I am really tired of seeing sensationalist headlines like these. The top 1% of income earners earn an absolutely massive portion of all income in the state, but only pay 45% of taxes. We should be asking if that's enough, not implying that the wealthy are somehow propping up the state's finances when inequality is accelerating every year.
So the top 1% earned 28% of the income, but paid 45% of the total taxes:
https://www.ftb.ca.gov/aboutFTB/Tax_Statistics/Reports/2013/...
If I eat a steak, the restaurant doesn't come to me and say "Hey, you make 10% more than the guy two tables down, so you'll pay 10% more for your steak".
Why did this sliding rule ever get enacted for taxation? If you use something, you pay for it at the established price.
Taxation is a generally accepted necessary evil way to fund projects and services for the common good. A progressive tax policy recognises that a person with a high income can bear a greater burden; taxing a minimum wage earner 30% of their income would have a much higher proportional effect on quality of life that someone earning, say, 200k. We seem to accept progressive taxation as fair, in the sense that it causes no more inconvenience to low earners than high earners.
The comparison with a private commercial service is flawed, in the sense that engagement with it is an entirely personal choice.
That's exactly what a lot of people are up in arms about, they get taxed hugely but get no real say in how the money is spent. Sure they get a vote, but if your candidate loses it's not as though you're exempt from paying taxes.
In some way these people are right; if they choose to engage in commerce they aren't being forced to do anything and as such "whatever the market will bear" is a good metric.
Taxes aren't about "whatever the market will bear" though because you don't have a choice to not consume and therefore not pay.
In other words, the state, by upholding the rule of law (particularly property law), is providing the ultra wealthy with a service of far greater value than that which it provides those with lower wealth/income.
Those who are high income in California are generally not wealthy (as opposed to everyone's favorite high income poster boy - the NY hedge fund manager), but are subjects to windfall effect - a few years of work at below market wages in hopes for a giant payback (royalties in Hollywood, stock options of a successful tech startup in the Valley).
It bothers me a bit though. I'd actually rather earn less and things be more affordable. The homeless situation in the city I moved to is truly insane and unsustainable. Tech companies drive up prices. I have a friend who lives in a neighbourhood where all the homes were around $100k when she was a kid; and now the same homes can go anywhere from $500k to nearly a million!
You see some of the average working class taking those big payouts and moving further from the city (and potentially driving more; increasing the traffic problem).
I'd rather earn less, my housing be more affordable and things be more equal for everyone. Supply and demand for housing really drive these crazy swings in gentrification.
Or is it just a commodity that we all utilize and is payed for with a flat rate, regardless of the value/un-value is provides?
Fyi, those sentences in your reasoning are already handled by a hypothetical flat tax percentage. It's the percentage that handles your cases as you stated them. For example, if a flat 15% tax was applied for everyone, the billionaire earning $30 million pays $4500000 in taxes, while the Walmart earning $20k pays $3000.
Mathematically, 4500000 is greater than 3000. In that case, the billionaire has paid more taxes which satisfies your reasoning.
On the other hand, the previous posters were emphasizing "progressive" taxes. That means that the percentages themselves are increased as income increases. Your rationale isn't specific to that. Probably the most common math rationale for progressive taxation is the concept of marginal utility of money[1]. In other words, a billionaire's $1 million of money made between $29 million and $30 million is less significant to him and therefore, can be taxed at a more "progressive" tax rate of 40% instead of 15%. On the other hand, the Walmart employees $1000 from $3000 to $4000 pays for food and rent and is not discretionary play money.
In any case, what I said wouldn't be covered under a flat tax percentage unless that flat tax percentage were on wealth, not income. A person making approximately 20k or less currently pays no income tax, which makes sense, because there's virtually no way they can accumulate any wealth at that income. On the other hand, as you move up each income tier, the amount of wealth you can accumulate goes up progressively. So a progressive tax is a close enough approximation to a flat tax on wealth, which is what I'm arguing makes the most sense.
If you upped the tax to $10k, you'd still only be talking about $2tn, but you'd have huge swathes of the country forced into poverty as they'd be unable to pay it.
You'd need immense corporation taxes in order to make up the shortfall. Currently US business taxes make around 8% of the budget, compared to 36% for income tax. A flat dollar tax is nuts. The rich make their money from the labour of many, many people. They may only personally use the roads the same as others, but the thousands of their employees that need to drive to work need it a thousand times more. Without that, the rich would have no business. Ditto with healthcare. You need your workers healthy and they can't afford healthcare, you pay for it or you soon won't have many workers. $10k does not pay for much healthcare. Blindness to the social costs that are picked up by the government, does not mean that they don't exist.
The rich can pay a bit more and still be rich. They need to pay a bit more or they won't be rich for long, their workers and customers won't exist anymore.
Mind you I'm not a 1%er. Not that that should have any bearing. But indie media have their dead horse they like to climb on and it wears thin.
Some are. Some aren't.
Perhaps the idea that those that earn 28% of the income need to be taxed at 45% is an indictment on California's spending.
https://psmag.com/the-imf-confirms-that-trickle-down-economi... http://www.imf.org/external/pubs/cat/longres.aspx?sk=42986.0
lets call a spade a spade and treat tax like what it is, a protection racket. you are protecting yourself from two things: alien invaders and zombie hoards. health care, food, housing, and, entertainment keep the hoards from destroying your logistics infrastructures and disrupting transportation routes. it also keeps them just alive enough to keep buying what you are selling. defense, police forces, and tough crime laws reduce your risk of having your factories and warehouses bombed or burned to the ground. in short, you are paying for muscle and placation, keeping the peace. (edit: forgot, you are also paying for intellectual property protection, so your inventiveness cant be cloned or repackaged.)
why should the 'rich' pay the majority of the taxes? because it benefits them the most to have low crime healthy consumers. whose problem does it end up being if the 99% are unemployed, homeless, starving, diseased, and unable to consume. whose house slash bunker is going to get broken into, the person with nothing, or the person with years of survival stockpile? why should the 'rich' pay the majority of the taxes? because they are the ones with something to lose (a business, a family, a lifestyle), worth paying to protect.
all that said, im not defending the current tax code or federal government as an efficient or effective way to put that "protection/socialorder" tax to good use.
There's an entire cottage industry in places like Monaco, Panama or St Kitts & Nevis built on rejecting that thesis.
Additionally, is California with its high income tax rates significantly safer and healthier than states with no such tax, like Washington or Nevada?
EDIT: The responses are all assuming the tax is regressive. Note the POVERTY_LEVEL constant in there. And the tax rate itself could be progressive. 0% under 20k (if that's the poverty level), 15% on the next 30k, 25% on the next 50k, etc.
The real problem is the positive feedback loop where money buys political influence, which then results in laws that favor the already-rich at the expense of everyone else. Taxing consumption won't fix that. Taxing political contributions might fix it, but you can't do that because political contributions (a.k.a. bribes) are now protected under the First Amendment thanks to Citizens United. High marginal income tax rates or a wealth tax (or reversing Citizens United) are the only ways to fix the problem AFAICT.
How come? There are entire categories of consumption that open up with significant wealth? Private aviation, yachts, fine arts are all categories with spending heavily concentrated up top - a poor person is unlikely to own a proportional 1/1000th share of a Gulfstream jet or a Picasso.
Also, most jets are not bought by filthy stinking rich people, they are bought by businesses, mainly airlines, which operate on pretty thin margins. If you raised taxes on jets significantly you would probably put a lot of them out of business. If you tried to raise taxes on jets that were disproportionately bought by filthy stinking rich people they'd just go out and buy different jets to avoid the taxes.
On the other hand, if you're poor then just the bare necessities of life will cost a significant fraction of your income.
The only equitable taxation scheme is a progressive income tax and/or a wealth tax.
See this 2009 IFS report for the nuance in the context of UK VAT - in particular figure 10.1 and 10.2 (http://www.ifs.org.uk/budgets/gb2009/09chap10.pdf).
Often VAT regimes will not tax certain basic good such as bread, eggs, or essential household products, but in the UK most goods including many that you may consider basic have 20% VAT.
Someone being taxed say 20% on their consumption when their typical yearly consumption is $1 million has a much smaller impact to their marginal welfare than someone with a typical expenditure of $10k taxed at 10-15%. If someone has an income and consumption of $10k, then you probably don't really want tax them much or anything at all (you probably want to give them money/job/training/something!).
Provided you offset the increased taxation by consumption with increased services and benefits to the poorest, then you can mitigate most of the worst regressive effects.
"Gross income in United States tax law is receipts and gains from all sources" [0] This includes wages, interest, gains etc.
I'd like to see the same data with un-adjusted gross income.
Assuming you're not subject to the naive 'wealth is a pie' fallacy, why are you so bothered about inequality of wealth? As a non-rich person, I don't get it! Questions of power and influence on the folk who sit in government and have really massive sums at their disposal with little ultimate responsibility if they foul up - are much more pertinent but should and can be dealt with separately.
Having a such a small percent pay such a huge share is toxic. I've heard people who pay high taxes say incredibly entitled things about "paying for" things. It destroys a sense of shared investment and purpose.
Clearly the solution has to be to ensure income is more evenly distributed, though I don't know how to do that exactly. Education and learning skills necessary for high paying industries would certainly help, but every time I hear that it feels like kind of a weak solution. That said, I don't really have a better one.
What are some interesting off the wall ideas for reducing income disequilibrium?
The millionaires and billionaires of today are betting that this breaking point won't happen in their lifetimes. They're probably right.
The first step may be realizing that there may not be any disequilibrium per se.
I'm still thinking about it, but I watched "All Watched Over For By Machines Of Loving Grace" by Adam Curtis and it totally appealed to my skepticism fetish about these things. If our models are wrong ( and to some limit, all models are wrong ) , the it's (solopsistic) Hubris to complain that the world is incorrect.
(ObDisclosure: I have a child who did graduate work in ecology and left it in disgust, so I'm extremely biased. I also believe firmly in Adam Smith's "Man of System" to keep myself from thinking I can solve certain problems, as a self-defense mechanism ).
So here's my solopsism on the subject:
- this state of affairs represents our collective revealed preferences to some fraction of 0...1.
- If it is much less than half, then what makes up the rest?
- we have significant policy, legal and outright cultural boilerplate to protect us from this. Why doesn't it work?
- Saying "it's because people cheat" seems to me to abdicate the field. "Double down on the rule-making." But based on what?
- Given the Pareto distribution, what can actually be done? This one scares me but it reeks of mathiniess. But what if it's true?
Maybe we need a rich and operational model of rents, and base all taxation on that. Doesn't seem to even begin to address finance and financialization at all, though.
Having such a small percent _earn_ such a huge share is toxic.
I don't see anything broken, other than a state government that taxes people too much for too little value in return. (Either add value, or tax lower).
Inequality is getting bigger and again reaching historic highs, if you don't see anything broken then your eyes are shut. The only thing that stopped the inequality which occurred around the great depression was WWII and entering into a pseudo-planned economy. So it's a problem that can correct itself, but the outcomes aren't always welcome... or peaceful.
These studies also leave out all of the good jobs created by the 1% and the massive amount of taxes going back into the state from these employees.
If you counted this, they are responsible for nearly all of the taxes.
In truth, we are getting to the time where there will be too many people for the amount of work required by the whole humankind to possibly satisfy its needs. We should all embrace this new reality and think of a way in which people can live without working, or in other word, we should solve the economic problem [0].
It needs to be a huge paradime shift. It also involves some huge technological barriers to be overcome: solving the energy problem, dealing with resource scarcity, etc. But I think if humanity is going to survive another 10,000 years -- we need to see an end to money in general.
In the short term, more automation and guaranteed minimum income are a start. Not everyone needs to work. We should be able to focus more on art and culture rather than polluting the world with more plastic shit.
We already have a population that does not work. As of Mar 2016 there are 16.6 million men age 16 to 65 not disabled not in labor force, and 28.2 million women. (44.8 m total) (from: http://www.bls.gov/webapps/legacy/cpsatab6.htm) A lot of those are probably those who gave up though.
Many though are retired or in school. In 2014 ages 55 to 64, 13.8% were retired. (http://www.bls.gov/opub/btn/volume-4/people-who-are-not-in-t...) (Note I consider home responsibilities as working as you would probably have to hire someone to do those if you didn't do them yourself). In 2014, both genders age 25 to 54, 1,479,000 were retired!
If we did that, we would all pay less taxes (both low income and high income earners).
When you look at health care as an example - the US seems to have a rather inefficient system when compared to single payer (government) in other western countries.
I think we need to give up our dogma (capitalism == good, government == bad) - and look at the objective evidence.
There is no one story for the present apparent concentration fo wealth. We've had capitalism before such that there wasn't a lot of concentration of wealth - and the tax system wasn't always the reason.
I think the reason is economic rents, and rents are specifically not capitalist.
The short version is that capitalism has a moral founding. What we now call capitalism can be pretty amoral, but that's our doing.
I'm hoping that a better understanding of rents can enable us to have a better capitalism. Principally, because I don't much think collectivism can be demonstrated to work, and collectivism is frequently seen as the answer to the excesses of what we call capitalism.
If we see income from rents as less morally defensible than income from work then that's possibly a method for getting closer to what we want. As it is now, they're simply "profit". Rather than taking two binary positions - pro and anti capitalism - perhaps the work that needs to be done is a better critique of it , and a refinement of terminology.
Finally, the ways in which we are unequal are much less ... physical than in the past. Capital itself has become more and more ephemeral, and it may be that returns to what I'd consider "real" capital - think a building full of lathes - is just as low as that to labor. So much inequality is due to the abstraction of control of capital.
https://www.ftb.ca.gov/aboutFTB/Tax_Statistics/Reports/2013/...
They do this even for phones sold in the US. So, it really is US profits being shifted off shore.
Further they negotiated a 2% rate with Ireland and report profit from other countries there as pure accounting magic.
PS: Remember if your getting information from Tax info that the information was adjusted to minimize taxable income.
How much is enough?
We often hear that the wealthy should "pay their fair share." But we rarely hear a concrete figure.
Look. I work 3 jobs and bring in about $200,000 per year. I work hard and diligently for that money. I use it to provide for my wife and kids and our future.
And I paid nearly $60,000 in taxes in 2015.
I don't want to pay any more. I'm fed up with how much of my hard-earned income disappears by way of taxation.
More taxes subtract from my kids' future. More taxes subtract from dates with my wife. More taxes subtract from my retirement when I am old and unable to provide for myself.
How much tax is enough? What, exactly, is my "fair share"?
Everyone likes to demonize the rich 1%, but few concede the reality that we in technology are all rich. Heck, even the poor in the US are rich by the world's standards.
We "rich" people are not all demons whose money is an infinite fountain waiting to be sapped by those without. No: we work hard for that. And we have families. Some of us hold multiple jobs in order to provide for ourselves and our kids.
So I ask, how much is enough? Give a specific tax percentage you think I, as a husband and dad of 2 children, ought to pay to the federal government, and please tell us compellingly why you feel entitled to take my hard-earned money away from me and my wife and kids.
When the top 1% pays for about 50% of the infrastructure, it is time for them to think about seceding. I mean, the top 50% move together, poof they can have something like half of what is provided by the state, without the 99% bothering them anymore.
This is a democracy, so how much ones owes in taxes is decided by the people. As far as seceding is concerned, good luck with that.
I think that the comment you were responding to was suggesting that the tax load should be directly proportional to the income fraction, which I suppose you could make a cogent argument of.
So the idea of 'fairness' is already an artificial construct. It's far easier to make a billion in a society like the US, than say, Vietnam, or Argentina, or Romania. So in a very real way, US billionaires do 'owe' something to the system that allowed them to attain that wealth in the first place (and that 'something' is pretty much 'everything'). If wealth could be attained completely independently of the 'system', then the distribution of billionaires would be completely different than it is right now.
The real question is how does wealth manage to concentrate so highly so quickly and by those who actually contribute so little.
edit: this guy is literally pulling an Atlas Shrugged. If you think you as the owner of the company 'make all of the money', I heartily suggest you try going it alone.
She is obviously glorifying these man, making them the 'hero', but don't we do exactly the same in every other fictional book? It's been a while since I read a book about John and Jane that details their virtuous lives that is not played out, one way or another, on a high level (either starting or becoming a hero etc).
My take from the story was more that these people exist at every level. I remember parts (I might be grossly mistaken here, but this is what I took from it) where Rearden talks about and with his most valued employees, or where Dagny has her valued associates, where the train men that 'stand their ground' are praised. I'm not sure the 'owner makes the money' story is what she wanted to portray, or possibly I just took my biased view and ran with it while reading ;)
CEOs once upon a time made "too much salary" so pay for performance was used. Now this.
Do you really believe the 1% richer would earn so much money without exploiting the work of the 99% others you want them to get rid of? That's ridiculous.
I've had this conversation three times: "What'd it take to get you to move to California?" "More than you have."
So there's that.
For example, you cannot have $2,000,000,000,000,000 in annual income, simply because $2,000,000,000,000,000 do not exist.
>I got it by trading with someone else.
If you examine the transaction in its historical context, there will be a chain of trades going back to a bank loan (or multiple).
You seem fixated on the trade of dollars, while seeming unconcerned about how dollars come to exist.
>The value of the units is directly correlated to the amount of work required to get the units.
Do you have a proof of this? I doubt there is much correlation between "amount of work required" and the value of the units. The FRB has instantiated ~$4,000,000,000 with almost no work required and its dependents have gotten those units, also with very little work required.
Note, Paul Graham was the public face of founding ycombinator.
> it's not as if the money is just sitting there and 1% are taking most of it
Well, the money is just sitting there. Additionally, of all the money that exists, banks effectively take ~10% off-the-top annually through interest privilege, giving them (and their shareholders) a headstart. Everyone else gets to fight from what's left before it gets destroyed in a principal payment.
Suppose I buy $15 of Xynodyne stock and $1 per share. Suppose later it is trading at $2 per share. I have just made $15 without any money being added to the system. I sell my shares. Do I keep money? No! I buy shares in a money market. Leave it there for 3 months, then sell that for shares in Apple. At each step I am wealthier and wealthier. And it is wealth that wasn't sitting there, it was created out of the fact that people price assets differently. And they price them differently because the company is producing something valued more highly by our whole society.
Money doesn't actually enter into the picture. I write a check from my bank account to my broker. My broker settles transactions electronically. I eventually get a transfer from them to my bank, from which I pay my taxes. All of the "money" in this system is a brief record created in one place, destroyed in another.
This is all basic economics of fractional reserve banking. The size of our economy is no more limited by the amount of money that exists than it is by how much gold is in the ground. Money is a medium of exchange, not a measure of value. And the rich got that way in one of three ways, owning something that became valuable, creating value where none existed, and theft.
In general the ones who got really rich through theft did so through political connections (Carlos Slim comes to mind). Successful entrepreneurs like Paul Graham fall in the second bucket. And the first bucket happened historically, for example the Astor family of New York, but isn't so common now.
Parody Level: Poe.
The sort of thing people in the second quintile used to do has evaporated.
I think you can always cherry-pick some real estate deals or angel investments in Google, Inc. that were available to accredited investors and returned superb results, but through survivorship bias skip deals like Las Vegas Monorail, Greek bonds and angel investments in Fab.com and Color.
If you can find a way to consistently outperform the index funds, you can find a way to securitize it and make it available to smaller-tier investors. The fund have "absolute return" or "unconstrained" somewhere in its name and join a long list of funds that were unable to outperform index funds for statistically significant periods of time.
Fixed it for you. It's fair because it works. America didn't become an economic powerhouse through poor income stratification and letting the rich hoard all the money. It grew through investment in the conditions that are conducive to the rich having the tools to build wealth. Those investments didn't happen when the system didn't force it, see the early half of the 20th century. What we are doing now, all of this lunatic libertarianism that goes on in the valley, this has all been tested before with disastrous results.
- there is a huge problem of tax evasion, in the sense that a big portion of the middle-high income professionals declare only a small fraction of their earning
- the health system is public
We could argue for hours about whether it's right or not to increase taxes on the richer, but truth is that there is a natural balance that occurs when the tax rate is so high that people prefer to ask Putin for a citizenship. I believe that with these numbers, California might have a problem.
[citation needed]
http://www.theguardian.com/world/2013/jan/03/putin-grants-ge...
But you might say, well that's only one guy, who cares.
So here's a couple more, but if you just google "the rich flee EU" or similar all will be revealed.
http://www.france24.com/en/20150808-france-wealthy-flee-high...
http://www.thelocal.fr/20141229/france-75-percent-super-tax-...
In a lot of EU countries taxes get rally high really quickly (>50%), but there's not much you're getting back in any kind of service so, no one in the right state of mind is going to pay that, not even the ones setting those taxes.
Need a life saving heart surgery? Sure, in 6-12 months, just wait in line like everybody else irrespective of how much in taxes you paid.
Want you're kid to go to a good school? Well, there's the shit public schools they can go to paid for with your taxes.
Want your kid to go to a good college in another country? Well, the government already took away most of what you earned so bad luck, you don't have enough left to make choices like that, just use the shitty public ones you paid for...
etc.
On top of that, many of those states actively try to make their resides worse off (not taking free federal money for healthcare). People living in those states keep re-electing the same representatives who vote to make them worse of.
As a result of this I've become pretty apathetic politically (yay political tag lines) and in all honestly I stopped carrying what happens in other states. I can't be bother to want things to change there more then people who live there.
Everybody gripes about paying taxes, but I would much happier if a big chunk of that federal tax money (non-mutual goal like defense, treaties etc) that gets redistributed instead ended up in local communities (say 50 mile range). Since a lot of people in the area (NYC) could use a leg up, and it's on our own selfish interest to make them successful.
Data: https://wallethub.com/edu/states-most-least-dependent-on-the... Just look at highest X per $ spend on federal taxes.
http://www.huffingtonpost.com/2014/03/26/republican-states-m...
However it's important to add that state income taxes are deductible on your federal return. While this doesn't entirely offset the imbalance, it does mean that the federal government indirectly subsidizes states with high tax rates (often wealthy+coastal+more to the left politically) in a proportional way.
I'm actually glad that in the US this isn't a charged political issue. My family comes from a place where half the country (by region) hates the other half in part because of this kind of tax redistribution. It's not a pretty way to run a country.
If you're like a middle class family in NYC where two parents work. One person is a cop (detective) the other person is a teacher both with experience you're prob pulling $100k + $80k + overtime in the cop case. Congrats your family is probably paying AMT every year.
[1] http://www.ijreview.com/2014/07/158892-military-pride-states...
And yet after tax one of those super-high earners will still take (way) more money home than people who earn less.