In fact, based on their data once the math is done the real conclusions of Warren and Tyagi are inescapable and in fact (as Caldwell will be pleased to know) extremely conservative: the financial problems of the middle class are caused by an astonishing rise in the tax burden on middle class families over the past three decades. Nowhere, however, will one read Professor Warren advocating income and property tax cuts as the obvious policy implication of their book–although that is unambiguously the logical inference.Professor Warren's book is The Two-Income Trap. I guess it goes onto the list of must reads.
Regards — Cliff
It's astonishing to me that R's will not allow this "astonishing rise in the tax burden on middle class familes" to be parsed and separated from discussions about taxation on the top one half of one percent of earners, which has enjoyed what I will take liberty to describe an "astonishing rollback" over the same period. I know, off the track, but it's significant when we consider from whom we are going to raise the funds to pay off our staggering debts.
ReplyDeleteKad
ReplyDeleteI don't disagree that we should boost the rate for the top tax payers, and we should take a bigger bite out of "Hedge Fund" profits. At the same time, we should extend the number of people paying income taxes, of at least a nominal amount, down to include 80 or 90 percent of our possible taxpayers, so everyone has skin in the game.
The tax code is enormous, which makes it inherently unfair to those who can't afford to hire good lawyers and accountants. It is time for a change, but when that change comes a lot of fingers are going to get pinched.
One thing I do think is a little tone deaf is those who talk about the rich paying their "fair share". In my mind that is not an obvious formula. I guess it depends upon whether you think the US is about making money or enjoying those rights with which we have been endowed by our creator. I am with the second understanding. Thus the greatest benefit to the rich, as well as the not so rich, is the freedom to achieve. And that is worth paying taxes for.
Regards — Cliff
Sorry, my followup. The reason I am against raising any taxes is because I don't believe they will go to reduce the debt, but rather to increase Government expenditures without discipline.
ReplyDeleteHow do we write the tax laws so that increases do not get turned into increased Federal spending?
We have to get our Federal spending down to under 20% of GDP, so we can sustain our system well out into the future.
Regards — Cliff
I'm in full agreement that the current impasse is successful only if it achieves a dramatic cut in across-the-board government spending without any revenue considerations whatsoever. We have to stop these criminals from looting our treasury.
ReplyDeleteI also fully agree that simplifying our tax code is the second order of business, to best achieve a fair and impartial balancing of the debt burden we will undertake to pay off through it.
I further fully agree that everyone paying even a little bit helps everyone become "bought in" to the success of the results.
Where I will maintain my point is in disagreement that raising taxes on wealthy taxpayers creates any question between "making money" and "enjoying...rights" as the "real" American Dream. Our present tax system is somewhat like making the losers in the Super Bowl (the middle class) have to buy the winners their championship rings, and also pay the wages of all the concession workers in the stadium, too.
At some point, this either gets addressed, or more and more of the "middle class" engine of our economy slips into the "does not pay" ranks of the underclass, and the whole thing collapses. Even rich people ought to be able to see the logic here.
The tax system has an indirect effect on compensation. If the "surplus" compensation were to be taxed at an increasing rate with little opportunity for avoidance, a likely result would be that income divergence would be lessened.
ReplyDeleteThat is not how things work now. I am sure that I am repeating myself, but the case of the Hedge Fund managers is a particularly troublesome tax law. They are investing other people's money, yet the majority of their compensation is derived from a 20% cut on the profits of a fund. That income is considered a capital gain and therefore taxed at a 15% rate, notwithstaning the fact that none of their money is put at risk in the investments.
This income is no small potatoes, often more than $1B per year in such income per individual manager.
Just a few comments for what it's worth.
ReplyDeleteThe effective tax rate on the "wealthy" has consistently risen since 1980 such that today the effective rate is quite large. Having said that, going after them for even greater tax rates will hardly make a dent in what we owe from the profligate spending that is DC today.
On the other hand, for the first time in American tax history, 51% of the population pay no taxes at all and our welfare budget for FY 2011 is approximately 2/3 of that of the Defense budget or about $485B.
So Joe S., George Soros is one of those $1B managers you speak of....and he is Obama's primary benefactor and closet mentor......and he pays nearly nothing....and never will. After all...he's special. It is the golden rule....and always has been.....He who has the gold, rules. And the reality and application of that axiom is completely bipartisan.
Neal, you might check the facts before misstating the direction of the tax burden on the top 1% of taxpayers since 1980. See the figures here, also acknowledged and used by the CBO: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456
ReplyDeleteThe effective income tax rate on the top 1% of earners has dropped from 37% in 1979, to 29.5% in 2007, the most recent year publicly available. Oddly enough, it INCREASED under Dubya, and has since further DECREASED under Obama, further proving my point that this mess cannot to be understood via partisan canards, but, rather, by seeing the full picture in terms of BOTH D's and R's collaborating to screw the middle class, on the one hand to benefit the lower 50% (who surely need it) and the top 1% (who surely don't).
The solution is telling both the D's and the R's to re-balance the burden, and allow the REAL job creation segment, the middle class, to survive.
Neal
ReplyDeleteSitting in the exam room, awaiting my fate, I pause to ask you to cite some source. It isn't that I disagree. I have heard this asserted before. It is just that it is so vital to the discussion that authoritative citations are needed. And, for a man with two Masters this should not be hard. And, we need the data for the debate.
Oh, and I am now out and he thinks some of my numbers need work.
Regards — Cliff
Oh, and I forgot to mention... The income of the top 1% is going up faster than everyone else's and is approaching historic 1929 proportions. Here's one particularly sobering look at how this is all going: http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#if-you-arent-in-the-top-1-then-youre-getting-a-bum-deal-15
ReplyDelete(Cliff, I hope you are better satisfied with my citations ;-).
Here's my source.....and I misquoted the effective tax rate on rich folks....but my point is still valid. My source is the IRS and the CBO and the tax code (as an explanation only).
ReplyDeleteIRS data for 2008 show that households in the top 10% of earners (above about $114,000) paid 19% of their income to the feds. Those in the top 1% (above $380,000) paid 23.3%. The top 0.1% of earners, with incomes of $2 million or more, end up paying a slightly lower tax of 22.7%, because they get more of their income from investments (more about this below).
According to IRS data, a median-income household ($35,000) in 2008 paid about 4% of its income in federal income tax.
According to the Congressional Budget Office (CBO), middle-class families in 2007 (earning between $34,000 and $50,000) paid an effective 14.3% of their income in all federal taxes. The top 5% of income earners paid 27.9% and the top 1% paid 29.5%. And what about the highest earners? Americans with annual incomes above $2 million paid an average 32% of their income in federal taxes in 2005 (the most recent year for which data are available).
So how do people like Mr. Buffett arrive at such a low personal tax rate? A 2010 IRS study of the 400 richest American taxpayers showed those people paid an effective federal income tax of 18.1% in 2008.
Yet that study crucially omits the corporate income tax, which is mostly borne by the owners of companies.
So, as an example, Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.
The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn't include state and local taxes.
I researched my data to ensure its validity and veracity but if you wish, you can find these words in the WSJ: http://online.wsj.com/article/SB10001424053111903999904576466541882356616.html?mod=djemEditorialPage_h
Now, you may wish to argue that this is information presented in the WSJ and is therefore slanted, but IRS data are factual I believe....at least...as presented.