How to Get Taxed 87% in America | Hacker News Reader

How to Get Taxed 87% in America

smartmoney.com

23 pointsedj18 comments

This seems to be fairly arbitrarily double-counting all sorts of things. Taxes are levied at pretty much any transaction, so of course if you bundle multiple transactions, you get higher supposed rates. You could take it as high as you want with this accounting approach. Say you invest your money in a company, which earns profit, and pays corporate income taxes, then it reinvests that money for 10 years in a row, earns a profit each year, on which it pays income tax each year, then pays it to you in dividends. Then you reinvest that money in another company, and repeat. Then after some time, you use that money to buy some equipment, paying sales tax on it, and use that equipment to earn money, paying taxes on that income, which you then use to buy cigarettes. Oh my, you've paid about 99% tax at this point! That's the nature of taxes levied on transactions: if you run money through arbitrarily many transactions, it gets taxed at a rate arbitrarily close to 100%.

Mostly though it just seems like a content-free anti-tax whine. Is this really HN material? Is HN now the libertarian anti-reddit, purveyor of embarrassingly superficial economic analysis with strong political content massaging the viewpoints of its audience?

Well I don't know about you but as a New-Yorker who earns half a million a year, has millions invested in profitable companies and "reinvests" the dividends in a debilitating cigarette habit this article speaks to me on many levels.

But do you end up with just 13% of that half mill tho? I doubt it.

> Is this really HN material?

No, it isn't, it's ignorant drivel. As you said, the money isn't being double taxed and it's deceptive to pretend so.

But think of how many more iPads your startup could have if only you didn't have to pay taxes. Sure, you'd have no roads to drive on and someone would just steal the iPads from you at gunpoint... but at least the government would be out of your business, leaving you with plenty of time to do God's work: creating a startup to share cat pictures with your coworkers.

(Sorry, this is how I view the HN collective when taxes come up. Cue reply from tptacek in 3.. 2.. 1..)

I don't think the problem is HN's collective view on taxes per se. It's the general black and white nature that refuses to see reality in shades of grey, which in turn causes that. For a community that so frequently pats itself on the back for being intelligent, you rarely see a nuanced discussion of anything. Taxes aren't all good, so therefore they must be all bad. Ditto intellectual property, Microsoft, etc.

I wish there was a month here where everyone had to argue the opposite point. It'd at least be a blast.

But... HN has nuanced discussions pretty frequently. Right now the top comments in this thread primarily serve to point out the blinkered view taken by the article. HNers love proving people wrong like nothing else, and until that stops being true I don't think this site will really succumb to groupthink. (I admit that groupthink seems like it's become much more common recently -- and, like you? I've particularly noticed it regarding IP/DRM -- but I still generally see the "minority opinion" surfacing when it's actually reasonable.)

All that said, I do think that HNers are way too quick to upvote comments that happen to support their previously-held beliefs even when those comments are extraordinarily lacking in nuance (see: the score on your post). But I don't think that's ever gonna change.

Vacuous and self satisfied appeals to intelligent and nuanced analysis of this kind is something I wish I'd see less of in these discussions. Few libertarians are anarcho-capitalists; they want a state and thus have to accept some taxes. They just want them to be very low and, usually, to be able to enjoy other things that are perfectly reasonable to want to enjoy (pot/cheap foreign labour/excellent foreign labour/raw milk cheeses FDA does not permit/exotic medical treatments). Imagine a thousand square kilometres of California with a laissez faire system akin to that of Dubai. Hackers who want more money (or access to foreign talent, cheap foreign labour etc.) would move there. They would make it apparent that most of the taxes they used to pay, while perhaps used for good in a general utilitarian sense (a point I only concede for the sake of brevity), was not used for their good. Does wanting to move to such a place show a lack of nuance or intelligence on their part?

http://en.wikipedia.org/wiki/Free_market_roads

Do you hear of lots of robberies in malls?

> Oh my, you've paid about 99% tax at this point!

I know you were trying to be sarcastic, but you actually made a pretty good point. A small marginal increase in taxation has a drag effect that multiplies exponentially over time.

That's an interesting point. I'd actually kind of like to see a tax analysis with a dynamical-system sort of bent. It seems like that must exist? If you view the economy as a highly circular network of cash flows, then different taxation policies are basically inserting different amounts of drag or siphoning into different parts of the system. Then when that same money gets spent by the government, it's being reinserted somewhere else in the same system. All rates are "100%" or "0%" in the long run, in that any dollar inserted into the network will eventually be taken as tax, and then eventually disgorged back into the non-government economy (assuming connected components/etc.). So it seems some other way of analyzing the effects is needed.

Except that's not really how it works. If you reinvest your $500,000 income into stocks and they make a profit, you're getting taxed on the extra profit, since you're actually earning in excess of the original $500,000.

You're right, the multiplier effect doesn't apply if you simply park your money. It will affect you indirectly, however, if you assume that it lowers your expected rate of return (fewer transactions in the free market = fewer opportunities for profit).

It also increases the profit you must make to simply break even over inflation. For example, if inflation halves the value of $500,000 over twenty years, the IRS will still consider your $500,001th dollar "profit," even though you aren't making any real profit until your $1,000,001th dollar.

Yep. It's also interesting that some transactions are taxed, and some are not. Some types are taxed at higher rates than others, etc. And despite living in a world (at least speaking of the US) where the IRS has all these explicit rules about how to tax various transactions, and they get all kinds of reports sent to them by all those financial institutions in order to double-check that everything is reported correctly, we still have a world where people can engage in cash transactions, and there is really no effective way to track and enforce taxes on cash transactions. Not in the general case.

This confuses marginal tax for effective tax. If you move to NYC and make $500k, your marginal tax will be pretty high (~48% between Federal, State, and Local, 1.45% for Medicare, a little over 1% for SS due to the cap at ~100k.) So your marginal tax rate is around 50% (high, but still a far cry from 87%). His blurb about dividends makes no sense at all because they don't get taxed when you buy the shares, only when you receive income, meaning they don't increase your marginal tax when you're already in the top bracket.

But even after all that your effective tax rate something like 6% lower. So you're paying about half of 87%, and you're in the highest earning 0.5% of the nation. And that is, of course, all assuming no deductions, which is also unrealistic.

I also find it amusing when people call inheritance tax a double-tax and yet they don't call income tax a double-tax.

Essentially, all money is taxed multiple times as it flows through the economy. If inheritance tax is a double-tax then by the same standards all taxes are like an infinity-tax.

One way of looking at it is like this:

Government siphons off taxes at multiple points within the lifecycle of any given unit of money (a dollar, a penny, whatever). Businesses also siphon off money in the form of profits (ideally) and costs (unavoidably, unless outright theft was used to procure input resources, etc.). Basically, money gets fractionally siphoned off and redirected into other streams. If the money is siphoned off by a business under the label of profit, the Republican Party (a US thing) treats it as a good thing. Instead, if the money is siphoned off by a government under the label of taxes, Repubs tend to call it a bad thing. Unless the government hands it over to the military-industrial complex, or to oil companies, or to the rich, then it's no longer a bad thing, from what I can tell, looking at their track record.

"Move to New York City and make $500,000" -- Ok where do I sign up?

Become an investment banker and work 100 hour weeks for 10 years. Total investment: your teens, your twenties, half of your thirties, and your self-respect. Probably 5-10 years off the other end of your life as well... That's the easy method, easy due to our government pumping the financial industry full of cheap money via low interest rates, but I digress...

Then there's option two: Become a brain surgeon and work 100 hour weeks for 20 years. Pray your future pay isn't cut in half by future government regulations or nationalizations of your profession. Total investment: your teens, twenties, thirties, maybe your early forties if you didn't fast track. After your third wife you may wonder if it was all worth it...

Option three, become a startup founder and work 100 hour weeks for 5 years.... and hope you get lucky. If you don't, try again.

Or become a software engineer and work 40 hour weeks. After 3-4 years, make over $100k and realize even that's far more than you need... pity the people who strive for $500k, because life is too short. Admire and salute their noble sacrifices. :)

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