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Visualizing America's Tax Inequality, The Wealthiest 11,000 People, And Why Obama's Campaign Promises Mean 77%-91% Taxes For The Richest

Tyler Durden's picture




 

Now that healthcare "reform|takeover" has passed, Obama is rightfully shifting his attention on tax "reform|takeover" for the very simple reason that America is getting bankrupter by the day, and at some point even our ever so patient creditors will say 'enough'. We take this opportunity to disclose the massive pain that lies in store for those who are currently benefiting the most from the endless stock market rally, of course assuming the president keeps his #1 campaign promise (which is a vast assumption). As the charts below demonstrate, American society is currently stratified beyond repair. In this vein, the Tax Policy Center calculates, that for a return to economic normalcy, or deficits at a "mere" 2% of GDP, households earnings more than $200/250k would see their tax rates going up to a stunning 91%. If the economic underperformance target is reduced to more palatable deficits at 3% of GDP, then the top earners would be hit with "only" 77% taxes.

A summary of the details:

  • 40% of US households make below $36,000
  • 60% make below $57,000
  • 80% make below $91,750
  • 95% making below $165k
  • 98% making less than $250,000
  • 99.99% make less than $5 million and 0.01% make more than $5 million (with a very special category for those making over $1.5 billion: "Hedge Fund Managers")
  • 1% of society makes 17.3% of the income,
  • The average income in the top 0.01%, or 11,000 households, is $35,473,200, and a minimum of $8,579,000
  • The average income in the the next 99,000 households, or 99.9%-99.99% of the population makes an average $4,699,500, and a minimum of $1,532,400
  • The average income in the next 451,000 households, or 99.5%-99.9% of the population makes and average $1,206,200, and a minimum of $482,400
  • The average income in the next 564,000 households, or 99$-99.5% of the population makes and average $269,800, and a minimum of $126,300
  • ...and so forth.

Here are the charts that capture the stratification of America, and its new "nobility" class, courtesy of Visualizing Economics:

First - the peasants, and the clergy:

Next, the nobility:

And, a little bit more, on those who, unless they manage to stop Obama from following through on his plans, are about to be taxed between 77% and 91%.

Here is the reason why those in the above chart should be very worried. From the Tax Policy Center of the Urban Institute and Brookings Institution:

In August 2009, the Congressional Budget Office (CBO) projected that the federal budget deficit would total $7.1 trillion over the 2010-2019 decade—under current law. That outcome would require the 2001 and 2003 tax cuts to sunset as scheduled in 2011 and Congress to stop “patching” the alternative minimum tax to minimize its bite. If neither of those things happens, CBO says the cumulative deficit over the decade would jump to $11.1 trillion, more than doubling the national debt. Our economy cannot sustain that rate of debt increase. How can we reverse it? This paper poses a simple question: could incremental reforms of the current tax system raise enough revenue to reduce the deficit to an average of 2 percent of GDP over the last five years of the budget window?

Here are Brookings' observations as pertains to both US social strata and Obama's chief campaign promise to not touch taxes on those earning less than $200k (single) and $250K (married):

Raise tax rates proportionately on single taxpayers with income over $200,000 and married couples filing jointly with income over $250,000. This policy would impose tax increases only on those taxpayers targeted by President Obama during the 2008 presidential election for tax increases under the expiration of the 2001 and 2003 tax cuts.

We model a proportional increase in tax rates for taxpayers for whom adjusted gross income minus the standard deduction and one personal exemption (two exemptions for married couples) exceeds the relevant threshold. To meet our revenue target [of 2% deficits of GDP] under current law, the top two tax rates would have to increase more than 40 percent, lifting the top rate to 56.4 percent. Under the administration baseline, the top rates would leap by 160 percent, lifting the top rate to nearly 91 percent. We would need much smaller—but still substantial—tax increases to meet Orszag’s deficit target [of 3% of GDP]. For example, under the administration baseline, the top tax rates would have to more than double, pushing the top tax rate to almost 77 percent. Under current law, the top rate would have to increase to about 43 percent.

We hate to break it to those who are making 1% each and every day in the melt up, but quite soon (assuming Obama doesn't want a revolution on his hands), all the income America's uberwealthy generate, will soon be taxed anywhere between 77% and 91%... And of course, assuming simple math still works in the Obama universe.

 

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Mon, 04/12/2010 - 21:35 | 297369 Shameful
Shameful's picture

So this assumes that Barry is going to keep his campaign promise and strike at the rich...I suppose it could happen...I mean the impossible has happened before.  This is also assuming that he isn't just going to try to kick the can and lean on Zimbabwe Ben.  Expect to see a VAT and carbon tax before this.

Mon, 04/12/2010 - 21:45 | 297379 Sam Clemons
Sam Clemons's picture

Agreed.  The chance of this happening and actually being enforced within this country controlled by the wealthy is slim-to-none.  If anything like this is passed, massive loopholes will exist.

Mon, 04/12/2010 - 21:47 | 297381 Shameful
Shameful's picture

Well our tax system is about the most complicated ever imagined.  Put the statues books side by side and you'll be impressed.  And then there is a bunch of case law to interpret the statute. 

The quote I got from my income tax law class was "I've been teaching this class for 40 years.  No one has ever got the same answer as me on the final"  40 years and no one has ever gotten the same interpretation of the tax law as him.  That there lets you know there is a lot of wiggle room.

Mon, 04/12/2010 - 21:53 | 297392 ozziindaus
ozziindaus's picture

And to think that just like maths and physics, there is only one right way to do your taxes. No.

Mon, 04/12/2010 - 21:57 | 297397 Shameful
Shameful's picture

Note he didn't say right way, just the same way as him.  Another tax prof told me once that the tax code is so vast, so complicated, and so ever changing that no living person knows and understands the whole thing at any given moment.  How could they?  The real trip is the IRS of course are "right" unless you take them to court.

Mon, 04/12/2010 - 22:24 | 297439 Sam Clemons
Sam Clemons's picture

If I were to ever set-up a society, I'd make the laws so simple and related to common morals that everyone could remember them.  Oh wait, that was already tried and we pissed it away.

Mon, 04/12/2010 - 23:49 | 297536 ChanceIs
ChanceIs's picture

When Napolean took over, he shredded France's Byzantine civil code and started over with the Napoleanic code.  I suppose that the French have made a mess of that over the last 200 years.

Speaking of Napolean and hedge fund managers making $1 billion plus, any of those boys say "Let them eat cake" recently?  BTW:  I am no egalitarian.  Rather I admire Taleb and Niall Ferguson.  One can learn from history.  What do they say...it doesn't repeat, but it rhymes?

Mon, 04/12/2010 - 22:30 | 297447 berlinjames02
berlinjames02's picture

My first accounting professor said it best: "Tax mitigation is legal and even encouraged by the IRS. Tax evasion is illegal and highly prosecuted. There is a thin line between the two, and, it's often separated by bars."

Unfortunately, the real criminals always walk free.

 

On a separate note- I believe the tax code (or rather the laws that create it) is the primary reason for stratification of the middle class. In order for any law to pass, concessions are made at both ends of the spectrum. Ex. If the Dems want to pass (and bribe) healthcare or some other entitlement, the Republicans or business receive a tax break somewhere else.

Thus, a rich Republican doesn't pay a tax, while a poor Democrat receives an entitlement and the middle class is squeezed. While this is sustainable in the short-term, if this game is played for 20 or 30 years the middle class will bear a disproportionate burden of the taxes.

I have no empirical evidence...just a theory of mine.

Tue, 04/13/2010 - 05:14 | 297705 Voluntary Exchange
Voluntary Exchange's picture

 

I would ask you all to focus on the big picture. Here is the short version. You are all slaves. Every one of you that supports the so called “government” by even one penny is partially responsible for the murder of millions upon this planet, as well as theft, fraud, and other crimes that are done in it's name.

Taxation is theft. Any entity that would presume to provide any service to anyone must pass the test of voluntary exchange. Almost all tax does not pass this test. It is not voluntary as you must pay some one or group even if you do not want any of their “services”. If you do not they will initiate force against you to take what they want and then some. Elections are are a tool of deception. They produce no contract and encourage people to view the world in a deceived way. You must never pay anyone for something you do not want to buy voluntarily. It is false that the things that need to get done will not get done unless some people are “forced” to pay them. That is a lie. Think it through clearly in your mind if you can. If you can't, ask for help from those who can explain it to you.

We make choices in life. The liars and cheats and murderers who call themselves “government” are very strong now as they have not been challenged in their crimes. Their organized looting has been going on so thoroughly and so long that things are about to collapse under the unsustainable weight of so many crimes in so many places. Criminals become more and more bold and more and more pervasive until they are stopped by the non-criminals or the natural laws of nature step in to cause their final destruction. If not challenged, ultimately everyone becomes a criminal and unending war among criminals ensues. Then everyone who has made their “deal with the devil” relearns a few basic moral lessons. Crime does not (ultimately) pay. You shalt not steal. You shalt not lie. Choose life that you may live.

You must stop using fiat money. It is the mother lie and deception that is the foundation of all organized crime that calls itself “government” on this planet. You must learn how to provide for yourself and others what you need to survive and do it through honorable voluntary exchanges; use gold or silver as money or something of value your neighbor will agree to. Anyone or group (government usually) that initiates force or deception is your ENEMY and the enemy of every decent person on this planet who is willing to live by voluntary exchange. Some parasites have the capacity to become productive and live by voluntary exchange. When you choose to feed the parasites you become partially responsible for their crimes. Friends, the bullies have multiplied. You must organize to defend yourselves. Surviving the storm by yourself is almost impossible. People of good will must organize to sustain each other. When you try to do this some of you will be attacked. Organize carefully. Get to know your actual neighbors again. YOU MUST! Perhaps you could introduce yourself and first find out if they are basically trying to survive honorably or by “government”. If things look promising perhaps you could show them a message like this one and ask them what they think of it? You must act and you must act fast. Time is short. Be encouraged. Ultimately there will be peace on Earth among men of good will.

 

Tue, 04/13/2010 - 06:47 | 297832 tip e. canoe
tip e. canoe's picture

say amen

Tue, 04/13/2010 - 07:19 | 297852 Voluntary Exchange
Voluntary Exchange's picture

NO faith required. I prefer facts.

Tue, 04/13/2010 - 07:30 | 297855 Voluntary Exchange
Voluntary Exchange's picture

Do you have faith in a constitution? Care to explain your comment a little more?

Tue, 04/13/2010 - 08:09 | 297874 Almost Solvent
Almost Solvent's picture

Revolution is never an easy thing.

Never.

Tue, 04/13/2010 - 08:16 | 297884 Voluntary Exchange
Voluntary Exchange's picture

Yes, I agree. I do not advocate anything other than a revolt against a crime as it is being committed. Such "revolutions" are the vary basis of civilization.

Tue, 04/13/2010 - 09:09 | 297952 pan-the-ist
pan-the-ist's picture

Blah Blah Blah.  You libertarians are tools. Did Gangas Kahn care if you paid your taxes?  As soon as libertopia is formed, Mr. Kahn is going to ride in and take all of your shit.

He'll give you two choices:

1. Don't resist and I will take your shit, rape your wife, and steal your fit children for military duty.

2. Resist and I will take your shit, rape your wife in front of you, impale you on a stick, but keep one of your children alive and lame, so the lame child can point at you when some other idiot decides to take choice number 2.  And then I will salt your fields.

Tue, 04/13/2010 - 09:38 | 297994 Anton LaVey
Anton LaVey's picture

Actually, the real Gengis Khan used a somewhat different strategy:

Lay siege to a city. Demand submission and tribute (= tax). If the city resisted, wait until it fell (never took very long), then kill absolutely everyone inside (no exceptions and no mercy), make a big pile of corpses and skulls, with assorted crucifixion and impaling for good measure. Then, salt their fields, raze all walls and houses and burn everything left standing (except for the big pile of corpses). Then, move on to the next city.

Lay siege to the next city. Demand submission and tribute (= tax). If the city resisted, point to the first city and even (if required) organize a guided tour for select leaders of the second city.

Usually only one city was necessary in a good long while.

Simple and effective. Surprising how much tribute (= tax) was gathered this way.

Tue, 04/13/2010 - 10:43 | 298089 pan-the-ist
pan-the-ist's picture

Indeed, as you state.

Tue, 04/13/2010 - 12:18 | 298223 Voluntary Exchange
Voluntary Exchange's picture

HI Anton:

In todays world, each community would have the capacity to communicate with other communities in the society. Those who are willing to stay free could organize a “welcome” for “Gengis” should he care to dance at their private party. Plan and practice, the “Red Coats are coming”. The tyrant always prefers to isolate you and pick you off piecemeal. Those who value their freedom prepare well so they will prevail.

 

Tue, 04/13/2010 - 12:32 | 298239 Anton LaVey
Anton LaVey's picture

Oh boy, where do I start? Let me keep this short, sweet and to the point:

  1. I am truly sorry if the world seems that dark and dangerous to you.
  2. You really need to have your head checked.
  3. If you are right, and they are really out there to get you, they probably know where you are already, and you will be among the first to be sent to the work and rehabilitation camps. But, hey, at least you would be proved correct, right?
  4. "The fear of death is the most unjustified of all fears, for there's no risk of accident for someone who's dead".  -- Albert Einstein

There, I think that about covers it. Have a nice day.

Tue, 04/13/2010 - 13:23 | 298314 Voluntary Exchange
Voluntary Exchange's picture

Hi Anton:

What I consider dark and dangerous is exchanges based on force or deception. If you do not understand that that is where you and I are at then I am willing to explain more. If you do not understand how such involuntary exchanges make things dark and dangerous for everyone who would choose to live honorably then I do not think you have thought things through very carefully (Assuming you do not live by force or fraud or benefit from it, in which case we could have a different conversation). While you are motivated enough to suggest that I need my head checked maybe you will care to check out what Murry Rothbard and Hans Herman Hoppe taught about contractual societies and how they would actually work. A predator is “out there” to get what they can get and they prefer easy game. That is the nature of some “people”. Do you have a lock on your home? If you do, do you really think “they” are out there to get you?

 

Tue, 04/13/2010 - 12:04 | 298213 Voluntary Exchange
Voluntary Exchange's picture

Hi Pan:

The ones who face #1 and #2 failed to properly organize into powerful enough groups with their neighbors.  I am aware that people all over this country are organizing now!   I strongly urge you to do likewise. The latest "health" bill means they will be coming for each of us shortly to ensure "compliance" (if they know where to look). Clearly many of us have had enough and it is time to hit the restart button. All it will take for the tyranny to fall is a few victories and the magic moment when the hired muscle sees "them" as they are and sees you (their brothers) holding your moral high ground.  Remember what  happened in Romania. One moment the tyrants were shouting orders, the next moment the people were free. It will happen again. Prepare.

Tue, 04/13/2010 - 11:13 | 298124 QQQBall
QQQBall's picture

No, No, no... the big question is what does this do to business creation and expansion? Do you want to take 100% of the risk for 9% of the reward?   I was pretty surprised that alot of people here seem to be frugal types... I suppose there are more than a few of us tha tcould kinda throttle things way back and simply align our lives on an "after-tax" basis.

Mon, 04/12/2010 - 22:27 | 297443 non-anon
non-anon's picture

yeah, even old turbotax Timmie couldn't even figure it out!

Mon, 04/12/2010 - 22:26 | 297442 Marvin_M
Marvin_M's picture

run a quick check on what happened to tax rates after the last time income inequality approached today's obscene levels...that would have been round about 1929 or so...  Note that the runup to the Great Depression (the "Roaring 20s") featured greatly reduced tax rates across the board with the wealthiest enjoying tax rates on the order of 1/3 what they were during and after WWI.  The following link shows that tax rates rose dramatically under FDR.  Of course Mr. Obama is no FDR, and our government's reaction to this depression is not going to measure up to the beating the uber rich and the banks took after they got us into the first depression.

http://www.huppi.com/kangaroo/TaxTimeline.htm

Mon, 04/12/2010 - 23:23 | 297497 Close 2 the Edge
Close 2 the Edge's picture

And yet the country managed to survive for 140 years with no income tax at all.  Impresive how far we've come.

Tue, 04/13/2010 - 06:42 | 297822 Marvin_M
Marvin_M's picture

ah the good old days before the world welcomed Pax Americana...

Tue, 04/13/2010 - 06:11 | 297764 docj
docj's picture

Yeah, but I'm sure FDR's final solution - a world war - is already well along the planning stages in Barry's war room.

I love the smell of class warfare in the morning.

Tue, 04/13/2010 - 09:12 | 297960 pan-the-ist
pan-the-ist's picture

docj - there is absolulety no evidence of that fairy tail history ever happening.  WW2 happened because there were a lot of poor people in Germany, not because FDR made it happen.  You could argue that the 'elite' started it and planned it all along, but then you'd have to display your tin-foil hat for all to see.

Mon, 04/12/2010 - 22:51 | 297465 bruiserND
bruiserND's picture

Rev Manning


 I’m not sure what may happen,

 http://la-gun.com/email/manning/

 

 

 

 

 

 

 

 

 

 

 

 

 

          

 

 

 

 

 

 

 

 

 

 

 

 

 

=

 

 

 

 

 

 

 

   
Tue, 04/13/2010 - 00:53 | 297597 Village Idiot
Village Idiot's picture

Comedy gold.  Or, is it?

Mon, 04/12/2010 - 23:18 | 297486 primus
primus's picture

Fuck the Value Added Tax.

What about a Value Subtracted Tax?

Make all the gambler, parasite, financial engineers that 'earn' a living leeching off productive enterprise will shrivel up and die.

Tue, 04/13/2010 - 08:11 | 297880 Hephasteus
Hephasteus's picture

Oh I'm sure they will add at LEAST as much value as High Frequency Computer Fraud. 

Mon, 04/12/2010 - 21:39 | 297374 dark pools of soros
dark pools of soros's picture

take the money and run.........

Mon, 04/12/2010 - 22:20 | 297426 Nihilarian
Nihilarian's picture

Large increases in cost with questionable increases in performance can be tolerated only in race horses and women.

Mon, 04/12/2010 - 23:24 | 297498 Mad Max
Mad Max's picture

You forgot sports cars.

Mon, 04/12/2010 - 21:40 | 297375 Cleanclog
Cleanclog's picture

The Admin will need to fear street riots, otherwise, the 1% uber-rich still have the overwhelming influence via campaign contributions, access contacts, and run GS, JPM, Pharmaceutical companies, Oil companies, Tobacco companies, Hollywood, and arms manufacturers.

Not that they care so much about the future of their employees - but they do want to keep taxes contained on their capital gains, dividend income, and bonus income.

Mon, 04/12/2010 - 21:52 | 297378 Mercury
Mercury's picture

More unicorn and rainbow bullshit. Those uberwealthy incomes will vanish in a heartbeat with those kinds of tax rates and the government will end up with a tiny percentage of what it thinks it will get in additional revenue.  You're going to tax something at 91% and that something is just going to stand there unchanged, chugging away as usual like some golden goose - really?

Mon, 04/12/2010 - 22:21 | 297427 brushfire
brushfire's picture

indeed. democracy's ironic underbelly. those pesky rich people will just find another palce to live with lower taxes. the govt subsidy class will not know what hit them.

 

the fact that this is happening should not be news to any thinking person.

Tue, 04/13/2010 - 01:02 | 297601 A Nanny Moose
A Nanny Moose's picture

Bingo. We are about to get a lesson on Tyranny of the Majority followed by capital flight.

Mon, 04/12/2010 - 22:32 | 297450 buzzsaw99
buzzsaw99's picture

Absolutely correct. The wealthy will defer income and write in loopholes. The uber-wealthy have already salted away billions which is untouchable. Crap & Tax and VAT taxes will pummel the average joes while the wealthy offshore the loot.

Mon, 04/12/2010 - 21:48 | 297382 sangell
sangell's picture

I'm not for confiscatory taxes but the proper way to demogogue those income inequality graphics is via human figures where income = height. Here the average man of, say, $40,000/year is a figure outline representing 6 feet. The million dollar/year man is thus 25 times taller at 150 feet while the hundred million man stands, god-like with his eyes peering over the Rocky Mountains.

Mon, 04/12/2010 - 22:01 | 297403 tmosley
tmosley's picture

Imagine if that god like figure were to simply give up?  To shrug, and shrink back down to a mere 6 ft?  

They are the pillars that hold the skies over our heads, and support the foundations of inductrialized society.  If they give up, it's over.

Mon, 04/12/2010 - 23:04 | 297472 Crummy
Crummy's picture

Ha ha ha ha ha ha-ah ah ahhh... ah. *cough* Ahem... Yeah, they produce all that's good under the sun with pure moxie.

Honestly, though. No one person is truly capable of that level of resource allocation to warrant those levels of "wealth". I'm all for getting rich but at a certain point it's just blatant fraud.

Mon, 04/12/2010 - 21:48 | 297384 ozziindaus
ozziindaus's picture

That's not going to happen quietly if not ever. In the remote chance that it does come into fruition, I'm sure a lot of countries would line up to patriate this sort of ridiculous money and leave America's 99% stuck with the bill. Something about money, it makes you greedy and insecure. 

Personally, I'd be fucking off in no time.

Mon, 04/12/2010 - 21:52 | 297390 Mad Max
Mad Max's picture

but quite soon (assuming Obama doesn't want a revolution on his hands), all the income America's uberwealthy generate, will soon be taxed anywhere between 77% and 91%

Never going to happen.

For all the hopey-changey bullshit, Obama's supporters and the people he is beholden to are those super wealthy.  They are using the hopey-changey BS to eliminate their competition and stabilize their positions at the very top.  He and his policies are a puppet for them.

Not to mention that in this day and age, any tax rates even approaching those levels would spur massive expatriation.  Yes, I'm familiar with all the global-taxation provisions and various ways in which such expatriates are supposed to be looted of their assets on the way out.  It would happen anyway, with plenty of deception, and there are a number of countries that would happily shelter those expatriates from the fallout.

Mon, 04/12/2010 - 22:01 | 297402 Shameful
Shameful's picture

Could not agree more.  If anyone thinks that someone say of George Soros' caliber would be targeted by Barry you got another thing coming.  You don't buy a president and then let him walk all over you. Besides this would have to get through congress, no way.  The Reds would never go for it, and enough Blues would be bought.

Also have to agree about the expats.  Many nations would love to get that money in the system.  And as it would be a sign of America's waning power a lot more of the would be more bold about advertising for them.

Mon, 04/12/2010 - 22:37 | 297453 MrPalladium
MrPalladium's picture

If a 91% tax rate were to apply to all earned income over $1 million, it would pay for Goldman Sachs to move overseas and for its principals to pay the 50% exit tax. If it were to apply to short term capital gains it would pay most investors to leave, pay the exit tax, and grow the remaining money elsewhere.

This is just another example of the liberal think tanks rattling the sabre to panic the herd of Congress critters into a VAT tax that will result in a dramatic one time increase in prices, with the incidence of the tax being placed on consumers.

Just the usual syndicate looking for another hole they can use to rape the middle class.

Tue, 04/13/2010 - 06:54 | 297846 tip e. canoe
tip e. canoe's picture

another "compromise for the common good" okie-doke pull the rug out in the last minute manuever

Mon, 04/12/2010 - 21:55 | 297395 Cyan Lite
Cyan Lite's picture

The rich have too much power for taxes to go up dramatically.  They might get the top bracket up to 39%, or whatever it was pre-Bush at best.  There is enough spin out there from RWA (Rich, White, Americans) to sell the American public that more taxes on the rich are especially bad.

 

Taxes on Rich = BadAmerican Idol = Good.

Mon, 04/12/2010 - 21:59 | 297399 ozziindaus
ozziindaus's picture

I'm no advocate for taxing the rich unreasonable rates. Just the same amount as I cop is fine with me.

Tue, 04/13/2010 - 01:29 | 297618 Bear
Bear's picture

You imply:

Rich = Bad

White = Bad

American = Bad

Makes me real Bad.

Mon, 04/12/2010 - 21:57 | 297398 suteibu
suteibu's picture

Screw the income taxes.  That won't help near as much as all of the wealth held by retirees.  There are a lot of paper millionaires who see income under the $50-60k range that would not be affected by an income tax.

Tue, 04/13/2010 - 01:27 | 297615 Bear
Bear's picture

When you accumulate a million paper dollars and retire, you have already paid income taxes on it along the way, so are you now advocating that million should be taxed again, and again, until it is zero?

France has a wealth tax ... .5 percent per year on a million dollars

Tue, 04/13/2010 - 05:12 | 297704 Neophiliac
Neophiliac's picture

Not all of those who have multiple millions stashed away have acquired these millions through honest labor. Certainly, there's a fairly large number of people who might have retired with millions after "working" on wall street, but since in the course of their endeavors they have managed to produce a gigantic externality for the rest of the society, it would be very reasonable to expect them to pay some sort of a fine.  An outcome like that would probably be just in the capitalistic sense of the word - where one gets what one really deserves. 

So while it's true that in the ideal world, where everybody makes an honest buck, taxes on capital and capital gains are double-taxation, we do not live in the ideal world. In the world that we find ourselves in presently, increasing taxes on capital (by instituting a wealth tax after the French model) and taxes on capital gains, doesn't strike me as anything remotely unjust.

And while we're at it, a full confiscation of Dick Fuld's (and others of his ilk) estates would be very apropos.

Tue, 04/13/2010 - 08:18 | 297885 Almost Solvent
Almost Solvent's picture

Drug Dealers and other criminals do not (usually) pay income taxes until they are caught.

Under the table cash laborers do not (usually) pay income taxes until they are caught.

Millionaires who stash their cash offshore do not (usually) pay income taxes until they are caught.

Al Capone was convicted of:

racketeering? (NO)

murder? (NO)

RICO? (NO)

alchohol production/sales? (NO)

failure to file income tax returns and pay the tax due from illegal activites? (YES)

Mon, 04/12/2010 - 22:00 | 297400 FrankIvy
FrankIvy's picture

1st Chart good.  Others - meh.

When I was in my young 20s I made 19K a year working a blue collar job.  The first time I did my own taxes that year I paid 60 bucks in Fed Inc. Tax.  We just barely missed qualifying for an "earned income credit" that would have resulted in a 440 payment to us.

When I was 40, I made 300 in salary and 350 in 1256 options and paid about 200 grand in Fed Taxes.  The fun part that year was deleting one kid and watching my tax liability remain unchanged.  Gotta love the tax software showing you every beat down.  Finally figured out that the AMT was what was causing it.  Get a deduction for the kid, but AMT raises liability by equivalent amount.  Delete kid, AMT goes down.  Hilarious.  Best thing of all is having Turbo Tax and/or HRBlock software give you this message about 12 times - "Sorry.  Because of your AGI you do not qualify for the ________ credit/deduction."  Nice.  Paid a lot of money to go to school.  Worked very hard.  Sacrificed a lot.  Took huge risks to get my solo practice up and running.  And when it all finally pays off, the folks who slacked in school get to deduct their student loan debt, their kids, and so on, and I get phased out.  Nice.

 

But you want to hear the best part?  And my wife can testify to this.  When I paid 60 bucks in taxes when I was young, I told me wife - "damn.  This tax system is completely screwed up.  There is no way we should be paying zero taxes."

 

 

 

Mon, 04/12/2010 - 22:26 | 297428 Augustus
Augustus's picture

Most people don't have a clue about how the system works to really screw anyone who is moving up and actually makes enough money to save some to invest.  When I hear the pols describe how they have set up a tax credit for XXX I know it is eyewash.  If you make enough money to have taxes due for the amount of the credit you will be in the phase out category.  Trying to use several of the various "breaks" is sure to cause the tax jibberish to go bonkers.  And people are supposed to be able to complete the forms that go with compliance?  The whole idea is to make everyone a tax cheat whether intentional or not.

Since you comment on the children you know about how the tuition deal works.  You were supposed to have saved enough to pay 100% for the college expenses of your children.  That is saved from after tax income and with the returns on the investment taxed.  However the slackers you noted will qualify for all kinds of discount coupons when the children go off to school.  They may even get admissions preferences as children of slackers.  The discounts are effectively tax free income for that family.  Social Security taxes and benefits are set up in about the same way.  Sure there are a very few people earning an extraordinary amount and those few are mentioned to justify screwing anyone who is moderately successful.

Pretty interesting writeup on the topic of What do We do if the Rich Start to Leave

http://www.realclearmarkets.com/articles/2010/04/12/what_do_we_do_if_the_rich_start_to_leave_98414.html

Mon, 04/12/2010 - 23:11 | 297477 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

I worry that your generation will be phased out. To be replaced by those who have notion of ambition.  I honestly worry about the quality of the doctors ObamaCare will create. It will be about volume not quality.

Thu, 04/15/2010 - 01:50 | 301476 Papasmurf
Papasmurf's picture

There won't be any doctors under ObamaCare.  Why would anyone invest their money and their lives learning the art and science of medicine in order to just get by?  It would be simpler for them to do like the rest and sit home waiting for the gov't check to arrive.

Tue, 04/13/2010 - 07:52 | 297862 Anonymouse
Anonymouse's picture

Well, you are missing a big part of the intent of tax code.  It is not to punish the uber-rich.  It is to prevent others from becoming rich.  The European class system never died in the hearts of many.  They just enacted a tax code to perpetuate it.

Tue, 04/13/2010 - 08:50 | 297928 nedwardkelly
nedwardkelly's picture

"Sorry.  Because of your AGI you do not qualify for the ________ credit/deduction."

Ugh, I feel your pain. One that ticked me off was the deductability of IRA contributions. What, suddenly because I'm making good money it's should no longer be encouraged that I contribute to my own retirement? Assholes.

Probably better off in the end though, there's not much incentive if there's no tax incentive, but lots of disincentive (withdrawal limits etc).

Mon, 04/12/2010 - 22:03 | 297405 Spaceman Spiff
Spaceman Spiff's picture

Unfortunately, those between 100 -250k get lumped with the mega-millionaires and have little voice.

Mon, 04/12/2010 - 22:04 | 297406 masterinchancery
masterinchancery's picture

Dream on; these folks own a lot of accountants, lawyers, and politicians.  The working middle class is the group that will get annihilated. Check out the later Roman Empire.

Mon, 04/12/2010 - 22:05 | 297408 Instant Karma
Instant Karma's picture

I saw Art Laffer on Glenn Beck tonight. He said we should adopt an 11% flat tax to maximize tax revenues. He states that his "Laffer Curve" is already in an area where taxes are so high that individuals and companies are dis-incentivized from working or producing, thus lowering tax revenues. Hikes in taxes will simply further dis-incentivize work further and lead to higher budget deficits.

In short, raise taxes, lower employment, lower revenues into the government.

Mon, 04/12/2010 - 22:24 | 297440 rawsienna
rawsienna's picture

Dems dont believe it. 

Mon, 04/12/2010 - 22:29 | 297446 non-anon
non-anon's picture

hey Instant Karma, what got me on the show was that 25 countries around the world have a flat tax, including old "Communist" countries. This country is backasswards!

Mon, 04/12/2010 - 22:11 | 297416 Catullus
Catullus's picture

This also assumes the wealthiest people are the same 11,000 highest income earners.  Because sometimes it seems like truly wealthy people don't need to earn income. They can just live off their capital. And increasing the income tax may not be that effective.  I would imagine that some people often to refer to others as "rich" because they're already wealthy, not because they earn a high income every year.  Just saying. 

Mon, 04/12/2010 - 22:18 | 297423 Gordon Freeman
Gordon Freeman's picture

I am already planning to keep my future/retirement income below whatever threshold they decide on.  It's certainly not difficult.  They will be endlessly chasing a mirage: a target that should stand still, but refuses to...

Mon, 04/12/2010 - 22:31 | 297448 non-anon
non-anon's picture

I'm spending mine while we still have a dollar left!

Mon, 04/12/2010 - 22:19 | 297425 BlackBeard
BlackBeard's picture

I'm just visualizing all the bank wires and U.S. Passports being mailed to the IRS over the next decade...

Mon, 04/12/2010 - 22:22 | 297431 Al Huxley
Al Huxley's picture

I was talking to a friend about this earlier today.  I think the top .01 percent of the population should be paying attention to the sales of guns and ammo in the US. Population looks fat and complacent on the surface, but all of the country's founding myths are based on violence and revolution.  Might not take too many missed meals to bring that instinct back to the surface.

Mon, 04/12/2010 - 23:27 | 297502 Mad Max
Mad Max's picture

Interestingly, based on NICS data, sales of firearms are holding up very well in the last 3 months - probably better than virtually any other discretionary purchase.  Continuing on a record pace, for what it's worth.

Mon, 04/12/2010 - 22:22 | 297434 rawsienna
rawsienna's picture

It will not raise any revenue because most of those people will simply stop working. If they want to tax the super wealthy they need to tax wealth. Look for em to tax ALL unearned income over 200,000 annually (including muni interest) at 50%.  Lets see how much Warren Buffet likes Obama after he takes it up the a**.  

Mon, 04/12/2010 - 23:28 | 297505 Mad Max
Mad Max's picture

I think you have a misconception about who answers to whom.

Tue, 04/13/2010 - 01:14 | 297610 Bear
Bear's picture

Visualizing America ... Actually in 2011 the death tax kicks in at 55% ... then 2014 death panels kick in ... by 2024 almost 1/3 of all old wealth is in the pockets of Uncle Sam who denies any cancer, heart condition, or obesity-related diseases(everything else) as covered in the 'revised' health care reform act of 2020 

Mon, 04/12/2010 - 22:23 | 297436 deadparrot
deadparrot's picture

Sure, assuming 1) the current trillion-page tax code is dropped, 2) these wealthy americans lose their lawyers and accountants, 3) the wealthy aren't able to see this coming and leave the US before the tax change is implemented. That's a lot of assumptions. Given the power held by america's wealthiest citizens, I'm thinking the status quo will hold up a while longer.

Mon, 04/12/2010 - 22:23 | 297437 non-anon
non-anon's picture

This is not a progressive tax but a regressive tax, going back to the good 'ol days of Lyndon Johnson and FDR, progressive heroes! Yeee! Haw!

Mon, 04/12/2010 - 22:23 | 297438 OSR
OSR's picture

I estimate the probability of the uberwealthy seeing a tax increase approximately the same as that of monkeys flying out of my ass. If anything their tax share will decrease despite the deficit. Once you accept the fact that democracy is dead in the US, these things get much easier to figure out.

Tue, 04/13/2010 - 04:15 | 297696 merehuman
merehuman's picture

you really should let the monkees out. Even if they cant fly.

Mon, 04/12/2010 - 22:42 | 297457 Dragline
Dragline's picture

I will be happy to bet you a sizeable sum that this prediction is wrong.

For you to win, (a) Obama must sign the law; and (b) the top marginal tax rate

must be at least 77%.

Now how much are you willing to wager on your prediction?

Mon, 04/12/2010 - 23:00 | 297469 Augustus
Augustus's picture

Top rate is now going to a stated 39%.  However, on the way to that there are phase outs of credits that others are eligible for.  That increases the effective rate on the marginal dollar of income.  Further there will be a new tax on dividends and interest right off the top, higher effective rate.  Then add state income taxes, city income taxes, sales taxes.  Finally factor in a 10% beginning level for a vat on every consumer purchase.  Have we got to 77% yet?

Here are just a few examples of how it works:

William A. Jacobson (Cornell), 100% Plus Taxation Key To Permanent Dem Majority:

Is it possible to pay more than 100% of your last dollar of income in taxes? And if it were, would you bother to earn that last dollar?

http://taxprof.typepad.com/taxprof_blog/2009/11/jacobson-100-implicit-.html

 

More on 100+% Implicit Marginal Tax Rates

http://taxprof.typepad.com/taxprof_blog/2009/11/more-on-100-.html

http://gregmankiw.blogspot.com/2009/11/poverty-trap.html

 

80% Marginal Tax Rates After Health Care Reform?

http://taxprof.typepad.com/taxprof_blog/2009/10/80-marginal-.html

 

Mon, 04/12/2010 - 23:18 | 297482 Shameful
Shameful's picture

Great post!  I used to browse the tax blog but I missed that one.  Nothing like securing an unassailable block of voters, with other people's money.  Not that the red team is any better.

Mon, 04/12/2010 - 23:52 | 297538 Augustus
Augustus's picture

Even simple people can figure out that the net result of earning more is very little.  Then they find that it is darned boring, but standing in line and applying for benefits pays better and has possibly less stress than showing up and doing work and earning an income.  The end result is that the system has stolen the ability to realize a dream and maybe even to create one in the first place.  The only way out really becomes winning the lottery, not creating the next new XXX.

Tue, 04/13/2010 - 00:12 | 297569 Dragline
Dragline's picture

Uh, no, you are nowhere close to 77% because you are adding things that should be weighted and averaged (like the income tax and the tax on interest and dividends -- you pay taxes on one or the other, not both) and set off against each other (like local/state vs. federal taxes).  And if you've ever paid AMT, you know that the credits (which are not much to begin with) are already largely phased out under the current law.  At least that's what my accountant tells me every year.  The cited articles appear to be just as innumerate in their analysis, if not more so.

The prediction at the top is for a 77% marginal federal tax.  I take it you believe that it will not come true during the Obama administration.  I don't think anybody really does -- its just talk and this kind of talk is extremely cheap.

As the saying goes, there are lies, damn lies, and statistics.  We're in the third category here.

Tue, 04/13/2010 - 01:56 | 297645 Augustus
Augustus's picture

Uh, no. Weighing and averaging makes a tax rate less?  It is the marginal rate that counts and we are already at a rate greater than 77%. 

Tue, 04/13/2010 - 09:21 | 297975 pan-the-ist
pan-the-ist's picture

Look Augustus, do you really pay 77%? Didn't think so.  Now STFU.

Mon, 04/12/2010 - 22:42 | 297458 Cookie
Cookie's picture

It is now easy to understand why the capital controls were sneakily introduced into law.

Mon, 04/12/2010 - 22:43 | 297459 Augustus
Augustus's picture

This is almost funny from the NY Times:

http://www.nytimes.com/2010/04/13/us/politics/13health.html?partner=rss&emc=rss

In a new report, the Congressional Research Service says the law may have significant unintended consequences for the “personal health insurance coverage” of senators, representatives and their staff members.

For example, it says, the law may “remove members of Congress and Congressional staff” from their current coverage, in the Federal Employees Health Benefits Program, before any alternatives are available.

The confusion raises the inevitable question: If they did not know exactly what they were doing to themselves, did lawmakers who wrote and passed the bill fully grasp the details of how it would influence the lives of other Americans?

The law promises that people can keep coverage they like, largely unchanged. For members of Congress and their aides, the federal employees health program offers much to like. But, the report says, the men and women who wrote the law may find that the guarantee of stability does not apply to them.

“It is unclear whether members of Congress and Congressional staff who are currently participating in F.E.H.B.P. may be able to retain this coverage,” the research service said in an 8,100-word memorandum.

And even if current members of Congress can stay in the popular program for federal employees, that option will probably not be available to newly elected lawmakers, the report says.

------------

The law apparently bars members of Congress from the federal employees health program, on the assumption that lawmakers should join many of their constituents in getting coverage through new state-based markets known as insurance exchanges.

But the research service found that this provision was written in an imprecise, confusing way, so it is not clear when it takes effect.

The new exchanges do not have to be in operation until 2014. But because of a possible “drafting error,” the report says, Congress did not specify an effective date for the section excluding lawmakers from the existing program.

Under well-established canons of statutory interpretation, the report said, “a law takes effect on the date of its enactment” unless Congress clearly specifies otherwise. And Congress did not specify any other effective date for this part of the health care law. The law was enacted when President Obama signed it three weeks ago.

Now we can wonder exactly has standing to sue for enforcement of the provision.  It should be effective right now.  No more blue pills for the pols.

Tue, 04/13/2010 - 00:51 | 297595 Bear
Bear's picture

was written in an imprecise, confusing way, so it is not clear when it takes effect ... LOL

Mon, 04/12/2010 - 23:18 | 297483 Paladin en passant
Paladin en passant's picture

Or we can require that everyone, no matter how poor or rich, pay a minimum of 5% of their gross income toward funding our government.  Otherwise we're going to end up with 51% paying nothing and requiring more and more of the other 49%. When that happens we'll become Greece within three years, where at least 50% of the economy is underground.

We could also close the departments of education, labor, environment, anything connected with enforcing "equality" and require means-testing for Social Security and Medicaid benefits.  Yes, I realize this won't happen unless we experience true economic collapse. But I can dream we have adults running the government, not thieves and mountebanks.

Tue, 04/13/2010 - 00:48 | 297594 Bear
Bear's picture

Gossamer dreams 

Thu, 04/15/2010 - 01:54 | 301478 Papasmurf
Papasmurf's picture

Defund the government.  Redeploy these people who are currently not producing anything towards the GDP in productive tasks.  This will increase the stanard of living for everyone by driving the cost of goods and services down.  We need to downsize government and banking/Wall Street.  These are wasteful avocations that producing nothing of value.

Mon, 04/12/2010 - 23:22 | 297494 Johnny Dangereaux
Johnny Dangereaux's picture

We are long over due for a Revolution, that's for sure.....

 

Mon, 04/12/2010 - 23:34 | 297511 Entremanure
Entremanure's picture

Recall that in 2008, Ron Paul ran a campaign that had as one of its central themes the elimination of the federal income tax and IRS.  He stated that the US, through the levying of tariffs, fees, etc. would effectively generate the same revenue levels that the fed govt ran on during the Clinton administration.

I haven't verified this, but seeing now (2 years later) how most all of what Dr. Paul was saying has come to pass for this country, I have to believe he's right on this point as well.

I hope he runs again in 2012.  He'll have my vote.

Of course, he'll be summarily marginalized by the main stream media and his own party.

Mon, 04/12/2010 - 23:35 | 297515 Shameful
Shameful's picture

Thought I'd share a view on taxes here.

When do taxes get to egregious?  And I don't mean "Man this upsets me, I'll write my congressman!"  I mean "Okay, I have to leave the country" or "Like hell! I won't pay, let them come take it from me!".

To me the answer is clear when the taxes reach the point where it becomes impossible to live, ie food, shelter, sanitation, the necessities.  This is what make the progressive tax system so genius.  If it was say a flat 40% then the underclasses might bet pushed to the break point and decide to solve the problem themselves ie not pay, flee, fight.  As they are not taxed directly this is not an issue.  As a person's income and earnings rise they are more able to cope with the necessities that that person is more able to take on that tax burden without triggering the fight/flight response.  After all I dare say that the "rich" on ZH pay a fair amount of taxes but most have not thought about fleeing for tax reasons or refusing to pay and forcing them to extract it from you at the point of a gun.  This happened in history, but the collection of taxes was less fine, and the classes they dealt with lived to close to the razor's edge of survival.

This is why you will never see a fair tax or flat tax.  It simply won't happen.  The political class has learned that they can extract a higher rate of revenue out of earners and they will not fight back like a medieval serf would, because they are not pushed to the limit.  Of course like in the medieval world the nobles themselves pay no taxes.  With great skill it is possible to duck much taxation with the right accountant and attorney. I once had the privilege in meeting a high level officer at Intel who's whole job was to play with flow of revenues from other countries to offset each other for tax purposes.  In most companies more is spent on tax avoidance then taxation, or so my stodgy professor drilled into us.  Or one can be a member of the political class an simply not pay, looking at you Rep. Rangel.

This is why we will see a VAT, because it is a hidden tax for the most part.  I also expect to see some kind of rebate for those lower income people, because they will take care not to rile up the underclasses with taxes.  Those who have nothing to lose are often the first to lose it.

Tue, 04/13/2010 - 00:28 | 297580 Bear
Bear's picture

 "After all I dare say that the "rich" on ZH pay a fair amount of taxes but most have not thought about fleeing for tax reasons"

I don't think there is one ZH'er who HASN'T thought about fleeing for tax reasons.

Tue, 04/13/2010 - 00:56 | 297598 Shameful
Shameful's picture

Present or future taxes?  And leaving does not clear taxes unless drastic steps are taken, after all those taxes follow us.  So short of dumping citizenship  they still have a legal claim.  Also how seriously have most thought about it?  Thinking it would be nice to leave the US is different than researching it, learning a new language, and moving out.  I expect more and more people to leave as taxes continue up, but that is probably going to have a lot to do with a possible currency collapse vs just more tax increases. 

I can't speak for anyone else but I know I'm looking at leaving because of currency collapse an possible police state.  Sure I hate taxes but that is less of a pressing danger then the other reasons.

Mon, 04/12/2010 - 23:40 | 297525 numbers
numbers's picture

Not a chance in hell that tax increases of any size can get passed in Congress after the 2010 mid-terms after the Dems get their heads handed to them and hold very slim majorities, if any at all, in both the House and Senate. The Anointed One's tax agenda, as well as any other agenda he now has, will be dead.

Mon, 04/12/2010 - 23:42 | 297530 jory
jory's picture

Damnit!  This effects me!  My 10,999 friends and I won't stand for this.  We'll fix it so the little guy pays and we continue to live the high life.  The little guy can eat cake or road kill for all I care.

 

Tue, 04/13/2010 - 12:51 | 298273 gabeh73
gabeh73's picture

Payroll tax revenues grew as a percent of government revenue while income taxes stayed stagnant over the last 40 years. The super rich write the tax code, there is no way that they will tax themselves more!

Mon, 04/12/2010 - 23:46 | 297532 Gubbmint Cheese
Gubbmint Cheese's picture

http://www.nytimes.com/2010/04/13/business/13lehman.html?hp

 

Lehman used alter ego firm to hide assets off book..

Tue, 04/13/2010 - 00:08 | 297566 The Person Fami...
The Person Familiar With The Matter's picture

We will definetely see more taxes with groups like the Center of Budget and Policy Priorities (www.cbpp.org/) talking to legislatures. In a recent article on why states cannot stimulate their economies by cutting taxes the author wrote (the bolding is mine):

"Such proposals are highly unlikely to work. When a state cuts a general tax such as the corporate or individual income tax, the impact on the state economy depends on what the business or the individual does with the money freed up by the tax cut.

  • If a tax cut to a corporation increases its profits, it may distribute those profits as dividends to shareholders who live throughout the country; those funds will not necessarily create additional in-state demand.
  • A corporation will not necessarily use the funds provided by the tax cut to make additional investments in the state in the short term. If there isn’t additional demand for a business’s good or service, the firm might keep the funds in reserve until demand picks up at a later time — by which time it would not need any government inducement to expand.
  • If a tax cut goes to a higher-income person, that person might save most of those extra dollars — invest them in the stock market, for example — so the tax cut would create little or no additional demand within the state."

Well at first I wasn't so sure, but once I saw the "may" and "might" I knew it was a solid argument.

Tue, 04/13/2010 - 00:35 | 297586 rootless cosmop...
rootless cosmopolitan's picture

This makes sense, although it would sort of obstruct my plan to switch from the 95% to the upper 0.01%. Perhaps, in this case, I should resort to Plan B instead.

 

Tue, 04/13/2010 - 00:46 | 297593 A Nanny Moose
A Nanny Moose's picture

I have been looking for exactly this information. Thx!

/grin

Tue, 04/13/2010 - 01:35 | 297621 cocoablini
cocoablini's picture

If I recall, FDR imposed a 70% tax on the rich in the 30's.

It's the only way to repatriate(steal) the money back and get velocity(ie:give it to stupid people to buy crap and lose it.)

The smart people who save are getting their savings depreciated.

The rich(either by being a crook, hoard, inherit or in their words,"do God's Work" squat on a majority of their income and savings.

The middle class get about 75% of their incomes extracted by taxes and expenses.

The wealthy only spend a fraction of that. Bill Gates can't spend it fast enough! I mean, who the hell needs 50 billion dollars...I mean really.

This is all a shame. Those who create and provide benefits to the country should enjoy wealth-but since money doesn not belong to the owner(it belongs to Obama and Tim geithner-it's their dollar-thier shit currency) the thing to do is?

Go get hard assets? Invest in the market? get rid of your wealth as soon as possible and hide that crap in Zurich?

Good luck!

Tue, 04/13/2010 - 01:46 | 297632 cocoablini
cocoablini's picture

This is post-industrial America.

I suspect we will have a VAT tax and excessive taxes to pay for all the useless Federal and State employees(pensions) plus the debt.

Income taxes will go up. All taxes UP.

Like Europe, they will figure out systems to retain their oligarchy while the sheep and idiotics in government race around trying to pickpocket the citizen and lay a boom on the "rich." the rich are already getting out. They are converting to gold bullion(soros) and acquiring property via MBS, foreclosures and sweetheart deals with the FHA.

This is what happened in Europe-the French Revolution showed the aristocracy how they could die in a heartbeat. So England, Holland and so on created sham Parliaments with sham branches(The Lords? Give me a fracking break...)to give a semblance of citizen control. Not many people own land in europe. the rich own it, they had it already, and rent it to the happy socialist sheep who get free crummy healthcare, bad education, fast trains to work and anti-depressants.

The euro-rich still parade around in large Mercedes, with bodyguards picking up the rent checks, playing the casinos and shagging supermodels.

That's socialism for you. It's neither fish nor foul. Its not Marxism or Capitalism-it's a friggin sham to protect the super rich and keep the under classes supressed in high taxes and "benefits." Or as Max Keiser says, "Euro-feudalism."

MY recommendation? Don't ever vote Dem or GOP again and work as LITTLE as you can get away with. You are a cog in their little GDP machine.

Tue, 04/13/2010 - 09:14 | 297963 ExistentialSkeptic
ExistentialSkeptic's picture

I like your little manifesto, cocoablini.  :-)  We just had a teenage exchange student from France living with us for a couple of weeks and she was what you describe: a happy socialist raised in a cheap apartment giddy on her "free" education and hoping to work for Interpol.  She did admit that their taxes are high, but felt that the "free" healthcare was a good balance.

My family went Galt some time ago -- I just couldn't keep feeding the machine, working hard all day to raise our income bracket and end up handing it over to the government.  We've scaled back, and we can do more in a heartbeat when we have to.

I have a lot of talents, but I refuse to use them to feed the machine.

Tue, 04/13/2010 - 10:16 | 298047 trav7777
trav7777's picture

This is PRECISELY how I have described socialism to socialists for years trying to get them to understand.

You trade any chance at upward mobility for a reasonably passable lower middle class lifestyle.

And it does nothing but ENTRENCH the aristocracy.

There is NO WAY to get ahead with the taxation of income.  The rich don't have to HAVE income; they have ASSETS and WEALTH.  Those who have are enshrined in perpetuity; those who have not, the same.

Tue, 04/13/2010 - 10:50 | 298096 pan-the-ist
pan-the-ist's picture

What makes you think you have a right to upward mobility?  Guess what Trav.  Life isn't fair.  At least your ancestors were smart enough to carve out some social security from the aristocracy for their trouble, now you're whining because you weren't born into the club?

Time to grow up Peter Pan.

Tue, 04/13/2010 - 11:20 | 298137 Hephasteus
Hephasteus's picture

Plus they can use thier wealth to promise genorosity for service. Which is probably why most maids and butlers in england should spend their free time after retirement shitting and pissing on the graves of those they served.

Tue, 04/13/2010 - 02:07 | 297647 TSL
TSL's picture

Great Post Tyler.

I have just written on the subject myself. I think this income and welath disparity issue reaches much further still. I wrote the following summary:

Considering the contribution the U.S. consumer makes toward both the domestic economy and other major developed and developing economies it is essential to understand who he really is. What I have tried to demonstrate is that there is no one “consumer”. At the very least there are two, the few very wealthy and all others. The small group of very wealthy, the outliers, have a black-swan type impact on many aspects of the economy and for whom causation and outcome must be viewed very differently than when looking at the average. And who is average anyway? On average, the typical human being has one breast and one testicle! By looking at aggregates one gets a drastically deformed picture and one has to dig further:

- In aggregate, the US consumer is extremely wealthy and holds considerable net worth but in fact the majority of households have very little accumulated wealth.

-  The “wealthy” and the “majority” have radically different savings behaviors. During periods of rising asset prices it has been the top wealth earners that have had a negative savings rate. The majority has actually been increasing its pace of savings.

- The current account deficit is a natural phenomenon of wealth disparity that can be in part explained by the negative savings rate of the top earners. It is probably not a sign of national excessive consumption. 

- The large share of discretionary spending from the top percentiles and their lower sensitivity to moderate economic downturns is supportive for aggregate consumption trends and does not necessarily reflect the consumption trend of the majority.

- Assets are very unevenly distributed; stocks and bonds ownership in particular, is extremely concentrated amongst the wealthiest who benefit from a diversified portfolio and who are therefore less exposed to any individual asset class.


I personally believe that the current situation offers a good investment opportunity that I shall be implementing for myself as you receive this letter. I am writing this letter to share my thoughts and provoke a discussion; it is only if this exercise naturally leads me to make a trade that I will share that trade with you. The investment ideas I share in this letter are based on the conviction that people believe they know more than they actually do. I always start with the view that I know close to nothing, which is always true, but that attractive risk/reward opportunities might lie here and there when behavioral biases or valuations reach extremes. At least the odds are on my side.

Those who have invested in companies that benefited from the rising trend in income disparity have witnessed unparalleled growth, exceptional fundamentals, and have also enjoyed exceptional outperformance since 1995.  The turn in events of the financial crisis has however put, at the very least, a pause on this trade. No fundamentals are ever written in stone. There is no “free lunch” as we have learnt the hard way.  There are a number of fundamentals that may change the trend in disparity we have witnessed for so long. I believe that we are seeing some of these changes slowly taking place.

I am thinking of the change in the tax system, a red hot subject these days, which is a significant threat to the current state of income disparity. It is extremely difficult if not impossible to determine to what extent and who shall be impacted by a rise in taxation. Will it be the middle class as usual or shall it be the wealthiest Americans who in practice enjoy an average tax rate of 15%, nearly half the rate of the middle class. It is not clear how the threats of capital mobility, outsourcing, and fiscal competition will interact with the apparent will of governments to finance their fiscal deficits by raising tax rates.

Income disparity has its limits, it must be at some point elastic, and although “consuming” has been genetically and forcefully embedded in our culture, there comes a time when the acceptance of this disparity by the general public reaches its limit. To add insult to injury, the mirage of somehow participating in this wealth creation has abruptly come to an end with the fall in housing prices that was artificially fueled by record low long term rates. The middle class has sustained it’s spending by leveraging its balance sheet on the back of rising asset prices. Many of these households will not be able to borrow against their homes for years because their mortgages are higher than the value of their homes.     The “I will make it also” factor is losing its appeal and its fairness is questioned. I expect the political involvement to grow and that the pressure will be mounting for those who have most benefited in the past to now pay the price for finding a new equilibrium.

Currently, the upper 5 percentile of tax units pay about 60.6% of income taxes. The upper 10 percentile pay 71.2% of income taxes. The middle class, which is strangely not considered as the 40-60 percentile but more like the 6-25 percentile (income between USD 75’000 and USD 200’000) pay 30.8% of taxes and represent 19% of the tax unit population. It has historically been this unfortunate group that bears the fiscal adjustment, as the upper 5 percentile may have the means to consider a move to a more hospitable taxation environment, which would put in peril over 60% of income tax receipts. A large majority of the bottom 50 percentile of tax units have zero federal income tax liability to speak of, so this group is almost not relevant, as a group, they only represent a share of 13.4% of total income taxes paid. Unless you wish to create social havoc, generally not a political aspiration, you avoid infuriating that group. But this time might be different, “One Man, One Vote”. The risk is to infuriate the very large majority and cause a social breakdown. It appears that there is no other solution than to increase the tax rate of the most wealthy. An increase in the tax rate imposed to the top 5 percentile has an impact on over half of income taxes collected. Talk about a small change, which impacts very few voters but makes a big difference to the fiscal situation.

The full text can be found under: www.thestainesletter.com

I am sure we shall hear a lot more about this subbject of wealth disparity in the coming years...

Best,

 

Tue, 04/13/2010 - 02:27 | 297660 Quantum Nucleonics
Quantum Nucleonics's picture

The elasticity of taxable income (aka the Laffer Curve) precludes the possibility of EVER raising taxes on the "rich" enough to pay for the current spending orgy. (Spending during the Bush years being mearly a trist by comparison.)  I'd wager that current tax rates would generate more revenue than a 90% tax.  People will simply defer or shelter income, and if they can't they will simply stop working and investing, which then feeds back to employment and the income of the other 99%.

Tue, 04/13/2010 - 02:42 | 297669 Sudden Debt
Sudden Debt's picture

You Americans better buy a big pot of vaseline EACH! :)

Tue, 04/13/2010 - 05:20 | 297706 Neophiliac
Neophiliac's picture

The simple upshot of this paper is that there is simply no way to drastically reduce the deficit by taxing the wealthy alone. That's not terribly new. So yeah, the Obama pledge will be broken. My personal forecast is that, in addition to the scheduled expiration of Bush's tax cuts, we will (hopefully) see some sort of a carbon tax in Obama's first term. That's peanuts though. The real work will be done in the second term - when we will probably see further income tax increases and maybe a VAT. I'd also bet that the bulk of income tax increases will come mostly from eliminating deductions and credits and not via an increase in marginal tax rates.  Increases in marginal rates attract too much public attention, while deductions and credits are too arcane for Joe the Plumber to keep track of - and yet cost a huge amount in revenue.

Tue, 04/13/2010 - 09:23 | 297976 ExistentialSkeptic
ExistentialSkeptic's picture

A carbon tax??? Are you serious???

Puh-lease!

Tue, 04/13/2010 - 05:43 | 297726 swamp
swamp's picture

A lot of class warfare and socialist thinking expressed here.

Taxes at 91% are okay — if it's someone else, and if that someone else makes more. 

No wonder the place is melting down. Grab and go.

 

Tue, 04/13/2010 - 07:53 | 297863 litoralkey
litoralkey's picture

OBAMA ADMINISTRATION PUBLISHES PLANS TO LOOT AMERICANS' RETIREMENT FUNDS

http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=23512&AgencyId...

 

The EBSA Proposed Rules is undisguised looting of employer and employee alike.

In a proposal entitled EBSA Proposed Rules, the Labor and Treasury departments are requesting information from employers, employees, financial institutions and others regarding Retirement Accounts. They "are asking for public input about the use of annuities in defined-contribution plans, such as 401(k)s. . . . including the advantages and disadvantages of distributing benefits as a lifetime stream of income . . ."

http://www.capitalismmagazine.com/politics/social-security/5709-Government-Plans-Loot-Your-Retirement-Account.html

 

Tue, 04/13/2010 - 08:28 | 297893 Carl Marks
Carl Marks's picture

What this society needs is more rich people. Eliminate the parasites and watch those charts shift.

I think we have more machinery of government than is necessary, too many parasites living on the labour of the industrious.

-Thomas Jefferson

Tue, 04/13/2010 - 09:47 | 298011 Bruce Krasting
Bruce Krasting's picture

I am the poster child for the AMT tax. I am retired. Have no earned income and have investment income. I have been AMT bound for a decade and boy does it suck.

The current rule on AMT is stupid. Basically if you were in it last year you are in it this year. But if you were not last year, you are excluded this year. That is dumb because there are people who should be in this but are now excluded. It is a very unfair tax.

In an effort to raise taxes they may change this so EVERYONE would be in the AMT tax. This would hurt your incomes if you have a family income greater than $100k.

What happens in AMT? you lose your deductions, so your net tax is higher.

What deductions? All except the mortgage deduction. No more charity. You can't deduct property taxes paid to a state. you cant deduct State income taxes you pay, you lose the child care deduction, No deductions for uninsured meadical expenses. No deductions.

It gets worse. You know those tax credits they are handing out to fix your windows or to install a solar system? You can't take advantage of these either.

AMT comes close to a flat tax. Right now it is imposed on a very small segment of the population. When and if it is expanded it will ruin your financial plans. But the good news is that you will not have to worry every April 15th if you have overstated your deductions and will be subject to an audit. The incentive to cheat is gone. I could invent a million deductions, but they can't be used so I don't. But I also do not make those charitable controbutions or any of ther other things the tax code encourages you to do.

One thing that can be said about the AMT. It discourages having a family, it discourages owning a home. Therefore it is the dumbest thing we could do. That probably means that that is exactly what will happen.

Come join me in AMT land. You will hate it too.

 

 

 

Tue, 04/13/2010 - 10:18 | 298043 trav7777
trav7777's picture

The commentary here is mfing laughable.

The vast majority of these rich are NOT productive.  They just feed off of the gov't trough.  To call them "productive" and wealth-generating is asinine.  They are just better-connected leechfucks than those on the left of the curve.

There are a very few productive who "deserve" their income, but a hedge fund manager?  What "wealth" are these wall street fucks creating?  They're merely taking wealth from other people and putting it into their own pockets and then calling it industriousness.

The right side of the curve is stilted with crooked and incompetent executives and wall steet hucksters.  If you go down a list of billionaires in the world you see a list loaded with corruption and former heads of State and in some cases, like Bhutto, Arafat, Hariri, etc., children of "public servants" who are now legacy billionaires due to the death of their corrupt parent.

The rich are increasingly parasitic, not productive.  As for the solution, it is NOT government, which is and always has been an ENABLER of these parasites.  The solution is populist labor bargaining power.  THAT is what created the middle class.  Gov't policies were not responsible for sane executive pay multiples; in fact it has been government policies enacted by/for the elites that have caused the opposite.

At this point, the elites have a complete stranglehold on ALL levers of power - gov't, unions, interlocking executive directorates.  They and their cronies are on every board and in every decisionmaking position.  I fear that revolution is the only option at this point.

If the government taxes more, that just makes more money available for the right lobbyist to help the right Senator steer into the right hands.  The richest people I know are sucking on the gov't tit, war profiteers (also on interlocking directorates of various large corporations), lobbyists, and otherwise connected with the gov't.  Look at the banking industry; it would not EXIST but/for gov't largess.  And NOW they are going to jack the taxes up and we're supposed to believe, what...reverse this largess?  Give me a break.  It's never gone that way.

In each and every case, the gov't program to do anything becomes an excuse for money to pass from a crony to a lobbyist to a Congressman who appropriates the public monies back to the crony.

Tue, 04/13/2010 - 10:50 | 298097 pan-the-ist
pan-the-ist's picture

How do you contribute?

Tue, 04/13/2010 - 11:55 | 298202 frank
frank's picture

"The solution is populist labor bargaining power.  THAT is what created the middle class."

populist labor bargaining power such as unionized workers in greece, california, etc?

Tue, 04/13/2010 - 12:45 | 298263 gabeh73
gabeh73's picture

 

Payroll taxes have grown from less than 9% of the government revenues to almost 40% in the last 40 years. Payroll taxes steal almost as much from the people as income taxes and the growth rates are far greater.

 

<a href="http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue....">Federal Revenue History</a>

 

NEO-cons love Reagan and Greenspan who doubled payroll tax rates with their bipartisian committee. The growth of the payroll tax is a blatant attack on the working poor.

 

I am not in favor of "progressive" taxation, but the theory behind progressive taxation(versus regressive taxation) is aimed at values that are difficult to argue against. Either you believe the rich should pay more in taxes as a percent of income or you don't...not many people change their mind on that.

 

Does anyone else get annoyed at Republicans who claim that "rich people pay all the taxes" while pretending that payroll taxes don't even exist?

Tue, 04/13/2010 - 12:46 | 298264 tom
tom's picture

Actually, Obama hasn't really made much difference economically. The Republicans were also eager for a second stimulus, the difference would have been only one of scale. Considering how much of Obama's stimulus was supply-side tax cuts and rebates, I'd say he has been pretty close to the center economically.

The real problem is that the "me" generation believes it can have its cake and eat it too. Solid majorities elect politicians who promise to provide expensive services, and then solid majorities turn around and elect politicians who promise they won't have to pay the taxes. The Republican revanche coming this autumn is really all about American voters carrying on their fiscal irresponsibility as long as they can.

How long is that? I don't know. The US has an incredible store of trust. Its capacity to sell debt probably outstrips the rest of the world combined, and especially in times of crisis. It's hard to imagine bond markets rejecting Treasuries and turning to ... what?

But it certainly looks like most people are intent on finding out, however long it takes.

Tue, 04/13/2010 - 17:50 | 298961 jules from aus
jules from aus's picture

i come up with two choices...

simply admit you over-spent as a country and say 'bad luck' to a generation expecting welfare and medicare, and flush those people down history's toilet, or

open the floodgates, and let every friggin wanna be american dreamer into the country on the basis they agree to work cheaper than the chinese do, as a last ditch attempt to increase tax revenues to pay for those who you would prefer to not flush down history's toilet, because they, as they swirl in the vortex of irrelevance, might get more than a shot or two off, before slipping into a forgotten obscurity...

 

as usual

good luck

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