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

[ParticleGrl]

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

Tax rates are marginal. There is no way to make less money by earning more/moving into a higher bracket.

 

[CAC1001]

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.

Those days of sending your kids to college I think are probably going to come back. People used to be saying the same thing about housing, how it was becoming so unaffordable, and it turned out to be a big bubble. As has been posted in another thread, there is a lot of evidence that higher education is now in a similar bubble.

The economy boomed throughout the 1950s and 60s for a variety of reasons, but then began to stall somewhat in the 1970s, then boomed again through the 1980s, 1990s, and 2000 to 2006, then the bubbles popped and the recession hit.

 

[CAC1001]

Tax rates are marginal. There is no way to make less money by earning more.

Maybe it is incorrect, but I have read of cases where people have turned down raises because the higher income would have put them into a higher tax bracket that would result in them taking home less money. I see what you are saying though.

On the 90% top marginal rate, a group of people that it would take around 90% of their income would be people making saying $20 or $30 million a year. Even if in the form of capital gains or dividend income, prior to the Bush tax cuts, those things were taxed at the same rates as income. While such people would represent a very tiny portion of society, I still think it would be wrong to take 90% of such a person's money because they would probably have worked very hard to get to their position.

 

[turbo]

Maybe it is incorrect, but I have read of cases where people have turned down raises because the higher income would have put them into a higher tax bracket that would result in them taking home less money. I see what you are saying though.

Please supply citations. Your argument holds no water and is illogical. Pushing someone into a higher marginal rate at the very upper end of their earnings has no effect on their tax rates on all the rest of the money that they make. You may be confused...

 

[Dale]

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

No. Since certain gainful economic activities are classified as income and others are not or are taxed differently income taxes always shift behaviors away from earning highly taxed income and towards other activities. The only way for what you said to be true would be if all gainful economic activities were equally taxed. In which case the tax would neither be a reward nor a punishment and would not distort economic activity. Our taxes are specifically designed to change behavior.

 

[Hurkyl]

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 )

Of course, a technical term and its natural language homonym do not share the same connotations... (nor the same denotations, I suppose)

 

[ParticleGrl]

Since certain gainful economic activities are classified as income and others are not or are taxed differently income taxes always shift behaviors away from earning highly taxed income and towards other activities.

Most people can't shift their income to other areas. Maybe at the very upper end of the spectrum, hedge fund managers or people who draw salary from investment can juggle the way they report it. However, this just changes how they report income, not their economic behavior.

 

[lisab]

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 )

C'mon. People don't vote to punish themselves with a new bridge.

 

[ParticleGrl]

While such people would represent a very tiny portion of society, I still think it would be wrong to take 90% of such a person's money because they would probably have worked very hard to get to their position.

What if they were born into it and didn't work for it? Should we have a high estate tax?

 

[CAC1001]

Please supply citations. Your argument holds no water and is illogical. Pushing someone into a higher marginal rate at the very upper end of their earnings has no effect on their tax rates on all the rest of the money that they make. You may be confused...

It was in some book somewhere, or some article, from some years ago. That's why I said it may be wrong, because I can't find it to see if it explains the details of such a thing. I understand about the marginal tax rates though.

 

[CAC1001]

What if they were born into it and didn't work for it? Should we have a high estate tax?

I would say no because their parents may have worked hard to provide them with the wealth, and just because they were born into it doesn't provide any justification to the government to come and confiscate a good chunk of it. If I pass property down to my off-spring, it should be theirs, not the government's. Also, inherited wealth tends to dissipate over time, as the family grows larger and the children tend not to manage the wealth as well. Most wealth today is self-made, not inherited.

 

[ParticleGrl]

Also, inherited wealth tends to dissipate over time, as the family grows larger and the children tend not to manage the wealth as well.

I'm not sure this is true. The Rockefeller family, for instance, still has significant wealth. Then there are the Waltons, Cargills, the Mars family, the Hiltons, the Busch family etc. Even the Koch's inherited the successful company they used to build their wealth.

Sure, some dissipates, but a lot keeps going strong. Do you have any data on this?

Most wealth today is self-made, not inherited.

The surprising thing about most wealth today is that IRS/BLS data suggests that most wealth today is made by salaried professionals. i.e. high paid doctors, lawyers, CEOs, etc (not to mention the finance sector). Working for someone else has become a less risky way to get rich than starting your own business.

 

[CAC1001]

I'm not sure this is true. The Rockefeller family, for instance, still has significant wealth. Then there are the Waltons, Cargills, the Mars family, the Hiltons, etc. Even the Koch's inherited the successful company they used to build their wealth.

The Rockefellers though are a family that started off with incredibly massive wealth, so by modern standards they are still wealthy. The Cargills and Hiltons I don't know much about, the Mars family has done a fairly good job with their candy company, regarding the Waltons, well Sam Walton started WalMart in the 20th century, and it has continued growing since then, and the current Waltons I'd imagine are second and third-generation with this growing company. The Kochs inherited the company from Fred Koch, true, but it was the son Charles Koch who built it into the massive company that it is today, over many years. He didn't just inherit a $100 billion a year company.

Do you have any data on this?

The Vanderbilts I know are an example of a family with a famous name, but many members with just average money, because it has dissipated a lot.

The surprising thing about most wealth today is that IRS/BLS data suggests that most wealth today is made by salaried professionals. i.e. high paid doctors, lawyers, CEOs, etc (not to mention the finance sector). Working for someone else has become a less risky way to get rich than starting your own business.

Depends on how you define "rich." If you mean making a high income and being comfortably upper-end middle-class, then yes, but if you mean jet-set rich, the only way to really do that is via starting your own business. There is a book written about the wealthy called Richistan, in it the author divides the rich into three groups:

Those with net worths between $1 million and $10 million
Those with net worths between $10 million and $100 million
Those with net worths of $100 million and up.

The $1 million to $10 million crowd tend to be the very affluent professionals, but going above that, you start moving a lot more into business owners.

 

[turbo]

Maybe it is incorrect, but I have read of cases where people have turned down raises because the higher income would have put them into a higher tax bracket that would result in them taking home less money. I see what you are saying though.

Again, please supply citations for this bogus claim. Would you turn down a raise from $200K t0 $400K because it might push the higher range of your earnings into a higher marginal tax rate? I don't think anybody who understands taxation would buy that, so please back it up or retract it.

 

[ParticleGrl]

Depends on how you define "rich."

I use the upper 1% of the population. If you make more than 99% of the households in America, I consider you rich.

The $1 million to $10 million crowd tend to be the very affluent professionals, but going above that, you start moving a lot more into business owners.

But there are way more people in the 1-10 crowd then there in the above 10 million crowd. Also, a fairly large percentage of doctors will accumulate 1-10 million. A vanishingly small percentage of small business owners will ever make it to that range, or higher.

 

[Dale]

Most people can't shift their income to other areas. Maybe at the very upper end of the spectrum, hedge fund managers or people who draw salary from investment

Tax advantaged accounts are not just for hedge fund managers, nor are itemized deductions. These things exist specifically to alter behavior. The tax code is punitive by design.

 

[russ_watters]

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.

Compelled or not, rich people spend money. Sometimes it is by employing poor people! At the same time, personal debt is down since peaking at the beginning of the recession. http://www.dailyfinance.com/2011/02/21/consumer-debt-rise-again-recession-recovery-credit-card-use/

That means people who have debt (more lower income than higher income) are using at least some of that extra cash to pay down debt. So it isn't as simple as 'rich people save while poor people spend'.

 

[turbo]

But there are way more people in the 1-10 crowd then there in the above 10 million crowd. Also, a fairly large percentage of doctors will accumulate 1-10 million. A vanishingly small percentage of small business owners will ever make it to that range, or higher.

A lot of business-owners that I know will never even make it into the top 2% range. Many like to to spend conspicuously and they sabotage themselves. Are you an investment consultant/tax advisor? Chances are, you're doing OK, but if you and your wife are both driving recent-model BMWs to keep up appearances, that's a drain. (And yes, I know this couple very well!)

If you are in the top 2% of earners for a number of years, it is not all that hard to accumulate ~$1M. If you like to ACT like you're in the top 2% and flaunt your possessions and consumption for status, you pay a hard price.

 

[CAC1001]

Again, please supply citations for this bogus claim. Would you turn down a raise from $200K t0 $400K because it might push the higher range of your earnings into a higher marginal tax rate? I don't think anybody who understands taxation would buy that, so please back it up or retract it.

I already responded to this question. I'm not going to retract that I read such a thing, because I did, but I said it could be wrong too, for the reasons you have pointed out.

 

[CAC1001]

I use the upper 1% of the population. If you make more than 99% of the households in America, I consider you rich.

Well the average American can be considered "rich" in comparison to most of the rest of the global population, as so much of them live in poverty, but I wouldn't say all Americans are "rich." Just the same, being in the highest-earning 1% of America doesn't necessarilly make one rich either IMO.

But there are way more people in the 1-10 crowd then there in the above 10 million crowd. Also, a fairly large percentage of doctors will accumulate 1-10 million. A vanishingly small percentage of small business owners will ever make it to that range, or higher.

I agree, I'm just saying that among the jet-set rich, unless you are a movie star, professional athlete, or very successful executive in a big company, you usually need to be a business owner.

 

[turbo]

I already responded to this question. I'm not going to retract that I read such a thing, because I did, but I said it could be wrong too, for the reasons you have pointed out.

The claim is irrational on the face of it. If you want to stand by it, please supply a citation. People don't decline raises because some of the extra earnings might get taxed at a slightly higher rate than their previous earnings. You claim makes no sense. You might fool some Tea Party moron with no knowledge of the US income tax system, but not people who are capable of estimating their income taxes and filing returns.

 

[CAC1001]

The claim is irrational on the face of it. If you want to stand by it, please supply a citation. People don't decline raises because some of the extra earnings might get taxed at a slightly higher rate than their previous earnings. You claim makes no sense. You might fool some Tea Party moron with no knowledge of the US income tax system, but not people who are capable of estimating their income taxes and filing returns.

I said already I don't stand by the claim itself per se, I understand perfectly what you are saying, what I stand by is that there was some book or article somewhere that said it, which I unfortunately can't locate at the moment.

 

[Dale]

Again, please supply citations for this bogus claim. Would you turn down a raise from $200K t0 $400K because it might push the higher range of your earnings into a higher marginal tax rate? I don't think anybody who understands taxation would buy that, so please back it up or retract it.

I personally know at least two people like that. One is an ER doc who determines how many shifts he is willing to work specifically to reach the upper end of the income tax bracket that he considers reasonable. Beyond that point he doesn't feel it is worth his time to work any more shifts. The other is a consultant who similarly rejects clients he could take, specifically because at the highest bracket it isn't worth his time.

Of course, that is purely anecdotal evidence, but I doubt they are alone.

How many people would work overtime if they were paid half time instead of time and a half?

 

[WhoWee]

I personally know at least two people like that. One is an ER doc who determines how many shifts he is willing to work specifically to reach the upper end of the income tax bracket that he considers reasonable. Beyond that point he doesn't feel it is worth his time to work any more shifts. The other is a consultant who similarly rejects clients he could take, specifically because at the highest bracket it isn't worth his time.

Of course, that is purely anecdotal evidence, but I doubt they are alone.

How many people would work overtime if they were paid half time instead of time and a half?

Tax deferred income is a widely understood and practiced concept. Unfortunately, there are limits - IMO.

http://www.nyc.axa-advisors.com/content.cfm?ContentID=319

 

[hillzagold]

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.

Oh, if they don't state that position, there's no way they believe it? Get real. Bush' cabinet was full of wealthy people, CEOs, and that sort. Cheney himself was CEO of Halliburton. You'll look me in the eye and tell me that they didn't change the status quo, as Clinton left it, so that Halliburton became more favored? (Yes, I know there's a wider context of Republican and Democrat behavior, but let's not lose economic focus.)

And I understand that concept, don't belittle me. Of course it limits private investment, but private investment into what? More ad campaigns? More outsourcing? More corruption? More yachts and vacations? We aren't taxing boy scouts here. I want to know exactly who is privately investing like a boy scout, and who isn't.

Compelled or not, rich people spend money. Sometimes it is by employing poor people! At the same time, personal debt is down since peaking at the beginning of the recession. http://www.dailyfinance.com/2011/02/...edit-card-use/

That means people who have debt (more lower income than higher income) are using at least some of that extra cash to pay down debt. So it isn't as simple as 'rich people save while poor people spend'.

Is this the kind of place that takes exaggerations completely seriously? The rich don't have to save everything to make a valid point, they just have to save significantly more. Even if they save1% more, it could still be significant. And even if they don't save, they can spend badly. A yacht, an illegal immigrant, an outsourced job, a daughter named Paris Hilton, whatever. The matter is nuanced, and many of you argue against that nuance.

 

[Averagesupernova]

I can't count how many times I have heard people say: "I should have not taken that payraise because it bumped me into the next tax bracket and now I am taking home less than had I not gotten the raise!" After that, I no longer take anything they say seriously. They are not worthy of my time in a conversation. I dont' feel I should need to explain this in a thread full of 'experts' but I will. The bump up into the next tax bracket only taxes you on that amount within that bracket . For easy explanation we will use salary breaks at $10,000, $20,000, and $30,000. We will use respective tax rates of 10%, 20% and 30%. If you make $9999 your tax bill would be $999.90. The uninformed think that if you make $10,100 your tax bill would be $2020 because you are now in the 20% bracket. Incorrect. Your tax bill would be 10% of the first $10,000 ($1000) and 20% of the salary you earned within the next bracket between $10K and $20K which would be $20 for a total tax bill of $1020 dollars. Anyone who doesn't believe me PLEASE PM me because the next payraise you complain about because of pushing you into more taxes I will gladly pay your tax increase if you hand over the extra salary.

 

[russ_watters]

There is no increment in the marginal tax rate that is so extreme that people would refuse extra income to avoid it.

Not refuse extra income, refuse extra work. This is a standard feature of economic theory, though the effect is very difficult to accurately quantify:
http://books.google.com/books?id=Xs...e&q=progressive tax work disincentive&f=false

The concept, though, is more extreme on the opposite end of the spectrum in the welfare and unemployment disincentives to work: pay people not to work and they won't look for work. http://community.middlebury.edu/~wunnava/Recent_Papers/ECOLET 25.4.pdf

This effect is much clearer cut due to the progressive taxation/benefit curve being much steeper at the low end. In other words, people who receive benefits stand to lose much more, proportionally, by giving up their benefits and going to work.

 

[russ_watters]

As I said, I know at least two people that do, an ER doc and a consultant. It is not really surprising to me, the marginal utility of money decreases and the tax code is designed so that the marginal effort to make money increases.

I don't know many people who have been on unemployment, but I know two well who have taken full advantage of unemployment compensation. One (my best friend) took a taxpayer-funded western vacation immediately upon being laid off. The other refused an actual job offer because it wouldn't have paid enough more than unemployment to be worth doing the work.

Please think about the question I asked. Would you personally choose to work overtime if you were going to be paid at 50% of your regular salary? How about 9%?

Expansion: what people tend not to recognize is that if 9% is a disincentive, then much smaller increments are also disincentives, they are just less (and harder to measure). There isn't a clean cutoff, but I can be pretty sure that I'd be quite unwilling to work more overtime for nine cents on the dollar.

 

[Averagesupernova]

There isn't a clean cutoff, but I can be pretty sure that I'd be quite unwilling to work more overtime for nine cents on the dollar.

I know certain folks on here will call it redistribution, but if you aren't willing to work for 9 cents on the dollar doesn't that give someone else the oppurtunity to work to make up what you are unwilling to do? I don't see that as a bad thing.

 

[OmCheeto]

Fast moving thread

n.f.s.

This thread is hilarious to watch.

Stop laughing! You're out of the will young man!







I concur. Old people are hilarious. I would go on about how it is usually people over 30 that create most of societies problems, but that's common knowledge. We leave it to you and your friends, as a planetary homework problem.

Don't get it wrong...