“Tax the Rich!” they cried

MoneyBags.jpgWhen it comes to questions of how we’re going to pay for health care reform, clean air initiatives and everything else up to and including free ponies for everyone, many self-styled pundits have been crying out that we should tax the poncy, bourgeoisie bastards who hoard all the cash. “The rich should pay their fair share!” That’s the cry we hear.

You may want to read the following and then ask yourself exactly what their “fair share” really is.

Tax Burden of Top 1% Now Exceeds That of Bottom 95%

Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the “rich” are not paying their fair share of taxes.

Indeed, the IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

But that won’t slow down some folks. As long as there is anyone who is perceived as one of “the haves” by the rest of the “have nots,” the calls to have them foot the bill for everything will continue.

And this is the way that empires fall, sooner or later. You rarely go down to a hostile outside force. You tear yourself down from within.

59 Comments

  1. People will never accept the facts even if they are in black and white. Birthers, for example. It is necessary tho, to put into perspective what the “burden” is for each side. It seems that a rich person can bear the brunt easier then the bottom 95%. So they can't take an extra week in St. Barts, boo hoo. For the bottom 95% it may mean braces for the kids or a vacation. Choices are harder at that level for the rest of us.

  2. the same IRS data indicates that the top 1% “earned” 23% of all adjusted gross income. maybe that 40% share of taxes seems a little more fair if you consider that, granted that it's still somewhat progressive

  3. We know that the income tax as it is now isn’t fair or right. There are two ways to fix it:

    1. The Fair Tax Plan – Google it, you’ll like it.
    2. Proportional Voting. – For each dollar of tax paid, you get 1 vote. The more you pay, the more your opinion counts.

  4. Jazz

    Boo Hoo Hoo – the top 1% pays 25% of the total tax burden. That includes their deductible expenses and off shore accounts? That includes their paid for tax loop holes and bonuses for blowing up the economy via credit default swaps? My heart bleeds.

    How much of the total income does this 1% take in?

    The top 5% own 50% of the wealth, why not make them pay according to that stat?

  5. Here's some information about the effects of the Bush tax cuts.

    Maybe things would be different in America if Bush also cut spending, but, of course he increased spending instead. He increased spending on the wars he started and on entitlements.

    Restoring tax rates to pre-Bush levels doesn't seem unreasonable.

    Honestly, we have a huge deficit in this country. What's the alternative?

  6. HemmD,

    The top 5% make 37.4% of the income but pay 60.6% of the taxes.

    They don’t mind carrying you, but a some point you get a little heavy.

  7. jwest wrote:
    2. Proportional Voting. – For each dollar of tax paid, you get 1 vote. The more you pay, the more your opinion counts.
    ——
    J, why do you hate democracy?

  8. Dan

    Democracy is mob rule. Representative Republics are a civilized means of governing.

    It then boils down to how the representation is apportioned. I like the idea of giving the most say to the people who pay the most. It seems fair.

  9. Okay Jwest, thanks for clarifying that you do, indeed, hate democracy.

    Thanks.

    What's your stand on kittens?

  10. George, the congress approves the spending, not the President.

  11. The problem with the 'soak the rich' populist mentality is that the people who feel this way simultaneously want the rich to stop getting richer while also wanting them to pay a greater portion of the burden of taxation. Keep pursuing those two conflicting goals and pretty soon the money runs dry.

    If you really believe that the top 1% should pay such a wildly disproportionate share of all of the expenses of the 'general welfare' of the entire country, then you ought to be promoting policies to help them gain more and more wealth, because that's what will be needed to finance what you believe everyone else is entitled to take from their spoils.

  12. Dan,

    I love kittens………but I don’t think they should have a vote either.

  13. America has a lot of perks for the rich, and very low social mobility between quintiles. The rich, to a degree, have it easy in America and earn a lot of the total income in comparison with the top percent in other countries.

    Also, they received a poorly planned and contextually unjustified tax cut – seeing as the entire nation and many households are suffering due to the lack of a long overdue and somewhat costly reform of the healthcare system, returning to pre-Bush taxation doesn't seem so much as a soaking as an inevitable return to equilibrium – they got a pretty big tax cut only eight years ago, but now the government no longer pushes problems onto the successors but actually tries to do something. Sorry that the illusion had to be broken.

    It's too bad that their tax cuts were given out under such ridiculous circumstances, in the same sense that it is too bad that our comfortable lifestyles are climatically unsustainable.

  14. “How much of the total income does this 1% take in?

    The top 5% own 50% of the wealth, why not make them pay according to that stat?”
    ******

    Ahhh,,,excellent. Hemm D has done the math..lol..

    C Stanley,

    The current administration IS doing something to increase the wealth of the rich. It is promoting the consumers back to fiscal health that the rich depend on to keep buying the goods that make them rich. See, the rich don't want to acknowledge that they depend on the fiscal solvency of the poor in order to stay rich. I know, I know, y'all strung us along long enough just scraping the bottom of the barrel to keep our heads above water while you continued to grow in prosperity. Well, your excesses caught up with you, you sold us out overseas and now we cannot afford to buy your stuff anymore and you're feeling the pinch.

    Now it's time to do something! [But anything but prop up the poor right?..lol.] The bottom fell out and yes you will now have to suffer through Trickle-Up economics in order to find your cherished obscene wealth again.

    *Hands the rich a hankie to wipe their tears*

  15. jwest – I like the idea of giving the most say to the people who pay the most.

    Isn't this the way it is now? Nearly every politician is bought by some company, just look at all the pork barrel spending they all channel to their donors. This isn't fair; it should be criminal.

    And as far as taxing the rich goes, everyone seems to be for it until they get rich. Why do you think people get upset when they have to pay an extra dollar on a pack of cigarettes or some other sin tax. And you know no one has the stomach to pay an extra dollar a gallon on gas. What it boils down to is everybody wants other people to pay more taxes.

  16. Jazz, if the United States falls, I sincerely doubt historians will point to the US tax code as the prime reason (though it could also use reform and some loopholes need closing). Also, why does the top 1% need vigorous defense from populist sentiment? I'm sure the Rich appreciate the thought, but when last I looked it was still a democratic republic (although the oligarchy is not far off). If you dislike populist sentiment, move to North Korea. In anycase, this report has already been debunked. <A HREF=”
    http://economix.blogs.nytimes.com/2009/07/30/to… the link to Economix. Basically, taxes on the top 1% have risen because their earnings have gone up so much in recent years. And in fact, the proportion that the bottom 95% has increased in recent years. But those people are poor because they deserve to be, no doubt.

    I suppose people no matter what they earn oppose taxes in the United States because they can't possibly see that money going to any constructive use. That view does admittedly have some justification. If I were the Philosopher-King of the United States, I would like to raise taxes across the board to pay for benefits, but that's just me.

    jwest, we already have proportional voting. They're called campaign contributions and lobbying.

  17. “And this is the way that empires fall, sooner or later. You rarely go down to a hostile outside force. You tear yourself down from within.”
    Jazz,
    Exactly right. The richest people in this country have taken more and more of a share of our national wealth, while the rest of us are left with stagnant wages, a crumbling infrastructure, a bankrupt safety net and health care we can’t afford.

    “If you really believe that the top 1% should pay such a wildly disproportionate share of all of the expenses of the ‘general welfare’ of the entire country, then you ought to be promoting policies to help them gain more and more wealth, because that’s what will be needed to finance what you believe everyone else is entitled to take from their spoils.”
    CStanley,
    Of course that’s insane. What would be preferable would be less stratification of income in our society. If the wealth we had was spread more equitably, then the burden of taxes would necessarily be fairer.

    “I really don’t get the hate for those with more.”
    EEllis,
    It’s not hate, it’s a realization that the rich did not earn their money in a vacuum. The Wall Street bankers could not pay themselves millions in bonuses without Federal largesse. Wal-Mart could not efficiently ship their goods to stores without the Interstate highways. And on and on…

  18. “America has a lot of perks for the rich, and very low social mobility between quintiles.”

    Kastanj,

    Are you talking about this “America”? If so, I think you might have your numbers mixed up.

    There isn’t any country in the world that has the mobility between quintiles as the U.S. You can enter the upper 20% with an income below $100,000, so there are a large number of people bouncing through all the income groups every year depending on their individual circumstances.

    This isn’t India or China. People in the lowest quintile one year can be in the upper one the next.

  19. In a perfectly meritocratic system it would be unfair to tax the rich more. However, when your beginnings are such an important factor in your adult income, then it isn’t. If we were to tax everyone to the same degree, wealth and poverty *and all the other things that come with these two phenomena* would accumulate and solidify in two blocks.

  20. Actually it kind of amazes me that so much of the tax burden IS carried by that bottom 95 percentile given their much higher proportion of spending on necessities and also given that they are the ones who do the vast majority of the actual work that keeps the country going. What's with all the 5% whining anyway? No, this isn't about class or wealth envy (pre-empting the inevitable wornout non-response), it's about logic, reason, and fairness trumping the Midas syndrome. The widening chasm between top and lower wage earners is a relatively new phenomenon btw (I say relatively since the pyramid builders probably had their own issues) and it has to do with the redefining of the concepts of greed and need in modern day America.

  21. “they can afford it”

    I'm struck by how similar things might be said by those contemplating theft.
    I didn't realize that was the standard we used in determining tax rates. I'm poor by many peoples standards but I really don't see why having more money should mean you pay a higher percentage. I really don't get the hate for those with more. We don't starve and can enjoy life even at the lowest tax brackets. The envy just seems wrong.

  22. Every now and again, I like to think of Ben Stein's (though I usually hate the man and what he stands for) defense of a progressive tax (paraphrase): “The Rich should pay more in taxes because they receive more benefit from government services… because the government keeps the Poor from killing the Rich and taking their stuff.”

    Seriously though… Taxes are by definition redistributive, and it makes much more sense for those who can shoulder the burden to do so. However, I think that we need to do some juggling around with the tax system. Raise the top Marginal Tax Rate to 40% (add a new bracket), tax Capital Gains the same as Earned Income (only one bracket level behind the income brackets), and eliminate Corporate Taxes. Instead of taxing corporate profits, we should tax the people who benefit from those profits.

  23. Spence,

    Come on. You’ve got to be kidding.

    As the linked article explains, the upper 1% now pay more tax than the lower 95% combined. In what Bizzarro world is that fair?

    Chris,

    You’re making typical liberal mistakes due to your mistaken worldview. First, the “pie” is infinite. The rich don’t cut into your piece, they just keep expanding the size of the whole pie.

    Second, although leftist believe they have the power to confiscate the wealth of others, it all comes down to what we feel is reasonable. The rich are rich because they are smarter, work harder and take more risks than the people trying to take their money. Once the level of taxation reaches a point that is unacceptable, a work-around will be found.

    Third, when the government reaches the point that they characterize the wealthy as criminals and try to take an disproportionate amount of their wealth, the option is to leave (at least on paper). There are other countries that are more than happy to extend residency to wealth ex-patriots.

  24. @ Matt Pearl- taxes aren't redistributive by definition.

  25. “And this is the way that empires fall, sooner or later. You rarely go down to a hostile outside force. You tear yourself down from within.”
    Jazz,
    Exactly right. The richest people in this country have taken more and more of a share of our national wealth, while the rest of us are left with stagnant wages, a crumbling infrastructure, a bankrupt safety net and health care we can't afford.

    “If you really believe that the top 1% should pay such a wildly disproportionate share of all of the expenses of the 'general welfare' of the entire country, then you ought to be promoting policies to help them gain more and more wealth, because that's what will be needed to finance what you believe everyone else is entitled to take from their spoils.”
    CStanley,
    Of course that's insane. What would be preferable would be less stratification of income in our society. If the wealth we had was spread more equitably, then the burden of taxes would necessarily be fairer.

    “I really don't get the hate for those with more.”
    EEllis,
    It's not hate, it's a realization that the rich did not earn their money in a vacuum. The Wall Street bankers could not pay themselves millions in bonuses without Federal largesse. Wal-Mart could not efficiently ship their goods to stores without the Interstate highways. And on and on…

  26. Spence,

    Come on. You’ve got to be kidding.

    As the linked article explains, the upper 1% now pay more tax than the lower 95% combined. In what Bizzarro world is that fair?

    Chris,

    You’re making typical liberal mistakes due to your mistaken worldview. First, the “pie” is infinite. The rich don’t cut into your piece, they just keep expanding the size of the whole pie.

    Second, although leftist believe they have the power to confiscate the wealth of others, it all comes down to what we feel is reasonable. The rich are rich because they are smarter, work harder and take more risks than the people trying to take their money. Once the level of taxation reaches a point that is unacceptable, a work-around will be found.

    Third, when the government reaches the point that they characterize the wealthy as criminals and try to take an disproportionate amount of their wealth, the option is to leave (at least on paper). There are other countries that are more than happy to extend residency to wealth ex-patriots.

  27. Gee, if there was only some sort of system that would catch criminals and punish them for their misdeeds…..

    Screw that, let's just punish all rich people with exorbitant tax rates because some rich people are criminals.

  28. EEllis: “theft” “hate” “envy” . . . which shows you little you understand the subject.

    For the rest of you, consider the state of the middle class post WWII, 50's and 60's, thier income, COL, taxes, and opportunities along with the income and taxes of the top 5% of income earners during the same time period… contrast that with the same criteria in the USA of today. I believe the definitions of the “American Dream” have been seriously mangled. If the citizens of this country don't stop allowing politicians and radio personalities to do their thinking FOR them, the mangling will continue.

  29. qwert321,
    It has nothing to do with “punishment.” I'm just pointing out the various reasons why all wealth isn't necessarily earned or deserved.

    But please, you and jwest can explain to me why John Thain is 1,800 times more valuable than the average American worker.

  30. Because he voluntary agreed to sell his labor and his employer voluntary agreed to pay for his labor at that set amount of money. That is what we call the free market. Are you against the free market too, ChrisWWW?

  31. Anyway, I agree with you. Let's base tax rates on “virture.” Your tax rate is determined by how much burden your peers in the same social economic class place on the criminal justice system.

    If “a lot” of rich people are criminals, there are a lot more poor people who are criminals. 50% tax rates for the rich! 60% tax rates for the poor!

  32. Chris,

    Why would you call these people criminals?

    They made a deal with the company they work for to perform their jobs for a certain salary plus a bonus based on how much money they make for the company over the year. What is wrong with that? Do you want the company to say “forget the deal we made, you’re making too much so we’re not going to pay you”? How would you like it if your boss did that to you?

    Just because someone is smarter, works harder and takes more risks than you doesn’t mean they are evil. This is America. If you want more money, study hard, work harder and roll the dice once in a while.

  33. Jwest,
    I'm calling them criminals because they stole money from the Federal government (us) to pay bonuses. Bonuses are supposed to be… bonuses! Money given in good times for excellent performance. Instead these bonuses were given while their companies we're losing so much money that they had to go begging to Washington for money to survive all the stupid garbage they had bought and sold.

    Sure, technically they aren't criminals because they haven't broke any laws (that I'm aware of), but what they did is wrong and should be criminalized. In any case, they didn't earn that money, and we shouldn't be so afraid of asking for a little of it back to pay for little Billy's health care.

  34. Chris, you could tax those bonuses at 100% and it would be a drop in the bucket to pay for healthcare costs for the poor. As for asking for 'a little of it back', we already do take 35% of it.

  35. Chris,

    Since we’re down at the bottom of a thread and no one else is paying attention, I’ll give you the secret to making money.

    Forget studying hard. Of course, there will be occasions when you will need to find information and literally become an expert overnight, but don’t waste a lot of time on degrees.

    Forget working hard. People who make serious money have short periods of intense work – but most time is spent screwing around. Hard work is way overrated.

    Rolling the Dice. Now we’re getting to the key. I can’t tell you how many scary-smart, hard working poor people I’ve met over the years. The one thing they have in common is their lack of confidence in themselves and their unwillingness to take a chance and break out on their own.

    Those people on Wall Street are about the only ones in the world making serious money working for someone else. Almost all wealth is made when people decide to work for themselves. The beauty of the American system is that the upside is unlimited and the downside maxes out at zero. Learn that no matter what happens, the worst that can happen is you go broke. After you hit zero the rest is just an accounting entry, so you don’t want to fail owing $10 . If you go down, you want to owe $10 million.

    Now, go out and take a chance. You don’t want to be a liberal forever, do you?

  36. In my younger days, I used to get all worked up in these discussions, but now I don't.

    Why get mad at these guys when you can actually “get even”. After all, I am actually smarter.

    Over time, I have changed my business models to sell good and services that the dear liberals' government pretty much mandates they buy.

    If they raise my taxes one percent, I will simply raise my price one percent. HemmD, Spencer, Chris will all be paying my tax increase for me.

  37. CO,

    Isn’t that the truth?

    For some reason, liberals seem to think there is a secret pool of money that these extra taxes and regulations come out of. They never think that we just raise the prices and they end up paying for their envy.

    Another thing they can’t grasp is that we start new businesses and hire people when we feel richer, not when we feel poorer.

  38. JWest thinks Mr. Potter got the raw end of the deal and George Bailey was a Communist.

  39. or they go to Walmart. Or the guy willing to undercut everyone else to gain market share a la Michael Dell. Mmm hmm God Bless free market entrepreneurs. But what they forget isn't what the price is regardless of tax elevation, it's the follow up service and keeping the customer. iPods are more expensive than the Zune, but have you gone through MS cust svc lately? Is their a face you can look in the eye and plead your case? Umm…no.

  40. jwest, I have no problem with business owners. God bless them and more power to them. I would be more than willing to agree with you that business regulations in America are frankly, insane. And if you build a better mousetrap or find a way to ship it faster, go forth and multiply.

    Our main complaint is targeted at the paper shufflers, the financial wiz kids who literally create something out of nothing. They didn't make anything. They're not improving anyone's life, except their own. They're in the business of gaming a system for them to make a buck, no matter the cost to anyone else. They are in many many ways similar to the bloated federal government bureaucrats that exist. They shuffle paper and stare at a rectangle for hours and call it a day. They exist to game a system and leave behind a legacy of twisted numbers and cutesy gimmicks. I simply don't have the same respect for those people because I don't feel they deserve their money, which is sucked directly from a government teat when their house of cards come crashing down. I mean…some criminals work hard too, but we don't give them a pat on a head for it. Besides, you've contradicted yourself by saying “just because someone's smarter and works harder” defense of the rich in one post then follow up that with the “secret” of making money: Rolling the Dice! Now why didn't I think of that? It's just some of us noticed that the dice seem to be loaded with the corporations with big, fat, government connections. And make no mistake: I'm laying the blame at Obama's feet.

    It's just funny to watch you guys defend these financial wizards who are sucking down YOUR taxpayer dollars by saying they “worked hard for it.” Also notice that when their business model FAILED, most of them DID NOT go to zero, which is what happens to all the rest of us. But you defend them anyway.

  41. There is no such thing as paying one's “fair share” and it frustrates me to no end when I hear self righteous populists parrot this cliched phrase.

    Because we have a progressive income tax, we don't all pay the same porportion of our income in income taxes. And while their is a certain logic to having higher tax brackets for people who make ore and lower tax brackets for people who pay less, the percentages set up for each tax bracket are completely arbitrary.

    Now, I realize that much of the taxes paid by the rich consist of taxes other than income taxes (estate taxes, corporate tax, capital gains tax, etc.) , but for simplicity, let us just consider the income tax.

    For 2009, the marginal tax rate (not factoring in the $5,700 deduction that everyone is entitled to):
    10% for individuals making $0 – $8,350
    15% for individuals making $8,351– $33,950
    25% for individuals making $33,951 – $82,250
    28% for individuals making $82,251 – $171,550
    33% for individuals making $171,551 – $372,950
    35% for individuals making $372,951

    Now, some people might argue that individuals with an annual income of $10 million have more than enough wealth and would still be able to live quite comfortably if marginal tax rate for the highest bracket were 39% instead of 35%. And some of these people might argue that the rich should pay their “fair share” and pay a 39% marginal tax rate for every dollar earned over $372,950.

    Yet I absolutely guarantee you that if the marginal tax rate for the highest bracket were 39% instead of 35%, those same people demanding that the rich pay their “fair share” with a marginal tax rate of 35% would now be demanding that the rich pay their “fair share” with a marginal tax rate of 39%. And they would likely be repeating this mantra, even were the marginal tax rate 42%, or 45%, or 48%, and so forth.

    It is one thing to support a progressive tax structure for income taxes. There is a utilitarian argument for doing so, and I am neither arguing for or against our current progressive income tax or criticizing anyone who would argue for or against it.

    But we should call things for what they are, and the “the rich should pay their fair share” argument is nothing more than populist rhetoric intended to divide the American people and inspire hatred and resentment in one group so that it may be pitted against the other. It is the politics of division cloaked in self-righteousness so that we may demonize a minority group (because let's face it, the poor and the middle class far outnumber the rich) and feel good in doing so.

    We're in an economic recession with the government fighting two wars and running up record deficits. If you truly believe that “the rich” should be paying higher taxes for the good of the country, make the argument on utilitarian grounds. Convince rich people that they have as much to lose as everyone else should the government go bankrupt and collapse.

    But enough with the injecting of moralism into politics. Let's not pretend that the marginal tax rates are anything more than arbitrary numbers subject to constant fluctuation based on the whims of the politicians running the federal government. And let's stop demonizing groups of people in order to score cheap political points.

  42. I'm mostly conservative. But I'm conservative in more than one way. Not only am I conservative when it comes to politics, but I'm also conservative when it comes to jumping to conclusions (however convenient they might be) based on a pretty graph put out by a biased source.

    The top 1% are paying more of the total tax burden not *because* of the tax code, but *in spite of* it. According to the very numbers linked to by the Tax Foundation, the tax rate on the top 1% has actually fallen, faster than it has fallen for the general population. Therefore, the reason the top 1% are paying more of the total share of taxes is because they are making more of the total share of income. So, when viewed with all of the facts, the graph and numbers cited by the tax foundations are actually better for liberals than conservatives, as they support the case that any economic growth we've seen in the past few decades has benefited the rich disproportionately.

    What happened to our critical thinking skills people?

  43. Critical thinking skills are in short supply around here even on a good day, Dad.

    But slow down on the conclusions there. The top 1% paying more tax is consistent with the robber-baron picture, but it's also consistent with the other 95% being lazy slobs who decided to work less in 2007 and caused gross tax receipts to fall. It's consistent with the rich getting married more, producing more two-wage-earner households and pushing them up the household-income charts. It's also consistent with every single rich person in 2006 going broke and a bunch of people from lower down becoming the new top 1%. I'm not saying that's what happened, just that it's not contradicted by these figures.

    These IRS numbers are based on household income tax data, which has a couple caveats. First, it looks at only earned income and ignores thousands of redistributive programs through which the rich are already giving back to the poor. The more progressive welfare and medicaid and public school and hot lunch and public transportation programs we enact, the *worse* the financial disparity looks relative to what people actually consume.

    Second, the IRS stats are by household rather than individual. The top 20% actually has more individuals in it than the bottom 20%, nearly twice as many wage earners, and more hours worked per wage earner to boot. Which is to say the rich owe a good bit of their edge to working harder and smarter.

    So when you talk about “benefiting the rich disproportionately,” the question is disproportionately with respect to what? To how many of them there are? To how much work they're doing? To how much HemmD thinks they deserve? As Nic suggests, what's “fair” involves a set of value judgments that don't flow inevitably from these income numbers but exist on a plane all their own.

  44. Dr J, I didn't intend to reach any conclusions in my comment. I did not say that I think the economic growth benefited the rich disproportionately, only that these numbers *by themselves* seem to suggest that. I completely agree that there are other factors at play that are not considered in these numbers at all, and I agree that “fair” is subjective. That is actually my point, except I am making it against those who would look at these numbers and jump to the conclusion that the rich are paying more than they used to.

    And I don't necessarily disagree with those who say that the rich are already paying their fair share, but that isn't supported by these incomplete numbers. I dislike bad arguments on my side just as much (perhaps more, since they weaken the argument) than I dislike bad arguments on the opposing side.

  45. “What happened to our critical thinking skills people?” – adelinesdad

    Last time I used a line like that I was accused of being elitist. ;-)

  46. Why do people rob banks? Because that's where the money is. Why do the rich pay most of the taxes? Because they have the money. Income distribution in the United States has been referred to as the “L-Curve”, because the only place there is an appreciable increase in income is in the last percentile. Wealth distribution is even more skewed, with the top 1% holding more than a third of all assets. By contrast, those in the bottom 40% have only 0.2% of all assets.

    The question about progressive taxation is not “why hate the rich” (by taxing them more) but “why hate the poor” (by taxing them when they can't afford it).

    Plus, let's not pretend as if income tax is the only tax that is paid. In 2009, anyone who earns more than $106,800 will automatically get a 6.2% tax cut on every dollar made after that. If they are self-employed, the tax cut is 12.4%. That's the impact of the Social Security tax on low income earners. So someone making $100,000 pays 28% income tax, plus 6.2% SS tax, but someone who makes $110,000 pays only 28% income tax. Everyone in the 33% and 35% bracket makes a ton of money with this built-in tax break.

    There's a bit of magical thinking on the right on this matter. It's taken as a matter of faith that the rich are that way because they are simply better at making money. But, if they were subjected to any amount of additional taxation, they would lose this magical money-making ability. It's as if they believe that being rich somehow needs to be incentivized beyond the natural benefits of being rich. What nonsense!

    Marginal tax rates have been much higher than they are today – and yet not a single person ever said, “Oh, I don't want to make a hundred bajillions of dollars because I might have to pay ninety bajillions in taxes and only have to live on ten bajillions.” Honestly, anyone who doesn't want to be rich because they would have to pay more taxes is one of those people we hear about whose financial idiocy keeps them poor.

    Plus, higher taxes are entirely voluntary. No one is forced to make $1 million a year. In fact, anyone who works for a million a year salary can decide to take a pay cut. They could say, “I'm only going to take $110,000 a year because that will save me seven percent on my income taxes.” They don't – because it's stupid. Saving that percentage points means giving up hundreds of thousands in real money. Money is it's own incentive, but people would give it up if taxes were really so punative.

    Beyond that, if wealth simply reflected the ability to make money, then we could tax everyone down to their last $100,000 and the wealthy would simply make it all back. If wealth/income is directly related to someone's marketability, then taxation doesn't hurt them at all. Yet too many of those who will never have eight figure incomes are afraid to try this experiment.

    I'm not advocating that approach, I'm just saying that the idea that we could tax rich people so much that they wouldn't want to be rich anymore is ridiculous. Of course, anyone can be taxed beyond their income limits – but that's just as true for the poor as the rich (and the poor can reach that point much quicker).

    Another bit of magical thinking is the idea that paying a higher tax would result in the wealthy being unable to invest, and thus destroy the economy. Marginal income tax rates have been at fifty year lows for the last two years, not to mention reduced capital gains taxes and inheritance taxes. Yet our economy has tanked anyway.

    Investing doesn't cause economic growth – outside of debt derivative trading. Economic growth is caused by people buying more stuff. When people buy more stuff, the investing class benefits from a higher return on their investments, and then have more money to invest. Whether or not the lower 90% buy more stuff isn't determined by the tax rates of the top 10% (unless, of course, we want to take about running up a deficit so that the money held by the lower 90% is worth less, in which case raising taxes on the wealthy as a means of controlling the deficit could actually boost the economy).

    In the end, I don't think we need to worry about hurting the wealthy to the point where the economy stops. First of all, if that points exists, we are a very long way from it. Secondly, the wealthy have the means at their disposal to effect change much more rapidly and more efficiently than the poor do. Finally, throughout history, much more evil has been done by neglecting the poor than by taxing the rich.

  47. “Beyond that, if wealth simply reflected the ability to make money, then we could tax everyone down to their last $100,000 and the wealthy would simply make it all back.”

    Of course they wouldn't. Why bother, if the money will simply be confiscated?

    But you're arguing against a strawman. While a 100% marginal tax rate would indeed kill the golden goose, I don't believe anyone on the left is seriously proposing that. Nor is anyone on the right claiming that the goose would be dead at a 50% rate, just that it wouldn't be laying as many golden eggs.

    “Investing doesn't cause economic growth”

    Of course it does. All the innovations that move the economy forward, from basic research to the dishwasher to the iPhone, come about because somebody invested the money to develop them and bring them to market. People can buy more stuff when they earn more, and what enables them to do that is investments that make them more productive, from education to technology.

    “Finally, throughout history, much more evil has been done by neglecting the poor than by taxing the rich.”

    Throughout history, much more progress has been made by allowing success to be rewarded, failure punished, than demanding it be the other way around.

  48. Dr J comments:

    Of course they wouldn't. Why bother, if the money will simply be confiscated?

    Because making money is its own reward.

    But you're arguing against a strawman. While a 100% marginal tax rate would indeed kill the golden goose, I don't believe anyone on the left is seriously proposing that. Nor is anyone on the right claiming that the goose would be dead at a 50% rate, just that it wouldn't be laying as many golden eggs.

    I'm not doing anything with a strawman. You are right that no one on the left is arguing for a 100% tax rate, the tax rate being decried by the right is a combined 50% or so. Read just about anything from Heritage about the combined federal/state tax rates.

    Of course it does. All the innovations that move the economy forward, from basic research to the dishwasher to the iPhone, come about because somebody invested the money to develop them and bring them to market. People can buy more stuff when they earn more, and what enables them to do that is investments that make them more productive, from education to technology.

    Total hogwash. R&D budgets are not based on investments or stock purchases. True, people earn more when they earn more – but that is generally due to wage increases, not investment returns. Most people who hold investments hold them through retirement accounts, which means that they cannot possibly be using that money to increase spending for many years.

    Throughout history, much more progress has been made by rewarding success than rewarding failure.

    Poverty is its own punishment, just as wealth is its own reward. We do not need to incentivize wealth any more (or less) than we need to de-incentivize the lack of wealth. That is a most basic part of human existence. Success is, by its very definition, a reward.

  49. We do not need to incentivize wealth any more (or less) than we need to de-incentivize the lack of wealth.

    Interesting choice of phrasing, as if letting people keep what they earn were a gift from the government. I don't agree with that point of view, either on moral or practical grounds.

    Total hogwash. R&D budgets are not based on investments or stock purchases. True, people earn more when they earn more – but that is generally due to wage increases, not investment returns. Most people who hold investments hold them through retirement accounts, which means that they cannot possibly be using that money to increase spending for many years.

    Sorry, I couldn't make any sense of that at all. Companies don't spend investors' capital developing products and bringing them to market? People earn more than they did 100 or 1000 years ago because…we just feel like paying them more these days? Retirees' spending doesn't count in the economy? Could you take another run at that paragraph?

  50. ThurmanHart,

    That is one of the best-written, smartest arguments against the “soak the rich” mentality that I have ever seen. Thank you.

  51. I'm surprised the return of the tired, useless “arguments” for progressive taxation other than the utilitarian and amoral one isn't accompanied once more by widespread misuse of that sappily-misused word, “fairness” [rolling eyes].

    I also roll eyes at those who deny the reality that increased taxes are a disincentive to what is being taxed, such as work, as well as the case taken logically and realistically out of context, that those who are at income or wealth levels near or above the threshold of practical independence are representative of the public as a whole, as if everyone can afford to pay additional taxes for the hell of it, or as a game.

    And, of course then comes another real world defect in the lefty-fools' dreams, that “the rich” are nowhere numerous enough to constitute a tax base that will support all the dreams these same fools have for the government to spend money on. Which is why, as I've already noted before, even lib Dems like Obama during his campaign have revised downward the threshold beneath which people won't face increased taxes (why not, if they aren't bad?), the ever-revised-downward threshold of what constitutes “rich.”

    * * *

    J. West: The ideal would be to weigh voting not only on one's taxes paid (especially with progressive taxation of wealth or income, which in practice and reality is unjust and envy-based), but also (multiplied by) a gauge of competence, such as a score on a citizenship test or test on relevent issues of the day on which government is imminently acting (during the next election cycle), or a worthwhile surrogate such as an IQ obtained from a suitable test. Short of that, weighting according to taxes (compulsorily) paid is OK.

    * * *

    “as if letting people keep what they earn were a gift from the government”

    Such morally inverted (perverse) views are common, and unfortunately, aren't limited to Washington and to more-retarded and in-decline state governments in this country. Yes, like children receiving an allowance or a periodic ration of candy from government, their surrogate parent…

  52. ThurmanHart: 'Marginal tax rates have been much higher than they are today – and yet not a single person ever said, “Oh, I don't want to make a hundred bajillions of dollars because I might have to pay ninety bajillions in taxes and only have to live on ten bajillions.”'

    Of course not. But there's an opportunity cost to anything we do. It's not a choice between making more money and doing nothing. It might be, for example, a choice between starting a business for the purpose of making more money (and incidentally also providing some people with employment) or having more time to pursue some non-monetary hobbies. If someone is making this decision and is already undecided, a higher marginal tax rate might be enough to discourage them from making the decision that would make them more money, as well as provide employment. That's not to say the decision-maker would make the wrong decision, but they would be more likely to choose the decision that does not help the economy grow.

    So, of course increasing the marginal tax rate does not discourage a middle-class person from seeking to be rich. Nor does it encourage a rich person to give up his wealth to avoid the taxes. As should be expected, raising the marginal tax rates takes its effect at the margins, when people are choosing between more wealth and more of something else that is worth something to them.

    “Investing doesn't cause economic growth”

    Tell that to any small business owner who has ever had to present a business plan to a potential investor.

    “Finally, throughout history, much more evil has been done by neglecting the poor than by taxing the rich.”

    This is the argument for a progressive tax policy (I don't support a flat tax, by the way). But, you agree (based on your previous comments) that we shouldn't use this argument to increase taxes on the rich indefinitely. At some point, they are taxed enough. The question of what is “enough” is what is important, but is a difficult thing to debate since it is so subjective.

    I have spent most of my comments in the past few days pushing back on the conservative interpretation of these new IRS numbers on various blogs, but assuming we can raise taxes on the rich with no adverse economic consequences is equally wrong.

  53. Excellent comment, Adelinesdad.

    I think people of reasonable intelligence should all be able to agree that 100% taxation would be counterproductive to raising more revenue, and that if you start at 0% and then go up the revenue will in fact go up.

    The question is where the optimum range is, and figuring out when you have leeway to raise top brackets without deincentivizing investment and work so much that the increase is counterproductive. Lots of people on the left are arguing that return to Clintonian levels should still keep us in the range where we'll see increased total revenues, and that's probably true (although it's not as clear whether these changes will produce similar results in a deep recession as they did during an economic boom.)

    But regardless, it's been shown that even taxing the top 5% at 100% (if we could make that retroactive so that we don't have to account for changes in the decisions made by those top earners, and actually assume we can confiscate all of their earnings) won't pay for everything that Obama and the Dem Congress want. So, it's a dishonest discussion on both sides if lefties and moderate lefties keep talking about how the Clinton rates won't hurt anyone- because obviously those top rates will have to go much higher before you can even begin to address the current deficit spending.

  54. Dr. J writes:

    Interesting choice of phrasing, as if letting people keep what they earn were a gift from the government. I don't agree with that point of view, either on moral or practical grounds.

    Economics is built on the idea of people operating in their economic self-interest. it doesn't matter if you like it or not, being rich is its own reward, and the government doesn't need to do anything to make people want to be rich. Nor does it have to do anything to make people not want to be poor. You don't believe that?

    Sorry, I couldn't make any sense of that at all. Companies don't spend investors' capital developing products and bringing them to market? People can buy more than they could 100 or 1000 years ago because…we just feel like paying them more these days? Retirees' spending doesn't count in the economy? Could you take another run at that paragraph?

    1) On an ongoing basis, no, companies don't “spend investors' capital developing products and bringing them to the market.” Like the rest of their budget, R&D generally is taken out of profits from selling existing products. Most investors, on the other hand, purchase company stocks – most of which are not actually bought directly from the company anyway. There can be some notable exceptions, such as Initial Public Offerings – but, even then, no more than about five percent goes to R&D, on average.
    2) People get paid more today largely because of union activism and government regulation. If the minimum wage had been adjusted for inflation, it would be over ten dollars an hour now. Unions forced employers, even non-union employers, actually compete for workers, resulting in higher wages. As unions have become a smaller part of our workforce – and as government regulations have been repealed – inflation-adjusted wages have stalled and fallen behind inflation.
    3) Any investment I hold in my retirement account is not counted today as spending ability. It might allow me to spend more in twenty or thirty years when I retire, but that is moot when discussing today's economy.

    I really hope you can follow that

  55. Economics is built on the idea of people operating in their economic self-interest. it doesn't matter if you like it or not, being rich is its own reward, and the government doesn't need to do anything to make people want to be rich. Nor does it have to do anything to make people not want to be poor.

    The govt doesn't have to do anything to make people want to be rich, but it does have to show that it's not going to prevent people from becoming rich even when they make the decisions that would lead to them acquiring more wealth- and what the govt needs to do to assure that is to not operate under the assumption that the wealth they create belongs first to the govt until the govt decides how much to return or allow the earner to keep.

    Any investment I hold in my retirement account is not counted today as spending ability. It might allow me to spend more in twenty or thirty years when I retire, but that is moot when discussing today's economy.

    Where you as an individual get the money you spend is a moot point, sure, but what Dr J challenged you on is why you'd think that what retirees spend is moot. They make up a big, and growing, segment of the population, so the return on their investments certainly is relevant.

  56. Being rich is its own reward, and the government doesn't need to do anything to make people want to be rich. Nor does it have to do anything to make people not want to be poor. You don't believe that?

    I'm struggling with your phrasing. You're using a triple negative about what the government can stand back and let happen, in order to justify aggressive government intervention.

    The question isn't what people will do on their own, it's what they'll do when the government is confiscating their earnings, or is paying them for doing nothing. Marx figured they'd keep working hard, to better themselves, to help their society, and for the satisfaction of an honest day's work. But the societies that have tried Marxism have found that the satisfaction of an honest day's work isn't enough to keep the economy afloat.

    People get paid more today largely because of union activism and government regulation. Unions forced employers, even non-union employers, actually compete for workers, resulting in higher wages.

    So all a group of illiterate farmers living on $2 a day has to do is get organized and demand more money from the local shopkeeper? Trouble is, the shopkeeper doesn't have the money either, and he can't simply raise his prices because none of his customers could pay. The economy as a whole simply isn't productive enough to improve people's standards of living. What the farmers need is investments that will improve their productivity–better education, better farm equipment, and so on.

  57. Dr. J wrote:

    I'm struggling with your phrasing. You're using a triple negative about what the government can stand back and let happen, in order to justify aggressive government intervention.

    There's no double negative there, much less a triple negative. What you're struggling with is your ideology. It doesn't fit with reality. Being rich doesn't need to be incentivized. There are no incentives needed to make people want to escape poverty. This is otherwise known as “self-interest” and is the basis of all economic principles.

    The question isn't what people will do on their own, it's what they'll do when the government is confiscating their earnings or paying them for doing nothing. Marx figured they'd keep working hard, to better themselves, to help their society, and for the satisfaction of an honest day's work. But the societies that have tried Marxism have found that the satisfaction of an honest day's work isn't enough to keep the economy afloat.

    Who cares what Marx said? It has nothing at all to do with our modern economy.

    So all a group of illiterate farmers living on $2 a day has to do is organize and demand more money from the local shopkeeper? Trouble is, the shopkeeper doesn't have the money either, and he can't simply raise his prices because none of his customers could pay. The economy as a whole simply isn't productive enough to improve people's standards of living. What the farmers need is investments that will improve their productivity–better education, better farm equipment, and so on.

    Show me where illiterate farmers exist in America. Then show me where they deal directly with a local shopkeeper.

    What I have witnessed is cotton farmers in Texas forming cooperatives (otherwise known as “organizing”) so they could demand a better price from the textile mills. I've also seen grain farmers (wheat, corn, and rice) do the same thing. The best tractor in the world doesn't do you a bit of good when your buyer has the market cornered.

  58. There's no double negative there, much less a triple negative.

    Sure there is: “Nor does it have to do anything to make people not want to be poor.” And you didn't address my point. If you're advocating taxing the rich aggressively, you're advocating an active disincentive for them to work hard. There are no incentives on the table. Unless, of course, you consider forbearing from seizing their assets a gift you bestow.

    Show me where illiterate farmers exist in America.

    100 or 1000 years ago we had plenty, and there are still plenty in other parts of the world. What has changed and is continuing to change standards of living for all of us is investment and improvements in productivity, not compulsory distribution of wealth. I'll totally grant that organizing can help small groups of people squeeze more out of a corner of the economy, but that's not what drives big-picture economic growth.

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