This post discusses one of those paradoxical situations in the field of Economics where an idea makes a lot of sense at the micro level, but comes at looking quite terrible at the macro level.
I wrote the following post on the 28th of April, 2007 under the pseudonym 'Bronx'!
The other pen names associated with the comments section below are just to differentiate clearly between the various contributors and their inputs into the veritably long drawn out debate.
It proved so popular that it garnered a humble grand total of 2,227 page views then.
I am re-publishing it below with the associated comments and debate that ensued with the international participants online.
It turned out to be a great lecture that I enjoyed. I hope that you, too, will find it interesting.Who knows? The post may have influenced Obama and Clinton - then Democratic presidential hopefuls - to go for the jugular in the vexing matter of getting new federal tax funds for prosecuting American democracy successfully.
Obviously, the wealthy are quite adept at tax dodging - switching to a lower-tax country, for example, artist Tracey Emin moving away from Britain's very taxing fifty percent-plus rate to the more artist-friendly environment across the English Channel in France.
My original thesis was as follows: IS A TAX INCREASE FOR THE TOP TAX CLASS SO BAD?
If someone earns $1million an hour and another earns $10billion a year after tax, would a 10% increase in his or her annual tax rate hurt him or her too much?
I can just think of what good that kind of money could do for those in the lower rungs of the tax bracket!
YES, SAY WHAT YOU LIKE, I AM REASONING LIKE A DEMOCRAT, LIBERALLY!
SO, IS IT FAIR OR NOT?
I can just think of what good that kind of money could do for those in the lower rungs of the tax bracket!
YES, SAY WHAT YOU LIKE, I AM REASONING LIKE A DEMOCRAT, LIBERALLY!
SO, IS IT FAIR OR NOT?
Comments
BrenneeLee said on Apr 28, 2007....
Completely unfair in my opinion.
Everyone should pay the same percentage of the income they earn. Someone who is more successful shouldn't have to pay more because of it. It severely hurts our economy to tax the rich heavily. Tax cuts all around is the only thing that does us any good. *warning: liberals won't agree*
If you want to tax something to death, imports would be a good place to start.
I think the only reason Democrats want to tax the shit out of the rich is because they make more money and for some reason, the dems think they're entitled to it.
beyondtheveil said on Apr 28, 2007....
bronx- I don't know if this is fair or not, but sorry brenneelee, I disagree with you on two points. First, I would much rather pay upfront than be owned by China for borrowed money our children will be swamped with. Second, a tax cut is going to come back and bite you in the butt later.
No, I am not on the liberal left.
BrenneeLee said on Apr 28, 2007....
Beyond... I wouldn't have accused you of being on the liberal left... yet *smile*
You might be right about China, I hadn't considered it like that. As for the tax cuts... let's hope they don't have sharp teeth.
ALIENated said on Apr 28, 2007....
Why should I get taxed because I have income? That is counter productive, and listen closely, rich people did not get rich by paying taxes. Wake up. They will never pay more taxes than me and you. They pay people to get them out of paying taxes just on principal if nothing else. Why do you think rich Democrat politicians raise taxes. So you and me pay more taxes because they are not paying them. I would love to see what Ted (fatass) Kennedy or Al Gwhore pays. It would probably be less than his electric bill. The only fair tax would be a national sales tax. Then when fatass goes down to buy his gin, he would have to pay tax on it. When Gore paid his thousands of dollars electric bill, there would be tax on it. When the drug lords buy all that bling bling, there would be tax on it. And us poor smucks that usually pay all the taxes would never have to sweat of an income tax form again, trying to wring out a few deductions so we can keep the farm. And every cent spent by illegal immigrants, or even visitors would be taxed. Please do not tell the people at the IRS or H&R Block about this. They would have a cow, and be out of work.
Bronx said on Apr 28, 2007....
Bren: Well, those are very major points right there - flat tax rate, tax cuts for everyone, import taxes.
Unfortunately, each of those have their deeper wrinkles and arguments well hidden - and, believe me, they don't mix well simultaneously in Economics, IMHO.
BTW, WELCOME TO MY BLOG!
Bronx said on Apr 28, 2007....
beyond, bren; thanks for resolving those issues so well!
Bren: remember that the super-rich won't feel the pinch too much when they 'lose' a few millions to the tax payer - anyway, there are always certain hidden incentives given to them by govt.
Bronx said on Apr 28, 2007....
Alien: hi, haha - I won't tell if you don't!
Well said; I wish your speech could be read by many African presidents, many of who insist on confiscating all land, minerals, and other natural resources for 'govt.' use - incidentally, they don't pay tax!
However, there are many rich Republican Texans, outside the oil industry, who do pay taxes, I suppose?
I do agree with you about indirect taxes being more effective!
curmudgeon said on Apr 28, 2007....
See, I sincerely doubt that anyone making that kind of income is likely to be blogging on soulcast. Meaning, as usual, the people suggesting this tax increase are doing so because it's not their money. Some other guy is going to end up paying for it.
And the proponents argue that these rich folks won't feel it. REALLY? You mean you wouldn't feel it if you had to fork over an extra $ 500,000 a year of your own money in taxes? For what? So you can get the exact same level of government service that someone who doesn't pay taxes at all gets?
And then there's the fake argument that a tax increase like this would be good for the country and these guys ought to pay their "fair share". But do the rich have a say in what is their "fair share"? Nope.
I'd favor a flat income tax without deductions or exemptions or a national sales tax.
ALIENated said on Apr 28, 2007....
Income tax is not about raising money. Income tax is about social engineering. That is why Democrats love it so much. If you fail to do this or that (like preach anything but the party line in government schools), they will withhold the tax dollars. So young Democrats get their indoctrination, with your tax dollars. Plain as the nose on your face. And any good rich guy worth his/her salt is not going to pay more income tax that they should, ever. Otherwise, they will not be a rich guy for long. They will be the middle or lower class guy like us, who really end up paying all the taxes. Here is a test. Drag out you tax return stuff from 1994 and check your gross income for that year against the amount of income tax you paid (during hyper Democrat times). Now do the same for this year. Remember look at percentages not dollar for dollar. Let me know what you find. And remember the economy is reportedly doing great as I understand it.
Bronx said on Apr 29, 2007....
curmudgeon: you're right about no blogger in SC earning that kind of money, for now? Haha!
Anyway, income tax is usually never so simplified that a flat rate is used - it is usually a marginal rate that is stepped up based on the size of individual income.
So, the average of these tax rate steps is what could be equated to a flat tax rate - even then, the effective tax rate paid is usually much less than the marginal rate!
By the way, those in the top tax bracket make up only about 1% of the total taxable population - insignificant, no?
See the conclusion here, from the IRS and others, to understand better why cutting the top tax rate would not benefit you and I.
Here's some historical data to back those conclusions made above.
silverwhisper said on Apr 29, 2007....
alienated, i would be really novel to see political commentary by you in which you don't reference liberals or democrats. it would be like a breath of fresh air.
personally, i think consumption taxes are a vastly more fair way to handle it, and on this point, i think curmudgeon and alienated are absolutely right. heck, i'd accept a federal sales tax that completely eliminates personal income tax, too.
ed
Bronx said on Apr 29, 2007....
Alien: with this almost virulent bashing of the Democrats, I won't be surprised if any one of them makes a u-turn or takes a quick detour upon sighting your car cruising up the boulevard! Heehee!
BTW, one could say with some insight that Republicans spend so much of the tax payer's money fighting unwinnable wars that the Democrats have no choice than to tax their well-heeled friends in order to get the economy going again!
Proof? IMHO, historically, every Rep. govt. that fights a war hands over to a Dem. govt. - "...here, you want to rule, don't you? Well, let's see how well you do now we've spent all the money..." kind of thing? Haha.
"And remember the economy is reportedly doing great as I understand it." - yes, reportedly so, and I remember also that it's the Reps.who are in govt. right now, Alien!
About the tax comparisons - I think I'd rather send up these links that have a more national spread and greater historical details than an individual tax return form.
Check these out:
Top US Marginal Income Tax Rates, 1913--2003
Personal exemptions and individual income tax rates, 1913 - 2002
Maximum Marginal Tax Rates on Individual Income - for about 45 countries, for 1979 and 1990
Effective Federal Tax Rates
Under Current Law, 2001 to 2014
Income tax in the United States, by Wikipedia
Heehee, let's all chew on those and digest them for a while, shall we?
Bronx said on Apr 29, 2007....
SW: hi, he is a bit harsh on the Dems, isn't he?
However appealing consumption tax is, ed, unfortunately, it all boils down to wherethe money is spent!
In fact, that's why those in the top tax brackets can afford to easily relocate their productive resources abroad, whimsically even sometimes - denying their country the accruing income.
And, when they do their shopping abroad, take vacations abroad, and order even their toilet tissue and wallets from abroad, where are those expenses for consumption or sales taxes reflected?
As Alien rightly noted, these guys and gals are so smart - their complimentary gifts and hotel freebies alone enable them to take vacations free annually almost anywhere!
silverwhisper said on Apr 29, 2007....
precisely: so a consumption tax like a federal sales tax thereby ensures that this is revenues for the government.
ed
Bronx said on Apr 30, 2007....
SW: ahh...I see your point - at least, the govt. gets something back indirectly, one way or the other.
curmudgeon said on Apr 30, 2007....
Bronx - stomping on the rights of 1% of the population is hardly in line with Democratic values. Neither is calling your fellow Americans, however few they might be "insignificant". Don't you see you're proposing that we financially oppress a tiny minority of Americans, simply by virtue of what they have and make! That's rabid wealthism! :-)
Seriously, though - cutting rates for the rich may not make me any wealthier, but neither does increasing their rates. Government surpluses don't help me in the slightest. As I don't qualify for government largesse, I wind up paying for government programs I can't use. The wealthy wind up paying far more than I for stuff they don't use.
How is that in any way fair to me as a citizen Constitutionally equal to all other citizens?
Bronx said on May 01, 2007....
Curmudgeon: whoa ....you certainly rocked me with those punches! Believe me, that 1% is insignificant only in their number relative to the rest of the society! I never saw a super-rich man being oppressed by anyone without changing his nationality. I see your point about democracy though - support for political ideas that bring the bacon home?
bloc said on May 02, 2007....
@sw
a consumption tax would be a regressive tax. I.e. poor people would pay a higher percentage of their incomes in taxes.
One thing people often forget is that most rich people are born into wealth.
@curm
"As I don't qualify for government largesse, I wind up paying for government programs I can't use."
Did you got to college? Do you drive? Do you take mass transit? Do you benefit from medical research? Do you benefit from the infrastructure that allows our economy to do well?
silverwhisper said on May 02, 2007....
bloc: yes, but depending upon what items were/weren't taxed, it needn't be so. example: basics food, basic clothing, those things are necessities. truffles or gucci, OTOH, are another thing entirely.
ed
bloc said on May 02, 2007....
@sw
it would still be a regressive tax. Lower income families spend essentially all of their money. High income families invest a substantial amount. Basically all of lower income families income will be taxed and a substantial portion of the wealthy will have non taxed income.
silverwhisper said on May 02, 2007....
i already pointed out where not taxing basics would mitigate the burden on low income households, bloc.
ed
bloc said on May 02, 2007....
it will still be regressive. Mitigation shmitigation.
bloc said on May 02, 2007....
are you arguing that a regressive tax is the way we should structure our tax system?
silverwhisper said on May 02, 2007....
so when lower income households aren't being taxed for feeding their families or clothing them but the well to do are...?
ed
bloc said on May 02, 2007....
huh?
silverwhisper said on May 02, 2007....
i'm referring to the carve-outs re: sales tax, bloc.
ed
bloc said on May 02, 2007....
i'm confused. Are you saying that higher income people would be taxed for food and low income people wouldn't?
silverwhisper said on May 03, 2007....
no, i'm saying that particular types of food would or would not be taxed. someone who's low income isn't going to be buying a gallon jug of extra virgin olive oil, 10 year aged balsamic vinegar and figs. those things could reasonably be taxed. ditto, tenderloin. i thought i communicated this idea previously when i referenced truffles.
ed
bloc said on May 03, 2007....
the wealthy won't pay taxes on those either. I guess I'm confused as to if you support what is a regressive tax and if so why.
@everyone
there is an elephant in the room regarding this. It's safe to assume that the government will need to generate an equal amount of revenue even if we change the means with which they do this. Given this that this system would be regressive it means that the middle class would see a giant tax increase from such a system.
silverwhisper said on May 03, 2007....
bloc, the wealthy would still buy those things. the number of smokers appears not meaningfully impacted by increased taxes on cigarettes. i see very few people changing their staple menu items on the basis of a tax.
ed
bloc said on May 03, 2007....
i don't know what you're saying. Are you arguing that this wouldn't be a regressive tax?
silverwhisper said on May 03, 2007....
can we get away from the terminology for a moment, bloc? you appear to be getting hung up on it.
my intention is to demonstrate how certain items would not necessarily have the calamitous effect on the low-income that you are foreseeing.
1. the low-income won't blow their cash on food items they don't really need (e.g., a gallon of extra virgin olive oil, haricots verts). they can get equal nutritional value from less expensive alternatives.
2. the high-income will spend on those things, though.
therefore, carve-outs on a consumption tax would not necessarily impact low-income households.
ed
bloc said on May 03, 2007....
"my intention is to demonstrate how certain items would not necessarily have the calamitous effect on the low-income that you are foreseeing."
Which items? I never said that carve-outs would hurt the low income. The tax system itself would hurt not only the low income, but mostly the middle class. It's really simple math.
We can assume that the government needs the same revenue from taxes.
Let's assume that Person A currently pays 33% of my income in taxes (upper middle class) and Person B pays 28% (middle middle class).
(A * (number of people) * .33) + (B * (number of people) * .28) = total tax revenue
Now, in this system it will put higher income people at a lower percentage than people in category B. The only way to do this and get the same total tax revenue is to increase the amount people in group B are currently paying. Any flat tax or regressive tax would require a significant increase in taxes on the middle middle class.
bloc said on May 03, 2007....
Here is a graph of sales tax as a share of income
cotteralladams2 said on May 03, 2007....
How about a fifteen percent tax cut across the board, an end to all sales taxes and an increase in the minimum wage gradually over time? I think it would help to increase employee morale. Also, if the government supported benefits programs in conjunction with corporations, then it would encourage them to create group health, disability and life insurance plans. They should also make R.R.S.P. investments more attractive. They should set requirements on number of hours given, forcing corporations and large companies to create more full-time and permanent part-time jobs instead of temp work and casual/very part-time jobs.
cotteralladams2 said on May 03, 2007....
I like olive oil and haricots verts the same as anyone else. On holidays, I often buy gourmet olives, imported cheeses and French bread. I can skip the wine as it gives me a headache but love truffles, duxelles and homemade pate, esp. pate de fois gras. It is just that with us, we usually eat it occasionally. Sure, we do the macaroni and cheese, tuna helper, fried potatoes and onions topped with eggs, pancakes, green salad and canned veggies like everyone else. The rich eat donuts, drink Earl Grey tea, eat chocolate bars, popcorn, cookies, mac'n'cheese and McDonald's chicken nuggets, too.
Bronx said on May 04, 2007....
bloc, SW, cotter: hi.
If we are saying 'no tax hike for the super-rich', we might also be saying 'no tax breaks for the ultra-low income' class!
As cotter pointed out, and as I said earlier about the super-rich being very clever, the super-rich also eat what everyone else eats - only more often, as bloc alluded.
As SW would want - and I support this - the consumption side to be the target of tax increases that would realistically bring in a more equitable tax generation system, the only thing left is the modality for doing this.
Everyone has come close, IMHO, in finding the best solution!
How about this?
It is already a fact that people on minimum wage usually don't pay taxes significantly, in relation to their total income - unless they settle for 'Air Jordan' sneakers instead of canvas shoes or shop at Dillards instead of Walmart, or choose to import French wines instead of imbibing California wines.....
Most people arguing against a relative tax increase for the super-rich, IMHO, are failing to see the inherent tax discrimination in the existing system!
So, why not lets just ask the super-rich to contribute more from their bulging - or is it bursting - expense accounts rather than the govt. taking a round of taxes from everyone?
Note this: it may be necessary here to realize that the about-1% of the population that is super-rich probably could easily fund the tax system annually, if they wanted to give everyone else a deserved break!
I think its called corporate responsibility......
bloc said on May 04, 2007....
"the consumption side to be the target of tax increases that would realistically bring in a more equitable tax generation system"
Consumption taxes are regressive taxes. The less you make the more you will pay as a percentage of your income. How is this more equitable?
bloc said on May 04, 2007....
@cotter
we currently have massive deficits. How can we make huge tax cuts like you are proposing?
Bronx said on May 05, 2007....
bloc: as in the examples I gave above, it is more equitable because personal choice determines the amount of indirect tax exposure.
That is, if a person on minimum wage chooses to forgo the benefits of home made clothes and, instead chooses to buy hand made haute couture clothing, he should also expect to pay the associated higher tax for those with the extra money to buy such attires!
bloc said on May 06, 2007....
@bronx
you're missing the point entirely. Lower income people will pay a higher percentage of their income in taxes with this system. It's not because they are buying designer things. Wealthy people don't spend a large chunk of their income while lower class people spend their entire income. Did you look at the graph I linked?
here it is again
Notice that the more money you make the less, as a percentage of income, you pay in sales tax. If a sales tax is the primary tax it will be the same way. REGRESSIVE
Bronx said on May 07, 2007....
bloc: the point is this, IMHO - would those graphs apply equally to two people on the same income level whose expenditure pattern shows one to be thrifty while the other is a spendthrift?
bloc said on May 07, 2007....
no, because the graph differentiates based on income level :)
This is one of those weird situations where something makes a lot of sense at the micro level, but is terrible at the macro level.
Bronx said on May 13, 2007....
Hahaha.
Yes, bloc, this is certainly one of those paradoxical situations in Economics.
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