You Can't Soak the Rich
online.wsj.com
online.wsj.com
In other words, the appearance that tax revenue remains flat across the past 57 years of fluctuating top tax rates is a coincidence, to put it nicely, or an accounting fraud, to be a bit more accurate about it.
More details, including corrected charts, are here: http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/...
Perot charts are interesting, more detailed and transparent. They cover areas you are worried about specifically the breakdown of different types of tax. If they are misleading they are transparent (enough) so that at least the user can figure it out. They cover a number of spending and tax issues:
That sounds inconclusive to me.
In other words, on the growth effects of raising top tax rates he is indeed inconclusive. But on the question of whether Hauser is full of crap, he's pretty conclusive.
And the graph is meaningless at best. We'd expect to find a correlation b/w the average tax rate across the board and tax revenue as a percentage of GDP. Plotting just the top tax bracket in an effort to show no correlation is intentionally misleading.
Moreover, top marginal tax rate is an all but irrelevant metric since the ultra-wealthy pay considerably lower due to capital gains.
But now that may be changing:
http://www.marginalrevolution.com/marginalrevolution/2009/02...
[1] Thinking of the Democrats and Republicans as countervaling processes maintaining a homeostatic equilibrium that expresses the electorate's preference for a government that spends 20% of GDP is a good way to rehabilitate yourself if you've picked up the vice of excessive political involvement.
The problem I have with Hauser’s Law is that it doesn’t seem to include state and local taxes, which should raise the bar by quite a lot. Also, why should we look to the nation as a whole? To find out if there’s an upper limit, I think we should look at what state has the highest rate. For that matter, perhaps we should look at foreign countries.
While tax revenues may been fairly stable over the past 50 years, that doesn’t mean we couldn’t generate more if we wanted to.
Posted by edelfenbein at May 21, 2008 10:22 AM
But we don't have that data, so let me hypothesize a situation where this analysis isn't the whole truth. Article states that we take the same revenue whether the rich are taxed at 90% or 30%. Lets say that the left of the graph has 1 person making $1,000,000 in the 90% bracket, and 1000 other people making $50,000 in a 25% bracket. Total tax revenue is $13.4M.
Now at the right of the graph, we have a dip where the top bracket is at 35%, so in the same situation, our revenue should have dropped to $12.8M but was instead stable! Money on trees! Except there is a simple alternative explanation, which is that the bottom tax bracket went from 25% to 26%. Unfortunately, data on this is not supplied by the article.
It should be easy to see that raising taxes will raise tax revenue (not accounting for accounting tricks employed generally by the rich). Plotting a small component against an unqualified whole data set is plain poor research, and the WSJ should be ashamed.
http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-b...
And if increasing taxation lowers GDP doesn't it follow that lowering taxation should increase GDP?
1) Eliminating corporate taxes. Would increase employment, capital spending, and wouldn't leave too much of a dent in tax receipts.
2) Eliminating automatic payroll tax deductions. Have citizens actually write out a check every quarter. Very inefficient, but we'd start to see some major reforms in SS/Medicare as federal legislature starts to get calls from their constituents.
3) Cutting payroll taxes and offset revenue with energy taxes (gasoline and carbon).
Offsetting other taxes with increases in energy taxes is close to the consensus opinion of economists, I think.
So, maybe too extreme for Reddit, but not so far out of the mainstream, perhaps.
Have you actually met any citizens lately? I think you're overestimating the average person's ability to manage their finances. You know that idiot buddy of yours who only takes out $20 at a time from the cash machine so that he won't spend too much? That guy is orders of magnitude brighter than most regular people. Average people have this amazing ability to spend all of their money whenever they have any of it.
So yeah, you and me would know that we needed to keep $60k in savings until April to pay taxes with. Nobody else is capable of doing that math.
But yes, raising tax rates can certainly decrease tax yields. Take one of my closest friends. He's 28 now. He's a college dropout, and self-made millionaire as of age 24. Amazing guy. He was grossing about $800,000/year in his age 24/25/26 years. He was netting out mid/low six figures, and paying $50,000-$150,000 each year in various taxes. Working (no kidding) 80+ hour weeks. Often more.
I've seen people cite the top marginal tax rate as being in the 90% range post WWII. But mobility has increased so much since then. My friend is an incredibly resourceful dude, as you can imagine. He's a good person. America wants him here, or at least should. But if the government now wanted, after writeoffs, interest deduction from taxes, etc, say... $400,000 per year from him - he'd be long gone. There's enough countries where you can get a "welcomed exceptional people" visa by putting enough money in the bank, or a resident's visa by buying a property. Dubai being one such place.
So yeah, he'd be long gone if the government wanted to tax him more. Now, I can't speak to whether that's fair, or right, or if he's neglecting his patriotic duty by not being willing to stick around in the USA even if it wasn't a smart move for him financially. But it's the way it is. He grits his teeth and pays what he has to because he reckons he'll make more money here doing it that way. If that were to change, I reckon I'd be visiting him in Hong Kong, Dubai, or wherever else pretty fast. He and I both travel pretty regularly, and both of us have lived abroad some. Heck, I'd probably leave if taxes got high enough too.
The thing to remember is that, outside of the U.S., most companies of any size are international. And once they're international the main language is probably going to be English because that will be the most accessible middle ground.
Perhaps you're thinking of starting an offshore company, and keeping your money there. Well, you've got to file a special form each year with the IRS for each entity of this sort, as they are known as "Controlled Foreign Corporations." Failure to provide the IRS with this information once again causes you to run afoul of US laws, which once again puts you at risk of punishment from the country that is globally known as "the world's policeman."
You have to remember that you are a citizen of the world's smartest country. They have pretty much thought of everything.
Anyway, as someone that knows quite a few expats and international businesspeople - practically speaking, it doesn't always go down like you say.
And we're not the only country - there's always Bangladesh!
For some reason that reminds me of the phrase "the tighter you squeeze your grip, the more that will slip from your fingers"
E-gads! Now I'm quoting Star Wars!
But really, countries can make all the rules they want. Getting every other country on the planet to enforce quirky U.S. Tax laws is more of a wet dream than reality. It reminds of Thomas Paine, who was put on trial in absentia by authorities in Great Britain who were also tightening their grip. They charged him with libel.
""If, to expose the fraud and imposition of monarchy . . . to promote universal peace, civilization, and commerce, and to break the chains of political superstition, and raise degraded man to his proper rank; if these things be libellous . . . let the name of libeller be engraved on my tomb""
As far as I'm concerned, you can say the thing about "unpatriotic" tax evasion by rich people choosing to move away. This country was founded on a tax revolt, and trying to tax people for leaving what they feel to be an overly burdensome system is the height of bureaucratic arrogance.
As for me, I've never tried to slough off my taxes because I've wanted to show the income to improve credit and be able to get bank loans and show track record later. I was putting the view out that higher taxes could equal lower yields, which is, like, a doubly bad thing. Certainly, the IRS/INS duo means something. An American renouncing and not paying taxes they know about means you really can't come back, which is ugly. If you don't like living here, there's still some really amazing places here worth coming back to every so often. I really root for our government, partially because I live here right now, and partially because of some latent patriotism going on. If taxes went up and yields went down, I'd really be shaking my head.
Anyways, cheers for having the international tax discussion with me, hope everyone can learn a thing or two from it.
We're still the best country in the world, which is plainly evident once you've spent enough time running around the world. Yeah, it's somewhat ridiculous that it costs 45% of your income (and rising) to have a California license plate and a US passport, but there's something enjoyable about the notion of being "too rich to care," which is likely to come into vogue if taxes go up; the highly-taxed wealthy in Sweden and Denmark are examples of what I'm talking about.
>We're still the best country in the world, which is plainly evident once you've spent enough time running around the world.
I've spent a few years out of the U.S. and I strongly disagree. The fact is, I disagree with the idea of a "best country in the world". I think which one is best for you depends on what you want.
Sure, the US is the best country in the world... unless you like democracy, equality, high standard of living, low rate of crime and corruption, universal access to high-quality education and medical care, and civil rights.
The list of countries that score above the US on those metrics is very long, including a healthy chunk of the EU, non-EU European nations and Scandinavian states, and major former British colonies (Canada, Australia).
I'm an American who has "spent enough time running around the world" to see what a farce this is, and I've settled in a non-US country which is, in my opinion, vastly superior in every way but shopping and the costs of setting up a business and the friendliness of waitstaff.
Come out, masked downvoter.
One of the more insightful Overcoming Bias pieces I've read:
http://www.overcomingbias.com/2007/02/politics_is_the.html
"Politics is an extension of war by other means. Arguments are soldiers. Once you know which side you're on, you must support all arguments of that side, and attack all arguments that appear to favor the enemy side; otherwise it's like stabbing your soldiers in the back - providing aid and comfort to the enemy. People who would be level-headed about evenhandedly weighing all sides of an issue in their professional life as scientists, can suddenly turn into slogan-chanting zombies when there's a Blue or Green position on an issue."
[1] Well, actually I'm not convinced setting up a business is that much more expensive if at all. It depends on living expenses. Getting investors is harder, but the trend seems to be going away from investors anyway.
I'm also not convinced on shopping. The selection is obviously better in the U.S. but all the places I've lived in the U.S. seem to have utterly abandoned quality in favor of "cheap". The worst of these for me is the food.
However, if you ever try to move the money to the United States, you're screwed. The moment you transfer the money from Dubai Bank and Trust to Bank of America, you'll owe taxes on it.
So, the easy way to avoid paying taxes is to have the foreign corporation, and make everything you purchase overseas a business expense.
You can, of course, keep a foreign company, file the CFC with the IRS, and keep an accountant on hand to keep the balances separate; there are plenty of people who do this. If done properly, however, it is somewhat of a pain in the ass, and only enjoyable if you're an obsessive-compulsive tax-avoider like John Malone. Remember, life is short, time is money, and money is meaningless once you have enough of it.
I agree whole-heartedly with that- but the bottom line is it does work- you just have to keep everything separate (which is really not that big of a deal).
And the easy to avoid reporting it as a CFC is to not have it be a CFC. If you have a brother/relative from another country, you can each have 50%, and voila! it's not a CFC.
If you would still have to pay after this deduction you can forfeit the $80k deduction and use some other form. I don't know much about the other form, only that it's incredibly complex and changes enough every year that if you live in a foreign country you'll simply have to pay a tax guy to fill it out. I've been making over $100k/year since I left the states (a year after that, actually) and I haven't owed any U.S. taxes yet.
More and more countries are moving towards world-wide taxation, unfortunately.
South Korea?
Actually, they can only do this if you give up your passport for tax purposes. If you have more than $2 million in assets then it is automatically assumed you are giving up the pass for tax reasons, otherwise it shouldn't be a problem.
> In addition, tax information is now shared with INS, so you can be barred entry from the US or end up getting carted off to somewhere you don't want to go if you don't have all of your ducks in a row.
This will be my biggest worry if I end up giving back my passport. Will the border patrol decide that anyone who is "stupid" enough to give up a US passport must be a terrorist? :)
>You have to remember that you are a citizen of the world's smartest country. They have pretty much thought of everything.
I hope this line is joking.
As an American who plans to give up her citizenship at the very first possible moment, that is my fear as well.
Every major country is going to have to spend to stop from falling into complete depression. Taxes will be higher everywhere. And the US will likely get through this crisis better than anywhere else. Having the reserve currency has its benefits after all. I really do not think going somewhere else to avoid higher taxes will make sense in the future.
In the land of the blind, the one-eyed man is king. The dollar does not look good, but compared to the euro or the yen, it looks great. We don't have to worry about losing reserve currency status anytime soon. We just need to figure out what to do with insolvent banks.
http://www.marginalrevolution.com/marginalrevolution/2009/03...
If this were a matter of illiquidity, the massive liquidity the Fed has injected into the system in the last six months would have ended the crisis.
here's more: http://hedgedbet.blogspot.com/2009/03/friedman-toxic-assets-...
If anyone leaves it's going to be France or Germany.
>The dollar does not look good, but compared to the euro or the yen, it looks great.
There are more currencies out there then these. The British pound seems to be down at the moment, but I expect it to recover. The swiss franc isn't looking bad either. Personally I expect the dollar to go down, but there are way too many variables out there to actually bet on it.
Combine that with massive fiscal deficit, and you have a recipe for inflation and dollar devaluation. It's played out exactly this way many times in many parts of the world throughout history.
The 90% tax may well act like a brake on wealth generation, but was only applied at the very highest incomes, not people on mid 6 figures. I bet the elimination of the top rate actually resulted in a large shift of taxation from the rich, to the middle-class, like you and me.
You lose.
The fraction of taxes paid by the upper 1% and 5% have gone up. (Yes, under Bush too.)
This isn't just a Federal phenomena - it happens at the state level too. A huge fraction of CA's income tax comes from a very small number of people. Their income is volatile.
Has some more information. You won't find much commentary today, because the article is nearly a year old. In any case, this is basically just politics, so I flagged it.
I think there is a lesson in pricing strategies here.
The trade of money for goods or services always follows a curve. Whether that is money for governmental services or money for startup services. It's an extremely important concept for strategic market positioning.
The argument of how it applies to government may be political, but the economics are assuredly not.
Increasing price always eventually results in less revenue. Your ability to choose has nothing to do with it. The curve holds even in forced markets.
That's the point I was making. You're asking for an exact match or nothing, which I think is a little bit on the extreme reasoning side. We don't need six degrees of hacker news, but we can't abandon power curves because it might be uncomfortable to talk about them either.
In fact, even the exceptions are interesting here. It turns out you can soak the rich, at least in narrow markets with the right positioning. What you can't do is force a generic product into a high-end market and expect similar returns.
This is all good stuff. Take out the politics and you've got a great discussion about how product positioning affects gross revenue. The item in question is simply a fixed product in a forced market. But heck, we're in that situation now with many monopolies, so it's not like government owns this particular discussion -- it's a generic discussion with government simply as one example.
Someone should be taxing that 40%...
Social security for low-income folks isn't so much a tax as a forced savings plan. For low-income folks, the return is pretty good. For higher-income folks, the return is lousy. For the rich, it's simply not a factor.
Note that the "regression" comes from capping the amount taxed, but the benefits are capped too. If you uncap the amount taxed and uncap the benefits, Ross Perot will be getting >$100k benefits and the system will have even more economic trouble. If you uncap the amount taxed and keep the benefits cap, it becomes yet another welfare program and folks are going to start caring about the 15%.
In the past, SS advocates have argued vehemently against turning it into yet another welfare program and have also opposed uncapped benefits. They argue that both will lead to decreased support for SS.
Are they wrong?
Did you know that everyone who complains about that is ignorant and selfish and should have their taxes doubled for even trying to make the poor poorer?
By the way, it's a lie, everyone pays taxes, 40% just don't pay income taxes which is but one of many taxes we're all required to pay. Implying that they don't pay taxes is despicably intellectually dishonest.
I don't think I am selfish and ignorant for worrying about the incentive effects involved when a majority of the voting public do not pay anything for the programs they vote for.
Of course, I am pretty poor right now myself (Grad school), so your suggestion that my taxes should be doubled doesn't really do a lot.
Don't, the wealthy don't need you to worry about them, they have paid lobbyists to do that for them and they're well taken care of already. You need not fear for the wealthy, they'll be just fine, they always are.
> I can't figure out how that is ignorant or selfish.
It's ignorant because you're concerned about those who need your concern the least, because they've brainwashed you into it by making you think you'll be one of them one day.
It's selfish because you've directed your anger at the poor, those who need help the most, you're complaining about it as if they're the ones who write the rules or control the system; they don't.
Look, there's absolutely nothing wrong with being rich, or wanting to be rich. But it's fucking selfish to point fingers at the poor and say they aren't paying enough.
Frankly, you don't know what poor is, you're in Grad school for Christ's sake, that's not poor.
Poor is shopping in dumpsters for clothes and food because you have no money and no hope of attaining money.
Poor kids don't go to college, many don't finish high school, staying alive is too pressing a concern to be off "wasting time learning" when you're little brother is starving and you could be bouncing store to store buying 1 cent gum with food stamps so you can get 99 cents change to eventually collect up enough to pay the rent so you're not all homeless tomorrow morning.
Poor is collecting rain water in a big tub on the back porch so you can take a bath, and then sharing the water with your siblings one after the next because you don't have indoor plumbing and you've never seen a shower.
Poor is walking 200 feet in snow to go to the bathroom, again because you don't have indoor plumbing and you built an outhouse near the edge of the woods and the distance in necessary to keep the stink away.
This shit happens, here, in America, daily. Poor is an economic status most are born into and never get enough education to realize ways out even exist. You don't fucking know poor, point your accusatory finger elsewhere.
Who said I'm angry at the poor? I'm not. I just think there is a certain intelligent logic in how taxation and representation are rhetorically linked. I also think a majority-rules democratic system where a majority pay $0 in taxes in unsustainable. I think the decisions made in such a system will be stupid and short-sighted, leading to massive deficits, economic collapse, and maybe even political instability in the long run.
Leave your emotions aside for a moment. I am simply trying to discuss what is wise. I am not advocating eating the poor. However, I see that you already have your mind made up and have no desire for discussion.
In addition, you're imputing a ton of motives and positions to me that I did not state. You're in attack dog mode for no reason, and there is no way that I can intelligently engage you if you've already painted me as an evil misanthrope.
The number of people who pay no net taxes in this country is much larger than the number that get their clothes from dumpsters. You're painting a dishonest scenario and smearing me with dishonest motives.
In general I don't enjoy talking to people who think that those who disagree with them are evil. I can say that I didn't enjoy this conversation.
You did when you brought up the "40% don't pay taxes" b.s. line that I'm beyond tired of hearing from conservatives. I've heard it a hundred times and it's always from an angry conservative blaming poor lazy people for stealing their money with tax credits. After you hear a lie enough times you start to get annoyed with the people perpetuating it.
> I also think a majority-rules democratic system where a majority pay $0 in taxes in unsustainable.
Straw man, we have no such system.
> Leave your emotions aside for a moment. I am simply trying to discuss what is wise.
Easily done, what is wise to look not at the poor, but at the well off when looking for sources of revenue. The poor need sympathy, not scorn.
> In addition, you're imputing a ton of motives and positions to me that I did not state.
Then don't use the arguments primarily shared by people that hold those positions.
> there is no way that I can intelligently engage you if you've already painted me as an evil misanthrope
I don't think you're evil; engage me with logic and questions that don't imply blame on the poorest among us.
> The number of people who pay no net taxes in this country is much larger than the number that get their clothes from dumpsters.
I agree, and I didn't claim otherwise. I was disputing your claim that you were somewhat poor, you aren't.
I don't enjoy people attacking people who don't make enough money to pay taxes under our current system. Those people are not the problem with our system and any attempt to put the focus there seems to me a shallow attempt to deny that simple fact.
In Singapore, which has a large number of social programs, many programs have a copay to counter the "buffet mentality" that comes from handing out lots of free goods. Consumption is subsidized, but it is not free. I'd like to see us take a similar approach.
It's hard to call this "science" as we can never really get a control group going as that's politically feasible.
To be fair, the amount of revenue "lost" by these increases is dwarfed by the "stimulus".