Nearly half of US households do pay fed income tax

Let me put it another way. Say everybody pays taxes if they work. You've got Joe non-worker, he receives $10K all-in from the government between welfare, defense, education, etc. Then, you've got Joe low-income-worker, who works for $10K, pays $2K in taxes, and receives $10K all-in from the government. The first guy is receiving $10K net from the government, but the second guy is receiving $8K from the government. In effect, you are penalizing the one poor guy who decides to work.

The purpose of the "pay no income tax" setup, if I understand things correctly, is to equalize the benefit received from the government regardless of where exactly you are on the "poor" spectrum. I.e., the making $0K is not given an advantage over the guy making $10K in terms of benefits received.

"Perhaps you may want to let others post their own views and you can post yours."

... but the only valid views he has are of the New York skyline.

inonada- how are national defense services, or public roads, distributed unequally? I think your analysis breaks down with that assertion.

alan, how are those handouts you keep pushing for? And thanks for agreeing you were wrong about Switzerland, and trying to change the subject with more illogical argument.

LICComm: Here are the Dienstleistungen offered for free by Liechtenstein, making their citizens the highest earners per capita in the world: http://www.llv.li/rss/pdf-llv-asd-unsere_dienstleistungen_engl-2.pdf

"inonada- how are national defense services, or public roads, distributed unequally? I think your analysis breaks down with that assertion."

I didn't say they are distributed unequally, I said they are re-distributed unequally. If you presume (which I think you are presuming) that rich guy vs. poor guy get the same benefit from, say, public roads, then rich guy pays more for the same service than the poor guy. I'm saying the service you get compared to the price you pay is re-distributed unequally, I think we're making the same point.

Regardless, rich guy gets probably more benefit from defense and roads than poor guy. On defense, if the country gets taken over and all assets are seized, rich guy has more to lose. On roads, rich guy has all sorts of investments in companies that depend on roads being there while poor guy just has the roads used by himself. So, the rich guy probably gets more service from these shared services, but nowhere near the extra paid by rich guy.

Anyone working in the finance industry, broadly understood, owes their income for at least the last half dozen years entirely to the generosity of US taxpayers -- trading profits are almost exclusively the result of the Fed's suppression of borrowing costs (both directly and via the interest rate subsidies in implicit guarantee of too-big-too-fail and mortgage debt), while investment banking for at least a generation has depended on arbitraging the undertaxation of dividends relative to interest and free riding on unenforceable commitments to the pre-boomer generation in pensions, health care and long-term employment.

Anyone invested in NYC real estate owes most of their gains to the same source, one step removed, as well as the enormous mortgage interest subsidy in the tax code, most of which has been capitalized into prices and thus gone to existing homeowners.

Anyone working in the arts, restaurants, building or other NYC fields dependent on trickle-down from finance or real estate markets has benefited indirectly from the same taxpayer largess.

At least 1/3 of those working in health care, including virtually the entire executive staff, owes their job to the forced expropriation of the rest of us created by patent monopolies and private insurance inefficiencies.

Most of the parts of publishing and entertainment that remain profitable remain so only by virtue of taxpayer granted monopoly and taxpayer funded battles to limit free trade by enforcing our copyright and patent laws abroad.

Meanwhile, Social security/FICA taxes have been kept unnecessarily high for the last several decades largely to partly pay for income tax cuts for the upper classes.

Any NYer who is wealthy enough to contemplate owning NYC real estate has benefited far more from the tax system than they have paid into it. Even if they didn't go to public schools and don't work in any of the main NYC industries, they depend on the police, fire department, zoning laws, building safety codes, highway building funds, airport and other subsidized development aid, water and sewer authorities, and SEC to maintain the safety and value of their property. Because they have more property than poorer people, they get more protection. Wealth, incidentally, is far more unequally distributed than income, so even if we had a progressive tax system (which we don't, if you include all taxes and not just the fairest one), the rich would still be taking proportionally more out than they put in.

The US Social Security tax begins at $1 of earned income. The US income tax system begins when income exceeds the standard exemption amount, i.e., $3650/person. (It defines quite a bit of unearned income as not income, including municipal bond interest, unrealized capital gains, owner-occupied housing consumption, bailouts and interest subsidies and so on, so wealthy people may have quite a bit of economic income that doesn't count, but that doesn't seem to be the concern creating so much envy and self-serving greed in the comments above).

For people who make enough to be interested in NYC real estate to advocate increasing taxes on poor people with income under these amounts is just disgusting. Have you no sense of decency?

If you want to cut spending it has to be through entitlements. And the politicians on both sides of the aisle can't get it done.

"If you want to cut spending it has to be through entitlements. And the politicians on both sides of the aisle can't get it done."

totally agree. it's not politically feasible, so cuts on current retirees are gonna be delayed till a debt crisis decides when it's time. it's gonna be "fun" to watch in a way. all this talk about "grand kids" missing the point as it assumes that huge deficits from SS and Medicare will be able to be financed... huge mistake!!!

"Meanwhile, Social security/FICA taxes have been kept unnecessarily high for the last several decades largely to partly pay for income tax cuts for the upper classes. "

it's exactly the opposite! they've been up to create surpluses that were used to artificially lower budget deficits (without them clinton would have had deficits all along) and higher income taxes across the board. has nothing to do with the bush cuts to the "rich", the tax rates had been kept artificially lower for the middle class too.

"I think your analysis breaks down with that assertion."

I don't think my analysis depends on that statement at all. All I'm saying is that so long as the rich pay more in and get less out, and the poor pay less in and get more out, how would you like things structured across the poor. Do you want the unemployed to get more benefit than the under-employed or lower-income-employed? If so, you tax the under-employed & the lower-income-employed more than the unemployed, as you are suggesting.

However, if you want to make sure the unemployed are not rewarded for their unemployment, then you don't tax the under-employed & lower-income-employed more than the unemployed. Because you're in a quandry with the unemployed paying $0 in taxes, then you have to have the under-employed & lower-income-employed pay $0 taxes as well. I guess in theory, you could tax the welfare payments to the unemployed just so you could charge the others a tax as well, but that'd kinda be silly to pay cold hard cash with one hand just to take it back with the other hand.

I suggest you learn about the earned income tax credit, and the "no taxes for a good fraction of the population" effects of it, as it probably produces something that matches what you want in society. Note that I'm not talking about the absolute degree of redistribution here, just the general structure of it. There's a reason why the EITC enjoys bipartisan support.

"The US Social Security tax begins at $1 of earned income. The US income tax system begins when income exceeds the standard exemption amount, i.e., $3650/person. "

FICA taxes is the biggest ticket item for the poor and lower-middle income class. the priority has to be not to put benefits of these youngsters at risk while wasting $ paying benefits now to people that don't need the $. mean testing both SS and Medicare like there's no tomorrow (against wealth, not only income) so that the young poor don't end up paying to subsidize inheritances of those that currently can live well without receiving benefits.

"The US income tax system begins when income exceeds the standard exemption amount, i.e., $3650/person."

Not quite, financeguy. It starts much, much later than that. That's the point of the earned income tax credit, and that's why many people "pay no taxes". The purpose of this structure is to provide positive incentives for welfare recipients to actually work some hours.

"There's a reason why the EITC enjoys bipartisan support. "

it's been the most effective anti-poverty tool geared towards those that society needs not to be poor the most: kids that have to invest in their human resources to be able to fend for themselves during adulthood. it lifted 5 million from poverty, not bad!

but somehow in the last few years or so, it has become so much easier to hate everything, facts be damned. things don't quite feel right anymore and it must be somebody (else's) fault because it can't be mine.

i work hard, god damn it. and if everyone were just like me, they would be fine. so, get out there and work you lazy bastard.

and, i'm working so hard that i don't have time to read the fine print--just the headlines. so stop trying to confuse me with endless details. (can you imagine that it takes 2,600 pages to redefine health care in the united states? why can't it be done in 5 pages?)

Riversider:
If you want to cut spending it has to be through entitlements. And the politicians on both sides of the aisle can't get it done.

I posit that not only "tax spending" entitlements need to be curbed but "tax collection" entitlement (aka mortgage deduction) also needs to be reined in.

"I posit that not only "tax spending" entitlements need to be curbed but "tax collection" entitlement (aka mortgage deduction) also needs to be reined in."

I posit that the only practical way of getting that done is to just do it on the "rich", like at a $200K income level, but "forget" to index it for inflation so that people get weaned off of it over time.

cut away..

http://www.washingtonpost.com/wp-srv/politics/interactives/budget07/categoryPie07.gif

> I posit that not only "tax spending" entitlements need to be curbed but "tax collection" entitlement (aka mortgage deduction) also needs to be reined in.
> I posit that the only practical way of getting that done is to just do it on the "rich", like at a $200K income level, but "forget" to index it for inflation so that people get weaned off of it over time.

totally agree! with the hatred that the avg joe is having towards those earning what joe is earning + $1... it would be a winning political move!

the entitlements issue will be solved soon thanks to the financial mkts by a threat of a debt crisis. so at least the finance world will partially redeem itself by offering a great service to the young: kick AARP's ass.

"hatred that the avg joe is having towards those earning what joe is earning + $1"

... it's my impression that avg joe has growing hatred for what joe is earning MINUS $1, actually.

so true alan, the dislike for the poor has always been present in USA. the one for the rich (that defined as "anybody that has more than myself") seems to me to be newer.

Inonada says
"That's the point of the earned income tax credit, and that's why many people "pay no taxes"."

-If you are going to say that people who do pay taxes don't pay taxes because they receive the EIC, then why not say that no one in the upper half of the income and wealth distributions pays any taxes? We ALL receive more back in services than we pay in taxes.

Inonada says the point of the EIC is to provide incentives for welfare recipients to earn income. That is false; welfare barely exists. The point of the EIC is to compensate for an unconscionably low minimum wage and to ensure that major corporations can continue to pay wages that are below the amount needed for a decent life without undue misery or social unrest. It has widespread support because it is, to a large extent, a substitute for requiring our most exploitative employers to play fair.

financeguy, i think you're splitting hairs here. i doubt nada would disagree much if at all. although i am in no position to put words in anyone's mouth. i believe the EITC expanded to its current level because of the relative elimination of welfare. the one good thing that occurred at the same time is that health care coverage was greatly expanded for the poor (especially children), which was one of the many reasons work was disincentivized in the past. why would you go work at a minimum wage job if you had kids and if as a result you'd lose health care for your kids?

alan, any time you want to make sidecars, i'm game.

Excellent, aboutready! After a couple this afternoon, my convectoven told me to make Sidecar Chicken sometime.

--Sidecar Bob

*********************

notadmin, I haven't really seen any evidence of growing dislike for the rich, or for the richer. What am I missing?

And certainly I haven't seen any evidence for the immediate restoration, including retroactively, of the Estate Tax, and eventually for a more appropriate (and steep) Inheritance Tax.

"And certainly I haven't seen any evidence for the immediate restoration, including retroactively, of the Estate Tax, and eventually for a more appropriate (and steep) Inheritance Tax."

Why should you?

Why should the same money be taxed twice?

Oh, no, you're absolutely right as usual ... I was only suggesting that when the money transfers to the other adult, who did nothing to earn it and didn't pay taxes on it, that it be taxed ONCE.

aboutready
31 minutes ago
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alan, any time you want to make sidecars, i'm game.

Wouldn't that cut into your ability to blog negatively?

"Oh, no, you're absolutely right as usual ... I was only suggesting that when the money transfers to the other adult, who did nothing to earn it and didn't pay taxes on it, that it be taxed ONCE."

It's the same money in the same family. it's being taxed TWICE.

i don't know comm, what do YOU do when you're not blogging negatively? because that's the only blogging you do!!! i on the other hand have friends here, and sometimes i even chortle. you sad fuck.

hey alan, we're game, we'll even bring the alcohol.

NYCMatt, it's called a leveling field. not uncommon in the slightest. and it affects SOOO few people. it should affect more, especially as there are so many ways for the rich to avoid it.

and now, back into your light grey world of darkness. ciao.

You chortle? Who would have known!

FG, I don't think we disagree on much other than the purpose of the EITC. You can read a little about it under the "Impact" section of the Wikipedia page:

http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit

The EITC is a "tax credit". Just like all tax credits, it directly reduces one's tax burden. It is different than the benefits of taxes filtered through N layers of government. It is an amount you fill in on your 1040 to reduce your taxes. Hell, if you believe that payroll taxes are not the same as income taxes because they are paying into your own retirement program, it can even make someone's taxes negative. The IRS will send you money to offset your SS payments. Yah, I know, one hand paying the other, but that's the idea anyways.

I don't disagree with your statements about a conscionable minimum wage, etc. I'm just saying that EITC is a response to "traditional welfare" that aligns individual incentives more properly with working. Under the old welfare system, your benefits were reduced dollar-for-dollar for each dollar you earned, disincentivizing work. With the EITC system, you actually end up with more money the more you work, with much of the people covered working part-time. That is a good thing. I think you and I agree that providing a minimum safety net to everyone within society is a good thing. There are, however, some ways that are better than others. EITC is a better way of doing it.

Suppose we all agree that we should have $10K to distribute between two people, one working part-time and making $10K and the other making $0K. Under one system, the working guy is given $0K, and the non-working guy is given $10K. Under another system, the working guy is given $4K, and the non-working guy is given $6K. Which do you prefer? I prefer the latter. That way the non-worker is given a choice between $14K for working and $6K for not working, not $10K and $10K. I don't see why the non-working guy is the only one in need of the money.

My whole point in all this is that we have to tax the guy making $10K roughly $0, maybe do some "negative" taxes. Otherwise, much more benefit is given to the guy making $0, which is a bad idea. Hence, having a significant portion of the population "paying zero taxes" (note the quotation marks) is a good thing. With some versions of accounting, defined what you pay on your 1040 compared to your gross income, a good fraction of the population gets money from the IRS through the EITC (I'm not talking about a refund of past taxes here, I talking that plus some more to offset SS & Medicare), hence a "negative tax".

Much of it is semantics, but that's what people are talking about when they say "zero taxes" or "negative taxes". It's at the level of a 1040 as collected (or paid out) by the IRS.

BA has four classes of service ... why do you assume I fly 2nd Class?

"Wouldn't that cut into your ability to blog negatively?"

I have Wireless Fidelity on my lanai, so no interruption in any blogging whatsoever.

aboutready
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and now, back into your light grey world of darkness. ciao.

Wait, is it darkness or light grey? I'm confused. COLUMBIACOUNTY!... can you help out?

"It's the same money in the same family. it's being taxed TWICE."

So if your sibling pays you for media consulting services for his small business, you don't have to pay taxes on it?

There should be a registry that notes the serial numbers on all US Treasury banknotes, so that once the first person pays income tax on each, no income tax is ever collected on it again.

The way things stand, there isn't merely octuple taxation, it's probably ... like, like ... y'know, gazillionuple taxation. How unfair.

inonada - without getting into details, my point was more to raise the potential double standard that could exist - i.e. rein in entitlements that "other people" are getting (but don't touch mine!).

My thought was that perhaps notifying someone who enjoys the mortgage deduction on their taxes, but who also is hell bent on cutting welfare (which is probably the more socially justifiable entitlement) will better see that both instances are effectively a subsidy / entitlement and that enjoying one and pooh-poohing the other is actually hypocricy. Although I personally think cash outflows need to better match cash inflows, I think too many out there only see one half of the coin.

finance guy - I think you conveyed that message very well. If you check my posts on this thread I think we see this pretty much the same way. I will freely admit though that my understanding is much more "layman" and you seem to have a much better knowledge of the moving parts.

NYCMatt -- The estate tax applies (most years) only to quite large estates. The combination of the tax exemption for unrealized capital gains and step up of basis at death means that in most cases the decedent never paid income taxes even once on much of the estate. Without an estate tax, the heir also pays no taxes.

So your word order is a little wrong. The problem is not that this income was taxed twice. It is that this income was twice not taxed.

inonada -- I agree that marginal tax rates for the working poor would be grossly unfair absent the EITC. I also agree that for the working poor, EITC is a better alternative than floating between employment that pays less than a living wage, periodic layoffs and welfare.

An adequate minimum wage, however, would be even better, since it would mean that employees would receive payment for their productive work instead of receiving tax credits. Not to mention that it would mean that domestically produced products would be priced to reflect more of their actual costs. We'd probably have to adjust the dollar exchange rate, however, to prevent US employers from shifting still more work abroad.

Neither EITC nor minimum wage, of course, do anything for those who are unable to work.

And the EITC does not change the reality that over the last generation, Americans at the top 5% and especially the top .5% of the income and wealth distribution have simultaneously vastly increased their share of the national wealth while decreasing their taxes, while those from the middle down have had the opposite experience.

The increase in social security taxes, followed by a reduction on income taxes for the upper 5% of equal magnitude, is an unjust redistribution of wealth of historic proportions, even larger than the ongoing subsidies to the financial sector that allowed it to double its proportion of corporate profits while performing no useful service other than nearly crashing the world economy.

Inonada: Capping the tax deduction for mortgages at some (lower) number and gradually decreasing it or allowing inflation to eat it away is an excellent idea.

Perhaps we should also move Fannie and Freddy from subsidizing interest rates for private homes -- which, as it turns out, just caused the price of housing to go up -- into subsidizing interest rates for multi-family rental properties. In the rental market, the subsidy is far more likely to end up going to the final consumers (less likelihood of long-term bubbles).

This would have two beneficial effects: it would lower rents, and it would lower home prices (since, as Rhino likes to point out, the two are competitors at the margin), thus increasing American quality of life for all of us, making creative cities more viable and increasing economic growth, and increasing equality. A rare triple win, hurting no one but those who envy the poor their mite.

> This would have two beneficial effects: it would lower rents, and it would lower home prices (since, as Rhino likes to point out, the two are competitors at the margin), thus increasing American quality of life for all of us, making creative cities more viable and increasing economic growth, and increasing equality. A rare triple win, hurting no one but those who envy the poor their mite.

======
if you continue like this, we will nominate you for president. you get extra points for mentioning that cheap housing and sustainable econ growth go together, not the other way around.

> "And certainly I haven't seen any evidence for the immediate restoration, including retroactively, of the Estate
> Tax, and eventually for a more appropriate (and steep) Inheritance Tax."
> Why should you?
> Why should the same money be taxed twice?

Because thats what we as a society agreed to, in terms of transfer of assets between anyone other than married couples. There is also a gift tax, which works when you're alive too.

The "same money" is taxed multiple times when I sell something and make a profit, then I buy something and someone else makes a profit. It might be the "same money" but its *different income*.

They aren't "money taxes", they are "income taxes".

We as a society decided that income is only taxed once unless you are a corp (but they're been working on that, the dividend exeption)... but passing it on to someone else as income or gift is taxed again.

There are also real estate transfer taxes in the same regard.

somewhereelse: "We as a society decided that income is only taxed once unless you are a corp "

Actually, the old logic was that corporations are treated as separate entities from the people connected to them. Corporate contracts and torts only bind the corporation. Corporate assets only belong to the corporation.

So the corporation has its own income, calculated more or less the same way as for people (but with some extra bonuses thrown in to reduce taxes in the hope of creating some more jobs). It pays taxes on its income.

If it choose to pay its income out to shareholders as dividends, that's its business, but no one thought it was a reason to give a tax subsidy to the corporation for the first 50 years of the income tax, until some clever lobbyist came up with the idea of calling corporate taxation "double taxation."

There is nothing double about it, unless corporations are the same thing as their shareholders, in which case shareholders should be responsible for corporate debts. That's a partnership, and partnerships are not taxed even once.

when they are in debt -- only the corporation, not the people involved, is bound by its contracts and torts. They are separate entit

>>> delete: when they are in debt -- only the corporation, not the people involved, is bound by its contracts and torts. They are separate entit

then wtf is up w/ REITs? It was always confusing that Starwood would be a REIT, why carve out a benny for large RE ownership? and hell General Growth Prop... is Bk... so how does paying out 95% in div help them out?

More friction => less efficiency. Bad for consumers....

>>> So the corporation has its own income, calculated more or less the same way as for people (but with some extra bonuses thrown in to reduce taxes in the hope of creating some more jobs). It pays taxes on its income.

Closely? Uh no, not even remotely close.

"There is nothing double about it, unless corporations are the same thing as their shareholders, in which case shareholders should be responsible for corporate debts. That's a partnership, and partnerships are not taxed even once. "

financeguy -

Your logic completely breaks down once you introduce the pass-through corp... which is a corp, and doesn't have double taxation, the corp itself is never taxed! So your idea that they are independent just doesn't work...

"when they are in debt -- only the corporation, not the people involved, is bound by its contracts and torts. They are separate entit"

Corps exist for legal protections, yes, absolutely. But your assumption that that hold completely in regards to taxation is just wrong....

Somewhereelse: The pass through corporation -- which has corporate entity ('limited liability') rights but is taxed as if it were a partnership -- is just a legalized tax scam. There is nothing logical about it at all -- it's just an example of the Leona Helmsley principle ("only little people pay taxes"), dressed up in phony populism about the importance of small business.

Originally, corporate law and corporate tax was a package deal. But business owners and stockholders decided they wanted the good without the bad -- to be able to avoid responsibility and taxes too -- and they convinced the Congress to go along. It can't be defended as fair or rational or coherent tax policy or corporate law.

Darkbird--If you are saying that corporations generally pay far less taxes than individuals on similar income, you are correct.

W67: REITs pay no taxes so long as they distribute nearly all of their income. So they have many of the benefits of corporate law -- easy to raise money, liquid stock suitable for speculation, investors have no responsibility for REIT debts, managers needn't pay much attention to investors, eternal life, probably First and Second Amendment rights -- without corporate taxation. A lot like the pass-through forms, but REITs can be public traded too.

Finance guy - pls spare us your ramblings on the goodness and effectiveness of the tax code vis-a-vis corporations and individuals. they are fundamentally different for a prescribed purpose. dressing up your insights in rhetoric should be left to the alanharts on one side of the spectrum vs. the juliag's on the other. by definition, corporations, partnerships and llc's have different tax and liability obligations vs individuals for an express legal purpose. your deduction of those purposes are purely conjection and are based in political leanings so spare me your "handle" as a financeguy. a financeguy with an express agenda would be more appropriate.

*conjecture*. must stop typing so quickly.

"I was only suggesting that when the money transfers to the other adult, who did nothing to earn it and didn't pay taxes on it, that it be taxed ONCE."

OK, so anyone who inherits $ is a lazy lout & therefore doesn't deserve it? There's also an assumption here that tax has never been paid on $ which is inherited & that is incorrect.

The social divide in this country gets wider & wider & there's no middle ground or logic. A family earning more than $250K is rich, even in NYC. Capitalism is bad & evil. Eat the rich. We should just let the government take everything we have, so that everyone gets everything for free. Well, that's just terrific. See ya at the barricade.

"This would have two beneficial effects: it would lower rents, and it would lower home prices"

FG, that first item is a non-starter with the Fed (deflation) and the latter is a non-starter with the 60-70% of people who own their homes. I think the former can be dealt with using some "special" adjustments that the BLS is so fond of, but Americans like their homes ever-increasing. Now, if you can come up with a policy that simultaneously promises ever-increasing home prices that are all the while more-affordable, now what you got there is a solid policy you can sell to the public. Oh wait, that was Freddie & Fannie...

BA really has FIVE classes jfk-heathrow

"The increase in social security taxes, followed by a reduction on income taxes for the upper 5% of equal magnitude, is an unjust redistribution of wealth of historic proportions"

Taxes have just become bizarre. It's like there's no rhyme nor reason any more, just a hodgepodge of random one-year or few-year changes that you scramble around to understand.

Here's my favorite new discovery. If you make $1 million in 2010 with no other income, and your only deduction is NY state and NYC taxes, you STILL hit AMT. That means the effective marginal tax rate remains at 28% for quite some time. There's just no progressiveness, really, compared to much lower income levels. It's as if the flat-taxers have won, but no one quite understands that they've won because their victory is obfuscated by 18 layers of mystery.

The cake on nuttiness, however, is taken by the NY state one-off budget fixes for 2009-2011. The idiots have managed to end up with a system where one band of income pays over 20% marginal tax JUST to NY state. Then it drops to 8.97% forever for higher incomes. Just nutty.

Rangersfan, if you think I'm claiming the tax code is good and effective, you didn't read my posts very well. There is a certain logic to the core of the income tax, which explains why it is nonsense to call the corporate income tax or the estate tax "double taxation." That remains true even after a generation of hotly fought political battles to modify the tax system as a whole into an instrument for upward income redistribution.

As Dwell point out (and exemplifies), class warfare is alive and well in this country. But the eat the poor (and nibble on the middle class) crowd has won pretty consistently since the early 80s.

For the middle class, a VAT and an income tax are equivalent, but the former is less painful. For the rich, a VAT collects far less than an income tax -- it's too easy to mask consumption as investment when you get wealthy enough (e.g., by buying expensive NY real estate).

So the fairest and simplest system would be a VAT combined with (1) an income tax with a high exemption amount -- say $100,000 -- to pick up the rich and (2) a child allowance and EITC or tax exemption for food to give some progressivity to the poor and lower middle class.

That way, only a small percentage of the population, mainly those with significant investment or business income, would need to file returns, the bulk of the population would pay roughly what they do now but with a stronger incentive to save (no VAT on savings), and, if we can fight off the Reverse Robin Hood crowd, we could use the income tax to make the highly paid and rich pay something approaching their fair share.

Under Eisenhower, the marginal income tax rate for income over $1m was 90%. The effect, of course, was to encourage the rich to invest and work hard: invest, because if you left your money in the business, you paid far less tax, and work hard because if you wanted the trappings of luxury you actually had to work for them. The 1950s were not exactly paradise, but the middle class did far better than they have since "trickle-down, torrent-up" became the leading ideology.

And NYC apartments were much more affordable.

"Under Eisenhower, the marginal income tax rate for income over $1m was 90%"

strip away all your other bs and this pretty much sums up where you are coming from - thanks for the history lesson but really now.

I love that people throw around that 90% number like anyone actually paid that -- the deductions then, that don't exist now are longer than my arm. Also, from an inflation calculator: "What cost $1,000,000 in 1950 would cost $8,815,184 in 2009" -- so the dreaded $1 Million dollar "richness threshold" would actually have to be almost 9 times higher if you account for inflation.

ehm313 - agreed. point is the mindset behind that statement.

I should have been clearer, I was referring to financeguy's use of the #.

I fully agree with you point re mindset.

rangersfan & ehm313, it's not clear what you're saying ... are you proposing that there should not be a highest marginal income tax rate of 90%? Do you think it should be higher?

yes, higher, much higher. why not 100%? will you please just go move to a commune - although that might not work out for you either. you have to work there to get your 3 squares.

3 squares plus sidecars, and you can send the union movers!

Your suggestion for a marginal income tax rate of 100% is interesting, but not very practical.

It's a bit of a paradox: The higher you raise the marginal tax rate, the harder rich people work, just to keep the incremental income and amass more of it; however, once their additional labor (no matter how hard) stops bringing pennies in, they start to slack off again.

You can probably trick them with a good spreadsheet involving fractions of pennies, but the tax rate still can't really go much above 99.999999999999999% for that to work.

It's so hard to find good help these days.

There's a story from after the war, when taxes were high, about the Astor who'd moved to England. There was no credit back then for taxes paid to other countries, so his income tax for the U.S. and the UK totalled much more than 100% of his income. He was reduced to living off capital. Of course, back then we actually paid for our wars.

It's in the NYT archive somewhere.

alan's recipe for sidcars:

three parts cognac from the leftover free cognac bottle he got when aboutready visited
two parts cointreau care of same
one part squeezed lemon care of the one left by his boss in the company refrig (who cares, he can afford it)
shaken (not stirred) in alan's happy meal glass collection he amassed over the years.

now, sip, shut eyes and reapeat tastes better when free, tastes better when free.

Close, but
* 6:2:1
* it was nice of aboutready to bring the free cognac, wasn't it?
* I prefer Gran Gala -- less tax paid
* I pretend I'm a RE broker and used squeezed lemmings instead
* my barware was all "donated" to me over time by the probably-fictitious Wharton Club (my tailor makes my suits with very wide sleeves and inner cargo pockets)

AH -- I think you are wrong about motivating the rich. Everyone knows that it is only the poor who work harder when they are paid less.

For financiers and similar highly paid types, you need to pay them more. Diminishing marginal utility of money and all that. Otherwise, John Galtish, they'll just move to London or Montana or some other tax haven where they don't have to work at extracting wealth. After all, you can't expect them to destabilize the economy for free, any more than you can expect Fortune 500 CEOs to slash R&D for less than $10m paychecks.

And then we won't have them to kick around any more--we might even return to having finance be less than 10% of the economy, or median incomes rising, or other markers of civility or socialism or whatever it is that we call ordinary decency in a democratic capitalist society these days.

financeguy, I guess you're right on all those points, but I'm right about 6:2:1, and you can't take that away from me.

financeguy,

I don't want to eat anyone, nor they me. I'm just looking for some sanity & logic. I believe it was de Tocqueville who intimated that American democracy cannot survive w/o a solid middle class. Well, the middle class shrinks every day. There are few decent wage jobs for the "lower"/working class cuz we shipped our manufacturing abroad. We are veering towards statism where the majority of the population looks to the gov for their economic survival. Such statism deprives the individual of freedom, including economic freedom.

Jason, I can't imagine what the fifth class is (steerage?), but last I heard BA was planning on eliminating First on its long-haul craft. Just when I thought they'd add private staterooms.

dwell, I hate statist cling

"I hate statist cling"

Really? I thought is was your thing

Even if you hate the rich & you want to eat them, just realize how government is encroaching more & more & more into your daily personal life, the latest being health care. IMO, the tax issue is a microcosm of the bigger issue: How invasive do we want our gov to be? Can we take responsibility for ourselves and look out for our neighbor? Or do we want gov to dictate the details of our lives?

dwell, back in the day i had a BC/BS health insurance policy, before they were privatized. now i have BC/BS again. which one do you think provided better coverage at lower cost?

Hey AR!!!
No intent to divert conversation but, 4 the record, I'm moving in for the close.
Working on the coop app as I type.
So far so good
Miss u and all!

divert away. congrats!! after you close i'll bring the champagne.

Dwell-- if you think you or anyone else can survive, economically or otherwise, without the government, you should try living somewhere with a minimalist government: Lebanon during the civil war, Russia after the collapse of the USSR, etc. Life in the state of nature is nasty, poore, brutish and short.

The middle class needs state supported stability to exist, let alone prosper. We need government functions like schools, sewers, electricity, water, police, streets, trains, museums, parks, steady jobs, retirement and health plans, markets, quality controls, standards, housing codes -- the private sector predictably and regularly fails at producing all of these. The essence of middle class culture is planning for the future, but only the government can make sure that the future is stable enough to be worth planning for.

If you want a decent life as a working man, try France, Germany, Sweden -- anywhere with a commitment to skilled manufacturing work, child support, health care, education (including real skilled vocational training), decent working conditions, housing codes and decent housing even if the private sector fails and transit, an exchange rate policy designed to keep factories domestic, and unions organized by industry rather than plant.

Once we sanctified the stock market, let managers dismantle unions by the simple expedient of moving the plant, set the exchange rate to ship our working class jobs overseas, decided to ignore what the rest of developed world learned a century ago in health care, child support, training skilled manual labor, rapid trains, and urban planning, and instead focused on having more prisons than anyplace but the old USSR, Saudi Arabia and apartheid South Africa, shifted taxation away from the upper class, we had nothing to offer the real middle class but the two working-parent family and more debt.

The Reagan Revolution gave us what it promised: richer rich and less of the government that makes civilization civilized (and, of course, more of the government that redistributes income upward). Keep it up, and we'll be able to advance all the way to Argentina.

financeguy, your handle is very misleading - are you the minister of finance of venezuela? sounds like you have the same theory on the function of gvmt. lets make it more straight forward for the simple folk like me. what do you posit has been the function of gvmt here in nyc and the state? well-oiled bureaucracy? union controlled delegates who basically use the legislature as its own personal piggy bank on the backs of its citizens. i am all for the a gvmt structure that will provide us with the essentials required for a "civilized" society. however that is not reflective of the current environment here in nyc.

and its plain that you are advocating the social structures that currently exist in europe. good luck with that but wake up, thats not what the populace here in the us aspires to - quite frankly, most advocate the opposite. take a civics class and marry that to the function of capatilistic societies and let me know where you come out. to suggest the gvmt is more efficient at delivering a better standard of living than the private sector is again way off base. gvmt - almost by definition - is not going to give us the internet. oops forgot, al gore did so i stand corrected. gvmt did not give us the automobile, airplane, telephone or the computer. private indurstry and entrepeneurs paved the way for these innovations mainly prompted by a system that would reward them appropriately. your theories may work for micro finance in third world economies.

financeguy is off the wall. You want to be a working man in France? In a free society based on opportunity and individual merit and responsibility, government should provide law and order, defense, protection against fraud, infrastructure, and regulation of basic essential services. Government should not be involved in social control or social engineering.
The U.S. does have a strong manufacturing sector, just not for low-cost consumer goods. And the employment base for manufacturing for the most basic of jobs will always decline due to technology.

yeah. the more prosperous countries in europe are certainly third world. the populace here, quite frankly, is brainwashed. horatio alger and all that. the rich in this country have it made, the people here have zero clue as to what is in their best interest.

rf, over the past thirty years gov't has been less involved in making sure that corporations don't cheat and/or grow to massive unsustainable levels, less involved in public welfare, less involved in r&d (sorry, but highly naive to deny that the US gov't used to be extremely involved in our technological and medical advances) and more involved in costly, useless wars and homeland security.

how's that worked out for the masses?

oh, and LICC, just for you. but if you do the same search i did you WILL find rush agreeing with you. lie down with dogs and you'll wake up with fleas.

"Tort reform is the healthcare debate's frivolous sideshow"

http://articles.latimes.com/2009/oct/01/business/fi-hiltzik1

ar, i knew it would come down to this and its so sad. i will say that its just a philosophical chasm that will not be bridged for the two of us. just let me say that i don't think your giving people enough credit to know what they want - and even if they don't know any better, so what? you can stand on a corner all day long to make sure people don't walk against the light but they'll just get pissed at you for it and rightly so. i think growing corporations is a way better outcome than overgrowth in gvmt. now overgrowing corporations that rape and plunder the land and dump toxic waste in our water need to be handled accordingly and you can argue that they have or have not. my experience is that most will find themselves looking at the end of a barrell eventually. gvmt waste and corruption however can and will do just as much damage - if not, more.

i give you that gvmt has and still fosters technological advancement - especially in the defense dept - radar, stealth technology, atom bomb (oops). these costly and useless wars will never cease - sorry, thats just in our dna as humans - not as americans. america has been much more responsible (lets not get into in iraq debate - i think we will end up in the same place anyway) with this unfortunate and burdensome responsibility.

rf, i don't stand on a corner. i post here. although i've worked with the poor in the past.

but i have to wonder for how much longer people will buy the wealthy telling them they are better off with this "capitalist" system that isn't in the slightest. it has the worst of both worlds. socialism for the rich, and a modified capitalism for the rest that attempts to keep them deluded, bemused and at home drinking PBR.

these costly wars? whose DNA? many, many technologically advanced countries manage to avoid them. and RESPONSIBLE? you, sir, are not a student of history.

you are so channeling reagan. let the people want what they want, which is what i've convinced them is what they want. 30 years later, they are still being told that if they haven't gotten ahead in the world it's their fault and their fault alone. pull yourself up, for the LOVE OF GOD. it doesn't matter that we sold our souls to china and have had negative income growth and massive personal and gov'tl debt accumulation over the same period, huge bankruptcies, foreclosures, bank closures, etc.

i wonder how that's going to go over in the next ten years? i always thought obama pushed health care reform because it was the one thing that could get people to purchase pitchforks. having loved ones not receive minimally proper health care. i think i'm much more cynical than you.

aboutready- the U.S. military action in Afghanistan after 9-11 was "useless"? You are so partisan it is offensive.

but i have to wonder for how much longer people will buy the wealthy telling

............THIS IS YOU, BASED ON YOUR POSTS

regardless. it's interesting how posters justify not paying an income ax by paying some other tax(like a sales tax?) Now if you want to argue our macro savings rate is too low, the best way to do that is to reduce taxes on rich vs the rest of society. Not that I'm advocating that, because I really do want to see a flat tax. And this talk about not being better off with a capitalistic system?

please!!!!

People who are working class enjoy amenities like a/c, refrigerators, cars, etc that even the wealthiest of people in past centuries could only dream of. Enough of this workers of the world unite speech.

aboutready wants government to run people's lives. Others want a limited government that fosters opportunity and meritocracy. I know which I think is better.

you are ignorant, nasty and partisan, licc. how long have we been in afghanistan? what have we accomplished? how will we now get out? where is our enemy, likely dead or dying? how many deaths have we prevented? how many deaths have we caused?

oh, and take a look at the spending pie chart. you really think we can afford to be the world's police any longer? idiot.

champagne socialist guilt trip.

if i may?

we have been in afghanistan for 9 yrs. so far, we have accomplished nothing. no one has any idea on an exit strategy. the enemy is frustratingly elusive and ever shifting. no idea on the death numbers. because i really don't want to know.

riversider, please don't lie. the this is you? not me at all. and fuck you. refrigerators are not first world luxuries any longer. keep up with progress. when the poor have refrigerators, they're not luxuries.

sadly, medicine has become a luxury for certain segments of our society, as has other health care.

enough of this workers of the world unite speech? i guess your not a worker, you're in finance or hope to be? creating profit out of almost nothing, sometimes less than nothing? once again, fuck you.

champagne socialist guilt trip? funny.

self-centered, uncaring, nasty, wealth self-preservationist trip.

yeehaw, reagan junior. maybe you'll have a family who hates you also.

I work, I'm not a stay-at-home house wife. And the point is capitalism created refrigerators and cars. and the majority(if not all) of society benefits. And advanced medicines are funded by those seeking to make money. It sounds cold, I know there are some people who are strictly in it for the benefit of mankind, but most are not. By and large the system works.

And Easy Street really needs a profanity filter. Very unbecoming an ivy leager.

Killing and capturing thousands of terrorists who wish to do America harm, and disrupting their base of operations, is not an accomplishment for aboutready. How so, so foolish. Keep spewing your offensive comments and believing socialism is better than capitalism, so everyone can see how vile you are.

Stop telling lies aboutready. I've never said anything like that, and I never use profanity.

oh yes, licc, how many terrorists who could have done america harm have we captured? what have we prevented? and at what cost? you're vile.

really? bush could've prevented the attacks, quite likely, with the information he received from the outgoing clinton administration. he didn't. we've been paying ever since.

killing thousand of terrorists? did we cut off their ears and count them? sounds a little like.....

what is the exit strategy? what happens when we leave and the terrorists all come back?

LICC, i don't lie. our comments crossed. that was directed at RS. who did indeed use profanity the other day.

you know, licc, you kind of remind me of comm.

dang, i am going to get lectured on WW2, aren't I?