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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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Yes governments will be made whole, and those that hold gold will make out like bandits, but everyone else will become instant paupers.
This will never happen as it would be blantently obvious even to the most dense obliviate that government fiat is more worthless than used toliet paper resting at the bottom of a septic tank.
There was a reason FDR made it illegal to own gold, then required everyone to turn in their gold to the government. You can't revalue gold if there is a market for gold, if the government tried this while the people still held gold, the genie would be let out of the bottle and gold, silver and other precious metals would find their natural market value, which would be a phenomenom outside the control of said government.
The government will do its best not to allow this to happen as the serfs would lose all trust in government printed fiatscos, and would return to using silver and gold as monetary units instead of FRN's.
If that were to happen, the whole edifice would collapse. Social Security, Medicare, Medicade, and Obamacare would all become moot. Foodstamps, EBT cards and unemployment would cease to exist. Everything the government does, which is mainly redistribuion of wealth, is built around its printed central bank Fiatscos Reserve Note's, a return to the gold standard would cause the whole house of cards to implode.
If that were to happen, can you imagine any central bank willing to redistribute its gold reserves? Its easy to redistribute other peoples wealth as long as the wealth is held in worthless paper, but no one will be willing to redistribute their gold, not even the banks.
Nixon closed the gold window for this very reason. Governments and Central Banks don't like to redistribute their own wealth, which is gold.
"the genie would be let out of the bottle". Absolutely, 100% right on the money Evil! The Genie is already out of the bottle. The fucking US Gubmint can't do a whole lot about the price of gold NOW. Everyone across the planet knows it's real value when the fiat finally does collapse. It's a matter of who has IT, and who doesn't. The price has been surpressed for this long so that entities like central banks, the Chinese, and their Asian friends, along with very rich ME countries can hoard as much as possible when the lows hit without causing panic in the price. What a Clusterfuck Man has made of this world.
Great article, Bruce. Thank you for being a lone voice [edit to "rare voice" in light of Tyler's comment below] to speak the truth. People can agree or disagree about the merits of this, but it would indeed change the entire complexion of our society. When some of us talk about 400 people having more wealth than 1/2 of all Americans combined, we are not talking about income. We are talking about wealth sitting around in bank accounts in Switzerland and the Caymans etc. This is the generational King and Queen wealth that is destroying our middle class and turning our society into a neo-feudal shitpile. And to address your comment: "I’m amazed that Team Obama has not proposed a tax on America’s wealthy." This assumes that he cares to fix the problem. His actions say he does not. His actions say he is owned and operated by the people who would have to pay up if your wealth tax were implemented.
Look at all the fawning over the Royal Weddings and it's clear that "royalty" still has draw. That it is cast today in the paradigm of quasi-royal "merit" seems lost on many people.
But it looks like many of the English don't get it, either. Particularly those who feed at that trough.
Oligarch Butt Boy Barry O sure as hell ain't gonna rock the boat. His role is to make gestures suggesting he might be thinking of something that the other side might not like . . . before being chased back like a terrified little girl to resume his fetal position against the wall.
Keystone cop shit.
The important this for TPTB is for "populism" to be squashed by any and every means. I'm feeling truly sorry for Bruce on this one.
I'm sitting here scratching my head wondering what this all has to do with anthropogenic global warming.
Everything is connected......
b
Sorry, Bruce,
The USA existed from 1776 to 1913 without an income tax, yet we became a world power and sailed TR's "Big Stick" navy around the world. We've had an income tax now for less than a century.
So, what's so important about the government (federal, state & local) that it spends nearly 1/3 of our GDP?
Before we talk about having ANY citizen make do with less, we should be talking about how government is going to make do with less.
Our Founding Fathers would be appalled at what 21st century American Government has become...
Given how their Constitution has been twisted into supporting world domination by artificial corporate "persons," I suspect the Founding Fathers would be appalled indeed.
But in their defense, who would imagine that something so grievously stupid would be allowed in any country, constitution or not?
It looks to me like TPTB should be grateful indeed that they're not around. Nor, apparently, is anybody of note who wants to really confront the obvious coup d'etat that has occurred.
I thought you weren't going to comment on AGW until you had done some more homework on the subje...
...Oh right, you never aknowledged that you would. http://www.zerohedge.com/contributed/2012-07-11/i-lose-bet-start-argumen... My bad!
Trying to tax your way out of this shitstorm is going to kill everything and even the GOP won't be able to do what is needed to get things moving. A system that gives back more than someone puts in is broken. I'm left with voting for the lesser of two evils... I don't have the option to move to Singapore.
Fuck the evil of two lessers. Vote for Gary Johnson or write in Ron Paul.
Check out Central and South America then, or just cash out your chips, move to the country and hunker down. If enough cogs jump out of the machine, the machine stops.
HE WHO SHRUGS FIRST, SHRUGS BEST.
Buddy Roemer's not a bad write in.
It should not be about one man. There isn't a single person who can fix it. We the people must fix the problem ourselves, and not wait for someone to make the change.
We the people should have a plan in hand so when the fan stops shooting foul smelling material everywhere we can come out of our foxholes and start putting the system back together. It's been years since this game entered the unfixable stage. Keep yourself and those around you safe and be ready for some hard work afterward.
You might want to have a look at this...
http://dixienet.org/rights/corebeliefs.shtml
FUCK THAT.
MAKE YOUR OWN DAMNED PLAN.
Agreed.
However, Paul was the last best chance to LEAD, meaning point us in the right direction, and encourage us to work together towards that.
Neither of the two assholes in the running is a leader by any stretch, and will likely encourage the same sort of "us vs. them" that may well result in civil war.
Where did you move to?
To the country, and have a plan for expatriation.
Depends on how exciting things get here.
Don't leave it too late!
When they suddenly shut the farm gates, those x-ray scanners and TSA gropers at all border crossings won't be searching granny's depends and vehicle chassis for bombs -- they'll be searching for concealed fiat and valuables. They weren't put there for terrrrrrsts....
Those are some pretty big borders.
Think about it.
Indeed they are ... which is why your ever-caring and ever-vigilant Federal Government wishes to protect you from getting lost anywhere near them! They wish to protect you, whether you desire protection or not....
So, they've designated a 100-mile internal perimeter (I think the term the Soviets used on the German border was "No-man's Land", though theirs was totally uninhabited and only a hundred metres wide between barbed-wire fences - quite inadequate, really. Try digging a 100-mile tunnel!).
Anyway, expect a "Papiere, Bitte!" stop on main roads into this 100-mile border zone... and overhead drones tracking and/or blowing up "suspected terrrrrsts" who somehow accidentally fail to pass through an internal shakedown, errr, checkpoint. I've heard that their infra-red sensors are quite good in the dead of night, too!
The Federal Government can never be too careful in its efforts to protect you (on top of any protection your own state government may already provide). You might even think to send your Federal Congress reptile a 'Thank You' card for supporting this!
Note: The following links are 4 years old...though I've heard similar stories in just the last few days. Check Alex Jones site for more recent DHS and TSA violations of individual and states' rights.
http://www.youtube.com/watch?v=NPOuj-WzAoA
http://www.wired.com/threatlevel/2008/10/aclu-assails-10/
Look at the combined borders and coastline of the USA. It's around +/-25k miles total (depending on how you measure the coast, it changes with the tides, weather, etc.). You're talking about successfully patrolling 250,000 square miles?
If so, then even with drones, satellites and robots, we will indeed have fulfilled the Fed's second mandate: Full employment!
Fixed it for you.
There was only one man who could have led the country to avoid what is to come, and that was Ron Paul.
As the good communist Obama is, he just wants everybody to make the same amount of money whatever the job one does.... or those who don't work either.
It's like, if people make more than they need to buy food and pay for the roof over their heads, they are concidered rich.
same here in europe. we should tax the "rich" but for a socialist, "rich" is everybody who makes more than the minimum wage.
but as nobody really conciders themselves "rich", they all think they're talking about the fat cat who happen to have left the country years ago but who still live here. and by that I mean, all their money is long gone to Monaco, Lichenstein and Luxemburg. Not Switzerland as a lot of people still think because Switzerland sells out their customers if the price is right. Just look at "the second black CD" event that happened over the weekend with Germany...
"There was only one man who could have led the country to avoid what is to come, and that was Ron Paul."
Agreed, but are the other two guys just blind, or do they think they can keep it afloat until they're dead? Who would want to leave things a shambles?
I don't know.
But it doesn't matter.
Ron Paul shut up after his Breakfast with Bernanke. I wonder what Bernanke said to him.
"Ron Paul shut up after his Breakfast with Bernanke. I wonder what Bernanke said to him."
No doubt he had a Arthur Jensen vs Howard Beale moment!
+1
Boy howdy.
Any talk of more tax without figuring out how to put a muzzle on spending is a non-starter. Simplification of the tax code and removal of expenditures within it is paramount for starters. Next, some sort of forced restraint so the politicos will stop the ongoing short termism phenomenon where they loot all they can while they are in power and then pass the baton and claim ignorance.
Simpson Bowles was literally laughed at, there are very few politicians serious about reducing the deficit. If, and it is a big if, the government can get together and do those two things (remove tax loopholes, concrete plan for deficit reduction) that is the time to consider some wealth tax as you suggest. The temptation always proves too much for the politicians, they just cannot resist spending the next generations money.
I am no 1%er but cannot fathom asking them to pay any more when it all ultimately goes into a black hole anyway through waste, cronyism and the like. Short of the wealth tax, we should look at an appropriate ratio of tax increase:spending reduction. If they want to raise taxes, ok, then say 1:5 where each dollar of additional revenue comes with 5 dollars of spending reductions. The higher the ratio the less squealing from the contributors. No one like tax increases, but as we stand presently, they serve no purpose.
.Gov has a spending addiction, if they can get going to meetings regularly and prove they are serious about getting sober, then the time comes to consider seeing if they are responsible enough to start getting additional revenues. The cart needs to come before the horse. Have .gov prove they are worthy first, then institute the painful fix...not before, they are addicts it will never work. If they can do that your plan becomes reasonable.
Can someone explain to me how I could pay 2% wealth tax if I had $50 million in the bank making only 1%.
Certainly Mr. Pan. As we in .gov see it you are hoarding resources as represented by a surfeit of digital federal reserve notes on deposit in our national banking system. Your case is exceptionally easy to ameliorate since there are no assets requiring appraisal involved and no physical property to liquidate; simply remit your entire annual portfolio income as well as one percent of your principal to your duly assigned taxation authority, e.g., us. We thank you for your voluntary compliance, failure to do so will result in the assessment of penalties, interest, and possibly a compliance freeze on any associated financial accounts as well as liens on any attachable properties we suspect you may own or possess.
Very well said.
:D
Honestly, I can't see a solution to the current situation without a complete re-rack - Meaning a return to a Constitutional Republic. We'll need to hold another Constitutional Convention and include some things like "plain language/original intent" to prevent subversion by the Supreme Court, and a host of other things.
The USA will become more like Europe with it's disparate states. As it should be.
I doubt this will happen w/o TPTB making a play for global governance, but this will likely prove difficult when the push-back happens in the USA. They don't have enough time to do a slow confiscation of firearms (which is the only way it could work), so they will have to try and do it "Katrina-style" over the whole USA at the same time. Ain't gonna happen.
This looks like a good place to repeat myself. I appreciate all suggestions.
You want to fix this? Simple:
1.) Let GOLD trade free of taxation and derivatives. No more levered futures contracts. 1:1 allocated only. No tax on gold sale, capital gains or otherwise. Do it with silver too, while we're at it.
2.) Impose a national progressive real estate tax with a super high threshold, say $10,000,000. No federal taxation below that level. Amend The Constitution to allow the threshold to rise based on the true rate of inflation measured against gold, silver, energy and food. Amend The Constitution so that the states cannot tax real estate below a threshold of $5,000.000.
3.) Ban all other forms of taxation (including fees, tolls etc.) with a Constitutional amendment.
I would include an amendment that the Fed Gov't cannot own more than 15% of the country's land, and the states cannot own more than 15% of their respective state's land AS ASSESSED BY DOLLAR VALUE....
That fixes the problem for about 1000 years. Taxation is progressive, but only above a very high threshold, allowing those who want to live simply and self-sufficiently to do so if they wish. This forces the monied elite to deploy their capital towards CAPITALISM (seeking profit via production of goods and services), as opposed to their current method of seeking a return on their money, COLLECTING RENT.
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"Labor, entrepreneurism, investment or rent.
The three former are through hard work and ingenuity, the latter is through government privilege."
Stolen from Death and Gravity From http://www.zerohedge.com/news/guest-post-why-left-misunderstands-income-...
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Upon some further reflection, I would like to note that I attended a two day presentation last week put on by a federal agency and one of the key topics was sustainablility. That is sustainablity for those of us attending the presentation. The irony being that the federal government has not acted in a sustainable manner in several decades. Perhaps if we the people waste less, they will be entitled to more? Somehow it is hard to reconcile being schooled about sustainability by these folks. An article out this week says the DOD is spending $56.00 per gallon for some sort of algae based fuel. Is this why we need to raise taxes, so they can buy more 56 per gallon fuel?
No tax increases until they hit rock bottom in their addiction. Addicts typically cannot recover until they hit rock bottom and this case is no different. Give us at minimum five years of sobriety in federal spending (reduce spending significantly for five years straight), I don't know, maybe even pass a budget every year for starters....then lets talk about revenue increases. Until then this is all noise, there is no reason anyone should be willing to fund anymore of this profligacy so they can teach us about sustainablity. Talk about the pot calling the kettle black. Who in the private sector has not dealt with a 10% budget cut across the board at some point in their career? These guys only increase spending and then cry about needing more money. This is a joke.
And back on the 'wealth tax', lets just say the federal government found religion and cut spending in a major way for five years running.....So lets tax wealth at that time, once they have earned some taxpayer respect back. And then just tax all financial products (not just the rich) say 1% annually for 5 years total. We lose 1% in a portfolio if a yak farts, so big deal right. They have zero taxpayer respect and zero credibility currently. Earn some respect, find some religion, then lets talk.
Agreed, but I would go further. I can't see forward progress until there is a massive reduction in all forms of government spending, federal, state and local, on the order of 50-75%. Preferably 75% Federal, 70% state and 50% local.
I am also adding to my "Fix It Manifesto" that government debt would be banned, all government must operate on a cash only basis. If you want something built, run a surplus, save it in gold, and pay for it if/when you have enough savings to pay for it.
Indeed. Until this list is chopped down to one page, there is no will to address spending.
http://www.usa.gov/directory/federal/index.shtml