Which tax policy is more fair?

Having the rich pay proportionately more taxes is fair.

The benefits they have they earned from this society so it is fair that they pay for them.

Taxing the rich more is fair.

1. In what sense do the rich “earn” their vast wealth? In the sense of the market pays them? I think this is a fundamentally sick worldview; the market is not this deity-like entity that objectively determines how much money people “earn” or “deserve.” The market is chaotic, manmade, and entirely susceptible to manipulation, especially by the wealthy who control it to begin with. This sanctimonious moral indignation at “taking their hard-earned wealth” is absolute bullshit; even if rich people work harder than poor people, that doesn’t translate to them morally deserving 1,000 times as much income as poor people.

2. Money has a variable value depending on how much you have. To someone who makes $30,000 a year, 30% of that money is a huge amount of value, the difference between being able to feed your kids and not. To someone who makes $3 million a year, 30% of that money is obviously more dollars, but is less value because it is not remotely a matter of going hungry.

We need a highly progressive tax system. Keep taxes low for poor and middle class. Raise them by 10% for people making more than 200k. Then keep raising them 10% for each additional zero. The top marginal rate for multimillionares should be 70%, like it was during the 50’s and 60’s.

I don’t think there’s a way to get around the fact that a flat tax is fairest. If everyone paid the same percentage of tax on their income each year, what could be simpler or more fair?

It would greatly simplify taxes in general, could eliminate much of the confusion and fear that come with taxes, and could still be practical.

@jerv It comes down to what you or anyone wants. Fair is merely a compromise. Everybody wants to keep their hard earned money…the more you have the more you can spend and the less you have, the less you have to pay to the Government in taxes. No body like to give their money to the Government. If you earn a low wage naturally you will look to the rich as the enemy towards the meager wages you earn and the rich will look to the government as the enemy towards taking away what they invest into their lives and or businesses. The bottom line is all of us have to support this government that demands more and more. The reality is they the Government, looks to the low hanging fruit…the rich! The reality is the rich who do pay a huge amount of taxes then say “hold on a minute”!! Why on earth do you need so much money from me and so little them! It comes down to if you have money you will spend it. The Government has gotten used to spending money it doesn’t have…especially now! Bush started a was that tipped the scales from a balanced buget to a deficit. Wars are expensive. Obama pledged to right the ship and has only sunk it further by making more promises than WE can keep. Sure it is easy to target the rich and make them pay more for OUR mistakes but in the end WE have to face facts/reality that our country is up to it’s axles in debt and it is time to pull the country out of the mud pit. This can only be done by cutting spending…no if’s and’s or but’s. Taking more money from the very sources that can generate jobs is wrong and misguided. It is time to face facts and stop the insanity of tax and spend.

@funkdaddy, see my post. A flat tax is not remotely fair, because the same percentage of income has a radically different value depending on what your income is.

One other thing I forgot to add is that our tax system was not designed to handle the sort of income disparities we have these days. The top bracket starts in the mid-$300K range yet we have people pulling in over 100 times that easily. That tells me that we need a new system, one that can actually handle such a disparity, and with the dramatic L-curve distribution of income, it is entirely possible (in fact, likely) that such a system would lower tax rates for many, like the small business owner who managed to work their way up to a modestly successful $200k/yr.

@Cruiser I agree that the government is used to spending money it doesn’t have, and the Reagan years slammed that point home to me, but that is another discussion for another day, as is discussion of where we should (or can) cut spending. Well, aside form the fact that the current situation is placing more people on government aid (thus increasing government spending) and that the rich are not creating jobs like some claim.
My point is that the more people that actually have money to spend, the better off the economy as a whole will be, bu that is incompatible with the increasingly concentrated wealth that our current “trickle up” economy causes and that some people demand.
I don’t mean to come across as blaming or demonizing the rich; I just feel that they are not the only hard workers nor are they the only ones entitled to keep what they earn.

Flat tax is fairest.

You earn a dollar, you pay 10% of that dollar to taxes. You earn a whole bunch of dollars, you take each dollar individually and pay 10% of each of those dollars to taxes.

If I earn one dollar and pay 10% of that to taxes, why should I have to pay 15% out of each dollar just because I earned more than one?

@funkdaddy @Answerbagger I think that ETPro summed it up best in another thread, but I will copy it here for convenience:

“Here is a list of countries that currently have a flat tax. Please point out to me which one you think is such a model of prosperity for all its citizens that we should throw out a progressive tax system that has served us well for almost 100 years and emulate their tax model instead.
Bosnia and Herzegovina
Bulgaria
Albania
Czech Republic
Estonia
Georgia
Guernsey
Kazakhstan
Iraq.
Jersey
Kyrgyzstan
Latvia
Lithuania
Macedonia
Mongolia
Montenegro
Mauritius
Romania
Russia
Serbia
Slovakia
Ukraine
Note that Iceland has a modified flat tax that includes investment income, but has a long list of deductions and exclusions for low income earners, and so I did not include it. Since their banking system is bankrupt, it wouldn’t make a great example if we did throw it in.”

The first $30,000 anyone earns in a year, whether they make just that, or make more than that… goes to food, car payments, car insurance, rent/mortgage, and inevitable emergencies. There is no entertainment in there, no cell phone, no cable TV… the first $30,000 a year covers life’s basics.

To tax that money from someone, is to tax their food, or their health, or their ability maintain shelter for themself.

Therefore, the first $30,000 that ANYONE earns in a year… should be 100% tax free. No income tax, no FICA, no social security, NOTHING. Tax FREE.

The people who earn more than $30K can then argue over who pays what. (But even for them, the first $30K they earn… tax free…. that way they can’t say unfair).

@Kraigmo The sad fact is that in some areas that isn’t enough and in others that actually allows for a life of (modest) luxury, so it would have to be adjusted regionally, and that is more of an issue of state/local taxes. I pay no state income tax, but the 9.5% sales tax increases my cost of living considerably and also generates revenue for my locality that could be used for homeless shelters, soup kitchens, free clinics…

@jerv You are asking for solutions to our problem. The solution does not lie in taking more money from anybody period! We the people and the Government has become too accustomed to just throwing money at the problems our country is facing as opposed to taking on the difficult task of making the hard changes needed to cut spending. I don’t spend money I don’t have and so should the Government and they better stay away from my wallet until they get their shit together!!

@Cruiser So ensuring that people earn enough to not require government money for basic necessities like food and shelter would not reduce the amount of money that the government has to spend? And lowering the tax burden on the middle class (like many small business owners, the segment that creates the most jobs) would not help out in other ways? I was under the impression that increasing the amount of discretionary income and the number of people that have it would stimulate our economy by increasing consumer spending, demand for goods/services, etcetera. And it seems to me that lower tax rates for lower earners (<$1m/yr) is one way to help put money in the pockets of more people.

It would be nice if the private sector would handle this on their own without government intervention, but in this instance, “nice” translates to “foolishly optimistic to think it’d ever happen”.

@Cruiser, you said, “The solution does not lie in taking more money from anybody period!”

So, you don’t think merchants should take money from people who pay for food? You think everything should be free?

Or are you just referring to a democratically elected entity redistributing wealth, as opposed to the oligarchy-controlled marketplace?

@Qingu – I read your post, I’m not necessarily advocating a flat tax for the US, but I think there’s no question it’s the fairest way. I would love to see it considered and explored as an alternative. If we know we need 30% of the money people earn to run the country, then take 30% from everyone, what’s unfair?

——————————

Take money out of the equation and imagine you’re teaching children. If you send a group of kids out to collect flowers and they all come back with different amounts. At the end of the day Sally, who loves flowers, ran around all day and collected 10 flowers, so you take 8. Jill wasn’t interested in flowers, she’d rather play kickball, so she only has 2, and you take 1. Sally has twice as many flowers, but I doubt she’s going to be happy about the situation.

The kids are going to know it’s not quite right. Whether it works in the real world or not, taking more from those that have earned more isn’t intrinsically fair.

The thing about these discussions is that everyone feels they are overburdened and through their circumstance should pay less than they currently are for whatever reason. So you get together with people like yourself and everyone seems to agree, all those other folks should definitely be doing more and take their share of the load.

The truth is “the rich” are just people like you or me. Through some combination of hard work, skill, luck and timing they’ve made more money. “The poor” are also just people, who through their circumstances have less money. “Fair” would mean that a person is a person and they should pay the the same.

Slightly off topic, but the problem with the current system, in my opinion, isn’t that there need to be higher brackets for those that make more, it’s that there need to be less ways to hide their income. You can tax it at as high a percentage as you want, but if someone can hide or exempt most of their income, it’s just fighting a losing battle.

In a limited and simplified run through, a flat tax with a minimum threshold (much lower than $30k) and limited exemptions could address some of the problems with the current system.

It will never happen.

But I still believe it would be the “fairest” solution.

It depends on what you want to accomplish.

There was a time when taxes and regulation were negligible. Industrial development skyrocketed (the industrial revolution), contributing to the current technological society we live in. But, at the time, working conditions for the average worker were atrocious.

With a progressive tax and regulatory protections, more people live well and securely (and the rich grumble about paying disproportionately more in taxes out of each dollar they earn), but technological advancement is throttled.

It is through democratic processes that we, collectively, decide where in this spectrum we want to be.

@funkdaddy, how on earth are you defining “fair”? Fair in what sense? What moral system are you using where “equal percentage” is equivalent to “fair,” and how did you get there?

And your flower example is a terrible analogy and bears no resemblance to the real world market. In your analogy, someone who works twice as hard might end up with twice as many flowers. In the real world, someone who works just as hard as someone else might make 10,000 times as much money. This is because the market is chaotic and easy to manipulate by powerful people who benefit from it. The real world is not some childish scenario of Sally flower picking.

In what universe do you live in where a CEO who ruins a company, but has a contract for a $30 million golden parachute, “earns” that money in the same fundamental sense that a hard-working flower-picker earns more flowers?

The general taxation rate has been declining for years. There is the greatest income disparity in this country since the Great Depression. 17% of those who could be working are unemployed. Coincidence? I think not. Beyond ethics is the simple fact that poorer people contribute proportionally more to the economy than the wealthy. It is the poor and middle classes that pay a large portion of their money for basic goods. The rich, in order to get richer, shuffle money around in buying stocks or junk mortgages. Reducing the income gap is in the best interests of everyone. Robert Reich recently published a book arguing this point.

IN another question I posted a quotation from someone; I’m too lazy to dig it up, but here’s the summary:

“It’s not unreasonable that someone might be twice as industrious as another laborer. And yet somehow it’s not uncommon to meet people who not only make twice as much as others, but 1,000 times as much.”

Whoever is advocating a flat tax needs to explain precisely how, and in what sense, wealthy people “earn” thousands of times more money than poor laborers. Because I think it’s clear that you are worshiping a false god.

I have always felt that the income tax is an illegal ( read Unconstitutional ) tax. The entire structure should be dismantled. Failing that, everyone should pay the same percentage of tax on ALL sources of income, with NO exemptions or deductions for anything. Ten percent across the board sounds about right.

Okay, it’s not a bad question on its face, even if it does seem to start with a bias in favor of “certainly we should have higher taxes for the rich”.

But it’s a question that can’t be asked in a vacuum, without looking at what the tax revenue is used for. That’s not a meaningless question at all. We would have to agree in the first place that the taxes themselves have validity, and not just “because we ran up this huge debt that has to be paid”. And we’re unlikely to reach that agreement, so let’s put it aside for now and assume for the sake of discussion that we all somehow magically agree that the revenues that the government ‘needs’ and demands are agreeable to all of us, and that we all have previously agreed that ‘the debt is valid and must be paid’.

Well, let’s look at a real-life example. Carl Crawford signed this week to play for the Boston Red Sox for a reported $142,000,000 over the next seven years. That’s roughly $20,000,000 per year, which we can probably all agree is toward the high end of the salary spectrum. And maybe we can avoid some of the arguments about how this is ‘money going to the fat cats who wrecked our economy’ bullshit, at least for awhile. Carl is a highly skilled athlete, not fat, and not in any way involved in managing financial institutions or other businesses outside of baseball and his personal investments.

You might argue that if he gets 200 base hits per year (which is a challenging achievement for any professional baseball player), then those hits are priced at $10,000 apiece – and you’d be right if that was all he ever did. But he does more than just hit the ball. He will also catch and field balls in the outfield, throw out runners trying to catch an extra base on a hit of their own, prevent some runners on the other teams from advancing on the bases because of their respect for his speed and defensive abilities, steal bases and disturb the opposing pitchers’ concentration when he’s on base, and generally add to the club’s feeling of confidence and ability to be competitive in any game. Yeah, I think it could be a great year.

But you’re still not impressed. “That’s just baseball,” you say. “Get us back to the real world.” Well.

Baseball is part of the real world. Boston Red Sox ticket sellers are pretty thrilled about improvements to the Red Sox lineup; it means that they will continue to sell out at Fenway. Fans of the Red Sox around the country will be more interested in going to see road games of the Sox played in their area. A lot more Boston fans will continue to travel to Baltimore, for example, to watch the Sox play there. Peanut vendors, to name one tiny segment of the ‘real’ economy, will be happy to sell more ‘peanuts and Cracker Jack’ at all of the ballparks that will be slightly more filled because Carl Crawford is going to be playing left field for the Sox.

What does that have to do with taxes? Plenty.

If your plan were to tax Carl Crawford at a ‘highly progressive’ rate, so that, for example, he paid a 70% tax rate on his ‘second’ $10,000,000, it would mean that he could have stayed in Tampa for around $10,000,000 and whatever the tax is on $10,000,000, or he could have netted ‘only’ another $3,000,000 per year for coming to Boston. Yeah, I would, too. The point is that he takes a significant risk to come to Boston. He might not do that for ‘only’ another $3 million per year. Then the ticket sellers, the peanut, beer and hot dog vendors, the sports casters and advertisers and all of the other business and people that rely, however peripherally, on fan interest in the Boston Red Sox, would have to make do with less.

This doesn’t even take into account that the owners of the Boston Red Sox take a huge gamble themselves with their own money by offering Carl and other athletes enormous sums of money to play for their teams. They do it with an expectation of generating revenue and profits for themselves, and sometimes the gambles are huge busts. If you take away much, most or all of their profit motive, then why should they exert themselves? Why take risks at all?

And that’s the danger. People see “the rich” and get envious, but they fail to see, because they haven’t had examples in American society, and can’t even imagine, “What would things be like if people didn’t have the incentive or desire to take risks?” I don’t want to live in the place where we try to answer that question by making it happen.

Those with lots of money get more from our society so why should they not contribute more also.

@Qingu – definitely not personal, there’s no worship, this isn’t about religion and I’m sorry if I’ve offended you. I think you have me painted as someone that I’m not.

I think we may be getting crossed up between the real world tax situation of the US, which you’re discussing, and a philosophical question of fair, that I’m working with.

Looking up fair in the dictionary, I think the closest definition to what I’m talking about would be “free from bias”, but in my mind it also means “equal for all” in this case.

The real world market you keep referring to isn’t a simple system and fair has little to do with it, if something has value either by itself or as a tool to create greater value, someone will pay for it. The system is twisted and our perception of fair there will be molded by personal experience. I used the example of the kids to illustrate that fair is a simple concept that can be understood at a basic level. Kids have a great understanding of “fair” before we teach them how the world works and how to get ahead.

There aren’t shadowy figures behind the scenes pulling the strings, the rich don’t get rich by some initiation rite that is only known to a few. If someone’s goal is to be rich, they can, with enough luck, time, and hard work, probably achieve that. I’m not saying everyone can, but if money alone is truly someone’s goal, then there’s no rules against them going out and making a lot of it.

Let’s try a personal example? Hopefully not offensive.

I’ve read your stories, and know you enjoy writing. If someone decided to pick up your works and publish them, you could make a decent living from that. If it suddenly became the next Lord of the Rings or Harry Potter then you would suddenly be one of the much despised rich.

Would your thoughts and writing be worth millions of times more than other authors? Worth thousands of times more than the time of those who work in the book stores, or the people who read the books? Would you have done anything wrong? Would you feel bad about suddenly not having to worry about money? How much of your money should go to the government? If 70% of that income went away and you didn’t agree with how it was spent, would that bother you? Let’s say you’d gladly give half to charity, but aren’t exactly stoked that you’re funding a war.

Those would be some of my concerns from the other side if someone suddenly said I owed 70% of my income. It’s not just about taking the money and how much I would have left, it’s that you’ve taken my choice of what to do with the money. “Earned” in this sense doesn’t necessarily mean you wrote more words, or your words were more powerful, just that your actions lead to money coming to you. Is it fair that you have more? Should you at least be able to decide what to do with it?

Now replace ‘suddenly rich because of publishing deal” with “built a company over the course of 40 years” and you have the situation of how most people got rich.

Personally, I hope to one day have enough money to make a difference in some areas that matter to me. But that should be my choice, and I’d hate to think I worked hard for 40 years so 70% could be whisked away beyond my control.

That certainly isn’t fair.

@CyanoticWasp One thing I love about the baseball analogy is that it ignores the fact that the increase in ticket prices keeps many from attending games. Besides, in that example, there is quite a large gain to be made by moving, so staying put because it’s not with moving for a net gain of more than fifty average Americans earn tells me that you already earn enough to not only not need the money, but you don’t even really care about it and are just on a power trip.

However, you are correct that its not a question to be asked in a vacuum. What you have to remember here is that for some people, economics is a game, but for others it is a matter of life and death. A few million dollars may not mean much to you or Carl, but even a few hundred dollars makes a huge difference for people like me.

There is a happy medium somewhere, but we keep getting farther and farther from it, and the longer it continues, the more problems we will have and the more drastic solutions will be required to prevent our nation from becoming close enough to being a Third-world country that arguing that it isn’t would be mere semantics.

@HungryGuy What I would like to see accomplished is a reduction in the numbers of people who are homeless and starving, and to reduce the number of people who would be without government programs. Anything beyond three hots and a cot must be earned, and it would be great if we were still as much of a land of opportunity as we used to be so that you could earn a life of luxury rather than be stuck in the same stratum that you were born in
As you can guess, I am against giving the rich a free ride at the cost of those below them, but I do not feel that they should be penalized like the middle class is either. I just want them to pay their fair share and abolish our current “bell curve” tax system.

@jerv @Qingu I don’t mean to lump you both together but my answer would be the same to both your comments. Of course I do not want nor demand to deny anyone basic necessities for a decent wholesome life even if it is to be provided by our government. I am talking about the fact that our government is doing very little to curb spending so everybody can get a break from this tax and spend mentality! The size of our federal budget is enormous and I see opportunities galore to cut the budget and provide tax relief we all could use. I don’t spend money I don’t have and neither should our Government…it’s that simple!!!!!!

@jerv
It’s hard to argue tax policy for a nation as large and diverse as the United States if you’re going to fixate on “rising ticket prices [in baseball] mean that some people can’t attend the games”. That’s true, but… attendance at major league sporting events continues to set records year after year, so apparently the pricing isn’t bad to the increasing numbers of sporting even attendees.

And you sidestepped the issue of risk entirely. Crawford takes a risk in coming to Boston, because he might not be ‘all that’, and then his personal reputation could start taking a hit in a major media town. He may not be marketable any more if he has a bad year or two. More than that, the owners of the Red Sox are making a bet in the hundreds of millions of dollars, and there has to be a return to them in order for them (for any entrepreneur, in fact) to choose to make the risk in the first place.

@Cruiser so what would you cut? Were you able to get it balanced? Very little of the budget is discretionary spending. Most economists that have studied the problem say you can’t cut your way out of the deficit at this point. Republican fiscal policy has dug us into such a hole, that the only way out is to both cut spending AND raise taxes. I’m blaming the tax increase on Republican policy, because they’re the ones that created the problem. They should call it the “Bush/Regan spending repayment tax”.

People who argue that taxes should be equal for everyone forget that some people can make more and less each year. The rules are the same for everyone. I know a guy who was a millionaire who had his company collapse and basically left him almost homeless. He now qualifies for aid. Nobody can be certain how their fortunes will work out, and the “fairness” of any tax policy should mean everyone plays by the same rules (you get a break if times are tough, and you pay more if things are going great) it doesn’t mean everyone gets taxed the same percent—which is ridiculous.

@gorillapaws – as an honest question, why is it ridiculous?

@funkdaddy it’s like saying that the person with their leg ripped open in a car accident, and a person with a sniffle both in the emergency room should get an equal amount resources as a matter of fairness. Fair doesn’t always mean equal. Fair is how everyone would want it if the roles were reversed.

@gorillapaws Republican fiscal policy is what got us here 2 years ago and was primarily because of the bipartison support for a war in the middle east we are still mired in. Try cutting the military budget and these bridge to nowhere pork projects to start. Plus we cannot keep trying to spend our way out of this economic crisis. Next we then put someone in charge who has the wherewithal to negotiate some sensible fair trade agreements.

Here is my principle: Taxes shall be levied according to ability to pay. That is the only American principle.—Franklin D. Roosevelt

To clarify. Both systems are fair. Both. It’s fair that everyone pay the same amount of dues, and it’s fair that those with more money pay more.

The clincher for me is this: which of these fair systems would I rather live under? The one where we take food from the babies and shoes off the feet of the kids of the poor, or the one where people who can afford private jets and a new Mercedes Benz every year toss a little more of their wealth (which is a little less necessary to them than it is to the guy taking the bus to work) in the kitty?

I’d rather live under the second kind of fairness.

@CyanoticWasp In that regard, he takes no more of a risk than I do every day by posting here, only with a few more dollars on the line. The same risk applies, yet some see the dollar amounts and think that the odds change. And I think my risk of injury is higher than his as well; how many MLB players have had fingers amputated on the field?
I would submit that I take more risks as I doubt that Carl Crawford is at risk of getting thrown out onto the street and eating out of dumpsters whereas he is risking mere luxuries, though if he isn’t already set up for a lifetime of luxury already then his money management skills are worse than most crack addicts. If he wrecks his car, he can replace it; if I wreck mine,i lose my job, then my apartment…who really has more at stake?

@funkdaddy, if I became a billionaire because of some weird mix of lucky circumstances involving a critical mass of people actually liking my shitty writing, absolutely, I would not “deserve” my newfound fortune and I would absolutely advocate for the government taxing my upper brackets at 70%.

You still seem to believe that the money you make through the capitalist market is “yours” in some moral sense, the one-to-one correspondence of the hard work you put into it. I think this is a delusion.

In the case you brought up, that does not strike me as anything to do with working hard and earning; it strikes me as a stroke of pure luck. If you are walking down the street and you find 1.2 billion dollars, is it “yours” and would the government be taking some morally-deserved “choice” you have in taxing it to spend it as you like?

If it’s unfair to take money from someone who inherited a billion dollars and hasn’t worked a day in their lives, why is it fair to take it from a day laborer who gets up before the crack of dawn and works so hard all day that all she wants to do when she gets home is collapse in front of the TV, but she can’t because she has to feed the kids, get their lessons done, and get them off to bed.

The US economy grew the most, produced the most jobs, and produced a huge crop of new wealthy people back before Reaganomics, when we has a heavily progressive tax schedule. It wasn’t “unfair” to millionaires and billionaires. Trey did very well. And their contribution to the revenue stream let us invest in the future and pay down the debt of WWII. Since Reaganomics, we have produced fewer jobs, run the national debt into the stratosphere, and begun to starve out the middle class. That, to me, is what is unfair. Not just unfair, it’s plumb stupid. We are killing the goose that laid the golden eggs.

@ETpro, this is “one of those times” in which I agree fully. I also do not understand the “trickle-down” theory advanced by Reagan and Bush I and Bush II. If it was so great, we wouldn’t have the big income dichotomy we have between the overpaid actors and reality show casts.

If it helps out, about a century ago, “trickle down” used to be called “Horse and sparrow”; give a horse enough oats and there will be enough undigested oats in their droppings to feed the sparrows.

In other words, the poor can eat shit.

I just re-read my last post, and realized that I forgot to finish my last thought. I meant to say between the actors and casts and the middle class!

@jerv

First your numbers are wrong. We’ve been through this but the top 10% pay 70% of the income taxes. Our system is highly progressive. Reaganomics ushered in 20 years of prosperity. The idea that they destroyed a prosperous economy is just ridiculous. The major change from the fifties is that we have lost most of our manufacturing capacity. We have regulated it out of existence.

Most of this thread is simple jealousy. Gee that guy makes more than me, that’s not fair. The truth is the baseball analogy is a good one. The guy that has a batting average over 400 will draw more fans that the second baseman that hits average and doesn’t drop many balls. The good hitter will bring in more than his salary even at $20 million a year. The second baseman will work as hard but doesn’t draw in any new fans. Ergo he’s not worth as much Maybe league minimum.

It’s not how hard you work, it’s how much you produce for both your customers and the economy. If you come up with a good idea or have a special talent that generates large revenue, it is easy to see how you should benefit from that. Obama made his money by writing books. People (at least some) thought he had an interesting story. He should have stuck with it since that’s where his talents lie. If you look at earnings as a portion of the revenue you can generate, it becomes easier to see how some make enormous sums while others do not. The bagger at the grocery store may do a phenomenal job and work very hard. But he is easily replaced and generates very little additional revenue for the store.

Everyone has a talent. Some leverage that talent into a good living, some do not. Find yours and take a chance. But if you simply redistribute wealth to all, there is no reason to take that chance nor is there much progress. You’ll never succeed by whining about what others make.

@Jaxk Of course the economy jumped for a time after Reagan slashed taxes so dramatically. Believe me, if we suddenly eliminated all taxes on individuals and businesses, the economy would take off too. But so would the national debt. We were maintaining a very prosperous economy (the Post War Boom) from 1945 till Reaganomics cam along. We had been paying the debt down while we went. We probably needed to reduce top rates when Reagan did, but not by 60%. The national debt began to skyrocket when Reagan introduced his tax cuts. What has happened in the 30 years since that is a slow but steady decline. We went from $2 trillion in debt to $14 trillion today in 2009 dollars. The only time we turned the debt to GDP curve back around was the Clinton years, when we raised taxes and again began retiring debt. And that did NOT wreck the economy. We had greater job creation under Clinton than under Reagan, Bush 1 or Bush2. Bush2’s job creation record after cutting Clinton’s tax rates was abysmal.

You can definitely destroy a nation by taxing too high. You can also destroy it by setting taxes too low, and starving it of the investments needed to keep up in a technologically advancing world. The US has the lowest individual tax rate of any industrialized nation on Earth today, and we spend more on defense than all the other nations of the Earth combined! That is stupid, and it is unsustainable.

@ETpro

We’ve been through this before. Your adulation of the post war era is misplaced. We prospered by rebuilding the world after WWII, not as a result of tax policy. We had manufacturing and natural resources that were the envy of the world. And to make it even more dramatic the rest of the world was destroyed and we were the only country that could rebuild it. We have through excessive regulation, driven our manufacturing over seas and and placed our natural resources off limits.

Before Reagan was Carter. If you have any knowledge of history you know that unemployment was 7.5% for most of Carter’s term but began escalating even higher towards the end. Inflation was running close to 20% and our military was in shambles. If that’s what you call prosperity, your economics needs some work. You seem to want to ignore everything happening in the world and manipulate the economy in ways that are completely incomprehensible.

You say the economy deteriorated for thirty years after Reagan and then want talk about how great it was doing during the Clinton years. Guess what, that was part of those thirty years. Clinton’s tax policy DID NOT create the DotCom boom no matter how much you want to think it did. Nor did Clinton create the recession of 2000, but the DotCom boom did.

As for Bush’s jobs record, unemployment stayed around 5% for his entire 2 terms in office. The recession in 2008 was a result of the housing bust. Not the war or the tax policy. And frankly how you think lower taxes starves technology development is beyond me. Hell it was the lower taxes from the Reagan era that spurred the DotCom boom to begin with.

@Jaxk I am old enough I remember well what was happening in Jimmy Carter’s time. The Arab Oil Embargo hit. The world at the time was in the midst of an inflationary spiral, and that made it exceedingly vulnerable to sudden actions by cartels like the oil exporting states. None of that was due to the policies of Jimmy Carter.

Again, I do think that in 1980 we needed to drop the extremely high top tax bracket. But 28%, just like a factory worker, was ridiculous. The strength of the economy, production of jobs, and fact we were paying down the debt as a percent of GDP under Clinton says that something around 40% would be a good number, perhaps with a 50 bracket for income over $10 million. Let the sports heroes and movie stars kick in their share. After your first $19 million, getting half of each additional million isn’t exactly punishment. I’d go for it in a heartbeat.

I do not favor “redistribution”. I want to see a society that doesn’t just let its people starve, but I have no interest in taking from the rich to just give money to the poor and to the chronically unemployed. Once a basic safety net is in place, invest in infrastructure, education and research to keep us a leading power in the world. A scholarship fund that made it possible for the best and brightest children of poor families attend a top university and get advanced degrees if able would do far more for the USA of tomorrow than just giving people cash.

Clearly, always cutting taxes with each new administration can’t work forever. What sort of nation would the USA be if the IRS sent each of us a check for the amount we earned each year. Would the Laffer Curve predict that federal revenues would reach infinity if the government gave each of us infinite money each year?

As for Bush’s record, unemployment was 4.6% when he took office and 8.6% when he left. He left the country in shape for the 10% unemployment that we saw just recently. There were 22.5 million jobs created in the Clinton years. There were 3 million under Bush before we lost 2.6 million of those in 2008.

Unlike the malaise of Carter’s administration, Bush and the Republican Party before him had their hands deep in what really caused the financial crisis of 2007. The burst of the housing bubble was the trigger mechanism The $62 trillion derivative market built atop mortgages that had no chance of being paid off was the actual bomb the sub-prime crisis triggered, and the Gramm, Leach, Bliley Act of 1999 set that up to happen. Obfuscate some more and say Clinton signed that. I have an answer to that too, but it further avoids actually discussing tax policy. Trashing this or that personality is just so much more fun than dealing with reasonable policy. But it is completely useless in crafting good policy.

I don’t care to continue tap dancing around the issue. If you are so ideologically committed to tax cuts that you can only redirect each attempt to discuss policy with obfuscation instead of dealing with the issue, let’s end the discussion. It will never get anywhere meaningful.

As for “jobs driven overseas” (from the USA), that has a little to do with regulation but more to do with the fact that American salaries are orders of magnitude larger than those in what we still call “the developing world”. And while trade barriers are being lowered so that imports into the USA are not punitively taxed, producers can afford to make the investments needed to build overseas factories and train workers there to make the things that have heretofore been made in the US and Europe at a fraction of the cost. (Also at a fraction of the production rates and quality standards, too, and those factors figure into the equations.)

There is no reason why Americans should be paid many-times multiples for consumer, commercial and industrial products and services (which is why a lot of the recent movement started with call centers located in Asia and Latin America) that can be done ‘adequately’ if not ‘equally well’ by others. As a nation, we aren’t so special that we can automatically assume that our time or effort is worth 5, 10 or 100 times more than the time or effort of others around the world who can do essentially the same things we can do.

Unfortunately for some Americans holding lower-skilled manufacturing and service jobs (such as happened when shoe and textile production moved from New England to the South, and then from the South to offshore), they have not all been able to retool themselves as well as the manufacturing entities that once employed them. It’s not ‘the fault of greedy executives’ that people have not kept up with the times.

For those who haven’t yet noticed, auto manufacturing is repositioning to be ‘primarily’ offshore, as well, which will set up another howl about ‘greedy car executives’. But people are responsible for their own skills development, their own educations, and their own future. No ‘greedy executive’ owes anyone a job. And consumers, who outnumber auto workers, will reap the benefits of lower priced vehicles and despite some fits and starts, this is the wave of the future – though it will catch 90% or more off guard, of course.

Okay, that was a bit off-topic, I suppose, but it’s a valid point nevertheless.

Part of my point is that the world is starting to equalize. Starting. It will still take the rest of the world a long time to catch up to the US in terms of ‘productivity rates’ and quality standards, and when the rest of the world does make that improvement, then their salaries will be roughly equivalent to those prevailing now in the USA.

For the time being, unless Americans find new industries to excel in and occupy an unsassailable high ground in those industries (such as the entertainment industry, for example, or pharmaceuticals, much of aerospace and other high tech and culture-based industries) we’re in for more and more of this grinding ‘transition’ where American salaries for working people more or less stagnate, imports become more and more expensive, and exports continue to dwindle relative to imports. It isn’t happening because “the rich get a free ride” or “fail to pay their fair share” or “we don’t tax them enough”. It’s happening because the world really is connected, to the surprise of many who thought that a comfortable place in “the American middle class” was a birthright.

It’s not, sad to say. And neither is “a middle class”, for that matter.

I don’t feel that a secure place in the middle class is a birthright (that must be earned) but a life in accordance with the standards set forth in the UN Declaration of Human Rights is. Personally,i am able to live self-sufficiently in that I can pay my rent and by my food solely with the wages my wife and I earn.

Sadly, that puts me in a better position than tens of millions of Americans. I am not complaining about my lot in life so much as about how so many are so much worse of than I am. Sure,i wouldn’t mind earning what the average person in my field makes, but honestly I think the money would be better spent helping the truly needy than it would by doubling my income.v

Surely you know by now that you’re a rare breed, @jerv. And that is said with sincerity and respect. Most Americans I know who were born into the middle class and feel that position threatened in any way – especially the younger ones among them – feel some sort of betrayal by everyone in business, government, education, wherever, to push them lower on whatever metaphorical ladder they perceive themselves to be on. They feel themselves to be owed something that they believe (maybe rightly) was pretty much handed to their parents.

I think the feeling is, or at least it seems to me to be, “I was born in the middle class and that’s where I belong.” A lot of people in my age group seem to have remained willfully ignorant of the price in blood that was paid to put us where we started. It’s not exactly stupidity, because a lot of the music and writing to come out of the 60s and 70s was quite ‘good’ and ‘literate’, even though shamefully ignorant of hard economic and political realities and facts. That may have been good enough for my generation to ‘skate’, more or less, because our parents paid a huge price in blood, and it bought us a generation of time at the top of the world. Unfortunately, the willfully ignorant children of the current generation (especially those of the willfully ignorant baby boomers) haven’t had their own tickets punched by their preceding generation, and don’t have any kind of free ride.

@CyanoticWasp By that logic, I should be on welfare. I was raised by a single mother who fought her way up the ladder. There was a time when she had to chose between eating or buying formula for me; we couldn’t both eat. Just before she retired, she was only modestly well-off at $60k/yr, but that is still a hell of a lot better than she started off.

She clawed her way up, and I never expected a free ride myself.

@ETpro

You seem to be a bit selective on what you count and what you don’t. If you blame the oil embargo for Carter’s problems, why would you ignore the gas prices of 2008. Both had similar price escalations. Yet you excuse Carter and blame Bush. Interesting.

As for the drop in tax rates, you need to look a little closer. We not only dropped the top tax rate but eliminated most of the loopholes or deductions. That change made the drop in rates less dramatic. When the top rates were in the 70–90% range, few rich people (if any)paid those rates, there were simply too many ways to hide your money. For instance, there is an interesting article here that says (among other things):

“in 1980, the top 10 percent earned 32 percent of the income and paid 44 percent of the taxes—a ratio of 1.4. In 2004, this group earned more of the income (44 percent) but paid a lot more of the taxes (68 percent)”

Now remember that 1980 was before the Reagan tax cuts and 2004 was after the bush tax cuts. Neither made the top 10% pay less of the burden but rather more.

As for your problem with ideology, I can’t help you. You may want to continue raising taxes to help pay for all the government you want or desire but that doesn’t work either. Frankly I haven’t been advocating lowering taxes but rather leaving them alone. We need the stability. What you seem to be advocating is a tax hike and you’ve yet to even address how that would help create jobs or spur the economy.

@CyanoticWasp

I don’t disagree that the cost labor plays a part in the move to overseas but not the whole story. Regulation (state and federal) adds 30% to the cost of goods and services in this country (according to a study done in California). That’s average across the board and the manufacturing sector is the highest sector. That’s a helluva burden on top of the cost of labor. We can’t keep crippling our own industries and then blame those industries for not being able to compete.

We tend to discount the cost of regulation since most of us can’t see it. And the real problem is that most of it is ineffective. For instance the 1099 issue in the Health Care bill. That will place an enormous burden and cost on all small businesses (hell large ones too). Virtually invisible to those not involved but a heavy burden for those that are. The cost of this far exceeds any benefit the government may get. Yet another fiasco. This is just one small piece but I could go on for hours about the cost of regulation.

@CyanoticWasp I completely agree with your assessment of the wage disparity being a big driver of jobs flying offshore. I also feel our high corporate taxes hurt. And the fact we alone in the industrialized world chose to force some employers to bear the heath care costs of employees makes it difficult to justify keeping jobs here. I don;‘t know if you were addressing the part about “evil executives” to me or not, but it so, let[‘s please dispense with that straw man. I think the rich need to pay mre in taxes because we are running up massive debt and there aren’t enough things we can reasonably trim from spending without cutting into the sinew and hurting ourselves. I am not advocating taxes as a punishment for executives simply doing what they are hired to do, exercise their best effort at maximizing profits and minimizing costs so they can deliver products the public wants and consumers can afford.

@Jaxk Here we go again on the obfuscation . Are you seriously claiming now that it wasn’t the real estate crisis you blamed earlier, but the price of gasoline going from $2.50 to $4.40 that doomed Bush’s economy. Let’s forget that his Arab wars helped cause that.

Perhaps you weren’t around in the 70s for the Arab oil embargo.. The price per barrel of oil quadrupled by 1974. Gas at the pump went (in current dollars) from $0.60 a gallon to $4.00 a gallon. There was nationwide rationing, with rationing tickets issued, and odd/even day purchase schemes. Even so, there was a 3-color flag system with green meaning no rationing, orange meaning rationing on, and red meaning out of gas. Many stations, and even whole cities were completely without gas. There were lines of cars miles long with drivers pushing their empty vehicle each time the line moved, only to learn the station had run dry before they reached it. Same as happened to bush. Try yet antoer bogus line of obfuscation. Only don’t dare deal with the National Debt. Just cut taxes and pretend the debt is all Clinton’s fault.

Regarding the cost of labor, I have to wonder if it would be quite so high if it were not for the high cost of living in this country. If I could get a modest dwelling for less than half my income then I wouldn’t care if that were $1 or $1,000. If I could feed myself for less than a dollar a day, then I wouldn’t mind earning $1–2 an hour.

Of course, some people feel entitled to certain luxuries like cable TV, and that makes the cost of living seem higher than it really is to many people. If only they understood the conference been necessity and luxury…

@jerv you’re falling into a trap here. It’s not that “the cost of living” is so high, so much as “your money is now nearly worthless”. What’s the difference between the loaf of bread you now buy in a store for $3 or $4 and the bread your grandparents probably paid a nickel for? The answer is: the difference isn’t in the bread, it’s in the money.

@CyanoticWasp I know that inflation and currency fluctuations play a role there, but it’s hard to get detailed when you have only a few minutes to post, and use a small, cramped keyboard to do it.

Even in the last decade, it has become obvious. I earn considerably more dollars than I used to, but those dollars don’t go as far, so like most Americans, I am no better of than I was back then.

@ETpro

Let me see, so many issues, so little time. You seem to be enamoured with the word obfuscation. I can’t help but wonder if that’s the word of the day from your calendar. You may want to look it up before using it where it doesn’t pertain. I have been letting you lead the discussion and merely responding to your points. You said we were maintaining a prosperous economy until Reagan came along. It seemed appropriate to to show that wasn’t rue (that’s how Carter got into the discussion). Then you said Carter’s bad economy was caused by the rising gas prices (that’s how gas prices came into the discussion). I merely try to correct you misdirection and mistakes.

While we’re talking about mistakes, gas did not go from from 60 cents to $4. You’re mixing your measurements. If you want to use current dollars, gas went from about $1.80 to $3.78. Whats striking is that the higher prices came from the Iran/Iraq war peaking in 1981. And by the way, I was around at that time and dealt with the gas lines. For both events.

As for the current recession, yes it was the housing bust that caused the recession. However, it was the gas prices that triggered it. If you recall, the housing market began it’s decline at the end of 2005. By the beginning of 2008, it looked like the housing market had stabilized. Gas prices blew that up as people struggled make payments, pay for gas, and deal with the sub prime adjustments. It is not a coincidence that the gas prices and the housing bust happened at the same time.

Last point, if you want to continue to distract with all these points (can you say obfuscate) expect them to be countered. The debt will not be retired by raising taxes. The only way we can get back to a balanced budget is to grow the economy. And to get there we have to cut some of the spending. Raising taxes will only slow the economy making the problem worse not better. Both the Democrats and the Republicans seem to believe that injecting money into the economy will spur growth. The difference is that Democrats believe that government spending is the way to do it and Republicans believe that letting the public spend their own money it is a better way. And frankly, I liked Clinton.

@Jaxk Correct me if I’m wrong, but isn’t a healthy economy one where money circulates, and circulation is best accomplished by making sure people have both the means and the will to spend?
One could argue that investing is circulation, but in investment, the money pretty much falls into a hole, often one where some financial institution (bank, brokerage firm, what-have-you) just hands onto it and swells their own coffers; it circulates slower than consumer spending.
The majority of Americans actually spend what they get, and the added demand leads to those who provide goods and services selling more and this earning more than if most people are too broke or scared to spend. Less consumer spending leads to cost-cutting; lower incomes and/or fewer jobs. It also leads to requiring more investment revenue to compensate for the lower revenue generated the usual way, but since people living paycheck to paycheck don’t often invest (no disposable income) that creates a vicious cycle where more and more people fall into poverty while a few get exponentially richer over the long haul.

I see a lack of sustainability there.

@jerv
Your assumption that “some financial institution… just hangs onto [money] and swells their own coffers” is as wrong as it can be. In order to be useful and grow, money is never idle. Money that “some financial institution” gets its hands on is combined with other money to do something new. In banks, in the form of cash (deposits, for example), it adds to the bank’s reserves, meaning that it can then loan some multiple of that money in order to generate income for itself. In stocks, the seller of the financial instrument now has cash to do whatever he wants to do with it: spend it on consumer goods, pay off existing debt or invest in a new venture. And it’s that “investing in new ventures” that creates more jobs than ‘consumer spending’ can on its own.

“Coffers swell” to the degree that they do because companies (including financial institutions) offer products and services that people want to buy, and make profit from that. The offering and the buying is free exchange on both sides: the producers aren’t forced to offer the product and the buyers aren’t required to buy.

You seem to be ignoring why rich people get that way: they don’t steal from the poor. They create goods and services that everyone wants to buy, rich and poor alike. And investors who get rich do that by recognizing the goods and services that people want to buy, finding the companies who produce those goods and services at the best margins, and buy the companies. Except in the case of government-enforced monopolies there is no hint of ‘theft’ or ‘demand that you purchase’. No one has ever forced me into a grocery store or Wal-Mart ‘under penalty of law’.

@jerv It’s a two edge sword. Years ago I could have asked a bank to loan me a million dollars to start or buy a business and they would have had little trouble giving it to me. Today I asked to do the same and I had to have a dollar for dollar secured collateral to do so. The Feds have the whole system so tightly wound over new lending regulations that AFAICT there is very little conventional business start up lending taking place. No wonder this economy is in a stand still…no one is willing take a risk anymore or can for that matter!

@Jaxk The reason I am harping on obfuscation is that is what I feel is going on in relation to the question, “Which tax policy is more fair?” How so? Take for instance arguing over whether gasoline in the Arab Oil Embargo went from $0.60 to $4.00 in 2010 dollars (a figure which I posted documentation for) or your preferred number of $1.80 to $3.78 (a figure you show no link to support). I show references for facts I present to argue my case. You pooh-pooh them with numbers you pull from I don’t know where—and the bottom line is whether gas went from $0.60 to $4,00 or $1.80 to $3.78 has NOTHING to do with which tax policy is really better for the country.

I am interested in how we can restructure our taxes and spending to fully fund the government and pay down a national debt that is now hovering around 14 trillion dollars. That is what the OP is about. How is arguing about a supposed $0.22 variance in the price of gasoline in the 1970s relevant to the OP?

We need to pay off 14 trillion dollars and our current budget deficit is running $1.4 trillion or more. These are not numbers we can resolve by arguing about pennies. We are on an unsustainable course. We need dramatic action to correct that course, or our economy is doomed. That is what I think the OP was asking us to discuss. We can only do that with a big picture view.

We had a highly progressive tax scale from 1934 through 1980. With that, we were able to end the depression, help win WWII and then pay down the debt of these endeavors while maintaining a robust economy during the post war boom—fluctuations during the Arab Oil Embargo notwithstanding. After Reagan made our tax system much closer to a regressive one, wealth began to rapidly concentrate in the hands of a small number of the richest people, and the national debt began to skyrocket. The only time since the 1980s that we enjoyed truly robust economy with strong job growth and began paying down the deficit again was during the Clinton years, and Clinton achieved that by a higher, more progressive tax rate. The chart of US debt to GDP shows clearly that the regressive, low tax plans ran up debt rapidly under Reagan, & Bush 1, that the debt turned back down under Clinton, and shot back up again when Bush 2 returned to the lower, more regressive tax.

While regressive taxes have saddled us with debt, they have also greatly widened the gap between the richest and poorest, and the number who are now poor has grown dramatically. You and I both own businesses that rely on having a strong, relatively affluent middle class as customers. I’m not just being a bleeding heart liberal here. I have a financial stake is seeing this inequitable distribution of wealth halted before it completely destroys the middle class. If we do let enough wealth accumulate at the very top the bulk of them, being multinationals, will just take their money and move to greener pastures. Many are already investing outside the US for greater returns and lower tax burdens.

Rather than arguing about what was and wasn’t Jimmy Carter’s fault, I would like to get back to the original question. What tax policy and spending policies should we move toward to retire our debt without wrecking our economy or our nation in the process?

@CyanoticWasp “In banks, in the form of cash (deposits, for example), it adds to the bank’s reserves, meaning that it can then loan some multiple of that money in order to generate income for itself.”
Note the bolding? They over-reached themselves a bit for a while there and now your statement is no longer as true as it used to be. And honestly, I can’t say I blame them for that after the housing bubble and the massive wave of defaults (not just on mortgages) over the last few years.

I know that you are correct in theory, and in fact, that is how it worked for a while, but you seem to have overlooked the implications of my final sentence. I know that investors get rich by investing in companies that produce things that everybody wants to buy, but due to a variety of factors, fewer are actually buying. For some it is a lack of ability after being laid off, for others it’s merely fear of the future, but the end result is about the same; lack of circulation.

I don’t recall actually saying that the rich steal from the poor. The rich do what they do mostly without malice, and the majority of them play within the rules, so it’s more of a systemic flaw than a matter of theft. I think Hanlon’s Razor pretty much sums it up, and it goes double when the government is involved.

@Cruiser Pretty much, though I think you may have actually meant that for @CyanoticWasp .

@jerv
It’s a fact that banks will lend that money again. Their only other choice over the long term is to stagnate and die or become a takeover target for another bank. But since bank lending is a leveraged investment, in that they lend money that they don’t have, the confidence to lend has to extend all the way up the system, and down to the borrower. So it’s quite natural and healthy for them to double and triple-check the creditworthiness of new borrowing, and to deny credit – simply because it is a lender’s market these days – to all but the most credit-worthy. And money is being lent and projects moving forward, but not at the rate we had seen in recent years – or to the same projects.

You opined in an earlier post that “circulation is best accomplished by making sure people have both the means and the will to spend” (my emphasis added). I contend that the “making sure” part is emphatically NOT how to achieve the best results in our economy. The various programs that have been instituted by our government in recent years, from “stimulus packages” to “cash for clunkers” and “homebuyer credits” are examples of cures that will worsen the disease in the long term. The attempts by the government to “make sure” that people have the cash and desire to spend it are misplaced and simply wrong.

Those programs have added to debt and deficit, reduced confidence instead of increasing it (or why would we even be thinking of another ‘stimulus’?) and will weaken the currency more, so that soon you can be looking at $5 and $6 bread. If the money is cheapened by government actions, then it really behooves us to ask why the government would force that to happen. The answer is that the political (and politically connected) classes get the ‘benefits’ of inflation (the new money going to those who have the connections to spend before the rest of it is debased), and the rest of us get… cheaper and less valuable money passed off as “the same as it ever was”, which it surely is not.

This doesn’t answer your original question about “what is the best tax policy”, but since, as I said earlier, taxes and spending don’t exist in a vacuum, we do have to talk about spending.

@jerv I could see why you might think that but it was your comments that germinated my reply as if the banks and corporations are sitting on money like they are, we will continue to be in an economic standstill.

“isn’t a healthy economy one where money circulates, and circulation is best accomplished by making sure people have both the means and the will to spend? One could argue that investing is circulation,...” [snip]

@CyanoticWasp Banks lend money they don’t have, government spends money they don’t have, and speculators play with money that never even existed. How is it that we have avoided hyper-inflation thus far? :p

I’m going to try something different and suggest we just rebuild the policy from the ground up, find the one is the simplest and has the least problems, and see how different that framework is from the actual.

I’m going to point out a couple things I feel don’t get enough mention: (1) It’s 100% true, and I have not heard any convincing contradictory argument, that the more you earn, the less value what you earn has to you. It’s undeniable. If I have $20, and I lose a dollar, I care…if I have $100, I might not even notice I lost it. If I have $1000, it’s almost certain I wouldn’t even know it’s gone. And if I have $10,000, I’ll ask you, “What’s a dollar?” Therefore, when you argue that taxing higher incomes at a higher rates will reduce the incentive to earn and produce, you must also take into account that when earning at extremely high rates, the dollar value of what you earn has less and less value as opposed to the increased personal success and more intangible awards of that success. Top CEOs often don’t need to work – they can make money with the money they have. They work because it makes them famous. (2) When people discuss government cuts, please also remember that the U.S. federal government is the largest employer in the U.S. If you cut government funding and base the argument on the fact that those who retain that money will use it to create jobs, make sure that those jobs will be (a) in the U.S., and (b) greater than the number of jobs lost in the government, and sufficient to account for the other harms associated with the rise in that unemployment.

So…there are a few basic principles that I think should be part of a fair tax policy.

(1) Personal income:
........(a) should be progressive, and the wealthier the person, the more tax liability they should shoulder.
........(b) should be tied to the GDP at the first calculation. E.g., if an individual makes .001% of the GDP, then that person is, at first pass, responsible for .001% of the national income tax liability.
........(c) should be adjusted in a way so that anyone earning under a living wage, regardless of whether they work part time or are a dependent, is not liable for any tax.
........(d) the liability that those individuals do not pay for should be spread among the highest earners down, based on a calculation of how many multiples of the per capita GDP those high earners represent.
........(e) if corporations are to be treated as people, they must be taxed as people. However, corporate taxes should be able to escape double taxation.

(2) Capital Gains:
........(a) Should be taxed at a lower percentage than personal income.
........(b) Should be held multiple years in order to qualify as long term.
........(c) There should be no tax liability for long-term capital gains earnings realized from investment in employer.
........(d) Capital investments that create U.S. based employment shall not have their gains taxed. Withdrawal of investment that results in unemployment, however, will result in the original gains tax liability deferral to the year in which the jobs are lost, multiplied by a penalty factor TBD.

(3) Estate Taxes:
.......(a) Real property and capital investments inherited from a parent must be registered as inheritance and segregated in some manner from other property or income.
.......(b) Liquid accounts inherited must pass into an inheritance account, to be segregated as well.
.......(c) All such property or value linked to such property (e.g., recouped base cost from sale of real property) shall remain segregated from heir’s estate.
.......(d) All such property so segregated shall pass tax free.
.......(e) All earnings from such property, regardless of long or short term nature, shall be taxed at the lowest rate the heir was assessed on any part of the heirs income (e.g., if heir otherwise only earned personal income and no investment income, but realized capital gains from sale of inherited property, capital gains must be taxed as personal income and not capital gains).
.......(f) All properties or accounts segregated, when heir passes, pass to second generation taxed at a flat rate. Property received from heir associated with (1) heir’s property purchased, etc. during life, (2) heir’s earnings, income and capital, (3) heir’s earnings on property inherited and segregated then pass to second generation to be segregated tax free in the same manner as heir inherited property from parent/other.

@iamthemob great answer and thanks for taking the time… if this thread has proven anything it’s how passionately different people feel on this issue, so if you don’t mind I had some well intentioned follow up questions

1b and 1c are exactly what I think of as a flat tax with a minimum (which may be incorrect terminology) with the possible difference of I was thinking everyone would get the first x dollars they earn tax free so the bottom tax bracket would essentially be 0%. It sounds like this would only apply to those that earn below that minimum in your plan?

I love the addition of your correction in 1d. How would that work?

For a simple example lets say we had 3 high earners with earnings 2x, 3x, and 5x the average (my interpretation of “per capita GDP”, correct?) and $10,000 “credit” to pay off from those who didn’t pay tax. Would that be divided as $2,000, $3,000 and $5,000 additional tax or am I over simplifying? Or would the first “average” be taxed normally and only the additional ones would be subject to additional tax? Is this in addition to a progressive rate or the vehicle for that?

Would tax be collected from those that most likely won’t meet the minimum and then refunded? This was something I couldn’t figure out how to implement. If you drop $3000 in someone’s lap on April 15th, it’s really not going to help their year round situation, but neither is a sudden unexpected bill for the same $3000 if they unexpectedly earn more than the minimum. Not sure how that would be handled practically.

Estate taxes seem very complicated in practice, but I don’t know enough about the current system to compare intelligently. Could you run through an example of how someone would segregate property inherited from their parents and partially passed along to their children?

Again, I’m not picking holes in it, just trying to get a better understanding of both the options out there and people’s reactions to them.

Thanks again.

@funkdaddy One thing to bear in mind is that our current system want terribly flawed back when execs only earned 30–50x what the average worker did, but now that it’s closer to 500x or more, well, most mathematical models break down at extremes. We need to either account for that or stop it. It may surprise you, but I am actually in favor of the first option.

@ETpro

I have to give you credit, you are single minded. You want to bring up issues with false data and then say they don’t pertain so that your errors won’t be refuted. And by the way how does the debt chart sow that we have a regressive tax system? Do you even know what regressive means? When the top 10% pay 70% of the taxes, that’s not regressive, it’s progressive.

As for the gas prices, they do pertain and I posted a link for my numbers. I will post again so that there is no mistake. Look here but be aware, it’s a graph so you need to be able to read graphs. It clearly shows the price escalations during the oil embargo, the Iran/Iraq war, and the jump in 2008.

The reason it pertains goes back to your other point about the economy since WWII. During the fifties, and sixties, we had a positive trade balance. We were supplying product the rest of the world needed and consumed. During the seventies that changed and we began importing more than we exported. Not surprisingly, the change was oil. Instead of drawing wealth from the rest of the world we began exporting our wealth to the rest of the world. Try tying the economic prosperity to the cost of our oil imports and you may find some interesting consistencies.

It is not a coincidence that both major recessions we’ve had since WWII coincide with oil spikes. Currently we are shipping about $400 billion annually overseas to buy oil. Our economy simply can’t stand that kind of drain. Over half our trade deficit is oil and that cost comes directly out of the disposable income of the middle and lower income people. If you want regressive, that’s where it starts.

The total trade deficit is running about ¾ of $trillion. We send that money directly out of our pocket into the economies overseas. If we could turn that around we would be injecting that money back into our own economy and it would fix the problem. That would equate to a $1.5 trillion turnaround. But you can’t fix it without addressing oil.

The question here was what tax policy would be best. I believe that a consumption tax would be both fair and even handed for all income groups. But if you believe that tax policy is all there is to fix the economy, you’re woefully short sighted.

@Jaxk

Sorry I forgot to post a link to the trade deficit .

@funkdaddy – If you think 1(b) and© are what you would call a flat tax, I think those examples are where it gets muddled. A flat tax in the purest sense is sales tax – the percent is constant regardless of amount spent. On income, it would therefore be a constant percentage of income regardless of earnings. Therefore, if it’s 10%, and you earn $10,000, you pay $1000. If you earn $100,000, then you pay $10,000, and so on.

My proposal is that if you earn $500,000, and that represents 10% of the GDP, and the income tax liability for that year was $2,000,000…then you pay $200,000 of that. Someone who earned $50,000, or 1% of the GDP, would pay $20,000 – in each case, it’s a 40% rate. Of course, once you get extreme wealth disparities, such as 1% of the population earning 25% of the income, the numbers skew a little more and the percentages won’t clearly progress in a lock-step manner as they do above – so it would look less and less like a flat tax.

For 1(d), your example is essentially the idea – what the calculation should be I couldn’t address right now…I think we have to dumb it down at this point.

In terms of collection, I think the withholding scheme can be pretty predictive. Payment plans if there are drastic differences in terms of predicted withholding and actual liability would have to be developed.

For segregating estate property, I think it should be pretty simple – the estate is valued at the time of the transfer…and that “value” is recorded in a manner that makes it clear what percentage of the estate will be taxed when passing to the next generation. I feel like I messed up saying “segregated” and I think that “recorded” is probably clearer. Thanks!

A working example would be a child inherits 3 million of various capital and liquid properties. The value of the estate at the time of transfer is recorded. If that estate earns $1,000,000, then that $1,000,000 would pass tax free to the grandchildren, whereas $3,000,000 dollars would be subject to, let’s say, 30% tax.

Of course, if for some reason the entire estate passing to the grandchildren was valued at less than the original $3,000,000, we’d have to figure out whether it was preferable to impose the tax or whether it should be exempted based on a loss calculation (e.g., property valued at $1,000,000 at first transfer drops to $200,000 at second transfer due to market conditions).

@iamthemob

Is it safe to say you’re not a big fan of simplifying the tax code?

Actually, @jerv, although you seemed to ask it somewhat sarcastically, that was a good Q, so I’ll repeat it and then answer it:

Banks lend money they don’t have, government spends money they don’t have, and speculators play with money that never even existed. How is it that we have avoided hyper-inflation thus far?

The difference is that banks lend with an expectation of a return greater than the loaned amount. That amount comes back as gross profit, which they can then use for other investment purposes, expansion, new hiring, whatever.

Speculators provide liquidity to markets. The reason we have such thriving stock and commodities markets, for example, is because traders are involved daily to buy and sell (yes, sometimes with non-existent money, but backed up by collateral and credit – when the rules are followed). This makes it possible for those of us who don’t buy and sell stock on a regular basis to make the purchases we want and to ensure a good amount of liquidity in the investment. Stock and futures market investments are not as fixed and illiquid as most real estate transactions, for example. (And I look forward to a day when someone manages to institute a “real estate futures” market that works like stock or commodities markets and does provide all forms of real estate ‘products’ as well as the liquidity of the existing financial markets.) People get envious of the speculators that strike it rich from time to time, but no one says a word about those who are just feeding money into the kitty for their chance at the brass ring.

And most government expenditures are not for purposes of ‘investment’, ‘return’ or ‘profit’. Government expenditures are always politically motivated. Oh, some are necessary, and I don’t deny that. The expenses incurred in fighting World War Two, for example, were vital. Social Security and Medicare are not. Those two programs are an attempt to fool people who don’t know any better that something can be had for nothing. That isn’t so, but the talking heads and those in power won’t stop trying to convince us that they provide great ‘returns on investment’. Not so. The more money we pay into those fraudulent schemes, the deeper in the hole they go and the more is stolen for other unnecessary programs, besides.

Of the three institutions you mention, only one has a direct bearing on inflation, because only one sits at the root of all ‘money creation’ for the country. Yes, you’re right, it’s “banks” in the form of the Fed. But don’t be fooled: as “independent” as the Fed is, each of the Fed governors and Bernanke himself owe their jobs to the President.

@Jaxk – One of my areas of law specialty is tax…so professionally, no. However, the overwhelming majority of me is totally in favor of simplifying the tax code. I don’t know how you would derive that from my statements here.

@CyanoticWasp Not quite sarcastically, more like flippant. At least that is what I was aiming for, but thank you for replying anyways.

”...backed up by collateral and credit – when the rules are followed…”
I think that might be part of the problem right there.

Another part of it is that enough people treat the non-existent money as real money in such a way that it’s almost like counterfeiting, and also devaluing our currency. Maybe that is related to following the rules? I mean, what are the rules about treating an IOU as legal tender?

I don’t think it’d be nearly the same if speculators actually paid for stuff instead of buying it with leverage, but when you have more dollars floating around the economy than actually exist, what does that do to the value of a dollar?

@Jaxk @iamthemob Do you want simple or fair?
Under a strictly consumption-based tax, would investment be considered “consumption” or would the rich avoid taxes that us little people get raped by since much of their “spending” is on stuff like stocks and bonds.
If we decide to consider money spent on investment as taxable purchases, what if you turn around, sell what you bought, and buy something else? The simple way would be to let the government double-dip on the same money, so would you rather allow that, or would you want a more complicated tax code?
And what of purchases made elsewhere, or otherwise “under the table” or “off the radar”? Holy fucking tax-dodge Batman!

@jerv
I think those countries you list are right in having a flat tax, but they are doing many other things wrong. Which is why none of them are a “model of prosperity for their citizens”.

@Answerbagger Would you care to elaborate? Specifically, I would like to know exactly how such a policy could avoid being regressive. Adding a lower limit and exempting the first X amount would have a few issues with determining the value of X as the cost of living varies considerably in this country, both by region and by circumstance.
Once we allow for added exemptions based on, for instance, the number of children in the household, we start creeping back to the complicated tax code we currently have, but without that particular exemption, reproduction becomes a privilege for the rich unless we want to have bloated government-run programs to assist low-income parents.

IMO, the only thing a flat tax really simplifies if the paperwork filed on 15 April; it would complicate many other things. Maybe it would be otherwise if there wasn’t such a vast and growing disparity in incomes, or if income distribution was even remotely linear. As it stands, a flat tax would start to break down somewhere in the fourth quintile and totally shatter in the fifth, and that is an optimistic projection.

@jerv

Adding a lower limit and exempting the first X amount would have a few issues with determining the value of X as the cost of living varies considerably in this country, both by region and by circumstance.

I don’t believe a progressive system addresses cost of living variance either. I’d say run a flat tax with a minimum against your quintiles and see what the effective rate is for different categories, you might (or might not) be surprised how much it could address your original problem of evening out the load to be more in line with income. It would effectively tax the rich at a higher rate and every dollar of the top 1% you’re worried about would be taxed.

To back up @answerbagger’s point, which I abandoned when I somehow became the “defender of the rich” on this question. Several states, with GDP as large as most countries, use a flat tax to handle their income tax and don’t share the problems of the countries you list.

@funkdaddy And NH has neither a state income tax nor a sales tax and they also seem better off than a lot of places. Of course that means that there is more to a healthy budget than just tax policy and I don’t want to get into that here.

You are correct that progressive taxation doesn’t inherently allow for COL variance; no tax plan does unless you want to complicate it ad nauseum and/or ad absurdium and negate the appeal of a flat tax plan.

I am aware that as one gets further from the lower limit, their tax rate will approach the maximum, but how does it do in the middle? When you only look at the end points on a graph and/or fail to weight them properly to account for frequency, the math gets screwy.

@Answerbagger My ideologue alarm bells go off big-time whenever I hear someone claim that even though a policy is a miserable failure in 24 different states, it’s not because the policy is bad, but just that they did it wrong. Maybe. But you need to sell that concept with something more solid than wishful thinking.

@jerv – wouldn’t using the quintiles account for population differences by figuring in an equal number of people in each?

@anyone who is willing to discuss

So, using 2007 income and rounding up to the nearest $1000 for my sanity a theoretical 100 household group would have

20 making an average of $12,000
20 making an average of $30,000
20 making an average of $50,000
20 making an average of $80,000

and we’ll say 15 making an average of $150,000 and 5 making $300,000 for the top quintile.

Let’s say we tax everyone at 20%, but say the first $12,000 is tax free, excusing the average bottom quintile from paying any tax at all. This would in theory excuse about 10% of families, in my simplified example it excuses the bottom 20%. Thanks for the hard work, we hope you earn more in the future, but live your life and the largest economy in the world will take care of the schools and roads until then.

Under these super simple rules, our groups would look like this. (listed from lowest income to highest)

Earnings $/yr | Effective Tax Rate | Taxes Paid | % of Total Income | % of Taxes Paid
=============================================================
..$240,000…............0%…...............$0….................3.34%…...................0%
..$600,000…............12%….............$72,000…..........8.34%…..................6.01%
..$1,000,000….........15.2%….........$152,000…........13.91%…................12.69%
..$1,600,000….........17%….............$272,000…........22.25%…................22.70%
..$3,750,000….........18.72%…........$702,000….........52.16%…...............58.60%

acknowledge caveats
— Formatting options here are limited, so excuse me…
— I’m not familiar with the linked source for tax payer information, but it didn’t seem out of line
— I’ve roughed up the top and bottom quintile here for ease, but it’s not to be prove a case one way or the other

What comes out is that with a flat tax and a minimum is that each quintile is paying more as a percentage in terms of taxes and as a percentage of the total than those below it. This would address the original problem that the middle class was paying the way for everyone. You earn more, you pay more, isn’t that what everyone has deemed fair here?

Bonuses:

— If someone is making $100 million dollars this year, it’s all taxed (except the first $12k I suppose), there’s no hiding
— you know exactly what to expect come tax time, so many people see April 15th like they see the lottery, either they win (get a refund) or lose (owe money), and don’t understand what’s actually happening

So my problem is, a flat tax addresses the original concerns (undue burden on the middle class) and those brought up later (you earn more, you should pay more), but seems to be dismissed as either ridiculous or inferred as a tool of tyranny. That simply doesn’t make logical sense to me and I hate to see a simple, solid idea dismissed for one that is complex, misunderstood by most of the people it affects most (taxpayers), widely thought to be corrupted, and not accomplishing it’s goals.

If someone can explain to me on a basis other than the current system being the norm or historical examples that contain hundreds of other factors why a simpler system using a flat tax rate as a starting point is a bad idea I’d love to know why this is such a loathed idea.

@funkdaddy Thank you for that, but what would the numbers look like if one of the top quintile earned $50m? I mean, what would the chart look like then?

I am at work and don’t have time to do the math myself.

@funkdaddy – I feel like the resentment or reaction against the flat tax is that what you’ve described works off of the idea of a flat tax, but isn’t one at all in the end. I could accept that it’s some form of a “modified flat tax,” but a flat tax generally is concerned with even application to the objective value of income….whereas the system you outline clearly takes into account the subjective value of income as it increases into the equation.

I really like this as a concept…even if in the end it’s useful as a talking point and not a solution (we’ll see).

@jerv – Why can’t it be both “simple” and “fair”? Of course, a truly fair system would not be objectively “simple,” but I think it’s useful to start from the simple principles/systems and determine issues that they wouldn’t cover that we find important. As issues are pointed out, the system increases in complexity – but not to the extent of the IRC and its regulations.

I’m a little confused about how consumption-based taxation came into it. As stated above, we’re not looking for the simplest system. And of course, consumption-based taxation just seems economically backwards in general: (1) generally applied, it’s clearly regressive; and (2) it dis-incentivizes people from investing in…well…anything.

@iamthemob First off, Consumption-based taxation entered into the discussion since many regard that as both simple and fair, and you have to admit that it does qualify as a tax policy. I agree that it is regressive no matter how it’s supporters try to spin it though.

I think you are entirely correct that a truly fair system would not be objectively simple even if it is simpler than what we have now; our system is arcane enough to have created a market niche for those who do nothing but try to figure it out, and also tricky enough that even otherwise intelligent people can’t figure it out without their Captain Awesome decoder ring.

Do we agree that any tax policy that takes advantage of those with bad math skills (in this case, “bad” means “cannot do differential calculus in your head while juggling chainsaws) is bullshit? It seems that many of the alternatives that I’ve seen are even more regressive than our current system but the numbers are often spun to make it appear otherwise or absent altogether thus leaving people to either figure it out for themselves or (more likely) believe the used car salemen when they say that the fine print is irrelevant.

@jerv

Yes on calculus BS – we agree. What alternatives are you talking about though?

@jerv and @iamthemob

Let’s dispel some of the misunderstanding about a ‘Consumption Tax’ (sales tax). First basic food items are exempt much as they are with state sales tax today. That means that those that are scratching to feed their family pay little or no tax. It also means that your highest tax years will be your highest earning years.

Look at a typical person just out of school. Their earnings are generally low and they aren’t buying a lot of high ticket items. As they progress in their career they earn more and begin to acquire things (car, house, boat, etc.). Typically the middle years, 30s, 40s and 50s are the peak earning years and the peak years for acquiring ‘stuff’. The 60s are retirement years and generally income diminishes but so does the need to buy more stuff. The tax burden actually flows with the income.

Additionally there is no need for the IRS, which saves about $50 billion right off the top. All states except Alaska, Delaware, Montana, New Hampshire and Oregon, collect sales taxes so the implementation is quite easy. All the systems are in place and even the states that currently don’t have the ability built into the POS systems.

A consumption based tax rewards savings, which is a good thing and removes the complications for things like bonds (tax free or not). It removes the whole issue of being paid under the table or not reporting income. And, April 15th becomes just another day like any other.

It’s fair, it’s easy, and it’s simple. Show me another way to accomplish that.

@Jaxk – I assume you’re saying that a federal system should exclude basic food items, as there is no universal state practice. In terms of the federal budget, 50 billion is a “drop in the bucket” – it’s a big one, so I won’t argue that because it’s not significant in comparison with the whole of U.S. spending it’s not a good point. However, the new system wouldn’t result in a wholesale elimination of a regulatory body, as there has to still be some enforcement/collection body. Further, the short term unemployment costs involved in cutting an agency, the lost overall revenue from those job losses, etc., have to be factored into determining whether or not that’s a net savings – i.e., regardless, it’s more than likely not “about $50 billion right off the top.”

The problem is that much of what we buy day-to-day aside from groceries are things that everyone buys in similar qualities. So it’s essential to determine what the baseline spending is on various necessaries. If you look at general retail sales over the past couple of decades, the amount of income that goes to things we need is a little more obvious. If the baseline spending on that is above a certain point, we’re not really going to be promoting saving so much as buying cheaper versions of the things that we need. Of course, this generally means low quality so the lifetime savings are questionable. And buying cheaply means generally less spending in the market. And if things need to be produced more cheaply, that also generally means outsourcing, which means unemployment, which means less market participation.

If it’s also relatively high, and most of the retail market is covering necessaries, then the system clearly shifts much more tax burden than is necessary onto the middle and lower income brackets.

If, for example, that 70% of retail sales covers necessaries, you’re left with only 30% to shift to higher income brackets. Of course, that’s assuming that because of the cost of necessaries there is no contribution to the “luxury” markets from the low and middle brackets.

In order to make it fair, therefore, it may be necessary to tax goods on a sliding scale based on popularity among the different income brackets. This could result in a system as complex as we have now, but it shifts the calculation determinations to the retailers instead of the citizen.

So unless we know all of the numbers and see how it plays out, it’s premature to say that a consumption tax on the federal level meant to replace the current income tax system is anything close to fair, easy, or simple.

@iamthemob

Actually, I low balled the IRS number. As for the rest of your points, I think you totally missed it. Cheaper has been the theme for many years but the more your making the less it impacts the purchase. Why in hell would we be selling so many BMWs and Mercedes? Quality costs more. Those that don’t know that already buy the cheapest item out there. Those that do, won’t forget it. And you seem to forget that everyone’s paycheck gets bigger, no income tax. I really can’t make much sense out the ‘cheaper’ argument. Is it your assumption that John Kerry would not have bought his yacht, but rather settled for a canoe?

As for your sliding scale, that completely misses the point and is unmanageable. Despite your attempts to complicate the issue, it is very simple. And it does shift the burden to those that are acquiring things. Generally in thier most productive years.

@Jaxk

There seem to be a lot of assumptions underlying what you’re talking about here, and it seems like you’re only looking at the effect of the policy shift as if it was happening in a vacuum.

First, the problem with arguing that people will have more income is that we’re talking about a shift of the entire income tax revenue to this consumption format. Therefore, for every dollar returned to the taxpayer, the cost of goods, etc. will have to increase somehow by that dollar. Considering we’re talking about the tax policy, the revenue is like matter and energy – it’s not created or destroyed, all we’re doing is shifting it around. If I made $100 a week and spent $60 on necessaries, it’s not going to matter to me if I suddenly make $160 a week if I have to pay $120 on necessaries. So, in order to determine whether or not there will be an actual increase in wealth, you have to show that the baseline doesn’t negate any effect on shifting from an income-based revenue stream to a consumption-based one.

Second, when we talk about a decrease in the price of goods or the quality of the goods in this case, we’re not talking about a reduction in price because of increased efficiencies, taking advantage of developing market labor, etc. – we’re adding a new and non-market based fixed cost onto the goods. So if it costs me $5 to build a toaster, and it’s sold for $10, an added federal tax that adds 20% on such appliances means that to keep the price the same I have to figure out how to make it for $3. That’s the cheaper argument – simplified, and not reflective of the actual circumstances, but demonstrating the concerns involved with a consumption system.

Third, we’re not talking about the effect on John Kerry at all. As repeated here, money has less value the more you have, and so an increased tax might piss John Kerry off, but it’s not going to by necessity stop him. What needs to be shown is that such luxury purchases only made by one segment of society constitute or would constitute a significant enough percentage of the taxed goods/services or whatever sold that it shifts an appropriate amount of the tax liability to the rich rather than the poor and middle. If the vast majority of goods bought are necessaries, then we’re really doing a terrible job of distributing the tax liability.

The sliding scale isn’t mine – it’s a device that might be necessary if it can’t be shown that there would be a fair amount of purchases in the luxury sector to shift liability to the wealthy. If there’s not, then you’d have to decrease the tax on necessaries and increase it on luxury.

I’m not trying to complicate the issue at all…I’m digging through it. I’ll be perfectly satisfied if you can show me how the numbers would work out. As I looked through the retail figures cited above, it looked like fully 80% could be considered necessaries – things you have to get at one point or another. So just show me how the numbers would work out simply and I’m willing to see the value here. Referencing vaguely how the system would be simple without backing it up, however, doesn’t make it in fact a simple system.

@iamthemob

Try to think this through as you would use it in your personal life. A new Mercedes might cost $100K. Tax on that would be $17K. But few if any would buy this right out of school (unless daddy or mommy bought it). More likely you would buy the ‘89 Civic, maybe $200. Tax would be $34. The same holds true for most anything you buy when you’re scraping to make ends meet just as it already does. You don’t buy a new bed, you bring yours from home. You don’t buy new furniture (or at least not the best) you buy from Ikea or get used or hand downs. That’s how most of us start. But if you feel that Flat Screen TV or that Ipod is a necessity, you will be taxed. As you get a little older and your income increases, you buy that house, buy the new car, buy the new furniture, in other words, what you can afford and the tax increase substantially.

As for the toaster, it still costs $10. The price doesn’t change nor does it matter whether it made in China or Grand Forks. The tax is on top of the $10, The toaster manufacturer has no additional tax burden so there is no increase to the cost of goods. This is not a luxury tax nor a VAT tax. It is a sales tax and most of your issues appear to be based on a VAT or luxury tax.

@Jaxk

As for the toaster, it still costs $10. The price doesn’t change nor does it matter whether it made in China or Grand Forks. The tax is on top of the $10, The toaster manufacturer has no additional tax burden so there is no increase to the cost of goods. This is not a luxury tax nor a VAT tax. It is a sales tax and most of your issues appear to be based on a VAT or luxury tax.

I don’t know why you’re talking about the manufacturer. I’m talking about the sales tax. If there is a new federal sales tax on the toaster of 20%, then the toaster does not cost $10 anymore to the consumer. It costs $12 to the consumer. If that is generally true for necessaries that people have to buy, then if manufacturers/retailers may have to find a way to reduce the price of manufacture or reduce the cost of delivering the goods to the market. Unless the increase in income received negates the increased costs, there’s no increase in the taxpayers realized income.

There is no need to talk about luxury items in this context. If all of the smallish items and low-cost items generally add up to a good majority of all of the sales in the U.S., they will generate the majority of the consumption tax revenue. If that is the case, then the tax liability is being distributed in a regressive manner.

There’s also no need to talk about the other forms of a consumption tax. A consumption tax put in place to replace an income tax system is an additional, new tax. This must raise the cost of goods to the consumer.

So, if people who buy luxury goods represent 10% of the population, and make 60% of the national income, but Mercedes, flat screens, etc. sales only constitute 20% of the consumption tax revenue, then the 90% earning only 40% of the income is shouldering what may be an almost equivalent dollar amount of the tax responsibility.

The fact that individual luxury items might cost more individually does not mean that in the aggregate all luxury goods sold represent a greater dollar amount than all groceries, basic clothing, kitchen appliances, general furniture, etc. that is sold during the same year.

Discussions about how people choose their purchases over time isn’t a factor really – we must look at how much tax revenue will be generated by sales of necessaries as opposed to luxuries. And because the tax will increase the cost to the consumer of all goods, it is not clear that simply because the take home pay is greater, a person will be able to afford more.

@iamthemob

If the manufacturer of the toaster could make it for $8, they already would be doing so. When state sales tax was implemented the manufacturers were not scrambling to lower cost, they were already doing that. It’s all about competition. You toaster will cost more with sales tax but so do all the others. The competitive drive doesn’t change.

Your assumption that all the little items add up to the majority of sales dollars, simply doesn’t hold up. Take a look at your own sales numbers. New car sales work out to 10–15 times more money than used car sales. And there are ten times more used cars out there than new. It’s the price of the items that carries the tax burden and that’s where the more affluent pay the lion’s share.

“A consumption tax put in place to replace an income tax system is an additional, new tax.” – No it is not an additional tax, it is a replacement for the income tax. The calculations that have been done suggest a 17% sales tax would provide the same revenue for the government as the current income tax.

“And because the tax will increase the cost to the consumer of all goods, it is not clear that simply because the take home pay is greater, a person will be able to afford more.”

That may be the problem. We have a progressive tax system now. The sales tax I’m suggesting would likewise be progressive. If you expect everyone to end up with more money, it doesn’t happen. The only way that happens is to reduce the tax burden, which ever system you use. The point here is to make it fair and simple. If you are a tax accountant, it is unlikely that you would support this.

You really need to let go of this luxury idea because it is way too subjective. You put us right back into the government deciding what we need versus what we want. It changes over time and with income level. Is an Ipod a necessity or a luxury? How about a cell phone? Hell, I couldn’t live without my computer (how did I survive 20 years ago).

@Jaxk

Here’s the issue: Please reread my previous posts and see that I don’t assume that either the big or small ticket items add up to the majority of sales dollars. However, you haven’t presented clear evidence that, or how it would be guaranteed, that people who earn the most would be the ones subject to the most sales tax instead of evenly spreading the sales tax more across the brackets than the current income system does.

(1) Pulling out one number out of hundreds doesn’t make an argument. The used/new car sales bit also doesn’t tell us how the dollars are split between high end and low end cars. Those are the numbers we need to determine any actual benefit to the system.

(2) I said additional, new tax. It is in fact an additional tax that did not exist before that is a replacement, as you said, for the income tax. I don’t understand your semantic argument here.

(3) I haven’t seen the sources for the 17% calculation. The problem is that it’s the simplest math in the world to figure that out – the issue is not “how much sales tax would produce the revenue based on past figures” but rather “how much of the taxes will be paid by each bracket if we charge that percentage across goods generally.” Further, by linking tax revenue to consumption rather than income, we will be far less likely to predict year to year the revenue that will be generated (although this may not be a major issue).

(4) You’re claiming that the system will be progressive without demonstrating how it would be. Honestly, if you can show how it will be done, which requires a breakdown of annual spending per bracket and on which items, and which items would be sacrificed as cost increased, that’s the only way. Right now the claims aren’t backed up with any numbers, and that’s my only problem. Hell, you may be right. Prove it, though.

(5) The problem with saying that a luxury is too subjective demonstrates how you can’t really show that the system is progressive. I don’t think it’s as subjective as you think, but part of the problem is that it would vary highly from area to area. In NYC, a car would be a luxury item more than likely. In rural areas, it’s a necessary. So do we apply the same tax in both cases? The problem with value is that there IS a highly subjective element to it, particularly in this context when it comes to money/income. And because of the fact that there are real objective differences in what is needed and not in different areas, any consumption tax would have to take that into account or else it may very well be regressive.

It’s fine if you think that the consumption system is better. But if it’s a simple flat tax, then you have to show how the numbers work to make it more progressive than the current system. Until then, it’s an argument that remains unsupported.

It’s funny that no one has yet tried to define what “fair” should mean in this context, or whether and why it should even apply.

Since so much of the tax code today is not intended to ‘fund necessary government operations’, which is the way we like to imagine that tax revenues are used, but is clearly and directly intended as transfer of wealth payments, from ‘those who can afford to pay’ to ‘those who are deemed needy, deserving or legally entitled by virtue of inclusion in one form of pressure group or another’ ... what’s fair got to do with anything, anyway?

@Jaxk I remember that curve you sent me a while back about how that tax allegedly affects the middle-aged most. It seems to assume that inflation-adjusted income actually rises, but for a lot of us, it doesn’t. Not even those of us with a skilled trade. If you want your income to increase, you have to earn “fuck you” money already; then your income will increase over time. For many of the rest of us, it’s flatter than you’d think.

It also seems to forget that the elderly spend quite a bit more, so you would have to exempt quite a few (mostly medical) things that are currently taxed. I don’t know how things work where you are, but around here, the medical supply places and the pharmacies tack on the usual 9.5% state/county sales tax, and driving those costs up further would be a total dick move, but would also shift the tax burden towards the older folks in direct contradiction to the assumptions that you seem to believe.

“A consumption based tax rewards savings” Okay, but what if most of your money is spent on basics already? If it weren’t for having a working spouse and a roommate, I wouldn’t be making it right now. If I got the prevailing wage for what I do then it’d be different, but you and I have already had that discussion.

The simple truth is that a large number of Americans don’t earn enough to save much, and I am not talking about those that prefer to buy beer and flat-screen TVs instead of stocks and bonds either. So what is their reward for saving? Will you pay their bills? Or buy them dinner?

I’m still not buying that snake oil.

@CyanoticWasp “Fair” is a system that allows the low-income earners to not have their livelihoods threatened by taxation. The rich should not be penalized for being rich, but they will have to take more of the burden simply because they are less likely to have a few thousand dollars make the difference between life and death the way those of us who only earn a few thousand a year do.

You could tax Warren Buffet at 99% and he could still afford to eat and pay rent on the $410,000/yr he has left whereas taxing me at 5% would eliminate the possibility of saving (unless I dropped my health insurance) and much more than that would force me onto food stamps. Taxing me at 99% would leave me enough to eat for about two weeks, assuming I lived on the street and didn’t have to buy gas for my car (which I could not afford to register, insure, or maintain).

But life is not fair, so why should taxes be fair?

@jerv

Now you’re getting to the nub of it, and this is where I thought the discussion should have started in the first place.

We really need to look – and I mean seriously look, and not just pose for photo ops and sound bytes during campaigns – at what the government is spending and why it is spending, and determine whether or not these are “critical needs” spending items or “wish list / want list” items. We need to examine our social programs and (I wish) admit that they are bankrupting us, and need to be modified. It’s nice to get to a certain age and know that the majority of any medical spending you may incur for whatever ‘necessary’ reason will be ‘paid by others’, but it’s not right. Social Security is another program that I wish we could kill – not in a screeching halt so that millions start to starve overnight, but gradually, say over the next 20 years, do away with it entirely and have people fund their own retirements. I believe in a strong defense, but a defense budget larger than the rest of the world’s combined defense is, frankly, absurd. And no matter how much we cry poor-mouth, there’s always always money in the budget for all kinds of new programs and ‘initiatives’ to show ‘how much government cares’ (to spend money). If it means closing down or selling off National Parks, Monuments, the Smithsonian, etc., then I’m not even averse to that, too. Educational grants, government-funded research, all of it needs to be re-examined and, I propose, chopped off.

Government absorbs nearly half of our national income per year. The payoff simply isn’t there. It needs to be scaled down by an order of magnitude, before the Chinese and the Saudis decide to do it for us.

When taxes paid on legitimate income drive borderline income earners (and let’s use you-or-someone-like-you as an example) into poverty in order to fund welfare programs, and illegal aliens can take under-the-radar employment and live well enough by evading payroll and income taxes, or enjoy the welfare programs outright, then wouldn’t you agree that the fundamental issue of why we pay taxes in the first place is a huge part of the problem? This is part of my beef about “fairness”. Neither Warren Buffett nor anyone else should have to pay to support me – or you. If we have a system where ‘normal’ people can’t pay their own way, then there’s something very wrong with the system; it bothers me that no one seems to acknowledge this.

The legitimacy of the entire federal government budget (and most of the states’, too) is an open question in my mind. Talking about taxes is like arguing about crowded lifeboats on the Titanic; it’s a bit late for that argument, and it’s mostly irrelevant.

@CyanoticWasp Let us start with, “If we have a system where ‘normal’ people can’t pay their own way, then there’s something very wrong with the system; it bothers me that no one seems to acknowledge this.”

There are those that argue that only the lazy freeloaders and the very disabled cannot become millionaires by the age of 30. The slightly more Liberal among them believe that anybody who can work is automatically able to make a living, and that all it takes is a little ambition to go to college and make it into the big bucks.

They overlook that college is as much a privilege as driving a new BMW instead of a used Toyota. They overlook the fact that unemployment exists, preferring instead to believe that the only people without jobs are those who are unemployed by choice.

As for Social Security, the problem there is that only the rich can really afford to retire without Social Security. Assuming that SS is even around when I am old enough to collect a few decades from now, I would need to save nearly 60% of my gross wages in order to retire at the same standard of living I have now. If I had started when I was 18 then I could’ve gotten away with a mere 25–30%, but I’ve had a few setbacks in my life like being unemployed, replacing/repairing dead cars, medical bills, etcetera. But look at what happened to the big automakers when “legacy costs” ate up their profits, then their revenue, and then the companies themselves :P

Considering that my rent alone is ~50% of my gross income and that many Americans are in similar straits, I think you can see the problem there. The only way a non-rich person can ever retire without SS is to either start young (no later than 15) and never have anything bad happen to them or to have outside supplements like SS, employer pensions. The more well-off can generally afford to retire before they are too infirm to enjoy it, but generally at a greatly reduced standard of living. My folks were in the $150k/yr range (in the top 10%) and are now earning about ¼ what they were when they were working (or less than my wife and I) despite living modestly and investing their “excess” income.

It is sad that we have a system where normal (and even some above-normal) people cannot pay their own way. However, as time goes on, it is increasingly apparent that the tax situation we have is merely a symptom of inequality elsewhere in our system.

The more we follow other “horse and sparrow” economic policies, the more the top earners are going to screw themselves in the end tax-wise unless they are willing to toss the lower earners under a bus.

Now to figure out how we can ensure that everybody (except the truly lazy system-milkers) can make a decent living. I’m talking plentiful jobs with living wages. Being able to retire as opposed to working until you are worm-food, and not having to eat dog food after you hit the time clock that one last time.

@CyanoticWasp I think this shows some of the issues surrounding retirement.

Well, if this goes through then at least those that can afford to invest in their own retirement will be given enough money that they won’t have to spend any of their own savings/dividends to live in their old age :/

And given the Golden Parachutes that many execs got as millions of their underlings hit the unemployment lines after they ran their companies into the ground, I am now cynical enough to think that it might actually go through!

So yeah, taxes may not be relevant, but at least I have enough money to buy myself a hangover tomorrow. Happy New Year!

@jerv

You seem to bring an unwarranted amount of personal resentment (and envy) into this discussion from time to time, and it not only fails to aid in your arguments, but it’s distracting and detracting from them.

To the extent that you can, put aside how you feel about “what other people say” about their expectations for your life, and put aside the envy (a little bit is natural) for those who have done well or been born into wealth or just lucked out somehow.

Would you agree with my premise that a person with ‘normal’ levels of ambition, intelligence, drive and willingness to work should be able to support himself and raise a family? If we can’t agree on that then there’s no point in future discussion. I understand and agree that ‘stuff happens’, and unemployment happens, too, but we’re not talking about special cases. I’m asking about people who do have some ambition and willingness to work and take responsibility for their lives. I presume that means the vast majority of people, who are the ones that have to be addressed first in any government’s plans.

Consider that if you work for wages (or for yourself) that you pay a 15% payroll tax off the top to FICA (Social Security), and it is not ‘an investment in your future’. (The ‘employer match’ of 7.5% is based on your earnings; it’s not a gift from the employer.) You’re currently paying for the generation ahead of mine to retire, and soon you’ll be paying for my retirement as well. If you had been saving and investing the 15% on your own (and let’s forget for now the legality and constitutionality of whether you could be compelled to do that), then you would have a substantial savings account – in your name and as your own property to dispose of – set aside. Would you like to be in charge of your own retirement funding?

Health care is similar. We use health insurance as a way to spread risk, so that the majority of people who stay healthy most of their lives pay insurance premiums against a time when they may not be so lucky, and those premiums help to defray the costs of people who incur more than normal expense for various maladies, and for part or all of their lives. ‘Normal’ people have to be able to pay their own way, or else we’re all asking for charity and dependent upon others. I don’t see that as a viable long term option. Forgetting for the moment the way private health insurance in the US works (or doesn’t) because of the ways the current system is geared for large insurers to take on employers as clients and treat policy holders as less than paying customers (since we’re not really their customers, after all), and forget for the moment the high costs of insurance due to the regulations imposed and lack of real competition in the market and lack of portability of the product – wouldn’t you want to pay your own way (as I think you said you already do) for your own and your family’s needs, and no one else?

I don’t think that we should expect a checkout bagger at Stop & Shop, for example, should necessarily be the model of what our economy should be geared toward. (I don’t know what you do for a living, but I know you have a lot more capability than that, even though that’s honest work and I’m not trying to disparage people who do that.)

My point is that it’s not ‘inequality’ that makes it a problem that you can’t get ahead now. Inequality is actually a good thing, I believe, because it helps to create incentives to change, and keeps us aware that we’re not – or shouldn’t be – locked in to one particular way of living. What I’m saying is that if we have a tax structure which right now makes it impossible for you to make headway, then how do we raise taxes from this point? What I’m saying is that the entire tax burden is already too high.

@CyanoticWasp Like I tell many others, I am a machinist, not a writer/speaker. Words are not easy for me in the best of times, at least not the ones that convey my real thoughts and/or convince/sway others.

“Would you agree with my premise that a person with ‘normal’ levels of ambition, intelligence, drive and willingness to work should be able to support himself and raise a family?”
Yes, I would. That is, in fact, the cause of anything I say that you may construe as resentment or envy.
I admit that I do envy those that don’t have to work until the day they die. I envy those that are given stuff that people like me have to work for, and resent when the recipients of such gifts are people that can afford to get those things for themselves.
I also pity those that are worse of than I am. The truth is that I am relatively well off compared to tens of millions. I have had a few close calls in recent times, but I have managed to keep a roof over my head and food on my table with minimal government involvement. No more than I have paid in Federal income tax over the last six years anyways, and I’ve been paying in far longer than that, so in effect, I took back about one-third of the money I would’ve had if there were no federal income tax.

Personally, all I want for myself is to get a fair market wage for what I do and have that be enough to pay my bills and sock away enough to retire about 30 years from now (or set my wife up well if I don’t make it to that age). I am not greedy. I don’t want Mercedes and mansions.

I would also like every American who is willing and able to work to have the same thing; a fair market income that is enough for a modest living (three hots and a cot, medical care… the basics) and the ability to retire before they die.

As for privatizing retirement, that would cause some transition problems, but more importantly, it would require that the average American know at least as much about math as a high school graduate from when I went to school was expected to know, and to actually give a shit about something other than Justin Bieber, American Idol, or what their classmate’s friend’s cousin said on Facebook; a major cultural shift.

“I don’t think that we should expect a checkout bagger at Stop & Shop, for example, should necessarily be the model of what our economy should be geared toward. (I don’t know what you do for a living, but I know you have a lot more capability than that, even though that’s honest work and I’m not trying to disparage people who do that.)”
Two things.
1) Low-paying service jobs like that are what America has left. Many otherwise high-paying jobs are outsourced these days. You can get a highly competent computer engineer from India for less then what an equally qualified American would expect for a salary.
2) For what I do, the regional average is $19.02/hr with 90% earning not less than $14.88, so at $10/hr you might see why I am all about “fair market wages”. Now, if my trade had a lower average income then odds are that I would be doing something else for a living and not have bothered learning what i have learned to do what I do. See your inbox for more.

Now, if you’ll excuse me, I have to get ready for a champagne toast in about an hour or so. There is more to life than money, taxes, internet discussions, et al and I plan to enjoy my New Years :D

@iamthemob

Sorry I had thought I’d posted this Link on this thread but it was a different discussion. Anyway it talks about the points I’ve been trying to make. At least it may help to understand why I think it’s relevant even if you don’t agree.

There is another point which I think helps to make the case. We’ve been talking for the past two years about raising the income rates for people making over $250K. But every time it’s discussed the first example it for billionaires and why shouldn’t they pay more. Billionaires are a completely different issue and the top income tax rate doesn’t even apply to them.

If I have a billion in the bank, it doesn’t matter what I earn on an annual basis. If tax rates on income are too high, I invest my money into tax free bonds. I can get (even in today’s market) 3% on a ten year bond and 5% on a 30 year bond. That means that I’m earning $30—$50 MILLION a year TAX FREE. And just to make it sweeter, I’m investing in government so they can build roads and bridges, that’s why it’s tax free.With a national sales tax, we are taxing what ever is spent out of that $30–50 million in earnings. Right now, we’re not. You can raise the incomer tax to 100% and you still won’t touch that money.

When you talk about the truly rich, you have to understand how they operate. Raising the income tax will burden the $250K-$750K earners because they are working for a living. The truly rich are not and don’t get a paycheck and consequently don’t get hit with the high income tax rates. A consumption tax doesn’t let them slide.

@jerv and @CyanoticWasp

You guys are on the right track. We can do a lot to fix our tax system but it still doesn’t solve the financial problems we have. We have a $12 trillion economy. The government is spending almost $4 trillion and we are sending another $1 trillion over seas with our trade deficit. Frankly there simply isn’t enough left to grow the economy.

You mention that jobs are moving overseas because labor is cheaper. Very true, that’s not the only reason but let’s look at that one. Say you are paid $20.hr. The company realizes they can get the same job done in India for $10/hr. How much did the company save? The answer is about $20/hr. Once you look at even the most conservative estimates of employee costs (SS, workman’s comp, disability, unemployment insurance, payroll tax, etc.) you’ve added another $10/hr to the salary and we haven’t even gotten into health insurance and other benefits. Hell, some of the union benefits can add 150% to the base salary you get paid. So by moving your $20/hr job overseas, the company saves anywhere from $20—$40/hr. Hell, they save more than you make.

When you look at your paycheck and see the government has taken 20% of your wages, your only seeing the tip of the iceberg.When I hire someone for $20/hr, I am actually paying $30/hr. The government gets the $10 you don’t see and the 20% you do see. So how much of your pay are they really taking (from some poor schmuck in the lower income bracket) and is raising the tax rates really the answer?

@Jaxk -

THAT was an incredibly helpful link – thank you. I’ll have to look it over before I comment further, but I’ll note that I have two initial concerns – first, the CATO institute, which is a notably partisan research institute (that colors, but does not condition, my response, so I’ll try to put that aside although it’s important to note), and second, I briefly looked it over and it seems to focus on the amount needed to be taxed, income over an individual life, etc., without looking at what people really are spending money on based on their individual earnings, which I think is the important factor.

Also…making progressivity based on an end of the year rebate is a real problem as it requires that people struggle currently with high prices and wait for a rebate – and I don’t know again that the system would end up cutting down on the price of regulatory bodies as much as you initially argued. Thanks.

I also really have not been talking about the truly rich. They’re behavior is not what I’m worried about because the only concern is whether the shift is to taxing more of people’s basics, which @jerv talks about above, which doesn’t let the rich slide at all but rather burdens the non-rich. You’re the one focusing on the rich here. To illuminate my position, also, I’m an ERISA attorney who worked on a big three restructuring focusing on executive compensation and benefits policy under new TARP regulations…so I have a particular insight into wealth taxation policies.

@CyanoticWasp

Educational grants, government-funded research, all of it needs to be re-examined and, I propose, chopped off.

I totally agree with your general assessment. But we have to consider the future of our economy – we need an educated base as we move from production to service/IP bases. We also need to remember that all government funding creates employment as well. Attacking the research/non-clearly productive grant programs should be the last step. We should look at the clearly damaging federal regulation issues – ridiculous things like social regulations in our drug and criminal policies, family regulations, etc.

@Jaxk That is the link I remember, and the one where I had issues with Figure 1.

I am well aware that my employer is actually paying me nearly double what my paystub says after taxes, 401k-matching, WA state L&I, etcetera. It’d be more if I actually used their health insurance, but I use my wife’s. However there is a flip-side to that.
If it weren’t so expensive to own property, landlords could get away with charging less for rent while still making a profit, and that would reduce income requirements. If car insurance were not so expensive, transportation costs would go down. And if cars and medical care were cheaper, insurance companies would not need to take in so much in premiums.
Face it, compared to most of the world, America is an expensive place to live, and a lot of that cost is actually artificial. About the only thing that is cheap here is gas. There is a large web of inter-related cost-raisers that pretty much make high wages for American workers a requirement, and that is a systemic flaw that taxes won’t fix.

Also, I think it safe to say that when people yell to tax the rich that they are really actually complaining about only the top 1% but expand their ire to the top 10–20% for a variety of reasons. I doubt most of them would want to deprive a hard-working small business owner who finally got into the six-figure range of the fruits of his labor. There is rich and then there is “Fuck you” rich. The type of rich that blows the mathematical models our tax system was based on into the dustbin of ludicrous irrelevance.

“The truly rich are not and don’t get a paycheck and consequently don’t get hit with the high income tax rates.”

That boils down to a semantic argument over the definition of “income”. Like many of the elite, Warren Buffet has a shitload of income even though his salary is a mere $100k, and if memory serves, Steve Jobs is a dollar-a-year guy; pitiful salary but still raking in the dough with dividends and other non-wage income.

“A consumption tax doesn’t let them slide.”

If they only spend 1% of their income, then yes, it does. Now, if the rich actually consumed at a rate proportional to their income then I would agree, but how many mansions and Maseratis does one person need?

@iamthemob

Actually taxing the truly rich really is what this is all about. Spreading the taxation more evenly helps everyone. There’s a couple of points that I firmly believe that need to be stated. First everyone needs to have a stake in the government. Currently almost half the population pays no income tax. They have no stake and therefore are more inclined to push for more government, more programs afterall (as one lady put it) it’s free, it’s Obama money.

Second, if you look at the taxation it escalates through the income scale. The more you earn the higher rate you pay. Until you get to the top, mainly the top .1%, the truly rich. At that point it actually goes down. They pay a lower percentage of thier money. Because of things like I described above.

With a fair tax, everyone participates but as you move up the scale, your burden is proportional. Currently we have the lower end with no burden and the very top with a disproportionately lower burden. The lower end screams “hell yes, raise the tax”. The top end sits back and says, “go ahead, we don’t care”. And those of us in between get screwed. A consumption tax fixes that. Both ends feel some burden and have a stake in whether taxes go up or down.

@Jaxk

I feel like this disagreement is more semantic. I look at it more like a means discussion, and you seem to be discussing results. I don’t view it as an issue regarding taxation of the very wealthy because I don’t think we should simply because they can afford it. I am more interested in ensuring that the burden is shifted off the lower class and the middle class, and how that can be most efficiently done. So the first question we have to ask is “How do we ensure that the lower and middle classes are able to keep the highest percentage of their income?” and work from there.

@jerv

Listen to your own arguments.

“how many mansions and Maseratis does one person need?”

The very rich DO spend a lot of money. They do buy the mansions and the Maserati’s. They just do it with tax free money. Say Bill Gates wants a private Jet. Do you suppose he buys it with his taxable paycheck. Even assuming his paycheck was that big he wouldn’t. He has the corporation buy it and voila, he has a Jet. He pays no tax, the corporation pays no tax, it’s a business expense. Hell no one pays tax on that money, which by the way, is about 50 million bucks. With a consumption tax, it does get taxed.

Oh and by the way, that $150 million mansion he built, yup, he gets taxed. The whole idea of a consumption tax is to level the playing field. No tax write-offs, no loopholes, no free rides. We’re all in this and we all carry our share.

@Jaxk I agree with that, except that you seem to be missing the point by a hair. My point is that Maserati sales are far outstripped both in absolute quantity and in revenue by sales of more modest vehicles that us mere mortals drive like Corollas and Maximas, and rest assured that such a vehicle represents a larger proportion of the income of us peons.
The average new car is roughly 6–12 months gross income for most people, and a new-ish “pre-owned” rig is about the same amount of income for the slightly lower brackets like myself. On the other hand, even the most expensive production car in the world (Bugatti Veyron; $1.7M) is less than half a day’s wages for Mr. Gates. That $150M mansion is less than what I pay for one month’s rent when you adjust it proportional to income; about ten days gross wages. And he owns that while I have to pay again every month.
Who spends more and who bears the burden….

I agree with the principle of what you just posted. I don’t think that you and I have ever been far away from each other there. However, we do see the numbers quite differently, and thus butt heads on details a lot.

@jerv

You keep missing the point on this, though. What do you think Bill Gates and Warren Buffett do with their money (when they don’t give it away, that is)? If they don’t invest it, which generally adds to the entire wealth of the nation (including yours and mine, however indirectly) and for that primary reason should not be discouraged, they spend it. They don’t eat it. In a consumption-based tax scenario, every purchase they make for consumption will be taxed.

@jerv

I’m missing your point. Is it your assumption that there should not be a disparity. That everyone should have the same. That is communism (or socialism or Marxism, pick your label), at least in theory. In practice, it results in even bigger disparity between the haves and have nots. And of course the in between go away entirely.

If you have another point, you need to make it more clearly than just saying Gates makes more money than you.

@CyanoticWasp

What does it matter what the rich do with their money? If we have a consumption tax that results in a tax on items for which the majority of the revenue is generated by sales to poor and middle class people, then it results in an unfair distribution of the tax liability.

@Jaxk

The point here is not that everyone should have the same. Not at all. The point is that it doesn’t matter if the wealthy buy things that are 10x more expensive than those purchased by those in lower economic classes if those classes are buying 1000x the number of items that the rich are. 10% of the population in the U.S. makes about 50% of the income. That means 90% makes the other 50%. If 10% (we’ll say 10 people) purchase cars for $10,000, they spend $100,000. If 90% purchase cars (90 people) that are $1000 (on average), they generate $90,000. Looks fair. But if you consider that those 90 people make $10,000 a year on average, at the end of the day, they have only $9,000 left for the year. The 10 people, if they make $100,000 a year, they still have $90,000 left. The 90 people can’t afford a more expensive car, and they must by a car regardless to commute to work. The 10 people, however, could buy something more expensive, could buy something less expensive, etc., and it wouldn’t impact them at all – they could even just hire a car service lets say.

That’s the point – the impact. If there’s a straight 20% on the above purchases, you dramatically affect the 90 people while not really making a dent in the economic freedom of the 10. And the 90 can’t plan in order to reduce this effect (in the simple example).

Perhaps the answer is actually in the amount of the item instead of which items, etc. I could see a progressive consumption tax, at an initial analysis, working like clothing tax in NYS at times. Purchases of clothing are generally tax free. If you purchase an individual item that is over $110, that is taxed. A system based on that concept would pass cost to those who can afford it, inspire business efficiencies to reduce prices, and ensure that purchases that would generally be made by people who actually need the item were taxed at no or a lower rate.

@jerv

I think you and I have the same point, and stop me if I’m wrong. I think the best way may be to discuss it as if the wealthy and the non-wealthy deal in completely different currencies. The wealthy “W” is worth one-tenth of the non-wealthy “M”. But those trading in the W earn plenty of W so that it doesn’t make a difference on the market. So when the wealthy have to spend 10W on milk whereas the rest spend 1M on it, both feel the same effect. Of course, both the W and M are really dollars – but a wealthy person would spend $10 on milk and it would impact them the same as others spending a dollar on it. The problem with a straight consumption tax is that it considers the W and M to be the same value – so a tax in the hypothetical based on consumption would be levied not as a percentage but as a numeral – 1, we’ll say. So now, there’s a 1W tax on the milk as well as a 1M – but that means that a negligible increase to those spending the W, who now spend 11W is totally unfair in comparison to the doubling in price for those spending an M who pay 2M for the milk because they really should only pay 1.1M if there was a fair distribution. That’s the disparity when you look at the revenue amounts and numbers from an objective value concept of a dollar instead of a subjective concept of the value of a dollar in a consumption tax based economy.

Let me jump around a bit here…

@Jaxk “If you have another point, you need to make it more clearly than just saying Gates makes more money than you.”
I am trying to be clear here. It’s just not always easy for me to put thoughts into words. I don’t think in words; I think almost completely in pictures, so even typing this sentence requires more effort than it would for most people.
As for Bill Gates making more money than me, I am not sore about that… so long as we don’t wind up with a tax system that hits me ten times harder than it does him. He is merely the best known example of “uber rich”.
Now, would it be fair to take 10% of my income, 5% of the income of a moderately successful small business owner, and 0.01% of the income of someone who can buy and sell small nations? Personally, I don’t think so, and am therefore against any tax scheme I see as regressive. And I still don’t see how any consumption-based tax can avoid being regressive when you consider the massive income disparity we now have.

@CyanoticWasp Define “consumption”.
If we tax stuff like bonds then the same item will be taxed so many times that ad nauseum would be an understatement, but if we don’t then we have a loophole that only the top tiers can take advantage of.
Also, that argument seems to assume that those in the lower income brackets ($100k to $1m a year) don’t invest. Last I checked, that wasn’t true; it’s merely that it takes more “little fish” to add up to one “big dog”. However, there are far more people in the lower end, so the end total is far more: (200*10) > (1*1000) if you catch my drift. That is a non-starter in my book.

@Jaxk I have no problem with disparity unless it gets to extremes and people start suffering or dying as a result. Someone who works twice as hard as me is entitled to have a nicer car and house than I do. Disparity in and of itself isn’t bad.
Extreme disparity is though, especially when the system is designed to promote/perpetuate it. Someone who only works twice as hard as me is not entitled to have the world handed to them on a silver platter while I am living in a cardboard box eating out of dumpsters. And I seriously doubt that anyone works literally 1,000 times as hard as I do, let alone 1,000,000.
And before you say something like “CEOs deserve that money because they make billions for their company”, remember that they don’t implement their plans. I don’t care how good your idea is or what sort of leadership skills you have; without people to do your bidding, you ain’t got shit.

I don’t want equality; I want proportionality.

@iamthemob It looks like you pretty much have my objections to consumption-based taxes figured out. Subjectivity is a bitch, ain’t it :D
Maybe expanding the “Luxury tax” would help mitigate my displeasure, but some would argue that that is discrimination. IMO, it’d be no worse than the discrimination we have going the other way right now, but c’est la vie.

@iamthemob

It sounds like you won’t be happy unless we complicate the hell out the system. We already have that and it isn’t working very well. Let me throw a few figures around and see if it makes any sense. First remember that this is intended to cover all your income taxes including things like Social Security, Medicare, etc. So you really do see a jump in your pay. Also your employer sees a reduction in payroll costs which either adds to you salary or reduces the cost of goods. Either way you benefit.

In the US we spend about 10% on food. I suspect the number is higher at low income levels and lower at the high end. Food is non taxable. Also we spend about 35% on rent or house payments. If you buy a house, you must be able to afford the tax on it (one of the draw backs to this system but the benefits out-way the drawback). If you rent, it is not taxed since the purchaser paid the tax. So if you are at the low end your rent is also tax free. That gets us close to 50% of low income with no tax burden. I know you want to haggle about clothing, around 3% of income but it’s not significant. And remember that you have already seen at least a 20% jump in your total income so the tax of 20% on the remaining 50% that might get taxed, still leaves you money ahead.

I’m just spit-balling here but those percentages are real. and the uber rich do begin to pay an equitable share of the tax burden. You seem obsessed with creating a higher percentage for the rich but that is already handled by the tax. it doesn’t need some complicated scaling that puts us right back into an unworkable system.

@jerv

Apparently all you see is a tax system that is regressive. And given your assumption that if you make $20/hr no one should be able to make more than $40/hr, I’m not sure anyone can help you. But you’ve got the right guy in office, I’ll give you that.

“Now, would it be fair to take 10% of my income, 5% of the income of a moderately successful small business owner, and 0.01% of the income of someone who can buy and sell small nations?”

This is how you distract people from the point. I don’t know what you think that example shows. It’s not the system we have now nor is it the system anyone has proposed. It’s completely made up and intended to show some regressive tax system that doesn’t exist. That’s why I get confused with your points.

@jerv – I’m really late with it, sorry about that (had family in town) but if we just dropped a $50 million earner on top of the 100 presented before for simplicity their line would read

Earnings $/yr | Effective Tax Rate | Taxes Paid | % of Total Income | % of Taxes Paid
=============================================================
..$50,000,000…......20%…...........$9,997,600…......87.43%…...................89.30%

The whole chart would change significantly, because the original 100 would only need to pay 11% of the tax since they have only 12.5% of the income from the outlier being added.

So just for ease, here’s the whole thing

Earnings $/yr | Effective Tax Rate | Taxes Paid | % of Total Income | % of Taxes Paid
=============================================================
..$240,000…............0%…...............$0….................0.42%…...................0%
..$600,000…............12%….............$72,000….........1.05%…...................0.64%
..$1,000,000….........15.2%…..........$152,000…........1.75%…..................1.36%
..$1,600,000….........17%….............$272,000…........2.80%…..................2.43%
..$3,750,000….........18.72%…........$702,000….........6.56%….................6.27%
..$50,000,000….......19.995%........$9,997,600….......87.43%…...............89.30%

In a larger group, it might be more realistic and less striking, but the overall idea is that very high incomes would be taxed at the full rate and reduce the tax burden for everyone else accordingly.

A point I’m hesitant to bring up but that is important to note, very very few people, even among the CEO types who get all the big income press coverage, will make $50 million in a meaningful way. Most of the time a large portion of their income is based on the value of stock they receive. I’m not saying shed tears for the poor execs, but if you’re imagining someone getting a $2 million direct deposit into their account every two weeks, I don’t think that happens very often. Those golden parachutes are just as often referred to as golden handcuffs to keep people in a job. They can’t sell it without reporting the sale before hand, and potentially frightening investors, so it’s just paper wealth that at best can be borrowed against.

The people who do receive $50 million in a given year would be mostly business owners or founders that sell their stake in private companies, and that’s usually a one time cash out.

@Jaxk

I don’t know how many times that I’ve said I could give two shits about making the rich pay more. Here’s the thing – I believe you posted this:

“The problem here is the need to make yourself right, by making the other person wrong. It’s one of my pet peeves. I’ve known people all my life that think they can make themselves look good by making others look bad. It’s a very common political ploy.”

And yet you obsessively put forward an idea and dodge criticism of it by characterizing the other side in a manner that minimizes the argument and attempts to undermine it to boot. If you’ll read through my posts you’ll see I don’t know that a consumption system isn’t the best method. And there are potential benefits too it. But there are serious problems to be considered that you’re not addressing…and instead claiming that because I’m raising them, I need to “tax the rich” or “won’t be happy until I complicate the issue.”

It doesn’t need to be complicated – but it certainly isn’t as simple as you want it to be. But what do I know…I mean, ERISA and tax law are my professional specialty…but you do seem to believe what you believe here…so enjoy! ;-)

@iamthemob – completely agree (with your comment above some ways) that the flat tax with a minimum is more of a thought experiment than realistic in the simple example I outlined. I guess my larger point is that I don’t understand why it’s not considered as a basis for a more complete system by people with far more knowledge on the subject than I have. If we could start from scratch, even theoretically, wouldn’t simple be better?

Every time I hear it discussed nationally it’s dismissed as just too crazy to work, and is a non-starter for either of the major political parties or their candidates to tackle.

In short I wonder what I’m missing.

@funkdaddy – I don’t think you’re missing anything – in fact, your comments have made me consider the possibility of a flat and/or consumption based method as a basis for a more progressive system.

I think that the reaction is more about asserting a flat tax or consumption tax without adding an instant caveat that it would have to be a modified version to ensure a progressive system. Part of the problem is, of course, that when you say “flat tax” people think of the simplest version.

@iamthemob

I’m sorry you feel that way but you’ve brought up this sliding scale argument more than once. And you’ve made arguments that imply we need to make a dent in the economic freedom of those more well off. I don’t agree with that premise. Also you’ve used examples such as your car example that is completely made up with no basis in reality. So how do I counter that. I try to use numbers and information based on reality. I do some research between almost every post before I answer just to make sure there is some validity. The savings from the IRS is real, the savings from the payroll taxes are real, the percentages I used are real. If you want to argue that I’m off by a percentage or two, I can deal with that. But if you want to modify the system to account for the clothing budget, I feel obligated to point out that it is an insignificant piece of the pie.

And frankly if we can’t simplify the system, what’s the point of changing it?

@Jaxk

Here’s the thing: you make assertions based on reasonable and perhaps valid predictions that don’t take all possible variables into account. I give simple examples because you don’t get what I’m talking about – evidenced by your characterization of the “need to make a dent in the economic freedom of the more well off” as my argument when I’m trying to make the point that you don’t seem to understand how rich people work. But inevitably, you attempt to make that single example my entire argument. I mean, my job is to examine the tax implications of executive pay at the highest level. My earnings put me in the highest bracket. And my family estate is substantial. I’ll just say that I have a fair amount of educational, professional, and personal experience showing me how this all plays out. Your numbers are valid if we leave certain factors out. Once those come in, and I’ve tried to raise them but it seems that all you hear is “clothing budget” and that becomes the whole argument, your numbers become questionable.

I’m glad you think you’re right. You might be. But you don’t have a clue, it seems, as to why you might be right. Even a broken clock is right twice a day, after all.

@iamthemob

I took into account any examples you choose to submit. I would think that some one in your lofty position would be able to use better examples. Maybe you felt you had to ‘dumb it down’ to communicate with it. You may have gone too far with philosophy.

I’m glad to hear your doing well. Let me assure you I understand both wealth and the lack of it. Not to mention that I understand the tax implications of executive pay at the highest levels. I also understand that either a consumption tax or a flat tax would put a serious dent in your client base.

@Jaxk “And given your assumption that if you make $20/hr no one should be able to make more than $40/hr, I’m not sure anyone can help you.”
I guess I said something that came out wrong as that is not what I meant. Not quite anyways. I’d have no problem with some ass-busting genius with a great idea earning $400/hr, possibly even $4,000/hr. It’s just that I don’t see anyone worth $20,000/hr or more.

“This is how you distract people from the point. I don’t know what you think that example shows.”
So you are saying that the top tier actually spends as large a percentage on their income on stuff that would qualify as “consumption”? That tax-free bonds, an easy dodge, will go away?
My point is that the rich don’t consume as much as you think unless you are willing to count all investments as “consumption”.

@funkdaddy It does look better now that you’ve expanded it even more than other examples I’ve seen, used more realistic numbers, and otherwise brought it closer to reflecting reality.

As for the big boys making most of their money from investments, that brings me to something I have wondered for a long time; why stock dividends and other such capital gains being treated differently from wages. I mean, I understand that the whole reason people invest is because there is incentive to do so, but isn’t making money incentive enough?
In the long run giving a tax break on top of that pretty much hands all of the money to those who invest due to a snowball effect that ends up… well, it ends up with a disparity that makes what we have now look like nothing. Be glad we aren’t near the endgame, but it only gets worse from here.
Okay, sure, your $10M investment only returns $10.7M instead of $11M. Suck it up or suck my dick! It’s already practically free money, as opposed to earned income. Unless you are saying that the rich should be exempt from the sort of rules us serfs and peons follow, I can’t see other way. Hell, done right, we could lower the actual income tax for everybody! And if you do agree with Leona “Only the little people pay taxes” Helmsley then I think it would be best if we ended this now.

“in 1980, the top 10 percent earned 32 percent of the income and paid 44 percent of the taxes—a ratio of 1.4. In 2004, this group earned more of the income (44 percent) but paid a lot more of the taxes (68 percent)”

Now remember that 1980 was before the Reagan tax cuts and 2004 was after the bush tax cuts. Neither made the top 10% pay less of the burden but rather more.

What’s funny about the quote is that it’s deliberately worded to confuse – and the assertion following demonstrates the intended misperception. Let’s all notice how the second sentence does not mention what the ratio is, while the first does. Also, the second sentence uses “more” to describe the increase of the income, but “a lot more” to describe the increase in how they’re taxed.

So, clearly, we’re meant to feel like we were taxing the top 10% more in 2004 than we were in 1980. And the sentence discussing the tax cuts is based on a belief that there was an increase despite the fact that Reagan and Bush were cutting taxes to benefit the wealthy, and the rich are paying more than ever.

However, the problem of course is that no one ever discusses what the second ratio is. If you calculate it…it’s 1.54 instead of 1.4. So the proportion of the tax liability attributed to the top ten didn’t really seem to increase much at all…

What’s also important to note is that the top 10% share of the income increased by about 35% from its share 24 years earlier. So essentially, it’s paying the same percentage of the tax revenue out of those additional earnings.

Here’s the math in real numbers: it’s 1980 – 10 people earn 3000 and pay 400 in taxes – which means they have 260 in the end a piece (the average). 90 earn 7000 and pay 600 in taxes – so at the end of the day they each take home about 70.

Now, it’s 2004. The 10 people now earn 4000 and pay 700 in taxes – taking home 330. The 90, however, are earning 6000 and pay 300 in taxes – and are now only taking home about 63 bucks.

You want to bring up issues with false data and then say they don’t pertain so that your errors won’t be refuted. And by the way how does the debt chart sow that we have a regressive tax system? Do you even know what regressive means? When the top 10% pay 70% of the taxes, that’s not regressive, it’s progressive.

But above the assertion is proven false, particularly when we see the change over time. If the top 10% of the population is earning more and more of the total income generated, then how much tax they pay cannot only be tied to how much more they are earning, but rather how much less the rest of the country is therefore earning. As shown above, the numbers quoted may very well indicate that the policy is horribly regressive. The rich are paying more taxes, but the increased percentage doesn’t negate their extra earnings. The rest, however, because they earn are the same percentage of the population now splitting a smaller percentage of the general income, realize a drop in what they take home after taxes. The rich getting richer literally makes the poor poorer.

Unfortunately, I don’t really see the CATO report cited as being much more than an argument to use a lifetime-income model in determining how people will consume, which ends up being a more friendly model if we want to show that consumption taxes are relatively the same in terms of progressivity as the current system.

The argument should not be, in any case, whether the government spends to much, whether we should tax the rich more, whether a new system is as progressive as the current system. The purpose is to determine the most fair policy. If it’s consumption based, fine. If income, fine. But if we don’t define fair, as was mentioned earlier, then we’re really just arguing about what works or doesn’t in each system with no borders to the discussion.

@jerv – for the capital gains tax treatment question…remember that making investment attractive means delaying gratification. If I purchase something now instead of investing in stocks, I’m happy now. The extra tax benefit is just a kick in the pants. Earning potential money is great, but earning more money is even better. And don’t forget…investing isn’t without risk…

One of the things that we’d also want to look at is how much investment income would be flowing out of the country.

That one up on the second shelf on the right. No not that one, the one next to it in the blue box. Yup, that’s the fairest one…

@iamthemob If you need a kick in the pants, then maybe you are in the wrong game.
And yes, certain types of investing are risky; generally those with the chance of higher returns. Do you know what else is risky? Life! I gamble every day when I get into my car to go to work, and I take another gamble in betting that I will be employed tomorrow.
Earning more money is even better, but at what cost?

As for how much investment income would be flowing out of the country, I am not sure that that would be any more of an issue than it currently is. Put another way, if it would become a larger problem then our system is such a kludge anyways that it’s a moot point :/

@HungryGuy The one next to the oatmeal?

@jerv – No. Not the one next to the oatmeal! The other blue box… Behind the chinese noodles…

@HungryGuy I thought that other blue box was a living wage…

@iamthemob – Nah. Living wages are down in aisle 5, between the beer and the corn muffins.

Ahh…where they belong. ;-)

@iamthemob

I think I see a couple of points where we disagree or are trying to fix different problems. I’m not trying to put words in your mouth but if I don’t restate the point I think your trying make, I can’t clarify the problem. So if I mistake your point, go ahead and call me a broken clock or what ever name fits the purpose.

“then how much tax they pay cannot only be tied to how much more they are earning, but rather how much less the rest of the country is therefore earning. As shown above, the numbers quoted may very well indicate that the policy is horribly regressive”.

This is the ‘fixed pie theory’. If I make more it must have come from someone else ergo that make less. That’s not how it works. This graph Shows GDP growth in constant 2000 dollars. Basically we manufacture wealth out of thin air (ingenuity). If I invent a new widget and make a billion dollars, it doesn’t follow that some one or some group must have lost a billion dollars. More likely what happened is that the economy grew by a billion dollars or more. I think the tax code should encourage that kind of innovation. I suppose we could haggle over the numbers.

The second area I think we miss each other is in this fairness definition. I think your trying to accomplish wealth redistribution with the tax code and that’s what you mean by fair. I see it quite differently. I’m not trying to equalize disposable income or redistribute any wealth, merely want to make those that earn more pay more. But I still believe everyone should pay something to have a stake in our government. But if someone invents a nuclear fusion car that runs on water, I don’t care if they make a million or a trillion if it grows the economy.

The current system is progressive by definition. If you look at the percentage of income paid by each income group it gets higher as you move up the scale as shown here . The ave tax on income is about 12%. The top 1% pay 23% and the bottom 50% pay 2.5% The place where it differs is in the top .1% (not shown on this graph). they actually pay less than the top 1% due to the factors I’ve mentioned before. That’s where the sales tax would correct (at least in my opinion) that discrepancy.

@Jaxk and all. Forgive my jumping back in. I have been lurking and reading the discussion, and learning more by keeping myself disengaged. But there are several points I now find worth making.

1st, I strongly agree that any plan to overhaul the US tax code should include serious simplification. Sorry, @iamthemob, I know that’s probably not a good career direction for you. I also know that no matter how many of us want it, it isn’t likely to happen. So your job is probably very secure. :-)

I also see @Jaxk point of involving everyone beyond the newspaper boy in paying at least some part of the cost of government. It does make sense that those who only get from the government might grow to view it as a magical source of free money and want ever more from it without realizing the implications of such demands. We probably all should pay a part, and we probably all should see our portion increase when we vote to “get” more from government. All voters should know where the largess of the US treasury comes from.

I have a couple of wishes for fair taxation that I am sure are NOT on @Jaxk‘s list. I want a tax system to be progressive and I want it to ensure enough revenue to balance the budget. I also do not want to starve people to death or create huge tent cities all across the USA in driving for any change to the status quo. We can certainly talk about spending cuts to help reach a balanced budget, but realistically, we can’t get anywhere close without massive pain that I do not want to see us endure.

Now, about a consumption tax, it satisfies simplicity and everyone being invested in financing the nation. It fails miserably on progressivity though. And the actual rate required would be devastating to the economy. Consumer spending in 2010 was $9.33 trillion and the 2011 budget calls for spending 3.83 trillion. For a balanced budget, that calculates to a sales tax of 41%, but only if it is applied to all spending, including essentials like food and housing.

As to progressivity, a sales tax is highly regressive. The average family of 3 earning $20,000 a year spends virtually everything they earn on what would be taxable items. Even if they rent their housing, the sales tax would have applied to the landlord’s property purchase. The landlord would be forced to pass the cost on to the tenants. So they end up paying an effective tax rate of 40% or more, dropping their meager $20,000 income to $12,000. This tax would force such families to decide between food and housing. 28.22% of US Households earn $25,000 or less. We would see massive tent cities pop up all across America.

Meanwhile, someone earning $20,000,000 and accustomed to that can spend ½0th of their income on housing, transportation, travel, food and other taxable purchases and still live like royalty in a mansion with a back-up vacation home and a new Mercedes every year. Their effective tax rate is 2.5%. If that isn’t regressive taxation, then only feudalism qualifies.

So if we had a consumption tax, what would prevent Billionaires from traveling to foreign countries and buying all of their shit there? Also, people keep making the argument that the rich invest and therefore it stimulates the US economy, which is partially true, but only when they invest in US stocks. How many of them have accounts in Swiss Banks? Caribbean Banks? When a rich guy buys a Ferrari, maybe 10–30% goes to the US dealer, but the rest goes to Italy. In general, the spending of the rich is more likely to stimulate foreign economies than the spending of the poor.

Here’s the thought experiment that I think comes up with the most fair taxation policy. Imagine 1000 people in a room and they’re all going to draw a card randomly from a deck that will tell them their salary. The distribution of wealth will match the current curve in the US. Nobody knows what their card will be, and then they all sit down and design a tax strategy that they all agree will be fair, knowing there’s a small chance they could be super rich, but also a very good chance that they could be poor. Whatever they system people would all want to see without knowing their future circumstances would be the fairest to apply after the truth is revealed.

@ETpro great point about the 41% sales tax. That assumes that spending would remain constant with a huge tax like that. If the people who claim that it would encourage people to save are correct, then that percent would necessarily be higher to make up the difference. Also you can be sure that tourism to the US would radically decline, further increasing the necessary percentage to make up the difference.

@Jaxk You are somewhat right about the “fixed pie” theory being wrong. Where you err is that only the top ever sees any of that new wealth.
Look at how incomes have remained effectively flat for most people whereas the elite have seen their incomes grow by leaps and bounds. How much that has happened varies by source; some are moderate and others place it at nearly quadrupling (I am citing the low-ball estimate here) so the obvious counter-question is, “Does it matter if wealth is created if practically nobody ever sees it?”.

You made your widget, the economy grew by a billion dollars, and you are the only one that has any of those “new” dollars since it was your widget so you get the profits. The total GDP went up, the rest of us have the same number of dollars and therefore a smaller share of the GDP. Each dollar is worth less (devaluation) but you now have a larger percentage of the total GDP so what do you care?

Of course, the biggest problem with any plan is that it generally involves some degree of idealism. Whether through optimism, pessimism, or just plain delusion, we lay plans with the silly notion that things will go the way the plan accounted for them to go and, well…. there goes the plan. A truly fair tax plan will be one that accounts for that which cannot be planned/accounted for :P

@jerv – Absolutely right. That’s why I was using proportions and then dollars. A clearer picture would be available also if we take the time to actually see how the value of the dollar changed over time as well. If salaries and costs double over time because of cost of living allowances, then there has been no real increase in wealth for the vast majority of the population.

I also agree that the biggest delusion is that there is a “fair tax plan.” Consumption-based taxation could be the most fair, but there are aspects of it that would result in unfair cost distributions. The reason why our system is so complicated is that it’s attempted to change along with our economy to raise money and (at least nominally) remain fair. I believe that we may be at a point where it’s no longer time to amend, but reissue.

@ETpro

Good attempt to spitball the numbers and I don’t mean to nit pick but you can’t make the comparisons you have. First let’s get the revenue number. Federal Revenue in 2010 is $2.1 Billion not $3.8. If you want to compare the current tax system that is the number you need to use. At $3.8 we can’t get there with the current tax system either.

Second you need to account for all the spending not just consumer spending. Consumer spending accounts for about ⅔ of the total (the lion’s share for sure) but it doesn’t count the business spending. Things like the corporate Jet I mentioned earlier. Or automated equipment used by the car companies. Or hell, even the new POS system I had to buy last year.

Your numbers work great to astonish everyone but don’t really reflect reality.

@jerv

I won’t dispute you numbers. Even if I thought they were wrong it would only be a small move. The place where I have a problem is with your analysis of the issue. During the 90s we went through an electronic revolution. Not much different than the industrial revolution.

Companies like Yahoo, Google, Ebay, sprung up out of nowhere. Companies like Intel, Microsoft, and Intuit made thousands of new millionaires. The founders not only got rich but everyone around them did as well. All types of equipment and merchandise became electronic. Hell my car has ten time the compute power of the missile radar system I worked on back in the 60s. Mechanics that used to listen to an engine and tell you what’s wrong are out of work. Without a Sun Diagnostic system, you can no longer tune up a car.

Basically craftsmen of the past are relegated to low paying work. There are lots of them and few jobs. Much like the Blacksmith of old, they either get retrained or are left with meager opportunities. The 90s were only a decade past. We’ve lost major industries like the steel industry and and a good machinist is a dime a dozen. Hell most of the machinists work is now done by one machine that’s run by a computer. The only thing you need to know to run it is how to push the button and keep your hands out of the gears. The good job is fixing the computer. The guy that used to bend steel to make filing cabinets, better learn to make disc drives lest their future looks bleak.

Right now there are a lot of jobs available but few qualified candidates. The candidates have skills in ares that are in less demand. We need time to change our workforce to the new paradigm. We’ll always need the craftsman just not in the quantities we currently have.

One last point on your graph. As we see more Baby Boomers retire, we will see their incomers drop. That’s the way it works for all but the government workers. And that shift to retirement will also have an affect on your stats.

@Jaxk Entirely true. That is why I became a CNC machinist. Manual skills only get you so far; you also have to know at a minimum CAD/CAM and FANUC unless you plan to just be a cranky old guy with a small shop in the garage that is just waiting to be swept into the dustbin of obsolescence, You are also correct in that it doesn’t take much skill to operate the machine, but setup and programming does. Truth be told, I do relatively little actual machine operating these days; I leave that to the subordinates. And it takes a bit more to second-guess the engineers and be right.

That is also why I avoided the entire IT field; keeping up with the cutting edge is almost a full-time job in and of itself, on top of what you get paid to do. That and, when I went to school, many people said, “That is where the money is going to be by the time you graduate.”, so Comp-Sci majors are a nickel a dozen :P
Oddly enough, there is relatively little interest in my field and quite a few getting ready for retirement with few to replace them, so if I turn down the Engineering position I’ve been offered and stay in my current field, the outlook isn’t really that bad.

But as I’ve said before, I personally don’t care about getting filthy rich. I merely want a decent wage that allows me enough discretionary income to save for a retirement that does not rely on Social Security. And there are a lot of others out there like me, and too damn many that want to earn enough to know where their next meal is coming from. All this new wealth and yet the poverty rate is rising?! Whatever happened to “Trickle-down” or “A rising tide lifts all boats”?

In the past, new technology created shifts in the job market but never really caused the bottom to drop out as it has in recent years, Sure, some people need to be retrained like the old secretary that tries to use white-out on the computer screen, but it’s generally been more of a transition than a down-turn, This time, instead of shifting into a higher gear, we slammed it in reverse, dropped the clutch at 70 MPH, and sprayed transmission components all over the road.

Just out of curiosity, how does thousands compare to tens on million? Last I checked, it was a fairly small percentage. Lets take say Microsoft created 12,000 millionaires.(I think that number is close to the actual number that did so after their IPO). Let us say for the sake of discussion that one-third of our population actually works, the rest being elderly, children, disabled, or otherwise not in the workforce. One-third of 300 million (again, I’m estimating for discussion’s sake) is 100 million, and (12,000 / 100,000,000) is a relatively insignificant number. Not quite as insignificant as taking a piss in the Pacific ocean but still pretty meager.

BTW, you don’t need a SUN to tune up an OBDII car; just a laptop. And given the power of my Droid X compared to some old mainframes, I think they are working on smartphone apps for that :D

@jerv

I don’t disagree with that summary. But take it a bit further. It wasn’t just Microsoft. How many did Cisco create? How about AOL, Net Zero, Intel, Google, Yahoo, Apple, Intuit, Netgear, Novell, hell the list goes on forever.

What happened was the older companies and business segments didn’t keep up. If you worked for General Mills, you made a decent salary but your job didn’t change and certainly didn’t prosper as much as the janitor at Apple (hell even he got stock options). The stable jobs from the past and the new technology entrepreneurs, opened up a gap between their earnings. And the middle will take time to fill up again. The 90s were a major shift unlike those of the past. The industrial revolution is the only time I can think of, that had similar impact.

BTW, I don’t even want to work on my car with a laptop. I guess the times have left me in the dust. Luckily, I’m at the age where I don’t mind a little dust.

@Jaxk You do mean to nit pick. You do so every time we discuss tax or economic policy. One can never use any numbers unless they support your ideology that we should continue to tilt the playing field to transfer wealth to the oligarchy. We have been through this too many times. I grant you the numbers on some of these metrics are hard to nail down. But they need to be off by an order of magnitude to turn the tide on the conclusion they point to—and they aren’t off that far. The bottom line is do we want to continue to be a democracy, with a strong middle class, or do we want an oligarchy much like Haiti has now. We have been systematically dismantling the middle class now for 3 decades and increasing the percentage of the population living below poverty. The money flowing from those classes has gone to the wealthy, with most of it going to the top 1%. And you want to make that happen faster.

Now, to some specifics. I did not say that Federal Revenue was $3.8 trillion, I said the Budget was $3.8 trillion. That is how much we plan to spend, not take in. Indeed, revenue is insufficient. And the obvious Republican solution is to attack social security and privatize Medicare, while preserving tax breaks for the wealthiest Americans. Balance the budget on the backs of the poor and middle class so tax cuts for the rich can be preserved. Again, I am NOT anti rich. I just want to see people get there the old fashioned way, by working for it. I don’t want to tilt federal law to forcibly drain money out of the middle class just so a handful of people can have a mansion for every month, and a Lear Jet to commute.

As to personal spending versus business spending, most sales tax systems exempt much of business spending, so I assumed that this one would as well. But even if it did not, that adds less that 30% to the pot. Again, we are looking for monumental differences to make the sales tax an improvement, not a penny here and a penny there. A sales tax is brutally regressive unless it has a whole series of exemptions and exceptions. On a scale of 1 to 10, we are just quibbling about whether it ends up being in 8 or a 10 on the repressiveness scale. Add in al the exemptions and exceptions, and we lose the simplification goal.

I’d like to close on a point where you and I totally agree. The zero-sum equation (or one-size pie is false. It is an infinite-sum equation. You can always make a bigger pie with creative innovation. What the US needs now is the next digital revolution. My sense is that will come in renewable, sustainable energy—in genetic medicine—and I hold out the room for a total surprise. We need that sort of game changer to have any hope of fixing all that is wrong with American society and economic prospects today.

@Jaxk There are only 3 million millionaires in the US though, so we’re still talking somewhere in the range of “not many” in the grand scheme of things.

My job is still changing enough to where “evolve or die” is true. If it were too stagnant to provide enough intellectual stimulation, I would’ve changed fields already just out of sheer boredom. Part of that has to do with the fact that the company I work for is expanding and adding new capabilities, much the same as Microsoft and Apple did. My company also believes in “evolve or die”. but I take your point about the older companies and business segments not keeping up.

At your age, you should already have established enough wealth to pay people top work on your car without even having to rework the household budget. And in another twenty years or so, I too will be at an age where I wouldn’t mind a little dust myself :D

@ETpro

I don’t have a problem with whatever numbers you want to use. I will however clarify them and try to put them in context. Let me show you what I mean. You assert that we’ve been increasing the poverty level for 30 years. Let’s examine that (you’ll love this).

In the 50s, the poverty level was about 22.4% (39.5 million people). I think we all agree that the 50s were a time of economic prosperity. during the 60s the rate declined until about ‘73 when the rate was 11.1%. from there the poverty rate hung around 12% until about ‘80. From ‘80 to ‘83 it climbed up to 15.2%. Now remember that was a time when unemployment reach double digits. It declined a bit and hung around 12–13% until ‘93 when it peaked again at 15.1%. During the remainder of the decade it declined. Remember that Clinton eliminated welfare so the decline is even more striking since welfare is counted as income for the poverty measurement. Nonetheless it declined until 2000 when it reached 11.3%. By 2004 it had reached 12.7%. And in 2009 it was 14.3%. You can read about it here . I gotta be honest, I don’t see this 30 year rising trend. How’s that for nitpicking?

Now back to taxes and the budget (and hopefully a little reality). During the 90s federal spending rose about $30 billion/yr. Not bad at all. During the bush years, it rose about $100 billion/yr. Obama however has driven it up by a $Trillion in his first year and wants to continue up from there. It’s too big a spike. When we did TARP, OK maybe it was needed. But it was a one time expenditure and we were supposed to bet it back. Then we did stimulus and it also was a one time expenditure but we weren’t going to get it back. Now we’re staring at an ongoing budget of $3.8 trillion escalating to $4.7 trillion by the end of his second term. And you think a new tax system has to account for this incredible spending. It can’t. No system can do that and if we tried it would result in another great depression. Cut Spending and grow the economy. It’s the only way out. Whether the sales tax is fair or not, it won’t solve the felonious spending by congress. But then again no tax system will do that. The gap between revenues and spending is just too large.

@Jaxk Thanks for the link to the poverty information on the National Poverty Center website. Very interesting. The 1950s were a prosperous time, but bear in mind that the poverty level beginning in 1950 was not the product of that decade’s prosperity but rather the remnants of the previous 2 decades of the Great Depression and subsequent war years. From 1950 forward, it steadily declined.

I need to take some time to look at the fluctuations since 1960 and see what the track with. When I spoke of increased poverty over 3 decades, I meant from 1980’s 12% to the current 2009 level of 14.3%. More after some analysis.

“Cut Spending and grow the economy. It’s the only way out. Whether the sales tax is fair or not, it won’t solve the felonious spending by congress. But then again no tax system will do that. The gap between revenues and spending is just too large.”

I think this is why I reject the inclination to discuss budget issues or economic stimulus when considering tax policy. Whether a tax system is fair or not is unaffected by the amount of the revenue generated (until we get some extreme numbers on either end of revenue size) and shouldn’t be considered as affecting the economy (except if we’re considering emergency actions such as ones discussed here).

So when we discuss general policy in terms of ensuring its fairness, what I hope to see is a system that (1) doesn’t attempt to be too comprehensive, as that leads to complexity and uncertainty in my opinion, (2) takes the largest percentage of income from individuals earning the most (of the individual’s income, not of the general income or general revenue). (3) is managed efficiently and clearly, (4) allows the average income of the general population, after taxes, to be as high as possible, and (5) incentivizes savings generally and reinvestment in the U.S. economy specifically – for me, preferably into as much small business and innovation sectors as possible.