by Eric Martin
The IRS reports on the difference between the statutory corporate tax rate and the effective corporate tax rate (the amount actually paid, on average, after deductions and other loopholes are applied against the statutory rate):
The Internal Revenue Service found that U.S. companies paid federal income taxes on their reported U.S. profits at far less than the 35% statutory rate, offering a potential revenue source for an incoming presidential administration that faces a yawning budget deficit.
Newly released data from the IRS show companies paid federal and foreign income taxes on their U.S. book income — the amount reported to shareholders — at a rate of 25.3% during 2005, the most recent year for which data were made available by the IRS.
While the statutory rate for US corporations is relatively high when compared to the tax codes implemented by other nations, US corporations pay a low effective tax rate on corporate earnings due to the availability of loopholes and deductions. This isn’t necessarily a bad thing, as lower effective rates make the US an attractive place to conduct business compared to jurisdictions with higher effective rates. However, during the presidential election, McCain and the GOP claimed the opposite: that the high statutory rate was scaring off business, while completely eliding the reality of the low effective rate.
True to form, they came up with a solution to address this non-issue: lower the statutory tax rate (which would then reduce the effective rate even further at a time of a cash strapped treasury already left in an emaciated state from Bush era tax cut zealotry). The publicly stated rationale was a sham that relied on selective conflation and concealment of the statutory and effective rates, as stated above.
But the modern GOP is stuck on two notes when it comes to addressing just about any economic issue and, in some cases, non-issues: tax cuts and deregulation! And when the facts don’t seem to justify one or the other, they adjust the facts rather than the policy. They’re like the economic policy equivalent of neocons. And, as with foreign policy, I long for the counterbalance provided by sober, empircally-sound conservative economic policy.
One of the things commonly neglected is the value-added tax (VAT) or goods and services tax (GST) levied in many, if not most, other industrialized countries. These are direct business taxes that, of course, are shifted forward to the final consumer, just as other business taxes are, but comparing income tax rates alone is apples and oranges.
Good point.
For those of you have access to Lexis, the cite for the study is: 2008 TNT 214-23.
I thought the VAT was only levied on certain industries/activities, not on all types of activities, correct?
I would also note that I don’t think it’s correct when the Journal article says “The new IRS data largely exclude overseas profits, meaning lower tax rates abroad aren’t the main factor driving the low effective rate on U.S. income.”, based on my quick perusal of the study.
I’m a little surprised it’s that high.
I actually think corporate income taxes should be levied based on reported income, even if that means lowereing the nominal rate. That should certainly please the simplifiers, since it would reduce the reporting burden considerably.
I seem to remember a study done a couple of years ago that showed the federal government could make up a bit of the yearly shortfall simply by going after corporate tax cheats instead of going after people turning in false EITC forms. Anyone else remember that?
The devil is in the details.
The Jesse Dricker article pointed to several two significant differences between book and tax income: accelerated tax depreciation and non-expensing of stock options for book purposes. He implies that these are loopholes and the book income which is reported to shareholders is the more correct profit number.
The book reported number is not the best number. How often have we seen companies restate earnings lately? What about FNMA and FreddieMac, and so many tech companies.
There was a long running controversy about how stock options should be treated for book reporting purposes. Many accountants and investors thought it was misleading to NOT expense them. Finally, sanity prevailed and companies were required to expense them. It was a whole block of compensation that was of the books, so to speak. Drucker gestures at this but continues to ignore it for purposes of making his point.
Financial accounting standards allow much more flexibility in depreciation methods than tax accounting rules do. It’s hard for me to believe that tax authorities would advocate more flexibility. Furthermore, depreciation differences merely cause timing differences for tax purposes – not permanent differences.
IMHO the basis for Drucker’s opinon is on unstable ground. “Here is a timing difference that will resolve itself and here is an accounting rules problem that allows companies to overstate their book earnings, therefore we have tax lost taxes.
Uh, no. Sorry. Try again.
The devil is in the details.
The Jesse Dricker article pointed to several two significant differences between book and tax income: accelerated tax depreciation and non-expensing of stock options for book purposes. He implies that these are loopholes and the book income which is reported to shareholders is the more correct profit number.
The book reported number is not the best number. How often have we seen companies restate earnings lately? What about FNMA and FreddieMac, and so many tech companies.
There was a long running controversy about how stock options should be treated for book reporting purposes. Many accountants and investors thought it was misleading to NOT expense them. Finally, sanity prevailed and companies were required to expense them. It was a whole block of compensation that was of the books, so to speak. Drucker gestures at this but continues to ignore it for purposes of making his point.
Financial accounting standards allow much more flexibility in depreciation methods than tax accounting rules do. It’s hard for me to believe that tax authorities would advocate more flexibility. Furthermore, depreciation differences merely cause timing differences for tax purposes – not permanent differences.
IMHO the basis for Drucker’s opinon is on unstable ground. “Here is a timing difference that will resolve itself and here is an accounting rules problem that allows companies to overstate their book earnings, therefore we have tax lost taxes.
Uh, no. Sorry. Try again.
“deductions and other loopholes are applied against the statutory rate”
It was very difficult for me to take seriously anything you said after that line. If you consider all deductions to be “loopholes,” then your analysis isn’t worth much.
Do you consider the standard deduction on the personal income tax to be a “loophole”?
Incertus,
I vaguely remember that also, but don’t recall details.
There is a lot of interesting information on corporate audits here.
If you don’t want to work through all the tables just note that the number of audits of large corporations declined by 30% from 2005 to 2007, and that
and
Furthermore, depreciation differences merely cause timing differences for tax purposes – not permanent differences.
As I used to tell our accountant who described something as “just a timing difference,” the difference between being alive and being dead is also just a timing difference.
Timing differences are important. Delaying tax payments can be worth a lot in interest income. Why else do corporations lobby so hard for things like accelerated depreciation?
In EU, VAT is paid for all activities, regardless of their nature. However, member states have the option of using a lower VAT rate for specific, well-defined activities they wish to promote. In Finland, for instance, the VAT on drugs and books is 8%, for food, 17%, and for newspaper subscriptions, 0%, while the general rate is 22%.
Businesses with a turnover of over 8000 euros are required to register. Once a month, they send in a calculation of VAT they have paid while purveying goods and services, and the VAT they’ve received for their products from the customers. Then, the business pays the difference to the tax office. If the difference is negative, the tax office pays it to the business. So, it’s the end consumer who pays the VAT, while for middlemen, the VAT is just money passing through.
However, even a business may be an end consumer, not just a private individual. A famous example is a “bag of fertilizer”. If you are a farmer buying fertilizer, you are using the stuff for your production. Thus, you may deduct the VAT. However, if your business is buying the fertilizer for the front-yard lawn of the office, this is end consumption and the VAT you’ve paid is non-deductible.
“I long for the counterbalance provided by sober, empircally-sound conservative economic policy.”
Then you will have a long wait. There is no such thing.
It was very difficult for me to take seriously anything you said after that line.
That pains me deeply.
25.3% isn’t a “low effective rate”. It’s about in the middle of the statutory rates of companies around the world — which, of course, are likely to have lower effective rates for the same reasons that the US effective rate is lower than US statutory rate.* Moreover, the US is unusual in that coporates can be subject to double taxation — once at the Fed level (which you describe) but again at the state level (which you omit).
Raising US corporate tax rates will encourage capital flight.
*http://en.wikipedia.org/wiki/Tax_rates_around_the_world
coporates = corporations.
There are a number of things screwed up with the audit process today. As Bernard Yomtov notes, the number of audits or the largest companies have decreased and shifted to smaller companies. The reason for this is, I think, that the IRS changed the way its revenue agents/audit staff were paid bonuses some years back (maybe after the farcical 1998 hearings on how they were terrorizing poor taxpayers). Instead of being paid a bonus on how much additional taxes they brought in (which causes its own problems), they were paid based on how many audits they completed. So the incentive now is to get in and get out as quickly as possible. Thus, if they shift to smaller companies they can complete more audits and receive a larger bonus (IIRC). This also creates an incentive to not be very thorough in the audit process.
Further, I’m always shocked that congress doesn’t appropriate much more money for enforcement at the IRS. The budget should be double or triple what it is now, if not more, it would easily pay for itself many times over. The incentives should also be changed so that people are rewarded for applying the law correctly (which may be hard to do) rather than burning through audits or frivolously challenging taxpayer positions.
As to timing differences, I think there was a study published recently in one of the trade journals that basically said timing differences are not a source of tax shelters. That is, people don’t do deals to generate a timing difference. They might accelerate a purchase from a future year to a current year because of the (ridiculous) bonus depreciation congress has provided for, but the ultimate decision to make the purchase is driven by business needs.
Part of the reason for this is that the accounting rules, for the most part, don’t take into account the time value of money. And since, in my experience, employees are compensated based on book income, they don’t have any incentives to do a deal that generates a timing difference, even though the company may be better off economically via the time value of money. I have seen more than one decision not to take a position on a tax return because they couldn’t “book” the tax benefit due to the uncertainty of the position being upheld, even though in the meantime the company would have the money and would not be subject to penalties if the IRS were ultimately successful in challenging the position and upholding it.
Raising US corporate tax rates will encourage capital flight.
But I didn’t suggest raising rates. I just suggested that at this point, cutting them isn’t the wisest strategy, but the GOP is stuck on tax cuts and deregulation as the twin panaceas to cure any and all ills.
Eh? Didn’t Obama just finish promising most of us a tax cut?
But I didn’t suggest raising rates. I just suggested that at this point, cutting them isn’t the wisest strategy, but the GOP is stuck on tax cuts and deregulation as the twin panaceas to cure any and all ills.
I wasn’t suggesting that you intended to raise rates, although I don’t think it’s unreasonable to assume that you’re open to the idea given that you (incorrectly) claim that the effective rate is “low.” I’m pointing out that your criticism of McCain and the Republican party’s position on this issue is fundamentally flawed. Corporate tax rates may well be too high. Nothing you’ve presented here addresses McCain’s argument.
Eh? Didn’t Obama just finish promising most of us a tax cut?
And a tax raise for the wealthiest among us that received hundreds of billions in upward redistribution during the Bush years.
And tighter regulations of various sectors of the economy.
And government provided health insurance.
And investment in alternative energy industries.
And…etc.
So, it’s a twin benefit: sell tax cuts to the masses, along with the promise to somehow stick it to the rich fellows.
But ignore that tax cut part. It had nothing to do with anything like vote-buying, probably.
25.3% isn’t a “low effective rate”. It’s about in the middle of the statutory rates of companies around the world
Not exactly. It’s on the low end, at least judging by the countries listed on your link. Especially when you look at well developed, stable economies.
which, of course, are likely to have lower effective rates for the same reasons that the US effective rate is lower than US statutory rate.
Actually, von, there are also VAT taxes and other taxes in certain foreign jurisdictions that counteract deductions and keep the statutory rate closer to its book rate. In some cases, even higher.
So, it’s a twin benefit: sell tax cuts to the masses, along with the promise to somehow stick it to the rich fellows.
But ignore that tax cut part. It had nothing to do with anything like vote-buying, probably
Why is it black and white: tax cuts always bad, tax hikes always good! Or vice versa.
At the moment, given where our economy is, a tax cut targeting the beleagured middle class is a good idea.
Aside from the exigencies of the current economic downturn, over the past 8 years, vast amounts of wealth (trillions actually) have been redistributed upwards. The biggest such transfer since the gilded age.
If returning the tax rates on the wealthiest Americans to the horrid Clinton years is “sticking it to the rich guy” then we are never going to be able to restore balance to our tax program.
That doesn’t require ignoring the middle class tax cut, but endorsing it.
I mean jeez Slarti, do you know what Bush’s tax cuts did? Do we have to ignore them or treat their repeal as some form of extreme class warfare?
I don’t know. Why is it that cutting some taxes is bad, while cutting other taxes is good?
Any notion of how increasing corporate tax is going to affect the beleaguered middle class? Have you looked?
No. But speaking of class warfare, your 10:35 comment sniffs of it. Maybe it’s just my sniffer.
I think you mean they’ve been redistributed upwards rather less slowly than you like. You seem to have some ideas of what is right and just, and are attempting to use those as a baseline that we all have agreed upon, except the agreed-upon part got skipped.
So, we could talk about what’s equitable, some more. Or not, but let’s not pretend there’s some universal notion of equitable taxation handed down to an economic Moses, somewhere.
Possibly that last bit could have read something like “let’s not pretend there’s no debate on the topic” for a less snarky appearance. I’m really not trying to zing you, Eric. Just trying to see to what degree your notions of just and unjust are arbitrary.
Why is it that cutting some taxes is bad, while cutting other taxes is good
Because different tax cuts have different effects in different economic contexts. For Bush and the GOP, however, that is less the case. When Bush came to office, he argued that he needed a massive top heavy tax cut because there was a surplus, and that’s what you do with a surplus and, besides, we could pay down the debt too quickly (thx greenspan!).
Other than the fact that more should have been done to pay down the debt, and the then surplus should have been held back for the obvious and impending slow down, this would be the best time for one of those tax cuts. But those are big “other thans.”
Then when the economy started slowing down, Bush argued that we needed another round of top heavy tax cuts because the economy needed stimulus, and cutting tax cuts for the wealthiest is what you do when you need stimulus (actually, lower income targeted tax cuts do more to spur growth
http://www.motherjones.com/kevin-drum/2008/10/stimulate_me.html).
Then, when the economy continued in its malaise, Bush proposed…more top heavy tax cuts.
Bush didn’t adjust his cuts to the context.
Any notion of how increasing corporate tax is going to affect the beleaguered middle class? Have you looked?
I imagine that raising corporate tax rates at this point would be a bad idea (though there are targeted loopholes that should be closed). Luckily, neither I, nor (more importantly) Barack Obama (or any other major Dem leader) are proposing such.
So, we could talk about what’s equitable, some more. Or not, but let’s not pretend there’s some universal notion of equitable taxation handed down to an economic Moses, somewhere.
Absolutely. Slarti, I thought the Clinton era tax scheme was pretty fair. There were probably some tweaks and what not to be had, but roughly speaking, pretty solid.
Bush era? Not so much. His tax cut scheme accrued overwhelmingly to the wealthiest Americans. That doesn’t seem fair to me for a few reasons: relatively small population cohort and already, um, very wealthy and thus in less need of a break.
I’m not a radical redistributionist. But then, returning to Clinton era tax rates is cast as such in today’s environment.
“the benefits of his tax cuts scheme accrued…”
Von,
Try this chart for a comparison of corporate tax revenue as a percentage of GDP to get at what corps pay at the end of the day:
http://wonkroom.thinkprogress.org/2008/08/12/no-corporate-taxes/
This seems to disagree. I have no idea whether it’s right, but I’d like to see something besides words to back up what you’re saying.
But I’d expect it to, naturally. You cut rates on the people who pay the most taxes, and those people are going to see the biggest benefit. This is so obvious that I’m not sure why it gets continuously pointed out like it ought to be a surprise. Maybe there are lots more people than I thought, out there, that don’t understand percentages.
Bush cut the upper-bracket rate down below where it was in the Clinton years, but above what it was in the Bush I years. I don’t seen an inherent evil, there. The whole scheme of cutting taxes is certainly arguable, but the upward-redistribution remarks sound, to me, more like class warfare than legitimate policy criticism.
Just judging by results it’s pretty obvious that the Bush administration’s economic policies have been a failure.
Or, Slart and von, do you assert that things would be worse if it hadn’t been for the tax cuts, deficits, lack of regulation of the financial industry, etc.?
The whole scheme of cutting taxes is certainly arguable, but the upward-redistribution remarks sound, to me, more like class warfare than legitimate policy criticism.
I don’t mean it be that, more of just a description of what just happened.
Benefits of Bush’s tax cuts:
http://www.nytimes.com/2007/01/08/washington/08tax.html
Lede:
“Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study.
The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.”
Me:
That seems unfair.
The Bush administration’s economic policies have been, other than tax cuts, largely absent. So no, I don’t think that economic policy had much to do with anything. I don’t even think our expensive war has had quite as large of an effect as the collapse of the financial markets.
How do you trace the collapse of the financial markets to Bush economic policy, I wonder? How did Bush economic policy encourage the making of highly risky mortgage loans? I don’t think this claim has very solid ground at all, but maybe I just haven’t had it explained to me properly.
The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004
Well, that would be interesting, but I can’t find the actual report. Usually when I’m reading a news report of a financial report, I like to check the actual financial report to see if the newspaper employees read it correctly. The only thing that I can find that could have been reported on by the Times is this, which isn’t what they said it was. It does discuss how taxes in 2005 rose over 2004, but that’s ALL taxes.
Which could have something to do with federal income tax brackets, but the reality is more complicated. For one thing, it’s taxes paid, not tax rates. For another, it’s (I hate to repeat myself) all taxes, including SS and corporate income tax.
I’ve looked it over, but I’d like to hear what you have to say about it. The Times might have been referring to another report, but again, there are no others contemporaneous to the article that I could find, and the Times did its usual sparkling job of fixing the evidence in a place where it’s still visible 10 months later.
The whole scheme of cutting taxes is certainly arguable, but the upward-redistribution remarks sound, to me, more like class warfare than legitimate policy criticism.
It’s never called class warfare when the rich profit greatly at the expense of the poor; it’s only class warfare when the rich see themselves losing a tiny margin of their obscene profits to people who have worked hard to make those profits for them.
It’s not just that the rich own more guns: they also own more newspapers.
Um…in this country, the rich bear a MUCH larger chunk of the tax burden than the poor. The suggestion that there’s ANY flow in an upward direction is class warfare speaking.
Things might work differently where you are, though.
What Jes said. Just once, I’d like to see the people who are wont to utter the phrase “class warfare” use it in reference to “welfare reform,” or the attempts to dismantle Social Security, or fighting against an increased minimum wage, or anything in that class.
Just once.
This seems to disagree.
Not really; at best, it’s misleading.
Reagan did enact a massive tax cut in 1981. It was almost immediately superceded by TEFRA in ’82 which remains the largest peacetime tax increase in US history.
I don’t have much respect for Bob Dole but what little I have is due to his leadership in the Senate in reversing Reagan’s ERA folly.
Um…in this country, the rich bear a MUCH larger chunk of the tax burden than the poor.
Slarti, given the Federal budget, if you can find a way of getting that money out of poor people, let’s hear it. I, for one, am simply on the edge of my seat with curiousity.
I don’t have any poor people working for me.
Yet. Maybe next year, I can become even richer off the backs of the poor. Then I can start building my evil empire.
That’s exactly my argument, Phil. If you’re going to claim that there’s upward distribution, you’ve got to be prepared to argue the point. With numbers.
Nowhere am I arguing that we should tax poor people more.
How do you trace the collapse of the financial markets to Bush economic policy, I wonder? How did Bush economic policy encourage the making of highly risky mortgage loans? I don’t think this claim has very solid ground at all, but maybe I just haven’t had it explained to me properly.
Well, first and foremost by peeling back oversight and regulation. That encourages risky behavior. Second, these problems have been mounting for some time (not just with respect to the markets) and Bush did basically nothing or failed to execute good policies when he tried. No regulation of the markets, no investment in infrastructure, no investment in alternative energy (to help with rising fuel costs), no help for the costs of tuition and health care, etc.
Further, no stimulative tax cuts aimed at groups lower than the upper couple percentage points of earners (big mistake). To oversimplify: lower middle class and middle class Americans spend extra money domestically. Wealthier Americans might be more inclined to invest abroad in attractive emerging markets, thus diluting the effect of the cuts given to them.
This had the dual effect of not strengthening the economy as much as cuts could, and hurting the middle class.
Under Bush, the middle class borrowed heavily to keep up the lifestyle they had grown accustomed to despite declines in real wages (wages vs. costs of food, fuel, health care, education, etc). And many borrowed to keep up with the costs of catastrophic illness and other hardships.
Bush and Greenspan encouraged this with praise of ARMs and other risky mortgage vehicles. And Americans took risks on their own – giving in to economic pressures and expectations (not to let consumers off the hook entirely).
And then an underregulated Wall Street got in on the action, securitizing the debt products and trading them around in an attempt to please the investor/financier class looking at the divident bottom line and gigantic bonuses. So each side took down the other.
The economy has been hurting for some time, but the symptoms were masked by excessive borrowing and a housing bubble (credit card and mortgages) and the markets interplay with each.
Now that the bubble went pop, we’re left with the stark realities, and the markets are reflecting that.
The current crisis has many contributing factors, many tracing back to Bush’s reckless and negligent acts and omissions.
(PS: A good piece
on the greed of Wall Street and the need for smarter regulations.
Who did the peeling? Which regulations and oversights were reduced?
Note that I’m not claiming Bush has peeled back no oversight or regulation. That would be counterfactual. I’m just not seeing the smoking gun in this particular case.
Um…in this country, the rich bear a MUCH larger chunk of the tax burden than the poor.
Because they earn the most. But they pay a smaller percentage of their earnings than at any time since the 1920s.
There was supposed to be a Palpatine-esque cackle at the end, there, but I think OW’s filters took it out.
That’s exactly my argument, Phil. If you’re going to claim that there’s upward distribution, you’ve got to be prepared to argue the point. With numbers.
If the upper two or three percent of income earners are seeing their income and wealth increase and their taxes decrease; and the middle 90-odd percent are seeing their incomes stagnate, their wealth decrease, and their taxes increase, is there a phrase aside from “upware redistribution” that would make you feel better about it, Slarti?
And, again, can you explain why fighting a minimum wage increase is NOT “class warfare,” but thinking maybe an increase in the top marginal rate from 35% to 39% isn’t catastrophic IS class warfare?
Cite?
Maybe. Something accurate would do. I don’t happen to think that it’s the government’s job to be an equalizer. Nor do I think it’s necessarily a horrible thing if some downward redistribution takes place.
But I suck at wordsmithing, so: no.
Neither one of those things are things I’ve said in this exchange, so: mu. I’m not automatically opposed to upper-rate hikes, Phil. I just like to see better arguments for them than, well, they used to be 90%. Or similar.
Cites: here and here
Neither of those cites seems to support what you said, Eric. If there was math to do…well, it was my understanding there would be no math.
Which is just to say: if there’s number-crunching I have to do to reach your conclusion, maybe it would be quicker for you to just ‘splain it for me. I’m certainly not asking for a cite on what Delong actually showed, which is that the top 1% takes in a higher percentage of all income than it has since 1928, which is not the same thing as paying least taxes.
It might be, but you can’t tell from the data you’re citing.
The suggestion that there’s ANY flow in an upward direction is class warfare speaking.
Frankly, the suggestion that the upper class needs more tax cuts is class warfare speaking, too. Ditto most Republican “reforms” of health care, Social security, welfare, etc. [And quite likely anti-unionization, though that’s another kettle of fish.] And given what’s been happening the past 8 years — or 28 years, if you count this as beginning with Reagan, which I frequently do — I too would like to see more done to decry this.
The gap between rich and poor has been growing for some time. Kevin Phillips’ Wealth and Democracy gives details up to around 2000 as I recall (I don’t have it handy, I’m not at home). I believe the trend has only increased since then.
According to the PDF of tax tables for 1979-2005 I have saved on my PC at work, which, if I remember correctly, came from the Congressional Budget Office, in 2005 the top 1% households earned 18.1 percent of the country’s total income and had 27.6% of the total federal tax liability, including income tax, excise tax, corporate tax and payroll tax (SS).. In 1979, those numbers were, respectively, 9.3% and 15.4%. You’ll have to google it to verify for yourself. I have to go to a meeting.
Slarti, I’m having a tough time finding the cite, but I read it in Krugman’s book and heard him say as much:
When you factor in all applicable taxes, the wealthiest 1% are paying a smaller percentage of their income in taxes than at any time since the 1920s.
I don’t know if this is right, but that’s what he said and wrote.
Slarti, I commend you for your focus on data and evidence. I think much of the data you seek can be found in this NBER paper. The conclusion states:
Turbulence, I only glanced at the NBER paper, but can you explain to me the rationale for including payroll taxes but excluding SS benefits? If we’re trying to accurately measure how progressive the total tax burden is, it seems that one might either exclude both or include both. Including payroll (a highly regressive tax) but excluding SS benefits seems to be a not-too-clever way of cooking the NBER’s books.
Eric, I try not to fall for the ad hominem fallacy, but linking to a ThinkProgress site for the proposition that “McCain is wrong” is not going to cut it here.
Slarti: I have generally found the Tax Policy Foundation to be very fair on this stuff. (The specific organization one looks at, and its basic fairness, matters more than normally in this case: if you look at the sourcing for the Tax Foundation data you cite, for instance, it’s “Tax Foundation Individual Tax Model”.) The TPF analysis is here.
One interesting feature of the TPF numbers is that whereas the numbers you cite do not break down the top 20%, the TPF numbers do. Like the numbers you cite, they show the top 20%’s share of the tax burden going up, though not by nearly as much. But (according to the TPF) when you disaggregate, you find that the top 1% do better than, basically, everyone else.
About the class warfare aspect of this: the two main arguments for cutting taxes on the middle class rather than the rich right now are: (a) fairness: the rich can afford to pay a greater share of their income; and (b) stimulus: we need to stimulate the economy right now, and money that gets spent on stuff provides a greater stimulus than money that gets socked away somewhere. The poor tend to spend more of their money than the rich: they need stuff, while the rich tend to have their needs taken care of already, and so are less likely to spend any money they get.
This latter argument has nothing whatsoever to do with class warfare, or with justice. And at the moment (e.g., when we look to be heading into a serious downturn), I think it’s really compelling.
Nb: I have left out of consideration the fact that the Bush tax cuts really did go more to the rich, since that’s only an argument for raising taxes on the rich if you think things were good before the Bush tax cuts.
von,
A WSJ writer raised the same issue and the authors responded here:
When you write “payroll taxes” I assume you are referring only to Social Security taxes. Is that right? The authors claim that medicare should be treated as a straightforward tax since benefits are paid without respect to income.
von: “Eric, I try not to fall for the ad hominem fallacy, but linking to a ThinkProgress site for the proposition that “McCain is wrong” is not going to cut it here.”
If you click through, the data they cite is from the OECD. I can see either (a) complaining if the data was, in fact, biassed, or (b) not bothering to click through, but also not bothering to complain. But complaining without checking?
Eric, I try not to fall for the ad hominem fallacy, but linking to a ThinkProgress site for the proposition that “McCain is wrong” is not going to cut it here.
I was actually linking to it to show the rate of corporate tax revenue.
I was interested in the data. If it proves McCain is wrong, so much the better.
“Why is it that cutting some taxes is bad, while cutting other taxes is good?”
Because why would it be otherwise? Since when should the default assumption in any situation be absolutist?
Turb, thanks for the link but…well, I’m not sure what you want me to do with that. The upper bracket rate in 1960 was 90%. If most of what you make falls in the upper bracket, you’re going to pay the upper bracket rate.
To cut through a lot of the back-and-forth, though, I’m wondering what the consensus is on how progressive is progressive enough, and also the consensus on why you think the consensus is just, correct, reasonable, what have you. I’m not pretending to know what the right answer is, but I’m not convinced that any of you do, either.
hilzoy, I’ll get to yours in a bit. I clicked the link from my comment only to find that it linked back to OW. Either I screwed up, or…most likely, I screwed up.
Really? This has been shown to be true? I mean, It’s practically axiomatic that if you give money to people who HAVE to spend it, it’s going to provide more stimulus than if you gave it to folks who are just going to convert it to gold coins and fill up their Scrooge McDuck vault, just so they can swim in it. But I’m guessing that’s neither your working assumption nor close to resembling reality, in general. And if you’re saying it, I’m guessing there’s a source document or study somewhere that backs it up. If so, I’d be really interested in reading it.
Again, I’m not automatically opposed to a(nother) middle class tax cut, nor am I automatically opposed to a tax hike for some upper bracket.
I am, though, automatically all for making my fortune off the backs of the poor, but I can’t figure out how to get any money out of them.
So, currently, I’m having to go to work every day just like everyone else.
Sorry. No snark at anyone in particular intended. I’m just having a peculiar day, and wondering when this headache will go away, and wondering how insane my workplace is that they want that laptop back, given that they get a few extra, free, hours of work out of me every day because of it, and and also wondering why it is that all of the shuttle vans INSIST on driving in the left-hand lane of the highway at traffic flow rate minus ten mph.
I am, though, automatically all for making my fortune off the backs of the poor, but I can’t figure out how to get any money out of them.
That’s why you make your fortune off of their backs, rather than out of their pockets.
I’m wondering what the consensus is on how progressive is progressive enough, and also the consensus on why you think the consensus is just, correct, reasonable, what have you.
You won’t like it, but my take is based on political economy on crack. For the well off, taxes are a way of buying the assent of the less well off for the social contact. That contract benefits the well off tremendously: it means that they can live their lives free from violence and not have to worry about poor people taking all their stuff. But imagine a world where all well off folks decide, collectively, that they don’t like this deal anymore: they’re tired of bribing the less well off folk, so they’re not going to pay taxes and they’ll forego the social contract. Now, what matters is how you can defend yourself from all those lower classes that want your stuff. In order to get a decent quality of life, the well off now have to pay money for protection services to keep their families and their stuff safe. How much they have to pay tells you how high a tax rate they should be willing to accept in our world, the one with functioning government.
Let’s say you make $250K per year. You’ve got a family, a nice house, a couple of kids. Under the current regime, we have this thing called government that (mostly) protects you from crazed mobs trying to kill you and seize all your stuff. Taxes are the mechanism by which you buy off your less well off neighbors. Without taxes and government, how much would it cost to protect yourself, your family, your home? Does you house look like a fortress now? Because in world where you’re not buying off the folks who have nothing, you’re going to need a fortress. Small arms are dirt cheap, so unless you have a virtual fortress, they’re going to kill you and take your stuff. Do you send bodyguards with your family when they leave the home in order to protect them from bandits demanding ransom? You’re going to have to if we live in a world where you’re not buying off the have-nots. So how much of your $250K salary do you have to spend on fortifying your house, arming yourself, hiring guards, and trading in your car for an up-armored humvee or MRAP? I’m guessing that will take a fairly hefty chunk out of your income. And that’s the fraction of your income that I think you should be willing to pay in taxes in order to declare that the system is progressive.
This calculation depends a lot on how much inequality you have in society, what percentile you’re in, and the balance of military power between the poor and the rich. In a world where the poor can’t get useful weaponry, you should pay a lot less than you would in a world where an AK-47 or RPG are sold for the price a live chicken.
Now obviously, this is all insane. I don’t think the have-nots are going to start a class war anytime soon no matter how stupid our tax policies get. Of course, in such a hypothetical world, the economy sucks so there is a lot less wealth to share, etc and the collective action aspect changes things considerably (the well off can’t just collectively decide that they’re done paying taxes). But the hypothetical gives you a rough feeling for what you’re buying when you pay taxes: the continuation of a mostly-violence-free society where you get to keep your stuff and your family gets to survive unmolested. That’s going to matter a lot more to you if you have more stuff than other people and that insight is one basis for progressive taxation. If you don’t want to pay, there’s always Somalia.
The well off could band together and decide they’re going to pay for their own armed forces that answer directly to them…my claim is that any such force starts to look an awful lot like a government, at least in terms of how much it costs. I suspect paying taxes is cheaper than building your own private army: the sense of legitimacy you get with a real government makes people more willing to accept less redistribution.
I have no idea if this is just; I just think it is says something true about the world.
Has anyone touched on wealth versus income yet? I’m assuming those with the largest incomes also hold the most wealth, perhaps far more disproportionately than income ratios of the highest income percentiles versus the rest would suggest.
Slarti, backing up hilzoy:
http://www.motherjones.com/kevin-drum/2008/10/stimulate_me.html)
Slarti: Here’s a decent primer on stimulus, from the CBO. Relevant bit (from the subsection called ‘Cost Effectiveness’):
Slartibartfast: … but I can’t figure out how to get any money out of them [the poor].
Payday loans.
Back the the ‘effective tax’ rate thing. ‘Effective’ in what sense? If a business gets accelerated depreciation, it simply realizes an offset for a capital expenditure sooner than it otherwise would have been allowed to under the tax code. The business can never deduct more than it spent for the asset. The larger point is that, except for tax credits (and perhaps stock options, which I don’t understand and don’t have anything useful say about), the only way a business can deduct a dollar is to spend one. I know that is true in the case of my p***-ant little operation (and, for entertainment expenses, I can deduct only half of what I spend) and pretty much any other service or manufacturing operation I am aware of. So, how does one reduce the tax rate to an ‘effective’ rate? By disallowing expense deductions? I am not sure I agree with the article’s premise–income tax is paid on income net of expenses. If there was some way to deduct a dollar that isn’t actually spent by the business, I’d like to know asap how to do that.
On the tax rate thing–Clinton raised the marginal tax rate from 31% to 39.6% and added a 2.9% medicare tax (on everyone), for a max marginal rate of 42.5% on self-employed taxpayers. Cutting that rate to 38.4% hardly seems massive. It’s heavily weighted toward the high-earners only when you start at the level Clinton got us to in ’03. Add in self-employment tax, state, local and real estate taxes, and self-employed high earners were, and largely still are, taxed at or above 50%.
To cut through a lot of the back-and-forth, though, I’m wondering what the consensus is on how progressive is progressive enough, and also the consensus on why you think the consensus is just, correct, reasonable, what have you. I’m not pretending to know what the right answer is, but I’m not convinced that any of you do, either.
I cannot imagine what “consensus” would look like. Describe any scheme of taxation you like, and somebody will complain it’s “unjust”.
The best we can strive for is an “I cut, you choose” paradigm. That’s not as fanciful as it sounds. After all, here in America, nobody forces you to make a lot of money. You always have the option to pay less tax by the simple expedient of taking a lower-paying job, or forgoing a profitable business deal. You don’t have to be one of the highly-taxed rich. You are free to be one of the highly-subsidized poor, if you think they have it so good.
I don’t know what marginal tax rate would cause Rush Limbaugh to start withholding his demonstrably valuable labor from the economy, but I bet it would have to be higher than 39.6% kicking in at $350K or so. If we added a 50% bracket kicking in at $3.5 million, I bet that no major-company CEO positions would go begging, no major-league shortstop slots would go unfilled, no great novels would go unpublished, no multi-billion dollar inventions would go unmarketed.
I could be wrong, of course. But so what? Who would be the loser if we made the tax system more progressive? Not the people who choose to make less money as a result. No, the loser would be me: if higher top marginal rates reduced the output of such talented, productive people as Rush Limbaugh and the CEO of General Motors, there would be fewer valuable goods and services to go around and thus I (the “average” American) would be worse off. But that’s the whole point of “I cut, you choose”. It would serve me right for cutting “unjustly”.
So we get back to practicalities: if you think that shifting the tax burden a bit toward incomes higher than yours will make you worse off, then you will vote against higher progressivity. But you’re doing so based on your empirical prediction about your own self-interest, not based on “justice”. I may be in the exact same economic position as yourself, and vote the other way because I make the opposite prediction. We count up the votes, and call the result “progressive enough”.
–TP
“I don’t know what marginal tax rate would cause Rush Limbaugh to start withholding his demonstrably valuable labor from the economy”
Suddenly, confiscatory income taxes look a lot more appealing…..
Slarti – wow. I just want to say – what Slarti said – every damned thing.
Turb, thanks for the link but…well, I’m not sure what you want me to do with that. The upper bracket rate in 1960 was 90%. If most of what you make falls in the upper bracket, you’re going to pay the upper bracket rate.
You asked for data justifying the belief that upper income groups are paying a declining share of taxes over time. At least, that’s how interpreted things when you wrote ” I’m certainly not asking for a cite on what Delong actually showed, which is that the top 1% takes in a higher percentage of all income than it has since 1928, which is not the same thing as paying least taxes.” Regardless of the mechanism by which things have changed, the federal tax burden has flattened out some and the fraction of taxes paid by the top 1% has declined some. Look at the graphs in the link I provided and you can see those trends.
I don’t really want you to do anything with the data. I thought you asked a question, and I thought the paper I provided contained the answer to that question. I live to serve.
Bernard 11/13 10:48p
//Timing differences are important.//
Yes, but in the context of the article Drucker essentially said “this one year is representative of them all” which implies that the differences therein are more permanent and NOT timing differences that will reverse sooner or later.
incertus 11/13 9:42p
// In FY 2007… the additional taxes the auditors said the large corporations owed came to $24 billion or 54% of the total.//
The auditor’s assertion of what is owed is not necessarily the final word on the subject. There are negotiations and lawsuits that follow. The auditor is not necessarily correct.
slartibartfast
//To cut through a lot of the back-and-forth, though, I’m wondering what the consensus is on how progressive is progressive enough, and also the consensus on why you think the consensus is just, correct, reasonable, what have you. I’m not pretending to know what the right answer is, but I’m not convinced that any of you do, either.//
Frank asked this several weeks ago. He was shot down. Clean sheet of paper “what is fair” thinking does not go on here.
The folks here are more adept as arguing in great detail “Here’s where the rates were and a blue guy put them there so they’re good but now they are over here and a red guy put them there so they are bad.” They always argue with reference to the change. “The most recent changes benefited the rich therefore they are bad.”
These people are wonklike puppets mouthing the party line without a thought to what is true,noble, just and pure.
How’s that for ad hominem?
Turb, thanks for the link but…well, I’m not sure what you want me to do with that. The upper bracket rate in 1960 was 90%. If most of what you make falls in the upper bracket, you’re going to pay the upper bracket rate.
If you look at the graphs in the paper I linked to, you’ll see that the change in effective income tax rates was actually quite small. The real difference is in corporate taxes and even more so in estate taxes. See Figure 1 for details.
turbulence 4:29
The poor benefit from law and order much more than the rich do. If it became a contest of private armies the rich would win. How do you think that most corrupt third world warlord countries are functioning right now.
I think for discussion purposes on this website, one must assume that the collective owns you and everything that you think is yours including the fruits of your labors.
So, if the effective tax rate is 90%, it would be portrayed as if you have stolen 10% from the collective. On the other hand, if you earn nothing, your effective rate will be zero. You will have paid zero. You will be treated as a ‘heroic new soviet man’ because you have not stolen anything from the collective.
tp’s logic
//After all, here in America, nobody forces you to make a lot of money. You always have the option to pay less tax by the simple expedient of taking a lower-paying job, or forgoing a profitable business deal. You don’t have to be one of the highly-taxed rich. You are free to be one of the highly-subsidized poor, if you think they have it so good.//
smirk.
You have the option to kill yourself too. You need to read “Stalin: Court of the Red Tsar” and “Mao, The Unknown Story” if you want to wallow in this thinking.
The poor benefit from law and order much more than the rich do. If it became a contest of private armies the rich would win.
How would that work in practice? Let’s say you that guy making $250K per year. Some poor folk take your children hostage and demand a ransom. What are you going to do? Pay for a bomber to annihilate entire villages? Are you going to kill thousands of people? Which ones?
Of course, killing people is risky. Sooner or later, people tend to get their revenge and the more people you kill, the more people seek revenge. Dictators don’t have to worry about this so much because they have a lot more power than a disorganized random group of rich people do. I’m curious to know exactly how much murder do you think a doctor making $250K a year afford. Bombers ain’t cheap.
How do you think that most corrupt third world warlord countries are functioning right now.
Since you know so much, why don’t you tell me? I’m sure that I could learn a great deal from someone whose intellect is so vast that they have yet to master the posting rules.
I’m sure many well off people long to live in places that experience the tremendous economic dynamism of Angola or Somalia or Darfur. Truly, the best thing for business is to kill their workers and clients.
From where I sit, people with nice things are vulnerable in ways that those who have nothing aren’t. What’s the sense in having a big fancy house if people keep killing your electricity?
I’d just as soon everybody, poor or rich, would just keep their backs to themselves. With a few exceptions, of course.
Wow. I had no idea such mobs existed. Really, Turbulence, this is some fantasy world you’ve cooked up.
And again, I don’t mean that as a jibe, but…well, just: wow.
As if anyone could. I mean, if we could force people to make a lot of money, why not force everyone to make just enough?
Oh. Well, so much for that notion.
hilzoy and Eric, I’m not uninterested in stimulus, but to me stimulus and the long-term operating point are not necessarily equal. I’m more or less feeling out what people think is equitable, long-term. Just as a point of information.
I suppose we could just funnel a great deal of cash directly into the pockets of lower income families, though, if that’s what the CBO thinks. Is there a time limit on how long you have to do that before the stimulus effect goes away? I suspect that this is one of those things that lots of people hold opinions on, but no one knows for sure.
Really, Turbulence, this is some fantasy world you’ve cooked up.
Have you seen how the middle class live in places like Iraq or Colombia where government order has broken down? The kidnap and ransom issue is pretty damn serious and unfortunately is very far from being a fantasy.
I’m really curious: what do you think happens to societies that have high inequality but no longer have governments with a monopoly on force? Do you think that people in such societies don’t tend to organize into criminal organizations? That they don’t try to “level the asset holdings” as it were?
Um…not sure what you’re talking about, here. You’re suggesting we ought to jack up the upper bracket rate and reinstall some loopholes, and everything will be fine?
I’d be more happy with a lower rates and no loopholes at all, or at least a bit of simplification.
Um…not sure what you’re talking about, here. You’re suggesting we ought to jack up the upper bracket rate and reinstall some loopholes, and everything will be fine?
No, I’m suggesting that in practice dropping the top bracket of the income tax wasn’t as important other changes like those in the corporate tax and the estate tax. A 90% tax rate gets people’s attention but that doesn’t mean that reducing it was actually the most significant change. Your comment implied that the main driver for the long term trend we’re discussing was reducing the upper brackets of the income tax and my point was that is not what the data shows.
You think the source of Iraq’s violence is economic? You think there’s crime in Colombia because the middle and lower classes are rising up against the upper class?
Speechless, I am.
Turdulence
//How would that work in practice?//
Picture all feudal warlord societies throughout history. Out of general chaos arise local strongmen who with a relatively small group of men suppress violence with brutality. They exact tribute from the populace to whom they provide relative safety and order. Chaos continues in the borderlands between the realms of two strongmen (let’s call them Lords). Because of this chaos in the borderlands, trade is dangerous, expensive, and therefore limited. Limited trade means that each Lord’s area is more or less limited to the resources at hand and life, therefore, is difficult. If the realms of two warlord’s touch, there is often continual strife between them which takes it’s toll on the populace. If the populace rises up against the Lord, they are brutally put down by the Lord’s men. Perhaps the Lord is killed in the ruckus but one of the Lord’s men becomes the new Lord. The populace never wins.
//From where I sit, people with nice things are vulnerable in ways that those who have nothing aren’t. What’s the sense in having a big fancy house if people keep killing your electricity?//
Well sure but … not for long. The insightful ones move to the next kingdom over where it is safer (taking much of their capital and know-how with them). The stubborn ones hire private armies to fight back. The mobs blow some steam off for sure but mourning for their dead slows them down soon enough.
Take a look at the transition to Mugabe and the results of his rule in Zimbabwe. This is what happened on a national scale there. History is rife with this. Chinese history is rife with this through the millenia at the margins between dynasties. Really, it is everywhere in history. The mobs almost never rise up for ‘nice things’. They usually wait until life and death issues are at stake: like starvation. Even then, in this century, in both China under Mao and Ukraine under the Soviets and very recently in N. Korea they did not even rise up even in the face of mass starvation due to overrequisitioning of food by the rulers.
What you imagine as a ‘check’ on over- or under-taxation is unlikely in the extreme. So much so that it would serve no ‘checking’ function.
I think I’m knocking off for the night. I obviously need to read both what Turbulence wrote and what’s in the article more closely, because I’m having trouble with what the point is. And I don’t want to get in the pie-exchange process with dave.
You think the source of Iraq’s violence is economic? You think there’s crime in Colombia because the middle and lower classes are rising up against the upper class?
No and no.
I thought my original comment was pretty clear, especially the part where I wrote “Now obviously, this is all insane. I don’t think the have-nots are going to start a class war anytime soon no matter how stupid our tax policies get”, but apparently that was not clear enough. Once again, let me reiterate: I do not think there are any practical circumstances under which some big class war will erupt. Is that clear enough for you?
However, I do think that it is a useful intellectual exercise to consider what services you get from government in the abstract and what it would cost you to procure those services elsewhere. Power vacuums tend to be short lived: sooner or later, some local strongman steps in and imposes order at gunpoint. When he does, he expects money from people that have it and a cut from all running businesses. My assertion is that this cut is unlikely to be smaller than any tax package you could ever get through Congress.
Once again, the point was to think through a thought experiment, not to predict what was going to happen tomorrow or even what was plausible. If you don’t find the thought experiment helpful, just say so rather than misrepresenting it.
dave, I asked you to explain how the well off could use violence to solve the ransom problem. You responded with a bit on the social structure of medieval Europe.
And you also missed the point. Advances in military technology have shifted power from richer to poor groups over time. That’s one reason why the most powerful military in the world was unable to successfully conquer two-bit countries like Iraq and Afghanistan. Peasants from medieval Europe couldn’t do much against mounted knights in armor, but their chances improved significantly with the advent of firearms. At that point, being wealthy enough to afford a suit of armor no longer ensured survival. We live in a world where small arms have become incredibly cheap; people can make chemical weapons in their kitchen and anyone with a few hundred dollars can take out aircraft that cost millions of dollars. In this world, the precise contours of medieval feudalism are simply not relevant.
So once again, I ask you: the local strongman’s goons have taken your children hostage. He wants all your money in ransom. What are you going to do? Start killing people? Pay up? Call the police that no longer exist? Find a bigger strongman and get him to intercede? The last one is actually reasonable, but do you really think that he’s going to charge substantially less money than the first strongman?
What you imagine as a ‘check’ on over- or under-taxation is unlikely in the extreme. So much so that it would serve no ‘checking’ function.
I never said there was a check. Please see my earlier reply to Slarti.
“How’s that for ad hominem?”
Excellent, since you’re exactly as much one of “these people” here as is the person you’re addressing, and everyone else. None of whom shares a mind with anyone else.
“I think for discussion purposes on this website, one must assume that the collective owns you and everything that you think is yours including the fruits of your labors.”
I think that if you want to argue with the voices in your head, there’s little reason to do in text here.
“You think the source of Iraq’s violence is economic?”
I don’t see how you get that from anything Turbulence has written. Can you quote whatever sentences you have in mind that lead you to believe he made claims about the sources of Iraq’s violence, please? I certainly could have missed it, like I did some of what LJ wrote the other night.
“…but apparently that was not clear enough.”
FWIW, I think it’s quite clear. I don’t think I think that because I’m biased in your favor.
turbulence
//That’s one reason why the most powerful military in the world was unable to successfully conquer two-bit countries like Iraq and Afghanistan.//
Conquer? As in subjugate?
If conquer was the goal we would’ve squashed them both in a couple of months. Conquer was not the goal.
The goal was to push aside existing regimes and foster conditions for the blooming of other ‘better’ ones. That is a far cry from ‘conquer’ and a higher more difficult standard of achievement.
turbulence
//So once again, I ask you: the local strongman’s goons have taken your children hostage. He wants all your money in ransom. What are you going to do? Start killing people? Pay up? Call the police that no longer exist? Find a bigger strongman and get him to intercede? The last one is actually reasonable, but do you really think that he’s going to charge substantially less money than the first strongman?//
Pay up and move out of town if the child is returned. (or move even if the child is not returned but I have other children). The only case where I would stay is if I paid up, the child was not returned, and I had no other children at risk. Then I would wage a guerilla war until I finally died or was killed.
But my prior response about the feudal world is really on point. We are talking about the rich in general not a specific, single rich person. The others would hear of my plight and fearing it will happen to them will do as I suggested before. things would evolve as I described and the poor would suffer even more than they do now. Which was my point when I said “The poor benefit from law and order much more than the rich do.” Which is what you disputed at the beginning of this circle.
A rich guy may become poor in the ransom scenario you described. And at the same time the poor kidnapper may become rich. But as a system for making society more equal, generally, when mobs rise up it does not level the field. Foremost it lowers the field for everyone. Second most it destroys a middle class. Finally, a rich and powerful group still exists but the gulf between it and the vast majority is wider than ever.
Mmmm, pie.
Pay up and move out of town if the child is returned.
Great. What makes you think that moving out of town will help prevent future recurrences? As long as you have wealth, bandits will try to take a cut. The notion that there will someplace else where order prevails (by magic!) seems a little silly: during the late 90s, which part of Somalia would you have described as significantly less lawless than the rest of the country?
The others would hear of my plight and fearing it will happen to them will do as I suggested before. things would evolve as I described and the poor would suffer even more than they do now.
Really? Is that what happened to upper middle class families in Iraq and Colombia? I thought a lot of them decided to keep their close at hand in case they needed it for ransom. More to the point, if you want to wage a guerrilla war, that might make you feel better, but people fighting guerrilla wars have high mortality. Most welloff people are not actually trained or skilled in combat and they have more to lose.
The issue isn’t so much that the masses will rise up as one and impose communist rule. The issue is that local strongmen will rise up, attract followers with promises of cash or protection, and resort to violence in order to get enough cash to reward their followers with cash.
And hey, maybe you and your posse of local rich folk can do an awesome job waging guerrilla war and you kill the local strongman. A dozen more will rise up in his place. The thing about being rich in this situation is that you are seriously outnumbered. Your poorer opponents can afford to wage a war of attrition because they’ve got nothing to lose and you do. Sooner or later, you and your rich friends will end up outsourcing the violence to your own strongman who will then have sufficient leverage to extract tax rates far higher than anything Nancy Pelosi ever dreamed of. Most importantly, regardless of whether you do the killing yourself or pay a strongman to do it for you, you don’t have the peace and freedom that you have now. Which means that your quality of life takes a massive hit. Living in a bunker perfecting a siege mentality is no fun.
But as a system for making society more equal, generally, when mobs rise up it does not level the field. Foremost it lowers the field for everyone.
I agree. Again, I never said that this was a good way to reduce inequality nor is it something I find plausible.
“Pay up and move out of town if the child is returned. (or move even if the child is not returned but I have other children).”
l need a baby, Hi.
They got more than they could handle!
That part was clear, Turbulence. The later bit, where you started getting into potential threats, that was less clear. On rereading, I missed that you were pointing more at the value of government than at the potential for mob explosion. Which is fine, but I’m not arguing against government. I’m not even arguing against taxation. And certainly, I’m not thinking that things might be better than elsewhere.
So, dig it: I have a deep appreciation of the value that our government represents. I appreciate it enough that I don’t even consider squawking at the chunks taken out of my paycheck to support it. And I’m certainly grateful that I don’t live in any of those places you mentioned.
Hopefully, this puts this part of the discussion to bed. I seized on part of what you wrote and pretty much ignored the rest. I apologize for the diversion.
As if anyone could. I mean, if we could force people to make a lot of money, why not force everyone to make just enough?
Oh. Well, so much for that notion.
Missed the point by a mile, Slarti. Nobody is arguing we need higher tax rates at the bottom; the argument is over tax rates at the top. Are you dismissing the notion that people choose to be in the top tax bracket? Are you suggesting that some people have high incomes thrust upon them?
Of course you’re not, because you’re not an idiot. You know perfectly well that wealth is a choice in a way that poverty isn’t.
Choosing to earn a high income involves various sacrifices: long years in school, long hours at work, long nights of worry about the risks you’re taking. And yet people make those sacrifices, because more money is better than less money. If they buckle at the knees over a couple of extra points on the income tax, they’re just wusses.
They can, of course, argue to me (the “average” American) that I will be better off if I vote to tax them less. If this appeal to my selfishness fails, and I vote to raise their rates, they still have the option to cut their own tax bill by earning less — just to spite me, perhaps. They work hard for their own selfish reasons, and they’re entitled to kick back and earn less on the same principle.
What I do not accept is the notion that the selfishness of the rich is a virtue while the selfishness of the not-rich is a vice. Wanting to tax the other guy is selfish, but so is wanting a tax cut for yourself. Voting is how we decide which selfish interest will prevail. When the “average” American is in the top 1% of income earners, you can be damn sure that the majority will vote to reduce the top marginal rate, for selfish reasons. Until then, voting to raise it for selfish reasons is not some peculiar form of immorality. It might be dumb, but that’s a different argument.
–TP
Um, Tony: wealth is a choice? Well, then. I choose a whole lot of wealth!
Oh, boy, have you got it upside-down. At least, as a generalization, it’s untrue. I didn’t work hard to be an engineer because of the money. I did it because I like it. Probably if I really enjoyed my stint as fry cook at McDonald’s, I’d still be there.
Doubtless there are people who choose a career track because there’s lots of money in that track. Me, I didn’t. No one I work with did. Back when I started as an engineer, you’d frequently hear people say you weren’t going to get rich being an engineer, unless of course you went into sales. We choose what we like as jobs. We didn’t choose them because they offered the highest pay we could possibly hope to obtain.
As an end result? Absolutely. Are they winding up in the top bracket as a result of their life success? Sure, but that’s nowhere near what you’re suggesting.
They’re free to do that. I’m not doing that.
It’s not my notion. If you’re arguing that with me, you’re arguing with the wrong guy. I accept that I give up some of my wages to government, and that others may give up less.
I don’t understand this. Is it even possible? Lake Woebegon, where all of our children are above average.
Turb,
I think you overlook an important point. Government doesn’t just protect the rich from the poor — it also protects the rich from each other. Rich people do billion-dollar deals with other rich people. They count on government to enforce the contracts those deals involve. That’s worth real money.
Consider so humble a government service as the Patent Office. You build a new, improved mousetrap and become rich. The enemy you fear is not a howling mob copying your invention for their own use. It is your rich neighbor copying your design, mass-producing it, and underselling you. The mob don’t need to rob you. They can just sit back and reap the benefits of your price war. Your only ally is the USPTO — and the entire panoply of government that stands ready to enforce your patent rights against your real enemy: the other rich guy.
–TP
So, dig it: I have a deep appreciation of the value that our government represents. I appreciate it enough that I don’t even consider squawking at the chunks taken out of my paycheck to support it. And I’m certainly grateful that I don’t live in any of those places you mentioned.
That’s cool. My only extension is to think about how much it would cost to purchase equivalent security and use that to guess at what should be reasonable tax rates. Just a thought.
I apologize for the diversion.
No worries, we all do that sometimes.
“Um, Tony: wealth is a choice? Well, then. I choose a whole lot of wealth!”
I have to think that you’re tired to write stuff like this. It’s perfectly obvious what Tony is saying: not that people who are poor or middlying can simply choose to be wealthy, but the irrefutable fact that people who are wealthy can choose not to be.
“Doubtless there are people who choose a career track because there’s lots of money in that track. Me, I didn’t.”
I think the first sentence there is more relevant in describing, well, most people who aren’t you, than the second. Most people are, indeed, not you. Some people earn a lot because it’s a by-product of their desired job/career/profession, and some people earn a lot because earning a lot is their primary motivation. I don’t read Tony as trying to say otherwise.
“We choose what we like as jobs. We didn’t choose them because they offered the highest pay we could possibly hope to obtain.”
Who is “we,” kemo sabe? Best as I can tell, it means the tautological “people I’m describing,” or simply “people like me.” Which brings me back to my previous point. It’s only a semi-useful observation.
You’re claiming that nobody is rich because being rich is their primary motivation? Do you have any pointers to support this claim? I’m guessing that Tony would stipulate that hardly all rich people have that as their primary motivation, but I can’t imagine how you could support the absolutist claim you seem to be (unintentionally, perhaps?) making in return.
It would be quite a good trick, I agree.
Best quote I ever saw summing up the low taxes or no taxes always=yummy goodness & taxes=theft crowd (and I can’t remember who to attribute it to, but the quote ain’t my own, so I can at least acknowledge that much):
“The basic stance of the low tax right and the libertarians is that they’d prefer to have 100% of 50 than 75% of 100.”
Pie!
Um, Tony: wealth is a choice? Well, then. I choose a whole lot of wealth!
Um, Slarti: as a fellow engineer, I know you understand the difference between a necessary condition and a sufficient one.
Here’s an example: the desire to do engineering is necessary, but not sufficient, to be an engineer — just like the desire to make a lot of money is necessary, but not sufficient, to make a lot of money. Your “choice” lies in the “sufficient” part.
Back when I started as an engineer, you’d frequently hear people say you weren’t going to get rich being an engineer, unless of course you went into sales.
I have known engineers who went into sales because they were no damn good at engineering. Lo and behold, they made more money in sales. Bumped’em right up to the next tax bracket. Poor suffering bastards hardly chose to make more money, I suppose. Real shame their marginal rate went up, eh?
I don’t understand this. Is it even possible? Lake Woebegon, where all of our children are above average.
“When the ‘average’ American is in the top 1%” was perhaps too dry an attempt at humor on my part. So let me add water. No, it’s not possible. The top 1% will always be a minority — around 1%, curiously enough. The selfish interest of that minority is high-end tax cuts. It’s a selfish interest even though the top 1% are such a tiny, put-upon minority. Pretending otherwise is as absurd as talking about the average American being in the top 1%.
–TP
I’m guessing that Tony would stipulate that hardly all rich people have that as their primary motivation
Tony will gladly stipulate that, and then oberve that people who are rich despite not being terribly motivated by money are hardly likely to object to paying a couple more points on their income tax, are they?
–TP
“… just like the desire to make a lot of money is necessary, but not sufficient, to make a lot of money.”
I have to quibble that this isn’t so; a noticeable, though perhaps minority, number of people who do, do so incidentally. Heck, some people do it just via having inherited wealth, and had good investment managers. Or maybe you patented something you thought fascinating or neat. Or just, as Slarti was talking about, love a job that happens to pay immensely well. Maybe you love a certain kind of law practice, or even just love being an investment banker because the work fascinates you. Etc.
There seems to be a lot of excess generalizing going on in this thread.
The poor benefit from law and order much more than the rich do.
Hahahaha! Yeah, that’s why the theft, murder, assault, drug use, spousal abuse, et al. rates are so much higher in rich communities than in poor ones.
If I call 911 right now, I can guarantee I’ll have a unit at my front door in less than five minutes. Just four miles to my east, in the Shaw neighborhood of East Cleveland, I bet that wait is about half an hour.
So, basically, the quoted sentence is so self-evidently silly it doesn’t even rise to the level of “Oh, please” dismissal. It’s just dumb.
As for the direction the rest of this thread has taken, I still think that the great ideological triumph of the Republican Party over the last half-century is convincing vast swaths of middle-class wage-earners that their organizing principle re: taxation should be, “Haven’t our poor millionaires suffered enough?” I really hope that this election combined with this economic situation puts an end to that silliness.
So, basically, the quoted sentence is so self-evidently silly it doesn’t even rise to the level of “Oh, please” dismissal. It’s just dumb.
I have to agree, unless somehow one defines “benefit” and “law and order” in narrow enough ways to make it true. Forget calling 911. I’m sure an individual janitor benefits far more from the regulatory structures that allow large corporate mergers to take place, allow the stock markets to function, enforce the terms and conditions of contracts and so on than do the wealthy in this country. Right.
Exactly the point I was trying to make. Being wealthy is manifestly NOT a choice, because wealth isn’t something you can choose to have. You can choose to get rid of everything you have, but only if you already have it.
I strive for full utility, but I still consider it a personal victory if I only make it halfway.
Did I claim that? Please show me, so I can retract it. I think I said that not everyone’s choice of career path is guided by the desire to acquire wealth, which I think is something else entirely. Or at least I hope it means something else entirely, to you.
Whether you had it because it fell on you out of the sky, or because you earned it, is another conversation entirely. Hopefully this will end the spate of talking-past-each-other.
I think this supports my point rather better than it does yours. Making a lot of money is sometimes not even the career-guiding choice of people who wind up doing so. Being able to sell people things is, as much as I hate that it is, occasionally worth more money to an employer than the ability to make those things work in the first place.
Hopefully this will be the end of speculation of how tired I am, or how I narrowly avoided being an idiot. Maybe not, though. Possibly I’ve made decent points, but communication has failed at one or another ends of the connection; possibly, both. Or, perhaps, I’m mistaken, and the pointing-out of those mistakes has not been completed.
But tired? Or slipped and nearly fell in a pile of idiocy? Well, it probably wouldn’t be the first time, but the presumption irks, a little. It’d irk just as much going in the other direction, I suspect.
I think this supports my point rather better than it does yours. Making a lot of money is sometimes not even the career-guiding choice of people who wind up doing so.
Slarti, if your only point is that some (or many, or most) people who make a lot of money are motivated by something other than money, I am happy to agree with you.
But would you explain to me, please, why people who are not motivated by money should care very much about paying a couple of points more on their income tax? Last I checked, taxes are strictly about money.
–TP
I’m not sure why you’re asking me that, Tony, because it doesn’t relate to anything I said. At least, it doesn’t relate to anything I intended to say.
As an aside, though, I think that it’s not an automatic conclusion that people who make career choices for reasons other than income potential don’t care about money, once they’ve earned it. I don’t think that answers your question, but I don’t think I’m on the hook to answer your question.
This concept of “earned”, though, seems to get some folks all blowfishy, so I’m a little loathe to even mention it.
Here’s a question about these tax issues no one’s asked:
How many of the people supposedly affected by the tax increase have so many write-offs that they pay taxes on the AMT anyways? I remember reading about Cheney paying a 13% tax rate a few years ago.
“This concept of ‘earned’, though, seems to get some folks all blowfishy, so I’m a little loathe to even mention it.”
I’ve not observed many folks having a problem with the concept of “earning” money. The problem I’ve observed is people differing over whether “earning” takes place in a vacuum, and there’s some sort of absolute moral right to not be taxed without it being regarded as Theft By Jackbooted Force, and that sort of thing. But the basic concept of “I do something for you, and you give me money,” seems relatively uncontroversial, outside a Maoist environment.
As an aside, though, I think that it’s not an automatic conclusion that people who make career choices for reasons other than income potential don’t care about money, once they’ve earned it. I don’t think that answers your question, but I don’t think I’m on the hook to answer your question.
Of course you’re not on the hook to answer my question — I’m not paying you for it, after all 🙂
We started down this branch of the thread because I pointed out that in America nobody forces you to make a lot of money. I should have thought this truth was self-evident. Your objection seems to be that it’s nevertheless irrelevant. Some people do make a lot of money, but not, you say, because it’s their goal in life or even their main purpose.
My rebuttal is: so what? Taxation is about money, not goals or purposes. And income taxation is about money you will earn in the future, not money you have already earned. Whether you take home a few thousand dollars less, next year, owing to a tax hike or a pay cut makes no difference to your bank balance. If you would quit your job over a small pay cut, that’s your choice. But if it’s your choice to quit over money, then I say it’s disingenuous to talk as if it’s not your choice to stay for the money.
–TP
I should have thought the notion that you can’t be forced to make a lot of money would have been self-evident, too, but no luck.
Manifestly untrue. Tax is about money you earned in the past. Recent past, sure, but past nonetheless. Another of those supposedly self-evident things.
I blockquoted all of the above because I have no idea what point you’re trying to make with it, or what point of mine you’re trying to rebut. It doesn’t seem to fit at all into any of our conversation. Clue me in, please.
I should have thought the notion that you can’t be forced to make a lot of money would have been self-evident, too, but no luck.
Huh? What do you mean by “no luck”?
Tax is about money you earned in the past. Recent past, sure, but past nonetheless. Another of those supposedly self-evident things.
How a discussion of what income tax rates should be in the future has anything to do with money you earned in the past, recent or otherwise, is not clear to me.
As for the bit about pay cuts versus tax hikes, let’s take it a step at a time. You chose your current job, right? You chose it based, in part, on the salary it comes with, correct? Might you not have chosen it had the nominal salary been smaller? How about if the nominal salary had been the same but the tax bill a bit larger? Those are sincere questions. If you care to answer them, I might be able to explain my point a little better.
–TP
It turned out not to be quite as self-evident as I’d thought, is all.
Should be. You left that part out of And income taxation is about money you will earn in the future.
Sure. In part. Also in part: location, what I’d be doing, co-workers being a known quantity, learning opportunity, in no particular order of priority.
Perhaps. We’ll never know, though.
That’d make the nominal salary smaller, effectively. But I don’t get my choice of tax bills, and tax rate isn’t a variable from one job to the next. Except for state tax, which has been a consideration in consideration of past job opportunities.