People who make $250,000 or more a year can afford a tax hike.
slate.com
slate.com
The bigger question: is it in any way fair, just, or moral to tax society's most successful more heavily just for being more successful?
EDIT: The other salient question that I forgot to mention is: "why do we need more taxes?" Our government already can't manage what they have with any sort of reasonable efficiency. Are we really supposed to believe that they'll do better if we give them more money?
1) It is a disincentive to others who might try to reach that level
2) It's hardly clear that the success of the wealthy is due to how society is structured, and not their own effort. Undoubtably some is, but is it 90/10 or 10/90?
3) It encourages relocation of talent, business, and capital to states or countries where the tax situation is more favorable.
4) It's not clear to me that more tax revenue results in a net benefit to society. My opinion is that the rich are better at investing their money for optimum yield than the government, and the end result is more benefit for society.
This applies equally to the engineer who makes $225,000 and who might be willing to put in extra effort but won't if the reward isn't worth it.
So the issue is shifting the cost/benefit equation over to where there isn't enough benefit for people to put in the effort
There is no way, in the American progressive tax system, to get a raise, be moved into a higher tax bracket, and end up taking home less money. It's just not possible.
@ryanwaggoner - correct, ty.
A state flat tax will tax this new raise at the same flat rate as all the existing pay.
The marginal federal tax will tax the new raise, in your scenario, at the new, higher tax bracket.
But your scenario would have the gov't taxing this new cash into the red, reducing her take home pay. That's not gonna happen. Period.
Of course, after retaining this right the gov't expanded it for all manner of other purposes.
You also have to remember that in most non-US countries rights flow from the crown/gov't to the people, not from the people to the gov't, so the legal justification would be much different and along the lines of "because we didn't cede that to the people"
Aside from the larger question of why the government has the right to take people's income by force to begin with
Because the government provides services that you cannot "opt-out" of. You benefit from services (ie, defense), no matter how much you try not to, by merely living within the borders. This is our "social contract". The free-rider problem makes this an essentially necessary part of any modern society.
It is a disincentive to others who might try to reach that level
And your argument ignores the incentives to reach that level (ie, being rich). They are two forces that MUST be balanced. Ignoring the incentives, I can see how you'd view all taxes as ONLY disincentive. This ignores the reality of the situation, however.
It's hardly clear that the success of the wealthy is due to how society is structured, and not their own effort. Undoubtably some is, but is it 90/10 or 10/90?
It's actually quite clear on issues that take very much for granted. Like binding contract law, law and order, due process, and so on. Even still, no matter what the split, the rich -do- benefit from these more than the poor. This is a rather poor argument, though, because even if the rich didn't benefit more than the poor, the progressive tax system is moral for other reasons (decreasing marginal utility of a dollar, most importantly).
It encourages relocation of talent, business, and capital to states or countries where the tax situation is more favorable.
Yes, an economic factor that MUST be considered. Again, pretending that all tax raises are bad for a reason like this implies that the optimal tax rate is 0%.
It's not clear to me that more tax revenue results in a net benefit to society. My opinion is that the rich are better at investing their money for optimum yield than the government, and the end result is more benefit for society.
Is -any- tax revenue a net benefit to society? Or is the optimum zero? If you believe that the optimum is above zero, then you MUST acknowledge that taxes can be too low, and must raised.
Any (libertarian) argument that tends to natural conclusion in an optimal tax rate of zero can be discarded as poorly thought-out. On the flip-side, any (socialist) argument that tends to the natural conclusion of an optimal tax rate of 100% can be equally discarded.
Please provide some resources, as I'd love to expand my knowledge in this area. I'm serious.
Perhaps I worded a few things incorrectly here. I think a flat tax is a much more workable solution, perhaps with credits at for the lowest income levels.
This is a rather poor argument, though, because even if the rich didn't benefit more than the poor, the progressive tax system is moral for other reasons (decreasing marginal utility of a dollar, most importantly).
Can you explain more about this?
1.) Right, I'm going to give up on my dream to get rich because I'm paying a 4% higher marginal tax rate. Nevermind that I can afford an accountant to figure out how to minimize my tax burden and will effectively end up paying a smaller percentage of my wealth.
2.) 'Wealth', as a concept, does not exist except within the structure of the society that recognizes it. Ours happens to be structured so that to some degree you can earn your wealth. It's a Randian fairytale that anyone is wealthy from solely their own effort, though.
3.) That's true. But the U.S. actually has a pretty average tax rate compared to a lot of other places, is more or less stable, and has the largest paying market in the world by far. It's not the only consideration.
4.) That's also true (or at least debatable - a lot of wealthy people invest super conservatively so as to maintain their current wealth, oftentimes right back into the government itself, and are hardly engines of innovation), but you were asking for a basic moral justification, not a full exposition on the effectiveness of the current tax code and budget.
Edit: just having the money in the bank is not benefiting. Using service, health care, infrastructure, education, free time, etc. That is benefiting.
Edit2: Furthermore, they are ALREADY paying the most.
In the aggregate, I think one can make the case that the wealthy contribute more to society than the poor, in the form of jobs, capital, etc. How do you determine value to a society other than through what the society is willing to pay? And if those other jobs were worth more to society, presumably we'd pay people more to do them.
What's intellectually dishonest is pretending that money is the only way to measure value.
I can live anywhere in the world I want to -- and with all kinds of luxuries.
Seems to me like the "people who benefit most from how society is structured" would be those poor folks who through no fault of their own, perhaps mental retardation, chronic illness, or birth defect, cannot make a living and yet are provided for by the rest of us. These are the people who would die under a differently structured system, right?
After all, rich folks got it good under all kinds of systems.
Your point was we should take money from those who got the greatest benefit from our society. By that reasoning, people who are alive now and would have died otherwise have it the best, right? Or does that extra boat or summer house so important that it's a better benefit than living?
Listen very closely: whatever system you set up, there will be rich people. If you tighten the tax laws, the rich will be criminals and politically-connected people. But there will always be rich people. It's true in any societal construct. They will always have a better lifestyle than the average person. Given the criteria you have presented, you will never end your quest to find rich people and tax them.
> You aren't punishing them for success.
Simply saying that doesn't make it so. If you make more and are more successful you are taxed at a higher rate. This is the very definition of being punished for being successful.
> For a whole lot of reasons, the fact of the matter is, the value of individual units of money (one dollar) DECREASES non-linearly as your personal supply increases.
Can you list some? How is the $10 I pay in taxes that gets allocated to some department of the government any more or less than the $10 that someone else has paid, at a different tax rate? It might be non-linear to the PAYER, but that's irrelevant; it's exactly the same to the PAYEE.
Whether or not someone can /afford/ a higher tax rate based on income is irrelevant and stems from an emotional argument, not a fiscal or economic one. <snark>And a sour grapes, juvenile "IT'S NOT FAIR!", wealth-redistribution based one at that. My 9 year old has these sorts of ideas.</snark>
Even if that were so, (any citations there? The assertion is almost laughable.), it's not what the argument being made is saying. The argument is being made that these institutions are somehow providing MORE value to the successful, so the more successful owe more for their use.
Which is simply not true. If a clever, successful person is somehow making more or better use of these tax-funded services, that's the side effect of him being clever or successful, not that the service has provided him some sort of hidden value that the less successful cannot take part of, and for which the successful person "owes" more because of.
An assertion in axiomatic clothing, I think.
As for your opening question, more successful at what? Certainly, success in one's career or investment is one answer, but so is 'successful at minimizing one's tax liability'. We're talking about going back to the marginal tax rates of the 1990s, which strangely I don't remember as being a time of great fiscal suffering. If we had not cut those taxes to begin with, perhaps we wouldn't have such large deficits as we presently do.
These are the people who have orchestrated public policy in this country directly and indirectly for at least 30 years.
Now the suggestion comes up that the gov't that they bankrupted might actually expect them to pay for it, and a slew of people, none of whom are actually part of this top 1% group, start whining about what's fair and unfair.
I had a good year last year thanks to the business I founded, so I'm in this top 1% of taxpayers, but I have exactly the same political influence as everybody else. Less, since I can't even vote in this country. And instead of 'bankrupting the government', my cofounder and I worked hard and created some jobs in the middle of a recession.
The fact that you chose not to spend your money and use your connections for political gain doesn't make your ability to do so any less noteworthy.
There's a knife in a knife rack in my kitchen. By your logic I should be jailed for stabbing someone, since I clearly have the ability to do it.
For the sake of argument, let's accept your premise - that in America, the government is subverted by well-funded lobbyists and cash contributions to politicians. Instead of getting angry at the top 1% of taxpayers, some of whom have nothing to do with this subversion, why don't you focus your anger a little more, and restrict it to the people who actually back the lobbyists and contribute the cash?
I'm a little uncomfortable being on the receiving end of such anger, just because my startup did alright. I'm sure there's plenty of others in that top 1% of taxpayers who similarly have nothing to do with what you're actually angry at.
http://ingrimayne.com/econ/resouceProblems/Tournament.html
The differences between individuals (say top 10,000) in certain skills becomes negligible due to the sheer amount of people in the world. However, due to winner take all systems, it is possible for someone that works 0.01% harder or luckier to take 100% of the reward. This is why it is possible for wage disparities to increase beyond ratios of 1000 to 1 without someone having to work 1000 times harder.
The reasoning behind increasing the tax rate on the super wealthy is for several reasons
1) It is easier to accumulate money the wealthier you are. This creates a negative incentive for the super rich to work as hard since it becomes easier to simply buy out competition and form monopoly status. Or crush everyone else due to economies of scale rather than true innovation.
2) This conundrum is well known in many companies where they try to pay their employees as much as they can, but not too much, or else they retire early. If you believe in the mantra that the richest people are the most productive, then it is obviously in society's best interest to keep them productive.
3) The more percentage of total wealth you have, the more US infrastructure you use and rely on. For example: Exxon heavily relies on the US military and government sponsored roads. Tech companies like Google and Microsoft heavily relies on the nationalized electric grid, subsidized education, the invention of the Internet, and subsidized telecoms that allowed people to use it. The average Joe does not have as much to lose if these tax subsidized services were to disappear tomorrow.
4) The tournament theory I mentioned above. The vast differences in wealth are due to situation or luck, and not because someone truly works 1000 times harder than you.
Perhaps you simply don't have experience, but this is certainly not true. There are clear deviations from the norm. Once you start your own business or start to manage groups this becomes quite clear.
And even when you cite coding studies, the magnitude is somewhere between 25:1 not 1000:1.
The article mentions that in debugging time, the difference is 25:1. In terms of hours, that is a bug getting identified in one hour versus 3 working days. The difference is staggering. Consider the difference in coding time from the article, 5:1. The higher end of the curve completes in one quarter what it takes an average programmer over a year. In terms of development lifecycle, a project will be cut due to reorganized priorities before a group of average programmers even begin to think about a beta while a group of the strongest will have been working on version 4.
Looking for a 1000:1, 100:1, etc is a meaningless standard. If you meet a man twice your size, wouldn't that difference seem staggering? But it is only 2:1.
There is a point where it becomes unbelievable to say someone is 1000 times better than the top 100,000 people out of however many billion are on the planet right now. A look at any competitive sport or Olympics will show that top athletes are winning by a razor's edge in the milliseconds.
Would you believe it if someone claimed to be a million times better at a certain skill than the top people in the world? The magnitude of difference definitely matters, and let's not delude ourselves into inflating these ratios higher than they actually are.
And they should be taxed at a 99% rate, if not higher.
Leave them with a million dollars, tops. That's fair.
No, it's not. However, it is fair to tax the people who have the most. Determining your income for the year is just a heuristic, and an inaccurate one at that. However, if you can come up with a 100% fair way to determine whether a person deserves their income based on a tax form, I'd suggest running for Congress or the Presidency.
But until that happens, we're just going to have to settle for an imperfect system. Personally, I like the idea that if anyone is treated unfairly by our tax system, it's the top 3%. I think our tax system is fair to the other 97%. And that's quite an accomplishment.
I'd be a lot more content with differential tax rates if the money I'm saving to start my next business - and create jobs for Americans - was exempt. Every dollar I give the government is a dollar they're going to spent a whole lot less efficiently than I will.
Income = Consumption + Savings. Right now we tax income, but it's possible to tax consumption instead. That would encourage more saving and less consumption, which is probably a good thing for the country (but probably won't happen any time soon because in the short run businesses wouldn't stand for it).
lets assume that $50k per year gives a comfortable lifestyle to a person. anyone earning less than 50k per year cant afford to pay taxes and therefore doesnt have to. anyone earning more than 50k can certainly afford it, so they pay the amount needed to get there income to 50k. so a guy who makes 60k pays 10k per year, and a guy who earns 1MM pays 950k.
do you think entrepreneurs would start businesses in this environment? sure, some would because they are doing what they love... but what about all those boring businesses. do you think the dry cleaner LOVES to wash other people's clothes? do you think the guy who started 1-800-GOT-JUNK loves other people's trash?
among other things, you need to think about incentives (and the killing of those incentives) when you devise a tax system.
I'd argue that people earning $250K who are paying off loans and working 60+ hour weeks cannot afford it... and that taxing them is a horrible policy idea, no matter how well it resonates with voters who themselves pay no taxes (or people like the author who live in Westport CT).
Let's see now... when the median family income in the US is $40,000 per year, an individual making $250,000 per year is undoubtedly rich.
They might not be super rich, or even very rich. But they're rich.
I don't know what the answer is. But, as I understand it, punishing people who have the most leeway to make other choices pretty consistently fails to get the desired result.
Given:
- USA population: 300 million
- percentage of households that make 250k+ in a year (according to the article): 2.1%
If we assume that we have 2 people per household, that's 150 million * 0.021 = 3.15 million "households" making US$250k+.
Assuming that the average income of the US$ 250k+ group is much larger than the bottom, something close to US$ 1 million, and assuming that there is a tax increase will take 5% of your income from your pocket. In practice, we are saying that we are taking 50 thousand dollars of each household that makes more than US$250k.
Using these values, the government would get 3.15 million times US$ 50 thousand = 157.5 billion dollars from this tax increase.
According to wikipedia (http://en.wikipedia.org/wiki/2009_United_States_federal_budg... : the net deficit for the 2009 budget was 407 billion dollars.
I know that are tons of other things in a serious model: flow of money and such. But even so, I wonder if there is any kind of tax increase that would actually be able to fix the deficit.
But no, you can't enact a sudden tax increase (or spending cut) in a down year and expect it to close the gap. Budget planning is done over decade-scale timeframes.
Also note that the deficit is bad not because its immediate cost is unbearable but because its current scale is unsustainable. The marginal cost of any extra borrowing is actually quite low; the US Federal Government pays very low interest rates on its debt (check the federal bond rates for current numbers), and no one is suggesting an inability to pay this year's debt -- it's a drop in the bucket. So the goal is a steady reduction of deficit spending to a sustainable level.
At least he doesn't pay FICA taxes on that. On the other hand, the capital he invests does allow companies to hire more people, who do pay taxes.
The utility-maximizing way to tax Mr. Buffett is at 0%. He'll invest it effectively, it will grow the economy, more jobs will be created, and we'll end up with more wealth to squander through silly redistributive schemes.
This whole debate is framed wrong, on both sides.
I much prefer the idea floated to ditch capital gains altogether for small companies.
This is a natural consequence of a convoluted system with complicated rules that encourage schemes. Another sad consequence of this system is that, as with our managed health care system, it creates a massive amount of regulatory and managerial overhead.
The engineer in me would love to see a flat tax, and the resultant elimination of layers of bureaucracy, like the chopping out of so many lines of unnecessary code. Dare to dream...
The answer is probably the latter, for a lot of folks.
I don't mind taxes and social programs. I do mind paying for unending wars in the Middle East (not making a political statement, just a budgetary one). Cut some of the crazy expenses, and I'll be happier paying my taxes, and you probably won't even have to jack them up.
What kind of job do you have that makes >$250K and doesn't require you to understand how income taxes work? I'm skeptical.
Remember it's a marginal tax system. They would only get taxed more on the amount they are making over 250k.
No matter what the tax rate goes to, you'll still be bringing home more money by having a higher paying job.