Top Income Tax Rate: How's 83% Sound?

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Zute
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Top Income Tax Rate: How's 83% Sound?

Post by Zute » Fri Dec 09, 2011 9:00 am

http://www.businessweek.com/finance/occ ... sound.html

Tax cuts do exactly what you would think, they make rich people richer and don't stimulate the economy.

“countries that made large cuts in top tax rates such as the United Kingdom or the United States have not grown significantly faster than countries that did not, such as Germany or Denmark.”
What does show a strong correlation is falling tax rates and the share of pre-tax income held by the top 1 percent — which has more than doubled in the U.S., to more than 20 percent, over the past 40 years. Piketty, Saez and Stantcheva offer three possible explanations for what happens after a tax cut: 1) the wealthy work harder; 2) they hide less of their income from the government; 3) they bargain harder for higher pay. Long story short, the authors endorse No.3. As they say, “executives can be overpaid if they are entrenched and can use their power to influence compensation committees.”
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Tudamorf
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Tudamorf » Fri Dec 09, 2011 11:26 am

They’re suggesting politicians should feel emboldened to tackle income inequality and federal deficits by rolling back 30 years of Republican efforts to flatten and depress income taxes. The current 35 percent top marginal income-tax rate is the lowest it’s been since 1992. Before Ronald Reagan’s first term, the rate had not dipped below 70 percent since 1935.
What they don't tell you is that before Reagan's tax reforms, there were so many ridiculous tax loopholes that the rich could evade those higher rates easily.

The effective (real) tax rate for high earners has been fairly stable for the past 30 years.

Tax revenue as percentage of GDP has also remained remarkably stable since World War II (Hauser's law), despite rates over 90% in the past.

When talking about "federal deficits", even Marxists have to admit that it isn't taxation that's the major issue, but reckless spending (of which the "Republicans" are most guilty).

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Zute
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Zute » Fri Dec 09, 2011 11:45 am

That's not entirely true. The deficit exploded during Bush II after the tax cuts. I posted a graphic a few months back demonstrating that. Of course, financing two stupid wars that lasted a decade or so hasn't helped either.
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Tudamorf
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Tudamorf » Fri Dec 09, 2011 1:38 pm

Zute wrote:That's not entirely true. The deficit exploded during Bush II after the tax cuts.
The tax cuts violated Hauser's law.

Rolling them back is not the same thing as thinking an 83% marginal tax rate will solve the nation's problems.

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Zute
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Zute » Fri Dec 09, 2011 2:15 pm

Yes, I say do away with all the Bush era tax cuts. Including the capital gains tax cut.
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Zute » Thu Dec 15, 2011 9:57 am

It was 90% under Eisenhower for awhile.
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Tudamorf » Thu Dec 15, 2011 2:31 pm

Zute wrote:It was 90% under Eisenhower for awhile.
Rich people didn't pay 90% though. Until the Reagan-era reforms, there were so many ridiculous loopholes for deductions that rich people could end up paying next to nothing, which is what prompted the (horribly designed) Alternative Minimum Tax system in the late 1960s.

The point is, rich people have paid a relatively stable portion of the taxes through the past few decades, despite huge swings in the technical marginal rate. You can simply raise the marginal rate today to what it was in the 1950s and expect it to be fair because it worked then. It won't happen.

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Re: Top Income Tax Rate: How's 83% Sound?

Post by Zute » Fri Dec 16, 2011 12:23 pm

There are still loop holes. I read recently the of the 30 richest people in the country they're averaging about 10%. What did Warren Buffet say he was paying, about 17%?
As Mr. Buffett explained last month, “What I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office.” His income comes mostly from his investments, which are taxed at the capital gains rate of 15 percent. His secretary is most likely paid a salary and bonus, which would be taxed as ordinary income, at a rate that goes as high as 35 percent.
The average tax rate for billionaires in 2008 was 18% some are getting away with as little as 1%.

http://www.youtube.com/watch?v=f2Fh-fR9U_Y
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Re: Top Income Tax Rate: How's 83% Sound?

Post by Tudamorf » Fri Dec 16, 2011 1:44 pm

Zute wrote:The average tax rate for billionaires in 2008 was 18% some are getting away with as little as 1%.
It's an income tax, not a wealth tax.

You can own a trillion dollars, but if you only make $1 in a given year, you'll only be taxed on $1 for that year.

Also, when you own property (such as investments), you are only taxed when you sell or exchange them, not whenever they appreciate.

These are not "loopholes", they are basic features of our tax system. So the fact that a billionaire's tax rate might only be equal to 1% of the appreciation of his stock is not unusual, or even relevant to the issue. It's just a class warfare red herring. (I could turn your argument around to say, would it be fair to tax lower middle class homeowners if their homes suddenly appreciate in value -- see Proposition 13 -- or would it be fair to continue to tax them if they've had a bad year and made no income, but still had equity in their home?)

Yes, rich people are more educated and use the rules to defer taxes as long as possible, whereas poor people are uneducated and miss out on the even better opportunities they have (such as the current zero tax rate on capital gains for the poor). But it isn't rich people's fault that poor people are so stupid.

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Re: Top Income Tax Rate: How's 83% Sound?

Post by Tudamorf » Fri Dec 16, 2011 2:15 pm

Zute wrote:
As Mr. Buffett explained last month, “What I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office.” His income comes mostly from his investments, which are taxed at the capital gains rate of 15 percent. His secretary is most likely paid a salary and bonus, which would be taxed as ordinary income, at a rate that goes as high as 35 percent.
Buffett's quip about his secretary is misleading, and he knows it.

Even he doesn't earn every last dollar of income on long-term capital gains; no one does.

Dollar for dollar, he is taxed at the same rate as his secretary. In other words, just as secretary earns, say, $50K and is taxed at X%, so too will Buffett be taxed at X% for the first $50K of his income. The main difference between the two is that his secretary has many lower-class-friendly tax benefits available that Buffett doesn't have.

Buffett isn't paying a lower rate than his secretary is; he is paying a higher rate.

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