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April 20, 2011

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this article lacks logic and any basic understanding of tax theory or history. I don't even know where to begin

"And as such it is the height of tyranny to rob some person’s fruit of hard labor to give to someone else just because the former has more than the latter. A nation that adopts this social policy is doomed to slide quickly from greatness to mediocrity or worse."

We have redistribution of wealth in this country, but by and large, it goes from poorer people to richer people. What else do you think the recent government "bailouts" were? What else is a legal requirement to purchase health insurance, most-often supplied by for-profit businesses? What else are multi-billion dollar arms contracts for equipment the Pentagon doesn't want and won't use?

If it's bad policy to rob the rich and give to the poor, isn't it even worse to rob the poor and give to the rich?

I believe phrases like “income inequality" have become table talk because the income disparity has substantially grown in the past 20 years.

Couldn't agree with the author more. Wealthy individuals are not only the philanthropists of the country but also the job creators. Make it a losing proposition to keep doing so and demonize them, and you can guess what will happen.

And Marie Antoinette reputed to have said, when told the poor had no bread, "Let them eat cake." I don't begrudge the wealthy their due when deserved, but the degree and speed to which income and wealth disparities have occurred in the United States is disturbing. We have a democracy where "all men are created equal", not an aristocracy in which privilege and opportunity are reserved for the few.

FYI: I consider myself wealthy with a few million earned by saving and investing over a lifetime. I have enough.

Well said--it is absurd to think this country is going to tax its way back to prosperity by taking money away from the very people who are investing in companies, buying goods and services, creating jobs, and keeping the wheels of this economy turning. I would much rather see these people keep their money than watch the government confiscate and waste it.

California's DEBT is considerably higher than $9B.
He was probably thinking of their annual budget DEFICIT.


The problem with the call to deal with our fiscal problems by making the rich pay more is not even as thorny as whether or not they SHOULD pay more. It's actually much much simpler than that. The simple basic truth is that they don't have nearly enough to deal with the issue. They have a lot on an individual basis but there are not nearly enough of them.

It saddens me to see the debate getting debased to this argument where both sides try to argue if the rich should pay more while thinking we are talking about a choice which could deal with the issue. We are not.

The only proposal I am aware of that is currently being considered to make the rich pay more as a means of dealing with our budgetary issues is to roll back the Bush tax cuts for the rich which has been defined as above $250,000. We assume that would have a large impact because it has both been stated that Bush's tax cuts for the rich caused a large portion of our budget mess and it is also stated that rolling them back would resolve a lot of that problem.

The problem is that the rich as defined here account for 18% of the Bush tax cuts. The actuarial work has been done. If we rolled back the Bush tax cuts for the rich this would bring in an extra $70 billion in tax revenue per year. If we rolled back the Bush tax cuts entirely for everyone it would bring in an extra $400 billion in tax revenue per year. $400 billion is a pretty big number but unfortunately still only 25% of the projected deficit. So taking all Bush's tax cuts away would solve 1/4th of the problem. Clearly not enough but a good start. Taking away his tax cuts just for the rich would solve 4% of the problem.

So frankly, The whole debate about whether the rich should pay more is pointless. The fact is making them pay more might make some people feel good but it won't do anything about the real problem.

I have seen no serious proposals from either party that actually deal with our budget gap in an honest way and in a way that has any chance at all of getting enough approval to pass. Knowing the truth about what a tax increase on the rich will do I wish those advocating for a tax increase would be honest and admit, it has to be on everyone. We need to roll back the entire Bush tax cuts if we want to have a serious proposal to use taxes to close the budget gap. I would respect and support such a proposal. Proposing to raise taxes on just the rich is a non-starter because it doesn't actually make any noticeable improvement and such a one sided approach would never be accepted by the Republican House of Representatives.

It does get both sides fired up. It does create posts like this that rush to defend the rich and irritate people who think the rich have enough already. And we are all arguing over an ideological issue that has zero chance of solving the real problem.

Depressing.

@MasterPo - A couple of things...

First, you open by sharing some "alarming" debt statistics. However, if you are going to bootstrap your broader argument about taxing the rich to the national debt issue, then you should explain why you believe that government debt is a bad thing. This is a broader problem in the media as well. Some economists argue that high government debt “crowds out” private investment – meaning that because investors can earn basically risk-free returns by buying government securities, there is no incentive to seek out other investment opportunities. I haven’t seen any data suggesting that this “crowding out” is, in fact, happening. Economists also argue that excessive government debt can lead to higher inflation, mainly in the form of higher inflation expectations. Again, this isn’t showing up in the data.

Second, your thesis seems to be that taxes (on the rich) are a tyrannical way to reduce the national debt and you wonder: "What PAC or grass roots effort will stand for 'the rich'?" Recent data seems to suggest that they are doing fine without anyone's help (http://www.epi.org/economic_snapshots/entry/taxes_on_the_wealthy_have_gone_down_dramatically/).

Finally, you gravely state that "A nation that adopts this social policy is doomed to slide quickly from greatness to mediocrity or worse." Let's suppose that we partially deal with the national debt by letting the Bush tax cuts expire in 2012 (thereby returning tax rates to the levels in the Clinton administration). I may have been young and naive during the 90s, but I don't seem to remember our country slipping into mediocrity or worse.

@anon - I'm not sure that I can, in fact, "guess what will happen" if we "demonize" the rich. Clearly, you are implying that there will be a mass exodus and that we will be worse off for it. First, I'm not aware of any data supporting this notion. The closest that I have seen in terms of a study that examines the impact of tax increases on the wealthy (i.e., whether it causes them to relocate) is here: http://www.miller-mccune.com/business-economics/in-tax-debate-lessons-from-ronaldinho-and-beckham-29906/ (I'll save you the suspense - the results were inconclusive). Second, where will all of the rich people go?

@Apex - I think you may be understating the impact of allowing the Bush tax cuts to expire (for everyone!): http://blogs.wsj.com/washwire/2011/04/17/greenspan-steps-up-call-to-end-bush-era-tax-cuts/

If the rich create jobs, and the top one percent is richer than ever, where are all the jobs? Interesting also that, with the exception of the Bill and Melinda Gates Foundation, all those wonderful charitable foundations and institutions were created at least a couple of generations ago - before the rallying cry for the nation became "Greed is good!"

@Jon - from the article you linked to: "Mr. Greenspan was talking about re-imposing the taxes for all Americans. The Treasury has estimated that a permanent extension of all the Bush tax cuts would cost $3.6 trillion over the next decade."

From Apex's comment: "If we rolled back the Bush tax cuts entirely for everyone it would bring in an extra $400 billion in tax revenue per year. $400 billion is a pretty big number but unfortunately still only 25% of the projected deficit. "

Greenspan is saying $360 billion per year for 10 years. Apex is saying $400 billion per year. There is no understatement - these numbers are identical for argument's sake.

SOME of the 'rich' in the U.S. nowadays got that way through
theft that would have made Bonnie and Clyde blush. Someone who
invents something new, whether Mr. Gates or even Mr. Zuckerberg,
should be able to profit by it to the best of their ability.
A CEO, or other 'highly compensated executive' in a public company,
who shmoozes his way to a 7 figure bonus on top of a 6 figure
salary for a money losing company, is stealing, plain and simple.
(Especially when the bonus money comes from a government bailout.
Those guys should be wearing orange) I have a cousin who works for
'Left Turn Magazine', an anti-capitalist publication, surely. I've
never had a particularly high opinion of their thought processes,
but on the subject of (SOME) CEO pay, I might be to the left of him.....

Po:

First, you start out by setting the stage talking about our national debt (which I agree is a problem). However, your argument veers in a totally different direction when you make your argument against raising taxes. There are two ways to solve the national debt problem: increase revenues (i.e. taxes) or decrease spending. Unfortunately, the debt has reached a point where we will have to do both. This $38 billion savings, which both parties are patting themselves on the back for, is not even a drop in the bucket. It is more like condensation on the side of the bucket.

If we are going to solve the debt problem, we are all going to have to pay for it, either through increased taxes or reduced benefits (which for all intends and purposes is an increase in taxes). The rich are not exempt. By historical standards, the top marginal tax rate is as low as its been in quite a while. The US roared to world prominences in the post-WWII era when the top marginal tax rate was as high as 90%! I think we would be okay if we raised the top marginal tax rate to 40%, which is what is was prior to the Bush-era tax cuts.

If you have studied economics, you know that the marginal utility of an additional dollar decreases, the richer you are. In layman's terms, think of it like this. If you have nothing, an extra $100 could make the difference between eating or not eating. Obviously, that $100 is worth a lot to your psyche. However, if you are rich, an extra $100 isn't going to change your lifestyle very much. If you taxed the poor person's $100 at the same rate as the rich person's $100, that tax impacts the poor person disproportionately. That is why we have the type of tsx system we do.

The being said, you can't tax the rich so much that you reduce incentives to make money or that they take their money "offshore" or otherwise seek to avoid taxes. I think that is what your argument is all about, and generally I agree with you, but not to the extreme with which you are arguing. I don't think the sky is going to fall if we roll back the Bush tax cuts (which is inevitable if we are going to balance the budget). Tax rates will still be low compared to historical standards, and low compared to many other countries.

As always, thanks for the comments. And, as always, it's impossible to respond to each.

So to summarize:

- If you want a view of "the rich" are, look in the mirror. The super-duper Hollywood type celeb ultra rich are untouchable by any tax plan anyway.

- How someone became "rich" isn't anyone else's business but theirs. That's not American and not freedom. Unless you can prove a true illegal act like selling drugs or robbing kids for their milk money, etc.

- The reason we are in this awful state now and declining on a near daily basis is NOT because Americans aren't taxed enough!

- Even if taxes confiscated 100% of incomes above $200k-$500k-$1mil (take your pic) that's less than the current year's Federal budget anyway.

- You can only go to that well once. After that who in their right mind is going to work their butts' off and risk to get it all taken away?!

- MasterPo has never worked for a poor person.

ps- Don't fall for "taxes will still be low compared to what they were X-years ago" argument. X-years ago while the rates were higher the DEDUCTIONS (and allowances, credits, thresholds etc) were also much higher! So the actual amount taxed at say 70% was much much less than what would be taxed today given the same tax rate but with current rules on deductions/credits/allowances etc.

Three comments-
first, obviously Master Po is shrill. Increasing tax rates to mid-90's levels for the rich, or everyone in the economy (my hope), is not going to cause the end of our global competitiveness or any other catastrophic effects, nor was America a socialist hell hole in 1950. Sure, we cannot balance the budget only on the backs of the rich. However, its going to be pretty hard to balance the budget only by cutting spending also. Meeting in the middle is the obvious way to go, with tax increases weighted towards the rich and spending cuts focused on the highest cost areas of defense and health care.

second, the highest income Americans have gotten a greater and greater share of national income over the last 30 years while the income of the middle class has stagnated, or even declined slightly. However, the effective tax rate for the highest income 2% has gone down. Now, I think this means we should raise taxes on the highest income Americans, since the benefits they receive for living in this country (wealth) has gone up disproportionately from everyone else.

Third, this whole 'oh woe, everyone hates the rich people' is silly. Our political process is dominated by the interests of the wealthy. Increasing taxes on the wealthiest people in America is one of the most popular revenue raising options nationally, but it doesn't happen because the Republican party is universally against it, and moderate Democrats are split. http://yglesias.thinkprogress.org/2011/04/people-want-to-tax-the-rich-2/

Finally, just to insert some facts into the dialogue:
tax payments per person in this country are lower than they have been in the past
http://economix.blogs.nytimes.com/2009/04/08/how-much-americans-actually-pay-in-taxes/
and effective tax rates for the richest are lower than they are for many middle class people, because we tax interest income at 15%, instead of the same as any other kind of income
http://thinkprogress.org/2011/04/18/tax-disparity-chart/
taxes on the average worker in this country are lower than in many other very successful countries, and could go up without destroying our freedom
http://lysander.sourceoecd.org/vl=83779744/cl=14/nw=1/rpsv/factbook2009/10/04/02/10-04-02-g1.htm

We are in this 'awful state' because a lot of really rich people bet a lot of money that the American housing market would never go down. I'm not sure what taxes has to do with that discussion.

I would also like to note that at least some portion of philanthrophy is driven by the tax code itself -- for instance, people who would leave large estates may rather give away a good portion to reduce the value of the estate, thereby lessening the estate tax burden.

This is the first time I have actually been disappointed with a post to FMF. This seems more like a rant I would see on television rather than the usual well thought out discussion FMF is known for. It is far too shrill for my tastes. I appreciate the thoughful commentary by most of the readers which has somewhat redeemed this post in my eyes.
Also note on the tax discussion, one of the strongest economies in the world, and the strongest in Europe, has taxes significantly higher than us. Germany dwarves our tax system but continues to have strong industry and dominates the economy of Europe. 17% VAT tax on top of a 14-45% income tax scale. So if you make 250,000 Euros a year you pay roughly 63% in taxes or 157,000 Euros. Not to mention a 30% corporate tax rate and a 25% capital gains tax. Yet their economy has not colapsed.
I do not recommend the above rates, only use them to illustrate the point. Tax reform will be essential to any solution and this will entail a readjustment of who pays and how much they pay. Currently the American rich pay significantly less in taxes, as a percentage, than almost all of their peers in the rest of the developed world. This will need to change if we are to remain competitive in the world economy.

I forgot the VAT rate went up recently in Germany. The VAT is 19% for a total tax burden of 64% if you were to make (and consume) 250,000 Euros a year.

This is just partisan garbage. I am very disappointed in FMF for even posting this. No statistics to support any of these arguments, just a rant, a weak one at that. I could refute each of these points, but that would just give this post the validity it does not deserve. In fact, rants like these actually hurt the cause they are trying to support. Sad.

FMF - I have been a reader for several years, and I am well aware of your political opinions, but you usually make them as a sidenote to an otherwise well-founded post.

As @Arimack said - this is the first time I have actually been disappointed by a post here.

Mark B. and Arimack --

Wow, I've written for six years and you've only been disappointed with one post? That's pretty good IMO...

I often think about the 2000 election that was decided by the Supreme Court and wonder what our country would be like if it had not happened.

Maybe we wouldn't have become involved in Iraq and Afghanistan.
Maybe our Budget would be in balance today.
Maybe our National Debt would be quite a few Trillion dollars less.
Maybe we would still be a "Producer" nation rather than buying almost everything from overseas.
Maybe we wouldn't have large numbers of our troops stationed all over the world.
Maybe America would be a happier place.

We'll never know!

@Old Limey
Tough to say.. Probably would be in slightly better shape but in the end Democrats=Republicans when voting always trends to the middle. After all, Obama isn't exactly fixing any big problems.

I also dislike this post a lot. All it is is a rant! Also felt compelled to note that their are MANY dedications to politicians for getting money to fund construction or research.

The primary cause of our debt is the same reason why most people are in personal debt. It is because we spent too much. To debate taxing the rich more is just a diversion. Further, the debate seems to imply that the rich are getting richer because they don't pay enough taxes is just plain wrong. The rich get richer primarily because they are able to invest (take risks) with a greater percent of their money.

JimL
You're right! The Rich get Richer because Money makes Money. The Poor get Poorer because Debt leads to greater Debt. We also shouldn't underestimate the benefits of being "Smart". Many of our Billionaires are exceptionally smart people.

One huge deficiency in our government is that we have yet to pass Term Limits, the other great deficiency is that Lobbyists have an inordinate power, especially since the Supreme Court recently allowed them to make huge contribution to politicians.

@JimL,

You're right, our problem is that we spend more than we bring in, both on the personal level and in our government. We have a spending problem, not a tax problem. A little discipline would go a long way to solve this issue if everyone would recognize that the cuts must be across the board.

@MasterPo,
Thank you for your thoughts and the Star Trek reference! It definitely got my attention and brought a smile.

This has probably gone on long enough, but two other thoughts-
I'm not sure why we have a 'spending problem' rather than a 'tax problem'. Our deficit came about because 1) a big tax cut under Bush 2) two big expensive wars 3) one economic recession, which reduced everyone's revenue-everything else is just at the margins. The government probably spends to much and taxes to little, but what we really should do first is get the economy back on track.

Taxing the rich is not a diversion-when the top 1% makes about 22% of the income on a yearly basis, and the top 10% makes about 50% (http://www.nytimes.com/2007/03/29/business/29tax.html) if you are going to increase taxes, it makes sense to increase them most on the top couple percent, and then on the richest of the rest. Now, this isn't about hating the rich, or thinking they don't deserve the money, or thinking the rich get richer 'because' they are taxed to little, Its very simple-I think because the rich have gotten richer, they have more money to tax, and it causes them less pain to pay, and I still am in favor of the Government providing significant social insurance against illness, old age, and poverty.

The more I think about it, the more I agree with Arimak and Mark B.

I've read some posts on FMF that I disagreed with, but they usually made an effort to base things on facts and logic. This, on the other hand, is badly written, poorly thought-out, and seems like nothing so much as a transcript of Glen Beck.

STL Pastor,

Based on the current income and tax revenues, the current tax base is mostly even on a percentage basis when looking at each income group. This takes into account all taxes and not just the spin provided when only a portion of the tax base is used. So, by default, if the rich make more, they are paying more as it represents a percentage basis.

See this link for the information:

http://www.csmonitor.com/USA/2011/0415/Taxes-and-the-rich-How-much-do-they-pay-now

Now, if you take the position that a rich person should pay even a greater percentage of the tax burden, are you really treating people on an equal basis? The fair thing would be to stop giving preference to anyone of for any cause. We should consider eliminating tax credits, deductions, etc otherwise, we are subject unfair treatment based solely on someones opinion.

As for our debt issues, tax cuts are NOT the primary cause of the debt. We have had debt for many decades despite variable tax rates. Over the past decade, Federal spending has outpaced inflation by 62%. This cannot be sustained.

"Over the past decade, Federal spending has outpaced inflation by 62%. This cannot be sustained."

Thats not really a new thing though. Spending outpaced inflation considerably every decade from the 30's to the 80's. For example in the 50's spending was up +117% but inflation only up +23%. The 30's and 40's were even worse but we had the depression and WWII then. The 90's spending growth wasn't as bad but it still did grow faster than inflation.

I came up with a good solution to overspending, but no senator or representative would approve it. They are always fighting over which programs to keep and which to do away with. They will never agree. They just want what they want.

So, my solution would be to take every single program we spend money on (state and federal) and cut each one 15%. Then EVERYONE would be helping to lower spending. Yes, it would hurt people, but won't the country being wiped out by debt do the same?

If my SSA was cut 15%, it would definitely hurt. But I would be doing my share to stop this spending train wreck. If Medicare was cut, I would be hurt, but I would be spending my time figuring out how I could get by on the money I did get and doing my best to stay healthy. Anyone else wanna help pay off the national debt - no matter how many years it takes?

And I love the idea of a flat tax - everyone pays a percentage - 10-15%. The way to help the really poor is to charge 1/2 that amount to everyone who makes less than $10k a year.

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