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Soak Wealth, Not Income?
Two big problems America faces are that there is not enough tax revenue, and income is skewed to the top 10%. These issues will define the 2012 election. Obama wants to lower the taxes that middle-income earners pay at the expense of those bastards who are in the lofty top 10% of income. Romney wants to lower taxes across the board, but his plan heavily favors the shit heels that are at the top of the pile. This chart compares the two candidate's proposals: .
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The Congressional Budget Office (CBO) wrote on this topic last week, presenting the following chart to describe what is happening:
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The CBO used the actual IRS tax data from 2009, so this info is an accurate description of who made what and what taxes were paid. The results confirm the problem. The top 20% of income earners make 51% of all income. This same group pays fully 68% of all Federal tax dollars. So who are these “fat cats” who are on top of the income pile and how much are they making? The results are surprising, the following shows the incomes for those in the top 20%:
So who are these "wealthy" people in America?
Nearly half of those “rich folks” are a husband and wife who each make $65,000 a year. I understand that there are plenty of folks who don’t earn this much, but if those same people think that the households that bring in $132k a year are “rich”, they are wrong.
The people in this group are not fat cats, they are not rich and they are not bastards. This is your Dr., Dentist, accountant, small business owner. This group is what fuels the economy. Take half their income away and you have a big fall.
If you’re wondering who fits into this income group (91st to 95th percentile) consider that every Senator and Congressman is in this bracket.
We get up to the stratosphere of income when household income averages $272,000 a year (96 -99%). The folks in this group have nothing to complain about; they are doing fine. But I ask the question, “Are they truly getting rich?”
Then you get to the top of the pile. The average salary for the top 1% is a whopping $1,220,000. So the reality is that the top 1% includes:
- Damn near every pro athlete.
- Any face that you see on the silver screen.
- The bozos you see on TV every day (including the “names” on CNBC).
- Paul Krugman (His book sales this year will make him a 1%er.)
- Mitt Romney. But we shouldn’t forget that Obama is also in the 1% group. In 2010 the Prez made nearly five times the average income of those top 1% earners.
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Now lets see who is paying federal income taxes. This chart from the CBO report includes transfers from the federal government: .
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- The negative tax rates for the bottom 40% (minus 9.3% for the lowest quintile, and minus 2.6% for the second lowest quintile) includes payments of Social Security, Medicare/Medicaid and other government transfers.
- The middle 20% has an average income of $64,000 but pays only an average of 1.3% in Federal taxes.
- Those who make $93.5k (the fourth highest quintile) are still only paying 4.6% of their income in federal taxes, on average.
- The highest 20% of income earners pay 13.4% of their income on average. The breakdown of tax rates among this group are:
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Many people are advocating raising taxes on people who are making the "big bucks". What would happen if there was a giant increase in taxes? Assume that those "fat cats" that earned more than $250k had to pay 50% in income taxes and the “super rich” (top 1%) had to pay 75% of their income in Federal taxes.
Would that solve the problem? The answer is yes and no.
If taxes had been 50% for the 96-99% group and 75% for the top 1% in 2009, it would have generated addition tax revenues of $770B. A very big chunk of change. Projected deficits as far as the eye can see are in excess of $1 Trillion. Raising taxes on the top 5% would eliminate three-quarters of the shortfall. This result would be close enough to a balanced approach to take most of the budget pressure off of the table.
If we truly sock it to those with high current incomes, we can solve one problem. But another one is created. If we raise income taxes to levels that now exist in France, the result will be that 5% of the working population will be paying 80% of all income taxes! A large percentage of American’s might like an outcome like this. A manageable deficit; paid for by soaking the rich. I’m sorry to tell them that it won’t work. A plan where 5% pay 80% is not going to work. A plan that sucked $3/4 of a trillion of income out of the economy would result in a near immediate depression.
I look at the information provided by the CBO and conclude that there is no way out of the revenue hole the country is in by raising income taxes. While tax increases are part of the fix, cutting expenses has to provide the heavy lifting. But that is a joke, as there are very few places to cut expenses without also cutting entitlements. So cutting expenses is another political dead end.
There is no combination of cutting expenses and raising income taxes that would actually be effective. There is an additional option.
The only alternative is a wealth tax. Anyone who has a net worth over $5m (or $20m, or chose a number) has to pay 1% (or 2%) of that amount, every year. It would be like a death tax, except you paid it while you were alive. Think - pre-paid estate taxes.
Warren Buffett is always complaining that he doesn’t pay enough in taxes. The guy has a net worth of about $40b. If there was a 2% wealth tax he would have to cough up an extra $800m a year. That would shut him up quick; it would also solve all the fiscal problems.
Bill Gates would be forced to come up with an extra $1.2B. The Walton family would have to pony up $1.6B. And the good old Koch brothers would toss in a $1b.
If a 2% wealth tax was applied to everyone who had a net worth in excess of $5m it would add up to about $700B a year. That’s just about the right amount to get the budget to where it starts to make sense. This tax increase would not come out of current income, therefore the consequences to the economy would be muted versus a similar sized income tax increase.
Hopefully, I've convinced some readers that raising income taxes is a dead end. It may sound like a politically “smart” thing to say, but it doesn’t mean spit when shown in the light. Taxing income does not get the job done without too many adverse consequences. Only a wealth tax can make a dent.
I’m amazed that Team Obama has not proposed a tax on America’s wealthy. They must have concluded that there is no other option to balance the books. Maybe Buffett is blowing smoke in Obama’s ears. He should be. Buffett is going to get fleeced if something like this were to happen.
Note: I doubt we will hear talk of a wealth tax before the election. It would be very bad for Obama’s fund raising efforts if he brought it up. That does not mean he will not propose this if he is re-elected. I don’t see another away around the budget problems.
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Bruce - Et tu Brute ?
The direct cause of income mis distribution is the Level of Gov't spending. Why are the elections of the last 30 years so contentious?
Because there is so much $$ at stake for the winners (and their lobbyists).
Cut Gov't spending is the answer....cutting the DOE and the Fed Hosuing Admin would save $5B per year...a good start.
Bruce, it would be great if you could stick to what you know - markets - and leave societal thievery to the experts - government - who are doing a fine job without your help.
Bruce, baby,
You do realize that a Wealth Tax was proposed by one J. Maynard Keynes, don't you?
So, your 'idea' is unoriginal, and comes courtesy of this site's most vilified economist - well, maybe #2 after Krugman.
Keynes ideas were hijacked and twisted by politicians who decided that running surpluses during good times in order to pay down the debt needed during bad times wasn't necessary.
In any case, discarding an idea because you don't like the messager is lazy and dishonest.
Wealth tax with reasonable threshholds are a way to take back what the parasitic banksters have extracted from our economy.
Agreed.
Whenever I hear 'raising taxes won't solve the problem' I offer up this solution.
As you can see from the other comments to this article I'm usually shouted down and ridiculed, but never factually disputed.
a voice in the dark, thanks toady. gotta keep putting the truth out there. the propaganda is thick.
this article leaves out the most important part of taxes to americans!
The state and local taxes, business taxes, state and local, sales taxes, etc.
How about adding all of these into the fold like for instance, how much gasoline tax does the poorest american pay to get to work AHOLE!
You are on the right track Bruce, it is NOT income we should be concerned about, but REAL inequality,wealth, most UNEARNED INCOME.
TBTB have turned this into an artform, with tax accountants, lawyers and local, state, federal, and international lobbyists.
This is one way to address the wealth problem - There are others.
http://www.henrygeorge.org/isms.htm
Here is economic truth.
http://www.amazon.com/The-Corruption-Economics-Georgist-Paradigm/dp/0856832448?tag=duckduckgo-d-20
Old Prophets of Classical economics say...
http://masongaffney.org/
http://michael-hudson.com/
http://www.fredharrison.com/?cat=4
Here is a hard hitting up and coming newer generational thinker I like.
https://libertyrevival.wordpress.com/2011/01/09/ending-poverty-and-political-turmoil/
https://libertyrevival.wordpress.com/documents/on-better-government/
We also need to address Monetary Policy Bruce, though this is beyond the scope of your article...an Regulations too, On Regs, Fed Watcher on Mish's comment board had the right mix recently IMHO.
http://monetary.org
Overall, we need to triage our society, then reform I believe.
Preparing would make it go better with all the risks we face.
Fuck you.
'Two big problems America faces'
If you add death as a third problem it will put it all in perspective.
Thanks Tyler for stepping into the comments with your view and the reference to last Septembers article, I missed that one.
In reviewing it all, I have to agree that the Powers That Be, where pressed into a corner and finally forced to act, will attempt some major move to save their system. Getting U.S. and Europe to coordinate on a one time 30% wealth tax seems unimaginable, but desperate times call for desperate measures.
Therefore, to seek shelter from this attempt at an financial asset wealth tax, the bulk of my accumulated blood,sweat & tears will be moved into... no, not high dividend blue chips, not treasuries, nor even Robo's favorite ... CA muni bonds., and certainly not the highly visible PMs which have long been a government target.
Nope, I would say John Williams had it right. Little 'airline style' bottles of liquor.
Any recommendations where I can pick up 100,000 or so?
Its actually driven by discretionary income (after tax is not detailed enough). How you define that is up for debate. With all the crap people buy that they dont actually need its been sent artificially lower.
The mistake that Bruce is making is that he believes the Congressional Enron Accounting. If Congress was required to use GAAP standards the budget deficit would be much more than $1.3 trillion. I have seen numbers as high as $5 trillion a year. There is no way that Congress will be able to pay out what it has promised - even if they could confiscate the wealth of the entire planet.
so we are all in agreement...anyone more wealthy than us or making more income than us deserves to have the shit kicked out of them an have most of their weath confiscated and income taxed....I think N Korea has found this system quite workable. At last the great American Dream of mediocracy for all can be realized...
Well since the meritocracy is now owned by elites (Twilight of the Elites by Chris Hayes explains why) the American Dream is becoming kind of like the lottery. As sucker's game.
We already have a wealth tax, it's called inflation. Next idea!
Inflation is only a concern of the sheeple. The elites can game the system with help from their bankster friends.
Bruce generally I appreciate your contributions but yikes.
Why not make the wealth tax retroactive, is it unreasonable that Unc Sam could then argue"....you should have known that your wealth was going to accumulate and place you in the upper crust, sorry you cannot liquidate your assets to pay your due taxes but since it was clear of your upcoming success by year 'X' so you owe us (Now)-('X') times 2% of net wealth....Looks like we own your company."
Sorry just rambling but what the hell tax attorneys will have a plan before the ink is dry anyway, nothing like adding another couple of hundred thousand pages to the tax code.
Bruce has a plan.
Hey Bruce, did the gooberment come fish that dead deer out of your reservoir or did they let it rot into your drinking water? Yea, I thought so, they got a fucking plan too, they are going to drink everyone shake.
Bruce now to be known as OSI for short?
Congress WILL NOT CUT SPENDING. Taxing wealth will not be done. Wealth can hide income cannot (at least very easily). Wealth can flee. A VAT is probably on someones mind. I however believe Kyle Bass...the plan is......to let the dollar go....yep...shit is going to happen so all those in charge have to do is look really surprised when it does...who coulda thunk it...?
So let the parasites flee and start reversing the financialization of our economy.
Spending must be cut? Obamacare is just getting implemented. The US now has European style socialism, so it will need European style taxation. The VAT tax will capture some wealth along with income. It is a hidden tax and collects gobs of tax.
Romneycare or Obamacare, expenditures will increase exponentially. Bend over. It's tax time.
Agreed. Higher taxes are inevitable in the current environment.
I have three better ideas. Close 800 some military bases in 60 plus countries around the world. Cut the pay and/or pension of every government employee in the country in half. End the fucking Fed and have Congress create the cash we need out of thin air rather than creating debt that the FED buys with cash it created out of thin air.
Now I have a fourth idea ... fuck you up your ass with your wealth tax.
So, no wealth tax, even if it has threshholds that clearly target the elites? Whose side are you on?
THe NWO needs those military bases to enforce control. I think the French printed their own money too, circa 1790. There was some tension as a result.
Agreed, no wealth tax.
Two big problems America faces are that there is not enough tax revenue, and income is skewed to the top 10%.
What is this, chapter three of the Robert Mugabe playbook? Jeepers creepers, what set of circumstances would have to come about for the size/cost/scope/intrusiveness of government to qualify as a "big problem America faces" ??
As if the government is ever going to declare: We have the perfect amount of money right now and we don't forsee the need for the expansion of any existing programs or the need for any new ones for quite some time. Go ahead and pursue happiness good citizens, we're going to stick to our knitting for a while!
The government won't share the wealth, it will destroy it. If Warren Buffet thought the government could spend his wealth better than he could he would have given it to them already. You are a fool to believe this kind of rainbow and unicorn crap. Did you really get out the sharp pencil and calculator and conclude: How about even more socialism? What part of Europe don't you understand?
When this shit starts making the rounds on Sunday talk shows (and it will), you'll wish you owned more physical gold as you watch the price tick up to the point where private ownership is banned (again).
Jeez. M2 Money supply lowest since WWII, no bank lending in mortgages, welfare state growing on steroids despite LOW interest rates.
http://confoundedinterest.wordpress.com/2012/07/14/is-the-housing-bust-over-or-in-purgatory/
Sorry, but he lost me as soon as I read that we need a big tax increase. Good grief you could fill a library shelf of listings for "special interests" government programs that contribute nothing to infrastructure, defense, health, or even basic research.
Cut spending, reduce regulations, reduce and flatten out the tax system. Then if we have to engage in a hot war I might listen to a tax increase proposal.
Addendum: Corrupt bankers are the symptom not the base cause of the disease. PM's for base currency.
We shouldn't soak wealth or income. Spending needs to be radically cut. In addition to trillion dollar deficits we also have an additional $5 trillion in unfunded liabilities each year. Federal government spending needs to be cut by 80% for the country and the dollar to have a chance.
I dont know what world you live in, but the feds rake 30% of my income every week. no fail.
This chart makes it clear WHO needs to have their money taken:
Debt Money Tyranny
http://www.keepandshare.com/doc/3325954/debt-dollar-tyranny-2-54k?tr=77
However, I recommend that no taxes need to be raised... the criminals who run this system need to be charged for treason against the American Republic, incarcerated and all their ill-gotten wealth confiscated.
Then we need to the fraud that is debt based money.
We can start with all the interests behind the Federal Reserve System based upon their ongoing 25 year bubble / bust crime spree operation and lies to cover it up:
Weapons of Mass Debt
http://www.keepandshare.com/doc/3324744/wmdebt-graph-3-79k?tr=77
This theme should show up in the comments of every single ZeroHedge article because this is the ROOT CAUSE of the problems we face today, be they untested GMO pesticide "food, endless war crimes, increasing illness, increasing wars against citizen liberties, etc...
What a stupid concept. Another tax to tap to allow endless spending increases instead of reducing the size of government. This idiocy is like negative interest rates in parts of Europe now. You are asking people to disintermediate assets. Watch what happens to your fractional reserve based financial system when people take their money out of the system. Watch what happens to stock prices and savings when you add a wealth tax beyond the inflation wealth tax. Why work? Why save?
Capitalism is based on property rights. If I can't keep the $10 I make for mowing your lawn, why would I mow it? May as well go on the dole.
BO proposing a wealth tax? That was a
good one Bruce.
Toooooo funny. A globally-coordinated tax on the uber-wealthy's assets, you know, on the same guys running the show world-wide.
Say the impossible does happen. We do know that assets need will need to be SOLD for cash, do we? Small little detail. Who be they buyers with what money?
So, sorry to blow away your pipe-dream Mr. Tylers, you will not get to join the club by picking up their assets in tax fire-sales for pennies on the dollar. We can count on just the opposite: laws (and lack thereof) to prop up assets of the wealthy and sock it to the last of the middle-class incomes.
Not only would there be constitutional problems with a Federal wealth tax (although States can levy wealth taxes and have done so for centuries), it would require that assets be liquidated for cash. And that would utterly conteract all the good work that Ben Bernanke has been doing with QE. The point of QE is to inflate the values of private sector assets like stocks, corporate bonds, and real estate in order to maintain the value of collateral and keep the banks solvent. QE does this by buying up nearly all Treasury bonds which forces the private sector to invest in risky stuff. A Federal wealth tax would utterly destroy all Ben's handiwork. It is better to simply run deficits. If needed, Congress could command the Fed to simply issue new dollars to fund Federal spending without debt (or the Treasury could issue infinite duration bonds with 0% interest rates)
If you want to raise massive Federal tax revenue, there is something called a VAT. It would act like a one-time inflation hike, it would squeeze everyone, especially the middle class, and it would raise trillions.
So the Koch Brothers, Bill Gates and Warren Buffet will chip in a combined $3 BILLION PER YEAR with their "islamic wealth tax" to help offset the $4 BILLION PER DAY deficit spending by our 536 dictators? What the hell about the other 364 days?
I haven't seen him around lately, but the Mogambo Guru would say "we're all freaking doomed!"
Bruce,
Somebody must have stole your computer and wrote this in your blog ...
If a 2% wealth tax was applied to everyone who had a net worth in excess of $5m it would add up to about $700B a year. That’s just about the right amount to get the budget to where it starts to make sense. This tax increase would not come out of current income, therefore the consequences to the economy would be muted versus a similar sized income tax increase.
Come on you have to be kidding. Everyone would be forced to raise this kind of money by liquidating some of their wealth every year. There is no way this would not have catastrophic affects on the economy. Cut federal government spending by downsizing the government. Ron Paul is on the right track. Sorry, but this is not a smart plan in my opinion and I'm not wealthy.
Why would liquidating on one hand be 'catastrophic' but downsizing the government not?
They could borrow those sums at very reasonable interest rates. I hear they're good for the money.
That being said, I'd settle for seeing hedge fund compensation taxed as normal income and capital gains taxes put back to pre-Reagan levels.
G'head..tell me they're going to refuse to play the best rigged game in town because of the tiny vig...then pull the other one.
It doesn't matter anyway. You can't trust the politicians to use the money as they promised. Anyone remember what happened to the tobacco settlements to the states?
We already have a good idea on how the SS trust fund is manipulated.
My guess is that you could appoint a prosecution team to go after the 1000 worst financial criminals and recover a $trillion. Iceland is in the process of doing this right now.
http://www.businessinsider.com/iceland-has-hired-an-ex-cop-bounty-hunter...
Or implement a transaction tax (call it a theft tax copula, if it makes them feel less stigmatized) and fight HFTs while raising dosh at the same time!
Why stop at a 2% wealth tax? Make it 4% or 5% to generate enough money to invade Iran, Syria, Sri Lanka (nice island) and Moscow. (Moscow always appears good for a Grand Design)
To appease folks left at home give all food stamp recipients regulatory jobs in government and reduce unemployment to 3% or less as business tries to comply. Whee, this government thing is easy !
the free shit army doesn't want jobs
I'm surprised that this site would print such drivel.
The writer completely ignores the knock-on effects of such a stupid idea.
Can you tell me what the knock on effect would be if Bill Gates was socked for an extra $1b a year?
It would not change his spending. Would it?
If this would not change his spending, then in this narrow case, there would be no broader macro consequence.
Answer this question:
Which has the least negative consequence on the economy:
A) A $500B tax on INCOME.
B) A $500B tax on WEALTH.
I say the answer is B. It also makes feel good inside that Warren B might pay for it.
Sincerely,
Originator of Stupid Ideas
Would you tax the wealth of the tax free foundations? The churches?
The problem I see with your solution is the Power Elites that you are proposing to tax is the group that owns the country and all its politicians. They've set up the system to keep themselves wealthy and in power. Lots of luck getting the Rockefellers and their ilk to change the system so that they pay instead of us.
Sorry Bruce this idea won't fly, but nice try, I do like a lot of your stuff. To start with, tax wealth what wealth? Let say you own an apartment complex, don't you pay an 1.25% property tax already and it might be worth milions but most of the tenant are long term renters and the city won't let you raised their rents until they move out or die. Mark Zuckerberg he is worth billions now. So he has to start selling his stock to pay his wealth tax? Three year from now the company goes the way of MySpace; can he claw back the taxes? Bill Gates plans to give most of his money away does that make him exempt? I could go on and on. I have a better plan ask the question why are we (share holder) paying all these CEO like Tim Cook, Eric Schmidt, Jamie Dimon, et,al like, so much money anyway. They are not founders they walk into money making companies! All they had to do is not fuck it up! Change the tax law to allow corporations to expenses dividends and the share holder to paid taxes in what every tax bracket their in. Warren would be happy he would net more money and pay a 35% tax. Then force the SEC to up hold the current law of not letting publicly held corporation from hoarding cash for no reason other then paying crazy bonuses.