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The Rich Do Pay Higher Taxes Than You

34 points by Bostonian 7y ago

blacksqr 7y ago
Author asserts that the poor pay less in taxes after counting stuff that's not taxes. Meanwhile, Warren Buffet pays his taxes at the same effective rate as his secretary.
- rmason 7y ago
  This is a misleading statement. She's paid a salary while he's living off capital gains and they're taxed at separate rates. https://www.entrepreneur.com/article/338189 https://www.entrepreneur.com/article/338189
  - sidlls 7y ago
    They're taxed at separate rates, and the net effect is that his tax rate in income from whatever source is the same as his secretary's. Distinguishing by source is more misleading, in my opinion.
    - sieabahlpark 7y ago
      No it's not, to even get capital gains you must have kept that money in the market for a year, if you pull out early it's taxed as income. Nothing about it is misleading.
      - toomuchtodo 7y ago
        "Why not tax it all as income?" is the point folks are trying to make. Treating "Real Work" > "Capital Work", because income is income. You might argue, "That'll dissuade investment!", but when $17 trillion in negative yield bonds [1] (a third of the bond market) are communicating, "Hey there, not a lot of investment dollars needed kthx", that argument falls flat. Your investment dollars aren't needed. There is nowhere productive for them to go. So why have public policy treat their income differently? [1] https://www.bloomberg.com/graphics/negative-yield-bonds/ https://www.bloomberg.com/graphics/negative-yield-bonds/
        fyz 7y ago
        This is the right take. When you get to a certain level of income/wealth, it's all about figuring out ways to: 1. shift earned income into capital gains (e.g., private equity carry, small business earnings into equity vs salary) 2. defer taxes (401k, mortgage deductions, 1031 exchanges on real estate, etc) 3. avoid taxes (shift jurisdictions) 4. get accountants, lawyers, and lobbyists to figure out additional ways to lower tax burden I'm not saying the government is efficient or that 100-200k incomes should be taxed more, I'm just saying that's the game as it stands. Tax expenditures are the ways the government gives (rebates?) money back, mostly to the wealthy.
        clairity 7y ago
        even without the bond market signals, the “dissuade investment” argument for the capital gains rate fails miserably. capital wants to be invested if there’s even one dollar to be gained over any alternatives. and no, most rich americans won’t move to vietnam or whereever just to avoid those taxes.
        nightski 7y ago
        My argument would not be that it would dissuade investment, but rather limit the ability to achieve class mobility in the United States. It's near impossible to move up an economic class without investment. You can only get so far by saving alone (and it really isn't that far if you are fighting inflation without any return on that cash). But now if you tax the hell out of that vehicle, then it limits the ability to move oneself up even further. Everyone talks like it is only the rich that invest. This just isn't true.
        toomuchtodo 7y ago
        The most likely way one becomes wealthy in America (class mobility) is through starting a business [1]. Treating investment income as income does not change that, when existing legislation promotes reinvesting profits from a business back into a business. [1] https://whorulesamerica.ucsc.edu/power/wealth.html https://whorulesamerica.ucsc.edu/power/wealth.html
        deleted 7y ago
  - danhak 7y ago
    That is exactly the point. The tax code privileges sources of income that prevail among those who already possess wealth. That is the definition of regressive.
    - dahdum 7y ago
      Capital gains are lower because because corporations pay income tax on their earnings already.
      - ceejayoz 7y ago
        Salaries aren't paid out of earnings?
      - cma 7y ago
        Not exactly, capital gains also cover things like passively growing trees as a land barron.
      - kingraoul3 7y ago
        I pay taxes on my income and again at the point of sale.
        basch 7y ago
        and you pay capital gains if something you owns appreciates and you sell it.
      - gamblor956 7y ago
        That is why dividends are subject to special rates, not capital gains.
      - Catsandkites 7y ago
        Is that a good or fair argument though? I get paid and pay 20% then 40% on the rest (banded)... Then as soon as I buy practically anything I'm taxed another 20% on top of that. A corporation pays 19% and then those profiting from that owe 7/32/38% (depending on their total income).
  - 1ris 7y ago
    That's absolutely not misleading, but point on. As you said: She's paid a salary while he's living off capital gains and they're taxed at separate rates.
  - pbreit 7y ago
    And THAT is precisely why the wealthy pay lower taxes!
- darawk 7y ago
  > Author asserts that the poor pay less in taxes after counting stuff that's not taxes. Except that his statement was already true before accounting for those things. > According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available.
  - Retric 7y ago
    Ignoring Social Security, Medicare, State, and Local Taxes etc makes for meaningless comparisons.
    - darawk 7y ago
      Two paragraphs later: > When assessing the total tax burden facing different U.S. households, looking at federal, state and local taxes is instructive. The federal system is more progressive than state and local systems, but combining them — as the Institute on Taxation and Economic Policy has done — doesn’t change the story: the higher your income, the greater your tax burden. Harvard economist and top Obama adviser Jason Furman confirms this by combining federal taxes and transfers with state and local taxes.
      - Retric 7y ago
        Hold up, I was just looking at that CBO report you linked: “Income before transfers and taxes consists of market income plus social insurance benefits (including benefits from Social Security, Medicare, unemployment insurance, and workers’ compensation). Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs.” That’s exactly the arbitrary definitions used to distort what’s going on. I am not saying it’s inaccurate data based on defines used, but all choices are subject to spin. Choices like using 6.2% or 12.4% for Social Security tax rates make a huge difference, and really should be included in these discussions. PS: Progressive also implies the top 0.1%, and 0.0001% also have higher effective tax rates not just an arbitrary top bucket of say 1%. Using words like ‘top’ is again arbitrary. PPS: Anyway, do you have a link for that report your referencing?
- AdrianB1 7y ago
  Please help me understand the subtleties of your comment: he is paying millions in taxes, she is paying thousands and the problem is he is not paying enough?
  - ceejayoz 7y ago
    How far does that argument go? If Buffett's secretary pays $20k in taxes, and Buffett pays $21k, is that fair because he's still paying more? How much lower can his tax rate go versus his secretary's rate before it's unacceptable?
    - umvi 7y ago
      Why isn't it fair that they pay the same tax rate? That's called a flat tax rate and I'm actually in favor of it because of its simplicity. I think all income, regardless of source, should be taxed at a flat rate. It's how it works for tithing in a lot of churches, and it's a very simple but effective system.
      - Frondo 7y ago
        Are the societal effects of a flat tax worth the simplicity? If you optimize for simplicity, but at some greater cost to having a society that functions for all its citizens and residents, is it worth focusing on simplicity?
      - ceejayoz 7y ago
        > Why isn't it fair that they pay the same tax rate? As Buffett points out, they don't. Buffett's is lower, because capital gains are privileged with a substantially lower rate, because the mega-wealthy largely benefit there.
        umvi 7y ago
        Ah, I misunderstood. I think it's a little bogus that the income source determines the tax rate, because then the rich just manipulate their income to use the source with the lowest rates which is a luxury the poor can't afford.
yifanlu 7y ago
Daily reminder that Bloomberg published “The Big Hack” a year ago and haven’t redacted it or made any updates.
- StriverGuy 7y ago
  What evidence do you have to support that the article was false? Additionally, what in the world does it have to do with the OP? Bloomberg is a relatively moderate news source with a strong track record.
  - EdwardCoffin 7y ago
    The burden of proof is on Bloomberg to show that the article has basis in fact, not the other way around. It is relevant to the OP because it gives an idea of how reliable other articles from the same source might be. > with a strong track record. This is what they are disputing.
    - gamblor956 7y ago
      Bloomberg cited their evidence. In contrast, none of the companies in the report have issued a convincing denial based on evidence. Moreover, this week at least one of those companies gave in to China's demands on censorship and it's clear that any prior rebuttal was instigated by the Chinese government as a condition of continuing business in China.
      - mikhailt 7y ago
        Source of the said citation/evidence? The burden is on Bloomberg to provide evidence. They didn’t mention this as a rumor or opinion but acted as if they have evidence proving their statements. In fact, the person they used for their article later said that he was misquoted and even he didn’t believe it is the case: (Source: https://risky.biz/RB517_feature/ https://risky.biz/RB517_feature/) Nobody found any evidence in any actual shipping hardware to prove any thing that Bloomberg has said. As the result, nobody should trust anything Bloomberg says because they are basically making stuff up with no actual proof.
Erudite_Genius 7y ago
Percentages are fair. Charging more tax based on an enumeration like gender, race, religion, or income is actually a violation of the 16th Amendment. It also happens to be Plank #2 of the Communist Manifesto.
htfu 7y ago
What terrible analysis. "Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. The New York Times column describing the Saez-Zucman estimates reports that last year this group had a 23% combined federal, state and local tax rate. In fact, the jury is still out on that number, which is based on a forecast of what income might have been last year. (The data for 2018 aren’t in. If you filed for an extension, your taxes for 2018 aren’t due until next week.) Even if it turns out to be correct, it doesn’t follow that the U.S. system is not progressive." Basically saying "sure, by their metric they're right, but whatever, so there. I win!!"
- refurb 7y ago
  That seems like a reasonable argument to me. The data they used wasn’t actual data.
  - htfu 7y ago
    I think we all know a ten-point swing is not forthcoming. Especially looking back, it's not like this is the first time someone's run the numbers... And most of the piece is spent arguing against something somewhere between an aside and a strawman, then towards the end they admit as much(!), but have nothing substantial to add. Whether your gut agrees with the "message", rhetorically it's just really awful.
    - refurb 7y ago
      Maybe. Another thing that jumped out to me is why the top 400? Why not 500? Why not 100? 400 is an odd number to choose. We know the very top earners tend to be cases of windfalls. You sell your company, you offload all your shares, you sell a ton of land. Those can have odd tax implications. My guess is that they cherry picked the top 400 because it supported their conclusion. And the tax rates were a 1-off event that doesn’t normally happen.
      - htfu 7y ago
        How are you commenting on something like this without knowing about Forbes 400? Are you serious?
sedeki 7y ago
Is the effective tax rate is _primarily_ a function of income, or rather on how much you pay on tax professionals?
- toast0 7y ago
  Tax professionals aren't going to have much to work with if you have a traditional job with a salary. Make sure you take all the deductions that apply and maybe change a couple behaviors to enable more deductions or deferment. To really make a difference in taxation, you need to have the ability to change the character of your income. If you run a tightly held corporation, you can (with some limits) reduce your salary but compensate by paying a dividend, turning more of your income into capital gains. If you run a low employee count company, you can move your income into employer paid 401k contributions, deferring taxes, etc.
berndtj 7y ago
This is looking purely at income tax rate, not rate based on actual taxes paid. Article is misleading at best.
- deleted 7y ago
  [deleted]
gok 7y ago
The math in this article is much more correct than Leonhardt’s but they're both kind of missing the real issue. Yes, income taxes are very progressive, but that's going to need to change if we want to raise a meaningful amount of more revenue. There just isn't enough income at the highest percentiles to move the needle very far.
ojnabieoot 7y ago
There are serious and intellectually honest disagreements about how to actually measure wealth and taxation. And I don't want to accuse the author of outright bad faith. But in my view this segment - the core of the argument - plays fast-and-loose with the facts in a way that is reckless at best: "According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available. This is half of the story. When assessing the progressivity of the U.S. federal system, it makes sense to look at both taxes and the means-tested transfer payments — Medicaid, food stamps and Supplemental Security Income — that those taxes fund." It is in fact one third of the story. It appears the author is conflating federal income taxes with overall federal taxes - specifically, the truly regressive payroll tax is ignored, yet the payments from this tax are counted in the opposite direction. This is just plain bad accounting, and a common enough bit of misunderstanding that Strain should have directly addressed it. Partisan anti-tax activists don't mention the payroll tax, but for the very wealthy it is a pittance, versus a serious burden for the working poor. I think the income cap for payroll taxes is something like $150k: all income beyond that is completely untaxed. For people with 7-figure incomes, it is downright regressive. As someone trying to present a more intellectually serious case than Grover Norquist, Strain should do better, and not let readers like myself wonder if he's lying to them. And I thought this "question" deserved a lot more than one line, considering the issue of untaxed capital gains is the primary reason why left-liberals (correctly) assert the US has a regressive tax system: "How to account for unrealized capital gains when determining income?" In fact, phrasing this as a "gee whiz, what a difficult but ultimately technical question" makes me wonder about the author's intentions. This is the same author who, in 2008 while doing research for the Fed, wrote a shameless and factually ungrounded article supporting the payday loan industry: https://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/crl-morgan-critique-12-10.pdf https://www.responsiblelending.org/sites/default/files/nodes... It is worth noting that this is not a "he got the facts wrong" problem so much as "there is no excuse for getting these facts wrong." He has been a New Right Intellectual for quite some time and I am not very impressed. I am guessing there is a lot of motivated reasoning in here versus outright dishonesty. But either way this Bloomberg article is bad, insulting to the reader, and the ways that they are bad are easily predictable from this author's career.
fabiofzero 7y ago
It's Bloomberg, of course they would publish a self-serving article like this. The medium is the message, the source is part of the content.
golover721 7y ago
What a useless article. No one is disputing the fact that “income tax” is progressive. The problem is the truly wealthy make their money via other mechanisms which are taxed differently. The main one being capital gains which is taxed significantly less than income.
kangnkodos 7y ago
One of the biggest issues is that the long term capital gains rate is only 15% (or perhaps 20% in some cases). It's likely that most of the taxed income of people with high net worth is from capital gains, and not from ordinary income. I'm not sure, but I think he's only talking about people with high ordinary income. He could be including capital gains too. Not sure. He's definitely ignoring high net worth. The author does not directly address the low rate for capital gains. Also, there are two ideas which are easily confused: 1) Do the rich pay more in taxes? Yes. The number of dollars Warren Buffet pays in taxes each year is more than his secratary. 2) Do the rich pay taxes at a higher percentage of their income? This article indicates the answer to this question is also yes. However because capital gains are taxed at such a low rate, and because of other loopholes, Warren Buffet's percentage tax rate is lower than his secretary's percentage tax rate. Also, people with a high net worth do not have to sell stocks which have gained every single year. Maybe they sold some stocks a few years ago, and they are spending the cash. In the author's analysis, a high net worth individual with no ordinary income and no capital gains for this year would not be included in this analysis at all, because they had almost no income last year (probabaly a little interest and dividends, but nothing else).
- jshaqaw 7y ago
  This is not a defense of the low capital gains tax rate but comprehensively it needs to be included that for a C corp each dollar of income is already taxed at the corp level before being distributed as capital gains or dividends. On a per dollar of income basis the gap between ordinary income and capital income is collapsed due to that double taxation.
  - blacksqr 7y ago
    Only net corporate income is taxed, not gross income. Imagine if you only had to pay income tax on the money you had left over after paying all your living expenses. That's the deal corporations get.
    - jshaqaw 7y ago
      I’m not sure how the math on gross income (which I assume you mean to be revenue) would work. Any business without insanely high gross margins would cease to exist. Could you explain?
jacknews 7y ago
Is it me or does the content of the article not in fact support the headline. Let alone the true facts, ie how the rich actually pay themselves (not just in taxable income), etc.

34 points by Bostonian 7y ago

Author asserts that the poor pay less in taxes after counting stuff that's not taxes. Meanwhile, Warren Buffet pays his taxes at the same effective rate as his secretary.

rmason 7y ago
This is a misleading statement. She's paid a salary while he's living off capital gains and they're taxed at separate rates. https://www.entrepreneur.com/article/338189 https://www.entrepreneur.com/article/338189
- sidlls 7y ago
  They're taxed at separate rates, and the net effect is that his tax rate in income from whatever source is the same as his secretary's. Distinguishing by source is more misleading, in my opinion.
  - sieabahlpark 7y ago
    No it's not, to even get capital gains you must have kept that money in the market for a year, if you pull out early it's taxed as income. Nothing about it is misleading.
    - toomuchtodo 7y ago
      "Why not tax it all as income?" is the point folks are trying to make. Treating "Real Work" > "Capital Work", because income is income. You might argue, "That'll dissuade investment!", but when $17 trillion in negative yield bonds [1] (a third of the bond market) are communicating, "Hey there, not a lot of investment dollars needed kthx", that argument falls flat. Your investment dollars aren't needed. There is nowhere productive for them to go. So why have public policy treat their income differently? [1] https://www.bloomberg.com/graphics/negative-yield-bonds/ https://www.bloomberg.com/graphics/negative-yield-bonds/
      - fyz 7y ago
        This is the right take. When you get to a certain level of income/wealth, it's all about figuring out ways to: 1. shift earned income into capital gains (e.g., private equity carry, small business earnings into equity vs salary) 2. defer taxes (401k, mortgage deductions, 1031 exchanges on real estate, etc) 3. avoid taxes (shift jurisdictions) 4. get accountants, lawyers, and lobbyists to figure out additional ways to lower tax burden I'm not saying the government is efficient or that 100-200k incomes should be taxed more, I'm just saying that's the game as it stands. Tax expenditures are the ways the government gives (rebates?) money back, mostly to the wealthy.
      - clairity 7y ago
        even without the bond market signals, the “dissuade investment” argument for the capital gains rate fails miserably. capital wants to be invested if there’s even one dollar to be gained over any alternatives. and no, most rich americans won’t move to vietnam or whereever just to avoid those taxes.
      - nightski 7y ago
        My argument would not be that it would dissuade investment, but rather limit the ability to achieve class mobility in the United States. It's near impossible to move up an economic class without investment. You can only get so far by saving alone (and it really isn't that far if you are fighting inflation without any return on that cash). But now if you tax the hell out of that vehicle, then it limits the ability to move oneself up even further. Everyone talks like it is only the rich that invest. This just isn't true.
        toomuchtodo 7y ago
        The most likely way one becomes wealthy in America (class mobility) is through starting a business [1]. Treating investment income as income does not change that, when existing legislation promotes reinvesting profits from a business back into a business. [1] https://whorulesamerica.ucsc.edu/power/wealth.html https://whorulesamerica.ucsc.edu/power/wealth.html
        deleted 7y ago
- danhak 7y ago
  That is exactly the point. The tax code privileges sources of income that prevail among those who already possess wealth. That is the definition of regressive.
  - dahdum 7y ago
    Capital gains are lower because because corporations pay income tax on their earnings already.
    - ceejayoz 7y ago
      Salaries aren't paid out of earnings?
    - cma 7y ago
      Not exactly, capital gains also cover things like passively growing trees as a land barron.
    - kingraoul3 7y ago
      I pay taxes on my income and again at the point of sale.
      - basch 7y ago
        and you pay capital gains if something you owns appreciates and you sell it.
    - gamblor956 7y ago
      That is why dividends are subject to special rates, not capital gains.
    - Catsandkites 7y ago
      Is that a good or fair argument though? I get paid and pay 20% then 40% on the rest (banded)... Then as soon as I buy practically anything I'm taxed another 20% on top of that. A corporation pays 19% and then those profiting from that owe 7/32/38% (depending on their total income).
- 1ris 7y ago
  That's absolutely not misleading, but point on. As you said: She's paid a salary while he's living off capital gains and they're taxed at separate rates.
- pbreit 7y ago
  And THAT is precisely why the wealthy pay lower taxes!
darawk 7y ago
> Author asserts that the poor pay less in taxes after counting stuff that's not taxes. Except that his statement was already true before accounting for those things. > According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available.
- Retric 7y ago
  Ignoring Social Security, Medicare, State, and Local Taxes etc makes for meaningless comparisons.
  - darawk 7y ago
    Two paragraphs later: > When assessing the total tax burden facing different U.S. households, looking at federal, state and local taxes is instructive. The federal system is more progressive than state and local systems, but combining them — as the Institute on Taxation and Economic Policy has done — doesn’t change the story: the higher your income, the greater your tax burden. Harvard economist and top Obama adviser Jason Furman confirms this by combining federal taxes and transfers with state and local taxes.
    - Retric 7y ago
      Hold up, I was just looking at that CBO report you linked: “Income before transfers and taxes consists of market income plus social insurance benefits (including benefits from Social Security, Medicare, unemployment insurance, and workers’ compensation). Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs.” That’s exactly the arbitrary definitions used to distort what’s going on. I am not saying it’s inaccurate data based on defines used, but all choices are subject to spin. Choices like using 6.2% or 12.4% for Social Security tax rates make a huge difference, and really should be included in these discussions. PS: Progressive also implies the top 0.1%, and 0.0001% also have higher effective tax rates not just an arbitrary top bucket of say 1%. Using words like ‘top’ is again arbitrary. PPS: Anyway, do you have a link for that report your referencing?
AdrianB1 7y ago
Please help me understand the subtleties of your comment: he is paying millions in taxes, she is paying thousands and the problem is he is not paying enough?
- ceejayoz 7y ago
  How far does that argument go? If Buffett's secretary pays $20k in taxes, and Buffett pays $21k, is that fair because he's still paying more? How much lower can his tax rate go versus his secretary's rate before it's unacceptable?
  - umvi 7y ago
    Why isn't it fair that they pay the same tax rate? That's called a flat tax rate and I'm actually in favor of it because of its simplicity. I think all income, regardless of source, should be taxed at a flat rate. It's how it works for tithing in a lot of churches, and it's a very simple but effective system.
    - Frondo 7y ago
      Are the societal effects of a flat tax worth the simplicity? If you optimize for simplicity, but at some greater cost to having a society that functions for all its citizens and residents, is it worth focusing on simplicity?
    - ceejayoz 7y ago
      > Why isn't it fair that they pay the same tax rate? As Buffett points out, they don't. Buffett's is lower, because capital gains are privileged with a substantially lower rate, because the mega-wealthy largely benefit there.
      - umvi 7y ago
        Ah, I misunderstood. I think it's a little bogus that the income source determines the tax rate, because then the rich just manipulate their income to use the source with the lowest rates which is a luxury the poor can't afford.

yifanlu 7y ago

Daily reminder that Bloomberg published “The Big Hack” a year ago and haven’t redacted it or made any updates.

StriverGuy 7y ago
What evidence do you have to support that the article was false? Additionally, what in the world does it have to do with the OP? Bloomberg is a relatively moderate news source with a strong track record.
- EdwardCoffin 7y ago
  The burden of proof is on Bloomberg to show that the article has basis in fact, not the other way around. It is relevant to the OP because it gives an idea of how reliable other articles from the same source might be. > with a strong track record. This is what they are disputing.
  - gamblor956 7y ago
    Bloomberg cited their evidence. In contrast, none of the companies in the report have issued a convincing denial based on evidence. Moreover, this week at least one of those companies gave in to China's demands on censorship and it's clear that any prior rebuttal was instigated by the Chinese government as a condition of continuing business in China.
    - mikhailt 7y ago
      Source of the said citation/evidence? The burden is on Bloomberg to provide evidence. They didn’t mention this as a rumor or opinion but acted as if they have evidence proving their statements. In fact, the person they used for their article later said that he was misquoted and even he didn’t believe it is the case: (Source: https://risky.biz/RB517_feature/ https://risky.biz/RB517_feature/) Nobody found any evidence in any actual shipping hardware to prove any thing that Bloomberg has said. As the result, nobody should trust anything Bloomberg says because they are basically making stuff up with no actual proof.

Erudite_Genius 7y ago

Percentages are fair. Charging more tax based on an enumeration like gender, race, religion, or income is actually a violation of the 16th Amendment. It also happens to be Plank #2 of the Communist Manifesto.

htfu 7y ago

What terrible analysis. "Saez and Zucman train much of their focus on the 400 wealthiest Americans. This group makes up 0.0003% of households. The New York Times column describing the Saez-Zucman estimates reports that last year this group had a 23% combined federal, state and local tax rate. In fact, the jury is still out on that number, which is based on a forecast of what income might have been last year. (The data for 2018 aren’t in. If you filed for an extension, your taxes for 2018 aren’t due until next week.) Even if it turns out to be correct, it doesn’t follow that the U.S. system is not progressive." Basically saying "sure, by their metric they're right, but whatever, so there. I win!!"

refurb 7y ago
That seems like a reasonable argument to me. The data they used wasn’t actual data.
- htfu 7y ago
  I think we all know a ten-point swing is not forthcoming. Especially looking back, it's not like this is the first time someone's run the numbers... And most of the piece is spent arguing against something somewhere between an aside and a strawman, then towards the end they admit as much(!), but have nothing substantial to add. Whether your gut agrees with the "message", rhetorically it's just really awful.
  - refurb 7y ago
    Maybe. Another thing that jumped out to me is why the top 400? Why not 500? Why not 100? 400 is an odd number to choose. We know the very top earners tend to be cases of windfalls. You sell your company, you offload all your shares, you sell a ton of land. Those can have odd tax implications. My guess is that they cherry picked the top 400 because it supported their conclusion. And the tax rates were a 1-off event that doesn’t normally happen.
    - htfu 7y ago
      How are you commenting on something like this without knowing about Forbes 400? Are you serious?

sedeki 7y ago

Is the effective tax rate is _primarily_ a function of income, or rather on how much you pay on tax professionals?

toast0 7y ago
Tax professionals aren't going to have much to work with if you have a traditional job with a salary. Make sure you take all the deductions that apply and maybe change a couple behaviors to enable more deductions or deferment. To really make a difference in taxation, you need to have the ability to change the character of your income. If you run a tightly held corporation, you can (with some limits) reduce your salary but compensate by paying a dividend, turning more of your income into capital gains. If you run a low employee count company, you can move your income into employer paid 401k contributions, deferring taxes, etc.

berndtj 7y ago

This is looking purely at income tax rate, not rate based on actual taxes paid. Article is misleading at best.

deleted 7y ago
[deleted]

gok 7y ago

The math in this article is much more correct than Leonhardt’s but they're both kind of missing the real issue. Yes, income taxes are very progressive, but that's going to need to change if we want to raise a meaningful amount of more revenue. There just isn't enough income at the highest percentiles to move the needle very far.

ojnabieoot 7y ago

There are serious and intellectually honest disagreements about how to actually measure wealth and taxation. And I don't want to accuse the author of outright bad faith. But in my view this segment - the core of the argument - plays fast-and-loose with the facts in a way that is reckless at best: "According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available. This is half of the story. When assessing the progressivity of the U.S. federal system, it makes sense to look at both taxes and the means-tested transfer payments — Medicaid, food stamps and Supplemental Security Income — that those taxes fund." It is in fact one third of the story. It appears the author is conflating federal income taxes with overall federal taxes - specifically, the truly regressive payroll tax is ignored, yet the payments from this tax are counted in the opposite direction. This is just plain bad accounting, and a common enough bit of misunderstanding that Strain should have directly addressed it. Partisan anti-tax activists don't mention the payroll tax, but for the very wealthy it is a pittance, versus a serious burden for the working poor. I think the income cap for payroll taxes is something like $150k: all income beyond that is completely untaxed. For people with 7-figure incomes, it is downright regressive. As someone trying to present a more intellectually serious case than Grover Norquist, Strain should do better, and not let readers like myself wonder if he's lying to them. And I thought this "question" deserved a lot more than one line, considering the issue of untaxed capital gains is the primary reason why left-liberals (correctly) assert the US has a regressive tax system: "How to account for unrealized capital gains when determining income?" In fact, phrasing this as a "gee whiz, what a difficult but ultimately technical question" makes me wonder about the author's intentions. This is the same author who, in 2008 while doing research for the Fed, wrote a shameless and factually ungrounded article supporting the payday loan industry: https://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/crl-morgan-critique-12-10.pdf https://www.responsiblelending.org/sites/default/files/nodes... It is worth noting that this is not a "he got the facts wrong" problem so much as "there is no excuse for getting these facts wrong." He has been a New Right Intellectual for quite some time and I am not very impressed. I am guessing there is a lot of motivated reasoning in here versus outright dishonesty. But either way this Bloomberg article is bad, insulting to the reader, and the ways that they are bad are easily predictable from this author's career.

fabiofzero 7y ago

It's Bloomberg, of course they would publish a self-serving article like this. The medium is the message, the source is part of the content.

golover721 7y ago

What a useless article. No one is disputing the fact that “income tax” is progressive. The problem is the truly wealthy make their money via other mechanisms which are taxed differently. The main one being capital gains which is taxed significantly less than income.

kangnkodos 7y ago

One of the biggest issues is that the long term capital gains rate is only 15% (or perhaps 20% in some cases). It's likely that most of the taxed income of people with high net worth is from capital gains, and not from ordinary income. I'm not sure, but I think he's only talking about people with high ordinary income. He could be including capital gains too. Not sure. He's definitely ignoring high net worth. The author does not directly address the low rate for capital gains. Also, there are two ideas which are easily confused: 1) Do the rich pay more in taxes? Yes. The number of dollars Warren Buffet pays in taxes each year is more than his secratary. 2) Do the rich pay taxes at a higher percentage of their income? This article indicates the answer to this question is also yes. However because capital gains are taxed at such a low rate, and because of other loopholes, Warren Buffet's percentage tax rate is lower than his secretary's percentage tax rate. Also, people with a high net worth do not have to sell stocks which have gained every single year. Maybe they sold some stocks a few years ago, and they are spending the cash. In the author's analysis, a high net worth individual with no ordinary income and no capital gains for this year would not be included in this analysis at all, because they had almost no income last year (probabaly a little interest and dividends, but nothing else).

jshaqaw 7y ago
This is not a defense of the low capital gains tax rate but comprehensively it needs to be included that for a C corp each dollar of income is already taxed at the corp level before being distributed as capital gains or dividends. On a per dollar of income basis the gap between ordinary income and capital income is collapsed due to that double taxation.
- blacksqr 7y ago
  Only net corporate income is taxed, not gross income. Imagine if you only had to pay income tax on the money you had left over after paying all your living expenses. That's the deal corporations get.
  - jshaqaw 7y ago
    I’m not sure how the math on gross income (which I assume you mean to be revenue) would work. Any business without insanely high gross margins would cease to exist. Could you explain?

jacknews 7y ago

Is it me or does the content of the article not in fact support the headline. Let alone the true facts, ie how the rich actually pay themselves (not just in taxable income), etc.