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> Lastly, it seems that Government revenue for Federal and State/Local has actually increased pretty linearly with the population. Despite all the different cha

> Lastly, it seems that Government revenue for Federal and State/Local has actually increased pretty linearly with the population. Despite all the different changes in the income tax rate/other progressive taxes. This supports an overhaul to the tax code to a more simple, flat tax system. From another data source outside this report, I'd have to find it, but historically, no matter the top bracket tax rate, the Federal government collects about 15-17 % income tax. Including when the top rate was 90%+. This seems like a pretty poor argument for a flat tax and in fact could be seen as an argument against it. If raising top end bracket taxes didn't increase overall income, then it must be the case that it reduced the tax burden on lower incomes -- which is the entire point of progressive taxes. So progressive taxes work, let's keep them! I view this as mostly orthogonal to the issue of tax simplification, however, which I think is probably a good idea.

Cshelton 10y ago
I think you would have to look at the reasons why the government tax revenue did not increase when rates were higher. The rich are have mobility. They can move money around the world and at high tax rate levels, they'd be content on neither earning nor bringing back any of the money they make elsewhere. Let's take an example of Apple's $200 B sitting offshore. I know that's a corporate tax, but same principal. I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels.
- Tloewald 10y ago
  "I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels." Every dollar of extra tax paid by the wealthy is a dollar of tax that doesn't need to be paid by the non-wealthy. Your belief notwithstanding.
  - Cshelton 10y ago
    You missed what I said. I said tax rates, not what was actually paid, as you stated. The people at the top have the ability to move. Or when the tax rates were 90%+ on the top brackets, those people simply reported they made $249,999 that year as they have the ability to find other places for their money. Sorry if that wasn't clear enough. What I originally said is very different than how you understood it. Even in your case though, you assume government spending stays the same. But it doesn't. As government rev. increases, you can bet they will spend their new money as fast as they can. No matter if the additional revenue is coming from lower or upper brackets.
    - Tloewald 10y ago
      You presuppose governments just spend what they get, no-one benefits in any way, and tax rates have no impact at the margins. You're so completely off the mark I don't know where to start. It's fine to be cynical about rich people avoiding tax and the benefit of government programs, but you need to understand what you're being cynical about. The fact is that tax cuts do reduce revenue so having higher taxes clearly did something.
- minot 10y ago
  > I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels. I'll be frank. I have no reason to believe anyone is honest (not even myself). While we like to say that we are not savage animals, we are. CGP Grey made a video https://youtu.be/rStL7niR7gs?t=1072 https://youtu.be/rStL7niR7gs?t=1072 based on The Dictator's Handbook I read an article on some online magazine which argued that the 0.01% is not the problem but rather the upper middle class as they like to call themselves. I imagine it is the same way all over the world. > “Take the mortgage deduction,” he continued. “This is to stimulate homeownership amongst people who are already going to own homes. That is worth, to a middle-income family, a hundred bucks a year. I was a little surprised by that. You can have your own reaction; I was a little surprised by that.” from https://archive.fo/UgQDd https://archive.fo/UgQDd (NY times link, used to be the title link of this discussion) I'm sure you know this but I didn't think about this for the longest time. Pretty much everybody is a hypocrite. Sorry but if someone advocates for less taxes on the wealthy, the first thing I will look for is whether I think the change will be good for me. Sorry for being selfish but then if I conclude the change is not in my favor, the first thing I will do is not the merits of their ideas but rather follow the money and see what they gain from this change. Life is short. In the bigger scheme of things, we are just trying to find a locally optimal choice. When people say they want to lower taxes, they usually mean they want lower taxes for themselves. When people say they want fewer government services, the idea is usually they want fewer government services that they do not use. > Let's take an example of Apple's $200 B sitting offshore. Just to put things in simple terms, this $200B does not include money Apple made by selling iPhones in the US, right? It only includes money Apple made by selling iPhones in other countries? I don't get why we obsess so much over it. US economy is large enough. If they want to bring this money back to the US or they want to give money to their owners/stock holders, they can pay the tax at that time? I don't have a horse in this race. I am just trying to understand the premise as an outsider.
  - abeyer 10y ago
    > Just to put things in simple terms, this $200B does not include money Apple made by selling iPhones in the US, right? It only includes money Apple made by selling iPhones in other countries? I don't get why we obsess so much over it. US economy is large enough. If they want to bring this money back to the US or they want to give money to their owners/stock holders, they can pay the tax at that time? I don't have a horse in this race. I am just trying to understand the premise as an outsider. As an American citizen, I'm still subject to federal income tax, even on income earned while I'm residing outside the country, for work done entirely outside the country, for a non-American employer. That being the case, I see no reason why similar rules shouldn't apply to American corporations. If we say an individual still derives services and value from their citizenship even when outside the country, and thus needs to pay in to support that, why not also American businesses? I don't know enough about business structures and tax code to say _how_ to make it happen, but from a sense of fairness, I think that roughly equitable rules for business and individual entities is a good thing.
runeks 10y ago
> If raising top end bracket taxes didn't increase overall income, then it must be the case that it reduced the tax burden on lower incomes [...] This logic is not sound. Another option is that the wealthy hire accountants in order to avoid paying 90%+ tax on anything. Paying an accountant $1000/hr is almost nothing if it can save you millions of dollars in taxes. So rather than reduce the tax burden on lower-income families, it's possible it just increased the income of accountants.
amscanne 10y ago
> This seems like a pretty poor argument for a flat tax and in fact could be seen as an argument against it. If raising top end bracket taxes didn't increase overall income, then it must be the case that it reduced the tax burden on lower incomes -- which is the entire point of progressive taxes. So progressive taxes work, let's keep them! Not necessarily. That would be true if the absolute $$$ collected were the same, but that's not what is asserted. Consider the following: 10 people earn $10 and pay $1 in tax. 10 people earn $20 and pay $5 tax. The total tax collected is 20% of all income. Suppose the government raises tax rates such that the $20 earners will now pay $8 tax. Say 4 of the high earners stop working as much (since their marginal rates are so high). Now you've got: 14 people earn $10 and pay $1. 6 people earn $20 and pay $8 tax. The government now collects 24% of all income. It also collects a higher proportion from the lower income people than it did before. It has lower revenues and people are, on average, poorer. In other words, everyone loses. So you can't just look at effective tax rates to determine whether raising top end tax brackets was good or not.
- extra88 10y ago
  In scenario 1, government collects $60 from $300 earned (20%). In scenario 2, government collects $62 from $260 earned (~24%). In scenario 2, government has higher revenue, not lower. If high earners had to exert themselves twice as much or otherwise expend twice the resources to earn $20 instead of $10, maybe ending up with $9 instead of $12 would be rational. Of course in the real world it rarely works that way, only a few are in a position to work less to earn fewer commissions or work less overtime to avoid entering a higher tax bracket. The brackets are also a lot more graduated, it's not like you could earn $19 and pay $1 tax.
  - djrogers 10y ago
    Except in scenario 1 the person earning $300 has $40 extra to spend or invest somewhere which is good for the economy. Eventually someone else will wind up paying $8 tax on that $40 (20%)...
- rqebmm 10y ago
  > Say 4 of the high earners stop working as much (since their marginal rates are so high). I know you're just using this as an example, but it begs a question I've struggled with: is there any actual proof that marginal tax rates reduce productivity in high earners? On its face it makes perfect micro-economic sense, but that's like saying a cache will never miss or a cow is perfectly spherical. It just doesn't match up with real life experience. I've never once heard someone say "well, I'd ask for that raise, but they're going to take so much in taxes it's just not worth the effort". Anecdotally it hasn't changed my motivations one lick as I've moved up tax brackets, to the point that I recently joked with my dad "I guess I'm done trying now!" when I stopped qualifying for a certain tax credit after I'd negotiated hard for a nice raise. Not-so-anecdotally there's plenty of research that has shown that money (in and of itself) is a terrible motivating factor[0]. [0] https://hbr.org/2013/04/does-money-really-affect-motiv https://hbr.org/2013/04/does-money-really-affect-motiv
Shivetya 10y ago
Progressive taxes only work because the poor get steamrolled by embedded taxes, local fees, and other taxes. Hence the politicians can tell them they have low taxes while eating them from the other end. The primary reason to simplify the tax system is to remove as much influence special interest groups have in regards to carving out special exemptions. Making the system a simply sign and forget return type. A complex burdensome system only provides power to the political class. The real reason to cap tax rates is because it has been proven time and time again, the more they have to spend they will and thereby pay a much higher over all tax rate.
Pokepokalypse 10y ago
In practice; we currently have a very UN-progressive system. Where the very wealthy get excessive tax breaks, and pay even less than the middle and upper-middle class (who are getting fucking murdered: at least that's my experience). Would a flat-tax fix this? In theory: but if we set that "flat tax" to 15-17%; (and simply pocket the cost savings from simplification of tax code) - that seems like a win. But the very poorest quintile can't pay that. (and are equipped to dodge that, by simply not working and collecting aid or taking black-market work - cash-basis labor, or selling drugs, etc.) - the top quintile will also have the means to avoid paying their fair share. As always. It's those in the middle, who have to work REAL jobs, and can't hide their income though either black-market means, or tax-shelters: which still work in a flat-tax system. The government will need to raise overall rates to compensate for this, and the middle gets screwed even more. That's an IDEAL system. In the REAL world: the wealthy will still lobby for special deductions. Personally, I'd like to see the mortgage deduction go away for non-primary residences. Stuff like "dancing-horses" deductions and the absolute murder "small businesses" get away with, (like; taking their personal Truck as a deduction, by calling it a "work truck") - that can be horse-traded around. But I think there is the most to be gained from the mortgage deduction on non-primary residences. This is probably America's most sacred cow. And therefore, is most likely politically impossible. This is why we've been at a stalemate over tax-reform since 1980.
- djrogers 10y ago
  > taking their personal Truck as a deduction, by calling it a "work truck" That's simply tax fraud, it's completely different from the other examples you're calling out..
- tbihl 10y ago
  While most of what you said is spot on, people often misunderstand what constitutes the super rich group with big tax breaks. It's way less than one percent, because it's the big investment money that's getting out of so much taxation. People who earn high salaries are actually paying quite substantial taxes. For some perspective, "the 1%" starts at about $350k annual salary (think middle-of-the-pack surgeon.) At that level, you're paying a lot of taxes. There's an excellent recent Econtalk on taxation in the US.

Cshelton 10y ago

I think you would have to look at the reasons why the government tax revenue did not increase when rates were higher. The rich are have mobility. They can move money around the world and at high tax rate levels, they'd be content on neither earning nor bringing back any of the money they make elsewhere. Let's take an example of Apple's $200 B sitting offshore. I know that's a corporate tax, but same principal. I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels.

Tloewald 10y ago
"I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels." Every dollar of extra tax paid by the wealthy is a dollar of tax that doesn't need to be paid by the non-wealthy. Your belief notwithstanding.
- Cshelton 10y ago
  You missed what I said. I said tax rates, not what was actually paid, as you stated. The people at the top have the ability to move. Or when the tax rates were 90%+ on the top brackets, those people simply reported they made $249,999 that year as they have the ability to find other places for their money. Sorry if that wasn't clear enough. What I originally said is very different than how you understood it. Even in your case though, you assume government spending stays the same. But it doesn't. As government rev. increases, you can bet they will spend their new money as fast as they can. No matter if the additional revenue is coming from lower or upper brackets.
  - Tloewald 10y ago
    You presuppose governments just spend what they get, no-one benefits in any way, and tax rates have no impact at the margins. You're so completely off the mark I don't know where to start. It's fine to be cynical about rich people avoiding tax and the benefit of government programs, but you need to understand what you're being cynical about. The fact is that tax cuts do reduce revenue so having higher taxes clearly did something.
minot 10y ago
> I don't believe the tax burden on the lower classes in the US has ever been lessened by increased rates at the top levels. I'll be frank. I have no reason to believe anyone is honest (not even myself). While we like to say that we are not savage animals, we are. CGP Grey made a video https://youtu.be/rStL7niR7gs?t=1072 https://youtu.be/rStL7niR7gs?t=1072 based on The Dictator's Handbook I read an article on some online magazine which argued that the 0.01% is not the problem but rather the upper middle class as they like to call themselves. I imagine it is the same way all over the world. > “Take the mortgage deduction,” he continued. “This is to stimulate homeownership amongst people who are already going to own homes. That is worth, to a middle-income family, a hundred bucks a year. I was a little surprised by that. You can have your own reaction; I was a little surprised by that.” from https://archive.fo/UgQDd https://archive.fo/UgQDd (NY times link, used to be the title link of this discussion) I'm sure you know this but I didn't think about this for the longest time. Pretty much everybody is a hypocrite. Sorry but if someone advocates for less taxes on the wealthy, the first thing I will look for is whether I think the change will be good for me. Sorry for being selfish but then if I conclude the change is not in my favor, the first thing I will do is not the merits of their ideas but rather follow the money and see what they gain from this change. Life is short. In the bigger scheme of things, we are just trying to find a locally optimal choice. When people say they want to lower taxes, they usually mean they want lower taxes for themselves. When people say they want fewer government services, the idea is usually they want fewer government services that they do not use. > Let's take an example of Apple's $200 B sitting offshore. Just to put things in simple terms, this $200B does not include money Apple made by selling iPhones in the US, right? It only includes money Apple made by selling iPhones in other countries? I don't get why we obsess so much over it. US economy is large enough. If they want to bring this money back to the US or they want to give money to their owners/stock holders, they can pay the tax at that time? I don't have a horse in this race. I am just trying to understand the premise as an outsider.
- abeyer 10y ago
  > Just to put things in simple terms, this $200B does not include money Apple made by selling iPhones in the US, right? It only includes money Apple made by selling iPhones in other countries? I don't get why we obsess so much over it. US economy is large enough. If they want to bring this money back to the US or they want to give money to their owners/stock holders, they can pay the tax at that time? I don't have a horse in this race. I am just trying to understand the premise as an outsider. As an American citizen, I'm still subject to federal income tax, even on income earned while I'm residing outside the country, for work done entirely outside the country, for a non-American employer. That being the case, I see no reason why similar rules shouldn't apply to American corporations. If we say an individual still derives services and value from their citizenship even when outside the country, and thus needs to pay in to support that, why not also American businesses? I don't know enough about business structures and tax code to say _how_ to make it happen, but from a sense of fairness, I think that roughly equitable rules for business and individual entities is a good thing.

runeks 10y ago

> If raising top end bracket taxes didn't increase overall income, then it must be the case that it reduced the tax burden on lower incomes [...] This logic is not sound. Another option is that the wealthy hire accountants in order to avoid paying 90%+ tax on anything. Paying an accountant $1000/hr is almost nothing if it can save you millions of dollars in taxes. So rather than reduce the tax burden on lower-income families, it's possible it just increased the income of accountants.

amscanne 10y ago

> This seems like a pretty poor argument for a flat tax and in fact could be seen as an argument against it. If raising top end bracket taxes didn't increase overall income, then it must be the case that it reduced the tax burden on lower incomes -- which is the entire point of progressive taxes. So progressive taxes work, let's keep them! Not necessarily. That would be true if the absolute $$$ collected were the same, but that's not what is asserted. Consider the following: 10 people earn $10 and pay $1 in tax. 10 people earn $20 and pay $5 tax. The total tax collected is 20% of all income. Suppose the government raises tax rates such that the $20 earners will now pay $8 tax. Say 4 of the high earners stop working as much (since their marginal rates are so high). Now you've got: 14 people earn $10 and pay $1. 6 people earn $20 and pay $8 tax. The government now collects 24% of all income. It also collects a higher proportion from the lower income people than it did before. It has lower revenues and people are, on average, poorer. In other words, everyone loses. So you can't just look at effective tax rates to determine whether raising top end tax brackets was good or not.

extra88 10y ago
In scenario 1, government collects $60 from $300 earned (20%). In scenario 2, government collects $62 from $260 earned (~24%). In scenario 2, government has higher revenue, not lower. If high earners had to exert themselves twice as much or otherwise expend twice the resources to earn $20 instead of $10, maybe ending up with $9 instead of $12 would be rational. Of course in the real world it rarely works that way, only a few are in a position to work less to earn fewer commissions or work less overtime to avoid entering a higher tax bracket. The brackets are also a lot more graduated, it's not like you could earn $19 and pay $1 tax.
- djrogers 10y ago
  Except in scenario 1 the person earning $300 has $40 extra to spend or invest somewhere which is good for the economy. Eventually someone else will wind up paying $8 tax on that $40 (20%)...
rqebmm 10y ago
> Say 4 of the high earners stop working as much (since their marginal rates are so high). I know you're just using this as an example, but it begs a question I've struggled with: is there any actual proof that marginal tax rates reduce productivity in high earners? On its face it makes perfect micro-economic sense, but that's like saying a cache will never miss or a cow is perfectly spherical. It just doesn't match up with real life experience. I've never once heard someone say "well, I'd ask for that raise, but they're going to take so much in taxes it's just not worth the effort". Anecdotally it hasn't changed my motivations one lick as I've moved up tax brackets, to the point that I recently joked with my dad "I guess I'm done trying now!" when I stopped qualifying for a certain tax credit after I'd negotiated hard for a nice raise. Not-so-anecdotally there's plenty of research that has shown that money (in and of itself) is a terrible motivating factor[0]. [0] https://hbr.org/2013/04/does-money-really-affect-motiv https://hbr.org/2013/04/does-money-really-affect-motiv

Shivetya 10y ago

Progressive taxes only work because the poor get steamrolled by embedded taxes, local fees, and other taxes. Hence the politicians can tell them they have low taxes while eating them from the other end. The primary reason to simplify the tax system is to remove as much influence special interest groups have in regards to carving out special exemptions. Making the system a simply sign and forget return type. A complex burdensome system only provides power to the political class. The real reason to cap tax rates is because it has been proven time and time again, the more they have to spend they will and thereby pay a much higher over all tax rate.

Pokepokalypse 10y ago

In practice; we currently have a very UN-progressive system. Where the very wealthy get excessive tax breaks, and pay even less than the middle and upper-middle class (who are getting fucking murdered: at least that's my experience). Would a flat-tax fix this? In theory: but if we set that "flat tax" to 15-17%; (and simply pocket the cost savings from simplification of tax code) - that seems like a win. But the very poorest quintile can't pay that. (and are equipped to dodge that, by simply not working and collecting aid or taking black-market work - cash-basis labor, or selling drugs, etc.) - the top quintile will also have the means to avoid paying their fair share. As always. It's those in the middle, who have to work REAL jobs, and can't hide their income though either black-market means, or tax-shelters: which still work in a flat-tax system. The government will need to raise overall rates to compensate for this, and the middle gets screwed even more. That's an IDEAL system. In the REAL world: the wealthy will still lobby for special deductions. Personally, I'd like to see the mortgage deduction go away for non-primary residences. Stuff like "dancing-horses" deductions and the absolute murder "small businesses" get away with, (like; taking their personal Truck as a deduction, by calling it a "work truck") - that can be horse-traded around. But I think there is the most to be gained from the mortgage deduction on non-primary residences. This is probably America's most sacred cow. And therefore, is most likely politically impossible. This is why we've been at a stalemate over tax-reform since 1980.

djrogers 10y ago
> taking their personal Truck as a deduction, by calling it a "work truck" That's simply tax fraud, it's completely different from the other examples you're calling out..
tbihl 10y ago
While most of what you said is spot on, people often misunderstand what constitutes the super rich group with big tax breaks. It's way less than one percent, because it's the big investment money that's getting out of so much taxation. People who earn high salaries are actually paying quite substantial taxes. For some perspective, "the 1%" starts at about $350k annual salary (think middle-of-the-pack surgeon.) At that level, you're paying a lot of taxes. There's an excellent recent Econtalk on taxation in the US.