3 ms·

Top tax bracket increase. For 40 years the top tax bracket was not less than 70% and for 10 years in that time the top tax bracket was not less than 90%. Basica

• jedberg 7y ago
  I'm aware that the top tax rate was that high, and as you correctly note, almost no one paid that rate. But that's not because they were starting businesses. It's because they lobbied for a ton of loopholes in the tax code. The ultra-rich will stay ultra-rich through regulatory capture. Sometimes the mini-rich will benefit as a side effect.
• AnthonyMouse 7y ago
  > For 40 years the top tax bracket was not less than 70% and for 10 years in that time the top tax bracket was not less than 90%. During the times when those rates were in effect there were so many deductions that nobody with an accountant actually paid them. It wasn't just that business expenses were deductions, people were deducting their homes and personal vehicles and everything. > Basically, don't be a hoarder. If you really think you can spend your money better than the government, grow or start a business and take a tax deduction which will permit you to avoid the tax. That is the exact thing the rich do already, which is why wealth inequality continues to increase -- if you make money and use it to grow your business (which is a tax deduction) then you make even more money, which you then use to grow your business... The canonical example of doing this is probably Amazon, a company that for years made no "profit" not because it was hiding it offshore but because it was reinvesting it all. Which at one point had the highest market cap of any company and is still in the top three, and Bezos is the richest man. But that's not even the biggest reason for the increase in wealth inequality we've seen. It's the cheap credit. If you lower interest rates for years, people are willing to borrow more which inflates asset prices. Then people are forced to pay interest on money they otherwise wouldn't have had to borrow to begin with in order to pay the higher cost of housing and education, meanwhile stock prices increase because demand there is driven by people borrowing too. The result is that ordinary people have to borrow money and pay interest just to live, which reduces their wealth, meanwhile the borrowing-driven demand increases the value of assets already owned by the wealthy, which increases their wealth. To fix this, interest rates have to increase. And then there are two options. The first is that housing and stock prices crash as people sell to pay back the loans they can't afford at the higher interest rates. The second is that we raise interest rates while printing enough money to cause inflation sufficient to offset the reduction in asset values, which effectively leaves housing and stock prices where they are but allows for non-asset inflation (i.e. allows wages to rise) to catch up with them. Bonus points if the printed money funds a UBI.
  • cmurf 7y ago
    >During the times when those rates were in effect there were so many deductions that nobody with an accountant actually paid them. Quite a lot of people with accountants paid the highest tax bracket rates during the Clinton era, and the ~70% rates prior to the Reagan era. >It wasn't just that business expenses were deductions, people were deducting their homes and personal vehicles and everything. I agree the system is gamed to favor things wealthy people perceive as good for them, and have been successful at convincing enough of the political participants that it's good for the country generally. We're unlikely to see a federal reserve policy change. It's becoming increasingly clear the relationship between the stock market and interest rates, and the economy and possibly the politics will not accept an increase in rates. Even the most recent attempt at doing so caused an immediate backlash, even if it's good policy. If there's a recession, how do we combat it by lowering already low interest rates? Solving the political problem first also has difficulties. How do we get a more representative political class, when it functions on money as if politics is a product that you can buy? Establish only living persons can contribute a thing of value to a campaign, and perhaps even only citizens can do so? That would take a constitutional amendment, as the Court has ruled that corporations have free speech rights and money is free speech. Instead of borrowing $2 trillion in cheap loans in exchange for infrastructure assets, the political class chose to borrow $2 trillion for tax cuts primarily for the wealthy. So it isn't just poor people going into debt to buy things. De-feudalizing this system by either politics or law is going to be very difficult. And that leaves something economically breaking in order to compel some kind of political change, whether non-violent or otherwise.
    • AnthonyMouse 7y ago
      > Quite a lot of people with accountants paid the highest tax bracket rates during the Clinton era, and the ~70% rates prior to the Reagan era. The highest marginal rates in the Clinton era were about the same as they are now, and people did not pay ~70% effective rates prior to the Reagan era. The deductions they used to avoid that were eliminated at the same time as the rates were reduced. > It's becoming increasingly clear the relationship between the stock market and interest rates, and the economy and possibly the politics will not accept an increase in rates. Even the most recent attempt at doing so caused an immediate backlash, even if it's good policy. Because you can't just raise interest rates. Raising rates when people are heavily in debt is deflationary, which is catastrophic. You need to create inflationary pressures at the same time to counterbalance that or it all goes south. > If there's a recession, how do we combat it by lowering already low interest rates? Combating recessions by lowering loan interest rates is the bad policy. It's a corruption of the Keynesian policy of having the government borrow money so it can spend without collecting taxes, to stimulate the economy during a recession. The problem is that in the original formulation the government was then expected to collect taxes during the next boom and use them to pay back the debt. This generally didn't happen anyway (the government debt keeps getting bigger), but the real problem is that it can't work that way in the private sector because raising interest rates doesn't generate money indebted people can use to pay back their debts with, it takes away money because they have to pay more interest on their existing debt, which induces defaults and tanks the economy. > How do we get a more representative political class, when it functions on money as if politics is a product that you can buy? Establish only living persons can contribute a thing of value to a campaign, and perhaps even only citizens can do so? This is really not the problem. The problem is that most politicians are shortsighted or bad at economics. You take a policy like the mortgage interest tax deduction and you sell it to everybody. The banks like it, more people taking out bigger mortgages. Current prospective homeowners like it because it reduces their new mortgage payment. Current home sellers like it because it becomes easier to find a buyer to pay your price. But the long-term effect is to gradually raise housing prices to an unsustainable level. And then it's hard to undo, because all those factors are still there. Getting rid of it reduces business for the banks, it raises mortgage payments for new home buyers until housing prices adjust (which takes a while unless there is a big crash), and it makes it harder for sellers to find buyers. They actually staged a minor coup recently and did something genius by raising the standard deduction to the level that most homeowners are no longer taking the mortgage interest deduction. Which reduces the deleterious economic effect of the mortgage interest deduction, and in a couple years when they propose to get rid of it, not enough people will care to prevent it from happening. That's the kind of ingenuity we need to get out of this mess. Just thinking about the campaign money misses the goal. Many of the problematic interest groups are the likes of the AARP, who get there not by having a lot of money but by having a lot of soft power and then advocating policies that aren't even in their own members' interests (e.g. expanding Medicare coverage in a way that unsustainably explodes healthcare costs while somebody else pays for it is not in the interest of someone who has working children and wants them to have a good life). > Instead of borrowing $2 trillion in cheap loans in exchange for infrastructure assets, the political class chose to borrow $2 trillion for tax cuts primarily for the wealthy. So it isn't just poor people going into debt to buy things. Government debt is bizarre and counter-intuitive. They never really pay it back, they just re-borrow it again from somebody else, and that's likely to continue indefinitely. The tax cuts are a combination of good and bad. The idea of billionaires paying less is fairly idiotic, but companies are now finally repatriating money they've held offshore for years and returning it to shareholders, which is good because it allows the shareholders to invest it more efficiently -- Apple can stick to making iPhones and not have to manage an internal mutual fund because the tax code de facto requires it even though they have no specific competence in doing that. Which should mitigate at least some of the effect the previous rules had of growing these companies so large. The problem is that the changes we actually need are more fundamental than a few little tweaks, but big changes are hard to pass. For example, one of the best things we could do is replace income tax with VAT or DBCFT and replace all federal welfare programs and subsidies with a UBI. You can make that as progressive as you like by adjusting the amount of the UBI. But the benefit of doing that is why it's so hard to do -- there are so many interest groups with an existing carve out in the tax code that they all array against any clean slate proposal like that, even if it's against their own interests on net. Because they have a lobbying organization all set up for preserving the capital gains exemption for home sales but nothing exists to say "no, actually, this bill as a whole will benefit our own members in non-real-estate-related ways by more than the cost of not satisfying our organization's stated policy goal and we should just shut up and let it pass." > De-feudalizing this system by either politics or law is going to be very difficult. And that leaves something economically breaking in order to compel some kind of political change, whether non-violent or otherwise. I have some minor hope that we could get somewhere by convincing everyone on both sides that doing everything at the federal level is a bad idea and hand it all over to the states. Then different states can do different things and see which one works, then either adopt the policies that turn out to work the best or just agree to disagree and each do their own thing. But that's as big a change as anything and has the same level of difficulty with challenging established interests.