My friend countered that the rich already pay most of the taxes. He cited a statistic that 1% of the people with the highest income pay 40% of the taxes. "How much more do you want them to pay?" he asked.
At first glance, that statistic is stunning. One percent of our population pays almost half the total income tax? Can that be true? Here is a breakdown for tax year 2005, the latest I could find:
Segment Adj. Gr. Inc. % Tot. Inc. % Tot. Tax
Top 1% Over $364,657 21% 39%
Top 5% Over $145,283 36% 60%
Top 10% Over $103,912 46% 70%
Top 25% Over $62,068 68% 86%
Top 50% Over $30,881 87% 97%
Bottom 50% Under $30,882 13% 3%
As you can see, the top 1%, those with Adjusted Gross Income in excess of about $365K, earn 21% of the total income and pay 39% of the total income tax. Notice that they make more than half again as much as the bottom 50% of the population. Let me restate that: If you add up the income of half of all the workers in the country, it's a lot less than the top 1% makes! Wow, we really are a nation of rich and poor! All of a sudden, that 39% of taxes that those rich guys pay doesn't look quite so bad. In fact, if we had an absolutely flat tax, where every individual paid the same percentage, with no deductions, those rich folks would still be paying 21% of the taxes.
Several political leaders have proposed changing our income tax system to a flat tax. Not surprisingly, it's not a very popular idea. Most people would agree, I believe, that a flat tax is unfair. Poor people who are barely able to buy food shouldn't be paying tax at the same rate as billionaires. We have had a progressive income tax system in this country for a long time, almost since income taxes were started. At one time, it was a lot more progressive than it is now, with top rates reaching 91%. Current rates top out at 35% for income in excess of $357,700. This is one of the lowest rates in the world, but it must be added that many states and local jurisdictions also impose taxes, plus Social Security withholding is now 7.65% of wages up to $102,000. (1.45% of that is Medicare.) So the total tax load can approach 50% on income in the upper brackets.
Progressive taxes, in general, tax wealth. Regressive taxes (like sales tax) tax consumption. Social Security (SS) withholding could also be thought of as a form of regressive taxation, where higher income people are taxed at a lower percentage because of the income ceiling on SS withholdings. This is a debatable point, though, since SS benefits are based on a worker's earnings history, and higher income workers receive a smaller benefit proportionally. Objectively, I would say it is a regressive tax at the time it is withheld, but benefits at retirement tend to lessen or eliminate the regression.
Conservatives are always screaming for lower tax rates. Nobody likes to pay taxes, but the notion that Americans are burdened with high taxes is not true, if we compare our tax rates to those in other countries. Here are some tax statistics for other nations. First, the five with the highest tax rates.
Country..........Tax Revenue as % of GDP
- Sweden.......50.8%
- Denmark......49.0%
- Belgium.......45.8%
- Finland........44.9%
- France........44.2%
Here are the 5 lowest tax countries:
- Mexico........19.5%
- U.S..............25.4%
- Korea...........25.5%
- Switzerland...29.8%
- Ireland.........30.0%
These figures include all taxes, both individual and corporate.
The rich have other advantages that the rest of us ordinary folk don't. A much larger portion of their income is "unearned." Profits on the sale of stocks, for instance, if they are held for at least a year, are taxed at a lower rate than workers' wages! Long term capital gains are currently taxed at a maximum rate of 15% with the latest Bush tax cuts. This is far below the tax rate most workers pay on their wages. The rich can also take advantage of the shelter provided by tax-free bonds or tax-deferred accounts like annuities or IRA's. Moreover, much of their income is "unrealized." They own stocks, real estate, businesses, or other investments that have appreciated substantially in value, but until they "realize" that gain by selling the investment, it is untaxed. Very rich people have huge amounts of unrealized income. The values of those investments give them immense financial leverage. They can serve as collateral, enabling them to borrow money for other investments, get preferential interest rates on loans, etc. People further down the financial ladder have few of these advantages and very little unrealized income. The bottom 50% of the population has essentially none. These are huge advantages for the rich.
So when I hear Republicans bleating about the heavy burdens our society places on wealthy citizens, I have to laugh. Those people have a cushy deal, with virtually the lowest tax rates of any nation on earth.
They don't need a tax cut, and since their Republican President and his gang got us into this mess, with the Iraq war with the resultant tensions in the Middle East driving oil prices into the stratosphere, I say let his rich supporters pay for bailing us out.
Kill those tax cuts!
Finally, I want to give you a little thought experiment.
First, let me repeat the income demographics table from above.
Segment Adj. Gr. Inc. % Tot. Inc. % Tot. Tax
Top 1% Over $364,657 21% 39%
Top 5% Over $145,283 36% 60%
Top 10% Over $103,912 46% 70%
Top 25% Over $62,068 68% 86%
Top 50% Over $30,881 87% 97%
Bottom 50% Under $30,882 13% 3%
Now let's imagine a small country with exactly 100 people.
The total income of all 100 people is exactly $100.
Using the above table, each person represents 1% of the population, and each percentage of the total income is exactly one dollar. This is all just to keep the calculations simple, but as you will see, this leads to some interesting insights.
The top guy makes $21.00
The next 4 make $15.00, or $3.75 each.
The next 5 make $10.00, two bucks each.
The next 15 make $22, or $1.47 each.
The next 25 make $19, 76 cents each.
The bottom 50 make $13, 26 cents each.
Now I realize that is a gross simplification of the real world situation…each percentile represents hundreds of thousands of workers, and they don't all earn exactly the same amount of money, but bear with me and you will see my point.
The total earnings for the top 10% are almost half of the $100…$46. If their earnings were reduced by $13, and that money were spent on the bottom half of the population to improve their education, medical care and income, just think what a vast improvement it would make in their lives. Would reducing the income of the rich by 28% remove their incentive to earn even more? I doubt it. Would my little imaginary country benefit from such a "redistribution" of income? I think so.
Now I must add a disclaimer: I am not proposing the above scheme or anything like it. It is merely an illustration of how income redistribution through progressive taxation could make dramatic improvements in the lives of vast numbers of people in our economic underclass. Nor am I suggesting that taxes should only be increased on the top 10% of workers. I think the burden needs to be shared…progressively…by people in lower income brackets. And finally, I repeat: I am not proposing a "giveaway," but rather a series of programs that offer incentives and opportunities for people to improve themselves. I think many would leap at the chance, and our nation would benefit from a healthier, happier, more self-sufficient citizenry.
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Comments: 31
Paycheck for 30 hr week....at lets say 5$ hr would =$150...lets say the bracket they are in is $20.00 for education and $15.00 for medical...the person would only be taxed on $115.00 not the $150.00...now if you take that into consideration, and the average family of 2 adults and 3 children under 18 is $800/mo and then consider what it is costing for an education today....We are most definitely paying a lot of money for a lot of nothing...like the war in Iraq....
I am a strong Obama supporter, but I don't agree with him when he says if you earn more than 250,000 you are a wealthy person anywhere in the country (I've personally heard him say this). That is simply not true.
I live in Boston, I am under 30, and I work in a research field where many of us starting salaries is 90,000+ (after 5 years of post graduate studies). It's not a lot of money, period. A single family home (2, 3 bedroom) costs 400,000, daycare costs 2,500, properties taxes are high (i.e. $300 for a small car per year, high state taxes, ...). That $90,000 is like $65,000 in Texas. Extrapolating to someone who has 3 kids, makes, $250,000 (household income) in a place like Boston, I realize that those people are not rolling in dough and should not be taxed any further.
Obama really needs to look into this with his economic advisers otherwise he will hurt the middle class. You simply cannot look at the figure regardless of the cost of living. This is one of the main problem with Federal tax. This is why the fair tax (Huckabee) should be looked into. It makes a lot of sense.
And this is the first issue I would like to address, because the rush to increase taxes...at any income level, is based upon the perceived necessity of not having...our government not having, enough revenue to operate and provide all the goods and services that we think should be paid for with "community funds". In other words, we are spending more money than we are taking in as tax revenue. I will argue that the first point of business here is to examine HOW EFFICIENTLY that money is being spent. It seems that the issues of waste and inefficient management should always be examined and those issues resolved before the enactment of higher taxes is considered. This is rarely the case. A simple metaphor would be one of attempting to fill with water, a bucket that has a hole in it. Unless the hole is patched, the only solution to increase the likelihood of filling the bucket would be to increase the flow of water. This might be possible, but the new increased rate of flow of water may cause a reduction in the ability for us to use the water source for some other purpose...like watering the community garden.
But the easiest "fix" for our problem of filling the bucket is to simply turn up the flow of water to the bucket and use less water for the garden and we then assume the risk of lower crop yields. The easiest solution here could be the most costly in the long run.
This is what happens when we raise taxes...we lower our available investment capitol and we raise the risk of making investments.
On to the "flat tax"...a very misleading term. By "flat tax" we are describing a tax with a constant rate. But, if we so choose, this rate can vary depending upon what good or service it is levied....as long as the rate is the same for everyone who buys those goods or services. For example...let us put a flat tax rate of 25% on the category of "vice items" such as tobacco and alcohol. Then we could assign a flat tax rate on luxury items such a big screen flat display televisions and diamond necklaces of say...20%. On items of necessity, like FOOD or MEDICINE...we can choose to not tax at all if we want and we can even levy a different flat tax rate on junk food...if we want.
The point is that the concept of "flat tax" not being a progressive one is not necessarily valid. Level tax can be progressive if we tax the items of necessity at a lower (flat) rate than we tax items of luxury. Here is where this plan makes the most sense...if folks like Bert are worried that those with the largest incomes don't pay enough taxes...that they avoid paying their share by using "tax loopholes"...this plan would insure greater tax dollars are paid by the higher income groups because those "tax loop holes" would no longer exist and the higher one's income level, the more money one has to spend....and the more money one spends, the more taxes one would pay.
In the area of "unearned income" (which is not really possible...all income is earned by some method...unless it is stolen)....we move into a complicated situation of investment incentives. The purpose of long term capitol gains rates vs short term rates vs ordinary income tax rates is one of incentive for the investor...a way to cause the investor to SPEND his money as an investment rather than sit on his money as an investment...and simply take a many times, risk free, guaranteed return. These investments in housing or a new company or new product development are essential to our economic expansion as a country and in order to provide jobs and opportunity for everyone. By understanding that having the money to invest and having the willingness to take risks, the envy of those with high productivity and the resulting money to use for economic expansion can be abandoned. Why would we want to penalize those who are producing wealth in order to subsidize those who are only consuming?
One of the problems I have with the proposal of a "flat tax" or a "fair tax" system is the removal of these investment incentives (tax loopholes most call them) for those with the money to invest. I am weak in knowledge about how this can be accomplished, but I am sure the slant will be that we are again favoring the rich...no matter what the solution.
I am of the opinion that the best way to help those in at the lower income levels is to provide more opportunity for them by economic expansion ...not by removing the incentives for the investments that make that economic expansion possible.
Don't even go to the topic of wild profits and rich getting richer...it doesn't matter. It is beside the point. It is the same as going to a football game..paying to see your favorite teams play the sport and bitching about how much the players make. Or watching a movie, being thoroughly entertained and then bitching about how much the actors made or the studio or who ever put forth the time, money and effort to make the film. You approve of what they have done so you support them and their effort. Their profit is none of your business and neither are the profits of the companies who are successful. If you want the same income as the owner of the ABC company...become an entrepreneur....take a risk and go for it. The owner of the ABC company did.
It is interesting to me that as a percentage of the national income, the privately held national debt today is lower than it was 10 years ago...when Clinton held office. It is also interesting that tax revenues rose after the Kennedy tax cuts of the 60s and the Reagan tax cuts of the 80s. These increases in tax revenues were a result of increased incomes.
My point is this...it is too easy to jump to conclusions about these topics of economics without really examining all the influencing factors. The term that has come to describe such behavior is "knee jerk" or "knee jerk reaction"...acting without thinking.
Stephanie...To mull is to consider and the lack of proper and full consideration, by our decision makers, is one of the problems to which I refer.
Michael...yes, I expected you to come here, hoped that you would, and thank you for your comment which I think is longer than my article! Your points on efficiency are well taken. Governments are not "profit motivated," as a business is, and this is a good thing! When a government service is provided, the emphasis should be on "doing it right." Efficiency is important, but it is not the ONLY thing to consider. Cost must be balanced against effectiveness of the function. However...because it's "government money," there is often not enough consideration given to cost...in fact spending more money can enhance a bureaucrat's status and even his career. So...we need watchdogs. And we have them, but maybe they are not as effective as they should be.
As I said to Alan, there is no "rush to increase taxes." I seem to be a voice in the wilderness on this. No major politician is proposing such a thing. On the "flat tax," I was talking about income tax. You are talking about flat consumption taxes. A different animal. The idea of taxing "items of necessity" at one level and "luxury items" at another is interesting...but who makes the choices? Is hamburger a necessity, but steak is not? Milk a necssity, cream is not? Is a fruit pie junk food? Red wine is good foryou! It's not a "vice iterm." (grin) Inevitably, someone's values will determine what is deemed a luxury. There is a huge devil lurking in the details of your scheme.
Ah yes, investment incentives. If we taxed ALL income at the same rates would people stop investing? Your advocacy for "incentives for the investments that make that economic expansion possible," sounds suspiciously like Arthur Laffer's Trickle Down Theory. And while Reagans's tax cuts may have increased GDP, they did little for the common folks. Trickle Down only works if some of the wealth is allowed to trickle down.
I saw an Op Ed in the LA Times on this a few days ago. It was an open letter to President Bush. The writer was offering to give back her $600 check from the IRS so that Bush could give it to a rich person. Her comment bears repeating:
So thanks Bert for spending the time to point some of these things out for us ... but as I read, my eyes begin to gloss over and my head begins to spin ... which makes me think that I will continue to stick with my own intuition which generally cuts through the BS and steers me right anyway ... which comes down to saying that I agree with you.
(It also points out to me why on the other hand so many people cannot maintain interest in my own equations concerning spirituality ... without the interest, it just becomes a confused mass of symbols) :-)
Keep on giving us the viewpoints though that we never get from the "other" side of this matter.
As you can see, the comments are sparse. Only a few of my friends who are willing to dig into this stuff have bothered to comment.
I also said nothing about taxing all income at the same rate...wait.....yes I did! That rate would be zero. NO INCOME TAX..the tax would be a consumptions tax...I thought we already covered this misunderstanding.
Funny you should quote the little story about the $600 rebate check...I didn't get a $600 check...I didn't get a rebate check at all. And neither did you...I'll bet!
Have you been to the Isle of Mull? It is just off the coast of Scotland. I have not mulled there, but I have been to the Isle of Skye, and it is spectacular!
Consumption taxes are, in general, regressive. Rich people spend a much smaller percentage of their income than poor people...who basically spend ALL of their income just to survive.
We can argue about the size of the devil...but not his presence. :). It is not a trivial matter, Michael. When you propose an idea like this, you have to be able to show that it is workable. At this point, I do not think you have shown that.
When I hear a wealthy man, whining about the size of his tax payments, I always offer to take his income and pay his taxes if he would rather take my income and pay my taxes. Funny, none of them have ever taken me up on it. Obviously they don't really believe I am better off at all. (evil grin)
About the consumption tax...sure rich people spend a smaller percentage of their income than the poor do...but the dollar amount is not smaller.
My proposal is not workable only in the sense that you do not agree with the whole concept of a consumption tax. Besides...the whole idea of a consumption tax has been around for many years.....
Why don't you read up on the "fair tax" proposal? The folks at http://www.fairtax.org/site/PageServer will have answers to all the gaping holes of my incomplete information.
Back to the farm for the weekend....I'll probably be out of touch until Sunday night or Monday morning.....have a nice one....and consider sending me that $1200...really. It might make you feel good.
People don't realize that with the graduated tax, everyone (except those who do not earn more than the sum of the standard deduction plus their personal exemption figure) pays tax on the first taxable... let's say for argument... $30,000 at the same rate INCLUDING THOSE MAKING MILLIONS. It's the same as the graduations above are each added. If you drop out at $40,000 or $140,000. then you stop paying. This method assures that only those making more money pay more. There are tax credits and deductions due to all of us equally.
Where the difference comes in is that those who have "unearned income" (that would be income that doesn't require work but rather requires only investment) are therefore taxed on that income at LOWER rates achieved by counting only HALF of unearned income as taxable. The other half is exempt from any taxes, ever. This difference is called Capital Gains Tax and is available only to those who take in every year more than they need to feed, house, clothe, and medically treat themselves and their dependents. If they have excess income, they can build wealth with it and that new wealth in the form of UNEARNED income will be received by these lucky people at 50% tax free.
That tax break was added to the tax law to encourage choosing investment to create jobs and move forward the American Economy. However, if such a person chooses, they may support large corporations in doing away with jobs by closing plants, mechanizing, requiring more work from less people and doing away with pensions and benefits. None of which do anything for the American Economy, quite the opposite in fact BUT they still get half their income from such ativities 50% tax free.
Because I understand these things about tax law, I do not believe the lies perpetrated in favor of less and less tax on more and more outrageous income for the rich. The obvious outcome is less and less money to the government with which to wage war, keep up and build new infrastructure, meet promises of social programs, encourage and support really good education for all our children, young people or displaced workers, and to meet the interest obligations on our national debt, let alone pay down the principle.
Knowledge is power and all voters need to understand the complicated workings of tax law in order not to fall for lies which seem on the surface to make sense, such as the trickle down economics theory which has been disproved every time an administration walks down that slippery slope. These false policies have caused depressions and recessions. We will experience one or both of these in the near future in direct result of the Bush worship of tax cuts for the rich. Tsk, tsk.
None of which do anything for the American Economy, quite the opposite, in fact; BUT they still get half their income from such activities tax free.
Gues that's it for me tonight. Too tired to proofread.
I'm struck with a thought from My Fair Lady when Henry Higgins describes the amount Eliza Doolittle offers for her lessons as a percentage of her income and comparing it to the similar percentage of a prince's income. But that percentage means a lot more when there is no margin, even if it translates into more money. I know $10 meant a hell of a lot more money when I was a college student than it does now.
I was writing a big long dissertion with figures on what that meant and a minimum level of income that should be sacrosanct. That's really what a progressive tax is all about. Taking money from what can be spared as opposed to taking it from the mouths of hungry children.
When it comes to taxes, the bottom line is this: how much of the amount over and above comfortable survival should people pay to keep this country running?
The next question is, if we are going to take a bigger chunk from the rich OR the middle class, what are we going to spend it on? If I'm making $31K, but I'm spending $3600 a year for health insurance for my family and 1400 in deductibles, spending an extra 10% in taxes to get universal healthcare/improved education/social security makes a great deal of sense to me. Even at $62K, I'm still spending less than I would for a private school and healthcare on my own dime.
But, if I'm rich and paying $350K, healthcare and education aren't the same issues for me. I can still readily afford both. What I want to do is keep my income high, so I the government to spend the money on contracts and other big business.
The issue is more than who's paying what in taxes, the question is: what is it being spent on?
All that mulling and you'd think I'd have a crisper point. Basically, I don't have a solution today, though I tried to mull one out. But I don't have a problem with more taxes if the people of this country could see more benefits for the masses instead of those already swimming in riches.
Trickle Downers would claim that giving money to the rich to invest is best for the most.
No matter how much fancy footwork they do to try to convince us, I think it is all smoke and mirrors..
The risk-free guaranteed return will, by the nature of capitalism, be much lower than the investment that entails some risk. The higher the risk, the higher the reward. So why do inventments need incentives?
It always seemed a bit unfair to me in that it just proved that the rich get richer, and the poor get poorer in comparison, because each year everything was compounded such that the actual difference of increases for the officers became exponential compared to our paltry enlisted increases.
Because of the power of the super rich in this country to hire lawyers and purchase politicians to affect legislation in their favour, it amounts to the very same thing, exponential advantage increases for the rich ... and I know one thing for sure also, the rich that I am speaking of here are NOT here on Gather writing to each other ... and the right wing apologists that want to think they have a chance to become so rich, some even claiming to personally associate with them ... have not the slightest idea of who these folks really are and what they are really worth ... it is another whole league beyond the real knowing of us mere mortals. IMnsHO.
i referenced Jefferson's "ev'ry fifteen years: overthrow" on another of your threads.
mainly because a Minuteman's best lobbyist... is strength of arm.
i know, i know: a depressing truth, and doesn't sit well. -the fact remains, though: a comfortable entity has to be uprooted, or it ain't goin' NOwhere.
and y'know... they're RIGHT. inasmuch as a democracy is "right" (if you'll forgive the pun). they've fought their way to a certain level, or been born into it Hilton-style, and the only problem lies in the exclusion--elitism contradicts the nature/mind of the beast they ride, but that's only because the beast is an impossible one.
doesn't exist.
pure, unadulterated fiction.
(on another thread, you spoke to doing away with the electoral college. if that happened, i'd "believe" in the beast again... like i did in grade school, as it indoctrinated me. i'd also prefer to vote for a king--a king who could be deposed as soon as it was discovered that he was lying his rump off during the campaign for kingship--and would they NEED to lie? would they NEED to, knowing that their ascent and subsequent reign is dependent on the TRUTH? -that they are only elected because they were held under scrutiny... and found to be the Hand Of The People?
doesn't sound very "democratic". sounds scary.
sounds like it'd work.
which makes it a good thing.)
the idea that a "vice", for instance--like, say, pimping or selling mind-ripping drugs--having a Capitalist Enterprise that just hasn't been "accepted", and taxed, and otherwise regulated, ad infinitum--the idea that these are "wrong" as compared to a WalMart or Nike is just...plain...silly.
they should've been regulated as soon as they got started.
only morals stood in the way.
the only way to redistribute the wealth is to actually SEIZE it.
which is also a "bad baby"thing to do, according to the spirit of our union. too Big Brother.
(what if was LITTLE Brother, though? -what if it was George, and Benjamin--these, on Little Brother's behalf?)
taxation itself is a seizure--a preemptive strike on wages, at best employed because of lack of trust--a VALID lack: i certainly wouldn't pay them, had i my druthers.
but then, i'm disenchanted. i'd be (not) doing this for the most obvious reason: I AM POOR. -ev'ry time i drop a dollar or two into my can, i do it knowing that a bill or gas tank is gonna eat it.
about a day from that exact moment.
like the rich, i'd prefer to KEEP it instead--or as much of it as possible. it's only human.
for those of us Down Here, though... it has become a question of survival.
i still can't knock them. because they're not the failure--they are the by-product of the failure, an exploitation, a mouse that saw a loop-hole...and shape-shifted into snakes.
which moulted into dragons.
i say: scrap it all. start anew. you want "equal distribution of wealth"? -embrace Communism. you want anarchy? -embrace nothing. clannalism? city-states? -embrace your borders, and damn the rest.
this empire thing was getting a little long in the tooth anyhow.
we should've learned from Rome. (oh, wait: we DID.)
In addition to having more money and incurring less taxes, the top 1% have more political clout. Because of their wealth and being able to invest more, they often are the captains of industry who shape and influence economic and tax policy. That's fine if what they stand for is fair and works for most people. But if it's only self-serving greed and not fair to a large proportion of its people, then it is poor government. Moreover, the top 1% may become the vested interests behind politics since their money helps fund political campaigns. As vested interests, they may look for and receive favors from politicians they supported.
A democratic government exists for the well being of its people, not only as a union, but also as individual citizens. Its policies and actions, including its economic policies and taxation laws, should reflect that.
As usual from you....provocative ideas. I'll tackle a couple:
Electoral College...yeah, I think it should be deep-sixed, but that alone will not solve the problem. You say that would make you a believer again. Uh-uh. If democracy is gonna work, you must have an INFORMED electorate. But when the Big Boys control access to information...
Taxation is seizure. Taxation is theft. That's what the Libertarians say. But government cannot operate without money, and if we didn't have government...we would probably be slaves of the Third Reich or Stalin's successor. Some things like national defense require money. Lots more GOOD things that government does require money. The problem is getting rid of the BAD things.
Verie...I know I am repeating myself: Unfettered capitalism is a rapacious beast, and when the captains of capitalism control the government, then government becomes a rapacious beast too. We learned that a hundred years ago when the "Robber Barons," people like Rockefeller and Carnegie ruled the country and enriched themselves. FDR came along and their rapacious practices were curbed via government regulation. But since FDR died, those capitalistic forces have fought an unrelenting battle to roll back regulatory controls. That process accelerated with Reagan's presidency, and the two Bushes AND Clinton have continued that process.
It's time to put the horse back in the harness.