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

[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.