Taxing the rich in America
The politics of plutocracy
America’s rich should pay more, but there is no need to raise their income-tax rates
Jan 21st 2012
Jan 21st 2012
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"deficit reduction works best when most of the burden falls on spending cuts"
But if you make spending cuts when the nations bridges and infrastructure are underdeveloped and falling down, its kids are under performing in education and ignorance rules, and the country has only just got a kind of universal health support that other developed countries have had for over half a century, what are you going to cut? If you cut social insurance and safety nets then fewer people are likely to take the risk of setting up their own businesses and innovating through their own SMEs to drive growth. The only obvious thing to cut would be the military at 20% of spending. But it is not big enough for cuts to reduce the deficit sustainably. People will have to pay more tax if they want to live in a developed country. Otherwise their country can join the ranks of the Latin American problem states.
This is one of those articles that seems to stem from an absurd notion that the reason the tax system isn't more clear is that so far no one has this idea and that legislators will pick up this magazine and suddenly know what to do.
This article seems to think that tax rates for the rich remain low because they think .3% is an insufficient amount of federal revenue, but that they would be first to reach across the aisle in the spirit of fairness if only a more effective tax regime were proposed.
Here's a radical idea, why don't we assume that rich people by and large, (live everyone else) will oppose any scheme to get them to pay more. Even more importantly, that their objection stems not from a principled outlook on the relative merits of funding common government, but because they like having money (as do we all).
"History shows that deficit reduction works best when most of the burden falls on spending cuts. That means that middle-class entitlements will have to be reduced, no matter what Mr Obama tells his supporters."
The Democrats have already proposed a ten-to-one ratio of cuts to tax increases. You can't say that "neither side is talking sense". The Democrats are being level-headed and reasonable while the Republicans are not, there is no equivalence between the two.
The Economist can't avoid its knee-jerk neoliberal outbursts. Even if we come to agree that closing loopholes could be a better way to tax the rich than increasing income tax rates, the magazine can't avoid spouting preposterous slogans like "History shows that deficit reduction works best when most of the burden falls on spending cuts."
The plutocrats would love nothing more than to see that the deficit is axed in those programs that don't affect them at all, and not in those other ruinous sinkholes that, on the contrary, keep feeding their offshore accounts, like the Military complex and its associated wars, or the Oil industry (and its associated wars).
It's time for the 99% to wise up and say loud and clear that what needs to be cut is the neoliberal crap.
Capital gains needs to rise from the paltry 15% it is currently fixed at. If a guy like Romney is effectively paying much less than the average American citizen (who cannot afford those higher rates) then, in the interests of fairness and national well-being, the capital gains rate must rise.
Only about 10% of all capital gains are derived from "job creating" activities, such as VC and private equity funding. The rest comes from assets trading hands. Enough with coddling the rich.
The country is in great need, and it is high time that those who have benefited most from this country's lassez faire policies give back to help save it.
Letting the burden fall to the middle class, especially in light of the other economic hardships the middle class has been going through these past few decades, is nothing short of immoral and short-sighted.
There are your Ayn Randians, who would have us not tax wealthy 'job creators' at all, and your Paul Krugmans, who in his blog declared that tax rates should be set to the rate which extracted the maximum revenue for the state. Both stances are immoral and untenable. In between, there are your Warren Buffets who think rich people should simply pay the top rate on all of their income. I think most Americans support Buffett's view, and I'm pretty sure Romney would support it, if a reduction and flattening in corporate taxes also accompanied it.
Tax deductions for mortgage interest and charities are huge distortions which we would be much better off without (Canada has the same home ownership rate with no mortgage deduction). The politics on this one are tricky, but if sufficient stress is made on how much more they benefit the upper middle class (the 10%) at the expense of the 90%, perhaps a gradual reduction of the maximum deduction per year would be politically feasible. Non-profits and charities is an easily exploited loophole which badly needs to be closed, no matter how many priests may complain. Harvard needs to be taxed like any other rich corporation.
Fundamentally, inequality cannot be solved by taxation. The man making $2 million a year will not be dragged back to the middle class by raising his taxes from 15 to 35%, and the man making $20 thousand will not join the middle class by reducing his taxes, as he pays very little now. To temper inequality the unjustified earnings of the finance industry must be reduced by prevent financiers from profiting from systemically destablizing one-sided bets. The man making $20,000 can improve his lot by acquiring marketable skills. Inequality within the rich world is unlikely to lessen until inequality between the rich and poor worlds lessens further, which will take a generation or more.
Left-wing magazine? -at least you put a smile on my face. :D
Not all wealth is created equal. It has become an issue today because over the past three decades laws have been gradually changed to favour the entrenchment of privilege. Few people resent wealth when they see strong equality of opportunity (indeed this is what de Tocqueville observed), and it is equality of opportunity that America (and, indeed, most of the developed world) has been steadily losing.
On a side note, outside of very simple, static, and artificially constructed systems (e.g. sports) there's really no such thing as a 'superstar' – a person who consistently outperforms everyone else. Someone who is great under one set of circumstances is unlikely to be great at others. This is another reason why there is now a backlash against the super-wealthy – people realise that people claiming to be superstars only really need to be superstars (or lucky) for a brief period of time, and then be able to generate value through vastly disproportionate capital control. Privilege today is much harder to acquire than it is to keep. This is a perfect hallmark of a system dominated by a small number of rentier positions (for which everyone vigorously competes).
The rich (should) pay and they have not paid in a very long time. They have justified their (exemption) from paying taxes by describing a (trickle down theory) that benefits the working class, and the community at large. What I see is the Pi** on you theory where we have all (bought in) and paid the price for their (bullying) that if we don't go along that they will (abandon) America and head to richer troughs to feed from. Really? Where are those troughs? We've allowed them to have (write off's) and exemptions for everything under the sun to the point the common man no longer understands our tax system. We need a straight/simple/flat tax system where the wealthy pay their share along with the middle class, who have born the brunt of our costs, and over head. It's time they stepped up and paid their part, or they get out, and go to countries who will tax them even more than we dreamt. It's time they acted as if they were part of (this) country, members, not just parasites sucking the life out of us, and then lecturing us on the theories of working hard and the benefits of those labors. They've benefited greatly: its time to pay their fair share.
Sure, close or phase out tx loopholes BUT restrain government spending growth - it's growing remorselessly on autopilot and poll after poll shows that most Americans think the government is giving poor value for the money. Let's have a plan to measure and improve the productivity and effectiveness of the public sector. I'll feel a lot better about ceding an increased share of my paycheck when I can be confident it's not being wasted.
Job growth is actually the worst in this last decade with a 35% top marginal tax rate compared to other decades with 50%, 75%, and even 90%.
Businesses don't hire when they have money to throw away (they keep it--it's called profit). Businesses hire when the return of a new hire will be greater than the calculated cost of that hire. Without a strong middle class, there will be no demand that will necessitate business hiring no matter how low the rich/corporate tax rate is. This is why income inequality and a disappearing middle class is so dangerous.
You consistently miss the main point of the tax issue. Specifically, corporate income tax revenue as a percentage of the federal government's revenue is less that 9 %. This is a historic low, without regard to the economic climate. The reason that this is occurring is the plethora of tax benefits which allow corporations to avoid paying the appropriate share of taxes.Eliminate corporate welfare and then a lower corporate tax rate can and should be possible.Pay attention!
All taxpayers, regardless of income class, try their best to avoid paying taxes. I worked for H&R Block for a few seasons and believe me none of our clients were rich, but all wanted to reduce their tax burden. That is why they came to us.
Buffet pays himself 100,000 as a salary. Why? It is to minimize how much of his income gets taxed at the marginal rates instead like Romney at investment rates which are 10-15 percent. If Buffet wanted his tax burden to be more, we all know he could ratchet up that salary, fire a few of his tax consultants and just plain pay more taxes. No matter what anybody says, people behind closed doors are working hard to minimize their tax burden.
In order to have money to invest one must actually earn an income and then put aside some portion of that income that ALREADY WAS TAXED. The only difference between savers is how much each person has to put aside. Then going forward how that money is invested depends on the stomach for risk. Private equity targets individuals with a significant amount of "money aside" that are not adverse to risk and willing to invest in new ideas/technologies or bailing out ailing companies. Most people, even those with a good amount of savings would steer clear of this sort of investing even if the returns might be huge. But we need those greedy investors to fund economic growth even if for only their own gain. The government does have a role, but the government cannot rescue all failing companies, nor fund every start-up. That is up to the private sector that is risking their OWN money and not taxpayer money.
For years, I worked for a big pharmaceutical company that as a perk for ALL EMPLOYEES, allowed them to buy company stock at a reduced price. Without exaggerating this perk was loved and adored by all that chose to invest and reap those rewards. So all the office help, janitors, etc could and did participate. We all then paid capital gains which we hated. So when those rates came down there was significant cheering by the average folks which I was one of them. Those profits put kids through school, allowed families to take vacation, bought houses, cars, etc. This notion that ONLY the rich benefit from the reduced capital gains is an outright lie.
Additionally, seniors have over the years, tried to load up on stocks that paid dividends so they have extra income after they retired. Nobody wants to be a burden to their children and SS isn't enough to sustain most retirees. Also many investors choose to invest in tax free municipal bonds which will lower their tax burden as well.
Presently about 50 percent of workers do not have a federal tax burden after credits, deductions, and exemptions. Back in 1980 that percentage was 20 percent and tax rates for all were much higher. Of course over the years local, state, personal property taxes, real estate taxes, sales tax, and payroll taxes have all gone up and so the bottom line coupled with stagnating wages, a falling dollar is not as good as it was in 1980. I would argue also that our buying habits are far different than they once were meaning we are collecting tons of junk and filling up closets and thus have little in the bank. Most people do not know nor care to create wealth. The youth believes that is not possible unless they earn a big salary from Day 1 and if they can't do that they have no hope. That is where all the class warfare is emanating from. They feel entitled to have what others have worked a lifetime to get.
Most people here in the US want a reduced size government. They do until a program they benefit from gets cut. Then they squawk. I understand, but the math doesn't add up and so many will need to clear away the cobwebs. Law makers have promised for decades benefits they cannot afford to maintain to buy votes. Now with boomers ready to retire, the pressure is on many of those entitlements.
Most are in favor of reforming the tax code. Even my cheap husband says he would be willing to pay a bit more not to have to file a bunch of stupid forms every spring. Just take out the tax and leave us alone.
The problem is how that money collected is spent, which often is on highly inflated services that the private sector charges the government knowing they will pay any price. So government is dumb and doesn't have the skills to ferret out the best price with the best quality. They don't have to find the best price since they can always just raise taxes.
Whilst a perfect world is somewhat far away I cannot help but think that these are comments myopic at best and written by someone who has not seen, been or lived in a disadvantaged environment. Ideologically (and realistically), capitalism is here to stay which means there will be winners and losers. If this individual wants the losers to suffer indefinitely and collectively then that's fine, but this inevitably affects wider society in terms of crime, equality, opportunity and ultimately culture. The perception of the US is varied across the world but if there is no appetite for those who live in it to create a fairer (I say this loosely) society, then I doubt this perception will improve. Long term this will prove permanently damaging to the US economy and at a macro level - the global environment. Whilst I do not agree totally with the article, the wealthy who have benefitted from loose regulation are hardly cascading their wealth in a 'Federal' manner and has been proven to be unsustainable - to the expense of everyone else - mostly those who cannot afford it. Now that's hypocrisy.
The rich should and must pay more. Why? They particular own the country. They use more resources and they have huge need to protect their wealth. Poor people have not much wealth worldly procession to protect. So if the rich don't want to live in a collapsing state, a fail state like that of Somali, they better pay a bit more to keep what they have worthy. Otherwise, their estate will worth much less when the neighbor, the city, the state, and finally the country goes down.
There is no empirical evidence to show strong
co-relation between low tax rate and job creation.
George Bush had a major tax cut(skewed to rich)
and the job creation was poor. If the distortion
of housing boom and growth in banking ( fueld
by speculation) is removed, the job creation was dismal.
Tax loopholes should be eliminated. Things like
farm subsidies including for ethanol are disgraceful.
The effective tax rate of 15% that super rich are paying is unfair. It should be at least the same
as the job earnings of ordinary people. It is a shame that financial speculation is taxed lower than research work in the lab or engineering on mfg. process or product quality.
Entitlement such as social security and Medicare
were paid by 7.75% of employee contribution and another 7.75% matched by the employer. It is unfair to target it for reduction after collecting 15.5% over 40 years.
Spending could be cut dramatically if the US government would just bring all the troops home, stop trying to be the policemen of the world, quit attempting to "spread democracy" (which is just a euphemism for growing the Empire), and end these insane, ill-conceived Bush/Obama wars.
The problem is relatively simple.
Each and every person is operated by a desire for self fulfilment, self profit.
The only difference in between us is how great this desire is, how far are we are willing to go to find this fulfilment, and profit, and humanity is structured accordingly in a pyramid structure, which today we call 1% vs 99%.
The system is built in such a way that the people who get on top of the pyramid can then establish laws, regulations, others systems which reinforces their status and they can continue accumulating their profit way beyond their necessities, slowly depriving the rest even from their necessities as after all we all live in a closed, finite system.
This is most visible in the US but operates anywhere else just as well, possibly in other countries the 1% seemingly drops some more peanuts for the 99% in so called "social welfare" disguise.
The solution is also relatively simple, especially today when we learn that we live in a global, totally interdependent network, in which system the present behaviour is self destructing and as a result the 1% becomes like cancer killing the whole system including themselves.
In such an integral system only by primarily sustaining, maintaining the whole system in an optimal, well functioning manner can any individual hope for prosperity and sustainable future.
Thus we need 2 things: total transparency, an easy system where the contribution and reward of each and everybody can be easily monitored for anybody to see.
Each and every individual is judged solely by his/her contribution to the whole system, the reward is equal to the contribution.
Based on the initial remark on basic human nature it is clear that this would not lead to a North Korean type society since those with the largest desire would still be the ones contributing and benefiting the most, except now instead of primarily working for themselves they would work for society. They would still enjoy most of the rewards according to their positive work, but would not tuck away the surplus they do not need for their normal comfortable life just to show more zeros on the bank accounts, but that surplus would remain with the total network.
Of course this requires a total attitude and lifestyle change and we need to wonder about the motivation.
Motivation would come in two forms: one is the negative one, because if we do not change the crisis will get deeper and deeper washing away everything and everybody like a tsunami including the 1% either financially or by public uprising, even wars if we allow the same reflex reactions to come up we used all through our history in difficult economic situations.
The positive motivation could come from the wise understanding of our global system which is already mapped out in all its details by objective, scientific political, economical and social studies all over the world.
It is humourous to watch people condemning Greece for their inability to get their citizens to pay their taxes owed while Americans, who are rapidly following the Greek pathway, are rationalizing the tax breaks and loopholes given to people who are rich enough to afford to use them. It is like watching a group of sailors arguing about who's responsibility it is to patch a hole while the ship slowly sinks.
The US needs to fix their problems and they need to do it sooner rather than later. Tax cuts do not reduce unemployment. That is a fake bogeyman. Increasing tax rates on the rich will not suddenly mean a reduction in employees in their companies. If you boost your tax rates too high and you force them all to relocate to another country, that is a bad thing, but as long as they stay there, they won't lay people off due to a tax increase.
Are you intentionally thick? The increase in tax burden for the top, say, 1%, was much lower than the increase in income that accrued to them in the last few decades.
And what do you think VAT and sales taxes are for? The poorest 50% don't pay taxes? Really? They pay it whenever they buy things, unadjusted for their low income.