The Rich Do Pay Higher Taxes Than You
bloomberg.com
bloomberg.com
"Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. The New York Times column describing the Saez-Zucman estimates reports that last year this group had a 23% combined federal, state and local tax rate.
In fact, the jury is still out on that number, which is based on a forecast of what income might have been last year. (The data for 2018 aren’t in. If you filed for an extension, your taxes for 2018 aren’t due until next week.) Even if it turns out to be correct, it doesn’t follow that the U.S. system is not progressive."
Basically saying "sure, by their metric they're right, but whatever, so there. I win!!"
The data they used wasn’t actual data.
And most of the piece is spent arguing against something somewhere between an aside and a strawman, then towards the end they admit as much(!), but have nothing substantial to add.
Whether your gut agrees with the "message", rhetorically it's just really awful.
Another thing that jumped out to me is why the top 400? Why not 500? Why not 100? 400 is an odd number to choose.
We know the very top earners tend to be cases of windfalls. You sell your company, you offload all your shares, you sell a ton of land. Those can have odd tax implications.
My guess is that they cherry picked the top 400 because it supported their conclusion. And the tax rates were a 1-off event that doesn’t normally happen.
And doing a study where you look at the top 400 because "Forbes has a list of 400" makes zero sense.
Hack job!
And it's an academic study. Who cares what Forbes does?
Meanwhile, Warren Buffet pays his taxes at the same effective rate as his secretary.
Nothing about it is misleading.
You might argue, "That'll dissuade investment!", but when $17 trillion in negative yield bonds [1] (a third of the bond market) are communicating, "Hey there, not a lot of investment dollars needed kthx", that argument falls flat. Your investment dollars aren't needed. There is nowhere productive for them to go. So why have public policy treat their income differently?
[1] https://www.bloomberg.com/graphics/negative-yield-bonds/
1. shift earned income into capital gains (e.g., private equity carry, small business earnings into equity vs salary)
2. defer taxes (401k, mortgage deductions, 1031 exchanges on real estate, etc)
3. avoid taxes (shift jurisdictions)
4. get accountants, lawyers, and lobbyists to figure out additional ways to lower tax burden
I'm not saying the government is efficient or that 100-200k incomes should be taxed more, I'm just saying that's the game as it stands. Tax expenditures are the ways the government gives (rebates?) money back, mostly to the wealthy.
But now if you tax the hell out of that vehicle, then it limits the ability to move oneself up even further.
Everyone talks like it is only the rich that invest. This just isn't true.
I get paid and pay 20% then 40% on the rest (banded)... Then as soon as I buy practically anything I'm taxed another 20% on top of that.
A corporation pays 19% and then those profiting from that owe 7/32/38% (depending on their total income).
As you said:
She's paid a salary while he's living off capital gains and they're taxed at separate rates.
Except that his statement was already true before accounting for those things.
> According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available.
> When assessing the total tax burden facing different U.S. households, looking at federal, state and local taxes is instructive. The federal system is more progressive than state and local systems, but combining them — as the Institute on Taxation and Economic Policy has done — doesn’t change the story: the higher your income, the greater your tax burden. Harvard economist and top Obama adviser Jason Furman confirms this by combining federal taxes and transfers with state and local taxes.
“Income before transfers and taxes consists of market income plus social insurance benefits (including benefits from Social Security, Medicare, unemployment insurance, and workers’ compensation).
Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs.”
That’s exactly the arbitrary definitions used to distort what’s going on. I am not saying it’s inaccurate data based on defines used, but all choices are subject to spin. Choices like using 6.2% or 12.4% for Social Security tax rates make a huge difference, and really should be included in these discussions.
PS: Progressive also implies the top 0.1%, and 0.0001% also have higher effective tax rates not just an arbitrary top bucket of say 1%. Using words like ‘top’ is again arbitrary.
PPS: Anyway, do you have a link for that report your referencing?
Ya, I can certainly see the case that you don't want to include those numbers. However, I don't think excluding them changes the rank ordering of who pays higher rates. Those sorts of transfers will only be salient for the bottom 20%, and excluding them doesn't get them anywhere near what the top 20% or the top 1% pay.
> PS: Progressive also implies the top 0.1%, and 0.0001% also have higher effective tax rates not just an arbitrary top bucket of say 1%. Using words like ‘top’ is again arbitrary.
I'm sure you can find a few instances in the continuum where a wealthier person or small group pays less than a poorer person or small group. But I don't think that justifies the claim that our system is not progressive. Broadly speaking, for significantly sized buckets of people, our system is quite progressive.
That isn't to say we shouldn't try to address the issue that prevents the 0.00001% from paying the same rate or higher as the top 1%. We should. But I don't think it is the sort of existential issue that people seem to want to frame it as, and I really don't think it justifies the conclusion that our system is not progressive.
> PPS: Anyway, do you have a link for that report your referencing?
I'm just referencing the CBO report:
https://www.cbo.gov/system/files/2019-07/55413-CBO-distribut...
Similarly, including or excluding donations, inheritance, and home sales from income can really change these numbers. I have seen analysis that says are system is progressive, regressive, and flat based on different definitions.
Honestly, that’s what I find most interesting about the system. The collision of a huge number of different interests result in a system that can be perceived mathematically different based on viewpoint. It’s like watching a magic trick in action.
PS: One of the most extreme divergent analysis focused on the sales and sin taxes paid by a group of homeless drunks. It varies by area but with 40+% percent alcohol taxes they where paying a rather shocking effective tax rate when you exclude benefits.
https://www.cbo.gov/system/files/2019-07/55413-CBO-distribut...
I can't find the word "effective" in there. It just quotes the tax rates.
EDIT: I see what you are trying to say now. And the answer is no, it quotes the effective rate.
Maybe the top do officially pay 33%, but if they're able to get that number down to 16%, then their effective tax rate is 16%.
EDIT: It does define everything at the end. Total income in this context does include capital gains.
Note, the truly rich would consider anyone (no matter how much they make) as a poor wage slave if their primary source of income was wage based.
Source: https://www.cbo.gov/system/files/2019-07/55413-CBO-distribut...
ctrl+f "Definitions"
If Buffett's secretary pays $20k in taxes, and Buffett pays $21k, is that fair because he's still paying more?
How much lower can his tax rate go versus his secretary's rate before it's unacceptable?
I think all income, regardless of source, should be taxed at a flat rate. It's how it works for tithing in a lot of churches, and it's a very simple but effective system.
If you optimize for simplicity, but at some greater cost to having a society that functions for all its citizens and residents, is it worth focusing on simplicity?
As Buffett points out, they don't. Buffett's is lower, because capital gains are privileged with a substantially lower rate, because the mega-wealthy largely benefit there.
The higher you go in income, the greater the proportion goes to things like retirement, investments, entertainment, etc. Millionaires (i.e., earning > $1M/year) paying 15% don't worry about eating well or enough, or being cold at night or losing their job because their car breaks down, or even whether they can pay for college for their kids.
This is why flat taxes are regressive, and if you propose a bottom line exemption (e.g., < $20k/year pays no tax, or less tax), it's not a flat tax anymore, it's a progressive tax, and we're just haggling over the details.
plus, the wealthy have benefited more from the system so it’s fair for them to pay more for it. no rich person is mortally worried about their lives if their marginal tax rate goes up to 50%, whereas that would be perilous for the poor.
The author does not directly address the low rate for capital gains.
Also, there are two ideas which are easily confused: 1) Do the rich pay more in taxes? Yes. The number of dollars Warren Buffet pays in taxes each year is more than his secratary. 2) Do the rich pay taxes at a higher percentage of their income? This article indicates the answer to this question is also yes. However because capital gains are taxed at such a low rate, and because of other loopholes, Warren Buffet's percentage tax rate is lower than his secretary's percentage tax rate.
Also, people with a high net worth do not have to sell stocks which have gained every single year. Maybe they sold some stocks a few years ago, and they are spending the cash. In the author's analysis, a high net worth individual with no ordinary income and no capital gains for this year would not be included in this analysis at all, because they had almost no income last year (probabaly a little interest and dividends, but nothing else).
Imagine if you only had to pay income tax on the money you had left over after paying all your living expenses. That's the deal corporations get.
A lot of large corporations get their net income down to zero or next to zero, deliberately pushing their business strategies to bolster their stock price rather than net revenue. In those cases, capital gains tax is the only tax paid on their activities, and the advantage of capital gains tax rates vs ordinary income rates is by no means collapsed.
Let alone the true facts, ie how the rich actually pay themselves (not just in taxable income), etc.
To really make a difference in taxation, you need to have the ability to change the character of your income. If you run a tightly held corporation, you can (with some limits) reduce your salary but compensate by paying a dividend, turning more of your income into capital gains. If you run a low employee count company, you can move your income into employer paid 401k contributions, deferring taxes, etc.
"According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available.
This is half of the story. When assessing the progressivity of the U.S. federal system, it makes sense to look at both taxes and the means-tested transfer payments — Medicaid, food stamps and Supplemental Security Income — that those taxes fund."
It is in fact one third of the story. It appears the author is conflating federal income taxes with overall federal taxes - specifically, the truly regressive payroll tax is ignored, yet the payments from this tax are counted in the opposite direction. This is just plain bad accounting, and a common enough bit of misunderstanding that Strain should have directly addressed it.
Partisan anti-tax activists don't mention the payroll tax, but for the very wealthy it is a pittance, versus a serious burden for the working poor. I think the income cap for payroll taxes is something like $150k: all income beyond that is completely untaxed. For people with 7-figure incomes, it is downright regressive. As someone trying to present a more intellectually serious case than Grover Norquist, Strain should do better, and not let readers like myself wonder if he's lying to them.
And I thought this "question" deserved a lot more than one line, considering the issue of untaxed capital gains is the primary reason why left-liberals (correctly) assert the US has a regressive tax system:
"How to account for unrealized capital gains when determining income?"
In fact, phrasing this as a "gee whiz, what a difficult but ultimately technical question" makes me wonder about the author's intentions. This is the same author who, in 2008 while doing research for the Fed, wrote a shameless and factually ungrounded article supporting the payday loan industry: https://www.responsiblelending.org/sites/default/files/nodes... It is worth noting that this is not a "he got the facts wrong" problem so much as "there is no excuse for getting these facts wrong." He has been a New Right Intellectual for quite some time and I am not very impressed.
I am guessing there is a lot of motivated reasoning in here versus outright dishonesty. But either way this Bloomberg article is bad, insulting to the reader, and the ways that they are bad are easily predictable from this author's career.
plus, would you argue that payroll tax is a tax on the employee or the shareholder, whos paying it? is it a cost of employing someone, or the cost of being employed?
Additionally, what in the world does it have to do with the OP?
Bloomberg is a relatively moderate news source with a strong track record.
It is relevant to the OP because it gives an idea of how reliable other articles from the same source might be.
> with a strong track record.
This is what they are disputing.
The burden is on Bloomberg to provide evidence. They didn’t mention this as a rumor or opinion but acted as if they have evidence proving their statements.
In fact, the person they used for their article later said that he was misquoted and even he didn’t believe it is the case: (Source: https://risky.biz/RB517_feature/)
Nobody found any evidence in any actual shipping hardware to prove any thing that Bloomberg has said.
As the result, nobody should trust anything Bloomberg says because they are basically making stuff up with no actual proof.
There was a lot of fear I gearing about what might be possible, no evidence of it actually being done.
A more terrifying possibility than “Bloomberg made it all up” is that the hack is so big and deep that anyone with access to the evidence is already on the take and deliberately hiding it.
There has been zero corroborating evidence found for the article. Bloomberg themselves has offered no corroboration either. At this point it's safe to assume it's false. Beyond that, it's like asking: "prove that the Sasquatch doesn't exist".