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.
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.