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The underlying cause of this whole issue is the changes in tax policy instated in the Tax Reform Act of 1986, previously income was taxed at higher rates unless
by mathiasben 9y ago
The underlying cause of this whole issue is the changes in tax policy instated in the Tax Reform Act of 1986, previously income was taxed at higher rates unless deductions were utilized which forced those earnings back into the economy creating jobs funding research, etc.. As it's become easier to retain more earnings there's little incentive not to optimize an entire corporation solely with the purpose of generating returns at the expense of all else. To resolve this USA should consider reverting back to the Internal Revenue Act of 1954. Under this rule set income over $400K/yr was taxed at 90% or it was reinvested in the economy. Do this and this inequality issue will sort itself out in the same time frame it took to do the damage.
- scarface74 9y agoWhat incentive would anyone have in making more then 400K a year if you were going to be taxed at 90%?
- mmierz 9y agoBecause of the 10% they keep, which can still be a huge sum.
- tnzn 9y agoWhy would anyone need more than 400k a year for himself in the first place though ?
- layble 9y ago$400k adjusted for 1954 dollars would be $3.6M.
- sw00pur 9y agoThat's like if you had two cars and the government took one of them. "What do you need two cars for?"
- foepys 9y agoNo, it would be like I had three big houses, two boats, and 10 cars. What do I need half of this for?
- jfnixon 9y agoBernie Sanders has the 3 houses part of it. Dunno about the boats or cars, but he has the houses. Why don't we ask him why he needs 3 houses?
- JSONwebtoken 9y agoBernie Sanders has three big houses, a boat, several cars, and multi-million dollar book deals. What does he need half that stuff for?
- ams6110 9y agoThe people who build houses, boats, and cars might be pretty happy about it.
- adwhit 9y agoMore like if you had 40 cars and the government said they were going to charge you 90% tax for your 41st. In other words, nothing like that.
- mnx 9y ago
- legendiriz68 9y agoTo buy(/invest in) stuff? Not your or mine business anyway.
- aswanson 9y agoTo invest in 2 hippies starting a personal computer company in 1976. To invest in 2 guys in starting a search engine in 1996. To invest in a kid in Harvard making a social network in 2004....
- acidburnNSA 9y agoTrue, but also for multiple homes, fancy cars, world travel, etc. When I worked at a hardware store we had a brochure we could order in a gold-plated Ducane grill for $4 million. That recent graph showing the top 1% having a 6% wealth growth rate is wholly unsustainable for any society. So there's something to be said for trying to level it off.
- aswanson 9y agoWhat makes you think the government would be better at job creation through confiscating more capital than individuals who created the wealth redistributing it through investments and purchases? Every summer home or car bought puts people to work as well, its not like the money disappears.
- acidburnNSA 9y agoI'm not sure that tasking the government with job creation is a good solution. There are many kinds of wealth redistribution that people are talking about these days and I'm only pointing out that it may be necessary. What fraction of wealth are the richest among us spending and investing rather than saving? Yes Bill Gates and Warren Buffett are saving millions of lives, and yes we have Facebook now. But what should we tell Marta Ramos? Enjoy the $0.50 raise after all that hard work! If the wealth continues the trend to concentrate at the top then there will be an increasingly large and unhappy group of people who will elect increasingly non-mainstream politicians who promise to help them, eventually leading to who knows what kind of unpleasantries for all.
- WalterBright 9y ago> What fraction of wealth are the richest among us spending and investing rather than saving? 100%. Nobody has a Scrooge McDuck cash vault. Bank deposits are also spent, in the form of depositor's money being loaned out by the bank.
- chrisco255 9y agoSo you can sell PayPal one day for $200 million and have the capital to build a space ship company and the first viable fully electric car manufacturer.
- lancewiggs 9y agoSadly Musk is an outlier. Very few entrepreneurs have had his impact on the world.
- banned1 9y agoWhat impact?
- ams6110 9y agoAnyone with his wealth is by definition an outlier.
- chrisco255 9y agoI don't think so. I think most successful entrepreneurs continue to reinvest their profits. They may not do so at the scale of Musk individually, but collectively, the activity of millions of business owners across the U.S., reinvesting their profits and continuing to risk it, has a huge net effect on the economy.
- mamon 9y agoThat's for them to decide. Stay away from other people's money and focus on earning your own.
- stale2002 9y ago"need" is besides the point. The point is incentives. People doing work and providing value is a good thing that we don't want to discourage. There is zero point in doing extra work if it will be taxed at 90%. People would just work for half a year, then take the rest off.
- thescribe 9y agoJust like income tax, inflation will eventually push this down to everyone.
- throwawayjava 9y agoIn addition to the 10 percent cut, "or reinvested" is the answer.
- lisper 9y agoYou get to keep 10%. Or you can give the money to charities.
- mathiasben 9y agonot charities, more like angel investments
- hasenj 9y agoWe talk all your things. You get to keep 10%. You should be glad we didn't kill your wife too.
- mathiasben 9y agoavoid the taxes by taking the deductions, invest in new jobs and businesses with the possibility if those investments pan out of making even more money.
- wallawe 9y agoThis is the correct answer, I don't know why you're being downvoted. This would cause people to either (a) leave the country or (b) work until they made their 395k and then stop working for the year. It's actually quite terrifying that people would advocate for taking up to 90% of someone's income. We need to work on solving inequality but this simply isn't the answer. Edit: It's also important to remember that taking more money away from the rich, and feeding it into an already broken and inefficient system (our government) does not equate to lifting people out of poverty.
- osteele 9y ago"It's actually quite terrifying that people would advocate for taking up to 90% of someone's income." Interestingly, the top U.S. tax rate from 1951–1963 was >90%, and it was >50% during the half-century from 1932–1986 – https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_top_rates https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...
- coredog64 9y agoAnd, due to deductions, literally no one paid that rate. Realized tax rate was lower, combined with a bunch of dead weight losses as people optimized for tax avoidance.
- mathiasben 9y agoyes, very few paid the top rate. but that's the point, the excess income was being thrust back into the economy, driving innovation and creating jobs not just languishing in someone's bank account.
- WalterBright 9y ago> thrust back into the economy This is another variation on the "rich people hoard cash" theory, which is completely false. Rich people invest all of their money back into the economy. Even bank deposits are invested back into the economy (when the bank loans it out). Scrooge McDuck cash vaults do not exist.
- dozzie 9y ago> What incentive would anyone have in making more then 400K a year if you were going to be taxed at 90%? I would be quite happy to earn more, and then 400K a year, as you say, even if he was taxed at 90%.
- fapjacks 9y agoRight, it's so ridiculous that people act like suddenly there would be a dearth of people "willing" to work for $400k salaries. Like raising the tax rate would suddenly dry up the pool of people wanting to be millionaires. Gimme a break!
- collyw 9y agoTax rates are usually progressive (I think thats the word). So you get taxed the same as everyone else up until a certain point. Only one you are already making "silly money" do you get taxed at 90%
- Buttons840 9y agoWell. After they've already taken in 400k they could continue to take in money at about 40k per year. If you want to know why people are willing to work for 40k a year, there are lots of people you could ask in our society.
- scarface74 9y agoHave you ever thought that while you're looking at 400K a year as excessive, there are millions of people like the janitors who think our $130K+ tech salaries should also be taxed more heavily and redistributed?
- fapjacks 9y agoThat's part of the problem. Janitors think we're part of the big wealthy one percent, when we're bringing home far more similar wages than the actually wealthy folks. The problem is that the truth differs so greatly from everyone's perception. And how can anybody expect to solve a problem when we can't identify the constituents properly?
- ericd 9y agoThe marginal utility of money decreases drastically as you climb, so someone who is already making 400k obviously isn't going to do double the work to make an additional $40k.
- eli_gottlieb 9y agoWhy should people be incentivized to take home more than 400k/year? Why not reinvest that money in the business and have the executives take home only $150k/year?
- aoeuasdf1 9y agoSuppose you have two options: - Work for MEGACORP and produce $400k/year of value - Develop a new business which has a 30% chance of succeeding. If it succeeds, you estimate it will be worth $50M. Suppose the marginal tax rate for income above $400k/year is 40%, and you want to maximize your expected earnings (say, to donate to a charity you think is particularly effective). Which option is rational? Now suppose the marginal tax rate for income above $400k/year is 100%. Now no matter how high we change that $50M number to be, it's always better to just work for $MEGACORP, because you get a guaranteed paycheck. This is known as a distortion, and is the true cost of taxes. I personally don't care too much where the wealth people creates goes, and I'd like to see less income inequality - but let's not kill the golden goose while we're at it. There are far less distortionary taxes than extremely high income tax rates.
- eli_gottlieb 9y agoHypothetical scenarios are only valuable insofar as they're close to reality. In real life, if I'm taking home $400k/year in salary it's because I'm creating $1 million/year in revenue. Also in real life, a start-up business that will be worth $50 million usually has more like a 1% chance of success, so it's expected value is actually just about 25% more than the proposed salaried job -- less than my value-per-year at my job, actually. Finally, in real life, most people don't want to maximize expected income -- its buying power in terms of personal needs decreases logarithmically. Tax law really has little effect once we use a less imaginative scenario.
- aoeuasdf1 9y agoIf one can create $1 million/year in revenue for $BIGCORP it's completely plausible that they could create $5 million/year in expected value on some better, innovative idea of they own (or a startup's). The only problem is that the second option comes with a double-digit probability of failure. Extremely progressive tax systems artificially distort this decision towards complacency and mediocrity. You mention people are risk averse (logarithmic utility of money). I posit that that is only true for non-altruists. An altruist prefers to save 10000 lives nearly exactly 10 times as much as they prefer to save 1000 lives. Given a secure enough financial base off of which the logarithmic personal rewards factor is a non-issue, this is the primary driver for plenty of people that I personally know.
- dionidium 9y agoThe incentive to keep 10% of every dollar earned over $400k, obviously.
- deepnotderp 9y agoSee, people aren't advocating such high taxes on people making 400K a year, they're advocating it for people making 4 million+ a year. This is a major misconception I see on both sides of the argument, (but definitely more of an issue on the "rah rah Laissez-faire crowd") the worry isn't really about the "1%" who are doctors and engineers who make ~$250K/year after working hard, the worry is really the people who make 20 million dollars a year with nowhere near a proportional value add.
- mathiasben 9y agothe $400k is in 1954 dollars, today's figure would be around 4mil a year
- winstonewert 9y agoIncome inequality has been increasing since the 1970s, so I submit the underlying cause cannot have been a policy change in 1986.
- mathiasben 9y agotrue, the effectiveness of this scheme was slowly eroded beginning shortly after it was enacted. '86 was the knife blow that killed it for good with it's "revenue neutral" rebalancing of the "loopholes" and deductions available for reinvestment tax treatment.
- WalterBright 9y agoThe reinvestment tax treatments you mentioned were more conventionally known as "tax shelters". People structured their income around tax shelters. Tax shelters tended to be crummy investments that only made sense when considering the tax savings. By eliminating the tax shelters and correspondingly lowering the tax rates, Reagan brought about much more efficient allocation of investment capital.
- X86BSD 9y agoInteresting that you noted it started in 1970. Can you think of anything that happened in 1970 that would have started this death spiral of our purchasing power? Perhaps say the severing of our money from gold maybe? Look it's rather simple. You can wax and wane about tax policy until you are blue in the face. The answer lies in the currency, not taxation. I give this example every single time these stories surface. Take a pre-1965 quarter when our money still was constitutional and made with silver. 6.25 grams of silver in that quarter. That silver content has a melt value today, right now, of $3.37. Items that silver quarter can buy today: A gallon and a half of gas = .25 cents 1 gallon of milk = .25 cents 1 loaf of bread = .25 cents The point illustrated is, the problem is your currency is worthless, it has been devalued by the banking cartel of the federal reserve to the point of almost complete worthlessness. And every year prices go up it's your currency losing more value, more purchasing power. It's not rocket science. You have been robbed by bankers. They own you. Washington and company learned their lesson after the continental dollar. Fiat currencies are fraud, and worthless. They always have been and always will be. Our dollar is no different. That's why the constitution has as the supreme law of the land that our currency must be backed by gold or silver. Which can't ever be valued at zero. Because it has intrinsic value. Fiat currency always throughout history, always, hits zero.
- 0xbear 9y agoSays a person who doesn't (yet?) make $400k a year. This too shall pass, once you start making more money.
- fasquoika 9y ago"Socialism never took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires."
- 0xbear 9y agoI am a multimillionaire. Came here with a negative net worth, by way of skilled immigration. Born and raised in the USSR. Don't bother trying to convince me about the virtues of socialism. Unlike you, I actually lived it.
- Nomentatus 9y agoSometimes the exact opposite of a profound error is also a profound error. We certainly have established that socialism can be implemented in a catastrophic fashion; it's harder to prove a negative (that nothing resembling socialism can work.) I share your skepticism, though.
- 0xbear 9y agoThere are always theoreticians who don't really know what they're talking about, but do offer their utterly worthless advice. I'm not talking about you, or anybody else on this thread in particular. Without sufficient pushback, sooner or later these people screw things up for everybody, including themselves, and the poor are hit the hardest by the fallout 100% of the time. When it becomes obvious that they screwed things up, you get people like me telling you just how fucked things can get if you head in that direction, de facto, because we've been there. When you don't have people like me, you head in that direction, because let's face it, most people think that if we just take all the wealth and spread it evenly everyone will be better off. That's not how the world works, however, but it takes decades to go through these cycles to find out for yourself. Greed is good, inequality in outcomes is good. What's bad is inequality in opportunity, and there's less of that here than in most other countries. If you were just born here, you already have the golden ticket. The trick is to not wipe your butt with it.
- AdrianB1 9y agoIt looks like the Soviet Union lost the Cold War on economic grounds, but won it overall by turning Americans to socialism.
- vanderZwan 9y agoNot quite, the US isn't remotely socialist yet, and the thing Lenin did was try to force communism on society instead of wait for it to come "naturally" as a response to capitalism, which is what Marx predicted. So this warming up to socialist ideas is pretty much in line with Marx' predictions and has little to do with the Soviet Union I think.
- AdrianB1 9y agoOh, USA is socialist. Looks at the taxation in the past 150 years and you will understand why, if you want to. Easy way: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...
- fasquoika 9y agoIs your implication that the US is socialist simply for having an income tax? If not, you're going to have to quit the snide remarks and actually explain your opinion...
- AdrianB1 9y agoNo, it is the way it is set. It is a very long discussion, but the extremely simplified version should be: if there is a cost to run the state, split the cost equally to the voting citizens and ask them to pay. The state is not the owner (full or share) of the citizen to raise a percentage of the income as tax, one vote means one tax (in dollars) - that is equal rights and equal burden. The "rich people can afford to pay" is just the way to communism.
- shubb 9y ago
- Taek 9y agoTaxes aren't the core issue. It's more fundamental than that. Imagine taxing bill gates at 95%. He's still thousands of times more wealthy than your average individual. That's not going to change much, other than that America is going to become highly avoided because of the tax pressures. The real issue is that the fundamental structure of our economy aggregates wealth towards the top. Employees who add millions of dollars in value per year to a company get paid a fraction of that. Look at per-emoloyee profits for all of the major corporations. Our economy very heavily favors people who own capital over people who do work on the ground floor. If you want to fix income inequality, you have to look at structures like the stock market, like corporate equity distribution, and pretty much everything we have in place in society that allows the rich to increase their wealth without actually working. Increasing taxes is like taking aspirin to cure Ebola. Sure, you feel better, but it's not going to make you healthy.
- Joe-Z 9y agoYou have to start somewhere though. Changing the "fundamental structure of our economy" takes nothing short of a revolution.
- chrisco255 9y agoWealth is not a zero sum game.
- RyanHamilton 9y agoAre you sure? The earth has finite resources. Wealth is a zero sum game. Even if you want to look at things like entertainment that can be reporduced cheaply, musicians and directors need fed, food is limited, therefore even films/music are limited.
- deleted 9y ago[deleted]
- slavik81 9y ago
- chrisco255 9y agoOnly if you bring back 1954 tax deduction laws too. Most corporate compensation was in the form of generous expense accounts. People would write off cars, real estate, dining expenses and even travel as a perk. So on paper, income was lower but in reality, executives earned much, much more. The 1986 tax reform act changed all that.
- mathiasben 9y agomy proposal is to replace the current tax code with the 1954 act.
- kafkaesq 9y agoThe underlying cause of this whole issue is the changes in tax policy instated in the Tax Reform Act of 1986, previously income was taxed at higher rates unless deductions were utilized which forced those earnings back into the economy creating jobs funding research, etc. But isn't that just a reflection (and after-effect) of a more fundamental, underlying cause -- that is, the extent to which low- (and medium-) skill labor itself has become devalued, in recent decades -- along with, of course, the very class of persons taking those jobs? Along with a host of other changes in attitudes (sharply) favoring the welfare of the high-skilled -- and above all, of the rentiers -- over the welfare of those who actually do the bulk of the work that keeps our civilization actually running? Which is presumably what motivated the actual votes on the particular pieces of legislation you (quite validly) cite.