For the first time on record, the 400 wealthiest Americans paid a lower tax rate

link [0]: https://news.ycombinator.com/item?id=21176705

It's well known that despite the high marginal tax rates of the past, very few people ever paid those. Deductions abound that have since been eliminated.

What you should really look at is real effective tax rates by income level.[1] What you'll find is that the top 1% make 19% of all income, but pay 37% of all taxes, with an average tax rate of 27%.

The bottom 50% earn 11% of all income, but only pay 3% of all taxes, for an effective rate of 3.73%.

[1]https://taxfoundation.org/top-1-percent-tax-rate/

If we're talking about historical taxes why are we looking at tax rates and not taxes paid? Taxes paid by percentage income would be a huge improvement, and absolute taxes seems like an essential number for this conversation.

I'm stunned when I see things like this associated with major universities and newspapers.

edit: The y-axis also goes from 10-70% instead of 0-100%. So both axes are suspicious and the numbers being presented are known for their inaccuracy.

I would really like (not intended at HN, it's a general crisis in my life) to read more articles about politics that are neutral and factually oriented. It seems like 90% of the political content I read twists facts and build cheap, cherry-picked arguments to push for their opinions without any scientifical / logical humility (Discussing hypotheses, advancing honest counter arguments...). I am yet to find political writers / journalists raising questions without already knowing the answers to them. Real thinking instead of outrage porn (as another commenter wrote ; I like that expression)

• Capital gains are not inflation-indexed, which is one reason to have a lower rate. Consider three individuals:

* Person A earned $100,000 working at BigCo in 2019

* Person B sold shares in 2019 that were purchased in 2017, for a (LTCG) gain of $100,000

* Person C sold shares in 2019 that were purchased in 1965, for a (LTCG) gain of $100,000

There's essentially no inflation to account for in cases A and B, since all of the relevant transactions happened relatively recently. But what about Person C? The real value of her investment has not increased by $100,000 — it's much less than that because of inflation. So one argument for a lower capital gains rate is to be fairer to people who have held investments a long time.

• Investments are more mobile than wage earners. This is just a fact about the world: I can invest in a different country more easily than I can move to a different country, which leads to "tax competition" for investment income moreso than for wage income. However, this doesn't mean much in the US, where we tax worldwide income (so it doesn't matter where you earn investment income, for the most part).

• Capital gains is "double taxation". It is true that if you tax capital, that is likely post-tax money. That is, it was earned at some time in the past and tax was paid at that time.

There is a notable exception, however: basis step-up at death (inherited assets don't trigger capital gains when passed to heirs. If the total estate is under the current limit, I believe around $10M, then no tax would be paid at all). There are other tax preferences like the primary residence $500k exemption, qualified small business stock exclusion (look it up, startup founders!) that allow people to realize lots of gains without paying any/full tax. There are also less-sexy things like muni bonds.

And let's not forget, taxes are extremely high on everyone. The US Govt spends 38% of all US GDP, currently (recently above 40%!). https://tradingeconomics.com/united-states/government-spendi...

And that's not even including 2nd order effects. When you go to spend it, your costs are much higher because part of what you're paying is someone else's really high tax rates. IE: the plumber has to charge you 300$/hr instead of just 200$/hr.

And lower income earners pay a larger portion of their income to payroll taxes than the highest income earners.

No it wasn’t. Is there even one historical example of someone paying 70% of their income as tax in 1950? Or was that simply the maximum theoretical income tax rate? That was just the maximum. Nobody paid that so it’s meaningless to compare these two numbers.

This looks like another confirmation-bias article to me.

The US already has a very progressive system. The aim here appears to be: increase govt spending. Okay, the only way to do that (looking at other countries that have high shares of govt spending to GDP) is to reduce, not increase, the progressiveness of the tax system.

The quantum of "taxes were higher in the past" is utterly wrong. They were marginally higher in the past but not by much (the big step change was JFK, then Reagan, then back up through Clinton)...how does the author even think govt gets paid for? Revenues are not swinging wildly all over the place.

If you are worried about middle-class income growth, it is worth asking how their income growth has been so low given that a huge chunk of people pay no tax at all and the middle-class pay substantially less than almost anywhere else. That is the truly concerning thing about progressive tax systems, how do you pay for stuff when most people don't pay tax? And the political response to taxation is always: "someone else will pay for my stuff...someone else!!!".

A global minimum corporation tax rate of 25% is ludicrous. I remember talking to a fund manager who talked regularly to Peter Oppenheimer about Apple's offshore cash...the solution, according to the genius Peter, was just for all the countries in the world to just make their tax systems equal to the US...easy...and then the problem would be solved. What is extraordinary about the charlatanism of the article is that the author actually thinks this view is logical. Apple just believed it so they didn't have to pay tax...but this is apparently someone's logical view...2019

Tangent: the US has gone way down the path of "economics and politics as objective science"...this has led to a host of people battering other people with apparently "logical" but totally impractical "solutions". Common-sense thinking and understanding history (i.e. what people have actually done in similar situations) is useful info that would help here.

Perhaps the book plays some games with what constitute a "tax rate?" For example, if you spend double your income on consumption (not uncommon for low income people, especially those who benefit from programs like EITC and SNAP) and then pay sales tax, you could squint really hard and say that a 10% state sales tax is effectively a 20% income tax. But that's crazy; this number would keep going up the more wealth transfer happens.

Almost half of my salary goes to taxes every paycheck. That’s almost $150,000 I literally never get to see just taken away.

Also financial penalties should be percentages of wealth, not fixed dollar amounts (perhaps with a floor). E.g. fine for littering is 1% wealth.

I believe the linked data is from before the tax cuts. However, politics/social justice/etc all aside, it makes sense to me systematically that tax cuts affect the rich more than others. Wouldn't the groups paying the most be adjusted the most when a change occurs?

[1] https://taxfoundation.org/summary-latest-federal-income-tax-...

Buying stock on the market is not investing a company, unless the company gets the cash it’s not a capital investment. Buying and selling stock regardless of how long it’s held is not a capital investment. Also the selling of stock should be subject to state sales tax.

The simple fact that your home isn’t consider a capital investment, but a boat is a capital investment is proof that it’s just a tax dodge for the rich.

You can privilege your children with a private education, tuition, etc. You can't leave them any of your wealth.

If your kids are under 18 when you die, then they can receive a dividend but at 18 that ends. Your spouse should be able to take care of themselves, and not rely on your wealth.

No need for any other taxes whatsoever. Am I missing something?

The data in this NYT article comes from research by the same authors as the above paper, which shows the top 1% having maximum effective tax rate over the years of around 45%? Confusing to say the least what is the difference.

That's a great footnote! I had thought of this several years ago and found a paper detailing the finances of the Confederacy, and boy were they ugly! The Civil War could have been won without a land war at all! It would have gone bankrupt either way. It couldn't issue debt and its farming citizens were selling crops to the government at inflated prices, which it was hoping to use and sell. The blockade prevented the selling, and it had limited use.

When I think about it, the union which won learned to resort to sanctions almost exclusively.

They do pay, however, vastly more than you do.

The various governments have somehow managed to brainwash the masses into comparing rates instead of actual amount paid.

Very neat trick of you ask me.

Secondly, rich people often create network of companies where on company is pending to friend's company and some other friends company is lending to your company - using this, you improve credit score of whole network and you can lend harder public money. Then you can simply use it as leverage, this is creating money from thin air.

> However, despite these high marginal rates, the top 1 percent of taxpayers in the 1950s only paid about 42 percent of their income in taxes.

Today the 1% pay a little over 36% of their income to taxes.

1. https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/

Thus, the wealthy should pay more for that protection. In fact, most of what the government does is protect the wealthy from the poor within its borders.

They can open a company, declare expenses and claim a low salary, thet can put the money offshore or on Switzerland, and all those tax-avoiding schemas that are not doable by the common citizen.

I thought those rates referred to income made above different cut offs, not the overall amount of money made...

I could be persuaded to agree to a tax system that doesn't distinguish between any forms of income, as long as the first 50K was tax-free for everyone and steep progressive taxation after that, whether it's earned or unearned income. A bar set such as my 50K example to acknowledge that basic food/shelter only requires so much if you're willing to migrate, and everyone is treated the same- including the wealthy. They don't need more than 50K a year either, they're human too.

No matter how it's done (I won't argue details with anyone because that's not my point here)- the tax burden shouldn't be on the working class. It should be on the investment class.

Ultimately we'll likely need more worldwide government to track and tax these individuals fairly to eliminate tax scams like the Caymans. Without that I doubt any policy matters. Step one to that is publicly funding elections so those same people don't control our governments.

The default and only tax-avoidance policy needs to be the same one that applies to the working class. If you don't like taxes, stop making money.

The corporate tax hits everyone, and it hasn't "plummeted", it was reduced all at once in one year, to a still extremely high level (from my Canadian perspective).

They go to all this effort to make a case that the effective rates paid by people with extremely high incomes are often slightly lower than those paid by people with still-very-high incomes... then they blame the marginal rate!

This article is a mess, the juxtaposition of excellent, valid observations, and contradictory filler is astonishing.

> In 2016, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid roughly $538 billion, or 37.3 percent of all income taxes, while the bottom 90 percent paid about $440 billion, or 30.5 percent of all income taxes.

So all those political ads are now finally true. I guess that's something.

A country shouldn't tax the things it would like to encourage. In this case, that companies re-invest and not pull the funds out to pay investors.

Capital gains tax should probably be mentioned. Why is it a much lower rate than income tax? Why not talk about that?

Strange also that the article doesn't really target one specific part of the tax code - they don't mention any loopholes at all. If they'd like to see a change, name exploits.

The article is outrage porn - not trying to inform, or make a specific change. It's simply trying to get clicks and shares.

It's really a shame to see the new york times go this route.

[0]: https://en.wikipedia.org/wiki/Tax_incidence

The total income of the top 400 is just 1.3% of total income, so the tax rate on these people is largely irrelevant. The top 1%, who make 20% of all income, do indeed pay higher tax rates than everyone else. Any smaller grouping (billionaires, people making $10 million a year) comprise too small a fraction of the tax base for it to matter. Hell, you could tax the wealth of the top 400 at 100% and it would just pay for a single year of Medicare for All.

Articles like this are political cover for the upper middle class, to shield the fact that the real reason we don’t have European-style social services is that the American middle class pays vastly lower taxes. American corporate taxes and top bracket income taxes are in line with that of countries like Canada, Germany, etc. https://taxfoundation.org/sources-of-government-revenue-oecd... Until the Trump tax cuts, the actual effective corporate tax rate was higher than those countries. For example, New Zealand’s been a media darling recently on the left. But it’s got a 33% top income tax bracket, a lower corporate tax rate than California even after the Trump tax cuts, and no capital gains taxes. What it does have is a significant GST and a top income tax bracket that kicks in at $70,000.

The article paints this narrative about what’s happened since the 70% top tax brackets of the 1940s. That narrative is incorrect, because it ignores that the tax base was narrower. (Many things like corporate expense accounts were not taxed.) In fact the top effective bracket has been remarkably stable at around 40%.

It is also misleading by omission. It dismisses, without any citation, the notion that tax reform has had any effect on economic growth. In fact, the whole developed world has broadened the tax base while cutting rates, especially for businesses. While it’s hard to establish causation, Europe in the 1970s and 1980s, before Reaganism, Thatcherism, and Merkelism, was a lot less economically competitive than it is today. Canada did the same exact thing, under both liberal and conservative administrations. (Trudeau, another media darling, presides over a country with a 33% top income tax bracket and a 16.5% capital gains tax rate).

There is a proven model for how to get the kind of society the New York Times evidently wants. Look to Europe. Deregulate, cut corporate taxes, and make the middle class pay for its own benefits through high sales and social insurance taxes.

People with more resources can hire more professional tax advisers and structure their businesses and returns in more optimal ways than people with less resources.

How much taxes should people pay? If rich people pay should pay more, does that mean more dollars or more %? If they should, can we make them? If we can, will that incentivize them to leave? if they leave, is that a net benefit globally even if it hurts america? is globalization a positive thing, economically? if it is, is there a concurrent reduction in cultural diversity? if there is, is that bad?

do we even need _any_ taxes besides sales tax? how should taxes even be accomplished? queue discussion about big/small government, libertarians vs dems vs reps.

im not even trying. thousands of questions about any small subset of this topic. its almost not even worth talking about in anything less than a doctoral defense, if thats even a big enough stage.

(spoiler: growth tax)

- Wages $4M (Min $38K, Max $375K, Mean $179K) (Excludes FICA and 401(k) contributions.)

- Total income $4.3M (Min $39K, Max $377K, Mean $195K)

- AGI $4.3M (Min $38K, Max $377K, Mean $194K)

- Taxable income $3.4M (Min $26K, Max $325K, Mean $156K)

- Tax $742K (Min $3.8K, Max $81K, Mean $34K)

- Overall effective tax rate (tax/AGI) is 17.4% (Min 5.5%, Max 23%)

Marginal tax bracket has been as low as 15% and as high as 33%. Some specific years:

- In my lowest income year, I had total income of $39K (AGI $38K) and paid $3.8K in taxes (10%).

- In my highest income year, I had total income of $378K (AGI $377K) and paid $81K in taxes (21.6%)

- In my highest tax year, I had total income of $341K (AGI $341K) and paid $76K in taxes (22.3%).

- One year I had total income of $151K (AGI $146K) and paid $14K in taxes (10%).

- Another year I had total income of $127K (AGI $117K) and paid $6.4K in taxes (5.5%).

Married filing jointly for all years. Spouse has had no income since 2000. Two kids since 2003. Since 2004 I've lived in a state which currently has a flat income tax of 5.5%. With SALT, mortgage interest, and charitable contributions, I've itemized every year. Last year it barely made sense to itemize, and this year I'll probably be right on the itemize line again.

Including SALT, I estimate my total effective tax rate at around 30% most years. I'd have to do some math to figure out how much sales and other non-SALT taxes are as a percentage of income.

I'm a tech worker with a CS degree. I've been lucky with my career. One startup I joined circa 2000 made it to an IPO and was acquired by an F100. Another startup I joined was acquired by a public company which itself was acquired by an F100. Salary a few years into my career has been in the $125K - $200K range and bolstered by ISOs, ESPP, and RSUs.

We're fortunate we can accord to put our kids through college. I expect to spend about $150-$200K total for both in a state school.

Tangent:

I would pay more in taxes for a stronger social safety net. Retirement is more than a decade off, but I'm counting on Social Security for 25-50% of our retirement income, and Medicare for health insurance. We'll do fine in retirement, but in retrospect, I wish I had been saving even more each year. Having SS tax uncapped (no wage base) in return for higher payout is a tradeoff I'd make. I don't see any reason to tie SS to wages and not total income (include capital gains and dividends).

In general, I think there's too much reliance on the stock market for retirement. The mishmash of retirement plans we have in the U.S. is crazy. The 401(k) only came about due to some Kodak executives lobbying for a special exemption in the tax code. The deduction limits are arbitrary (why does a 401(k) allow almost 4x the deduction of an IRA). Expecting your average person to save for their own retirement is a lot to ask. My parents certainly never figured it out (both still working in their 70s). "How to save for retirement" wasn't a course I had in school. Even if (say) you're diligent enough to set aside 25% of your income each year into a target retirement fund and retire at 65, how well you do in retirement is still up to the whims of the stock market and how smartly you invested. Because most people don't have significant earnings till later in their careers, compounding isn't as valuable individually as it is collectively. And yet, corporations and governments haven't been reliable guarantors of retirement pensions. I don't really have an answer.

[1] According to https://www.nytimes.com/interactive/2019/08/12/upshot/are-yo... if I set the threshold to top 10%.

That would seem to be a violation of the fourteenth amendment (https://en.wikipedia.org/wiki/Equal_Protection_Clause) The clause, which took effect in 1868, provides "nor shall any State [...] deny to any person within its jurisdiction the equal protection of the laws".

Edit: I don't understand the objections to my comment. If you have a problem with the data behind that chart, that's not my problem.

If you object to the usage of the word socialist - that's a common usage, don't be so pedantic.

In the end when this sort of mentality is allowed to win out, what it leads to is the dissolution of those valuable services these “rich” people provide which made them their wealth in the first place. It’s unfortunate that only AFTER their dissolution, the original proponents of this mentality are the ones that suffer and realize their short sightedness.