Where the Tax Money Is

[Tony]

http://online.wsj.com/article/SB10001424052748704621304576267113524583554.html?m od=WSJ_Opinion_LEADTop

A dominant theme of President Obama's budget speech last Wednesday was that our fiscal problems would vanish if only the wealthiest Americans were asked "to pay a little more." Since he's asking, imagine that instead of proposing to raise the top income tax rate well north of 40%, the President decided to go all the way to 100%.

Let's stipulate that this is a thought experiment, because Democrats don't need any more ideas. But it's still a useful experiment because it exposes the fiscal futility of raising rates on the top 2%, or even the top 5% or 10%, of taxpayers to close the deficit. The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that's where the big money is.

I'm not sure, but something about this stinks. It's almost as if they're using the chart to show that the middle class are those who make 100k-200k.

[Jaggy Bunnet]

I'm not sure, but something about this stinks. It's almost as if they're using the chart to show that the middle class are those who make 100k-200k.

Think you are misunderstanding the chart, it shows the total taxable income from each band, not the number in each band.

What it shows is that while a small number of people have very large incomes, in total terms this is outweighed by a far larger number of people who make a lot of money ($100k - $200k). Therefore if you want to raise a lot of tax income, you are more likely to get it by increasing tax on that level of income than on very high earners.

[tyr_13]

Or both?

[Francesca R]

There is an implication that $100-200K annual income is "middle class". It isn't of course--it's the top 10% of earners (which the story states, in fact).

Regardless of whether the middle class label is a silly one, it most likely is politically unacceptable to Democrats and Democrat voters to raise federal income tax on $100K. That seems to be the point of the story. ETA: And it also argues that tax hikes just starting at that level would not be sufficient, somehow.

It also makes some allusion to the risk that after taxes have been raised--ostensibly to shrink net borrowing--the outturn may simply be that the extra revenue is channelled into extra spending, and deficits stay large.

[Trakar]

Or both?

In general, that's how marginal taxes work, Everyone pays the same rate on the first 17,000, 69,000, 140,000, 200,000, 400,000 (approximate rates only, the numbers tend to shift a little each year or so, would have to check IRS table for exact rates) at least in the US. So Bill Gates is taxed at the same rate as a High School janitor for the first 20k they both earn, the same rate as a butcher on the first 70k they both earn, etc.,. So when you hear that someone is being taxed at 40%, that means that they are being taxed 40% on the money they earn over the upper tax bracket level, not that their entire income is taxed at that rate.

For instance, if I earned $400,000 dollars

I would pay (as an individual according to the FIT brackets):

10% of the first $8,500 = $ 850
15% on amount $8,501-$34,500 = $ 3,900
25% on amount $34,501-$83,600 = $12,275
28% on amount $83,601-$174,400 = $25,424
33% on amount $174,401-$379,150 = $67,567
35% on amount $379,151-$400,000 = $ 7,297

Total Federal Income tax = $117,313 for an effective full tax rate of 29.33% not including writeoffs, deductions and deferments.

So, using this example, even if we raise the upper two brackets to 35% and 40% we only increase the taxes by $5,138 ($122,451) and only increase the effective tax rate on these earnings by 1.3% (30.61%). And again this doesn't include an examination of writeoffs, deductions and deferments.

[casebro]

I still say the cure would be a property tax. On liquid assets too. With a $500,000 deduction. Simple. No deferments, no income to keep track of, just a flat rate. And no more Social Engineering. The more stuff you can hoard, the more tax you pay. Can't live on your income? No taxes.

Hey, those people with $200k income, after deductions, own a million dollars worth of stuff. Houses, cars, yachts...

My neighbor owns five house outright, makes 72k/year in rent, pays no income taxes.

I think about two percent rate would do it.

[Francesca R]

Property tax is usually regarded as better (for the economy) than income tax.

But do you think there might possibly be a rise in rents?

[Trakar]

I still say the cure would be a property tax. On liquid assets too. With a $500,000 deduction. Simple. No deferments, no income to keep track of, just a flat rate. And no more Social Engineering. The more stuff you can hoard, the more tax you pay. Can't live on your income? No taxes.

Hey, those people with $200k income, after deductions, own a million dollars worth of stuff. Houses, cars, yachts...

My neighbor owns five house outright, makes 72k/year in rent, pays no income taxes.

I think about two percent rate would do it.

What are the purposes of taxes?

What do you consider "social engineering"?

What are the purposes of tax deductions, offsets and deferments?

What do you consider the benefits of a flat rate, universal, income tax?

[casebro]

What are the purposes of taxes?

To pay for government services.

What do you consider "social engineering"?

Taxing some to give the cash to others in the hopes that the donees can improve themselves with the free money. .

What are the purposes of tax deductions, offsets and deferments?

To obtain votes and political contributions from the special interest groups who directly benefit from tax deductions, offsets and deferments.

What do you consider the benefits of a flat rate, universal, income tax?

I don't . I do consider that there would be benefits from a flat rate, universal, PROPERTY tax.

[Jaggy Bunnet]

Or both?

Absolutely, but most of the cash you get will come from high earners rather than the super rich.

[Newtons Bit]

There is an implication that $100-200K annual income is "middle class". It isn't of course--it's the top 10% of earners (which the story states, in fact).

So a husband and wife that are both teachers and make just over 100k joint income aren't middle class? Are you implying that they're rich?

[Jaggy Bunnet]

So a husband and wife that are both teachers and make just over 100k joint income aren't middle class? Are you implying that they're rich?

If they are in the top 10% of households by earnings, then they do not appear to be "middle" on that basis.

[mhaze]

What are the purposes of taxes?

What do you consider "social engineering"?

What are the purposes of tax deductions, offsets and deferments?

What do you consider the benefits of a flat rate, universal, income tax?After the Soviet empire collapsed, they tried a fairly complex income tax and it was a big flop. Then they went to a one page form and a flat tax, something like 10%. Works great.

I think something like that is the best way - keep it extremely simple and make it apply to everyone. Property tax only hits those with property, but benefits all. Income tax should hit everyone, no exceptions.

Anyone can look up the Russian scheme and check it out.

[Newtons Bit]

If they are in the top 10% of households by earnings, then they do not appear to be "middle" on that basis.

middle class is somewhat different than the median income, I think...

[daenku32]

After the Soviet empire collapsed, they tried a fairly complex income tax and it was a big flop. Then they went to a one page form and a flat tax, something like 10%. Works great.

I think something like that is the best way - keep it extremely simple and make it apply to everyone. Property tax only hits those with property, but benefits all. Income tax should hit everyone, no exceptions.

Anyone can look up the Russian scheme and check it out.

Yeah. Just look at the average Russian's standard of living.

[daenku32]

A note the WSJ whining. It's whining. Response of all the things that are wrong about it takes more words than the original article. The short response is that the tax hikes impact on the deficit has been calculated very clearly. WSJ just wants to obfuscate the issue and put any tax hikes in the 'no no' list.

[balrog666]

Property tax is usually regarded as better (for the economy) than income tax.

But do you think there might possibly be a rise in rents?


Taxing assets is what the British used to subjugate the world some time ago - it's the worst of all possible taxes.