How much the rich are being taxed

[Mentalist]

I have been hearing talks about this along the aisle where one person says that the rich need to pay their fair share and another saying, no the rich do pay their fair share as it is. I am grossly oversimplifying the situation as the talks go much more in depth than what I've stated, but that essentially, from my own hearing and internalizations, is what it sounds like.

To foster possibly a debate or discussion I wanted to know how much the rich are being taxed and that led me to a few google searches and under the new health care law, it would seem that the rich would be taxed a percentage and under these new rates that have been enacted to avoid the fiscal cliff, they are seemingly set at the Clinton rates of prior years.

My sources from what I have stated so far:

(3.8% surtax on investment income due to the new health care law or Obamacare)

Fiscal Cliff Deal

http://www.reuters.com/article/2012/12/03/us-usa-tax-irs-idUSBRE8B21HA20121203

http://www.cnn.com/2013/01/02/politics/fiscal-cliff/index.html

My only concern is why are people saying Obama compromised severely and that he should have stuck with his election pitch? From those two links and a bit of other research, it seems to me that the tax rates are high as it is. Am I not getting something?

 

[turbo]

My only concern is why are people saying Obama compromised severely and that he should have stuck with his election pitch? From those two links and a bit of other research, it seems to me that the tax rates are high as it is. Am I not getting something?

It depends (to a great deal) on who you are and how your income is derived. If you can classify much of your income as carried interest or capital gains, you will pay a much lower rate than people that pay taxes on regular income. In this case the tax laws are severely regressive.

Obama did nothing to address this inequality, which is not surprising. He can't reform the tax code all by himself (no authority) and Congress is unlikely to cooperate with him, since they are beholden to the wealthy for their campaign cash. It's a messy situation.

 

[russ_watters]

It depends (to a great deal) on who you are and how your income is derived. If you can classify much of your income as carried interest or capital gains, you will pay a much lower rate than people that pay taxes on regular income. In this case the tax laws are severely regressive.

Clarification: since those two loopholes only affect the very-rich (of income-generating age), income taxes/rates only become "severely regressive" when comparing the tax rates of the almost-rich to very-rich to the tax rates of the very-rich. The vast majority of Americans (estimate 80-90%) still pay lower rates and taxes than those affected by those loopholes.

 

[russ_watters]

[Edit]
All debt ceiling posts (most of the thread) moved to the debt ceiling thread.

 

[jduster]

Here's my take on taxing the rich, as a non-partisan independent.

1. Higher taxes on the rich really do no harm (unless the increases are astronomical). The economy was doing well during the Clinton era.

2. Republicans are ideologically defending tax cuts for the rich because they perceive taxing the wealthy as a slippery slope to increasing the size of the government. Seeing how big the government has gotten over the past few decades, if I were in their position, I would be scared of it too.

3. Increasing the taxes of the wealthy back to Clinton-era rates is barely going to affect the budget. Yeah, it's going to reduce the deficit by 10% (if we rake in 100 billion in extra taxes for the wealthy a year), but other 90% is spending. Even if the government took ALL of Bill Gates and Warren Buffet's money combined, the government would still only pay it's bills for one month.

4. I think we should raise taxes on the wealthy just to prove that they won't be a cure-all problem. Liberals in Congress keep saying a tax increase on the wealthy will fix the country without having to make serious spending cuts. Call their bluff.

4. People aren't factoring in deductions. Deductions favor wealthy people. Conservatives have been using this as a form of welfare. Yes, people do get to keep more of what that made, but some people get to keep more of what they make than others, and that's not fair in my eyes.

 

[telecomguy]

1. Higher taxes on jduster really do no harm (to me).
2. Republicans are ideologically defending tax cuts for the rich because they believe in everyones freedom to strive for success and don't want to be penalized when they work their butts off and finally do succeed.
3. Not even going to read the rest of that post.

 

[jduster]

Republicans are ideologically defending tax cuts for the rich because they believe in everyones freedom to strive for success and don't want to be penalized when they work their butts off and finally do succeed.

I didn't know people worked their butts off by earning massive inheritances, kicking back on government subsidies and trading derivatives.

And please prove (with empirical evidence) that the Clinton era tax cuts have created disincentives for people to be financially successful.

 

[D H]

I have been hearing talks about this along the aisle where one person says that the rich need to pay their fair share and another saying, no the rich do pay their fair share as it is.

Am I not getting something?

What you're not getting is that "fairness" is an elusive concept. A couple of questions to which I don't quite have the answers:

- What, exactly, makes one tax system more "fair" than another? I have a bit of a hard time seeing any tax system as being fair. Taxes, while absolutely essential, are inherently unfair. Taxation is essentially legalized robbery.

- What is it with "fairness" that makes it a good metric? Minimizing unfairness is, to me, a better metric than is maximizing fairness.

 

[telecomguy]

I didn't know people worked their butts off by earning massive inheritances, kicking back on government subsidies and trading derivatives.

And please prove (with empirical evidence) that the Clinton era tax cuts have created disincentives for people to be financially successful.

If I choose to work my butt off and leave the fruits of my work to my children, what makes you think you deserve to be mentioned in my will? You already got your part when I paid my taxes.

I'm not saying tax cuts are disincentives so I'm good with that.. I believe that capital gains rate reduction was from 28% to 20%. I say we do it again and take it to 12%...

 

[D H]

If I choose to work my butt off and leave the fruits of my work to my children, what makes you think you deserve to be mentioned in my will? You already got your part when I paid my taxes.

To the left, the government obviously did not get enough. That's why we have estate taxes.

I'm not saying tax cuts are disincentives so I'm good with that.. I believe that capital gains rate reduction was from 28% to 20%. I say we do it again and take it to 12%...

To the left again, that cut was quite "unfair". What say we undo it, and then undo it again and take it to 56%?If you think I'm picking on you, you're right. I am picking on you. I'll pick on anyone who says that the tax system should be so and so without any justification for why they should be that way. It's bad enough when opposing sides take radically different points of view on how the tax system should be structured based on some weakly defined concept of fairness. A fiat "let's take it to 12%" (or my 56%) with no justification whatsoever is far worse.

 

[telecomguy]

Thanks for clarifying. I honestly had no idea you were picking on me. Thought you were agreeing that the left just wants something for nothing and that raising taxes to rival France is absurd and self-destructive.

 

[Highspeed]

Here's a question for all...
Why should the rich pay more than anyone else in taxes?
BUT, before you answer, there is a catch...your answer cannot in any way mention that they 'can afford it', 'have more', or in any way imply that it's strictly because of their financial status.

Think about it, and enlighten me; at the federal level, what services do the rich use more than those with less, that would justify them being charged more to live and prosper in the same country?

 

[russ_watters]

Absolute taxes (for example, $5000 a person would be equal) must be progressive otherwise there would never be enough money to run the government. Tax rates don't necessarily need to be, but most people are of the opinion that the rates should be progressive to reduce inequality/allow for redistribution.

Think about it, and enlighten me; at the federal level, what services do the rich use more than those with less, that would justify them being charged more to live and prosper in the same country?

As I said in the first part, it isn't possible for people to pay equal tax $ because the poor don't have enough money to do that. You wouldn't be able to fund the government that way. I suppose you could have a separate bracket for the poor and a flat $ tax for everyone else, though. But whether one likes it or not, a lot of our tax dollars go to paying social programs which by design are re-distributive. And if you're going to re-distribute the easiest way is simply via progressive tax rates.

 

[Locrian]

Here's a question for all...
Why should the rich pay more than anyone else in taxes?
BUT, before you answer, there is a catch...your answer cannot in any way mention that they 'can afford it', 'have more', or in any way imply that it's strictly because of their financial status.

So, you're asking people to explain why taxes depend on a person's financial means without referencing their financial means?

You can't even repeat your question and do that.

 

[Locrian]

The answer, by the way, is marginal utility.

 

[Evo]

Here's a question for all...
Why should the rich pay more than anyone else in taxes?
BUT, before you answer, there is a catch...your answer cannot in any way mention that they 'can afford it', 'have more', or in any way imply that it's strictly because of their financial status.

Think about it, and enlighten me; at the federal level, what services do the rich use more than those with less, that would justify them being charged more to live and prosper in the same country?

You are making the false assumption that being in a higher tax bracket means that they actually pay those taxes and don't have deducations/shelters that reduce their tax rate significantly, many rich people pay very low taxes, lower than many "lower middle class" that can't itemize, IMO. I'm going by personal experience, family members, etc... I know what everyone makes and the taxes we pay.

 

[D H]

Here's a question for all...
Why should the rich pay more than anyone else in taxes?
BUT, before you answer, there is a catch...your answer cannot in any way mention that they 'can afford it', 'have more', or in any way imply that it's strictly because of their financial status.

Think about it, and enlighten me; at the federal level, what services do the rich use more than those with less, that would justify them being charged more to live and prosper in the same country?

First let's look at the non-welfare aspects of government. Almost everyone benefits from a properly functioning government. Public roads, public schools, the rule of law, etc. return a net benefit to society. Who benefits more? Is the benefit proportional / disproportional to income? To wealth? I have my suspicions, but to be honest I don't know. I've yet to see one dispassionate study that analyzes taxation and benefits properly. What I have seen bogus studies by partisan authors (from the left and right) that somewhere along the line assume the very point they are trying to make.

Next let's look at the welfare aspects of government. The intent is redistributive, so a progressive tax goes right along with the concept of welfare.I'm going to turn your question around on you. What makes you think that a flat tax on income is "fair"? Don't make an a priori assumption that a flat tax is obviously fair to prove your point. Why not, for example, a flat tax on accumulated wealth (which would be quite progressive), or a flat tax on consumer spending (which would be somewhat regressive)?

 

[Ryan_m_b]

Here's a question for all...
Why should the rich pay more than anyone else in taxes?
BUT, before you answer, there is a catch...your answer cannot in any way mention that they 'can afford it', 'have more', or in any way imply that it's strictly because of their financial status.

Think about it, and enlighten me; at the federal level, what services do the rich use more than those with less, that would justify them being charged more to live and prosper in the same country?

Two points:

1) marginal decrease in utility of money means that taking 10% of Alice's $100,000 matters far less than taking 10% of Bob's $1000

2) even if an individual doesn't directly use a government service they can still benefit indirectly. Simple example but a privately educated businessman still benefits from a social education service by having an educated population to hire from.

 

[russ_watters]

You are making the false assumption that being in a higher tax bracket means that they actually pay those taxes and don't have deducations/shelters that reduce their tax rate significantly, many rich people pay very low taxes, lower than many "lower middle class" that can't itemize, IMO. I'm going by personal experience, family members, etc... I know what everyone makes and the taxes we pay.

The way you put that is odd: EVERYONE has deductions that reduce their effective tax rate, but overall/on average the effective rates are fairly smoothly progressive until you hit about the top 1%. And every bracket also includes "many" people who deviate substantially from the average.

 

[russ_watters]

2) even if an individual doesn't directly use a government service they can still benefit indirectly. Simple example but a privately educated businessman still benefits from a social education service by having an educated population to hire from.

That's very tough to quantify and even perhaps contrary to point 1: A business owner gets a benefit from a better educated workforce, but the workers themselves also have a personal benefit. I would argue that it is a much bigger deal for the worker than the owner because of marginal utility.

 

[nitsuj]

Here's a question for all...
Why should the rich pay more than anyone else in taxes?
BUT, before you answer, there is a catch...your answer cannot in any way mention that they 'can afford it', 'have more', or in any way imply that it's strictly because of their financial status.

Think about it, and enlighten me; at the federal level, what services do the rich use more than those with less, that would justify them being charged more to live and prosper in the same country?

Absolutely laws and those who enforce them.

& public education. Not directly as Ryan_m_b mentioned.

what ever the gov' does with respect to improving our economy via international trade agreements.

Oh and roads / rail.

 

[russ_watters]

Roads and rail are tough because their use does not correlate well with income. For example, I make a lot more than a truck driver despite getting only a tiny fraction of the road use benefit.

And for business, compare Netflix and Blockbuster!

 

[mheslep]

...

2) even if an individual doesn't directly use a government service they can still benefit indirectly. Simple example but a privately educated businessman still benefits from a social education service by having an educated population to hire from.

That's very tough to quantify and even perhaps contrary to point 1: A business owner gets a benefit from a better educated workforce, but the workers themselves also have a personal benefit. I would argue that it is a much bigger deal for the worker than the owner because of marginal utility.

I'll add that many in the US, perhaps most, have some opportunity to start or run a business and take advantage of societal aspects already in place such as education, infrastructure, etc. But only a relative few manage to even try and take on that risk. Whatever the reason or motivation for doing so, starting/running the business, it should be encouraged. To single them out because of the greater income earned from that risk (which may well be short term BTW) is to punish that which should be encouraged.

 

[russ_watters]

Well, sure, that's just a restatement/specific example of the primary downside to progressive taxation and more generally, redistribution.

 

[nitsuj]

Roads and rail are tough because their use does not correlate well with income.

I work for a mill. So for sure we rely on roads & rail (single sale transactions are in tons). Our road use would correlate very well to our income, in fact a direct cause/effect.

And that's for a business that supplies food inputs.

 

[russ_watters]

Right: one business. Not the entire country.

 

[nitsuj]

Right: one business. Not the entire country.

Oh!

 

[nitsuj]

And for business, compare Netflix and Blockbuster!

Right, one example, not the entire economy.


(what a fantastic point)

 

[russ_watters]

Right, one example, not the entire economy.

(what a fantastic point)

Um...I don't think you followed the discussion very well:

1. First, you claimed that the rich use roads and rail more than the poor.

2. I provided three examples (that should also help you think of lots more along the same lines...), including two companies with similar services which have vastly different transportation needs, that show that your claimed correlation fits fairly poorly.

3. Then you provided an example where the claimed correlation fits. The problem is, when two things don't have any correlation, you will find lots of examples that do and lots that don't appear to fit. That's what you would expect with something that's random and not correlated. All that proves is that there is no negative correlation (the poor use roads and rail more)...

4. ...which I never claimed. I claimed there was little or no(poor) correlation.

So you see, your example doesn't really help any and your shot at mine misses the point.

 

[ParticleGrl]

Roads and rail are tough because their use does not correlate well with income. For example, I make a lot more than a truck driver despite getting only a tiny fraction of the road use benefit.

This statement is actually really hard to quantify, and (to me at least) doesn't seem likely to be true- sure, the trucker spends a lot of time driving, but presumably, your higher income means you purchase more goods that have to be shipped. Also, I'm not sure to task with "use-of-the-road" for a trucker driver- it seems like the owner of the trucking company derives more benefit from the roads than his employees, despite never driving the routes.

Since consumption of goods scales with income, and more exotic goods will often be shipped farther, I might suggest that roads enable more consumption for the higher end of the income distribution than the lower end, thus creating a fairly strong correlation between income and road-use.

 

[mathwonk]

I think anyone who makes more than I do should have to pay a tax to physics forum to post.

 

[russ_watters]

This statement is actually really hard to quantify, and (to me at least) doesn't seem likely to be true- sure, the trucker spends a lot of time driving, but presumably, your higher income means you purchase more goods that have to be shipped.

You're mixing up earning and spending.

Also, I'm not sure to task with "use-of-the-road" for a trucker driver- it seems like the owner of the trucking company derives more benefit from the roads than his employees, despite never driving the routes.

Many truck drivers are sole proprietors/contractors, but regardless, Ryan's marginal utility concept applies here too: even if the company takes more $ profit from the shipment than the driver (I doubt it, but we'll go with it*), the driver gets a much bigger benefit for what they get paid.

*You're assuming the company's profit is a larger number than the driver's pay, which is almost certainly wrong.

Since consumption of goods scales with income, and more exotic goods will often be shipped farther, I might suggest that roads enable more consumption for the higher end of the income distribution than the lower end, thus creating a fairly strong correlation between income and road-use.

Again, looking at the consumption is backwards. If I buy something off the internet and get it shipped via UPS, I'm the one paying the shipping cost, not getting paid by the shipping cost.

Pulling guestimates out of the air: Perhaps 1% of my income gets spent on shipping, but for someone who works at UPS, 100% of their income is earned from shipping. Other side of the coin: 1% of their income is spent on shipping while only 5% of my income is earned from "shipping" (myself to meetings).

I wanted to look at earnings only, but even if you include the spending, the earnings are so much larger of an issue that the spending really is irrelevant.

You also appear to be trying to have it both ways here, considering both sides of the coin (earning and spending) to benefit the richer, then flip-flopping them it when the direction is reversed. (If I earn money from shipping, I get the benefit, but if I spend money on shipping the benefit is still attributed to me).

[edit] And still I think this is all irrelevant anyway. We don't have to compare rich to not so rich, we can compare rich to rich and not so rich to not so rich. We'll find examples abound that show no correlation. I gave an example of two identical service companies that get vastly different benefits from shipping. On the other end, if we take a truck driver and trash collector at low-middle income and compare them to, say, janitors and food service workers who spend none of their time on the roads, we see vast differences there as well.

 

[ParticleGrl]

You're mixing up earning and spending.

No, I'm suggesting that both producers and consumers BENEFIT from the existence of the road network. In fact, consumption is a more direct measure of utility than production- and utility is what we really want to measure when we say someone benefits from something.

*You're assuming the company's profit is a larger number than the driver's pay, which is almost certainly wrong.

No, I'm assuming the salary of the manager/owner of a large trucking company is larger than the salary of the driver (which is almost certainly true). Neither would have their job without the road network.

You also appear to be trying to have it both ways here, considering both sides of the coin (earning and spending) to benefit the richer, then flip-flopping them it when the direction is reversed. (If I earn money from shipping, I get the benefit, but if I spend money on shipping the benefit is still attributed to me).

Yes, both producers and consumers derive utility from the existence of roads. Economics/utility is not necessarily a 0 sum game. In a competitive market, all transactions increase (or at least don't decrease) utility for both parties- its the backbone of the welfare theorems.

 

[nitsuj]

Um...I don't think you followed the discussion very well:

1. First, you claimed that the rich use roads and rail more than the poor.

No I haven't followed this discussion very well.

Here I thought we were discussing benefit, not use.

 

[nitsuj]

You're mixing up earning and spending. Many truck drivers are sole proprietors/contractors, but regardless, Ryan's marginal utility concept applies here too: even if the company takes more $ profit from the shipment than the driver (I doubt it, but we'll go with it*), the driver gets a much bigger benefit for what they get paid.

*You're assuming the company's profit is a larger number than the driver's pay, which is almost certainly wrong.
Again, looking at the consumption is backwards. If I buy something off the internet and get it shipped via UPS, I'm the one paying the shipping cost, not getting paid by the shipping cost.

Pulling guestimates out of the air: Perhaps 1% of my income gets spent on shipping, but for someone who works at UPS, 100% of their income is earned from shipping. Other side of the coin: 1% of their income is spent on shipping while only 5% of my income is earned from "shipping" (myself to meetings).

I wanted to look at earnings only, but even if you include the spending, the earnings are so much larger of an issue that the spending really is irrelevant.

You also appear to be trying to have it both ways here, considering both sides of the coin (earning and spending) to benefit the richer, then flip-flopping them it when the direction is reversed. (If I earn money from shipping, I get the benefit, but if I spend money on shipping the benefit is still attributed to me).

[edit] And still I think this is all irrelevant anyway. We don't have to compare rich to not so rich, we can compare rich to rich and not so rich to not so rich. We'll find examples abound that show no correlation. I gave an example of two identical service companies that get vastly different benefits from shipping. On the other end, if we take a truck driver and trash collector at low-middle income and compare them to, say, janitors and food service workers who spend none of their time on the roads, we see vast differences there as well.

purely by this "utility concept" the poorer benefit more than the rich. Don't need all that other "thought".