40% of Federal income tax revenue comes from the top 1%.
I hear that sentiment a lot, but it doesn't seem right to me. My salary is pretty close to the median plumber's income, and my family's effective tax rate last year came in at... 1.6%. And that's with all retirement account contributions going toward Roth accounts. If we'd chosen to contribute to traditional IRA/401k accounts instead, the EITC and child tax credit would easily turn our tax bill negative.
It might also result in even more spending. I don't think that there is any "natural ceiling" when it comes to willingness of politicians to spend other people's money. The only ceiling is external - how much will the system bear.
I suspect you're using a different definition of "income" than the IRS. What is it?
For one thing, many plumbers do make it to the 1%: Trades are a profitable line of work for the industrious.
But the median 1%’er is paying 3-4X the effective rate of the overall median earner.
You have conflated the tax rate with the tax amount.
Edit: it's an honest question. Maybe the top 1% paying 40% of all income taxes is too much tax. Maybe it's not enough. Without knowing how much of all the income they make it's a meaningless number.
My personal opinion is that income tax should be more progressive, but I know that plenty of smart people disagree on that.
[1] https://taxfoundation.org/data/all/federal/latest-federal-in...
2. Your own link contradicts you. It says explicitly that that site hasn't failed any of their fact checks and doesn't use loaded words that they say are typical of that category. It says the categorization is because the site promotes libertarian policies.
It is also true for many “normal” one percenters. For example there is a service for incorporated anesthesiologists where you tell them where you plan to go on vacation and what dates, and they create a bullshit anesthesiology conference, including the brochure and other artifacts, that meet the letter of the law IRS definitions for a valid business expense. None of this stuff ever hits AGI.
It's a progressive system overall - but it wasn't designed for the purpose of wealth redistribution, hence the payroll tax ceiling.
* More precisely, their monthly benefit at full retirement age increases by 90 cents for each additional dollar of pre-retirement average monthly earnings, whereas yours only increases by 15 cents.
Anyone can borrow money against their stocks, house, or credit card. It's tax-free as well.
> They can do schemes like borrowing against equities and using the tax-free cash for expenses or purchasing other assets.
Um, borrowing money is not "income". You have to pay it back, with interest.
UHNW individuals can borrow until they die. Their assets pass to their heirs with a stepped up cost basis. The heirs can liquidate whatever's needed to pay off the loan and incur no tax.
Normal people can't do this. If I die owing money, my creditors will take it out of my estate before it passes to my heirs. UHNW estates can be structured differently and creditors can accommodate different payment terms (get paid second) because they know the money's there, and it saves taxes.
You can also read: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
I might have gotten some things wrong. Or maybe the poster has.
LOL, the stepped up basis gets hit with the inheritance tax.
> The heirs can liquidate whatever's needed to pay off the loan and incur no tax.
The loan and the interest payments and dont forget the inheritance tax.
> Normal people can't do this.
Yes, they can borrow money, die, the inheritors pay off the loan with the stocks, and then pay estate tax.
I assumed you asked a question to learn something. If you're not interested in learning, please continue believing that everyone gets the same tax system. Otherwise keep reading.
> the stepped up basis gets hit with the inheritance tax.
There's no federal inheritance tax. Only some states have it. You're thinking of the estate tax.
If you read the link I posted: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
it has a fairly detailed explanation of how it's a completely different ballgame above a net worth of $300m. Grantor trusts allow sidestepping estate tax and...
> The loan and the interest payments
"The loan" otherwise known as "income" because that's what it really was. Income that would normally have been derived by selling assets. Obviously it has to be paid back. No one said it's free money. Only that it's (largely) tax-free money.
The interest payments are lower than the income tax would've been on the same amount of income.
> and dont forget the inheritance tax.
You mean estate tax. Explained above.
> Yes, they can borrow money, die, the inheritors pay off the loan with the stocks, and then pay estate tax.
Not in the same way, and not nearly as effectively.
If there are specific inaccuracies with https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26... I'm open to learning.
They're the same as far as this discussion is concerned, as the amount that the beneficiary gets is (roughly) the same.
> "The loan" otherwise known as "income" because that's what it really was
Borrowed money is not "income" in any sense of the word. When I was on summer vacation, I decided to take a class in accounting. One of the most productive uses of my time. I recommend it. P.S. if your business tries to classify borrowed money as "income", that's called fraud.
> If you read the link I posted
I rely on my CPA for tax advice, not the internet, nor do I care much for misusing accounting terms. I've read too many articles that confuse income with revenue, wealth with income, and so on.
The estate's value is reduced by what it owes.
> if your business tries to classify borrowed money as "income"
sigh C'mon man, engage in good faith here. Stop saying things I didn't say.
If you can borrow cash against assets, don't have to pay principle until you die, and only pay low interest payments then it's functionally the same as selling those assets at a low tax rate. That's the principle.
And if you can use trusts to avoid estate taxes then there are no (or very low) taxes due ever.
> I rely on my CPA for tax advice
Ok ask your CPA what they know about using trusts to avoid estate taxes. Maybe it's BS but maybe it's true. Without some curiosity, how will you ever know?
> not the internet
More reputable sources than Reddit indicate it may be possible to use trusts to greatly reduce or eliminate estate tax:
https://privatebank.jpmorgan.com/nam/en/insights/wealth-plan...
https://www.investopedia.com/terms/g/grat.asp
https://www.fidelity.com/learning-center/personal-finance/wh...
So in practice, if "fair" is used in politics the appropriate reading is often as a euphemism for "I think we have the numbers to push this interpretation of the world on people; it'll be good for us".
As for making lives better, Starlink was provided free to disaster victims in N Carolina and the LA fires. Something the government failed at. Enabled by cheap reusable SpaceX rockets, another thing the government failed at. Starlink is very popular, so it must be making peoples' lives better.
Money was funnelled to Elon, he has a knack for getting government contracts. My memory is Tesla was powered by many grants for whoever was willing to work on electrification of society. The issue with that is that people want to put more money under the control of the government, despite it being the entity that funnelled money to Elon. I don't really understand that perspective, it seems a bit crazy - it'll end up with Elon getting more and more power and wealth. If we assume de-powering and de-wealthing Elon is a good, why push more money into the system that is wealthing and powering him? One theme in Elon's companies is they are positioned to hoover up money the US government is wasting and make sure it ends up in Elon's pockets.
Less government spending is more likely to hurt Elon than help him.
Musk also sold those rockets to NASA for 10% of what NASA would otherwise have to pay.
> One theme in Elon's companies is they are positioned to hoover up money the US government is wasting and make sure it ends up in Elon's pockets.
Tell us how that works.
> Less government spending is more likely to hurt Elon than help him.
Are you suggesting that Musk is doing what's right for the country rather than what's right for his fortune?
No he didn't.
> Starlink is very popular, so it must be making peoples' lives better.
So is meth.
I know he's out of favor with a lot of people, but would Elon have created SpaceX or The Boring Co or Neuralink, or helped start OpenAI if he hadn't had the spare billions to do so?
I'd much rather have multi-billionaires investing in the economy, and in the future, than giving additional money to the government.
They very obviously don't make only twice as much money as the bottom 80%, so how is that equal in the slightest?
There are ~300 million people in the US who are not billionaires. If they earn, on average, $4 each that balances out a billionaire by income [0]. Since there are <1,000 US billionaires, the average american income would need to drop back to something around the $4,000 range for billionaires to be out-earning them.
This is why taxes tend to land heavily on the middle class, the billionaires don't control most of the money. If politicians want access to money, the biggest pot isn't the billionaires.
[0] And billionaires don't generally make billions in income because it is a wealth measure.
The suggestion is simply that the top 0.1% pay more - as they will be little affected by it.
Personally, I think that we should tax wealth more in general, and probably make the income tax a bit more progressive (I currently pay 52% which sucks, but if I had to pay a few pp more to get rid of homelessness and poverty in my country then I'd be ok with it).
Everything you tax away from wealthy people is removed from their investments.
For example, if all of Musk's income above $1m were taxed away, the following companies would never have existed:
1. Tesla
2. SpaceX
3. Starlink
4. Neuralink
Or to put it another way, if I make the same claim about millionaires; how do you expect to argue that they will be greatly affected by being taxed more? A 1% tax increase on someone's gross income is never going to "greatly" affect them unless, but if it happens 100 times they will be pennyless.
If you take money away from someone, they will have less money and do less because they have less resources.
If somebody cares about progress and is highly motivated, they should remain highly motivated to create incredible products and services, whether that buys them unchecked power or not. If some people would be less motivated and do less than they do now, it would be a lesser evil that creating oligarchs thirsty to dominate whenever they get the chance. As long as people can live a good and comfortable life, they do not have rights to more than that.
People who argue against progressive taxes tend to ignore the fact that modern capitalism is basically a game, one where the rules greatly favor the richest, who have virtually unlimited leverage compared to the average person. They make money exponentially more easily than others. It is absolutely right to correct this game through appropriate progressive taxes. Every once in a while an adult needs to step in to keep the game fun for everybody, and not just let the best player dominate others and make everybody else miserable. Maybe if we did this, the price gouging and constant turning of the screws would give way to a society where fair trade was the default cultural and economic norm.
Certainly hoarding more wealth than Smaug is a crime of grave injustice against humanity. For the mind completely sold to capitalism, this is impossible to understand. But people come before wealth and power.
If you tax their money away, they have that much less capital to invest.
> It is absolutely right to correct this game through appropriate progressive taxes.
Only if you don't like electric cars, cheap space rockets, cheap global communications, and enabling people with spinal injuries to need a lot less help.
> Certainly hoarding more wealth than Smaug is a crime of grave injustice against humanity. For the mind completely sold to capitalism, this is impossible to understand. But people come before wealth and power.
Nobody hoards wealth. They invest it. Nobody has a Smaug hoard. There are no Scrooge McDuck cash vaults.
I suggest you check out what happened under communism in the Soviet Union, China, Cambodia, Cuba, etc., under communism where people came before wealth and power. Your ideas sound good in a textbook and in the classroom, but they just don't work in the real world.
What sort of things can our society do to ensure that the people who dedicate their lives to eliminating the suffering of so many are compensated for what I'm sure we can agree are absolutely amazing accomplishments?
There are, unfortunately. [0] Though Putin's gold palace did have to be stripped for fungal problems, later.
Musk does go around with a large amount of debt, such as the 13bil he currently owes. So he's less likely to have a prepper vault. That does not mean that human greed doesn't turn to cartoons for inspiration, at times.
Most businesses are funded by taxpayers, either directly or indirectly. Elon Musk is a billionaire because of DOE funding, or there would have been no Tesla today.
By January 2009, Tesla had raised $187 million and delivered 147 cars. Musk had contributed $70 million of his money to the company.
In June 2009, Tesla was approved to receive $465 million in interest-bearing loans from the United States Department of Energy.
I keep here this “the rich should pay more”, but rarely do I hear a number.
By whatever measure works, eg old school gini coefficient or something more modern.
You're right though: food fights over decimal points and gaming the rules nicely obfuscates any constructive debate about what kind of society we want.
And if the Gini coefficient is calculated pre-tax and pre-benefit distribution, it’s not going to change with high taxes and high redistribution (and yes you mentioned it may not be the right measure).
And if the Gini coefficient is calculated based on income data from the US, do we know if the better Gini from 1960’s wasn’t just due to income not being reported to the IRS?
Realpolitik. Proper Nordic levels of (lesser) inequity is not likely in the USA. But selling the nostalgia of our '60s era prosperity might fly.
> if the Gini coefficient is calculated pre-tax
Firstly, then pick a different different metric. Gini coefficient is merely the most familiar.
Secondly, you asked about proper income tax rate. In my pithy reply, I implied outcomes are more important than implementation details, but slap fights (like this one) about those details are used to distract. (I think the kids today call that "bike shedding".)
Also, I did not explicitly state that measures of wealth distribution is the central issue. I regret the omission.
--
While I have your attention: How do you think our tax regime should be structured?
Feel free to link to any prior explanations (posts) I may have missed, so you don't have to repeat yourself.
Corporations are persons, right? Why is their tax rate just half that of real people?
Why aren't all persons taxed equally?
That rent went up over 10% last year. For contrast, the rent control people want to cap rent increases to 7%.