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Two Questions
IRS Bounty Hunters
I saw this article in a leading Swiss Newspaper. Understandably, this story has the bankers in Zurich on edge, again. The banner (Google translation):
Back in 2007 the IRS refined its program to pay for information leading
to a conviction for a tax fraud. The new rules allow for a payment of as
high as 30% of the taxes collect. The story in this paper is about one
case announced recently where an individual was paid $4.5mm after the
IRS collected $20mm from the tax cheater. Of interest to me is that the
guy doing the ratting was also the tax accountant for the cheat.
I pay a bunch in taxes and I hate it. It pisses me off when I (we) end
up paying more because there are folks cheating the system. I’m not at all sure how much anyone should be paying in taxes. My answer is that it’s not zero.
If you put those two thoughts together the notion that the IRS is now
paying big bucks for “tips” is probably not such a bad thing.
That said, I’m troubled by this. The IRS has turned the civilian
population into its enforcement division. Yes, some good may come from
this, but some bad will too. This has a whiff of vigilante-ism to it.
The IRS bounty rules only apply for settlements in excess of $2mm. So
your average, cabdriver, part-time tutor, waiter/bartender etc. need not
worry. I don’t think that will stop people from ratting out some small
fry (friends and neighbors included) who are dipping a bit with the IRS.
It certainly will create a cottage industry of PI’s, accountants,
lawyers who are going to start snooping. A $4 million payday brings lots
of slugs into the open.
I’m interested to read your thoughts. Like I suggested above; I go both ways on this one.
On that Tax Hike for the rich folks
I was looking at some IRS numbers on who pays taxes to the federal
government. This data is from 2008. That was a bad year to look at
incomes/taxes. There was a big drop in income due to the recession and
market crash. But it’s still useful to look at.
If we’re going to raise any significant amount of new revenue it will
have to come from the top 5% of earners. Note that in 2008 the top 5%
was anyone who made over $159k. That number has crept up in the last few
years. For 2012 the top 5% will be any household income that is in
excess of ~$170k. Depending on where you live and how big your family is
that is really not so much these days. But it is greater than the rest of the 95%, so that is where the new taxes will have to fall.
Note in 2008 the top 5% (a) earned 35% of all income, (b) paid $600 billion in taxes, (c) paid 59% of all taxes, and (d) the average tax rate was 21%.
I think the AGI revenue numbers are currently running at ~$9.2T (up 10%
since 2008). Assume that the effective tax rate is about the same. Now
let’s raise the taxes on this group of rich people. How much more
should they pay? How does a 50% increase strike you? Changes in
the tax code to limit deduction AND increase the top bracket that
resulted in an increase from 20% to 30% it would raise an additional
$325billion. With a 1.6 trillion deficit that extra money would come in
handy, but it only covers 20% of that shortfall.
If the tax rate(s) were to be adjusted so that the poor bastards who are
making over $170k get their taxes doubled from 2008 levels it would
still only raise $625b, leaving us with a hole of $1 trillion.
The effective tax rate would have to be raised on the entire top 5% to
75% in order to balance the budget. Put another way; if you were lucky
enough to earn $200k, your take home would only be $50k. And that number
does not include state taxes, property taxes or sales taxes. Basically,
you have nothing left.
If you think that the solution is to raise taxes BIG TIME on the
uber-rich, think again. The top 1% should have about $1.85T in income in
2012. IF we really sock it to them and nailed them at a 90% effective
rate we could cover 1.3T of the 1.6 shortfall. This would imply that the
top 1% would be paying 75% of all taxes collected.
I hope that this shows that raising taxes on wealthy Americans does not
work very well. Yes, we could technically go the route of Sweden and tax
income over $500k at 70% or so. But what might be the consequences?
Question: What should the federal rate on high-income earners be? What
rate would you apply to those making ¼ mil a year or more? ½ mil? A cool
mil?
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Why did it take me so long to find a comment like this? what is happening to this country? especially on this site!!!!!!
i AGREE !!!
most have been brain washed into thinking its in the common good to pay taxes, but they dont make the link to questioning who we pay the money too.
Unfortunately many people are fools for statistics and numbers, they're easily confused and it does not take much to fool them.
If you look at the data above, it appears that the top income earners pay a fair share of income taxes. But nothing could be further from the truth. First, the data does not show what percentage of income is taxed. What the data shows is tax on ADJUSTED GROSS INCOME: there is no telling what amount escapes taxation: 50-300%? The top 1% has no EARNED income. Secondly, the income split points are extremely misleading. For example, the income split for top 1% is stated at only $380,000; however, average income in this group is more than $1.2 million per household, which is by far more representative of this group of tax filers.
Alas, the 23.3% average paid on AGI by the top 1% could likely be less than 10% effective tax. Get it? It does matter how much income is sheltered!
Now if you look at the bottom 50% of taxpayers with income split below $34,000, the average household income of this group is less than $15,400. And I doubt very much that this group can shelter any portion of their income above AGI. This same group is subject to every conceivable tax and payroll tax alone is likely greater than the percentage paid by most in the 1% top bracket.
"I pay a bunch in taxes and I hate it. It pisses me off when I (we) end up paying more because there are folks cheating the system."
Let's see now. How do you differentiate between someone "cheating the system", and a system which systematically cheats everybody?
Sorry Bruce.
I love ya' guy, but you've missed the boat on this one.
How was it possible for the USA to exist for nearly 140 years; become a world power (with Roosevelt's "Big Stick" Navy), all without an individual income tax?
When did we decide it was a good idea for the federal government to simply treat every citizen's earnings like community property and redistribute them as it sees fit?
The problem is that our so-called 'tax system' in this country has become a huge social-engineering tool that punishes anyone who works for a living (i.e., those with 'incomes') for the benefit of those who are poor and don't work (welfare) or those who are rich and don't work (i.e., passive/investment income/tax dodges).
If you're in the bottom half of wage earners, you pay little or nothing in income taxes.
If you're in the top 1% wealthiest, you pay little or nothing in income taxes because you can invest your wealth in tax-free, tax-deferred, or tax-advantaged investments.
Literally, the rich get richer, while the middle-class slides slowly into the abyss.
If we must have an income tax system, let there be a flat rate for all taxpayers on every source of income (whether earnings or investment income) with no deductions. Those with the lowest incomes could receive credits to keep them above the poverty level.
Also, no welfare benefits. If you're unemployed; we'll provide food, shelter and a small stipend for you while you participate in public works projects (God knows our country's infrustructure is crumbling)
Of course, the best solution would be a 'National Sales Tax' or dare I say it; a VAT. That way, responsible citizens who wish to save for their futures can live frugally and pay minimal taxes while those who wish to indulge and consume will bear the brunt of the taxes (and we can eliminate the IRS to boot).
Of course, none of these solutions will ever be implemented because our leaders are far too busy rewarding irresponsible behaviour and subsidizing poverty (so we have plenty of it) to do the right thing...
Look at the chart from the IRS again. The top 1% pay 380 billion. They pay they highest percent (23). This 1% pays 38% of all taxes.
One percent pays 38%. That is a very big bite. I'm not sure you can make that much larger. The wealth will move offshore.
is that 38 percent of all taxes including payroll taxes, sales and local taxes, everything? or just federal income tax?
+ 1 When you run for the government you have my vote
I am with you. But no VAT tax -- sales tax is much better than a VAT. You never know how much you are paying in taxes with a VAT (it gets baked into the price at every level of production). If we are paying taxes, I want it very clear how much is being paid. And a system is in place to collect sales tax. Government likes VAT taxes because it knows taxpayers would revolt if they saw exactly how much in tax they are paying at time of purchase.
Regardless, only support a consumption tax if we get rid of the income tax. Having both will only result in more government spending.
I agree on the transparency issue. I prefer a VAT to income tax, though I don't like VAT due, as you say, to not being able to 'see' the tax you're paying.
I've always felt the solution for USA's fiscal problems is twofold:
1) All citizens are required to pay ALL their taxes (income, sales, property, fuel, utility, etc.) in CASH at a window on April 15th.
2) Election day is April 16th.
Problem solved....
Outside of government subsidized TBTF bankers and many federal employees (nowadays), high incomes usually go to the most productive people of society or those that produce the best products. Even athletes and actors who earn megabucks do so because they provide very popular entertainment. I don't like the thought of taxing the producers, the hard workers, the entrepreneurs who produce true economic value for society. When people talk about taxing "the rich" they are usually thinking of trust fund babies (like the Kennedys), lots of wealth but not really producing anything. Find a way to tax them before taxing high income "workers".
Of course, in the end, the income tax should be abolished and the government should stop spending so much.
This is very true. The sheep fail to understand that even the moderatly weathy do not have an anual salary income that they really care about. But the government loves to ignore those people and attack the low hanging fruit of the productive members because all the have to do is click a button and with hold more taxes, knowing that the people can't just leave their jobs.
According to the chart I am in the top 25% and yet don't even make enough money to qualify for a loan (with zero debt) on a single family house within 20 miles of Washington DC. How about location based tax brackets ? :) j/k
The chart posted does not account for the 8% (realistically 16% because the more elastic part of the equasion is labor) paid by wage earners under 100K but not over. Nor does it show the effect of sales and state taxes which are generally applied flatly and as such have a exponentially higher effect on the low wage earners.
Federal "income tax" is simply a weath redistro scheme, but it makes up the minority of the taxes in this country, the rest are leveled right at the heads of the under and middle classes.
"Tax cheats", just like "speculators", is mostly a dog and pony show to move attention away from the real problems. (Spending.)
If the majority of the population of a country doesn't really share and support the values and approaches of their government anymore, no law and enforcement can uphold them in the longer term. So ask yourself what that uneasy feeling on those procedures tells you about your position relative to government course of action...
Whistleblower rewards should be offered for all income levels or preferably none. Happy to have IRS crank up audit rates, but don't like having every American on the lookout for potential cheats.
Had my first ever IRS audit this year - presumably due to cash charitable contributions. IRS will be sending me a check as a result of the audit - that did not work out so well for them.
Big question is whether those who make 20% of the income should pay more than 38% of the federal income taxes?
And whether those who make 47% of the income should pay more than 0% of the federal income taxes?
Not inclined to widen that imbalance further.
First, the Qui Tam acts as well as IRS whistleblower suits are absolutely, positively necessary and steps in the right direction to continue enforcement in a deleveraging world. Simply put, it's how you actually get enforcement... if we cannot rely upon our regulators due to regulatory capture and what not, then this is a perfect way to ensure compliance.
Second, to some degree, professionals who see tax evasion are probably constrained to report it. In other words, as an attorney, if you uncover tax evasion through discovery and your client is planning on blowing the whistle, then can you ethically beat them to the punch? If I uncovered something like this, I would fully expect my client to sue me in the event I blew the whistle.
Last, if we're to the point where we are raising the marginal tax rate to 70%, then why don't we quit beating around the bush and just confiscate wealth? If we want to get back to some semblance of capitalism, isn't confiscation going to be necessary to level the playing field so that the 95% of us aren't one legged men in an ass kicking competition? Obviously this would be a short term, at least, capital drain, but conceptually it would at least prepare the field for planting...
tax brackets have not changed in decades. it's time for a 66% bracket for anyone making 1million a year or more. simple .
cheat the system?
..unless the system are cheaters (parasites) themselves
How is the IRS dealing with GE 'big profits no taxes' Brucie?
Pleased this whistleblower system only works on people above $2m... it doesn't work at all on people over $2bn though!!
My Question To Readers
Based on what we now know, do you think that ANY new tax laws would be applied evenly throughout the system?
That the people with power and influence, and all the lobbyists would suddenly say, "ok lets go home, its all settled now."
Really?
No - when GE makes record profits but pays not 1 dime in Taxes; when Timmy G. can skip out on his bill and blame it on a software glitch; when Charlie Wrangle (the guy that WROTE 1/2 of the 70,000 page IRS code) skips on his taxes because he didn't know he should report rental income as income.
Do we need bounty hunters??? Yes, to go after these criminals listed above - to go after your neighbor, no.
The ONLY way to rectify the corrupt tax system that we currently have is to implement the Fair Tax - until then, Laws and Taxes are for Peons and Peasants.
GE paid no taxes on 2010 record profits because the law allows businesses to carry forward prior year record losses (in 2008 and 2009) to subsequent years. The concept of that law seems reasonable. I do not know how much GE has or has not paid in taxes over say the past 10 years.
It is similar for individuals who can use prior year capital losses to offset current year capital gains.
Geithner and Wrangle there is no answer for.
Will join you in the Fair Tax march......
Bruce, here are my thoughts on snitch awards: The government is stealing from us to begin with. My son was caught tailgaiting here in Switzerland. In the office they demanded to know his bank account balances so that they could determine the wealth dependent fine. Luckily??? for him he is a poor truck driver, so his fine was *only* chf1200. Kanton, community and city all added on their "processing fee" of about chf100 each. The bureaucrats are parasites feeding on the rest of us. Any talk about "fair tax" load is ridiculout. The concept that somehow "tax competition" between states or countries is "bad" is a ridiculous lie propagated by these same parasite burocrats. Bruce please, please, please get on the right side of this.
Totally pointless to fix the tax code when the entire financial sector is still a growing cancer.
Bruce, only an idiot would suggest that raising taxes on the top 5% is the ONLY thing that needs to be done. A financial transaction tax is also needed. HF manager fees also need to be taxes at the top rate, instead of a measly 15%. Cut the military budget in half and end two stupid wars and let's see where we are.
I find it interesting that no one wants to pay taxes but everyone wants to cry about paying them.
As an eternal outsider, I suggest the following:
One year with all REVENUE (corporate as well as personal income) being recieved by the 'Guvenment' who will pay all business and personal expenses, applying the balance to the common debt of all US citizens whether they be real 'persons' or corporate 'persons'.
This would give all a respite from the tax holiday of the last thirty years and a 'fun' event that each would enjoy immensely.
Just a thought to lighten a truly ugly people's bad time----oldman
Half of workers pay nothing but payroll taxes. That's the part that chaps my ass.
I have a feeling half of all workers earn nothing but their pay, so what exactly is that they should be paying taxes on? The lint in their pockets? The poor have always paid a higher percentage of their meager earnings as taxes than the richest.
Its funny how we say "we can't tax the rich too much, they need as much money as possible to create jobs and companies", but we say "you can't let poor people have too much money, it robs them of ambition".
There will always be a lot more poor than rich, after all rich only means you have more than everyone else, if everyone else has more, than everyone is poor, because no one has too much. Without the poor there are no rich.
So yeah let's raise taxes on the poor, cause god knows there are so many more of them than us.
dude... im thinking if the .gov would end subsidies and tax us all the same % and not bail out all their deluded self worshiping political friends... in short we all are citizen x
.
i dont care the rate... it will always change with war, famine, catastrophe, hopes, world power national priorities.
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media/tax/law/war manipulation is the worst its ever been in this nation... way 2 many future victims...
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these guys thot empire was about something other than culture, science, literature, military, ideas, and trust in the empire... democracy is demagoguery and the US empire hires mercenaries
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tax battles are just a popular rebranding of corruption
The problem Bruce is not with individuals pr se, it's with corporations who pay little or no tax due to accounting gimmicks and "bought" legislation for their particular special interest. GE is just one example. Flat tax of 20 %; still allow depreciation but nothing else. It would never pass because of our corruptocrats, but it's a thought.
This would eliminate the need to scam the system, and would destroy the accounting sector; but after the Arthur Andersen debacle (which showed that accounting firms are more corrupt than rating agencies) it might be the right thing to do.
Where do corporations get the money to pay their taxes? (hint: it doesn't fly out of the CEO's ass)
Corporate income taxes should be zero.
http://community.timebanks.org/findtimebanks.php
Please feel free to become a enemy of the State. As for us we choose to serve each other. We are actively finding members. Like women who quit there job to care for ailing parents who need a few hours away to go to Church or tutor children with needs at many levels. My Home has served as a safe haven for abused to seek futher help no matter what the issue was. A man needed money to get to a job interview. The focus got to really he needed a quart of oil. He got a quart oil and a smile and a wish of good luck. The focus is the seal in the forehead. My Senator knows my address if they wish to incarcerate us on a few topics. Children please understand the Hour you do live in. Do understand service to each other. Our University got a 100 million dollars from a unknown donar at WMU. The university is establishing the WMU School of Medicine in partnership with Bronson Methodist Hospital and Borgess Medical Center and as a private school that seeks no public funding.
One of my children who are all treated as any under my roof the same was acepted by whatever. One day I will acount for my failings of which I have many. It will not be to Man. To the cheerfull and usefull idiots daylight is burning, wake up. Are we not warned to shake the dust from our feet for such actions? Yes I have my Corporate job and some of them are confused. The gatekeeper in any government really should understand acountabilty since I could spend it better I feel.
http://www.youtube.com/watch?v=8iyDZBAFxKE&feature=watch_response
Bruce, I'm kinda surprised that you buy into the notion that simply raising taxes brings in more revenue. Surely it would choke off a large part of the economy in the long run. There is no free lunch.
15% flat tax on all income and capital gains.
quantitative easing tax
Reform the tax code?
That's like arguing over the radio station while the car is going 90 mph towards the Grand Canyon. They won't stop spending, so the amount of tax revenue is irrelevant.
Stock up.
Exactly. Reform the illegal income tax?
I think I would stop working long before I started paying an effective rate in excess of 50%, and while a few people might say that is a good thing, the 8 or so people who make a living off the wealth I currently generate and spend might have pause to think otherwise as their income started to dry up. This "sock it to the rich" crap is truly counter-productive.
As for "dirty money," the net effect of this kind of BS is that it is getting harder for law-abiding US citizens to open any bank accounts abroad. The net effect of that is that the pool of US expats I have seen in Europe is dwindling, and one can only surmise that the ability of US persons to influence foreign firms to invest in the US and buy American is dwindling along with their numbers. Yep, we will have closed all those black-money accounts and gathered a little more revenue, and that is good since it will be needed to offset the further decline of the US economy due to stupid fiscal policy.
The eight people who generate the wealth that you give them a portion of, you mean.
Or do you pay people to live off the wealth that you generate? That seems kind of dumb on your part, if noble.
You're confusing "doing the work" but having no clue, with "having the idea" to that product/improvement/service and usually working hard to make it bedome real. Or why don't these 8 cut out the middleman?
It must be pointed out, for the millionth time, that higher tax rates in the upper brackets do NOT raise more revenue, and usually raise less revenue; those brackets simply shift income to nontaxable areas, (kind of like non-taxpaying GE). Furthermore, Hauser's law, which is that federal tax revenues are limited to 19% of GDP, remains in force.
Flat tax with no deductions is far more efficient. When Russia dropped its tax rate from 50% to a 13% flat tax, revenues more than doubled.
Better yet is a sales tax, "fair tax", which doesn't distort economic behavior.
"When Russia dropped its tax rate from 50% to a 13% flat tax, revenues more than doubled."
When was this, before or after their COLLAPSE? I spent some time in Russia, you sure you want to hold them up as an example? Better pull your head out of your ass, the Russians know hell.
You will never eliminate the deficit by raising taxes. Politicians will just spend more.
Also, my guess is that the rich people that everyone wants to tax are mainly baby-boomers in their peak earning years and nearing retirement. In some states, the federal+state tax rates are already approaching 50%. If you raise them more, these people will be tempted to retire early. Why should someone work if 70% of income is taken by the government? So you could see a group of people who are currently paying most of the income taxes suddenly decide to quit and pay nothing.
The only way to reduce the deficit in the long term is to cut spending.
I am John Galt.
Nice to see you around, Captain.
"You will never eliminate the deficit by raising taxes. Politicians will just spend more."
You mean like what Reagan did? Because that is exactly what happened.
Reagan was a politician too. He lowered tax rates on the upper income levels, and tax revenues increased. But he spent money even faster.
I don't really think that either party is really serious about balancing the budget. Neither one is proposing things that might actually work like a balanced budget amendment or a presidential line item veto. So I think that Uncle Sam will continue to spend like a drunken sailor as long as people are willing to buy Treasuries. At some point interest rates will become too high (look at Greece) and then Uncle Sam will fire up the printing press. I fully expect to see people paying $50 for a Big Mac in a decade or two.
I'm certainly not an expert, but seems like you are being a little loose with the numbers. If the top tax bracket was raised to 90% then the people who make just over $375,000/year would hardly have any additional taxes whereas someone who makes closer to infinity would have an effective tax of closer to 90%, right? Isn't that how progressive taxes work or am I missing something here?
I'm not taking a side on the issue here, only looking for intellectual honesty.
You're right. The point is when do these rates finish off incentive. If I earned $250,000, and all income above that was taxed at 90%, I'd be negotiating for raises in terms of time off, not more income. And certainly small business owners who need to invest their own money to raise their take, won't risk capital spending to earn 10% of the upside.
A better tax is a VAT. Rich would pay more, but at least it would be voluntary. And it would do good for the environment. Certain things can be exempted from VAT,like food, to protect the poor.
You're right. The point is when do these rates finish off incentive. If I earned $250,000, and all income above that was taxed at 90%, I'd be negotiating for raises in terms of time off, not more income. And certainly small business owners who need to invest their own money to raise their take, won't risk capital spending to earn 10% of the upside.
A better tax is a VAT. Rich would pay more, but at least it would be voluntary. And it would do good for the environment. Certain things can be exempted from VAT,like food, to protect the poor.
Sweden probably has a higher quality of life and isn't run by a Criminal Class. So it might not be so bad.
"The IRS has turned the civilian population into its enforcement division."
This trend is worrisome, but if you think about, almost all crime is reported by civilians.
Flat tax, zero deductions on everyone is best, IMO. In progressive land, I'd add more bands to the high-end of the spectrum. Over 500k taxed at 40%, over 1mil taxed at 42.5%, over 1.5m 45%, over 2m 50% etc. expiring in 2015.