There's nothing more depressing than a person who is absolutely consumed by loathing for something they don't bother (or aren't able) to understand.
We're good at this in America. Next time you hear someone go off on a 20-minute rant about (taxes, Muslims, No Child Left Behind, oil prices, whatever) ask them an incredibly basic question and watch the ensuing trainwreck. Information is entirely optional in acting out our irrational hatreds.
To full time Tax Bitchers, for example, the idea of high marginal tax rates creating a "disincentive to earn more" is a staple argument. Using hypothetical figures for simplicity, if the split between the second-highest tax bracket (say 30%) and the highest (35%) was at $150,000, individuals earning near that amount would have a disincentive to earn more. Seventy percent of $145,000 is larger than 65% of $155,000 ($101,500 > $100,750). It make sense, right?
That works for those in the reality-making world, but for the rest of us the facts get in the way.
Progressive tax brackets are not applied retroactively. That is, when you hit $150,000 the new bracket applies only to incoome earned beyond that point. So there's never a "disincentive" in the (reality-based) definition of the term – you know, something that penalizes or otherwise discourages behavior.
What progressive tax brackets provide are slightly less incentive. Less incentive (i.e., keeping 65 cents of each additional dollar rather than 70) is not the same as disincentive.
Ten million bonus points to Professor Hack (at U. Michigan…Flint!) for butchering the Laffer Curve. Sure, the top 10% of all income earners paid 50% more in taxes under Reagan, which is really impressive if you don't also mention that those same individuals more than doubled their incomes over the same time period (compared to a 13% increase for the bottom 90%).
Jim says:
I am a "right wing" Republican who earns well above 6 figures each year. I enjoy visiting your site in that I believe that it is a good thing to have your beliefs and opinions challenged. Believe me Ed, you do a great job of that!
But here is the deal. You can throw around the 30% and 35% tax rates all you want, but in reality, I pay over 50% of my income in taxes each year. When you add up Federal taxes, Indiana state taxes, Indiana State sales taxes (7%),property taxes, taxes on gas, and so on and so on, it reaches a huge % of my income. And to think that our founding fathers had a revolt over a tax on tea! What would they think about taxing us now 50% of our incomes?
There is a huge moral issue here of the state reaching in my pocket each year and taking what is mine in the first place. I get out of bed each day at 4:15am and hit the road by 5:45am. I usually work a 12 – 14 hour day in my sales position, often driving 250 to 400 miles a day. I am here to tell you that the "disincentive to earn more" is indeed a concern. I could make a case that if I earned 1/3 of what I do, and could get the resulting tax benefits/college grants for my kids/tax stimulus checks, I would have about the same spendable income each year.
I am not against taxes in general or social programs in particular. I have run my community's food bank for years, and volunteer my time and resources to a variety of community programs. But the question I put forth is this: When is enough ENOUGH tax wise? 35% of your income? 50% of your income? 75% of your income?I personally feel that no more than 25% of one's income should be taken by the state.
All that said, I am now off to AnnCoulter.com. Some days, she makes me laugh about as loudly as you do! This is indeed a great country when I in one click can go from ginandtacos to Ann!
mike says:
Jim, Indiana has a flat rate state income tax (as does Illinois). Your tax rate you pay there is the same as if you worked at Mcdonalds part time. If you've been lead to believe otherwise, contact a lawyer.
I'd be curious as how you get to 50+%. 33fed+3.4state+no deductions+no mortgage deduction+no children+all income spent on sales tax= 43.4%. And that is handwaving away all deductions.
I do find it interesting people who can adjust their income versus hours worked at the margins, and how they deal with taxes. Most jobs don't have a mechanism for "I'll work another 3 hours for another 3 hours of wages" in the white-collar world; presumably, you can in traveling sales. That's one story for Reagan believing in the stuff – as an actor, every picture he took changed his salary greatly, so he'd not take movie roles to avoid the high end brackets.
Ed says:
Jim, I think your comment raises some good points.
Nonetheless, I have to echo some of Mike's questions. The applicable tax brackets (I'm guessing, without an income figure which I don't expect to be provided) are 28% ($131k to $200k) or 33% (200k – 350k).
Let's give Mike's argument the anti-benefit of the doubt and assume (although unlikely) that the AMT requirements wipe out any benefit from deductions (mortgage, tuition, kids, business expenses, capital losses, etc). Social security and withholding stops at $97,500, making it a steeply regressive tax for people with high incomes. Medicare payroll withholding is 1.45% with no cap, but a modest percentage.
Leaving aside Indiana's laughably small flat income tax, your federal tax burden would appear to be well under 40%. Your tax obligations are obviously not pocket change and I have no doubt that they are unpleasant. However, common claims (this is widespread in every piece of journalism on the subject from the internet to the Wall Street Journal) that the tax burden reaches or exceeds 50% don't stand up to much scrutiny. For a multi-millionare with no deductions in a high-income-tax state like California (10.3% for seven-figure incomes) it might hit 50%, but that is exceptional.
If property taxes figure into your calculations, I think that's a patently unfair way to put things. Home ownership is a choice, and we can't have it both ways by buying property and then objecting to the taxes. No one holds a gun to our heads and forces us to purchase a home. We're free to rent or find property in an area with a property tax rate we find acceptable.
Tim says:
How about a shift in the taxing system towards consumption taxation and away from income taxation?
Jim says:
Thanks Ed, Mike and Tim for the good discussion. Here are a few responses:
In fact, the taxes I pay are somewhere between 1/3 and 1/2 my income. I am counting my fed rate, state rate,county rate(county rate alone is well over $1,000 a year!), the 7% state sales tax, my property taxes on house and cars(sorry Ed, a tax is a tax is a tax, even if it is a property tax!), "restaurant and hotel taxes" that are now just about everywhere, the taxes I pay on utilities(take a VERY close look at your gas, electric, cable bills…). I have always driven small cars, yet I am certain that i am paying an additional $2000 – $2500 a year in a variety of federal, state, and local taxes on the gas I buy —I typically drive 80,000 miles a year. Bottom line here is i am paying my "fair share", which may not be quite 50%, but damn close to it.
Now back to my question that no one has answered: How much is too much?
30%? 42%? 50%? You need to think about this, because as liberal dems, you do tend to turn to the "higher wage earners" when new taxes are proposed. According to the Wall Street Journal, 86% of all federal taxes are paid for by the top 25% income earners.The top 50% wage earners pay 97% of all federal taxes.There is a pretty large group of folks out there who are paying next to nothing for all the good stuff the state provides ( roads, govt services, defense, and so on). Is it fair for Obama to ask me to contribute even more? And if so, should there be a limit to the % a person should have to pay in taxes to fed, state, and local governments?
mike says:
Jim, you can't stack tax % after tax % to your consumption bundle, which is why I assumed you didn't save anything and simply paid the sales tax (7%) on all your post-tax income. But our numbers matched, so that's good. For what it is worth, that gas tax is there to balance the externalities in pollution and congestion and road deterioration that you generate driving 80K miles/year; to bring prices into-line and not as a specific revenue generator per se.
To answer your question, which is a very good and valid question, taxes are currently around 17-18% of gdp, and I am comfortable with it approaching 20% as it was during the Clinton years:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205
I believe 'liberal dems' are turning to captial gains taxes, or the opposite of wages, and uncapping income on payroll taxes (which as Ed mentioned, are highly regressive) to push revenues. I don't think anyone should ever pay more than 50%, but that doesn't currently happen. I happen to think, as a result of the payroll stuff, that middle class effective rates are too high and should be shifted up the income ladder.
The last 8 years have been an exercise in promoting the tax policies you imply, and it has been a bit of a disaster. One can play the statistics game all day, but the top 25% of income/asset holders hold an incredible sum of money, much more than the bottom 75%, so the pay distribution doesn't surprise me.
My only other addition would be, post War-On-Drugs/end-of-welfare-as-we-know-it, the poor's main interaction with the State comes through the carceral archipelago of our permanent jail population; "paying next to nothing for all the good stuff"/lucky-ducky rhetoric should really be replaced with the fact of half of inner-city african-americans being under some sort of state criminal supervision. Pointing to how little they pay but how large the defense budget is doesn't really reflect the situation, imho.
Ed says:
86% of all Federal taxes are paid by the top 1/4 of wage earners…which seems just about right, given that the top quarter earns almost 90% of the nation's income each year and hold over 90% of the nation's wealth.
http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/stratification/income&wealth.htm
As far as the question of how much is too much, I don't think that can ever be answered. I think "enough to come reasonably close to paying for what we spend" is a reasonable if vague answer. I understand being unhappy about these things in the abstract, but they don't exist in a vacuum. Let's scrap the gasoline tax as soon as we figure out how to pay for the roads without them. Let's can property taxes when we find an alternative method of funding public schools. Let's lower the federal income tax rate as soon as we figure out how to fund the $341,000,000 per day (per day!) war that we can't even pay for with taxes as they are.
The problem is that the i-hate-taxes side of the argument (at least much of what I read) wants to see every tax eliminated, something they claim we can pay for by "cutting spending" in some vague and unspecified way. Theoretically that makes sense, but there is a widespread delusion that the government spends half of its money on Welfare Queens and the National Endowment for the Arts.
In eight years, President Bush has averaged approximately $400,000,000,000 per year in budget deficit (http://www.cbsnews.com/stories/2008/02/12/national/main3822385.shtml). I'm not sure what kind of spending cuts could reasonably erase that deficit, but chopping some social programs isn't going to do it.
pxs says:
I don't understand the Tax Bitching either.
First, Jim makes the claim "I could make a case that if I earned 1/3 of what I do, and could get the resulting tax benefits/college grants for my kids/tax stimulus checks, I would have about the same spendable income each year." If this is true, then Jim should do it — earn 1/3 of his current wage. Same money, 1/3 the effort. Jim's not going to do it, because it's not true.
Second, calling a tax "punishment" is just nonsensical. We are a society, and society has bills to pay. The bills will only get paid if people in the society fork in a little bit. If you go to a restaurant with a large group, and have to split the bill, it makes sense that the person who got surf and turf will pay more. The people in the top income brackets have received a significant benefit from American society, and therefore owe more than others.
tim says:
pxs says: "The people in the top income brackets have received a significant benefit from American society, and therefore owe more than others."
Poor people also receive significant benefit from American society; why should the responsibility largely fall on those in the top income brackets. Some of us have worked very hard to get where we are and earn the $$$ we have. In some cases, others have chosen to not work as hard…why should I "owe" these people anything? Why can't my $$$ go to providing for my children and family?
Jim says:
I knew that this would be a difficult audience when i first opened my big yap…but here goes:
1) Mike, capital gains as reported on 1040 Schedule D are in fact considered income on line 13. Make no mistake about it. There is no difference between the two as far as the feds are concerned.
2) Ed, given that 86% of all federal taxes are paid for by 1/4 of wage earners, it would seem that the groups who are not paying their fair share are the poor and the lower middle class. An argument could be made that they receive the same benefits from government that I do ( roads, garbage pick up, defense) in addition to benefits that I do not receive ( food stamps, health care benefits, grants for education, tax stimulus checks…).What expectations should we have of them as far as contributing back to the state is concerned? Community service? A free pass? If so much is expected from me for being productive, what is to be expected from the individual who is unproductive?
3)PXS – I would like to take you out to dinner and talk a few hours because i believe that we are almost complete opposites, politically speaking! And I would be happy to buy you surf and turf too! Here goes:
The 1/3 less/same spendable income is based on the GREAT breaks those earning under $75,000 get on their taxes. In addition to the%, 1040 line 32 IRA deduction($5,000) Line 7 (up to an additional $10,000 contribution to 401K accounts, line 48 Child tax credits, Schedule A line 25 (up to 2% of your income) and Hope education credits ($4,000 for two students in college) to name a few. That said, I would never play this game because my efforts in this great capitalist engine determine the well being of approximately 50 or so households. My job is to find all the business i can to keep us as busy as possible at work, and if i were to let down or defer income to save on taxes, it would effect many more lives than my own.
Also you say that "The people in the top income brackets have received a significant benefit from American Society…" May I suggest instead that the people in the top income brackets have taken risks and worked their asses off and have been rewarded by their own efforts. — and that "society" or "The State" is not responsible for their success. In a sense, I feel like I am at that restaurant with the large group of people you describe, but in addition to paying for my own surf and turf, I am being asked to pay for yours and others, simply because I am productive and earning an income that is considered above average. Should anything be expected from the folks who are showing up at the table and eating on my tab?
4) Tim: Right on Right on Right on, my brother!
I really hope that I have not come across as one of the hated tax bitches! I try not to bitch too much or get upset over matters that I can do nothing about. I don't really know what is fair here. Thank God we elect people who are wiser than I am to decide that. Perhaps the system we do have is the fairest and best we can do. But I have concerns and questions sitting where i do…
beau says:
tim – i think you'll find that mike and ed have already answered your questions, but…
"Poor people also receive significant benefit from American society; why should the responsibility largely fall on those in the top income brackets."
the rich should (and do) PAY more because they HAVE more. it's not really very complicated.
"Some of us have worked very hard to get where we are and earn the $$$ we have."
while others have, and will continue to, work in areas that will NEVER make them wealthy, no matter how "hard" they work. like teachers, nurses, plumbers, cops, etc., etc.,
"In some cases, others have chosen to not work as hard…why should I “owe” these people anything?"
you don't. you owe those listed above, who fulfil vital functions in society and rely on your taxes to survive. and if not them, how about those whose taxes made it possible for you to earn the money you do? since you don't know whose taxes pay for the roads you use, or prop up the industry you work in, etc., you pay everyone. through taxes.
beau says:
curses! always hit 'refresh' before posting! rookie mistake.
tim, i'm afraid you are coming across as a tax bitch. sorry. and dubya is wiser than you are? i'd be careful where (and how loudly) i admitted that…
mike says:
Jim,
It is rare, and a delight, to hear someone say that people paying taxes on $75,000 (the breakpoint for top 25%) are free-loaders, lucky-duckies with "GREAT benefits" who should have to do "community service" to "contribut[e] back to the state." That is fantastic. One wonders your pity/wraith for a mill worker who has been laid off for several years; should have to volunteer a kidney for the nation's rich next? test experimental chemicals?
Seriously though, for what you are getting at, from the (conservative) Tax Foundation, the effective total tax rate (which is what you are arguing) on income by quintile:
Highest income quintile: 35%
Second-highest income quintile: 31%
Middle-income quintile: 28%
Second-lowest income quintile: 23%
Lowest income quintile: 13%
http://www.taxfoundation.org/files/wp1.pdf (p.40)
Note how not progressive it is at the lucky-duckies second-quintile (~$50-60K) is relative to the highest. (This is in part driven by the caps on payroll taxes and the flat rate on many-non-federal items, the items you believe drive your taxes above 50%) You can imagine that someone making ~55K a year looks at the highest-quintile paying only 4% more on the effective rate, and then thinking that reducing their tax burden is not really really the biggest issue on the table. Do you honestly think they should pay more?
And for those laboring on about "choices" and fair burdens on the poorest of americans, the median on the bottom quintile's income is ~$10K. Now what do _you_ think should be a fair precent for them to pay?
Chris says:
I'm surprised (but not really) that those who bitch about taxes have probably never even glanced at a Federal budget, understand what function taxes play in running government, or realize the benefits THEY receive from taxes. The cry is just to "CUT TAXES", rather than coming up with a better or another solution for funding things or creating a more productive society. It is just empty words and bitching. Sorry, you've got to pay the piper. Sure, cut Social Security or Welfare. But, be prepared to deal with starving have-nots and the elderly. Eliminate the guy who picks up your trash, the soldiers who throw their lives away, hell, get rid of the whole government and Constitution. If you want a pure capitalistic system, prepare to see kids chained to machines and the world to turn into a garbage dump. If you don't want a democracy, get ready for tyranny. The Conservative response is extremely selfish, ignorant, and inhumane. Ebenezer Scrooge, if you will. Man, that's the type of society I want to live in!
The funny thing is that the Republican party is now the big spending party: Bush, like Reagan, racked up a huge debt and has no idea how to run government. On the other hand, Clinton produces a surplus. Maybe if government was more responsible, competent, and ran by people who like government and know how to run it, a more precise amount would be revealed as to how much tax money American citizens should be paying. If you want lower taxes, perhaps you should vote democratic!
Also, if you don't like paying taxes, go live on a desert island and return to the state of nature. Then, you may understand the benefits of taxes and what role they play.
Tim says:
I don't think the issue is that we don't want to pay ANY taxes at all. Rather the issue is about equity and fairness in the process. The answer that beau provides for why top wage earners should bear the burden (he says: the rich should (and do) PAY more because they HAVE more. it’s not really very complicated.) is just not very satisfying. Beau states that "…others have, and will continue to, work in areas that will NEVER make them wealthy, no matter how “hard” they work. like teachers, nurses, plumbers, cops, etc., etc." That is really not a great example as one can make a very comfortable living in these professions: http://www.payscale.com/research/US/Job=Plumbing_Engineer/Salary Further, it is a choice; no one is holding a gun to ones head and saying they have to be a plumber and some jobs like teaching come with the perks of more flexible hours, sometimes tenure, and good benefits in many cases.
Chris says:
Capitalism is NOT fair. The richest 1% has more wealth than the bottom 95% combined. There are haves and have nots. One person is a CEO, the other a prostitute. You have a double standard for applying fairness and equity to both capitalism and taxes. Capitalism creates classes of people; why do you think all of the sudden different social classes should be treated the same?
tim says:
One person is a CEO and another is a prostitute BECAUSE OF capitalism? Is that your argument? It is because of our system not because of individual choices along the way?
Jim says:
Word up…the tax bitch is back with a few comments:
Mike: Are you tripping? Please reread my comments above. I never said that those folks earning $75,000 a year were free-loaders. I used it as an example to my situation the past 5 years to illustrate deductions (about $20,000 worth EACH year) that I can not use in my tax bracket. And yes, those listed deductions are GREAT ones for the middle class or any one else who can use them. I know people who defer income to stay within those guidelines so that they can take the resulting tax advantage.
Mike: Your comment wondering about my pity for laid off mill workers is a very typical one coming from the American left concerning us right wingers. Please take a deep breath and sit down. In addition to working a 60 hour week, for the past 5 years I have run my community's food bank. I work at least 5-7 hours a week raising money, buying food to stock the shelves, and boxing and delivering food to about 35 families a week. I also serve on the local library board, and do what I can to make certain that books and computers are available to children in the area. In addition to the taxes I pay, i contribute 10% to my church and another 5-7% to a variety of charities. And yes, I have lost my job two times so far in my life, both times when I had a family with two small children, so I indeed have sympathy. ( I solved my unemployment problem by…….getting another job! Works every time!)
What do the rest of you do — including Mike — with your time and money to help those who are less fortunate? My experience with the American left has been one of seeing a lot of pity and sympathy, but really not doing much beyond that, other than voting to raise taxes on high wage earners and relying on "The Nanny State" to do it all. Almost 80% of the people I volunteer with at the food bank, re-sale shop, or sit with on community boards are conservative Republicans. Did you know that the Obama family gave only 1% of their income to charity in 2006, then up dramatically in 2007 as he considered a run for the Presidency? Show me a man's checkbook, and I will show you what is most important to his heart….Sorry, so many times I have heard the left talk the talk, but not walk the walk.
Tim made a great point about the CHOICE of professions. There was a book written a few years ago called "The Millionaire Next Door". Money–even small amounts- properly managed can do great things. Be thankful that you are living in the greatest country on the face of the earth, with an economic engine that has created a life style of wealth for its people unparalleled in the history of the planet!
Chris says:
Tim, I was just stating people in a capitalist system aren't equal. Come up with whatever reason that works for you, but you can't ignore this fact or the downright ugliness the system can create.
As far as Jim goes, imagine Ebenezer Scrooge, Rush Limbaugh, and Wily Loman all rolled into one: is this somebody you want to argue with or spend your time with (like Bill O'Reilly)? It isn't worth it: I know from experience. I guess the important thing to take away is the sick obsession with taxes and selfishness in assuming everyone should comply to his life experiences. Bravo!
Tim says:
Chris said: "ugliness the system can create"
Again, that the system can create states a causal relationship: capitalism->inequality (or an "ugly" system).
What do you suggest as an alternative system since you think that capitalism is not a good way to go?
beau says:
tim, i think you may be being a little disingenuous. i was talking about people who do low paying work to keep your life livable. next time a tree root climbs into your drain, try calling your local plumbing engineer to come rip up your lawn, get down and dirty with your pipes, then accept the fee you are willing to pay for this service. you and i both know it aint gonna happen. you need an ACTUAL BLUE COLLAR ASS HANGIN OUT PLUMBER. where's the salary graph for those guys?
and capitalism IS unfair. no one really challenges that, do they? we have stuff like democracy and taxes to counter the INHERENT unfairness in the system. do i need to provide examples of heirlings to slave-built family fortunes vs those who count slaves as their ancestors and still live in ghettos?
Bill says:
There is a whole lotta self-loathing going on in this thread.
Mike says:
Jim has engaged in this in entirely good faith.
Jim, when I said free-loaders, I was responding to your comment "What expectations should we have of them [25%, or 75K] as far as contributing back to the state is concerned? Community service? A free pass?" Perhaps that was meant to be read differently.
What makes you assume that either (a) I'm not mostly concerned about the bond market's spreads the day after President McCain passes the most irresponsible budget ever proposed in terms of future deficits or (b) people on the 'left' you are alluding to aren't effected by these high rates?
There's a lot of talk about deserves and risk-taking and hard work, but the hardest working (what does that mean?) people I've ever heard of or seen are kids making sneakers and mcdonalds employees. The people in white-collar jobs I've been around in software, finance and sales have significantly better, easier, and more respectful working conditions.
And Jim, For what it is worth, at the job centers I volunteer at everyone is a flaming liberal, but I'm in San Francisco and you are in Indiana. Sample bias is a crazy thing.