US Debt now > GDP

mheslep

Not exactly. It has been historically true that individual and corporate income taxes, at the federal level, never bring in more than ~20% of GDP. EU governments take in more via sales taxes (i.e. VAT), as do US state and local governments. The point is that if a government wants to bring in more revenue it has to collect more regressive taxes from the mid-level earners via sales or property taxes.

Federal tax revenue (mostly income) over time


All US government revenue (income, sales, property, etc):


Showing that prior to recession all government function was collecting 3.5 out every 10 dollars of output generated by the US economy. Though that collection rate has dropped since the recession government spending has not, maintained instead by borrowing.

Oltz

Paying people to be in the lower class also creates a vicious cycle.

We need to allow people to fail just as we need to allow people to succeed.

I know I am cruel and evil and blah blah but we can not support everyone forever.

Raising taxes on the middle class is a farce if you raise taxes all it does is shift the "middle" up some (some poeple become poor some who were wealthy become the new upper middle).

The Net result is even fewer people paying taxes.

dacruick

I think you have some misconceptions about the influence of poverty on the youth. We are all a product of our environment. It's not the average "adult on welfare draining the economy" I care about. It's the average kid being raised in projects, around thousands of other equally impoverished kids. You develop a resentment towards "the system" so of course you will never care to learn about it. That system is (in their eyes) responsible for the poverty they were born into. This creates a divide in the social structure of a country in the form of classism, from both sides.

dacruick

I never suggested that only the middle class have raised taxes. I suggest that taxes be raised across the board. If you raise taxes and allocate some of that money for social services then maybe the lower class comes out even.

Oltz

That is the point we do not have the money to maintain the social services we currently has AND all of the other government functions with out borrowing 40 cents of every dollar we spend.

At some level there will be an income cut off where social services end and you need to support yourself currently in many peoples defenitions that cut off plus 10% is the start of the middle class. Others say Median income is the bottom of the middle class, But you can make median income and get foodstamps/welfare/WIC/Housing/EITC based on number of dependants. To the second group some of the middle class does not pay taxes already.

When you raise taxes you shift peoples incomes down. Pushing more of the old middle to the low requiring more benefits be paid or simply making them not owe anything anymore.

We can not Tax the defecit away.

Am I making any sense as far as increasing taxes decreasing the number of poeple taxed?

IMO the middle class is anyone who pays more in income tax then they recieve in direct benefits from the Govt. and makes less than 400K as a family or 250 as an individual. or 10x Median depending on the day

phyzguy

This is simply not true. The reason 47% of the people are not being taxed is that they don't make much money. Try looking at the statistics below. The bottom 60% of households earn less than 25% of the total income. Taxing them more heavily is like trying to get blood out of the proverbial turnip. On the other hand, the top 20% of households (households earning over $100,000/year) are bringing in 50% of the earnings, and the top 5% of households (households earning over $180,000/year) are bringing in 21% of the earnings. These people could pay significantly higher taxes and still live quite comfortably. I don't think that all of the deficit gap should come from raising taxes; we need to cut entitlements and make the system (especially health care) more efficient as well. But to say that 'it is impossible to get more out of the top 50%' is simply false.

http://www.census.gov/hhes/www/incom...old/index.html

Oltz

First you should use IRS data not census data when available.
http://www.taxfoundation.org/news/show/250.html#table3

Second lets look at the top 25% in 2009 they earned 65.81% of the totoal AGI of the nation.
They paid 87.3% of the total taxes collected.

So the bottom 75% of the population controlls 34.19% of the AGI and pays 12.7% of the taxes. 10.45% of that is payed by those between the top 50 and 25 % marks leaving 2.25% for the bottom half of the population.

Now you tell me how much is fair and you tell me what the base income should be at which you need to support yourself?

phyzguy

It sounds like we more or less agree on the numbers, we just don't agree on the conclusions. To me it is not unfair that the top wage earners, who are reaping most of the economic benefit of our society, should pay most of the taxes to keep it running. It is also not unfair that the bottom wage earners, who are mostly just struggling to get by, should not pay much of the taxes. You think it is unfair that the bottom half are only paying 2% of the taxes, but isn't it also unfair that the bottom half are only earning 20% of the total earnings? Do the CEOs, entertainers and sports stars that make $10 Million+ really need to keep more of it so that they can buy a bigger yacht? Does this really benefit society?

mheslep

phyzguy: You call for more taxes on the upper fraction of incomes as a solution to the deficit. Consider the following:

• As you point out, the top 10% bracket earns 43% of income.* That same bracket also pays 70% of federal income taxes.
• The 70% of federal taxes paid by the top 10% equates to $610B. The deficit is $1600B. Individual income taxes on that bracket would have to raised by 262% just to balance the budget today, leaving the debt standing at near $15,000B, and still more tax increases would be required next year to maintain the balance.
• The $610B paid in taxes by the top 10% is money not invested in the private economy. While the higher earners may or may not need to consume all of their income, unless they keep it idle under the mattress they most certainly invest that money in the economy. That is investment not made when the income is taken by taxes.

*Adjusted Gross Income, 2009.
http://www.taxfoundation.org/news/show/250.html

H/T Vanadium.

mheslep

The federal government could take all income of the top 1% ($343K and up) and it would still not balance the US budget. To suggest increasing taxes on the 'millionaires' can balance the budget is nonsense, not to mention what it might do to a sluggish economy.

Vanadium 50

We can set a lower limit. The total income in wages for the US is about $8-9T. Assuming all of this goes towards something that gets this 1% tax and it raises $85B a year. The debt is $14T, so it will take at least 165 years.

A similar scaling argument can be made for the deficit. The total income is about $8-9T, and about 80% of that is in the upper half. The federal budget is $3.8T. That means that a flat 45% tax rate (direct or indirect) is needed to support this. If we decide that we don't want the bottom 50% to pay taxes at all (the other limit - maximally progressive), the top half need to pay a 56% tax.

phyzguy

A couple of points on this:

(1) As I said, I don't think all of our current deficit problem can be solved by tax increases - spending cuts are needed as well.

(2) As you said, the top 10% earns 43% of the income, which amounts to 3.3 trillion, according to the table you linked. On this 3.3 trillion, they pay 610 billion in taxes. Suppose their tax rate were doubled, which would put it closer to historical norms. That would reduce the deficit by more than one third, and still leave the top 10% rich by any reasonable standard.

(3) As unemployment comes down, we can expect the deficit to come down as government tax revenues increase and unemployment benefits drop.

(4) If the government takes money from the top 10%, what do you think happens to it, that it just goes away? Part of it will be spent on payments to people with lower incomes, who will promptly spend it. Paying a teacher's salary instead of laying her off is a good thing, both for the teacher and for the economy. The current problem in our economy is a lack of demand, not a lack of investment. Part of it will be spent on much-needed infrastructure improvements, which will help get the moribund construction industry moving again.

mheslep

Agreed, though the suggestion in your post #2 referencing WWII was there's no hurry, and there I disagree sharply. War spending ends, entitlements never do.

That conclusion is not supported by the data. As was shown by the links in posts in 7 and 35 showing yearly tax revenue, federal revenue collected per unit of GDP via income taxes does not increase substantially with high rates. While I concede one can argue the government might collect more revenue (10-20%?) from a sluggish economy, it is ahistorical to say you could double revenue by doubling the current income tax rate.

The income point for the top 10% is $113K. That's a carpenter and teacher household. Their income after ~20% federal taxes (today's) is then $90K. You would attempt to double the rate (not marginal but total) and leave them with $68K. From that they must still pay state income tax, sales tax, property tax, and so on, leaving them with a take home well under half of AGI. Furthermore, as I and others have posted elsewhere, there is substantial income mobility in the US over time, which includes declines in the upper incomes. So this carpenter and teacher might well be enjoying some fleeting peak income years to bank for the kids college or retirement.

Clearly. So the question there is what is the best way to decrease unemployment? The conversation should be focused on how to allow the private economy to create job opportunity, not how to remove more money from the private economy. In the meantime the deficit is large, the debt dangerous, taxing the rich can not resolve the problem, only substantial spending cuts can.

So then why not tax all income at 100%, have the government disperse it all? This is the old Keynesian argument. Without getting into the academic arguments as to why this may not work, surely you concede this has been tried recently several times totaling a trillion dollars, and that the results were are at least questionable, demanding more justification than a hand waiving call for more of the same?

Jimmy Snyder

I don't see how this could possibly help. Here's what I propose instead. An amendment to end deficit spending until our debt is below 34% of GDP and we need to cap our debt at 46% with a 9 year average balance requirement of 29%.

WhoWee

If you have $600 income per month and write checks totaling $1,000 per month - then borrow from anyone that will loan you money (assuming you will always find someone to loan you money because you have an expensive gun collection) - what will people that respect you think? Should you be respected? Should anyone look to you for advice? Should you be considered a leader? Why shouldn't everyone else get together and tell you NO? How long should you expect everyone else to do as you want? What is the limit?

Oltz

Recap
1.We established that Income tax will not generate more then 20% of GDP regardless of rate.
2. We went over the current distribution of Income and Tax Burden on that income.
3. We established the only way to increse revenue is Regressive or flat taxes and fees or lower rates applied to more people.
4. We all agree that spending cuts are needed.


So what percent of the population are we comfortable Fully supporting in the system? (as in living off of benefits) 25% 30% How many should be playing with house money.

What percent are we comfortable having not pay into the system as in no tax burden but recieve no benefits? (surive on their own income but not pay into the greater good)
20% 27% 17% 5%? How many should be between the poor and the middle class?

Right now those add up to the 43-47% numbers that are thrown around. IMO it should be more like 35% bottom 25% recieving benefits 10% in the no burden no help and 65% paying some level of income tax.

To those saying the top 50% need to pay more ok fine but what percent should pay nothing?
What percent should get everything?

WhoWee

I've posted this MANY times. IMO - only people who pay (at least $1.00 federal income taxes should be registered to vote. If you don't contribute - you shouldn't have any say in how the funds are spent.