Tax The Rich

Econophile's picture

Even though I have said this before apparently no one was listening so I have to say it again* because every time a new tax reform bill is proposed, the same clichés are trotted out and most of them are wrong. The purveyors of these clichés know they are wrong but they don’t care because they are trying to manipulate you to their ends. And, people fall for them.

Here is what the polls say about what Americans think about taxes (Gallup, Pew Research): 

  • 51% think they are paying too much in taxes, especially the middle and lower classes.
  • Even more (63%) think the rich are not paying enough.
  • 56% think the tax system is unfair, rigged for the wealthy.
  • 67% think corporations are not paying enough.
  • Most Americans (59%) think the government ought to redistribute wealth more fairly.

These views, based on Progressive propaganda, are wrong. Here are the facts (latest data, 2014, 2015):

  • The top 10% of taxpayers account for 47% of adjusted gross income (AGI) yet they paid 71% of all income taxes and they pay at the highest rate.
  • The top 1% (only 1.4 million returns, 2014) account for 21% of AGI, yet they paid almost 40% of all income taxes.
  • The top 400 taxpayers alone are responsible for 2.3% of all income taxes.
  • The bottom 50% (income) of taxpayers pay only 2.75% of income taxes.
  • The bottom 75% pay only 14% of income taxes.
  • The average tax rate for the bottom 50% was only 3.5% and the average rate for the top 1% was 27.2%.
  • If you taxed away all AGI of those making $1 million and more ($1.455 trillion), it would run the government for 4.6 months (2015 data) and then it would be gone.

Think about the meaning of this. Wealthier taxpayers, because they are paying more than their fair share of taxes, are carrying the tax burden for the bottom 75%. If anything, the bottom 75% of taxpayers are either not paying taxes or aren’t paying enough as a percentage of their income. Since income taxes supply about 50% of tax revenues, we are over-relying on the rich to pay for government which means we have a fragile tax system. The bottom 75% ought to grateful for rich people.

Then there is the corporate income tax which most Americans think is too low and that corporations should pay more. I have no idea why people think this. When it comes down to it, it is we who ultimately pay corporate taxes. If Apple’s taxes go up along with everyone else’s, we are going to pay more for the new iPhone.

We have the highest corporate income tax rate of the 35 advanced economies that make up the OECD. Ours is 35% whereas Canada’s, for example, is 15%. You probably have heard that many of our corporations do business around the world and that they have a nice stockpile of cash abroad (about $2.7 trillion). That money is staying abroad partly because it would be taxed here at a higher rate if they brought it home.

Higher corporate taxes are a bad idea. Instead we need to reduce these taxes to keep our companies competitive with the rest of the world. Wouldn’t it be better if we incentivized corporations to invest in America? Wouldn’t more cash in the hands of productive profitable companies result in more investment, more productivity, more jobs, more profits, and more prosperity? You know the answer.

And to you proponents of higher taxes, there is one more thing you need to know. And that is, history has shown that even if you raise taxes, the government’s tax revenue as a percentage of GDP will be about the same. 80+ years of data bears out the fact that regardless of tax rates government revenue will always be about 19% of GDP. How could that be? The reason is that most of us, rich or not, individuals or corporations alike, will adjust our activities to minimize our taxes.

There is a serious problem with that though. Much of the jiggering it takes to minimize taxes disincentivizes productive activities and incentivizes activities that make sense only because they reduce taxes. These activities can be tax shelters dreamed up by clever accountants and lawyers or just reducing one’s productive output to avoid working for the government rather than for one’s own benefit. This distorts the economy and the result is that investment capital is steered into less productive activities and the economy (us) is worse off.

So now we have a new president and another attempt to “reform” the tax system. President Donald Trump has put forth a rough outline of his Administration’s tax reform proposal, which, he claims, will give the middle-class tax and corporations relief. Pretty much every president promises to reduce taxes on the middle class and raise taxes on the rich.

We can express no opinions of the tax bill yet because it is likely to be hacked apart by Congress who have lobbyists pleading for special tax benefits. It will take some time to see what emerges from Congress. But on the face of Trump’s brief outline of tax proposals, should they be adopted, they would be good for the economy and thus good for taxpayers. More money in our hands and in corporations go to more productive uses than for nonproductive government uses.

Here are some of the good points proposed by Trump:

  • A reduction and simplification of tax rates.
  • Benefits for the middle class such as doubling the standard deduction and increased child tax credits.
  • Repeal of the Alternative Minimum Tax.
  • A 20% corporate tax rate.
  • Possible tax reduction on repatriated corporate earnings held abroad.
  • A repeal of the death tax.

At this point I view these as pie-in-the-sky because the Trump Administration seems ill-prepared to battle Congress to achieve its legislative goals and they appear to be willing to increase the top tax rate if it is expedient to do so.

Our fiscal problems are not so much with our tax system but rather with government spending. Taxes will always be insufficient to fund government operations because our politicians spend and spend on ineffective and wasteful programs and policies without regard to the consequences. Higher taxes will only distort the economy, weaken productivity, cause job losses, and bring us less growth and more malaise. Spending cuts are the only cure. The unfortunate reality is that this fiscal morass is not likely to change any time soon.

*Paraphrasing André Gide, “Everything has been said before, but since nobody listens we have to keep going back and begin all over again.”

 

Source: AnIndependentMind

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Thethingreenline's picture

They should be taxed more so they contribute their fair share to needs of country. Place a capital gains on them to help shore up some of these pensions that people have been robbed of their savings to support the rich.

TTGL

mayhem_korner's picture

How about the govt spend less?  That is the actual problem.  Taxes are just the means of allocating it.

I wonder if you would feel the same way if you paid a couple hundred K in income taxes each year.

Graph's picture

Wealth 'hockey stick graph' is the only thing one needs to know.

Most ZH-ers doesn't.

 

RKae's picture

Flat tax.

No deductions.

Everybody - EVERY-FRIGGIN'-BODY! - needs to pay.

People who don't pay taxes should not be allowed to vote.

RKae's picture

Stop using the force of the state as a weapon of your envy.

Go make a few million of your own, or better yet, get the hell out of the competition for corrupt stuff and just go fishing.

BrownCoat's picture

Tax the rich!!! 
The "rich" being defined as government workers. I remember a government worker complaining about having to pay more for their health insurance. He still had a pension too. The private sector blue chip company that I worked for had ended its pension and had severely cut back its health benefits years before. LOL The entitled don't really know how the other half live. 

BrownCoat's picture

"51% think they are paying too much in taxes, especially the middle and lower classes."

Definity! The government is taking way too much money from everyone. What happened to the old Biblical tithe of 10%?

10% seems fair. Even more fair is getting rid of the parasite class called government workers.

 

linkster's picture

The writer claims that their "facts" dispute the opinion poll?  Then lists what appear to be compelling stats.  Notice that all those "facts" are based on "adjusted gross income", in other words the income of the rich AFTER they use all of the tax loopholes created for them. 

I'm shocked that the writer didn't say that up front.  LOL LOL LOL 

Econophile's picture

This is from IRS data and the only available stats are AGI. Also, the "loopholes" you deride? The main ones are business losses, depreciation for RE owned, and charitable deductions. These loopholes are based on general accounting principles. Think before you spew.

AgAuSkeptic's picture

What about tax on the poor , aka the dumb tax on poor and unhealthy people like price gouging for useless medication like Lipitor? (https://www.rxrankings.com/datatable/default/chart/zzzECA#)

RKae's picture

There already is a tax on the poor and stupid.

It's called The Lottery.

GeezerGeek's picture

I thought if we tax something we get less of it. Why isn't this working on "the poor"? Tax the shit out of them and perhaps we will have fewer of them. If we need more of them later, we can always tear down that wall.

Now excuse me while I extract my tongue from my cheek.

FringeImaginigs's picture

Why tax the rich when you can tax the poor?  Why rob a bank when you can rob the kid with a lemonade stand?

(Hint: where is the money?)

aloha_snakbar's picture

Fuck that... EAT the rich, and then redristribute their wealth...

Umh's picture

They will define rich as somewhere just below you.

detached.amusement's picture

All that's needed is to revoke all licenses to legally counterfeit currency and these problems all go away.

END THE FED

END THE COUNTERFEITING HOUSES

END THE BIS, IMF, etc

BouncingCat's picture

zero corporate income tax rate.

let people pay income tax when they receive income in the form of dividends or realized capital gains.

why should a retiree in  much lower tax bracket be socked with a higher tax rate merely because they own stock via a mutual fund or retirement fund?

detached.amusement's picture

I love the excuse of "but the money has already been taxed once".....yet if I buy something and later decide to sell it, that's considered fully taxable "income"

MrBoompi's picture

Since almost everyone who files a return makes their income from working in a business, you could say businesses pay all income tax, and by extension the consumers, who are the end customers of these businesses, pay all taxes.  Whether the author likes it or not, rich people pay lower tax rates than they used to.  Also, rich people are the ones most likely to evade taxes or use loopholes and offshore accounts to shelter income from taxes.  This is how people like Romney or Trump pay very low rates or nothing at all from time to time.  Rich people write the tax laws.  But one thing the rich people don't want to do is pay a high enough wage so that the employee has to pay a tax.  People may whine the rich pay too much, but we would never collect enough from the 50% of wage earners who are poor.  Besides, everyone hates taxes, especially when you realize the government will spend whatever it wants to regardless of how much they collect.  

smallbedbug's picture

Raise Income tax, cut examption for estates (lower it to $500k from $5 million), cut welfare, tax distribution of pensions and 401ks.

Also a fine for having STD $100k.

Salzburg1756's picture

Tax income, not salaries. If you work to earn it, it shouldn't be taxed; tax only income not earned through work.

Kantbelieveit's picture

The elimination of the so-called death tax is guaranteed to establish a hereditary plutocracy in America. Are we so pleased with growing income inequality that we want to enable the unlimited concentration of wealth in the hands of a few hundred families? There is no limit to the power of a small group of individuals when their family wealth increases steadily from one generation to the next.

History shows that the hereditary transfer of power is a faulty scheme because of the highly variable quality of descendents. Sam Walton was a paternalistic plutocrat; his descendents are greedy rich kids. There is no assurance that the good king produces good princes or princesses. Advocating unlimited hereditary transfer of wealth is advocating hereditary transfer of power. It would be a huge backward step in American society.

MrBoompi's picture

It's not a backward step when you realize it's always been this way.  It's human nature.  

Iconoclast421's picture

Better that than redistributing wealth to single moms bangin out welfare checks. 

Anon2017's picture

Make abortions more easy to obtain instead of more difficult, especially for pregnant teenage girls before they become teenage mothers and entitled to all sorts of welfare benefits.

RKae's picture

Murder is not the answer.

Instead, force fathers to provide for all the children they cause to be conceived. The pump-an'-dump has got to end.

Stop using taxpayers' money to shatter the family structure.

And stop fulfilling Margaret Sanger's diabolical plan to elimnate a race.

GeezerGeek's picture

Two wrongs don't make a right. Cut out the government-paid welfare benefits. Let individuals with big hearts choose who they want to support.

Reduce government to a minimal role, that of providing protection of life, liberty and property.

Fantasy Free Economics's picture

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Why tax the rich? Suppose we wanted to levy the highest taxes on the folks who benefit the most from big government? Suppose we wanted to levy the highest taxes on the only group which lobbies for and benefits from the growth of government?

http://quillian.net/blog/historys-greatest-cash-cow/

In both cases we would tax the rich out of proportion to everyone else.

Who has the wealth and power to make government small if that would suit them better?

James Quillian

Fantasy Free Economics

RKae's picture

As I suggested: He was an asset turned patsy.

Remember Randy Weaver? The feds wanted him to frame up some other guys by selling them sawed-off shotguns. He refused. They made up some crazy shit about him, and tried to wipe him out.

RagaMuffin's picture

Tax rates don't matter much in the face of spending rates..........

gmak's picture

You know, taxing the rich may not solve the deficit (taking all of their 'money' would only do that in the first year) - but it would give them more incentive to help solve the issue if they had to pay the same proportion of their income in taxes, as the rest of us.

Harry Paranockus's picture

45% of tax filers pay a ZERO proportion of their income in taxes. And the vast majority of tax filers pay a less than 10% effective rate.

buzklown's picture

The top 10% own everything worth owning, they should pay more.

mayhem_korner's picture

Pretty much outed yourself as an envious materialist right there.

passerby's picture

Taxes? Why bother if you are gonna print more in a month than you collect in a year.

silverer's picture

"The top 10% of taxpayers account for 47% of adjusted gross income (AGI) yet they paid 71% of all income taxes and they pay at the highest rate."

The two words "they paid" is my peeve here. Since the income of the top 10% derives almost exclusively from the bottom 90%, it is actually the rigged game that has the bottom 90% paying their higher proportion of taxes. The top 10% control the markets, the industries, and set the prices. The will still have more than everyone else, and always have had more, no matter how much tax they pay, as the costs are always passed on to the folks "not in the club".

Econophile's picture

This is some kind of fantasy of yours? So there is no competition and it's all collusion? That's total BS divorced from economic reality. Are you saying that commerce is bad and you got nothing when you bought that iPhone (if you could afford one)? APPL is some kind of monopoly that forces you to buy iPhones and iPads? Funny thing that MSFT and GOOG lose their collective shirts on phones. What's your solution tax all their profits? They'll just leave and you'll lose your job (if you have one). Do you even pay taxes? My guess is not.

mayhem_korner's picture

I'm afraid to ask where you were taught that.  It is so devoid of logic that it reads like a comic strip.

Umh's picture

The 67% mentioned in the article are responsible for most of the rigging against themselves.

When corporations pay taxes they raise the price of the goods people buy to get the money. Taxing corporations is actually flattening the tax rates since we all pay about the same price for the things corporations sell.

venturen's picture

the top 10%....don't make their money in income...a bermuda based holding company that never recognizes gains wholeowned by a guy in Omaha...that does all its transaction in Isle of Man and takes all profit in Ireland!

Umh's picture

You really need to move at least a decimal point.

Dogman57's picture

How about the stop re-electing the Tax and Spend clowns in Congress.  Term limits too.

GunnerySgtHartman's picture

And stop using the tax code for social engineering and as a form of welfare (I'm looking at you, refundable tax credits!).

Stuck on Zero's picture

This bloviator is full of doo doo. The rich pay no taxes. They are in a position to pass every tax cost on to the consumers i.e. the people who actually produce things, the middle class. The middle class producers of products cannot pass their taxes off on anyone else. Taxes always fall on producers.

Erek's picture

Sheeeet!

Cut some taxes, but cut all non-essential B.S. spending and do away with 95% of the funding for MIC, CIA, etc. and outlaw pork-barrel legislation. Reduce the tax code from 10s of thousands of pages to maybe, say, 10 creating a flat-rate for all and get rid of most exemptions.

MEAN BUSINESS's picture

Erek, "a flat-rate for all" is what Russia has because President Putin was told the retail infrastructure there was not sophisticated enough to administer a consumption tax / Goods and Services tax (GST) / FairTax ( as it's called in USA).

A flate rate is still tax on income and therefore the whole reporting to the IRS remains, with all the expense associated with that (estimated in fy2005 at 6 BILLION hours / $265B to comply with the federal tax code) let alone the politicization / weaponization!

With FairTax, not only do people who buy all the really really really expensive stuff pay fed tax, but so does the underground economy / illegal households. 

FairTax is revenue neutral and if fed.gov spending ever went down, reducing everyone's taxes EQUALLY (you know - equal before the law?) is as simple as dropping the % point by point...

As the article says, I repeat this over and over. Flat tax is a vote for #irslivesmatter. 

FairTax.org

venturen's picture

fools are measuring income....has nothing to do with real wealth. Real wealth has bought off polys from taxing them. What percent of buffets wealth is taxed per year...compared to the income of a day laborer?

 

For those with true wealth...they pay little! 

 

First step is to shrink government

2nd...tax capital gain yearly and at the rate of income

3rd tax all stock and bond transactions...small tax....but neverless...EVERY TRANSACTION! Hyper trading is death.

4th step is to eliminate all non-profits...unless everyone there is paid less than the average US wage.

5th all campaign donations are only by named people...no million dollar slush spending.

6th eliminate public unions from spending one cent on campaigns. They are welcome to write a letter to the editor if they wish to sway votes!

Let capitalism work again! Death to cronyism!

 

GeezerGeek's picture

I'm with you on your first step, but insist on adding the word "drastically".

Skip the rest of the steps. If government is too small to favor some over others, the problems with non-profit organizations, campaign donations, cronyism and public unions will go away.

Harry Paranockus's picture

"What percent of buffets wealth is taxed per year...compared to the income of a day laborer?"

 

We'll I'm going to assume that 15% of $20 million dollars is a little more money in the federal coffers than 5% of $25,000 dollars.