscal year. Just dividends being paid out reinvesting. What taxes would this person pay?
That person is paying corporate income tax and taxes on dividends.
If you own an asset that is constantly paying taxes, you have lost that value to taxation. A stock shareholder owns a portion of the company. A stockholder loses value exactly equal to the amount of taxes the corporation paid.
This is why economists have the maxim: "companies don't pay taxes; people pay taxes." This doesn't mean companies don't pay tax; it means every dollar a company pays in tax is a dollar taken from some set of people.
Without corporate taxation, the shareholders would own a company which owns more cash. Academic literature has shown a dollar in cash at a company is worth a dollar in market cap, which is priced into stock values.
Now, depending on how dividends work, the billionaire likely also paid taxes on those, either at cap gains rates (remember, that income was also already taxed at the corporate level) or at personal income levels, depending on whether the dividends are classified as qualified dividends or non-qualified dividends.
Then, when the billionaire dies, the rest gets taxed if he/she passes it own. This rate for a billionaire is currently around 40%, and many states have an inheritance tax on top of that.
So the billionaire does and will pay significant amount of taxes over their lifetime.
If society was a rich person with 1 billion paying $1M in taxes, and a regular person with $50K income paying $10K in taxes, the rich person would have paid nearly 99% of all taxes.
And yet, they would have paid a pittance compared to their income (not to mention wealth), and it would absolutely no impact on their purchasing power or lifestyle (where the 10K of the 50K could make the difference between having savings, or having a health operation, or sending the kids to college, and many other important things).
That's how irrelevant and unilluminating is this kind of metric...
Does "with" 1 billion mean they made 1 billion in income that year, or does it mean they have accumulated a billion over some longer previous period of time, meaning they probably conservatively(?) paid close to 500 million in taxes on making 1.5B, and now just unrelatedly, they are paying a million for whatever they did this year? Just want to understand the specifics of your example, since the 10K on 50K seems to be very close to current tax rate, so I'm assuming these aren't random hypothetical numbers.
I can't make the slider go up to 1B in income here (https://smartasset.com/taxes/income-taxes#tvFxGKBdZE), but according to that if you make 10,000,000 in SF, you'll pay $5,207,046 in taxes, so over half. Whereas, matching your statement, you'll pay 10K on 50K, so 1/5. From an income tax perspective, >50% certainly seems significantly larger than 20%.
Of course, this is pure income, so its as if we're talking about an athlete, and things of course change if the capital is not income. Similarly, none of this takes into account sales tax, etc. etc.
Of course, the other key question is what the taxes are for. If the purpose of the tax is to "impact their purchasing power or lifestyle", then I guess until you tax them to the point where they make 40K it will never match the 50K person? If the purpose of the tax on the other hand is to raise revenue for programs then it seems to be quite effective.
Is the purpose of taxes to fund the government or punish the rich? Because if it’s the former, then looking at the share of taxes paid by billionaires is highly relevant.
In the US, billionaires make just 1.3% of all income. 80% of income is earned by the bottom 99%. Confiscatory taxes would definitely achieve the second purpose, punishing the rich, but would have little effect on how much taxes ordinary people would have to pay to fund government.
>Is the purpose of taxes to fund the government or punish the rich?
Yes.
Though "punish" is an unnecessarily emotional word to use to describe a secondary function of taxation, which is to influence the structure of the economy writ large. It's been mentioned before that high marginal tax rates on top earners were almost never triggered, which is true. Instead of becoming personal income that could be used to wield undue influence on personal whims, wealth created by large enterprises (virtually the only way to accrue billions and billions of dollars of net worth) stayed within those organizations, where it could justifiably be used to raise wages and improve infrastructure, and where whatever use it eventually saw was validated by a support structure of interested parties with real sway.
>Is the purpose of taxes to fund the government or punish the rich?
Obviously it should do both.
Joking aside, if the purpose is to fund the government as good as you can (that is, societies central pool of resource to be able to produce democratically controlled and publicly available "nice stuff") then it makes sense to take as much as you can from the rich (which can afford it) and a normal amount from the average/poor (which can't afford to pay much).
A tax could be:
1) None. Then a country wouldn't be able to maintain e.g. an army or basic infrastructure, and either the country would be at the mercy of other countries that can, or the majority would be at the mercy of moguls that can afford to pay for those things. Some third world places are close to the latter.
2) Flat ($10K for a lawyer making $2M/year, $10K for a single mother of two juggling 2 jobs and making $40K). Most would agree that's bad.
3) Fixed ratio (e.g. 30% of said lawyer's income, 30% of the income of the single mother of two juggling two jobs). The lawyer is then left with $1.4M, more than enough to live in luxury, pander his kids etc, buy 4 new cars per year, etc, whereas the mother can barely survive and do basic spending or cover an emergency with the $28K that remain. Not sure how you find it, not a big fan.
4) Progressive scale. The government gets more from the lawyer (and as people getting richer) and not a fixed ratio. The reach still keep more than enough to do whatever BS they want (e.g. $2M - 60% is still 800K/year). Plus most of their money is not in income but wealth, and the ultra rich have already hid it through 2000 schemes.
>In the US, billionaires make just 1.3% of all income.
Property beyond a certain level should be taxed way worse than income. It's just hogging resources from society and giving to much power to money-based, as opposed to bloodline based, neo-feudal lords. Let's throw that majority of the wealth that they own into collective infrastructure for that "bottom 99%" (which, after all, earns 80% of income and pays more taxes).
For the ultra rich they go to so many channels, as to be effectively removed (else, they'd also be taxed as income to begin with). A deposit in Switzerland or Turks and Caicos doesn't do much good (if anything) to your local economy...
And of course, as a rich person you have all kinds of assets like real estate too...
Do you really think Turks and Caicos banks only loan money to islanders? Not much to invest in there. Capital easily flows across borders to the best investment opportunities.
Real estate is a bit tricky since it can be both consumption and investment. While I'd rather see taxes on imputed rent like they have in some countries to cover the consumption part, property taxes do a pretty good job.
> Is the purpose of taxes to fund the government or punish the rich?
Government exists because of and for society, and the purpose of taxes is to create the greatest net benefit to society.
Taxes are not to punish anyone, they are levied to fund services for society. Determining the optimum rate is complex and open to debate. But fairness is entirely irrelevant to the question. Whether the top marginal rate is 10%, or 90%, it should be whatever maximizes the usefulness to society.
We have a capitalist economic system, and it works pretty well for us, but that doesn't mean anyone has an inherent natural right to their capital. When it comes down it, property rights are all fictitious and exist only because society says it does. It's hardly wrong for society to decide to recoup some of what it has created.
Right, but Rayiner didn't make any arguments about anyone's "inherent natural right to their capital" and I kind of doubt he believes in any such thing. His argument is subtler and much more important than that: if what we want are social services that resemble Europe's more than our own, what needs to change aren't the taxes on the top 1% of earners, but rather increased taxes on the middle class.
Since I've seen Rayiner argue repeatedly on HN that European-style universal health care is a good idea, it stands to reason that what he's saying is that taxes need to increase across the board, not that any one cohort of payers needs to be shielded from increase.
>if what we want are social services that resemble Europe's more than our own, what needs to change aren't the taxes on the top 1% of earners, but rather increased taxes on the middle class.
How about increased wealth taxation on the 1% of earners, and the 0.1% of owners?
>We have a capitalist economic system, and it works pretty well for us, but that doesn't mean anyone has an inherent natural right to their capital. When it comes down it, property rights are all fictitious and exist only because society says it does. It's hardly wrong for society to decide to recoup some of what it has created.
I fundamentally disagree with that point. Government exists to protect people and their property. People have a natural right to themselves and to an extent their property - rights do not come from society, rights are internal and society functions to abridge them where beneficial.
>I fundamentally disagree with that point. Government exists to protect people and their property.
Well, your property is not others property. So protecting someone having X property, means disallowing others to use that property.
But what gives you or anybody the right to your property anyway? Aside from papers, which don't mean anything in terms of justice, moral, fairness, etc -- only in terms of legality?
We were all caveman, naked and property less to begin with, so where did your rights to your property began?
Even if you think the current market system is fair, the starting point was not equality + market system, but whatever arrangements happened at a time of colonial plundering (off of native Americans), slavery, when even poor whites and women couldn't vote (the most part of US history), plus feudal arrangements (in most other places).
Even if someone got their current property "fair and square" in 2019 selling stuff at the market, said property got its start (and ended to the people that have it) from conditions that were anything but fair and square - and not even very long ago.
Before the abolition of slavery and universal vote, any kind of property arrangement (and any kind of inheritance and all the second and n-th order property arrangements since them), is unjust and moot.
So, as a member of a society, I don't see why someone should be allowed to own huge amounts of real estate or money...
>rights do not come from society, rights are internal and society functions to abridge them where beneficial.
Internal to what?
If someone has the power they can stomp on all your rights, including your "right to life" (as has happened in history time and again), and they and people would just laugh their asses off when they hear your complaint that you have "internal rights".
You only have rights because society collectively secured those rights, and gave them to its members (and it took lots of fighting to secure them in the first place). Heck, if you were a black person, without Rosa Parks, you might still not have the right to many things. And it wasn't much better for the average white throughout history.
And it wasn't even that it was thought of as injustice. To make such things be thought of as injustice (instead of having justice be whatever the king of lords etc say), also took a lot of fighting and ideological work. You could be killed as a slave that tries to escape, and you wouldn't even be considered just, but just a low-life critical, to the good law abiding citizens...
So the simplest way I think about this is similar to Locke's. You own yourself - nobody else has the right to own you. If you disagree with that, we can chat about it but I'm going to move forward with that as true.
Ok, so everything else is owned by everyone equally. (It's actually important that these things are all owned in commons rather than unowned.) In a state of nature, you walk over, pick up an apple off the ground. By applying your work to pick up the apple, it is now more your apple than it is other people's. That's where property comes from. An application of personal labor. It gets more complicated from there, but that's the start of it.
>You only have rights because society collectively secured those rights, and gave them to its members (and it took lots of fighting to secure them in the first place). Heck, if you were a black person, without Rosa Parks, you might still not have the right to many things. And it wasn't much better for the average white throughout history.
And it wasn't even that it was thought of as injustice.
More accurately, if you don't have the rights and only have those society gives you, it WASN'T an injustice. That's one of the reasons it is important that you have the rights innately. If you only have what society gives you, then it denying you things is totally within its rights and just.
In a practical sense, you only can exercise those rights society protects (if you want to remain a part of society). That doesn't mean you don't have them, which is why it can be unjust to deny you their use.
The conception of internal rights is one of the big reasons we don't have slavery or serfs anymore. You can laugh at it or say it's unrealistic, but it's surprisingly important that rights come innately rather than from external sources.
I'm not sure how informative that is. It's natural for the poorest 50% to pay a lot less tax; they first need to have enough money to eat and live before they can even afford to pay taxes. This is simply progressive taxation at work.
Although I suppose showing that the top 1% has 19% of the income while the bottom 50% has 11% of the income does show the vast income discrepancy.
> it's natural for the poorest 50% to pay a lot less tax
People don't understand that taxes are the only way to make capitalism work overall by making money trickle down to the poorest and into public infra structures and services. All they see is $$ leaving their account.
I agree, but the parent is responding to the article’s claim that the rich pay less. This isn’t in support of the parent’s comment, just trying to clarify the conversation and root out accidental straw men.
> the parent is responding to the article’s claim that the rich pay less.
The article appears to be discussing the individual tax rates paid by the wealthiest, not the percentage of total tax paid. Those are two different things.
The GP appears to have introduced the latter statistic, as often happens in this debate, to distract from the actual statistic under discussion.
I agree the title is click baity, but the ultra wealthy do pay a lower effective tax rate than me, and I'm probably in the top 10% of income percentile.
But the observations of the article itself check out. The tax system has gotten radically less progressive over the last 50 years. The argument is over whether or not it should be made more or less progressive given current realities.
People can differ in their opinions on that, but the historical trend is clear as day.
You are switching stats again, and I can't tell whether you're doing it on purpose, or are unaware that you are doing it.
The stat under discussion in the article is not "share of all taxes", it's effective individual income tax rate by income percentile. The latter has definitely become less progressive over time, as the article makes clear with data.
If "share of all taxes" since taxes is a statistic you think is illustrative of something relevant, notice that since 1980, real family income for the top 5% has dramatically outpaced the median real family income, so it only makes sense that their "share of all taxes" would go up:
The top 1% have also dramatically increased their share of income since 1986, while other incomes have stagnated. The increase in tax paid is entirely due to that larger income, as the effective tax rate they pay has gone down, sometimes even lower than what high middle class pays.
To understand why that doesn’t matter, try seeing how much the bottom 10% pay. This would include the homeless, etc. Should we expect them to be paying the same tax rate as the richest Americans?
The graph in article is effective, not marginal. The poorest do pay less in absolute numbers because they are poor, that's a statement of income inequality, not progressivity of the tax rate.
If you have a basic understanding of tax rates in the US, this shouldn't come as a surprise. The marginal tax rate always goes up as you earn more income, so for the graph to show it going down then it must be the effective tax rate.
But I agree, it probably will be taken out of context and unfortunately not everyone has even a basic understanding of how taxes work.
"The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980."
Than whom? I can tell you I pay higher than them and I am not rich. I think it is you who is trying to cherry pick data points you are obviously biased due to your ideology.
That's 37% of income taxes not 37% of all taxes. Also important is those numbers will be based on the federal and reported income numbers not based on the amount they actually earn much of which can be shifted around to specifically avoid the top marginal rate.
The total tax rates are available if you google it, including state tax, sales taxes, etc.
The trend is more muted (the poor pay a slightly higher percent of the total), but the rich still pay the majority of taxes and have a much higher effective rate.
The total tax rates are available in the chart in the article, from the research by Emmanuel Saez and Gabriel Zucman. The rich do not have a much higher effective rate.
> Deductions abound that have since been eliminated.
Yep, and those "deductions" are now referred to as "tax shelters" (post-1986). Basically, high-earners could invest a relatively small amount of capital into a "business" that was certain to generate large tax losses. These were things like llama farms or avocado farms. The entire purpose was to generate deductions, since the capital invested was smaller than the tax losses generated. The "investor" literally didn't care if he ever got his money back, since the deductions alone were worth the "investment".
Pretty much no one paid the highest rates of the past, because people who have that much money are well-advised, and it was very easy to avoid having that much taxable income.
> since the capital invested was smaller than the tax losses generate
Can you give an example of how that works? As a non-rich person if I invest $100 it seems like the largest taxes I can pay is $100 (100% tax). How do I generate > $100 tax loss for a $100 investment?
You buy an alpaca for $x,000 and declare yourself a breeder.
You can depreciate the cost of the alpaca much more quickly than most assets. You can also depreciate related assets - barns, fencing, farm machinery - even if you own these already, as long as you weren't previously using them for business purposes.
You can also deduct your losses against capital gains made elsewhere. And potentially save on property taxes, if your property becomes "agricultural".
Essentially there's a difference between an accounting loss created by depreciation and creative categorisation of spending and/or use of legitimate tax breaks, and a genuine out-of-pocket spending loss created by losing money on an "investment".
Your taxes are calculated on your accounting losses, not on your spending losses. The difference can be written off against taxes due on other income, reducing your final tax bill to zero - without having to spend the full "loss".
It's been almost a decade since I studied this in law school, and we don't do anything with this stuff in practice anymore since the laws changed long ago. But the gist of it was that tax losses could be allocated to the parties that wanted them, and not necessarily proportionate to their percent of capital invested.
Once upon a time there were laws that said that if you had expenses on certain farms you could deduct those from your income (and sometimes carry those expenses over to later). There was no true economic loss. You still had the farm. It's just that expenses counted as deductible.
This was for the reason that farms sometimes have a large lead time before they're productive and I want to give you the chance of surviving the first few years that weren't productive.
I think this was notorious as a citrus and almond farm thing.
> You can always deduct ordinary and necessary business expenses from the income
Except for costs that must be capitalized and depreciated/amortized, which includes lots and lots of things (computers, furniture, anything else with a useful life)
buy real estate/business/other investment using leverage, and take deductions on the entire value if the tax code allows for it (which it often does). You just need to make enough to pay down the loan (increasing your equity) and break even on cash flow, and you are doing great. It helps keep rents lower since otherwise all landlords would need to cash flow. But it drives up property prices and thus the break even point due to higher demand, so maybe they offset each other - but how could we know?
The important take away here is that modern legislation dictates much of what our economy looks like. With other tax regulations we would invest completely differently, for better or for worse.
Also why are we comparing the very rich to the very poor only? What about the middle class? Certainly rich pay a lot less than the middle and middle upper class.
Maybe it is, but that Wikipedia article doesn’t illustrate any controversy (unless I missed something), only that we should take the source with a grain of salt.
> It's well known that despite the high marginal tax rates of the past, very few people ever paid those. Deductions abound that have since been eliminated.
I read the article, in which this expected point is addressed. From TFA:
>They have constructed a historical database that tracks the tax payments of households at different points along the income spectrum going back to 1913, when the federal income tax began.
That is actual payments, not whatever the tax law says should be paid. Did you think academic economists wouldn't address this point?
I'm not who you're responding to, but I tend not to assume competence on the part of academic economists. I've listened to enough of them speak and read enough of their proposals/think tank papers/books to know that a sizable portion of them are perfectly happy making some absurd assumptions and running down a logical chain from there without addressing the obvious points.
> It's well known that despite the high marginal tax rates of the past, very few people ever paid those. Deductions abound that have since been eliminated.
Read the article again carefully, paying attention to the interactive graph, you will notice that it is discussing the change in total effective tax rate, which is why the total tax rate for the super wealthy in 1950 was 70% when the top marginal rate was 91%. Still massively higher than today's effective individual tax rates on the wealthiest.
> What you should really look at is real effective tax rates by income level.[1] What you'll find is that the top 1% make 19% of all income, but pay 37% of all taxes, with an average tax rate of 27%.
That's not the effective individual tax rate at all. That's burden of tax revenue by population income percentile. You appear to be mixing terms.
The distribution of income is a decision we’ve made as a society. Over the past few decades we’ve allowed more wealth and income to flow into a smaller number of hands, then we’ve enacted policies that reduce the effective tax rate on those particular taxpayers. This might be ok if we were collecting enough tax to fund our government, but in an environment where we’re running huge deficits, it’s not ok (nor is it fair, or particularly good for our democracy.) One or both of those things needs to change.
Over the past thirty years, a lot of the "technology" has been Chinese people building things overseas and shipping it to the US. There's technology in that, but it's mostly logistics and shipping, not robots or anything fancy.
NB: I'm not saying automation doesn't matter, or that it won't matter going forward. I'm saying that if no automation had happened at all, we'd almost certainly still be in this situation. The bulk of the distribution changes result from human decisions, not tech.
Which taxes are you counting there? Including sales taxes?
And I take with a huge block of salt any tax article with phrases like "These charts don’t tell us whether the top 1 percent contains the same people year after year, experiences a complete turnover annually, or something in between." Good heavens, I hadn't realized that a 100% turnover in the top 1% of earners was possible! Those investments must be doing terribly.
No, just income tax, the only portion of the tax code that is nominally progressive. Payroll taxes are explicitly regressive, going away at an income of roughly the top 5%. Sales taxes are flat.
Even income taxes aren't as progressive as you would think, because a large fraction of upper-class wealth comes from dividends and capital gains, which are taxed at a rate below the income of a household earning $78,951 year! The biggest tax deductions are for homeowners (including second homes) and retirement savings, which overwhelmingly go to the wealthy. The idea that the wealthy pay a high tax rate is absurd if you look at the whole picture.
That has to be the worst x-axis on a graph I've seen in a long time. The grid lines measure 0-10th, 20-30th, 40-50th, 60-70th, 80-90th, 95-99th, 99.99th, Top 400? That's atrocious, not only is it non-linear, not only does it have a line with regularly spaced dots giving the impression of continuity, but it skips from percent groups to absolute numbers?
If we're talking about historical taxes why are we looking at tax rates and not taxes paid? Taxes paid by percentage income would be a huge improvement, and absolute taxes seems like an essential number for this conversation.
I'm stunned when I see things like this associated with major universities and newspapers.
edit: The y-axis also goes from 10-70% instead of 0-100%. So both axes are suspicious and the numbers being presented are known for their inaccuracy.
This is missing what the graph is trying to convey.
Playing with the y-axis in this case, doesn't change the shape of the data. It only makes the graph more readable. For example, would you start the y-axis on a graph of global temperature at –273.15°C (absolute zero)?
Second, why should the graph use evenly sized groups? The whole point is to show an outlier in tax data among a small group of people. Using evenly sized groups obscures this point. If a graph of global temperature only displayed in increments of 1000 years, it would likewise obscure the recent impact of human industry on temperature.
Finally, as the article notes, the graph is of actual taxes paid not historical taxes.
If there is any legitimate criticism, it's that the graph probably should have been a bar graph instead so the "top 400" (likely for ergonomics) is less jarring. Also, just saying that the numbers are known for inaccuracy? This is a lazy statement that needs to be backed up.
> For example, would you start the y-axis on a graph of global temperature at –273.15°C (absolute zero)
> This is a lazy statement
Yes it is.
> This is missing what the graph is trying to convey.....It only makes the graph more readable.
The problem is that so many decisions are made trying to tell the right story that eventually the underlying data barely matters at all. If top 400 doesn't work maybe top 100 will, or top 10, or top 1000. If going back to 1950 doesn't work then maybe 1960 or 1940.
If you don't care about things like best practices you can simply choose the shape of the graph you want and go from there. Maybe this time they did it with effective tax rates. It doesn't matter.
The graph does a good job at giving a visual for the data and the point of how much the tax rate has gone down for the super wealthy.
Showing a percentage for that very top value would be less informative than saying the top 400.
I think OP's point is that due to the complexity of tax laws, especially for the wealthy who have more non-wage income, the tax rate doesn't capture as useful a picture as actual dollars of taxes paid.
There's your tax bracket and then there's what you actually pay after deductions, loopholes, etc.
The common argument is that the 70% rate of the 1950's was never actually paid by anybody and the effective tax rate was much lower. By looking at actual taxes paid that entire argument can be skipped.
Anybody who studies historical taxes professionally should know this, so when they use a worse measure it looks like they're doing so because it fits their narrative.
I'm tired to read articles written inside "Opinions" sections.(not that I necessarily disagree with it, you guys are explaining how this article is right or wrong better than me).
I would really like (not intended at HN, it's a general crisis in my life) to read more articles about politics that are neutral and factually oriented. It seems like 90% of the political content I read twists facts and build cheap, cherry-picked arguments to push for their opinions without any scientifical / logical humility (Discussing hypotheses, advancing honest counter arguments...). I am yet to find political writers / journalists raising questions without already knowing the answers to them. Real thinking instead of outrage porn (as another commenter wrote ; I like that expression)
Would love to see that as well. Unfortunately outrage generates a lot more clicks and social media engagement.
And politics are increasingly becoming intertwined with identity, which makes it even less cogent.
From Paul Graham's essay about this:
Politics, like religion, is a topic where there's no threshold of expertise for expressing an opinion. All you need is strong convictions.
...I think what religion and politics have in common is that they become part of people's identity, and people can never have a fruitful argument about something that's part of their identity. By definition they're partisan.
There is no canonical neutral in politics. “Neutral” is just code for “stuff I agree with”. You don’t really want neutral content, you just want content that validates your existing beliefs.
The article lists a bunch of facts and numbers, why do you consider it “non-factual”?
They probably meant that they want factual content that either leaves out the narrative completely or equally covers all sides of the story with equal regard. I.e., content that focuses on facts and supplements it with narrative when needed. As opposed to the majority of the current political content, where the narrative takes the first and foremost place (usually very one-sided narrative too), and then facts just act as a supplement for the narrative (i.e, facts end up buried deep inside the article somewhere or just straight up linked somewhere without even being directly mentioned).
Where does the buck end, though? What if people demand you cover evidence of a flat Earth whenever you talk about the planet? Or climate change denial when talking about record-breaking heatwaves?
Avoiding politicized content is impossible because anything can be politicized. As the above poster here put it, neutral articles effectively means articles whose politics you agree with and/or articles that reinforce the status quo.
Now we can argue about intellectually dishonest articles and ones that bury the lede, but the article in the OP does back up the assertion with data.
I'd settle for "arguments which steelman their opponents" (at least, within the Overton window).
You can't have a genuinely neutral political take, obviously, but you can have one which makes a best-effort to honestly understand, present and address the strongest opposing arguments.
The vast, vast majority of political ink spilled these days is just worthless cherry-picking bias-confirming ingroup-good-outgroup-bad let's-all-dunk-on-each-other dreck.
Yeah, wouldn't that be a breath of fresh air. I think "humility" is the key word. It's rare the person who goes into a discussion with an open mind not thinking they are so smart they know the right side of every subject before they even explore it in depth. How refreshing would it be for a politician (our supposed leaders) to be intellectually honest versus just taking a side that leads to greater power for their party.
A couple of points regarding the lower rate of taxation for capital gains:
• Capital gains are not inflation-indexed, which is one reason to have a lower rate. Consider three individuals:
* Person A earned $100,000 working at BigCo in 2019
* Person B sold shares in 2019 that were purchased in 2017, for a (LTCG) gain of $100,000
* Person C sold shares in 2019 that were purchased in 1965, for a (LTCG) gain of $100,000
There's essentially no inflation to account for in cases A and B, since all of the relevant transactions happened relatively recently. But what about Person C? The real value of her investment has not increased by $100,000 — it's much less than that because of inflation. So one argument for a lower capital gains rate is to be fairer to people who have held investments a long time.
• Investments are more mobile than wage earners. This is just a fact about the world: I can invest in a different country more easily than I can move to a different country, which leads to "tax competition" for investment income moreso than for wage income. However, this doesn't mean much in the US, where we tax worldwide income (so it doesn't matter where you earn investment income, for the most part).
• Capital gains is "double taxation". It is true that if you tax capital, that is likely post-tax money. That is, it was earned at some time in the past and tax was paid at that time.
There is a notable exception, however: basis step-up at death (inherited assets don't trigger capital gains when passed to heirs. If the total estate is under the current limit, I believe around $10M, then no tax would be paid at all). There are other tax preferences like the primary residence $500k exemption, qualified small business stock exclusion (look it up, startup founders!) that allow people to realize lots of gains without paying any/full tax. There are also less-sexy things like muni bonds.
> Capital gains are not inflation-indexed, which is one reason to have a lower rate.
No, it's a good reason to inflation adjust them; not inflation adjusting them and charging a lower rate means that people who can regularly turn over capital so that there is often very little inflation effect (more common with the really rich) pay low real taxes on income, while people who have a few capital assets that are held a long time for use value and then sell them with little real (but much inflationary) appreciation pay taxes at low rate on the nominal income, but often at a high rate on any real income (or, worse, pay positive taxes with no or negative real income). The two features compound the pro-wealth bias in capital gains policy rather than offsetting to approximate fairness with taxation of other income.
Taxes on income should be blind as to whether it is labor or capital income (including those characterized as “payroll” rather than “income” taxes), and, to smooth irregular income streams (which otherwise have undesirable consequences in a progressive tax system) generous allowances for deferment or unusually high income and advance recognition of income should be made, and basis values, and deferred and advance-recognized income amounts all should be inflation adjusted.
I completely agree that we should inflation-index assets for which electronic purchase/sale records readily available (stock purchased through brokerages). For other types of assets, the inflation rationale is still a decent reason to have a lower LTCG rate (think antiques, paintings, etc.).
> I completely agree that we should inflation-index assets for which electronic purchase/sale records readily available (stock purchased through brokerages).
How are electronic records relevant? The information needed is expected, whether records or electronic or not, when doing capital gains now, so there's non rational need for electronic records.
> For other types of assets, the inflation rationale is still a decent reason to have a lower LTCG rate
Perhaps in the modern era, but less so in the past. The IRS also has a workaround if you can't prove your tax basis, which is to consider it all gains. That's a reasonable fallback for calculating gains, because if you don't have proof of basis, it's likely to be an older acquisition (and one which is more highly appreciated.) But the opposite is true for inflation adjusting, which would leave people with no records to be considered to have zero tax basis (all gains) and no inflation adjustment.
> Perhaps in the modern era, but less so in the past. The IRS also has a workaround if you can't prove your tax basis, which is to consider it all gains. That's a reasonable fallback for calculating gains, because if you don't have proof of basis, it's likely to be an older acquisition (and one which is more highly appreciated.) But the opposite is true for inflation adjusting, which would leave people with no records to be considered to have zero tax basis (all gains) and no inflation adjustment.
If lacking transfer documents makes the sale value “all gains”, then the inflation adjustment is irrelevant, since you are adjusting a zero basis value, which is still going to be zero if you do or don't adjust it for inflation, no matter what a amount of inflation has occurred.
The only place where there is even a theoretical problem is where there is proof of basis value but not basis date; this seems extremely improbable to occur in practice.
disagree with both the points (inflation indexing & double taxation). when vast majority of the other income is for regular people is not 'corrected' for inflation then there no reason to do it just for investments. this produces a systematic tilting towards 'invested money' & over long periods that gives them huge advantage (e.g.. last 40 years). inflation is an emergent property of the monetary system we have, giving one group of people protection from it just puts thumb on the scale for them.
Double taxation is a standard BS argument too, the whole point of taxation is that govt 'deserves' a cut of the transaction for providing a safe stable environment for economic activity. this whole notion that the moment you got yours, no-one is allowed to touch it anymore is BS, its true for other activities we engage in like sales tax & getting help then why should value gained in stock market be absolved from it?
any activity that we choose to tax less is essentially being promoted so its no wonder that after financial crisis (& even now) most of the 'new money' went back in stock market instead of the real economy. this needs to end. if anything cr*p like HFT should be taxed more to ensure there is less incentive for that kind of skimming over the top.
> The vast majority of other income is taxed in the year it is earned, so there is no/minimal inflation.
but our annual raise are often in line with inflation should they be excluded? what about sales tax, thats directly effected by prices going up, should that be excluded to. and what about the receivers of these payment, its the hotdog I paid for is taxed already then why should the vendor have to pay tax again? there is no end to it. this whole distinction of earned & 'gained' income is farce and created just to favor wealthy class. I home more 'commoners' see that.
> Gains from HFT would not be LTCG (held less than a year), so it would be taxed at ordinary income rates.
that may be, but my argument is that it should be taxed higher not lower for discouraging the activity. and what about the hedge funds clients that primarily benefit from HFT, should they have tax breaks for holding that capital in fund for long term?
> but our annual raise are often in line with inflation should they be excluded?
This misunderstands the point of indexing gains for inflation, or applying a lower rate to income that is mixed with inflation. The point is that you pay tax on the income in the year it is earned (or soon thereafter). It doesn't matter what the money was earned for, whether you got a raise, or anything else. The point is that it's all money that you just got right now. It's different when you are taxed on a mix of "real" gains (in the economic sense) and inflation.
> The point is that it's all money that you just got right now.
That's less true if you have hyperinflation, but at normal inflation rates ignoring inflation across the tax year is a pragmatic simplification with modest effect for gains that aren't long-term in nature (which may not exactly coincide with all income not subject to favorable taxation as LTCG.)
No you are misunderstanding my core point, the 'Inflation' is just a colloquial term we have coined for prices generally rising for many reasons some of which may be related new money being created because of money printing & Fed lending window. it just effects different sectors differently, so a TV may not go up so much but medicine goes up a lot. inflation is just average measure of that. if you provide protection from that to one type of gains then you are essentially telling society to go pile up in that & guess whats been happening lately.
> For such an in depth example you really missed this.
Like many HNers, I'm on here in my spare time, while not running my startup or caring for my kids. Please forgive my not including every argument and counter-argument here.
But to reply, if you bought stock on the stock market, then yeah that is double taxed because the corporation also pays tax on their corporate income. We could get into that whole can of worms, but it's frankly too complex and off-topic. The point of my post was to show some common arguments and counter-arguments.
Yes, and if you buy a can of Coke at the store with the proceeds of the sale, you're then triple taxed when you pay sales tax, and then the business owner is quadruple-taxed when he books some part of it as a profit, just like his supplier is quintuple-taxed when he is paid by store owner for the Coke supply, and so on, and so on.
Clearly, this is absurd: it is universally recognized that transactions often create tax events. There's no "double taxation" rule that doesn't allow "the same money" to be taxed twice, it's just we don't tax the same transaction twice.
The claim is that the thing you invested in doesn't magically double in value. It goes up in value because of other post-tax economic activity.
If you went to a roulette table at a casino, put $5K on black and it hit, you'd owe tax on that $5K because it's just income.
If you bought a company for $5K and then sold it a year later for $10K, its value typically increased because it was doing more business and therefore paying more taxes along the way.
Now, there are of course problems with this. Companies aren't purely valued on post-tax activities. In the event of real estate, it's even less convincing. If a vacation house doubles in value, it's unlikely this was due to the house's post-tax economic activity. So whether or not it's a double taxation is debatable but kind of irrelevant; it's remains a relatively fair way to raise revenue.
That author had to jump through so many hoops to make an argument his chiropractor must be rich. Seriously, that entire article was nonsense from top to bottom.
"• Capital gains is "double taxation". It is true that if you tax capital, that is likely post-tax money. That is, it was earned at some time in the past and tax was paid at that time."
The "double taxation" argument is false, since it assumes that the entity paying the original tax and the entity paying the second tax are the same entity which is manifestly false. It is also malicious, since it is usually applied to dividends and in so doing converts the investment markets to a zero-sum game.
> Why would you hold an investment for 55 years that isn't beating inflation?
The point is that the inflation is getting taxed also. Say inflation is at 2 percent per year over the period, and it's appreciating at 2 percent more than that annually. Then when you pay taxes, the "capital gain" amount includes both the real appreciation and the inflation. So in this example, half of the putative "gain" is actually inflation.
>So in this example, half of the putative "gain" is actually inflation.
Is this an issue in practice? Like I get if I have an asset that meets inflation for a decade than I'll lose value through the taxation. But that would be a bad investment, wouldn't it?
Yes, plenty of people have assets that don't appreciate a ton over a long period of time. Even with stock — you don't know in January if it's going to be worth more in December. So you make some calculation and sometimes end up holding it. Also, people hold onto things for sentimental reasons (inherited from relatives, etc.). But the bottom line is that anyone who holds any asset for 20 years and then sells it is going to pay tax on the inflation that occurred during that period.
It's misleading because the rich that they're talking about already paid a much higher rate when they originally got the money in earnings. It's just the 2nd round of taxation: the capital gains which is lower, as it should be.
And that's not even including 2nd order effects. When you go to spend it, your costs are much higher because part of what you're paying is someone else's really high tax rates. IE: the plumber has to charge you 300$/hr instead of just 200$/hr.
I don't see why capital gains should be taxed lower.
Money you get from working, from your blood and your sweat should be heavily taxed, but money you're earning just by already having money (whether it's from your work, inherited, donated from family members) shouldn't be taxed as well?
Let's say that the 20% rate applies to income tax, corporation tax, dividend tax and capital gain tax.
When a company allocates $100 to its employee, the employee receives $100 of salary, pays $20 of income tax, and ends up with $80.
When a company allocates $100 to its shareholder, it's first considered as profit, so the company pays $20 in corporation tax, the shareholder receives $80 of dividends, pays $16 of dividend tax, and ends up with $66.
When a company has $100 profit but does not distribute any dividends, it has to pays $20 in corporation tax, so the shareholder value increases by $80, so if the shareholder sells the share, he receives $80 of capital gain, pays $16 of dividend tax, and ends up with $66.
So, yes, if the all the tax rates are the same, you actually end up taxing capital more than salaried income, which would be a big incentive against creating your own company.
Now, companies often put all profits into R&D avoiding both dividend tax and corporation tax. Investors are much more willing to value companies based on growth rather than actual dividends.
But the money the company pays out doesn't count as tax paid by the shareholder, and there is very good reason for this from the shareholder's perspective. The company is a separately legal entity created to protect the shareholder from liability (among other reasons). At least in theory an owner can avoid this "double tax" by doing all business under their own name and accepting the potential liability which comes with that.
The motivation for the OP's argument is that "tax has already been paid" on certain income. It's an arbitrary "rule" put forward by advocates for the wealthy. There's no reason capital gains can't be taxed as income other than: people who make lots of money on capital gains don't want it to be (e.g. the entire hedge fund/private equity industry, along with the budding American aristocracy).
Note: I'm not saying changing the tax rate on capital gains wouldn't have an impact on investment patterns. It would.
"I don't see why capital gains should be taxed lower."
The point of taxing capital gains lower than income is to encourage the wealthy to invest rather than hoard their wealth. This is good because invested money helps drive economic growth which is usually good for everyone.
Not really. We're talking about economic growth not equity. The argument that widespread private investment is better for growth than widespread hoarding is better established than the argument that government spending is better for growth than hoarding. Even with regard to equity or fairness, government spending isn't always better as more government creates the opportunity for more government capture.
There are other arguments for directly taxing wealth, but the one I listed isn't one in my opinion.
The crux of our observation is that "we're all getting hosed and you just want to ensure we are getting hosed equally?"
these things can't happen in a vacuum, no matter how much you respect something with the label 'government' on it you do have to factor in what its doing with its passive funding source. Even this article correlates tax policy that benefited the rich with low GDP growth, suggesting that the government would have been a better steward of additional money. It should consider other revenue regimes.
Capital tax is only perpetuated by inequality, as it is a stretch of taxation theory and a mere convenience. The state says "so you want us to take the money now, not gonna say no!" the non-capital class cheers
> It's misleading because the rich that they're talking about already paid a much higher rate when they originally got the money in earnings. It's just the 2nd round of taxation: the capital gains which is lower, as it should be.
That's pretty much bullshit by any reasonable definition of "earnings".
Relevant to the HN crowd, let's take an example of a startup founder who hits a home run and whose equity is eventually worth a billion dollars. The founder's company had multiple funding rounds, and eventually the company had an IPO so the founder could sell his equity on the public markets. The founder will pay low capital gains rates on his stock, with a basis of 0.
At no point did the founder put any cash into the company originally from previous earnings. Instead, all of the financial gains from the equity were as a result of the founder's blood, sweat and tears - what we normally refer to as "working". Surely, of course, the founder had a lot more at risk, but at no point did the founder previously pay a much higher rate on any capital that went into the business.
Nah, the rich weren't taxed, the corporation was. If you want the legal protection of a fictional entity shielding you from liabilities we should be taxing that entity.
I take two issues with your reasoning around capital gains rates. One is on fairness, and one is on the systematic result.
With regards to fairness, it is inherently unfair to tax someone making $120k/year working a desk job at a higher effective rate someone who inherits $100M and makes all of their income from long term capital gains. The "2nd round of taxation" line are mental gymnastics. It's income. It's just the "haves" trying to push the rules further in their favor.
With regards to systematic results, taxing capital gains at a lower rate than other earned income increases the compound effect of wealth disparity. Those with wealth, whether earned or inherited, are able to keep more of it, than those without. The resulting extreme disparity is fundamentally unhealthy to our society. We are witnessing the symptoms of it now in the rise of nationalist and socialist movements, as the bottom half of this country is looking around wondering why the system isnt working for them.
A lot of convoluted discussion going on here. The simple truth is that in America we tax income earned from having wealth at a much lower rate than income earned from work.
And lower income earners pay a larger portion of their income to payroll taxes than the highest income earners.
All the people I know with money that have shared their effective tax rate pay way less than I do. Way less than this chart shows as well. I'm talking down to the single digits for effective tax rate. I can't 100% confirm that they're telling the truth, but I'm not sure why they would lie.
The "more effectively" part is important here. Plenty of people will happily vote for increased corporation tax here in the UK to stick it to those evil billionaires and just end up ruining small businesses in the process (while of course the likes of Amazon, Google and Starbucks carry on paying essentially nothing).
So what's the problem with taxing them for egregiously more but ineffectively? What if we kept the current effectiveness but imposed, say, a 120% rate on the ultra-wealthy? Maybe they would end up needing to pay 40% of this but at least it would be a lot better than we are doing now.
Let's say you started out with a 3% effective tax and a 30% ineffective tax. Would adding that 120% be effective or ineffective? If effective it would break their backs, and if ineffective it would kill whatever small businesses couldn't employ the dodge.
It does address an important point, though: should you pay tax based on where you live, or on where your income comes from? Governments invest a lot in their country, their citizens, education, a healthy market, etc. For foreign companies to profit from that healthy market but not pay taxes there, seems wrong. Similarly, for people to work in a healthy labour market but not pay taxes there seems equally wrong. These things result in a race to bottom to attract rich people and corporations that make their money elsewhere.
Instead, I think it would be better if income and profit were taxed more based on where it comes from, making tax havens irrelevant. But I have no idea how practical that is.
In the 1950s there weren't any alternatives to the US. Europe and Asia were rebuilding from WWII. Central and South America weren't nearly as developed as today. Places like Singapore, Taiwan, and Korea were extremely poor. The english language wasn't as popular internationally. Intercontinental communication was expensive and low bandwidth. Travel was much more expensive. These communication and travel costs made investing in foreign ventures was a very risky endeavor. Nowadays, it costs nothing to video chat with people on the opposite side of the planet. And foreign investments are no longer the crapshoot that they used to be.
It's much, much easier to live and work in a foreign country today. And it's only getting easier as technology improves.
> Governments invest a lot in their country, their citizens, education, a healthy market, etc.
Do they? I find that most people are successful despite governments, not because of them. For example: One of the schools I went to as a child was structurally condemned while I attended it. The water wasn't fluoridated, so my parents had to pay for fluoride pills to protect my teeth. I don't feel beholden to the government I live under anymore than I feel beholden to my employer. My employer has taught me valuable skills, invested in equipment, training, and pays for health care. Does that mean I should pay dividends to them after I leave? I don't think so.
> It's much, much easier to live and work in a foreign country today. And it's only getting easier as technology improves.
So let the current oligarchs exile themselves and we'll do what we can to make sure no more Bezos are created again.
I wonder if your school situation has to do how schools are funded in the United States in particular. It sounds like your school needs more tax money from richer parts of the country then where you grew up.
>> Governments invest a lot in their country, their citizens, education, a healthy market, etc.
> Do they?
They absolutely do. What I've seen of other countries's welfare states is grand.
> I find that most people are successful despite governments, not because of them.
Universal Healthcare. Universal shelter. Public transportation. Environmental protection. Welfare. Universal Education. Massive wealth redistribution. Markets. Most rich countries do these things with the government and are better for it. Huge numbers of Americans are not successful because this country lacks these things, and is actively prevented from having them.
They personally are not great people, but the system that has enabled them to hoard personal wealth and leave the streets full of the destitute will be destroyed.
The most important thing, of course, is to eliminate poverty and protect the planet. The next most important thing is destroy oligarch’s power so they don’t continue to jeopardize the most important things. And, practically in a scarcity economy, capture their mis allocated resources for better ends.
Wanting more wealth hoarded by the few is not a good thing to want.
Still, you went to school. Would your school situation have been better if the government didn't provide schools? If the schools are lacking, shouldn't the government provide better schools?
Similarly, roads to get to school, law enforcement keeping the place fairly safe, rather than overrun by roving warlord bands, food standards that ensure corporations aren't selling you poison. I think living is generally better in countries where the government takes good care of these sort of things.
Although I suppose in lawless countries, rich people could just become their own warlord and hire their own army.
Money is nearly always enough to get someone through an immigration system. Even if immigrant X did avoid taxes at home and can be relied upon to do the same, the wealth they're bringing over will typically end up benefiting the new country's economy somehow. Canada's made a strategy of exactly this.
Some might, but some are older and have roots in family ties and local ties. It is actually pretty hard and not especially desirable for many to abandon friends and family to save a money that is only to buy even more luxuries/see a bigger number in an account somewhere.
This stat is disingenuous when used out of context. The bottom 45% still pay SS/payroll taxes, which is quite regressive due to the $127k cap. When you consider that along with consumption and property taxes, their effective rate of taxation is still moderate.
There has never been a society wherein the most productive do not bear the majority of the costs. This is simply due to necessity; nothing else is possible.
At the least they also have the most say in how society is run, given money is the deciding factor in electoral politics such as ours. Were sortition or some other noncorrupt means of choosing rulers used, this would actually be an unfair arrangement. I suspect this is why oligarchy such as ours is so popular; it recognizes the reality of elites while creating the illusion of popular legitimacy.
That's not a useful thing to add to the conversation without the context of how much income is going to those two different groups of income earners. Some might even say it is purposefully misleading.
> The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980.
No it wasn’t. Is there even one historical example of someone paying 70% of their income as tax in 1950? Or was that simply the maximum theoretical income tax rate? That was just the maximum. Nobody paid that so it’s meaningless to compare these two numbers.
This looks like another confirmation-bias article to me.
The US already has a very progressive system. The aim here appears to be: increase govt spending. Okay, the only way to do that (looking at other countries that have high shares of govt spending to GDP) is to reduce, not increase, the progressiveness of the tax system.
The quantum of "taxes were higher in the past" is utterly wrong. They were marginally higher in the past but not by much (the big step change was JFK, then Reagan, then back up through Clinton)...how does the author even think govt gets paid for? Revenues are not swinging wildly all over the place.
If you are worried about middle-class income growth, it is worth asking how their income growth has been so low given that a huge chunk of people pay no tax at all and the middle-class pay substantially less than almost anywhere else. That is the truly concerning thing about progressive tax systems, how do you pay for stuff when most people don't pay tax? And the political response to taxation is always: "someone else will pay for my stuff...someone else!!!".
A global minimum corporation tax rate of 25% is ludicrous. I remember talking to a fund manager who talked regularly to Peter Oppenheimer about Apple's offshore cash...the solution, according to the genius Peter, was just for all the countries in the world to just make their tax systems equal to the US...easy...and then the problem would be solved. What is extraordinary about the charlatanism of the article is that the author actually thinks this view is logical. Apple just believed it so they didn't have to pay tax...but this is apparently someone's logical view...2019
Tangent: the US has gone way down the path of "economics and politics as objective science"...this has led to a host of people battering other people with apparently "logical" but totally impractical "solutions". Common-sense thinking and understanding history (i.e. what people have actually done in similar situations) is useful info that would help here.
How can this be the case if the taxes actually paid (which is what the chart shows), is largely flat across income bands, between about 22 and 28%? Sure, between 1950 and 1980, the system was progressive, but the actual percentage paid by the wealthy has come down over the past 30 years, it's now much much less progressive than it was 50-70 years ago.
It's hard to figure out how they got that chart that I've now seen pasted about a dozen times around social media. They cite an unpublished book. But it looks comically wrong. The bottom decile's tax rate is nowhere near 25%. The entire bottom quintile's tax rate is around 3%, and less than 2% for federal taxes.
Perhaps the book plays some games with what constitute a "tax rate?" For example, if you spend double your income on consumption (not uncommon for low income people, especially those who benefit from programs like EITC and SNAP) and then pay sales tax, you could squint really hard and say that a 10% state sales tax is effectively a 20% income tax. But that's crazy; this number would keep going up the more wealth transfer happens.
You should read the article before being so rudely dismissive (and comically wrong). He clearly states that the graph includes total tax burden, including payroll taxes, which is why the bottom quintile's tax rate is higher.
So since this is all 100% legal, are there resources available for people like us in the upper middle class bracket working as engineers in Silicon Valley to take advantage of all this?
Almost half of my salary goes to taxes every paycheck. That’s almost $150,000 I literally never get to see just taken away.
You also see it in the nuclear-powered aircraft carriers that drop bombs on civilians in other countries, the global surveillance system, military aid to despotic regimes with no regard to human rights, the border guards that imprison children and harass travelers.
You also see it in crumbling roads, ancient subway systems, shitty public schools, dumb regulations that make the market less competitive, "affordable" housing initiatives that make housing less affordable, pointless subsidies for farmers, and unsustainable pension funds.
This is true. It requires much more from the general populous than just the cash. Few private citizen wants to invest the time to fix the allocation. It’s a classic free rider problem.
A healthy democracy does require an engaged, educated voting populace to avoid being captured. I think the USA has been largely captured by the merchant kings who focus the populous not on their ability to change the nations trajectory, but instead on meaningless distractions.
Did you hear about the anti-gun nuns who bought a significant piece of ownership in the gun manufacturers? They have voting rights in those companies, and the manufacturers are slowly being forced to answer to them.
That's a bit of a simplistic argument about ingratitude though. Let's say he takes his $150,000 that is deducted each year in taxes and then fractions it down by state and federal taxes (federal taxes almost certainly being the majority of it) then fractions that down by what percentage of his taxed income represents federal or state programs for all the things you listed instead of other huge parts of government spending bloat such as military industrial outlays, assorted federal or state pork and so forth. The relative percentage of his $150,000 that actually goes to the things that ensure clean air, good road, parks, safe milk and etc would be much smaller. This is also taking aside just what percentage of any of the useful things any given tax payer actually benefits from personally (maybe he doesn't visit parks at all, or own a car for travelling along the interstate highways). That's where we could argue about someone being ungrateful while benefiting from public funds.
Where things get tricky and shitty (because they heavily lay the criticism on private individuals wanting to keep more of the money they worked for instead of on government not spending so fucking much without pause or careful control) is when you think it's by default somehow whiny to complain that a majority of one's income tax payments that go to a government which inevitably spends the majority of that money on things like the military budget or bureaucratic bloat. Does so much money deserve to go to these things without at least considering the complaints or reasonable debate of tax payers? The Etc etc etc you mention conceals a huge amount of government spending that is validly debatable and shouldn't just automatically be taken as a given because "progress".
I mean, for example, is it unreasonable to ask why an $800+ billion dollar defense budget is necessary for a country neighbored by Canada and Mexico? Is there a real risk that Russia and China will suddenly invade if the U.S doesn't tax its higher income citizens more heavily to pay for that much spending on this huge part of the federal budget? Then of course there's the question of just how much more expensive ensuring even the more "reasonable" basics of public spending that you mentioned is than it could be if there weren't all sorts of known inefficiencies in government services. For example: Federal and state healthcare spending in the U.S is a major part of both state and federal budgets, but how much of it simply gets wasted on terribly administered public health policies?
In basic terms, debates on taxable income also encourage debates on better public spending, and that's not something anyone should dismiss as "privileged whining" if they really think government also needs to be monitored and restricted in how it does things with public money.
If you're earning 300k (estimated from the almost 150k you said you pay in taxes), are you really in the upper middle class? from this article [1], 300k salary puts you in the top 5% of income earners. i don't know how you figure that makes you upper middle class?
Welcome to SV - I was literally able to find similar homes in similar neighborhoods (crime rate, education, etc), but one being in SV and the other in Los Angeles. SV home cost 3x more. That’s for 3BR + 1.5BA ~1400 sq ft from 1960s in Mountain View. Palo Alto or Menlo Park would be even more.
Real estate taxes are a form of wealth tax. One thing about real estate and salary is that there is a clear geographic origin (you work in a state, your property is in a state) that I think makes it a lot easier than going after total wealth.
Lets say you save $10,000 and invest it in a stock. It then goes up to $20,000. You are happy to pay taxes on that amount even though next year it might go back down again?
Year 1: pay taxes on $10K in savings, $100K house.
Year 2: pay taxes on $10K in stocks, $80K house.
Year 3: pay taxes on $20K in stocks, $120K house.
Year 4: pay taxes on $0 in stocks, $100K house.
So year 4 your stock goes back down to $10k or even goes to $0 and you'd be fine with having paid taxes the wealth you had even though it wasn't actually realized as money?
It doesn't make it worthless, but right now you only pay income tax on assets with volatile valuations when you actually realize the gain because any gain on paper may not actually be realized.
Let's say you invest $1000 in a highly risky stock. It does very well and goes up to $10,000. You haven't sold it, but the government taxes you a wealth tax of 20% so you pay $2,000. The next year it goes down to $1,000 again and you sell it. In terms of actual profit/loss you haven't made or lost any money. However, you've paid twice as much in tax as you originally invested. (Pick any percentage you want as a wealth tax and you run into the same issue.)
Buy at 1K
Hold while value goes up to 10K
Tax on wealth at 10K
(Next year)
Tax on wealth at 20K
...
(N years later)
Sell at 1K
With a liquid asset like stocks, it is at least possible to pay the tax by selling part of the stock, and you could get a credit in future years for capital losses.
But what if the wealth is your elderly mother's home? Or the family farm or small business? It's really hard to sell part of those things to pay a "wealth tax" every year.
> The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent). [1]
I believe the linked data is from before the tax cuts. However, politics/social justice/etc all aside, it makes sense to me systematically that tax cuts affect the rich more than others. Wouldn't the groups paying the most be adjusted the most when a change occurs?
The bogus concept of “capital gains” needs to be changed. Unless someone invest in a pre-IPO company, or purchases stock during the IPO, capital gains should not apply.
Buying stock on the market is not investing a company, unless the company gets the cash it’s not a capital investment. Buying and selling stock regardless of how long it’s held is not a capital investment. Also the selling of stock should be subject to state sales tax.
The simple fact that your home isn’t consider a capital investment, but a boat is a capital investment is proof that it’s just a tax dodge for the rich.
I've often wondered whether a 100% inheritance tax is the answer to all of this.
You can privilege your children with a private education, tuition, etc. You can't leave them any of your wealth.
If your kids are under 18 when you die, then they can receive a dividend but at 18 that ends. Your spouse should be able to take care of themselves, and not rely on your wealth.
No need for any other taxes whatsoever. Am I missing something?
A zero percent inheritance tax plus not exempting inheritance from normal income tax would be more fair.
(With generous provisions for advance recognizing income at the taxpayers discretion or for deferring recognition of windfalls that significantly exceed prior income.)
The data in this NYT article comes from research by the same authors as the above paper, which shows the top 1% having maximum effective tax rate over the years of around 45%? Confusing to say the least what is the difference.
> The Confederacy’s hostility to taxes ultimately hampered its ability to raise money and fight the Civil War.
That's a great footnote! I had thought of this several years ago and found a paper detailing the finances of the Confederacy, and boy were they ugly! The Civil War could have been won without a land war at all! It would have gone bankrupt either way. It couldn't issue debt and its farming citizens were selling crops to the government at inflated prices, which it was hoping to use and sell. The blockade prevented the selling, and it had limited use.
When I think about it, the union which won learned to resort to sanctions almost exclusively.
Yeah this is a key issue. People often think that a Flat-tax rate is regressive because of consumer habits, but what you care the most of all is tax-consumption and tax-benefit, even more than nominal contributions.
A billionarie made with defense contracts and state expenditures deserves a moral argument. But so does a lowly government employee that provides net negative value and collects a paycheck everymonth.
Rich people avoid taxes by converting their income into capital gains, this is often done using not talking big salaries but keeping money in the business
Secondly, rich people often create network of companies where on company is pending to friend's company and some other friends company is lending to your company - using this, you improve credit score of whole network and you can lend harder public money. Then you can simply use it as leverage, this is creating money from thin air.
Annoyingly there is no source for the data in the article because the book that it is advertising doesn’t come out until next week. My guess is that the wealthiest 400 households don’t have much income to tax. Most of their wealth would be in investments, which if they hold on to long enough become taxed as long term capital gains (20% for the rich).
Do you think the wealthiest 400 households have had a significant change in wealth/income makeup in the last 70 years? The article is highlighting that something has changed, and they are suggesting its tax policy not investment decisions.
Yes, there is no explanation of exactly how that number (400) was chosen.
Given that the US is widely acknowledged to be one of the most progressive tax systems in the world, the burden of proof required here is far higher than the article attempts.
I am not sure about that. Also, the Forbes list is mostly fictional. There are people who are worth vastly more than $2bn who are not on the list. There are people who probably don't have a positive net worth who are on the list.
Yes, it still sounds arbitrary and suspicious. Whiff of p-hackery.
Yes, there is. If you are suggesting that literally no-one has ever thought: I will compare tax systems between countries...then yes...they have done that.
> there is no universally agreed on definition of "progressive"
"Progressive" is being used here as a technical term with a specific, greed-upon definition[1], not as a description for the leftist political movement that shares the term.
The difference is still substantial, it's a 13% drop in the effective rate. This is compounded because the top 1% have doubled their share of income since the 50s [1].
Both the OP's article and yours have Zucman and Saez as a primary source for the data, so I doubt they'd contradict each other. It's 2 different arguments, one about the legal tax rate and one about the effective tax rate. In both cases the 50s were higher.
The role of government is to protect its citizens and their property. By that measure, the wealthy have a lot more to lose than the poor and thus receive a proportionately larger service from the government. They have more to lose if the government fails.
Thus, the wealthy should pay more for that protection. In fact, most of what the government does is protect the wealthy from the poor within its borders.
Of course they do. They can afford personal accountants and other full-time professionals that all they do fiscal optimization for them, trying to explore every loophole in the system for their advantage.
They can open a company, declare expenses and claim a low salary, thet can put the money offshore or on Switzerland, and all those tax-avoiding schemas that are not doable by the common citizen.
What exactly is it that you think putting the money in Switzerland accomplishes? The US asserts that any income you make anywhere in the world is subject to US income tax. Living inside a corporation is very difficult, and the IRS takes a pretty dim view of people who try it. But don’t take my word for it: Ask Wesley Snipes. He spent 3 years in a federal penitentiary for trying.
There’s a small deduction that’s not indexed to inflation, and you can also deduct any local taxes you might have paid.
All sorts of personal expenses can be deducted through a company. Travels, restaurants and hotels, car rentals, car maintenance.
Even holidays, there is a whole business of seminars on cruises and exotic locations, people sign the presence sheet and skip classes and declare everything as an expense.
You can pay your Internet, phone, buy coffee machines and coffee, office items and have all that deducted as a company expense.
All of this is pretty significant for most people and would make a huge difference in most people budgets.
>The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980.
I thought those rates referred to income made above different cut offs, not the overall amount of money made...
Earned-income (labor) shouldn't be taxed at all. It seems very unjust to tax something that is not a profit, such as a job. We aren't taxed when we trade two pineapples for four pears, so why is trading our time/effort for money any different? It's a scam. Though property taxes are likely a bigger scam. With that we're already in a post-ownership society. You never escape rent, never own anything, which is truly unfair on most of us that have to work to survive and our home is our only real asset. Capital gains should be carrying all of the burden, along with other taxes.
I could be persuaded to agree to a tax system that doesn't distinguish between any forms of income, as long as the first 50K was tax-free for everyone and steep progressive taxation after that, whether it's earned or unearned income. A bar set such as my 50K example to acknowledge that basic food/shelter only requires so much if you're willing to migrate, and everyone is treated the same- including the wealthy. They don't need more than 50K a year either, they're human too.
No matter how it's done (I won't argue details with anyone because that's not my point here)- the tax burden shouldn't be on the working class. It should be on the investment class.
Ultimately we'll likely need more worldwide government to track and tax these individuals fairly to eliminate tax scams like the Caymans. Without that I doubt any policy matters. Step one to that is publicly funding elections so those same people don't control our governments.
The default and only tax-avoidance policy needs to be the same one that applies to the working class. If you don't like taxes, stop making money.
That's a complete misrepresentation of your link and what I said. Of course businesses are regulated differently, or they'd be getting away with murder on bartering as yet another way to skirt taxes.
I can trade you two apples for two pears without filing a 1099B. Again, why should my labor be treated any differently? The business I work for should potentially pay taxes on my employment, but employees should not. And to clarify because apparently I have to- I'm acting as my own person, not on behalf of a business.
Their money working for them. I think this is as it should be. But, all kind of inheritance should be banned, or to be created at heavy tax. That way, a rich self made person got to have and spend his money any way he wants, and at the same time, undeserved millionaire and billionaire get taxed.
I think there is a reasonably balance to be found somewhere between not being able to give your friend 5$ and being able to make everyone even tangentially related to you into billionaires that do nothing but collect and spend the interest on their wealth.
Bezos is with about $110B. He is "tangentially related" to far more than 110 people. There is a solid track record of inheritors of massive wealth pissing it all away in a generation or two so you don't have to worry too much about it.
> There is a solid track record of inheritors of massive wealth pissing it all away in a generation or two so you don't have to worry too much about it.
I don't think wasting billions of dollars is any better.
A lot of things are taxed multiple times. I pay income tax, then use that taxed income to purchase a vehicle which carries a sales tax, and for awhile I even paid a tax on the value of that car annually. Same money being taxed multiple times. All recurring property tax can be viewed this way.
Inheritance or gifts should absolutely be taxed as income to the person receiving.
This article doesn't do a good job of explaining the income breakdown of the top 400 households. I imagine it is nearly 100% long term capital gains and dividends. That doesn't explain the change in the chart that occurred in 2018 though.
Are these the top in income or wealth? Because afaik most taxes are on income. If you accumulate a lot of wealth and do not proportionally generate income from it (think of private real estate), your tax rate should drop by that measure, right?
> Since then, taxes that hit the wealthiest the hardest — like the estate tax and corporate tax — have plummeted.
The corporate tax hits everyone, and it hasn't "plummeted", it was reduced all at once in one year, to a still extremely high level (from my Canadian perspective).
They go to all this effort to make a case that the effective rates paid by people with extremely high incomes are often slightly lower than those paid by people with still-very-high incomes... then they blame the marginal rate!
This article is a mess, the juxtaposition of excellent, valid observations, and contradictory filler is astonishing.
> In 2016, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid roughly $538 billion, or 37.3 percent of all income taxes, while the bottom 90 percent paid about $440 billion, or 30.5 percent of all income taxes.
The argument for corporate income tax is misplaced. Many socialist countries have a low (or no) corporate income tax and that's goods.
A country shouldn't tax the things it would like to encourage. In this case, that companies re-invest and not pull the funds out to pay investors.
Capital gains tax should probably be mentioned. Why is it a much lower rate than income tax? Why not talk about that?
Strange also that the article doesn't really target one specific part of the tax code - they don't mention any loopholes at all. If they'd like to see a change, name exploits.
The article is outrage porn - not trying to inform, or make a specific change. It's simply trying to get clicks and shares.
It's really a shame to see the new york times go this route.
in these mostly socialist countries, the top income bracket starts much much lower than in the US. these countries tax the middle class and consumption with VAT ranging from 15-21% on consumption. in spain the top bracket starts around 60,000 euros a year and its 45% not including local tax.
these policies and similar ones in other countries in effect keep the rich rich and make it much, much harder for the poor/middle class to move up.
Yup, moved back to one of those countries from a 20%-ish country and since I'm still not rich enough to have tons of deductions I'm really getting squeezed out of about half what I earn.
I agree that corporation taxes are a bad idea, however I don't understand your argument about the tax rates in spain. How do they "keep the rich rich and make it much, much harder for the poor/middle class to move up"? You said yourself that the marginal income above 60k is taxed at 45% - that's clearly heavily taxing the rich
Even if the rich were paying more taxes, that does not automatically mean that they are bearing the tax burden, because of "tax incidence" [0]. A rich person has usually much more bargaining power and can more easily shift the burden to someone else.
Do they mean a lower tax rate or total dollars? I'd like to talk about total dollars not percentages, percentages are misleading. If someone is paying 1 million in taxes and you pay 10 thousand, they pay more than you, regardless of conversion to percentages of taxable income.
> The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income.
The total income of the top 400 is just 1.3% of total income, so the tax rate on these people is largely irrelevant. The top 1%, who make 20% of all income, do indeed pay higher tax rates than everyone else. Any smaller grouping (billionaires, people making $10 million a year) comprise too small a fraction of the tax base for it to matter. Hell, you could tax the wealth of the top 400 at 100% and it would just pay for a single year of Medicare for All.
Articles like this are political cover for the upper middle class, to shield the fact that the real reason we don’t have European-style social services is that the American middle class pays vastly lower taxes. American corporate taxes and top bracket income taxes are in line with that of countries like Canada, Germany, etc. https://taxfoundation.org/sources-of-government-revenue-oecd... Until the Trump tax cuts, the actual effective corporate tax rate was higher than those countries. For example, New Zealand’s been a media darling recently on the left. But it’s got a 33% top income tax bracket, a lower corporate tax rate than California even after the Trump tax cuts, and no capital gains taxes. What it does have is a significant GST and a top income tax bracket that kicks in at $70,000.
The article paints this narrative about what’s happened since the 70% top tax brackets of the 1940s. That narrative is incorrect, because it ignores that the tax base was narrower. (Many things like corporate expense accounts were not taxed.) In fact the top effective bracket has been remarkably stable at around 40%.
It is also misleading by omission. It dismisses, without any citation, the notion that tax reform has had any effect on economic growth. In fact, the whole developed world has broadened the tax base while cutting rates, especially for businesses. While it’s hard to establish causation, Europe in the 1970s and 1980s, before Reaganism, Thatcherism, and Merkelism, was a lot less economically competitive than it is today. Canada did the same exact thing, under both liberal and conservative administrations. (Trudeau, another media darling, presides over a country with a 33% top income tax bracket and a 16.5% capital gains tax rate).
There is a proven model for how to get the kind of society the New York Times evidently wants. Look to Europe. Deregulate, cut corporate taxes, and make the middle class pay for its own benefits through high sales and social insurance taxes.
People with more resources can hire more professional tax advisers and structure their businesses and returns in more optimal ways than people with less resources.
Conversations about this topic are so tiring. There's not just one question you can discuss; anything you can think to ask begets a massive pantheon of questions that require an agreement on moral axioms to even start talking about - and then the fun part begins.
How much taxes should people pay? If rich people pay should pay more, does that mean more dollars or more %? If they should, can we make them? If we can, will that incentivize them to leave? if they leave, is that a net benefit globally even if it hurts america? is globalization a positive thing, economically? if it is, is there a concurrent reduction in cultural diversity? if there is, is that bad?
do we even need _any_ taxes besides sales tax? how should taxes even be accomplished? queue discussion about big/small government, libertarians vs dems vs reps.
im not even trying. thousands of questions about any small subset of this topic. its almost not even worth talking about in anything less than a doctoral defense, if thats even a big enough stage.
I'm rich[1]. I keep my 1040 numbers in a spreadsheet. Here's some overall numbers for tax years 1997 - 2018:
- Wages $4M (Min $38K, Max $375K, Mean $179K) (Excludes FICA and 401(k) contributions.)
- Total income $4.3M (Min $39K, Max $377K, Mean $195K)
- AGI $4.3M (Min $38K, Max $377K, Mean $194K)
- Taxable income $3.4M (Min $26K, Max $325K, Mean $156K)
- Tax $742K (Min $3.8K, Max $81K, Mean $34K)
- Overall effective tax rate (tax/AGI) is 17.4% (Min 5.5%, Max 23%)
Marginal tax bracket has been as low as 15% and as high as 33%. Some specific years:
- In my lowest income year, I had total income of $39K (AGI $38K) and paid $3.8K in taxes (10%).
- In my highest income year, I had total income of $378K (AGI $377K) and paid $81K in taxes (21.6%)
- In my highest tax year, I had total income of $341K (AGI $341K) and paid $76K in taxes (22.3%).
- One year I had total income of $151K (AGI $146K) and paid $14K in taxes (10%).
- Another year I had total income of $127K (AGI $117K) and paid $6.4K in taxes (5.5%).
Married filing jointly for all years. Spouse has had no income since 2000. Two kids since 2003. Since 2004 I've lived in a state which currently has a flat income tax of 5.5%. With SALT, mortgage interest, and charitable contributions, I've itemized every year. Last year it barely made sense to itemize, and this year I'll probably be right on the itemize line again.
Including SALT, I estimate my total effective tax rate at around 30% most years. I'd have to do some math to figure out how much sales and other non-SALT taxes are as a percentage of income.
I'm a tech worker with a CS degree. I've been lucky with my career. One startup I joined circa 2000 made it to an IPO and was acquired by an F100. Another startup I joined was acquired by a public company which itself was acquired by an F100. Salary a few years into my career has been in the $125K - $200K range and bolstered by ISOs, ESPP, and RSUs.
We're fortunate we can accord to put our kids through college. I expect to spend about $150-$200K total for both in a state school.
Tangent:
I would pay more in taxes for a stronger social safety net. Retirement is more than a decade off, but I'm counting on Social Security for 25-50% of our retirement income, and Medicare for health insurance. We'll do fine in retirement, but in retrospect, I wish I had been saving even more each year. Having SS tax uncapped (no wage base) in return for higher payout is a tradeoff I'd make. I don't see any reason to tie SS to wages and not total income (include capital gains and dividends).
In general, I think there's too much reliance on the stock market for retirement. The mishmash of retirement plans we have in the U.S. is crazy. The 401(k) only came about due to some Kodak executives lobbying for a special exemption in the tax code. The deduction limits are arbitrary (why does a 401(k) allow almost 4x the deduction of an IRA). Expecting your average person to save for their own retirement is a lot to ask. My parents certainly never figured it out (both still working in their 70s). "How to save for retirement" wasn't a course I had in school. Even if (say) you're diligent enough to set aside 25% of your income each year into a target retirement fund and retire at 65, how well you do in retirement is still up to the whims of the stock market and how smartly you invested. Because most people don't have significant earnings till later in their careers, compounding isn't as valuable individually as it is collectively. And yet, corporations and governments haven't been reliable guarantors of retirement pensions. I don't really have an answer.
Can the IRS be sued for violating equal protection under the law? They have admitted that they don't have the budget to go after high net worth individuals who can pay tax attorneys to hide their income in tax loopholes, so isn't that a tacit admittance that the rich can cheat on their taxes with impunity? If that's the case then not all citizens are held equally accountable to the same laws.
That would seem to be a violation of the fourteenth amendment (https://en.wikipedia.org/wiki/Equal_Protection_Clause) The clause, which took effect in 1868, provides "nor shall any State [...] deny to any person within its jurisdiction the equal protection of the laws".
No problem, the cost of defending the suit plus the cost of potentially more audit means it will just cost more to run the IRS the subsequent year.
If only they could be bankrupted, now we'd be talking. Except they can't cause, like the rest of the government, they get to suck on the teat of infinite yield: people's taxes.
Wow, that chart shows tax rates on the wealthy dropping from 70% to 23% in the last 70 years. Now probably 70% was too socialist and may not fly in a globalised world where is a lot easier to move to a lower tax country or state (I'd move if I had to pay that.) But this seems ridiculously tilted to the other extreme now.
Edit: I don't understand the objections to my comment. If you have a problem with the data behind that chart, that's not my problem.
If you object to the usage of the word socialist - that's a common usage, don't be so pedantic.
There were a lot more exemptions, deductions and credits back then so the effective tax rate was not even close to 70% and was not much higher than it is today. Not sure why this article didn't mention this at all but I can guess, coming from the New York Times and all.
Of course it's true that the effective rate was less than 70% (that was the top _marginal_ rate, just like 37% is the top marginal rate today); however I am curious to hear about the exemptions etc for rich people - my understanding is that these have gotten larger and more complex over time so it's surprising to me to hear that there were more loopholes in the 50s than today. Is there a source for this?
One used to be able to deduct any interest, not just mortgage interest. There was a sweetheart deal for oil production, to the point that 50s Hollywood actors would form corporations that mixed film production with oil business. Capital gains were quasi indexed to inflation in that your first 50% wasn’t subject to gains taxes.
The whole point of the changes in 86 (aka Reagan tax cuts) was to remove all those deductions/loopholes/shelters in return for a lower nameplate rate. The goal was to clear out bullshit stuff people were doing for tax reasons and replace it with useful economic activity.
Claims like this would feel a lot stronger with evidence. Especially since it seems counter intuitive to have fewer deductions and credits in the modern world. Those numbers would, intuitively, go up in time. Just on how rarely we talk of expiring them.
Since you're so sure of your viewpoint and the NYT's bias, it should be really easy for you to go into more detail here, right? (I'm not expecting a thorough response from you, don't worry)
See the rest of the comments on this post to understand why this link isn't useful in the discussion of taxes on the top 0.01%, which is the subject of the parent article.
One aspect of what can be found in the NYT article is a graph that shows the people at the very top of the income pyramid paying a 70% tax rate in 1950. However, there's a nominal tax rate versus what someone actually winds up paying after various deductions an loopholes. An earlier study by the same authors of this latest publication that the NYT is citing indicates that those in the top 1% were paying around 40% in 1950. Based on that, I find the claim that those at the very top paid 70% in 1950 to be highly doubtful. Am I right about this? Well, I guess I'll have to wait a week for this latest book to be published, or until the NYT issues a correction. The earlier study from these same authors, which was cited in the link I posted above, can be found at:
Posting a libertarian think-tank link adds no value as an answer to a comment asking for someone to explain their perceived bias of NYT articles on tax policy.
No, workers don't own anything in Socialist States. In Socialism, it is the State that owns everything and obligate the workers to work. You cannot create any business in Socialist states due the nature of the abolition of private property. You cannot choose what to work, it's the State who assign you that.
Then they're not socialist states. In fact the USSR was a counter-socialist state, they had to overcome the real revolution and re-instate managerial control from the workers, at great difficulty.
The USSR was a full blown socialist state. They managed capital in the practice, they also traded with other countries and let farmers do commerce due the war with them. but that was their strategy (on Russia) but in the rest of the socialist states they didn't. There's so much books written about this topic you can never end to find contradictions in their rules. Of course the elite lived like the best capitalists.
I thought workers owning the means of production was communism, whereas socialism has come to mean the distribution of value to society through highly general programs.
Communism (the ideal): a classless, moneyless society where all states around the world have withered away and people are free to organise themselves outside the tyranny of the state or private property owners
Communist Party: Authoritarians who like to use the above as a carrot and seem to like to create one-party states who never wither away. They claim to represent workers but tend to stick their own representatives anywhere that has any economic significance. Leftist critics of such societies often characterise this as "state capitalism" where the state is effectively one gigantic, brutal monopoly. In Lenin's words "He who does not work, neither shall he eat."
Socialism (marxist): Workers own the means of production as a vital step towards communism
Bourgeois socialism: A pejorative for what we call social democracy or democratic socialism
Social democracy: The distribution of value to society through highly general programs, as you put it, within a liberal, capitalist society.
Democratic socialism: Social ownership (i.e. co-ops, municipal ownership, some nationalisation) of the "means of production", usually still within a market and otherwise retaining liberal democracy and usually also aiming to implement social democratic policies, too.
Socialism has a real definition which means the people owning the means of production. Just because people confuse it with a welfare state doesn’t change the myriads of literature discussing this philosophy. Just shows the continued failures of our public schools to teach even basic concepts.
The nordic model is a welfare state with multi-level collective bargaining (think unions and corporations everywhere). Though the term welfare state sounds really really bad, they are actually doing really really well.
No. Communism is a stateless and classless society, that, in Marxism, is the next step after the "dictatorship of the proletariat", or the ideology that wants to achieve this state. Socialism is the public ownership of the means of production. Communism is a form of socialism.
This is the current meaning of the word. But let's not forget where it comes from. Historically communists saw themselves as the true socialists (eg. USSR)
Another way to look at it, e.g. for income tax - if we take the same % (e.g. 30%) and think in terms of absolute numbers - for poor it is anyway a small amount, but for the rich the abs number might be so big that it becomes uncomfortable to just give such lump sum to government, especially if you don't like how gov spends it - so the incentives are much higher to optimize/avoid your taxes.
I think this “vilify the rich minority” mentality that’s so popular these days is destructive in the fact that the people that popularize this, see it as a path of least resistance to getting subsidized at the expense of the rich, instead of working toward improving themselves and the value of the products/services they provide so that they may, in return, purchase valuable services for themselves.
In the end when this sort of mentality is allowed to win out, what it leads to is the dissolution of those valuable services these “rich” people provide which made them their wealth in the first place. It’s unfortunate that only AFTER their dissolution, the original proponents of this mentality are the ones that suffer and realize their short sightedness.
> see it as a path of least resistance to getting subsidized at the expense of the rich.
If making the tax code more progressive is equivalent to "subsidizing the poor at the expense of the rich", does that mean you're saying the current regressive tax laws subsidize the rich at the expense of the poor?
If so, flipping that sounds entirely reasonable to me.
The question itself comes off as prejudiced because you seem to imply that the wealthy should pay more than those that are not wealthy, and discarding the fact that your discriminating against those that are wealthy by doing so.
What about all those services like public education, roads, the military, police force, federally funded research, societal stability and so on that government provides which enabled those wealthy people to gain and maintain their wealth to begin with.
And what services did Donald Trump Jr and Ivanka Trump provide the world, or all the other heirs and heiresses of vast fortunes who earned it by virtue of being the scion of someone who actually accomplished something -- or maybe the offspring of the offspring of someone who actually accomplished something?
link [0]: https://news.ycombinator.com/item?id=21176705