History US tax rate history - A return to the glory days

[Char. Limit]

Here's a properly framed question:

The people refused to pay for the bridge. Never mind what options we COULD have given them, they were given two options, pay for it with additional money or don't. What should happen to the bridge now?

My answer would be "shut it down". Yours?

 

[WhoWee]

Here's a properly framed question:

The people refused to pay for the bridge. Never mind what options we COULD have given them, they were given two options, pay for it with additional money or don't. What should happen to the bridge now?

My answer would be "shut it down". Yours?

Sell it to someone who will make it a toll road.

 

[russ_watters]

Here's a properly framed question:

The people refused to pay for the bridge. Never mind what options we COULD have given them, they were given two options, pay for it with additional money or don't. What should happen to the bridge now?

My answer would be "shut it down". Yours?

My answer is: ask me a fair question or I won't give you any money and I won't vote for you next time you come up for re-election.

 

[CAC1001]

It's quite predictable how these threads degrade, and it would be funny, if the arguments were not so inane and illogical.

Example: My nearest neighbors are tea-party supporters. He is now retired, but has never made more than $40K in a year, since he worked low-skill jobs in a tannery. His wife works a seasonal job, and they have her elderly mother dependent on them, so essentially, they pay no income taxes. Their son works only seasonal part-time jobs and his wife is an aide at the local hospital, plus they have two very young children to claim as dependents, so they pay no income taxes, either.

In contrast, my wife and I own more property than either of them, so we pay more property taxes, ~50% of which goes to pay for the public school system that educates the two little kids. How can these Tea-Partiers be so fearful of rolling back Bush tax cuts for the wealthiest 2% if they can never be effected by the roll-back?

Because maybe they are against it on principle? One thing I don't get about many on the Left is they accuse the Right of being "selfish" and "voting for their own interest," but then they rail when lower-income people on the Right are against raising taxes on higher-earners. Not everyone votes according to how something will affect themselves, certain people do vote according to principle. These same Left, who think of themselves as "selfless" have no problem on voting for tax increases on people aside from themselves it seems.

Lies and distortions from the right, because these people can repeat a couple of slogans, but can't logically explain how they could possibly be effected by rolling back Bush tax cuts on the top 2%.

They could be affected if some of those top 2% are small businesses that pay those rates, and might end up having to lay off some people. However, the two main reasons I would think of for being against such increases are:

1) Principle. There's a saying that the politician who promises to rob Peter to pay Paul can always depend on the support of Paul. But sometimes Paul is principled.

2) Oftentimes, if the government increases revenues, they'll just increase spending even further. So many people are against any tax increase unless there would be a guarantee that the government would work to reduce spending or keep it controlled.

Still, it's pretty sad to see people at the bottom of the economic ladder carrying water for the wealthy on the far right, based not on rational self-interest, but ideology.

Yes, how DARE people vote on principle as opposed to strictly their own self-interest. I also find it hilarious to see a left-leaning guy railing about people not voting for their self-interest!

The US cannot hope to grow its way out of these huge deficits by handing more tax cuts to corporations and wealthy individuals.

Arguing to not increase taxes is not the same as arguing for more taxes. IMO, we need to increase taxes on the poor and middle-income, not the "rich," because too many of the poor and middle-income pay zero federal income taxes right now.

Trickle-down is a farce.

As said before, there is no such thing.

Sadly, the same crowd that you see at rallies with "No Socialized Medicine" signs is also well-dotted with "Hands off My Medicare" signs, so although retirees seem to love Medicare, they think that government can't be trusted to provide an affordable insurance option for the masses. Disconnect, anyone?

They're right, because Medicare is unsustainable. If we try applying it to the masses, government rationing will result.

And yes, my neighbors have the "taxes=theft" slogan down pat, even though the income tax credits that they get more than erase any tax burden and in fact result in checks for money that they never paid in the first place. It's pretty sad.

Not really, as they're just stating a fact. The fact that they may not pay any federal income taxes due to the laws that have been passed by the federal government doesn't mean they can't support the argument that taxes equal a form of theft.

As long as US citizens are ill-educated and gullible, they will be susceptible to jingoism and posturing of politicians.

It is high time to simplify the tax code, and move to a more progressive system, in which high-income earners pay more in income taxes, and low-income people are not nailed with higher and higher sales taxes (a national sales tax is Herman Cain's favorite solution).

Two things:

1) You just said that many in the middle and lower incomes pay no federal taxes. Now you do a 180 and claim they are being made to pay more and more??

2) Herman Cain supports the Fair Tax, which would eliminate the federal income taxes, and has a way of providing a subsidy to the poorest who would struggle due to the sales tax. Nancy pelosi has talked about a VAT tax, if a VAT tax was implemented, who do you think would get hit the most? The poor and middle-income. In addition, all the revenue from the VAT would then make the Democrats clamor for a lot more spending, saying that any attempts to cut the budget are "ridiculous" as we have plenty of money now.

Low-income people have to spend most of what they earn, so they would have to pay the bulk of any national sales tax, reducing their buying power, and that would damage any positive effect that their consumption might otherwise have on our economy.

As said, the Fair Tax takes this into account and has a way of countering that. Also, there would be no more federal taxes.

BTW, during most of the last decade in which I could still work, I was comfortably in the top 2% of earners every year. I doubt that many (if any) of the right-wingers that mob the P&WA threads are in that bracket, so why parrot GOP talking points that are aimed to protect the wealthiest? It seems quite illogical, like British taxpayers fawning over the royal family.

Many on the Right vote according to principle, not self-interest. Many on the Left love to accuse the Right of being "selfish," but then when the Right vote in a completely unselfish manner, the Left rail because it undercuts their plans.

 

[Dale]

Sell it to someone who will make it a toll road.

Good answer.

 

[ParticleGrl]

2) Oftentimes, if the government increases revenues, they'll just increase spending even further. So many people are against any tax increase unless there would be a guarantee that the government would work to reduce spending or keep it controlled.

This is so called 'starve the best' thinking, and I'm not sure its true. After all, when Clinton had a surplus, he paid down the debt by something like 450 billion over the last 4 years of his presidency.

Then Bush came in and said "this surplus will be trouble, because government will just spend it", so he cut taxes. And then spent the surplus anyway. Thus the huge deficits republicans ran for 8 years.

They're right, because Medicare is unsustainable. If we try applying it to the masses, government rationing will result.

First, rationing already occurs- its just private instead of public. Why is it worse when the government says "no" than when your health insurance company says "no?"

Medicare is only unsustainable because healthcare growth is unsustainable in this country. It still provides the service of health care more efficiently than the public sector.

 

[Al68]

First, rationing already occurs- its just private instead of public.

Now that's just silly semantics, it's not rationing in the same sense of the word. That's like saying the U.S. currently has price controls on candy bars- it's just private instead of public. Using the word "rationing" in that way renders it a meaningless concept, or at least a different concept lacking the same significance.

Why is it worse when the government says "no" than when your health insurance company says "no?"

Because the government uses force instead of mutually voluntary agreements. It's like a single huge corporation that not only has a monopoly, but the power to force people to buy their product. My past agreements with insurance companies, via the terms of the policies, was voluntary. I chose the terms and agreed to their price voluntarily after comparing it to their competitors.

This difference between voluntary and involuntary transactions isn't just different because they have greatly different effects, it's the difference between liberty and authoritarianism.

 

[Al68]

Since you love the other graph, let's pull out one that shows that lower taxation does not result in more growth:

No, that graph doesn't show that at all. It at best shows that the effect was not huge relative to the sum of the many other factors, because the difference in overall tax rates wasn't huge. And it should be pointed out that the difference in effective overall tax rates were not near as big as one might be led to believe by the 91%-36% top marginal rate figures. From listening to some people, you'd think the overall effective tax rates changed drastically, and clearly that's not the case, and that's all your graph reflects.

But I'm a little confused about your point here. In post 23, if I understood it correctly, you acknowledged that economic growth is encouraged by lower tax rates, which is just the converse of my claim that higher tax rates discourage economic growth.

That being said, the economy is far too complicated to actually empirically prove what would or wouldn't happen to GDP growth with different tax rates, especially in a forum like this. There are just too many other factors involved to isolate tax rates as a separate variable that way. Common sense, knowledge of basic economics, and logic must be used.

The graph of tax revenues since I presented is far less complicated, and far too consistent regarding Hauser's Law (Fed. tax revenues ~19% since WW2) to dismiss. The obvious conclusion is that government must limit spending to less than ~19.5% of GDP to remain solvent in the long term, regardless of tax rates. While it's beyond my comprehension why any American could think that's not far more than enough private wealth for the federal government alone to confiscate, the fact that they won't get more than that is reality, not a political viewpoint.

 

[Al68]

That is how the early American economy tended to perform. Certain areas of the country would go through enormous booms, then depressions, then booms again, then depressions. However, I think that was back in the days before we had a national monetary policy.

We had a monetary policy: the dollar was defined as ~1/20 ounce of gold. A dollar was a unit of a commodity (gold/silver).

Government's role was to shape those commodities into flat round pieces and stamp them to guarantee their content, and return them to whoever deposited the raw bullion with the mint, minus a service fee, or more commonly just exchange them for raw bullion for a fee.

And the U.S. government did not have a monopoly on this service: private mints were plentiful (although many were not trusted, so their coins traded at a significant discount). In fact, gold dollars were minted privately for years before government decided to get in on the action.

 

[hillzagold]

Arguing to not increase taxes is not the same as arguing for more taxes. IMO, we need to increase taxes on the poor and middle-income, not the "rich," because too many of the poor and middle-income pay zero federal income taxes right now.

That's...an odd line of thought. As long as we're being anecdotal and then making sweeping generalizations, didn't GM also pay zero money on their taxes? The difference being that plenty of major companies are making record profits, while the poor and middle-income are stagnating. There's a constant argument that helping the rich helps the whole country, and that helping the rich doesn't help the whole country. Am I missing something, or have the past 10 or so years been supporting the latter notion.

Because the government uses force instead of mutually voluntary agreements. It's like a single huge corporation that not only has a monopoly, but the power to force people to buy their product. My past agreements with insurance companies, via the terms of the policies, was voluntary. I chose the terms and agreed to their price voluntarily after comparing it to their competitors.

Good for you, bad for me. When health insurance has, by every single account ever, been deemed a massive problem, it's not just a private matter between you and our insurance. Bogging down the insurance company is akin to blowing cigarette smoke right in my face.

 

[mege]

That's...an odd line of thought. As long as we're being anecdotal and then making sweeping generalizations, didn't GM also pay zero money on their taxes? The difference being that plenty of major companies are making record profits, while the poor and middle-income are stagnating. There's a constant argument that helping the rich helps the whole country, and that helping the rich doesn't help the whole country. Am I missing something, or have the past 10 or so years been supporting the latter notion.

Good for you, bad for me. When health insurance has, by every single account ever, been deemed a massive problem, it's not just a private matter between you and our insurance. Bogging down the insurance company is akin to blowing cigarette smoke right in my face.

What happens when the rich doesn't make any money? (high end earners are also more volatile earners) http://online.wsj.com/article/SB20001424052748704604704576220491592684626.html

Remember we have an INCOME tax, not an ASSET tax. There's a huge difference. 'The rich' can sit on the bank of money that they've safely put away even when making zero. Unfortunately, because of the government promotion of housing, the 50k/yr earner whom didn't save smartly to start is losing out on their 200k house that they could barely afford. How is that 'the rich's' fault? If anything, the richman's savings (which he has his 250k savings deposited) gave the bank the assets necessary to even loan for the subprime poorman to start.

Re: your class stagnation argument - how often do you hear of someone being poorer than their parents? barely ever, but you often hear stories about someone being far richer than their parents.

Ultimately, though, we're spending way too much as a country and getting back way too little. Our medicare/medicaid expenses (by % of GDP) are higher than the government provided health care costs of the Scandanavian countries (again, by %). But medicare/aid only covers 1/2 of the US at some level and at a far lower level of service (less procedures are covered) than even the basic support that Sweden provides. So, at best we're 1/2 as efficient in administering our support-net of healthcare as some countries are at administering their nationalized system. (I am not an advocate of single-payer for the US, see the efficiency of medicare/aid and the reduced quality abroad). Before we think about raising taxes, we need to take honest and hard looks at WHY some of these policies are factors less efficient than more comprehensive international counterparts.

 

[CAC1001]

This is so called 'starve the best' thinking, and I'm not sure its true. After all, when Clinton had a surplus, he paid down the debt by something like 450 billion over the last 4 years of his presidency.

Yes, but remember Clinton had a fairly conservative Republican Congress, a smaller defense budget because the Cold War was over, revenues were increased via a capital gains tax rate cut (at least in the short term), and there was the Dot Com bubble.

Then Bush came in and said "this surplus will be trouble, because government will just spend it", so he cut taxes. And then spent the surplus anyway. Thus the huge deficits republicans ran for 8 years.

President Bush's tax cuts were meant to try and stimulate the economy from the recession at the time, however I think this illustrates my point---the Bush tax cuts the Republicans claimed would increase revenues. But yet they still went and spent excessively. It seems when either party thinks it can increase revenues, they want to spend the money.

Medicare is only unsustainable because healthcare growth is unsustainable in this country.

Is it really? Not saying you're wrong, but I would think Americans are healthier today than before because the average life expectancy keeps going up. Also, Medicare being a government-run program, I would think it is probably subject to the problems of most government programs in that the bureaucrats who run it are probably given an amount of money that it is their job to spend every year so that they can then request more money the next time around (that is one of the reasons government programs tend to always grow and grow).

It still provides the service of health care more efficiently than the public sector.

I think it depends on how one looks at it. I know the single-payer advocates say that it has lower administrative costs than private insurers (Medicare's administrative costs are a lower percentage of total costs), but the counter to that is that Medicare's administrative costs are actually higher than private insurers, but appear lower, because its administrative costs are spread over a larger base of total healthcare costs.

The advocates versus the critics have arguments back and forth on this, here is one link: http://www.stat.columbia.edu/~cook/movabletype/archives/2009/07/does_medicare_a.html
What makes me skeptical of government running healthcare more efficiently than the private-sector is that this same argument has been made for why government should run every industry, but we know it doesn't work in practice.

 

[mege]

Is it really? Not saying you're wrong, but I would think Americans are healthier today than before because the average life expectancy keeps going up. Also, Medicare being a government-run program, I would think it is probably subject to the problems of most government programs in that the bureaucrats who run it are probably given an amount of money that it is their job to spend every year so that they can then request more money the next time around (that is one of the reasons government programs tend to always grow and grow).



I think it depends on how one looks at it. I know the single-payer advocates say that it has lower administrative costs than private insurers (Medicare's administrative costs are a lower percentage of total costs), but the counter to that is that Medicare's administrative costs are actually higher than private insurers, but appear lower, because its administrative costs are spread over a larger base of total healthcare costs.

The advocates versus the critics have arguments back and forth on this, here is one link: http://www.stat.columbia.edu/~cook/movabletype/archives/2009/07/does_medicare_a.html
What makes me skeptical of government running healthcare more efficiently than the private-sector is that this same argument has been made for why government should run every industry, but we know it doesn't work in practice.

It can be argued, also, that the reason private insurance costs are rising is because of the involvement of Medicare/aid in the private sector. The price locks that medicare/aid implement, and the skewed support for various pharmacuticals, disrupt the natural flow of costs associated with healthcare (in a bad way).

 

[CAC1001]

That's...an odd line of thought. As long as we're being anecdotal and then making sweeping generalizations,

According to the IRs, about 40% to 50% pay no federal income taxes. I'm just saying apply some taxes to those people.

didn't GM also pay zero money on their taxes?

Close the loopholes so they pay taxes too.

The difference being that plenty of major companies are making record profits while the poor and middle-income are stagnating.

The poor and middle-income aren't stagnating.

There's a constant argument that helping the rich helps the whole country, and that helping the rich doesn't help the whole country. Am I missing something, or have the past 10 or so years been supporting the latter notion.

The past ten years are how we got to so many in the population not paying federal income tax and more of the tax burden being moved onto the higher earners. The higher earners did benefit as well, but so did the lower-earners.

 

[Amp1]

...The higher earners did benefit as well, but so did the lower-earners

Then why did the disparity between the 2% and the other 98% grow, I guess that some must have benefited outrageously more than others?

Another thought, perhaps the 40 or 50% that pay no tax earns little or no income?

 

[WhoWee]

Then why did the disparity between the 2% and the other 98% grow, I guess that some must have benefited outrageously more than others?

Another thought, perhaps the 40 or 50% that pay no tax earns little or no income?

Let's not forget the cornerstone of Government assistance - "need". The more you earn - the less you're "entitled" to (there are of course other possible qualifications).

 

[WhoWee]

First, rationing already occurs- its just private instead of public. Why is it worse when the government says "no" than when your health insurance company says "no?"

Medicare is only unsustainable because healthcare growth is unsustainable in this country. It still provides the service of health care more efficiently than the public sector.

These health care debates are becoming tiresome - IMO. Please (at minimum) acknowledge that Government has it's hands all over health care. The Government sets the rules. This link provides a quick peek as to how involved the Government is in this very narrow segment:

http://www.asha.org/practice/reimbursement/medicare/feeschedule/

 

[WhoWee]

These health care debates are becoming tiresome - IMO. Please (at minimum) acknowledge that Government has it's hands all over health care. The Government sets the rules. This link provides a quick peek as to how involved the Government is in this very narrow segment:

http://www.asha.org/practice/reimbursement/medicare/feeschedule/

"December 30, 2010
CMS Releases Updated 2011 Medicare Physician Fee Schedule
On Wednesday, December 29, 2010, CMS released Transmittal 828 (Pub 100-20), Emergency Update to the CY 2011 Medicare Physician Fee Schedule (MPFS) Database [PDF]. The revision for the MPFS follows the enactment of two major laws: (1) the Physician Payment and Therapy Relief Act of 2010, signed by President Obama on November 30, 2010, and (2) the Medicare and Medicaid Extenders Act of 2011, signed by the President on December 15, 2010. The CMS publication includes a new calendar year conversion factor (CF) of $33.9764, an increase of 33.1% from the initially published 2011 CF.

The relative value unit (RVU) files were also updated and the speech-language evaluation (CPT 92506) practice expense RVU was raised from 2.26 to 4.01. The new total RVU multiplied by the revised CF brings the national fee from $80.90 to $167.16 (practitioners need to determine their local rates). In November 2010, ASHA discovered that CMS had lowered the 2011 practice expense RVU for 92506 in error. ASHA contacted CMS and they agreed that a correction was necessary.

The Physician Payment and Therapy Relief Act of 2010 (PPTRA) requires a new reduced therapy fee schedule amount (20% reduction on the practice expense (PE) component of payment) be incorporated into the MPFS payment file. Per this Act, CMS will apply the CY 2011 MPFS Final Rule policy of a 25% multiple procedure payment reduction (MPPR) on the PE component of payment for therapy services furnished in hospital outpatient departments and other facility settings. A 20% reduction will apply to therapy services furnished in clinicians' offices and other settings that are paid under section 1848 of the Act. The daily MPPR does not apply to the therapy procedure with the highest practice expense. This change is detailed in recently released CR 7050, Transmittal 826. The PPTRA did not make the therapy MPPR budget neutral under the PFS and, therefore, the redistribution to the PE RVUs for other services that would otherwise have occurred will not take place.

The transmittal reiterates the extension of the exceptions process for Medicare therapy caps through December 31, 2011, as signed into law by President Obama on December 15, 2010, under the Medicare and Medicaid Extenders Act of 2010. Speech-language pathologists can continue to submit claims with the KX modifier, when services are medically necessary.

The updated 2011 Medicare Physician Fee Schedule for Audiologists and the 2011 Medicare Physician Fee Schedule for Speech-Langauge Pathologists are found on ASHA's Medicare Fee Schedule Web page.

Please contact reimbursement@asha.org with any questions."

Is there even a mention of private sector influence in these links?

 

[OmCheeto]

Ok, let me try again another way:

They were asked in the referendum something to the effect of:

--------------------------------------------------------------------
Would you like to pay an additional $5 a year in taxes to fix this bridge?
A. Yes
B. No
--------------------------------------------------------------------

You are looking at the question narrowly and concluding from a "no" answer that such people aren't willing to spend $5 to fix a bridge. But that isn't necessarily true. What irritates people like me about these questions is they are narrowly focused, often precisely for that reason - to force people into a position they don't want to be in. What I would prefer is if the question had a third option:

C. Instead of paying an additional $5 a year in taxes, take $5 from the paving and snow plowing fund to pay for the bridge repair.

That third option is a viable option. The lack of that option on the ballot could irritate me enough to answer "No" if it is left off, but clearly someone who would select option "C" is willing to pay $5 to fix the bridge. He's just not willing to pay $5 more to fix the bridge.

The problem here, as I see it, is that you aren't recognizing that Republicans see an option "C" that they aren't being offered. Frankly, I think that's the biggest piece of the reason we're in the current mess: we're allowing our politicians to ask us flawed questions and as a result we're giving contradictory answers:

-If you ask the public if it wants a tax cut, it will say yes.
-If you ask the public if it wants more services, it will say yes.

Politicians ask these questions, get two "yes" answers, and thus: debt. Instead, they should ask:

-Do you want a tax cut or more services.

Really, we should be demanding that they offer the question in that form. Better yet, we should be demanding that they balance the budget. If we demand that they balance the budget, they will be forced to characterize their questions in proper terms.
You missed my point. What I'm saying is that if they had asked the question properly, they wouldn't have to re-ask it, it would have passed the first time.
I was late for work again too, no worries...

Unfortunately, you can't predict the cost of a war, so you can't ask people ahead of time for financial authorization. And if you ask them halfway through, you may end up turning a victory into a defeat. See: Iraq. If we had suddenly pulled out in 2005, the Middle East would be a much uglier place today than ended up being.

So let's start with the easy ones: let's start with properly framed questions about straightforward budget issues.

And things are getting worse. At least the typical Democrat and Republican mantras of "tax and spend" and "small government, low taxes" could each theoretically lead to a balanced budge. But now the Democrats realize that high taxes don't sell and the Republicans realize that cutting services don't sell, so instead we have 'spend and spend more' and 'big government, low taxes', both of which lead us deeper and deeper into debt.

Well that makes sense. Is that what AI was trying to say?

hmmm...

Until someone publishes a "Plain English" to "English" dictionary, I will never be able to comprehend AI's tangled web of transmutational spaghetti illogic.

I've never paid $1005 for a latte.

Late for work again. Ciao.

 

[Al68]

There's a constant argument that helping the rich helps the whole country, and that helping the rich doesn't help the whole country. Am I missing something, or have the past 10 or so years been supporting the latter notion.

You are missing something. There is no argument for "helping the rich", that's a purposeful mischaracterization of a position by its opponents to stir up hatred. Not a single national politician has such a stated position.

The argument is that confiscating private investment capital from private investors reduces private investment, and therefore negatively impacts private economic growth. It's amazing how a position can go from one that is self-evident to one that sounds absurd just by fraudulently misrepresenting it.

 

[Al68]

Well that makes sense. Is that what AI was trying to say?

hmmm...

Until someone publishes a "Plain English" to "English" dictionary, I will never be able to comprehend AI's tangled web of transmutational spaghetti illogic.

Nice try. I find it hard to believe that you didn't fully know and understand everything Russ just said before you even made the claim that people didn't want to pay "just $5".

Are we to believe your claim was that grossly uninformed instead of fraudulent?

OK, I'll try to make my web of transmutational spaghetti illogic less tangled in the future just in case.

 

[WhoWee]

You are missing something. There is no argument for "helping the rich", that's a purposeful mischaracterization of a position by its opponents to stir up hatred. Not a single national politician has such a stated position.

The argument is that confiscating private investment capital from private investors reduces private investment, and therefore negatively impacts private economic growth. It's amazing how a position can go from one that is self-evident to one that sounds absurd just by fraudulently misrepresenting it.

Have you noticed there are no responses to my post demonstrating how this works?

""If an investor has $1,000,000 to invest in a small business and the bank will loan an additional $1,000,000 to start a business that might provide $500,000 in income for 20 years - is it a good investment - given a 91% tax rate as suggested by the OP?

Would you risk $2,000,000 to earn $45,000 per year - or would you leave your money in passive investments earning the same $45,000 per year?""

Is there ANYONE on PF that would make such an investment decision - to risk $1Million in cash and borrow an additional $1Million (the example doesn't even address the cost of interest) - to earn the same amount that is earned keeping the $1Million cash in the bank?

 

[Al68]

Have you noticed there are no responses to my post demonstrating how this works?

Yep. And more generally, there is an absence of arguments against actual "right-wing" economic positions as a whole.

It's much easier to argue against a strawman position that nobody is arguing for, ie that we should "give to" or "help" the rich, so it will "trickle-down", or similar nonsense.

That's been a pattern nationally for decades, and will be as long as there are sufficient numbers of voters who fall for it.

 

[Char. Limit]

Have you noticed there are no responses to my post demonstrating how this works?

""If an investor has $1,000,000 to invest in a small business and the bank will loan an additional $1,000,000 to start a business that might provide $500,000 in income for 20 years - is it a good investment - given a 91% tax rate as suggested by the OP?

Would you risk $2,000,000 to earn $45,000 per year - or would you leave your money in passive investments earning the same $45,000 per year?""

Is there ANYONE on PF that would make such an investment decision - to risk $1Million in cash and borrow an additional $1Million (the example doesn't even address the cost of interest) - to earn the same amount that is earned keeping the $1Million cash in the bank?

Perhaps it's because the OP never specifically suggested a "91% tax rate".

 

[WhoWee]

Perhaps it's because the OP never specifically suggested a "91% tax rate".

Ivan wrote: (my bold)
"When considering the best path to US solvency, it might be useful to consider the tax rates that helped to build this country.

Back when Kennedy took office, the top marginal tax rate was 91%. Today, it is 35%. "

 

[Char. Limit]

I still don't see a suggestion that we return to that. All I see is a comparison between 1960 and 2011.

 

[WhoWee]

I still don't see a suggestion that we return to that. All I see is a comparison between 1960 and 2011.

This is why I requested Ivan clarify several pages ago. I don't see how this thread is about an obscure bridge either?

Whether on topic or not (?), my example demonstrates why we should not have a 91% tax rate.

 

[ParticleGrl]

President Bush's tax cuts were meant to try and stimulate the economy from the recession at the time

Go back and look at the debates from that election- Bush wanted to "return the surplus to the people."

If an investor has $1,000,000 to invest in a small business and the bank will loan an additional $1,000,000 to start a business that might provide $500,000 in income for 20 years - is it a good investment - given a 91% tax rate as suggested by the OP?

First, less than .1% of small businesses will ever make enough to provide $500,000 a year in income. If you are in the top 10% of small businesses in a good industry, maybe you are pulling $150k a year. Hence, taking out a million dollar loan to start a small business is probably not wise. If you are starting a business that requires large capital on hand (an insurance company, maybe?) then you should look for venture capital to make up this balance. A loan would probably kill you.

That said, let's say you have a history of success and a sure fire business plan. You take out your loan, and are instantly making 500k. Of course its worth it at 91% marginal taxes. Ignoring FICA (the interested reader can crunch those numbers), your total tax liability (assuming .91% for income over 250k) is about 300,000. You still pocket $200,000 a year. Thats a 10% return- and it doesn't include the equity in your business.

You are also (in your scenario) the sole owner of what must be a tremendously successful company (if you can pay yourself 500k a year), which means you can probably sell it for a substantial profit, probably tens of millions, if you chose- which you would pay capital gains on, not income tax. So yes, of course its a good investment.

Your question implies you don't understand what a marginal tax rate is. Also, keep in mind that in 1965 250k was something like 1.5 million now. A marginal tax rate of 0.91 that kicks in at 1.5 million wouldn't cost your small business a dime.

 

[WhoWee]

Go back and look at the debates from that election- Bush wanted to "return the surplus to the people."



First, less than .1% of small businesses will ever make enough to provide $500,000 a year. If you are in the top 10% of small businesses in a good industry, maybe you are pulling $150k a year. Hence, taking out a million dollar loan to start a small business is probably not wise. If you are starting a business that requires large capital on hand (an insurance company, maybe?) then you should look for venture capital to make up this balance. A loan would probably kill you.

That said, let's say you have a history of success and a sure fire business plan. You take out your loan, and are instantly making 500k. Of course its worth it at 91% marginal taxes. Ignoring medicare and FICA (the interested reader can crunch those numbers), your total tax liability (assuming .91% for income over 250k) is about 300,000. You still pocket $200,000 a year.

You are also (in your scenario) the sole owner of what must be a tremendously successful company (if you can pay yourself 500k a year), which means you can probably sell it for a substantial profit, probably tens of millions, if you chose- which you would pay capital gains on, not income tax. So yes, of course its a good investment.

Your question implies you don't understand what a marginal tax rate is.

There are lot's of businesses that are capable of such margins. Custom home builders operating at 35% come to mind. A multi-unit retail franchise (leased property) might achieve the same results.

I provided a VERY specific example - assume the $500k is possible - would YOU risk $1.0 Million cash and a $1.0Million loan - if the tax rate was 91%? Do you even have to think about it at a 35% (or less) tax rate?

 

[ParticleGrl]

I provided a VERY specific example - assume the $500k is possible - would YOU risk $1.0 Million cash and a $1.0Million loan - if the tax rate was 91%? Do you even have to think about it at a 35% (or less) tax rate?

I ran the numbers for you. At a top rate of 91%, you still clear 200k a year. Thats a 10% return and doesn't include the equity in your business. That is a fantastic investment- of course I would.

 

[Al68]

I still don't see a suggestion that we return to that. All I see is a comparison between 1960 and 2011.

You don't think referring to that time as "the glory days" is suggestive of that?

 

[WhoWee]

I ran the numbers for you. At a top rate of 91%, you still clear 200k a year. Thats a 10% return and doesn't include the equity in your business. That is a fantastic investment- of course I would.

Not according to the tax chart Ivan posted - 91% at $400,000 and over.
http://www.taxfoundation.org/publications/show/151.html

 

[turbo]

Not according to the tax chart Ivan posted - 91% at $400,000 and over.
http://www.taxfoundation.org/publications/show/151.html

Does ANYBODY pay their marginal rate? If they do, they ought to fire their accountant. A repeal of the Bush tax-cuts for the top 2% of earners wouldn't impoverish anyone. It wouldn't erase the deficit, but it would help staunch the bleeding.

 

[ParticleGrl]

Not according to the tax chart Ivan posted - 91% at $400,000 and over.
http://www.taxfoundation.org/publications/show/151.html

I used 91% for 250k and over, and 2010 rates for the first 250k.

Remember- tax rates are marginal. If you make 500k, and the 91% bracket is 400k and over, you only pay 91% on 100k of that money.

 

[WhoWee]

I used 91% for 250k and over, and 2010 rates for the first 250k.

Remember- tax rates are marginal. If you make 500k, and the 91% bracket is 400k and over, you only pay 91% on 100k of that money.

The OP suggested we go back to the tax rates when Kennedy was President - I was looking at 1960.

 

[turbo]

The OP suggested we go back to the tax rates when Kennedy was President - I was looking at 1960.

At no time did Ivan say that we had to go back to the Kennedy-era tax rates. Mis-stating his comments do not advance your argument or reflect well on your agenda.

 

[ParticleGrl]

The OP suggested we go back to the tax rates when Kennedy was President - I was looking at 1960.

But then we have the issue of converting from 1960s dollars to 2010 dollars. Adjusting the brackets for inflation, I find that at the 1960s rates, our business owner does a bit better, pocketing 240k, instead of 200k.

Keep in mind, again, that the brackets are marginal. Raising the top rate to 90% doesn't mean people in the top bracket pay 90% of their income in taxes.

 

[turbo]

Keep in mind, again, that the brackets are marginal. Raising the top rate to 90% doesn't mean people in the top bracket pay 90% of their income in taxes.

A little fact that the right is quite happy to obfuscate to scare the ignorant.

 

[russ_watters]

A repeal of the Bush tax-cuts for the top 2% of earners wouldn't impoverish anyone. It wouldn't erase the deficit, but it would help staunch the bleeding.

A repeal of all of them would help even more so why not do that?

 

[turbo]

A repeal of all of them would help even more so why not do that?

Because the people at the top have benefited disproportionately from the Bush cuts and the policies that allowed Wall Street and banks to wreck our economy and destroy jobs. It would be a good idea to keep some money in the hands of lower wage-earners who spend most of their income. Their consumerism is the driving force in our economy, and you can't create new jobs without a sustained short-term demand for goods and services.

Would repealing the Bush tax cuts for the top 2% help cut the deficit? I don't think so, but it surely would help keep it from growing so quickly. IIR, the estimate by the CBO was 700-800 billion over the next decade, so that's not peanuts. Start scaling back the military, the off-budget wars, and other unproductive spending like ethanol subsidies, and other mega agri-subsidies to Monsanto, ADM, etc, and we might start to see a return to lower deficits.

 

[Vanadium 50]

I still don't see a suggestion that we return to that. All I see is a comparison between 1960 and 2011.

Look at the title Ivan gave this thread.

 

[Char. Limit]

Look at the title Ivan gave this thread.

Fine, whatever. Ivan apparently supported a 91% tax rate.

Note: I'm still laughing.

 

[turbo]

Fine, whatever. Ivan apparently supported a 91% tax rate.

Note: I'm still laughing.

Ivan was (IMO) referring to the boom-days of our generation (late '50's, and early '60's) when the economy was on fire, and when poor people could dream of sending at least some of their kids to college. My parents helped as much as they could, and I still had to work pretty much all the time when I was wasn't in class, studying, etc. I was the first kid on either side of my large extended family to attend college, and my 2-years younger cousin was the 2nd. My 4-years younger cousin was the 3rd. I spent a decade or so as a well-paid troubleshooter/consultant in the pulp and paper industry, cousin #2 was the lead project engineer on the last Hubble upgrade mission, and cousin #3 is a high-ranking corporate officer in a multi-national pulp and paper corporation. Not bad for 3 kids whose mothers stayed at home and whose fathers scrambled at low-wage jobs to keep us fed. Those were not "glory days" for most people, but at least there was opportunity.

 

[WhoWee]

At no time did Ivan say that we had to go back to the Kennedy-era tax rates. Mis-stating his comments do not advance your argument or reflect well on your agenda.

What "agenda"? Enough already! (my bolding)

The title of this thread is:
"A return to the glory days - US tax rate history"

Next, Ivan posted this:

"When considering the best path to US solvency, it might be useful to consider the tax rates that helped to build this country.

Back when Kennedy took office, the top marginal tax rate was 91%. Today, it is 35%.
http://www.taxfoundation.org/publications/show/151.html

It appears to me that the incessant drive towards lower taxation, which imo has helped to bring the US to its financial knees, is unprecedented in the modern context."

Where is the confusion about what Ivan said - don't see anything here about some obscure bridge either?

As for your other little comment turbo:
"A little fact that the right is quite happy to obfuscate to scare the ignorant."

Why don't you explain it a little better?

 

[russ_watters]

Because the people at the top have benefited disproportionately from the Bush cuts and the policies that allowed Wall Street and banks to wreck our economy and destroy jobs. It would be a good idea to keep some money in the hands of lower wage-earners who spend most of their income. Their consumerism is the driving force in our economy, and you can't create new jobs without a sustained short-term demand for goods and services.

The way you say that almost implies its punishment. Or are you saying that because they benefited more from the tax cut a repeal would hurt them less?

 

[turbo]

The way you say that almost implies its punishment. Or are you saying that because they benefited more from the tax cut a repeal would hurt them less?

Not punishment. Allowing cuts to continue for low-earning workers would stimulate the economy through their consumption of goods and services. Allowing cuts to extend for rich people would not have a similar stimulative effect, since rich people aren't compelled to spend almost everything that they earn. It's a simple matter of economics.

 

[Dale]

Taxes are always punitive in the behaviorial sense of the word. They always tend to decrease the taxed activity.

http://en.wikipedia.org/wiki/Punishment_(psychology )

 

[ParticleGrl]

Taxes are always punitive in the behaviorial sense of the word. They always tend to decrease the taxed activity.

Thats not true. In income tax, oftentimes if you tax someone, they'll work harder to make up the difference.

 

[CAC1001]

Because the people at the top have benefited disproportionately from the Bush cuts

That really depends on how one looks at it. The Bush tax cuts disproportionately benefited the lower earners. The bottom rate cuts, from 15% to 10% and from 20% to 15%, mean the bottom brackets were cut by 25% and 33%. The top bracket were smaller cuts percentage-wise. OTOH, one could say that if you have a guy making $30K a year versus a guy making $300K a year, then in terms of total dollars saved, the $300K guy saves more total money than the $30K guy.

I could agree to reversing the Bush tax cuts on dividend income, which I think is taxed at the current capital gains rate. Reversing that would make them the same as income tax rates. This again with the government maintaining the goal to at least keep spending under control and work to cut it as they can.

It isn't really possible to make it where a single set of tax cuts where proportionately benefit everyone equally. Also, don't make the mistake of confusing income brackets with classes. Quite a few people who were in the upper brackets some years ago are now in the lower or middle brackets, and some of the people from the lower or middle brackets are in the upper brackets now.

and the policies that allowed Wall Street and banks to wreck our economy and destroy jobs.

Which policies? President Bush signed increased regulation over the financial system (Sarbannes-Oxley) and tried to reign in Fannie/Freddie.

It would be a good idea to keep some money in the hands of lower wage-earners who spend most of their income. Their consumerism is the driving force in our economy, and you can't create new jobs without a sustained short-term demand for goods and services.

That's true, but investment is also needed.

 

[CAC1001]

Thats not true. In income tax, oftentimes if you tax someone, they'll work harder to make up the difference.

But not if working harder puts them into an even more punitive tax rate whic hthen negates their extra work.