Cutting taxes on the rich

[CaptUSA]

Zippy, did you read anything I posted or just the 1st four words? You are talking about capital to satisfy the demand.

 

[DeMintConservative]

The proper metric to measure taxation is spending level. Every spent dollar will eventually be taxed, even if via inflation.

So, most of the discussions about taxation tend to be quite immaterial. Moreover, tax cuts can have diverse effects on economic growth depending on how they're financed, via spending cuts or through deficit. I'm extremely skeptic about tax cuts that need to be paid with borrowed money.

Tax revenue as a percentage of the GDP is around 16% right now. I'd welcome a deal that, at the cost of raising tax raises, would allow serious entitlement reform and decisive spending cuts (and this would be a true tax cut, because, again, taxes are measured by spending). Making every generation of taxpayers accountable for their own spending would be a significant step towards fiscal sanity. Something that would allow the budget to be balanced at 18% of the GDP in 10 years or something. This is my most optimistic dream, but I think it might be possible if the GOP wins the WH and a Senate majority in 2014.

(of course, I write this under the premise of a reality-based scenery - the US as of 2012 - not as a speculative and theoretical reasoning).

 

[Brian4Liberty]

That's ridiculous.

What Romney wants to do is the exact opposite of redirecting capital: is stop the government from doing it by closing loopholes and tax expenditures via tax code reform.

And a well executed tax reform can allow a tax cut while keeping the government revenue neutral. Economy isn't a zero sum game.

If you believe that is what Romney would really do, I have a bridge to sell you.

 

[Zippyjuan]

Demand is already there. You are talking about capital. The same amount of capital would move faster when fewer transactions take place. For example, if one person invests $1000 in a company, the company gets that money immediately. If 100 people buy something for $10, the benefit of this additional capital takes some time to accumulate. Still, the additional capital is $1000. But you can see the speed difference.

Please take a moment to read up on why your theory fails. Acala provided a link... I haven't read it yet, but I'm sure it will do the trick.

Let me address the rest (which I did in my original post). The wealthy are more likely to put the money away and not spend it on goods. Lower income people are more likely to spend it on goods. Give a millionare another $1000 and that won't lead to $1000 in more demand for goods but give it to somebody making $30,000 and most of it will. Which is more likely to lead to companies hiring more people? Will the company want to borrow more money (getting a $1000 investment in the company) or if they sell $1000 more in goods? If they don't have the sales to justify it, they don't need the $1000 investment. Why aren't companies hiring today? Weak demand for goods - not lack of capital.

 

[CaptUSA]

Why aren't companies hiring today? Weak demand for goods - not lack of capital.

I take it you do not own a company. The cost of labor is too high. And there is no certainty about how high it is going to get in the future. You can't plan.

 

[Zippyjuan]

Again may I ask- if you run a company, what would make you more likely to hire more people- seeing sales increase or being able to borrow more money? It comes down to this. If you give a tax cut to the wealthy, it means more money put into investments. If you give a tax cut to lower incomes, it increases demand for goods since it is more likely to be spent. If you want to cut taxes as a means of increasing jobs, which would be more effective?

 

[CaptUSA]

Oh, Zippy... Have you been reading too much Paul Krugman?

What you're saying makes sense in theory, but it doesn't work that way. Sure, if my business couldn't keep up with demand, I'd have to hire more people. UNLESS, hiring more people would put me out of business. I'd try to become as efficient as possible with the staff I have. Yeah, I could grow by adding a wing and hiring, but I can't make that leap because, 1. I don't have the investment capital, and 2. I don't know what's coming in the way of labor costs. I can't plan. The cost of labor has already risen and there is no way of knowing how much it's going to continue. I'm going to keep my businesses running as efficiently as possible until I get some certainty. Then, if I ever get that, I can start growing again.

 

[ILUVRP]

did we have certainty under gwb , no one was hiring , we were losing 700,000 jobs a month , no one knows what the future is for labor costs ( unless its in china ), i thing uncertainty is a very weak saying , the trouble with small business in america is they can not match the less than one dollar a hour in china , major banks understand this and fine it hard to loan them money , even when things were good in this country ( before trickle down econ ) about 80% of small business went broke in a couple years.

in all honestly the best time for labor and jobs was when the tax rate on high earners was about 90%, but one thing never heard was the 90% rate was on all income over about $3 million a year not the total earned , now they don't want to pay a extra 3% 0n any income over $1 million.

like i stated on a early post any time a headge fund mtg taxes his pay in the form of dividens and pays 15% tax , a ditch digger pays about 25% , anyone that thinks this is the way the tax system should work has a problem , they will vote for romryan , i all ready voted for gary johnson.

 

[DeMintConservative]

in all honestly the best time for labor and jobs was when the tax rate on high earners was about 90%.

Jesus Christ....

FYI, that never happened. It's just a fable invented by the left. Nobody was actually paying a 90% marginal rate (deductions to the collected income), let alone a 90% effective tax rate.

but one thing never heard was the 90% rate was on all income over about $3 million a year not the total earned , now they don't want to pay a extra 3% 0n any income over $1 million..

Don't you think politicians already have enough money in their hands?

like i stated on a early post any time a headge fund mtg taxes his pay in the form of dividens and pays 15% tax , a ditch digger pays about 25% , anyone that thinks this is the way the tax system should work has a problem , they will vote for romryan , i all ready voted for gary johnson.

He does? Where? That's a very well paid ditch digger. You need to earn an adjusted gross income above $500,000 to pay that in taxes.

I doubt there's a single ditch digger that is actually a net contributor to the fiscal system (net taxes = taxes paid less benefits received)

 

[Zippyjuan]

FYI, that never happened. It's just a fable invented by the left. Nobody was actually paying a 90% marginal rate (deductions to the collected income), let alone a 90% effective tax rate.

A marginal rate is not the average or effective rate. It is the tax rate applied to the last dollar earned- not to all dollars earned. In the 1940's and 1950's the marginal rate on top wage earners did indeed hit 90%. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

As you point out, the marginal rate does not apply to every dollar earned and the average (or effective) tax rate is further reduced by deductions and exemption and may be significantly lower- and as ILUVRP points out, that rate only applied to the portion of the person's income which exceeded a certain level (say the cap was at $100k before the top rate kicked in- all income below $100k would be taxed at a lower rate and income above that figure was hit by the 90%. If you made $120k in this example (not true figures for what it was then but simply for illustrative purposes), then not $120k would be subject to the 90% tax rate but $20k of your income. With allowances and deductions, this year about 45% of income tax filers had an average tax rate of zero percent (they owed no income taxes).

In 1945, your income had to be over $200k a year to qualify for the highest income tax bracket which was actually 94% for that year. http://www.businessinsider.com/history-of-tax-rates-2012-5?op=1

According to the Department of Commerce, the median income in that year was $2,379. http://www2.census.gov/prod2/popscan/p60-002.pdf Only 1.3% of the population made even $10,000 a year or more (a $10,000 income had a marginal rate of 45%) so an incredibly small number of people would have been hit by the 94% marginal rate. Marginal rate on the median income level was 13%.

Not commenting on good or bad- just sharing facts.


More info:

http://teachinghistory.org/history-content/ask-a-historian/24489

The “exceedingly high” part of this question most likely refers to the federal income tax’s “confiscatory” top rates coming out of World War II, which the Eisenhower Administration left in place into the 1960s. During the war, the top “marginal rate” was 94%, but 94% of what? Then as now, income tax rates moved up at distinct break points. In this made-up example, consider a 15% rate up to $25,000, 21% from $25,000 to $50,000, and 25% over $50,000. Those making $50,001 or more won’t pay a quarter of their total income, but rather 15% of the first $25,000, 21% of the next $25,000, and 25% of everything above $50K. That’s why the system is called progressive - the percentage rate progresses upward with income, but the higher percentage applies only to new (marginal) income above each break point. In 1944-45, “the most progressive tax years in U.S. history,” the 94% rate applied to any income above $200,000 ($2.4 million in 2009 dollars, given inflation).

In World War Two, tax law revisions increased the numbers of “those paying some income taxes” from 7% of the U.S. population (1940) to 64% by 1944.

Very few individuals encountered this top rate, however. The actual proportion of earnings citizens paid as income taxes in 1945 was far lower: for the poorest 20% of Americans, 1.7%; for the next 20%, 6.2%; for the middle quintile, 8.9%, for the upper-middle 20%, 10%; and for the wealthiest quintile, 20.7%. Tax rates have fallen since then: the current top level is 35% of income above $357,000, or $30,000 in 1945 dollars. Then the median family income was $2,379 per year. Brackets also have simplified (24 in the 1950s, just six today), yet the federal government takes in far more revenue than 60 years ago and citizens complain hugely about being over-taxed. What has happened?

Three things, basically. First in World War II, tax law revisions increased the numbers of “those paying some income taxes” from 7% of the U.S. population (1940) to 64% by 1944, vastly broadening the tax base and increasing the total intake. Even so by 1975, the same five quintiles, bottom to top, were paying respectively just 0.6%, 4.7%, 8.8%, 11.2%, and 17.8% of their adjusted gross incomes to the IRS. Note that for four of the five groups, this percentage was lower than in 1945, with several waves of tax cuts following in recent decades. Second, other federal taxes increased substantially. In 1952, social security tax rates stood at 1.5% of pay, employers and workers each putting in this sum. The self-employed paid 2.25% of net income. These figures increased by 1970 to 4.2% each for workers and enterprises (6.2% for self-employeds), and to 6.2% each (and 12.4% for self-employeds) by 2010. Thus the share of earned income taxed increased fourfold or more since the early 1950s. As well, Medicare and Medicaid taxes appeared in the late 1960s and rose from half a percent then to nearly 1.5% now. Thus many Americans currently pay more for these retirement and medical coverages than they do in regular income taxes. But the biggest blow may have been the evidently sharp increase in state and local taxes since the 1970s. Rising from a national average of $800 per capita (multiply by the number of your family members) in 1977, these taxes neared $4,300 per person by 2008, rising 44% faster than inflation. The principal mechanisms employed by non-federal governments were wage and income taxes, property taxes, and a vast range of fees, all of which went to support public safety (police, fire), health, basic and higher education, roads and other infrastructures, courts, prisons, and the regulation of everyday life (deeds, inspections, voter registrations, licensing, et al.)

 

[CaptLouAlbano]

Has the notion of a consumption tax ever been bounced around here? I have given it some thought, and it seems to be a decent idea conceptually, but there would have to be some major restrictions on it. I don't want to see goods and services taxed all the way down the line. I am thinking back to my second business here which was a pizza shop. I wouldn't want to see all the ingredients to make a pizza taxed and then the final product taxed as well. I tend to think that only the consumable product should be taxed. So in that sense, I am thinking that businesses would only be taxed on products they buy as the end user, and not product that would go into the production of their product or service. Too complex?

 

[qh4dotcom]

I think Congress should have double the tax rates they impose on everyone else. That would go further to keep the rates low than most anything else I can think of.

You want Ron Paul, Rand Paul and Justin Amash to pay twice what they do now in taxes?

 

[CaptUSA]

Has the notion of a consumption tax ever been bounced around here? I have given it some thought, and it seems to be a decent idea conceptually, but there would have to be some major restrictions on it. I don't want to see goods and services taxed all the way down the line. I am thinking back to my second business here which was a pizza shop. I wouldn't want to see all the ingredients to make a pizza taxed and then the final product taxed as well. I tend to think that only the consumable product should be taxed. So in that sense, I am thinking that businesses would only be taxed on products they buy as the end user, and not product that would go into the production of their product or service. Too complex?

Lots of problems with a consumption tax. You're just highlighting one of them.
Another is that people who have already been taxed on their earnings would now also be taxed on their consumption. It's double taxation.

The idea sounds better than what we have now, but I think the ultimate goal should be to reduce the income tax to 0. We don't need new schemes to keep feeding the monster.

 

[CaptLouAlbano]

Lots of problems with a consumption tax. You're just highlighting one of them.
Another is that people who have already been taxed on their earnings would now also be taxed on their consumption. It's double taxation.

The idea sounds better than what we have now, but I think the ultimate goal should be to reduce the income tax to 0. We don't need new schemes to keep feeding the monster.

Right the ultimate goal is zero, but we have to have a means to get there. We cannot unravel 100 years of taxation overnight - that's libertarian fantasy land and not reality. By the way, in my consumption tax, we would eliminate the income tax, so you only get taxed on what you spend. But there are some problems with it - obviously enforcement since there is so much cash business taking place. And the issues of who or when the item is taxed is a huge problem, since there would have to be a book thicker than the current tax code to figure out what and when is taxed.

So scrap that the more I think on it.

I don't like taxing income either, since you run into the same issues there with double taxation, determining what is income and what is not, etc. Nonetheless, I think a flat tax of some sort is probably our best transition away from what we have now.

Ultimately, once we get spending under control a head tax wouldn't be a bad idea - that's what we did in the townships for years. A small amount of money per adult to pay for the small amount of gov't services provided (roads, defense, etc). But we are a long way from that, and I doubt we will see in in my lifetime or in the lifetime of many here.

 

[CaptUSA]

By the way, in my consumption tax, we would eliminate the income tax, so you only get taxed on what you spend.

That's for people that are still earning an income. If you're retired and living off your savings, you've saved your whole life and got taxed the whole time. With a consumption tax, you will be taxed again.

So scrap that the more I think on it.

Yeah, the more you dig into it, the more complicated it has to get. I liked it at first, too, until I saw all the problems.

Nonetheless, I think a flat tax of some sort is probably our best transition away from what we have now.

Probably marginally better, but I still think the problem is spending. The taxation scheme doesn't really compare to the real problem. Once we have spending under control, I think we can look at the tax system, but it's kinda putting the cart in front of the horse.

 

[ILUVRP]

http://www.decisionsonevidence.com/...n-Top-Marginal-Tax-Rates-and-Unemployment.png

this a chart of tax rates vs employment .

as a note the 90% rate was on income over $200,000 in the 50's-60's which would be about $2.5 million a year now.

 

[CaptUSA]

ILUVRP, there are a lot more variables that go into those numbers. Don't hang your hat on them.

 

[ILUVRP]

i agree , there is variables in all data .

 

[Zippyjuan]

Has the notion of a consumption tax ever been bounced around here? I have given it some thought, and it seems to be a decent idea conceptually, but there would have to be some major restrictions on it. I don't want to see goods and services taxed all the way down the line. I am thinking back to my second business here which was a pizza shop. I wouldn't want to see all the ingredients to make a pizza taxed and then the final product taxed as well. I tend to think that only the consumable product should be taxed. So in that sense, I am thinking that businesses would only be taxed on products they buy as the end user, and not product that would go into the production of their product or service. Too complex?

Let's say we wanted to try this. And to keep it from hurting lower incomes too badly we exclude food and food service industry from the National Sales Tax.

According to Federal Reserve figures, retail sales were $368 billon dollars for the month of September. http://research.stlouisfed.org/fred2/series/RSXFS Let's assume that this figure is the same every month for a year. That is $4.42 trillion a year. Let's also assume that we keep spending frozen where it is right now and want to balance the budget only using this sales tax for government revenue.

The 2012 US budget shows expenditures to be $3.8 trillion. That would require a national sales tax of 86% on everything aside from foods and food service industries. Naturally if you instituted that huge of a tax on everything demand would plumet and you would need an even higher tax rate to collect the same revenues so easily over 100% would be necessary.

In the past, some have suggested tariffs instead. Using the same limitations (only tax source and a balanced budget) that would require a 200% tariff or a tripling of the cost of every imported item (including oil).

 

[Tpoints]

Rich people do not keep their money in their mattresses. They have it invested in the economy. In other businesses. In their own businesses.
If you rob their wealth to feed the government, that's more money taken out of the economy. Fewer jobs.

People invest where they think they can get the most return. It sends proper signals to the market. Government screws up the signals and wealth is misallocated.

I've been trying to break this down in the simplest form possible.

OK, I grant you they don't keep ALL THEIR money in mattresses. But the opposite is true too, they don't invest ALL their money in job creation. If it were the case that the rich always or mostly always invests in job creation and economy stimulation, than trickle down theory would be true, and bailing out the rich would always be the right thing to do.

Some do, some don't, it's got a lot to do with opportunities available, and their personal goals, little to do with how much money they have. Rich people may have lots of ABILITY to invest and help the economy, but not always the DESIRE TO. People don't want to tax the rich because they like stealing, they only do so because they believe the rich are not spending it the right way. If the rich (any rich) were either throwing money around to charity or creating more jobs than we need, they'd be loved, not hated, and encouraged, not asked to be taxed.