This seems like a pretty poor argument for a flat tax and in fact could be seen as an argument against it. If raising top end bracket taxes didn't increase overall income, then it must be the case that it reduced the tax burden on lower incomes -- which is the entire point of progressive taxes. So progressive taxes work, let's keep them!
I view this as mostly orthogonal to the issue of tax simplification, however, which I think is probably a good idea.
I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels.
I'll be frank. I have no reason to believe anyone is honest (not even myself). While we like to say that we are not savage animals, we are. CGP Grey made a video https://youtu.be/rStL7niR7gs?t=1072 based on The Dictator's Handbook
I read an article on some online magazine which argued that the 0.01% is not the problem but rather the upper middle class as they like to call themselves. I imagine it is the same way all over the world.
> “Take the mortgage deduction,” he continued. “This is to stimulate homeownership amongst people who are already going to own homes. That is worth, to a middle-income family, a hundred bucks a year. I was a little surprised by that. You can have your own reaction; I was a little surprised by that.”
from https://archive.fo/UgQDd (NY times link, used to be the title link of this discussion)
I'm sure you know this but I didn't think about this for the longest time. Pretty much everybody is a hypocrite. Sorry but if someone advocates for less taxes on the wealthy, the first thing I will look for is whether I think the change will be good for me. Sorry for being selfish but then if I conclude the change is not in my favor, the first thing I will do is not the merits of their ideas but rather follow the money and see what they gain from this change.
Life is short. In the bigger scheme of things, we are just trying to find a locally optimal choice. When people say they want to lower taxes, they usually mean they want lower taxes for themselves. When people say they want fewer government services, the idea is usually they want fewer government services that they do not use.
> Let's take an example of Apple's $200 B sitting offshore.
Just to put things in simple terms, this $200B does not include money Apple made by selling iPhones in the US, right? It only includes money Apple made by selling iPhones in other countries? I don't get why we obsess so much over it. US economy is large enough. If they want to bring this money back to the US or they want to give money to their owners/stock holders, they can pay the tax at that time? I don't have a horse in this race. I am just trying to understand the premise as an outsider.
As an American citizen, I'm still subject to federal income tax, even on income earned while I'm residing outside the country, for work done entirely outside the country, for a non-American employer. That being the case, I see no reason why similar rules shouldn't apply to American corporations. If we say an individual still derives services and value from their citizenship even when outside the country, and thus needs to pay in to support that, why not also American businesses?
I don't know enough about business structures and tax code to say _how_ to make it happen, but from a sense of fairness, I think that roughly equitable rules for business and individual entities is a good thing.
http://www.internationalman.com/articles/this-appalling-prac...
This is a really unusual part of the US tax code.
Oh hey, it's over $100K now:
https://en.wikipedia.org/wiki/Foreign_earned_income_exclusio...
I personally have no problem staying under $100k; I live in Germany and work at a university. But imagine if you lived in Switzerland or Norway. Somewhere with a high cost of living and with a currency that is very strong vs the USD. Then it doesn't take much to go over that 100k.
And even though I don't have to pay US federal taxes (being under that $100k), I still have have the file state taxes, federal taxes, and an FBAR. Every single year. The time and effort is an annoyance, but what bothers me most is the principal. I don't live in the US; I don't use its services; and still, every year, I have to allocate a weekend to provide them with every single detail of my financial life.
---Alex
Wrong question and answer. Assuming what you say is correct (I'm not a tax expert), the question is why is that the law and how can we fix it? The situation you describe is morally wrong. You are getting no protection, use of infrastructure, or other aspects of the services that our taxes provide. Therefore, you should not have to pay tax. Rather than propagate an unfair situation to other entities, the situation should be fixed. A paraphrase of your comment is: I'm getting treated unfairly, so others should also be treated unfairly.
Perhaps it would be more fair if there was some intermediate tax rate that accounted for services that you aren't able to take advantage of...but at the same time, I think additional rules and exceptions are the last thing the tax code needs.
But you're right that I'm not necessarily so much insistent that business should be subject to that kind of taxation as that I think it should be consistent.
Every dollar of extra tax paid by the wealthy is a dollar of tax that doesn't need to be paid by the non-wealthy. Your belief notwithstanding.
Sorry if that wasn't clear enough. What I originally said is very different than how you understood it. Even in your case though, you assume government spending stays the same. But it doesn't. As government rev. increases, you can bet they will spend their new money as fast as they can. No matter if the additional revenue is coming from lower or upper brackets.
It's fine to be cynical about rich people avoiding tax and the benefit of government programs, but you need to understand what you're being cynical about. The fact is that tax cuts do reduce revenue so having higher taxes clearly did something.
Would a flat-tax fix this? In theory: but if we set that "flat tax" to 15-17%; (and simply pocket the cost savings from simplification of tax code) - that seems like a win. But the very poorest quintile can't pay that. (and are equipped to dodge that, by simply not working and collecting aid or taking black-market work - cash-basis labor, or selling drugs, etc.) - the top quintile will also have the means to avoid paying their fair share. As always.
It's those in the middle, who have to work REAL jobs, and can't hide their income though either black-market means, or tax-shelters: which still work in a flat-tax system.
The government will need to raise overall rates to compensate for this, and the middle gets screwed even more.
That's an IDEAL system.
In the REAL world: the wealthy will still lobby for special deductions.
Personally, I'd like to see the mortgage deduction go away for non-primary residences.
Stuff like "dancing-horses" deductions and the absolute murder "small businesses" get away with, (like; taking their personal Truck as a deduction, by calling it a "work truck") - that can be horse-traded around. But I think there is the most to be gained from the mortgage deduction on non-primary residences. This is probably America's most sacred cow. And therefore, is most likely politically impossible. This is why we've been at a stalemate over tax-reform since 1980.
That's not really true. 99.9% of the tax system is progressive[1] and the middle (14% effective tax rate on 59k annual) and upper middle (17.5% on 95k) classes pay less than the highest quintile (27% on 260k). Even the top 1% (35% on 1,570k) pays fairly reasonably, although capital gains eats into that- it would be closer to 45% if it was taxed at the same rate.
The real problem is the .1%, the people who's annual income is in the hundreds of millions. These are athletes/actors and "businessmen" who are really just investors in their own company, and they form two distinct taxpayers. The athletes/actors pay rates ranging from 20% to 35%. The ultrarich businessmen are heavily clustered around 10-20%. So heavily that both groups together paid an average rate of 16.62%[2] in 2007. That's just... incredibly insane.
I think part of the opposition to fixing this problem comes from framing it as a middle class issue. It's not even a middle class + rich issue, it's an issue for even the extremely rich. It's not an "us vs. CEOs" issue. It's "everybody vs a subset of the richest thousand people". There isn't an income level above which you are the enemy, the enemy is all of the people who skirt by paying taxes. Long term capital gains taxes are too low and ultrarich tax loopholes are abused liberally.
[1]: see page 35 of this CBO report- https://www.cbo.gov/sites/default/files/114th-congress-2015-...
[2]: page 10 of this IRS report: https://www.irs.gov/pub/irs-soi/07intop400.pdf
For some perspective, "the 1%" starts at about $350k annual salary (think middle-of-the-pack surgeon.) At that level, you're paying a lot of taxes.
There's an excellent recent Econtalk on taxation in the US.
How does any of this make sense?
That's simply tax fraud, it's completely different from the other examples you're calling out..
How about "work computer"?
The primary reason to simplify the tax system is to remove as much influence special interest groups have in regards to carving out special exemptions. Making the system a simply sign and forget return type. A complex burdensome system only provides power to the political class.
The real reason to cap tax rates is because it has been proven time and time again, the more they have to spend they will and thereby pay a much higher over all tax rate.
Not necessarily. That would be true if the absolute $$$ collected were the same, but that's not what is asserted.
Consider the following: 10 people earn $10 and pay $1 in tax. 10 people earn $20 and pay $5 tax.
The total tax collected is 20% of all income.
Suppose the government raises tax rates such that the $20 earners will now pay $8 tax.
Say 4 of the high earners stop working as much (since their marginal rates are so high).
Now you've got: 14 people earn $10 and pay $1. 6 people earn $20 and pay $8 tax.
The government now collects 24% of all income. It also collects a higher proportion from the lower income people than it did before. It has lower revenues and people are, on average, poorer. In other words, everyone loses.
So you can't just look at effective tax rates to determine whether raising top end tax brackets was good or not.
I know you're just using this as an example, but it begs a question I've struggled with: is there any actual proof that marginal tax rates reduce productivity in high earners?
On its face it makes perfect micro-economic sense, but that's like saying a cache will never miss or a cow is perfectly spherical. It just doesn't match up with real life experience. I've never once heard someone say "well, I'd ask for that raise, but they're going to take so much in taxes it's just not worth the effort".
Anecdotally it hasn't changed my motivations one lick as I've moved up tax brackets, to the point that I recently joked with my dad "I guess I'm done trying now!" when I stopped qualifying for a certain tax credit after I'd negotiated hard for a nice raise.
Not-so-anecdotally there's plenty of research that has shown that money (in and of itself) is a terrible motivating factor[0].
Nobody is going to turn down a flat wage hike - but the damage of government tax policy is it shrinks the window of "what the company will pay for" and "what the worker will work for". Now we can't measure this for sure, but theory tells us it is a very likely, if not practically certain, outcome. The issue is you won't see it, because companies will just not be offering some jobs because they experimented and couldn't offer them at a wage that interested workers.
As a bonus, raises are a bit of an illusion. There is a huge amount of new money entering the system from somewhere (see https://www.federalreserve.gov/releases/h6/20170406/, about 5% p.a. increase). Most wage rises in theory are to balance that out so that you have enough dollars to call on the same real resources for hours of your labour.
The reality is that people weigh these costs against many factors and locales, clusters of business, family and institutions have powerful effects that add friction.
From a practical standpoint, the investment banker pulling in a $500k bonus in NYC with its 11.5% marginal tax rate doesn't move to New Hampshire because he'd take a 50% or more compensation haircut.
In a similar vein, nearly 10 years ago in Australia, a Mineral Rent Resource Tax (MRRT)[1] was proposed, wherein mining companies making a net profit of over 5% were taxed a bit extra on the amount over 5%. Of course the miners and their fans screamed bloody murder, and threatened to move offshore. Yeah, sure you guys are. You're going to move your profitable-by-definition business in a stable first-world country and away from working mines and supply chains.
Besides, miners mine where the minerals are; they don't move to Ireland and mine there because the taxes are low.
[1] One of the earlier names for the MRRT was the stonkingly-bad-PR move of calling it "Super Tax". It was meant to be a tax on 'super profits', but a) it sounds like an extra-powerful tax, and b) sounds like a tax on your superannuation.
If you are still talking about tax credits, you are no where near the top tax brackets. Note that income brackets extend to more than just your reported W-2s...
In scenario 2, government has higher revenue, not lower.
If high earners had to exert themselves twice as much or otherwise expend twice the resources to earn $20 instead of $10, maybe ending up with $9 instead of $12 would be rational. Of course in the real world it rarely works that way, only a few are in a position to work less to earn fewer commissions or work less overtime to avoid entering a higher tax bracket. The brackets are also a lot more graduated, it's not like you could earn $19 and pay $1 tax.
This is way out of proportion to real-life values, and the semantics of this equation change quite a bit with even minor changes.
For example, after your high-earner tax hike, the low earners are left with $9 and the high earners are left with $12. This is absurdist nonsense that does not match up with what happens in the real world. A person on $40k and a person on $80k have vastly different spending capacity after tax.
A person on $80k (~66k after tax) doesn't pay eight times the absolute amount of tax the $40k (~36k after tax) person does, and they retain their approximately two-times spending capacity.
The example is given to be demonstrative, not to represent a real world scenario.
Everything depends on the specific numbers, clearly. That's the point I'm trying to make as well.
I have literally never once heard or even heard of someone deciding to work less because they don't want to pay as much in taxes.
Anyway, she didn't like the sound of THAT idea. One of the many reasons she is my ex.
I knew a surgeon who chose to work half days because the marginal gains were not as good as working half days (in Ontario, so his marginal rate was ~50%).
This logic is not sound. Another option is that the wealthy hire accountants in order to avoid paying 90%+ tax on anything. Paying an accountant $1000/hr is almost nothing if it can save you millions of dollars in taxes.
So rather than reduce the tax burden on lower-income families, it's possible it just increased the income of accountants.
The flat tax is regressive. Regressive is bad because the value of money is roughly logarithmic as it increases. Any plans to make the flat tax "less regressive" is an argument against a flat tax. A simplified tax code is a good idea. It is quite possible to have a simpler tax code that is more progressive. Yet I find that flat tax proponents tend not to be in favor of that.
Strictly speaking, a flat tax is the border between progressive and regressive taxation and is neither progressive nor regressive.
Ideally you would want to exclude the expenses incurred to sustain a reasonable minimum quality of life and only consider taxation on income in excess of that. A truly flat tax rate is still regressive in the sense that it is a significantly higher burden on that expendable income at the lower end of the scale.
(A lot of analysis gets based on the misuse of $ as a flat measure of utility, which is deeply flawed.)
EDIT: more accurately, this subsumes and generalizes the disposable income issue, rather than ignoring it, since the concept of "necessities" that come out before income is "disposable" is really a simplification of the "low hanging fruit" of high-utility spending to a binary category, rather than a continuum.
I don't agree that is ideal. Ideally, everyone makes an equal sacrifice. What is an equal sacrifice?
* Everyone could pay the exact same amount of tax, let's say $15K. But that is not equal sacrifice; some people can afford $15K much more easily than others (especially those who don't have $15K).
* Everyone could pay the same percentage of their income, let's say 17%. That also is not equal sacrifice: If you earn $1 million, you can afford to give up 17% of it much more easily than if you earn $10,000.
* Tiered progressive tax rates: These can be equal, if calibrated effectively. It will never be perfect and always up for debate, but it can be done pretty well.
1) Figure how many times poverty rate you make in revenue (2x, 3x, whatever)
2) Take the log base 10
3) Multiply by some flat constant that is the same for everyone, so that the total national amount taxed is how much the US needs. Last I checked, that flat constant would be around 9.
4) The result is what percentage of your revenue you should pay in taxes.
Currently, we are far from logarithmic. Under this scheme, pretty much everyone reading this board would pay less taxes. Bill Gates pays about the right amount. Exxon would pay more.
Useful as a thought experiment to explore how far away we are from a fair level of progressive taxation.
> It's generally accepted that the value of money is roughly logarithmic as it increases
I assume that is economic theory; do you remember whose or have any pointers to where I can read more?
$5000 means more to a working class person than a billionaire. If taxation should take an equal amount of value from each, then a flat percentage is comparatively regressive.
Except it doesn't. The only way to for SS to collect from the trust fund is from the general fund. That means that in order for SS to get $1 from the general fund:
A) Raise non-SS taxes $1 to go into the general fund.
B) Cut $1 of other spending from the general fund.
C) Increase the deficit by $1
A) The trust fund is in surplus from payroll (FICA) taxes.
B) The general fund is in deficit from income tax cuts.
C) Most income tax cut benefits go to richer people.
So if someone argues that trust fund doesn't exist, they are arguing that revenue from payroll taxes should finance tax cuts for those richer than them. Effectively transferring money from poor to rich.
Keep this in mind as the Social Security caterwauling starts to increase around 2019 (when SS is expected to start needing money from the trust fund). People will argue that Social Security needs to be cut because of that deficit. Most of those people know better and are being intellectually dishonest.
2034 is the actual challenge, but again, there are reasonable fixes to that - for instance, gradually raising the maximum amount of earnings covered by Social Security, or creating a new residual estate tax and dedicating it to Social Security. Democrats also like the idea of raising the upper limit, which will also work and is an easier sell but less defensible philosophically.
B) Not true or relevant.
B) Not true or relevant.
>So if someone argues that trust fund doesn't exist, they are arguing that revenue from payroll taxes should finance tax cuts for those richer than them. Effectively transferring money from poor to rich.
Again, not true at all. Notice how you can't actually answer the question I posed about how SS can actually get the money out of the trust "fund." The fund is empty and is quite literally only made of a IOUs from the general fund.
It's actually a lousy question because it proves nothing. Money is held in different accounts not because they are actually stored in physically different places, but because they are conceptually different, and because the concepts are not fungible. I do not (and in some cases cannot) transfer money between some of my different accounts at my brokerage even though all that money is ultimately in the same pool somewhere.
In the case of the general fund and the trust fund, the trust fund surplus money was not spend in the 90s or at any other time since the surplus started growing again; it remained in surplus, and - counting its interest income - it remains in growing surplus until about 2019, at which point that surplus starts being dipped into until 2034.
(Also note that historically, this has already happened. [1] There was a social security surplus, and then it got spent down partially in the late 70s, and then started growing again in the early 80s. Everyone got their checks.)
Why is this distinction necessary? Again, because the general fund has gone into deficit. People like mason240 try to pretend that it hasn't gone into deficit as much as it has, because the people that are advantaged by the general fund deficit have a higher tax base than the people that have paid into payroll tax (on average). So why do we make this distinction? To protect against the transfer of money from the poor to the rich. Why do people like mason240 insist otherwise? For not other reason than to keep that money, and to weaken social security.
These are two completely separate concepts, but if you insist on equating them, here we go:
Imagine you borrowed money to a business. That business then spent the money and gave you an IOU.
How is the business going to repay you when you want to withdraw? Like I said in my original comment, it will have to:
A) Raise their prices.
B) Cut spending (like employee benefits).
C) Borrow from somewhere else.
So much nonsense here in the rest of you comment. I think the best part is where you claim I have an agenda because I'm being factual, but you keep trying to shift the topic into taxing the rich.
As far as the general fund being in deficit, how they resolve that has nothing to do with social security, which has a healthy trust fund to draw upon until 2034, after which benefits will automatically shrink until payroll contributions are enough to fund the trust fund again.
https://www.ssa.gov/oact/progdata/fundFAQ.html
If on the very small chance you are not in favor of cutting social security in any sense, know that the argument that there "is no trust fund" and "it's just IOUs" is a right-wing argument, a right-wing frame, that is typically only advanced to justify cutting social security in some way. If you are not in favor of cutting social security, find different language. If you are, then be intellectually honest about your views that government has no role in doing what social security does, rather than engaging in myths about non-existence of trust funds.
That's really sad.
It's YOUR comparison.
What a troll.
>Social Security's total income is projected to exceed its total cost through 2019, as it has since 1982. The 2015 surplus of total income relative to cost was $23 billion. However, when interest income is excluded, Social Security's cost is projected to exceed its non-interest income throughout the projection period, as it has since 2010. The Trustees project that this annual non-interest deficit will average about $69 billion between 2016 and 2019. It will then rise steeply as income growth slows to its sustainable trend rate as the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.
Eh, if it makes it past the Boomers (which it does in the low-cost estimate in recent trustees reports, but not in the intermediate- or high-cost estimates; so risky-but-plausible with no intervention, certainly achievable with minor tweaks) it's fine, demographically, for the foreseeable future; Gen X is a demographic trough, and the Millennial generation is a gentler boom than the Boomers.
1) To get to that number the Trustees assume fertility rates will rise to over 2.2, a rate not seen since 1970 which completely goes against the trend of the last 50 years.
2) They continue to assume 1 million migrants a year to the US, despite active legislation seeking to limit migration to half a million a year.
https://www.ssa.gov/oact/TR/2016/2016_Long-Range_Demographic...
All of this is dependent upon a Labor Force Participation Rate not encumbered by automation and a general lack of skills by the populace. Which may not be a problem but the BLS has been underestimating the decline in LFPR in their projections for the last 20 years. We're decades a head of where we should be based on Demographics alone, according to all of their predictions.
https://www.stlouisfed.org/publications/regional-economist/o...
I'm not sure you can say it like that. It went up 2.13x from 1980 to 1990, 1.43x from 1990 to 2000, 1.93x from 2000 to 2010, and 1.07x from 2010 to 2015.
There was a big jump of 1.93x from 2000 to 2010, but that is only 2 years of Obama's first term. What really happened there is likely the housing crisis/market crash in 2008. I don't see how that's related to Obama. It only went up 1.07x (the lowest amount for each of the 10-year segments) for the remainder of his term, and it made a higher jump from 1980 to 1990.
[0] http://usafacts.org/government-finances/spending?comparison=...
And yes, some are in thousands, some in millions, and some are actual. On a large report like this with many different metrics, expecting them all to be scaled the same would make many hard to read.
Although it seems that state and local governments increased their non-cash gov aid spending a lot too during that time. I'm not sure what the breakdown on that is. Is it money given to the states by the Federal government?
* There was more than one recession in the time period you're talking about.
* The Great Recession did not in fact start during the Obama administration.
* There was a recession at the beginning of Bush's term and at the end of it, but most of Bush's term occurred during the real estate bubble, during which there was no recession --- why would increases in benefits during that time be attributable to a recession?
* What does "despite why the recession happened" mean? The recession did not occur due to food stamps.
1. The 2001 was recession was minuscule to the 2008/09 one.
2. I never once said the recession "started" during his administration, I said the recession was during, that's it. Big difference.
3-4. The entire point was that the majority of the increases between the years of 2000-2010 were most likely between 2008-2010. I never made any correlation that increases in benefits were a cause of the recession. I said "despite why it happened" to basically say I'm not talking about or blaming anyone for the reasons of why it happened, just the actions that were taken after it.
It sounds to me like you made a statement in your original comment that was straightforwardly refuted, and I'm trying hard to understand how anything you replied to that refutation with changes anything. You claimed there was an "unprecedented" rise in food stamp benefits during the Obama administration. No, that's not at all the case, right?
The word "hubris" comes to mind.
A.) I spent more than five minutes. Regardless, I stated at "at a glance".
B.) I did not say the media has it all wrong. I said many things, NOT ALL, perpetuated by both sides in the media are different than the data from government sources. I don't think anybody would argue that both sides, especially recently, have had media reports that sketch and bend the truth. And both sides just claim the other is "fake news".
C.) I never said I figured out how to avoid deficits. I stated a problem, which is running a deficit perpetually is not sustainable. I'd love to hear a solution if you have one.
D.) For taxes, I once again stated an observation from the report, which supports the idea of a simplified tax system. No, I didn't lay out my full economic tax plan suggesting what to do. If you read one of the other comments, their is a link about historical effective tax rates, go check that out. That, along with the tax revenue by the federal government, is why I made my statement.
And finally yeah, the problem with social security is many faceted. But from a selfish, personal reason... highly unlikely any of the money I'm paying in right now will EVER come back to me. So yeah, I believe it's a problem.
Your comment at the top of this thread is sort of a perfect illustration of the problems of sites like these.
Even assuming that is true, it wouldn't change the regressive nature of a flat tax.
The parent is talking about "progressive" as in "the tax gets progressively higher as you make more money", not in the "social justice" sense. The flat tax being regressive means that the poor would have to actually pay more in taxes than they do now, which is very little. That's seen as a bad thing. Obviously there are solutions to that in flat tax proposals.
Second, "the wealthy pay very little taxes" is a meme. I mean, look at what we've got here:
http://www.pewresearch.org/fact-tank/2016/04/13/high-income-...
Those making $250K and up are responsible for 51.6% of all income tax revenue. How much more should they be expected to contribute? Remember: the truly wealthy can live anywhere in the world. There's a balancing act that needs to be established between "you're not paying your fair share" and "soak the rich."
And this is what is so annoying about groups complaints about the wealthy paying taxes. The heavy reliance on misleading statistics.
The quote says a specific group pays 51% of all tax revenue and says it's way too much. Well did they collect 51% of all income?
An entire article that not once answers the most obvious question even though they clearly have the data to answer it.
And to be clear, I'm not talking about Adjusted Gross Income (which is the total after taking every possible deduction in the book), but actually gross personal income. The latter usually isn't reported. The former is which often is used to make percentages of taxes paid seem higher.
And I don't know the answer, it may even help their case - but the fact the most obvious stat question isn't brought up in arguments for why taxes on the wealthy are too high makes it easy to conclude these aren't discussions in good faith.
Did they get 51% of all the benefits of how that money was spent?
Probably not. Some quick Googling finds this analysis:
http://www.financialsamurai.com/how-much-money-do-the-top-in...
It uses different split points, but claims that the top 5% of earners make about 35% of the total AGI, but pay 59% of gross income taxes.
The IRS is so nice as to provide exactly the metric we're looking for, which is:
For the group of people making $XXX per year or more, what percent of all income in the US does this group earn, and what percent of all income tax does this group pay?
Here's the groups you mentioned:
+------------------+------------------------+---------------------+--------------------------+
| Income group | Percent of tax returns | Percent of total US | Percent of total US |
| | in this group | taxable income | Income Tax owed |
| | | earned by group | by group (after credits) |
+------------------+------------------------+---------------------+--------------------------+
| $200,000 or more | 4.20% | 41.90% | 57.50% |
+------------------+------------------------+---------------------+--------------------------+
| $100,000 or more | 16.00% | 67.90% | 79.50% |
+------------------+------------------------+---------------------+--------------------------+
It is a bad thing. In low-income households, there is less disposable income. In that case, taxes eat into the cost of necessities (or near-necessities such as broadband for those with slightly higher income). On the other end of the spectrum, for those with large incomes that income is largely disposable.
Dollars are dollars, sure, but there is a distinction to be made between taxing someone's food money and someone's Rolls Royce #2 money.
As an American who often lives anywhere in the world, I'd like to point out you pay US taxes no matter where you live. (though you do get a 90k income exemption, if you are talking about the "truly rich" then that doesn't matter a whole lot)
Not to mention that there is a huge misunderstanding of how progressive tax rates work. A very affluent businessman was on tv saying they would essentially have no motivation to work if the marginal tax rate increased for him when Obama was campaigning. His idea was that the tax bracket above 250k per year would somehow affect his entire income if he earned more than that figure so he would only want to work until he had 249,999 dollars and then stop making money to avoid "making less money". Of course the marginal tax rate is the rate that your money is taxed above that threshold. In this case the tax rate would go from say 15% to 20% on the money earned after 250k. Let's say you made 260k that year. Your extra tax burden because of the marginal rate increasing would be 20-15= 5% on the 10k dollars. You don't get taxed an extra 5% on all your money made like that fellow thought.
Flat tax is regressive and sales tax is regressive.
No one would say anything even remotely like, "well, my practice is going well, I saw 20 patients today, oh what rewarding work, but what with these taxes I'll just stay home".
Every single wealthy person I've ever known, their motivation has been the thing they do first, the money a distant second. Maybe I just know pretty decent wealthy people, I dunno.
No, it's clearly not. Lemme give you some examples assuming a 15% flat tax and a 25K pre-bate (or credit, or whatever you want to call it):
1) 25k income, $0 tax - effective tax rate = 0% 2) 50k income, $3,750 tax - effective tax rate = 7.5% 3) 100k income, $11,250 tax - effective tax rate = 11.25% 4) 1M income, $146,250 tax - effective tax rate = 14.625%
It's clearly a progressive tax, as the rate goes up as income goes up. Feel free to call the above rates or the idea of a flat tax unfair, but please don't try to glance the meaning of well defined terms like 'regressive tax' to mean what you want them to.
This is exactly why we don't have a tax rate on the top bracket of 90% like in the Eisenhower era. It's not about being taxed on all your money when you make over that amount, it is, where is the incentive to grow my self or my company if I only get to keep $0.10 of the next dollar I make.
Most people who pay multiple tax rates across brackets understand how it works.
He didn't say after 250k my motivation to work is gone because a smaller amount is returned to me.(iirc the tax rate wasn't that much more than it was before anyway) he said he would lose money if he went over that threshold of 250k.
That actually is theoretically possible - there are numerous tax credits and deductions that come with income caps, and while they are generally phased out, it's not always a smooth slope, and can have some cliffs.
Obviously he'd be in a very odd and like one-time situation if that were the case, but it is possible with how screwy our tax system is.
That scenario is possible, sure. either way it's disingenuous to make the claim that they would lose money by making one more dollar when the tax breaks were not part of the discussion and that cliff would exist regardless of the marginal tax rate on the high earners(which they were discussing). I am ALL for simplifying the tax code to remove subsidies and loopholes and other complexities to the tax code. I am not for removing the progressive nature of the tax code.
Due to this, I will focus on what it means to replace the income tax system with a flat 20%. A family of 4 (2 kids under 18) making $50,000 per year pays about $200 in federal income taxes if they do nothing but file their taxes and take the standard deduction, personal deduction, EITC, and Child Tax Credit. A family of 4 making 70k pays something like $2000. A family of 4 making $150k last year contributing to 401k, HSA, IRA's, 2 kids under 18, have an effective tax rate of like 8%.
In every single one of these cases, the families would be worst off (some significantly) if they were required to pay a 20% flat tax.
Increasing taxes on them would hardly qualify as hardship. The utility of a dollar is much lower when you have ~$300,000 in savings (80th percentile), then when you have ~$300 in savings (20th percentile).
Related anecdote: With an annual income of ~$250-300,000, my net tax rate, including untaxable benefits and investment income is the same as that of my partner - who makes ~$30-40,000. If I had an income of $2,500,000, it would be substantially lower.
[1] https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...
The proportion of tax paid is the same at any income level. Anything that would counteract any "regressive" tax system would have to happen on the personal income side. Which means better education, opportunities, etc., to increase income levels.
I'd support a rule though that said if you make less than the poverty line (around 32k I believe?), you pay no income tax at the federal level.
It's regressive in that it causes the poor to pay more than they do now. With regard to taxes, progressive and regressive have specific meaning.
> The proportion of tax paid is the same at any income level.
I don't believe this is true. You'll have to back up a statement like that with references, rather than just repeating it continuously.
What you are talking about is the effective tax rate. That said, you might find this table of effective tax rates by quintile[1] interesting, as it directly disproves that point.
1: http://www.taxpolicycenter.org/statistics/historical-average...
Under that meaning, a flat tax is the border between progressive and regressive taxation. It is not an example of a regressive tax.
Increasing the amount that poor people pay makes a tax scheme relatively more regressive, but if it's no more regressive than a flat tax, it's still not "regressive".
That depends entirely how you measure. If you measure by total income, then yes. If you measure by income after necessities for living are accounted for, then a very simple progressive tax that takes that into consideration might be considered the baseline, and a flat tax that doesn't take that into consideration could be considered regressive. On the other end of the spectrum, if you make people account for all subsidized government services used and count that as income, then a flat tax is progressive. Without an agreement on the baseline for measurement (which I believe is where a lot of people start disagreeing), you can't even necessarily agree on what is progressive and regressive.
1: https://apps.irs.gov/app/understandingTaxes/student/glossary...
2: https://apps.irs.gov/app/understandingTaxes/student/whys_thm...
If the rate is 10%, the proportion of tax is the same, whether you make $10 or $1 million, you are still paying 10% of your income.
Yes, the effective tax rate collected. The reference you provided only supports my claim. It looks like the effective tax rate, which is the actual rate collected by the IRS is around 20% since 1979. I'd have to find it, but if you take the data all the way back to the New Deal, the effective tax rate is around 17%. Most likely due to it being easier to "hide" income back then.
Regardless, the effective tax rate has stayed around 17-22% over almost the last century, despite the large differences in the tax rates at different brackets. Remember, the top rate during the Eisenhower administration was 90%. Yet the effective tax rate average was unchanged.
Exactly why do you believe that since the total percentage of income collected hasn't really changed that means a flat tax is a good idea? The reason for a progressive tax is not to raise the total amount of taxes collected, but to change which people it is collected from proportionally. I'm not sure what the total percentage collected has to do with that.
A family earning $50K will have $40K left after federal taxes to live on. A family earning $250K will have $200K left to live on. One of these families is hurt more than the other by a flat tax. This is what is meant when a flat tax is criticized as being regressive.
A single "family" of one making 50k though should most likely be paying their portion of tax, whatever the tax rate is. At some point an individual has to be accountable and live within their means.
So in the end, the tax rate would be flat, but effective tax rate would not.
Also, a single "family" of one, pays more in taxes today then say a family of four with 2 kids earning the same household income. Apologies ahead of time if I misconstrued your argument.
Those surpluses that you're looking for were essentially just dumped on the federal balance sheet as non-marketable debt and spent on stuff like building aircraft carriers.
The "deficit" means that it's time to pay back those IOUs. It's pretty easily balance that -- you raise the threshold for payroll taxes and index it to inflation.
Flat tax is an awful, terrible idea. The reason that the 90% tax rates resulted in similar collection rates is that lots of things were deductible. All leases, most interest expenses. More people were essentially exempt from paying as well.
It's already indexed to wage growth rates, and there's nothing "easy" (or at least, shouldn't be) about a 12.4% marginal tax rate hike.
My guess would be that the marginal dollar provided to a 30th percentile income individual has a higher economic impact than a loss of 0.12 of a marginal dollar for a person making $150k.
We've literally spent the last 30 years building up the Social Security Trust Fund.
We have just under $3 TRILLION saved up for the expected social security shortfall. People are living a bit longer than expected, so we're a bit short on money.
But the USA has run a social security SURPLUS from between 1980 through 2014. Believe it or not, the US Government is actually very long-term thinking and we are somewhat prepared for the future.
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Yes, so thank Jimmy Carter in 1977 for coming up with the idea to save money for 2010+. The "Baby Boomers" are now retiring, so its natural for us to lose money until the Baby Boomers die out. The question is if the Trust Fund can last long enough (ie: until enough Boomers die)
The problem is that there are a lot of people who believe that SS isn't broken because you can simply increase retirement age, make people pay in more, and other assorted band-aids. SS will be "solvent" until it suddenly isn't, and people need to realize that.
And with a stroke of the pen, they'll make adjustments. SS isn't a real debt obligation; it's merely a "promise".
The people with the lowest life expectancy are those that need SS the most, yet you're suggesting they not be able to receive it until after they're likely to be dead.
Point is to make changes without giving any cohesive group a strong reason to organize opposition. Or to have a strong moral argument that it was promised them.
https://en.wikipedia.org/wiki/State_Socialism_%28Germany%29#...
Why is running a budget surplus necessarily a "good thing"?
Seems like if people are willing to trade real assets for paper, we should do that as long as there are willing counterparties.
That's why it's a good thing. Because we don't want to run out of "as long as."
Examples?
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yes, the first step is to remove the cap on social security withholding, which would affect the top ~6%. that would take care of over $100B of that yearly deficit.
Or not. Current projection by the Social Security Trustees are that the OASI trust fund will be exhausted between, IIRC, 2030 and never; the DI fund between 2020 and never (there's two separate trust funds involved.)
Search UI needs work, I guess
My second takeaway at a glance is the giant problem that is Social Security. It's been said over and over, and the aggregation of more data into charts comes to the same conclusion. The way Social Security works is not sustainable. Period. Something has to give. A $405 B shortfall on SS in 2015. If that was at least half, we would actually not be running a deficit. We would have a budget surplus if we actually made Social Security/other Gov. retirement program replacement actually sustain itself perpetually. What. A. Concept.
A quick third take away seems to be the unprecedented rise in non-cash government aid (food stamps) during the Obama administration. The data is there, needs more analyzing of course.
Lastly, it seems that Government revenue for Federal and State/Local has actually increased pretty linearly with the population. Despite all the different changes in the income tax rate/other progressive taxes. This supports an overhaul to the tax code to a more simple, flat tax system. From another data source outside this report, I'd have to find it, but historically, no matter the top bracket tax rate, the Federal government collects about 15-17 % income tax. Including when the top rate was 90%+.
As far as the presentation, my favorite part is each piece of government data is tied to 4 distinct duties of government outlined in the Constitution. That's pretty brilliant.