Appropriate Taxation Methods

jonstock wrote:

(Tangentially, I've never heard a compelling argument for why income shouldn't be income, all of it taxed at the same rate. Maybe someone could explain it to me?)

I think part of capital gains tax is preventing people from using the stock-market like a slot machine, while still encouraging long-term investment by normal plebes like you and me. In the former case, short-term gains are taxed a high rate, while in the latter case long-term gains are taxed at a lower rate.

Well from personal experience I can tell you that Mrs. Bear and I got absolutely SLAMMED last year by both State and Federal taxes. We took some money out of my IRA's to buy our cars. We tried to minimize the impact by splitting it between years but we miscalculated. Adding that much $$ to your taxable income puts a WORLD of pain on your return. It kicked us into the next bracket and that bracket SUCKS!

Threads like this remind me being poor isn't all bad.

"What's that Tax Pro 2010? Another year of getting all my taxes back?"

Bear wrote:

Well from personal experience I can tell you that Mrs. Bear and I got absolutely SLAMMED last year by both State and Federal taxes. We took some money out of my IRA's to buy our cars. We tried to minimize the impact by splitting it between years but we miscalculated. Adding that much $$ to your taxable income puts a WORLD of pain on your return. It kicked us into the next bracket and that bracket SUCKS!

Welcome to the world of progressive taxation my friend. Society thanks you for your higher-bracket contribution!

Bear wrote:

I'm fairly certain that Warren Buffet stated that he paid less in taxes than his receptionist and challenged other obscenely wealthy people to prove that they didn't. I think he even offered up $1M as a prize if they could and no one took him up on it.

Maybe they just didn't want another case of the rich getting richer?

Staats wrote:

I think part of capital gains tax is preventing people from using the stock-market like a slot machine, while still encouraging long-term investment by normal plebes like you and me. In the former case, short-term gains are taxed a high rate, while in the latter case long-term gains are taxed at a lower rate.

That's a good rationale. But right now, I think short-term cap gains is taxed as normal job income, while long-term is taxed at a lower rate. That still privileges long-term investment over working a job, which seems odd to me. Couldn't we tax long-term cap gains as normal income, and short-term at an even higher rate to discourage it?

I know encouraging investment is important, but if you've got a pile of money sitting around, what are you going to do with it other than invest it? Use it as a money mattress?

jonstock wrote:

I know encouraging investment is important, but if you've got a pile of money sitting around, what are you going to do with it other than invest it? Use it as a money mattress?

You swim in it, like on DuckTales.

Crymsin wrote:
jonstock wrote:

I know encouraging investment is important, but if you've got a pile of money sitting around, what are you going to do with it other than invest it? Use it as a money mattress?

You swim in it, like on DuckTales.

Twenties make excellent insulation as well. And of course hundreds are the preferred denomination for cigar lighting.

jonstock wrote:

I know encouraging investment is important, but if you've got a pile of money sitting around, what are you going to do with it other than invest it? Use it as a money mattress?

Spend it! I don't think the relatively low tax rate is directed at the wealthy, but I could be wrong. The rationale might be to encourage normal folks to invest their money rather than piss it away, while in reality it's a kickback.

Teneman wrote:

Should the rich guy pay more? Absolutely, and precisely because of the first portion of your argument. But we should acknowledge that he's paying more than his fair share, rather than turning around and telling ourselves that it's ok because he probably didn't need it anyway - after all WE can get by on only $xx,000, so he should be able to too, right?

This.

Progressive Taxes often lead to perverse incentives, and a mentality that the wealthy are an enemy that must be punished. This is the liberal equivalent of the conservatives tendency to bash educated or Ivy League people for not being relatable. Most people who make over $150k a year have impressive as hell skills and work their asses off. The wealthy pay for a huge percentage of the services enjoyed by the whole country.

Bullion Cube wrote:
Teneman wrote:

Should the rich guy pay more? Absolutely, and precisely because of the first portion of your argument. But we should acknowledge that he's paying more than his fair share, rather than turning around and telling ourselves that it's ok because he probably didn't need it anyway - after all WE can get by on only $xx,000, so he should be able to too, right?

This.

Progressive Taxes often lead to perverse incentives, and a mentality that the wealthy are an enemy that must be punished. This is the liberal equivalent of the conservatives tendency to bash educated or Ivy League people for not being relatable. Most people who make over $150k a year have impressive as hell skills and work their asses off. The wealthy pay for a huge percentage of the services enjoyed by the whole country.

I have witnessed a lot of demonization of the rich and think it is uncalled for, but don't think that progressive taxes have much to do with it. In point of fact, it is the exertion of political influence to regress taxes that, I think, produces the most ire when it comes to the rich in question.

As for hard work, the hardest working people I know are present in all different income brackets. I have found little if any correlation between hard work and income. The much stronger correlation I've seen is between one's parent's income and one's own.

Society thanks you for your higher-bracket contribution!

Actually, society completely takes Mr. and Mrs. Bear's sacrifice for granted, spends that money like water, and goes deeply into debt because their taxes just aren't enough to buy everything we want right this minute.

I'd like to see taxes come from a simple sales tax model.

You pay N% tax on all goods and services.

If you buy generic store brands that costs $1, then you pay $1 + $(1xN%)

If you buy popular brand name it costs $5, then you pay $5 + $(5xN%)

If you buy the high fashion version costing $500, you pay $500 + $(500xN%)

If you want to pay less in taxes, you use inferior goods or less prestigious labels.

In this way, your use of goods and services drives your tax burden. The quality of the items you buy becomes a built in multiplier to increase the tax output for more expensive goods.

If there needs to be a cushion for lower income, then either have a tax debit card or refund at the end of the tax year/quarter/half year.

The only issue that came to my mind regarding a simple sales tax model is what happens when someone purchases something through an agent. And do you include services, such as utilizing a lawyer?

Nevin73 wrote:

The only issue that came to my mind regarding a simple sales tax model is what happens when someone purchases something through an agent. And do you include services, such as utilizing a lawyer?

When you get the bill from your lawyer for services, then you pay the sales tax on their fee as well. You may need to have a more itemized receipt that breaks down the difference between goods and services, but if you know ahead of time that any purchase of goods and/or services will include a tax payment of N%, then you budget your tax burden throughout the year AND manage your contribution to Uncle Sam.

The thing about sales tax is that it's wildly regressive. It's a huge burden to poor people, and something that rich people hardly even notice. They don't buy things in anywhere near a direct proportion to their income; they save and invest far, far more of what they make. Pure consumption as a percentage of income drops very quickly as most people climb the economic ladder.

Over the long haul, taxes that increase savings and decrese consumption are probably a good thing, but the burden of sales tax falls mostly on the people who who can least afford it.

This is probably an insanely dumb question, but bear with the Belgian: in what way(s) do the rich profit more from society?

They have bigger cars so the roads need more repairing? The police has a faster response time for the rich which costs more money? If they pay 20% flat tax rate on a much larger income, doesn't that compensate for the extra mooching from society?

I'm not trying to be snarky here, I'm honestly drawing a blank.

dejanzie wrote:

This is probably an insanely dumb question, but bear with the Belgian: in what way(s) do the rich profit more from society?

They have bigger cars so the roads need more repairing? The police has a faster response time for the rich which costs more money? If they pay 20% flat tax rate on a much larger income, doesn't that compensate for the extra mooching from society?

I'm not trying to be snarky here, I'm honestly drawing a blank.

Participation in any economy is possible only by taking advantage (not in a bad way necessarily) of the collective and historical contributions of its citizens. Economies are complex adaptive systems. It is impossible to separate the contribution of one member from the contributions of others. Pay or monetization is an abstraction. The idea that we "earn what we deserve" as a function of one's contribution is wholly untrue. If it were true, Paris Hilton would have provided more to the welfare of the US than the entire 82nd Airborne Division.

Moreover, even the innovation myth is one that doesn't explain individual contribution. Though invention is important, the idea that single individuals create new technologies out of whole cloth is clearly falsifiable. Both Jobs and Gates were guilty of technology theft. If Marconi hasn't "invented the radio", the technology would still have been developed. Being "first" (not I put that in quotes because of the controversy surrounding who really was first) or first to market is just as much about winning a chronological lottery as it is about "hard work" or "innovation".

My point is this, take the top 10 richest people in the US and turn back the clock such that they were born in a place like Vietnam (I'm being kind here. I could just as easily have said Central Africa or Iriyan Jaya). What are the chances that they would have achieved spectacular wealth measured in the billions of dollars? The system in the US eliminates basic threats like war, famine, and disease. It preserves generational wealth making it entirely unlikely that the rich will ever be anything but rich. And it gives disproportionate advantages to those born of wealth and education. If you are rich in the US, there is a statisically overwhelming chance that your parents were at least upper middle class. Since we have a system that favors the upper tier, you have a greater obligation to the preservation and advancement of the nation than those born with fewer opportunities.

Paleocon wrote:
dejanzie wrote:

This is probably an insanely dumb question, but bear with the Belgian: in what way(s) do the rich profit more from society?

They have bigger cars so the roads need more repairing? The police has a faster response time for the rich which costs more money? If they pay 20% flat tax rate on a much larger income, doesn't that compensate for the extra mooching from society?

I'm not trying to be snarky here, I'm honestly drawing a blank.

Participation in any economy is possible only by taking advantage (not in a bad way necessarily) of the collective and historical contributions of its citizens. Economies are complex adaptive systems. It is impossible to separate the contribution of one member from the contributions of others. Pay or monetization is an abstraction. The idea that we "earn what we deserve" as a function of one's contribution is wholly untrue. If it were true, Paris Hilton would have provided more to the welfare of the US than the entire 82nd Airborne Division.

Moreover, even the innovation myth is one that doesn't explain individual contribution. Though invention is important, the idea that single individuals create new technologies out of whole cloth is clearly falsifiable. Both Jobs and Gates were guilty of technology theft. If Marconi hasn't "invented the radio", the technology would still have been developed. Being "first" (not I put that in quotes because of the controversy surrounding who really was first) or first to market is just as much about winning a chronological lottery as it is about "hard work" or "innovation".

My point is this, take the top 10 richest people in the US and turn back the clock such that they were born in a place like Vietnam (I'm being kind here. I could just as easily have said Central Africa or Iriyan Jaya). What are the chances that they would have achieved spectacular wealth measured in the billions of dollars? The system in the US eliminates basic threats like war, famine, and disease. It preserves generational wealth making it entirely unlikely that the rich will ever be anything but rich. And it gives disproportionate advantages to those born of wealth and education. If you are rich in the US, there is a statisically overwhelming chance that your parents were at least upper middle class. Since we have a system that favors the upper tier, you have a greater obligation to the preservation and advancement of the nation than those born with fewer opportunities.

Malcolm Gladwell covers this well in his newest book outliers. Hardwork + a healthy dose of opportunity = success.

as for taxation I just finished a class on public finance actually last semester.

The criteria for evauluating taxes was
1. Equity
2. Efficiency
3. Compliance and administrative costs
4. Visibility/Political responsibility
5. Flexibility.

to clarify the difference between 2. and 3. is 2. deals more with economically being efficient. eg minimizing dead weight loss and distorting consumer habits as little as possible. 3. being more to do with it cant be easily evaded and isn't ridiculously expensive to run/enforce.

Consumption taxes are regressive but at the same time they get good grades when it comes to 2, 3, and 5.

its a tricky problem and I always find the easiest answer is the best way to collect taxes is to collect less by spending less. Its always a debate of what do you cut then but the giant debt loads that eat up huge amounts of money in interest payments would be a start. Problem is thats a longterm fix for governments who only see 4 years at a time.

Its always a debate of what do you cut then but the giant debt loads that eat up huge amounts of money in interest payments would be a start.

That's precisely correct. If we weren't carrying so much debt, both personally and on a governmental level, it would be a gigantic boost to the economy. That enormous debt burden is a major impediment to growth and investment.

Problem is, if we actually try to pay down total systemic debt, the economy will crash.

Problem is, if we actually try to pay down total systemic debt, the economy will crash.

Eh? I'm not sure how that follows. There are many ways to pay down debt without destroying the economy, I'd think. And anyway, haven't you argued that *not* paying down the debt would cause the economy to crash? What's left, then? Crash no matter what?

Robear wrote:
Problem is, if we actually try to pay down total systemic debt, the economy will crash.

Eh? I'm not sure how that follows. There are many ways to pay down debt without destroying the economy, I'd think. And anyway, haven't you argued that *not* paying down the debt would cause the economy to crash? What's left, then? Crash no matter what?

As much as I dread the pain that it is going to cause, I think we're at a point where we are going to have to crash. We are so broken that it isn't a matter of if we crash, but when we crash.

RedJen wrote:
Robear wrote:
Problem is, if we actually try to pay down total systemic debt, the economy will crash.

Eh? I'm not sure how that follows. There are many ways to pay down debt without destroying the economy, I'd think. And anyway, haven't you argued that *not* paying down the debt would cause the economy to crash? What's left, then? Crash no matter what?

As much as I dread the pain that it is going to cause, I think we're at a point where we are going to have to crash. We are so broken that it isn't a matter of if we crash, but when we crash.

I'm concerned that thinking like this is a cop-out. Rather than facing the responsible conclusion that something can and eventually should be done about it, it seems rather easy and/or comforting to say that nothing can be (and therefore must be) done. It's a bit like the rapture fetishists who seem to think that living their lives with any respect to responsibility toward others is unwise and unnecessary because Jeebus is coming to save them from the results of their irresponsible action.

dejanzie wrote:

This is probably an insanely dumb question, but bear with the Belgian: in what way(s) do the rich profit more from society?

They have bigger cars so the roads need more repairing? The police has a faster response time for the rich which costs more money? If they pay 20% flat tax rate on a much larger income, doesn't that compensate for the extra mooching from society?

I'm not trying to be snarky here, I'm honestly drawing a blank.

This is from a NOW episode with Bill Gates Sr. and Chuck Collins (heir to the Oscar Meyer fortune). The episode was about the Estate Tax, but the two made some good arguments for why the wealthy owed more.

GATES: It's just such a fair tax. I mean, it's just such an opportune, appropriate time to have repaid from the people who have benefitted more than anyone else from the circumstances that this country makes available, from the conditions that make it possible to become....

There's nowhere else in the world, nowhere else in the world, that people can accrue the kind of fortunes that happen here. And that's because of the kind of country we have.

And the kind of country we have is a function of the taxes that we pay to provide security, we have a stable market, you can predict next week will be pretty much like the week before.

We have the most immense investment being made by our government in advancing businesses by supporting the enormous research industry that's going on in this country. And it's that piece of government expenditure that which has everything to do with the health and robustness of our economy.

COLLINS: We believe that people who accumulate great wealth also have been lucky, have had the benefit of growing up and living in the United States, and have benefitted from this enormous public investment.

One of our leaders in Responsible Wealth was standing next to President Clinton when he vetoed the repeal of the estate tax and he said, look, I grew up in New York City, I went to public schools and public libraries and museums. Someone else paid for those.

I went to a college; someone else paid for that. I went into the technology field, a whole infrastructure that had been built with public investment that someone else had paid for. I started a company and I hired professional people who had been trained through a subsidized education system. And I made $40 million. And you're telling me society doesn't have a claim on my wealth? You know...

GATES: "You earned it" is really a matter of "you earned it with the indispensable help of your government."

You earned it in this wonderful place. If you'd been born in West Africa, you would not have earned it. It would not have occurred. Your wealth is a function of being an American.

Paleocon wrote:

I'm concerned that thinking like this is a cop-out. Rather than facing the responsible conclusion that something can and eventually should be done about it, it seems rather easy and/or comforting to say that nothing can be (and therefore must be) done.

While I agree that we aren't done yet, I can see where not having a solution that has obviously gotten us "out of the woods" would lead people to believe that we are still headed to a crash.

I always find it interesting that people comment about how they find it comforting to say that nothing can be done about an obviously negative outcome fast approaching. Does anyone who uses this line feel that way themselves? To me the only thing worse than heading down the toilet would be running out of options...

I won't even go into the second part of this post as it illustrates either a misunderstanding or lack of knowledge of the Bible on your part, or on the part of the people you're referring to. Neither of which is the topic of this thread.

Paleocon wrote:
RedJen wrote:

As much as I dread the pain that it is going to cause, I think we're at a point where we are going to have to crash. We are so broken that it isn't a matter of if we crash, but when we crash.

I'm concerned that thinking like this is a cop-out. Rather than facing the responsible conclusion that something can and eventually should be done about it, it seems rather easy and/or comforting to say that nothing can be (and therefore must be) done. It's a bit like the rapture fetishists who seem to think that living their lives with any respect to responsibility toward others is unwise and unnecessary because Jeebus is coming to save them from the results of their irresponsible action.

Really? I'm running out of ideas on what should be done, because so far it seems like the only type of action taken is to throw money we don't have at the problem. The problem is our economy is unstable and we're throwing money we don't have at it.

If someone overspends into debt, we tell them to tighten their belt and live within their means. You don't fix money problems with money, you fix money problems by modifying the behavior that got you into trouble in the first place. I don't see our government being willing to stand up to the people and telling them that we're going to scale back programs so that we're spending less than we're taking in as taxes.

Every group has it's own pet programs. Cut a social program, people get upset and elected officials get voted out of office. Cut a government contract and the campaign contributors contribute to your opponent. If you cut back Social Security/Medicare, you're screwing over every person who has been hi-jacked into paying into a broken system (plus the senior vote will toss you out of office).

Unless & until our elected officials stop running for office 24/7 and start running the government for the good of the people who put them in office in the first place, I'm pretty sure we're on the express train to royally screwed.

Red, do you believe that if the behavior could be changed, then the debt could be reduced without causing a crash? That's my position. That's why I consider the political and policy aspects as crucial to understanding how we got here and how we deal with it.

dejanzie wrote:

This is probably an insanely dumb question, but bear with the Belgian: in what way(s) do the rich profit more from society?

They have bigger cars so the roads need more repairing? The police has a faster response time for the rich which costs more money? If they pay 20% flat tax rate on a much larger income, doesn't that compensate for the extra mooching from society?

I'm not trying to be snarky here, I'm honestly drawing a blank.

I think this is a blanket statement. I do not think people are contending that Paris Hilton profits more off of society than I do. But rather, a statement of how very wealthy and powerful men/women get greater benefits from society. They can afford to pay accountants and attorneys to find them every tax loophole, they can get benefits for their company from a state or federal politician. With Boeing in mind, that company, that CEO and board have very influential relationships in all 50 states. And that company has reaped huge benefits from the American Taxpayer, and many times to our detriment. And I do not begrudge many of these politicians for bring jobs to their states, cities.

But there is a history in the US, for a long time, of extending greater benefits to the super rich at the expense of the working class. Last century it was the National Guard breaking up unions with machine guns at Ford. Now we have tax breaks, lax enforcement of administrative law, lobbying for the corporate entity at the expense of the public.

And anyway, haven't you argued that *not* paying down the debt would cause the economy to crash? What's left, then? Crash no matter what?

Yes, absolutely. It's not like it's the destruction of everything, it's just an economic crash, a la Iceland. Icelanders are extremely unhappy, but they're not dying over there, they're just mad as hell. And poor.

We are past the point of no return, where we are too addicted to new debt issuance for the economy to function properly without it. Something very much akin to the Great Depression needs to happen for the economy to reboot itself and get back to health.

The longer we delay this process, the worse it will be when it does inevitably happen. We CAN'T keep running up the public and private debt, but we MUST keep running up the debt. Eventually, that's going to break. And the longer it takes to break, the worse the break will be.

Things that can't go on forever, don't.

RedJen wrote:

If someone overspends into debt, we tell them to tighten their belt and live within their means. You don't fix money problems with money, you fix money problems by modifying the behavior that got you into trouble in the first place. I don't see our government being willing to stand up to the people and telling them that we're going to scale back programs so that we're spending less than we're taking in as taxes.

Every group has it's own pet programs. Cut a social program, people get upset and elected officials get voted out of office. Cut a government contract and the campaign contributors contribute to your opponent. If you cut back Social Security/Medicare, you're screwing over every person who has been hi-jacked into paying into a broken system (plus the senior vote will toss you out of office).

Unless & until our elected officials stop running for office 24/7 and start running the government for the good of the people who put them in office in the first place, I'm pretty sure we're on the express train to royally screwed.

Unfortunately, I suspect you're right. The first example that springs to my mind is that the US could save a preposterous amount of money by gutting its military (Sorry Nevin! :-)), the vast majority of which is essentially throwing money into a hole. Carrier groups, stealth bombers, nukes et al. are not only expensive, but I also can't actually see them being particularly useful for national security in the current era. It'd be political suicide for any politician to try an implement that though, since it'd be unpopular both with the general populace AND the lobbyists.

In a similar vein, getting out of Iraq and Afghanistan would probably make economic sense. I'd be very surprised if either country could actually be improved with further foreign military intervention, so it may be time to cut losses and run. Is it a bad outcome? Yes, but I don't think the US has the money to keep trying to avoid it.