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The Tax Rate Fallacy
When anyone starts lecturing you that the US has the highest tax rate in the industrialized world, just turn around, walk away, and pretend you never heard of them. This person is either ignorant about this country’s taxation system, or is deliberately trying to deceive or mislead you.
According to a report released by the Internal Revenue Service, America’s tax collection agency, the top 400 individual tax returns filed in 2009 reported an average gross income of $358 million each. The average amount of tax paid by these individuals came to under 17%, less than half the maximum Federal rate of 35%, which kicks in on annual income over $372,950 (click here for the 2009 tax tables at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf ). This explains why Warren Buffet pays a much lower tax rate than his secretary. It really is true that in America, only the poor people pay taxes.
Look at any international comparison of taxes to GDP, and one can always find the United States at the bottom of the table. Low American taxes is one of the main reasons why I moved my company here from England 15 years ago. Take a look at the Fortune 500, where one third of the largest companies pay no tax at all, and many that dominate the top of the list, like the oil majors, pay only token amounts. However, if any politician wants to pander to voters during election time on a tax cutting platform he will only bluster on about “tax rates”, not actual taxes paid.
What the US has that other countries lack is the 100,000 pages of the Internal Revenue Code. It is a 97 year accumulation of deductions, accelerated depreciation rates, tax credits, and other tax breaks that are the end product of intensive lobbying efforts and bribes by special interest groups, corporations, unions, and even religious groups. Take a look at the oil industry again. The oil depletion allowance permits drillers to deduct a substantial portion of the cost of a new well in the first year (click here for its fascinating history at http://www.spartacus.schoolnet.co.uk/JFKoildepletion.htm ). When I first got into the oil and gas business a decade ago, after reading the relevant sections of the tax code, I couldn’t understand why everyone wasn’t drilling for Texas tea.
I have a very simple solution to the country’s budget deficit problem. Hit the reset button. Eliminate the Internal Revenue Code. Just set it on fire. Keep the existing progressive, hockey stick tax rates on income, but eliminate all deductions. And I mean everything; deductions for dependents, home mortgage interest, medical expenses, the works. There are no sacred cows. My revised Form 1040 would have only three lines on it:
Income
Tax Rate
Tax Due
The budget deficit would disappear overnight. Government spending would shrink dramatically, because you could ditch most of the 100,000 who work for the IRS. Some 1.3 million auditors and CPA’s would have to hit the road in search of new work too. The amount of money that is wasted on tax collection in this country is truly staggering. This is not some pie in the sky concept. This is how taxation already works in most countries, and they seem to get along just fine.
In fact, the whole scheme might even pay for itself.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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You've stated a case for correlation, but I think you've fallen short of causation... Meaning, if the united states is the ONLY place in the world to obtain said growth, then you get to call a lot more shots than, say, when it's not remotely the only place in the world to obtain viable, real growth. You also have to compare the relative regulatory environments, political environments, general mood, nationalism, world affairs... the list is substantial, if not practically infinite.
Needless to say, I absolutely dispute the notion that returning to that level of taxation will necessarily create ANY real growth in the united states or otherwise help curb outsourcing in america's present situation. There is no magic pill and it will take us decades, if not centuries, to reclaim our crown... if ever.
All you've done is shown that in very particular circumstances, individuals will brave high tax rates to produce. What you have to do to sell me on the concept is tell me exactly how that applies to our present predicament. I look forward to your response.
Whether in our present depression, or at any other time, I would suggest that business be taxed based not on revenue but investment rates. JFK, for instance, had the earned investment tax credit such that firms creating new plant/equipment or doing R&D would be taxed very lightly, as opposed to those posting purely financial capital gains; his Interest Equalization Tax was aimed at taxing capital flows leaving the U.S. if they rose to levels that jeopardized domestic re-investment simply to get higher foreign returns/but foreign assets. In short, taxation based on the use of savings/retained earnings rather than quantity - we should certainly have something like the Tobin Tax, which would place only a moderate fee on firms doing int'l business in real goods, services, investments but which would be prohibitive to mere arbitragers.
What the fuck does this have to do with your previous statement... and the questions presented in my post?
I would go one step further - just make the tax rate 20% flat above incomes of 30,000. Zero tax for "poverty" incomes below 30,000. yes "povert" was no a typo - the Fed's contribution over the past 70 years has been to reduce the value of the currency such that people are fooled.
Also - get rid of the Fed and have the Treasury be the issuer of all money. Accountable to the people to grow the nmonetary base at a constat 2% per year - end of story . More useless phucks can hit the road and learn plumbing .
Just make it flat period. It's a percentage afterall.
Um. Hate to be the harbinger of bad news. But, under what scenario do we get to inflate at 2% per year in perpetuity? You might as well make it 500%... you're only dickering with the time for collapse by making it less.
Shhh. Most people on Wall Street don't even have the math skills to know that fixed percentage growth at any rate is ultimately exponential and impossible.
I've discussed this with numerous Wall Street friends and none of them understand it. Seriously. None of them. Terrifying really....
I learned this shit in either first or second grade (seriously). I thought this was pretty common... you try and find a sucker (or you are the sucker) and for his or her prize should he or she win the wager, you'll pay $20... but, if you win, the "sucker" has to pay you the value of $.01 doubling every day for a whole month. [you should also learn the "bird in the hand" lesson as well].
I guess we lost our common sense somewhere along the road to financial engineering. I'm thinking we need to send out a search team.
WOW! The specter of potentiality rises once more. There are fewer examples of the state of affairs more worthy of examination than the tax code of the United States. (Renders the process in Greece and Zimbabwe workable by comparison) MHFT, take this example and apply it across the board to all regulatory schemes as you suggest with the tax code. Replace the whole sorry mess with a true blue, black & white system and we would reestablish the rule of law with vigor, place tons more folks out of worthless, mind numbing pursuit and refocus the energy of the nation on the actual creation of dynamic alchemy rather than the circle jerk of interaction of corporatism & government action so ably suggested by yourself. After observing the creation of much of this running debacle, many of those whose energies were channeled by such nonsense as the great society have also concluded that attempting to foster dynamic change within a corrupted system is an epic waste of time. Hearst Avenue/Bancroft Way in Berkeley meets Market Street in The City.
Cheers!
http://www.youtube.com/watch?v=7xNnRBksvOU
http://www.youtube.com/watch?v=sm1Jyusyoqk
I got charted an extra 5k this year for FBT of a car that I get that is included as my work company car. This is getting beyond a joke.
No wonder julian assange is releasing this stuff about the government and bank.... i say do it more....I found this site and had my say....
With all the stuff about wikileaks, Should Wikileaks Founder Release More Secrets?
http://www.forecastfortomorrow.com/news/2010/12/wikileaks-website
So much stupidity, so little time. If Buffet pays only 17%, it is because he gives a huge portion of his income to his "charitable" foundation. No other way.If it isn't too much trouble, you might want to look at the ACTUAL data before writing a piece like this. The top earners are the only group that pays a high percentage of their income in taxes. And when top tax rates have been in the 70-90% realm, the govt has actually collected a smaller percentage and less tax revenue overall. Only the billionaires will work in a country that takes most to all of their income in taxes.