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> Tax rates decrease at the very top of the income spectrum because our tax codes make a deliberate choice to preferentially tax investments and capital gains.

> Tax rates decrease at the very top of the income spectrum because our tax codes make a deliberate choice to preferentially tax investments and capital gains. Why don't we make some more tax brackets up top and tax dividend + capital gain income more like income?

rayiner 7y ago
Three reasons. 1) Economists generally believe that it is inefficient to tax capital gains. (Dividend income is already mostly treated as ordinary income.) That is to say, raising the same amount of money through capital gains reduces economic activity more than doing so via say consumption taxes. 2) We are already on the high side of the OECD when you combine capital gains rates + corporate tax rates. (Corporate profits are taxed at both steps.) Here in Maryland, the combined state and federal capital gains rate is 28.25%, a hair below Sweden’s 30%. Sweden’s corporate tax rate is also about the same as the current post-Trump tax law. Personally, I’m uncomfortable being to the left of Sweden on anything. 3) As to adding more tax brackets, it just doesn’t raise enough money. Our tax brackets already go well into the top 1%. So you’re talking about targeting the top 0.1%. The total income of that group is about $1 trillion, or 10% of all income: https://inequality.org/facts/income-inequality https://inequality.org/facts/income-inequality. Even confiscatory taxes in that group aren’t going to raise very much money. According to 2014 data, those people paid an average of 27% in federal income taxes alone. (Excluding state income or other taxes). Doubling that, which would take their total taxes to levels far beyond what is typical in Western Europe, would raise maybe $250-300 billion. That’s assuming those people don’t head to Sweden to lower their taxes. At all levels, the United States spends $7 trillion+ annually. Another $250 billion is a drop in the bucket. It’s a fraction of the $3 trillion per year or so that Medicare for All will cost, for example.
- MuffinFlavored 7y ago
  Quality post + discussion, thank you. Unbiased question: What’s your advice for the 50% of Americans who make less than $30k/yr? How are they supposed to afford health care + housing + transportation (let alone preparing for retirement)?
  - rayiner 7y ago
    Get married, have kids, and move to a low cost state. The median married couple with children in Iowa makes $79,000 a year, and in Minnesota it’s $91,000. As to health care, the large majority of Americans who aren’t eligible for Medicare get their health care through their employer. Median out of pocket costs for a family with employer provided insurance are around $7,700, which is affordable on those salaries, especially since it’s pre-tax. Also, on average, Americans’ social security and 401ks cover 70% of pre-retirement income, one of the higher figures in the OECD. The real issue are the 15% or so of Americans who make much less than the median, don’t have employer provided health insurance, etc. I think there should be a strong safety net for those people, particularly subsidized or free health insurance. But we should pay for that safety net the same way every other OECD country does: through consumption taxes and income taxes where the top rates kick in around $70,000. The whole “tax the rich” thing is a distraction. The rich don’t actually make enough money to pay for all the things people want to pay for. If you want European style welfare, you have to tax the 80% of income earned by the bottom 99% more heavily. Note that even under Warren’s Medicare for All Plan, the vast majority of the cost will be paid for with middle class taxes. The wealth tax will pay for less than 10% of the extra spending. But the amount of time spent talking about wealth taxes and 70% rates on super millionaires is much more than the time spent in talking about the new payroll taxes that will actually pay for the bulk of Medicare for All.
    - MuffinFlavored 7y ago
      the 1% only earns 20% of the US taxable income yearly? I didn’t know that. When you say consumption tax, do you mean a VAT? What else? What percentage VAT do you see working in America? 10%? 15%? Somebody making $200k/yr pays ~$41k/yr in federal income taxes. To be more in line with European rates, how much more should they pay? Another $20k/yr? Double?
      - deleted 7y ago
        [deleted]
- Retric 7y ago
  Nominal tax rates are meaningless, total federal corporate taxes where $205 billion in fiscal year 2018. That’s a long way from the nominal 21% federal tax rate.
  - MuffinFlavored 7y ago
    $205b on how much income?
    - Retric 7y ago
      Several ways to calculate that, but ignoring international profits you’re talking something like: https://fred.stlouisfed.org/release/tables?rid=53&eid=18673&od=2018-10-01# https://fred.stlouisfed.org/release/tables?rid=53&eid=18673&... Corporate profits with inventory valuation and capital consumption adjustments: 2018 Q1: 1544b + Q2: 1561b + Q3: 1592b + Q4: 1593b 6290B giving an effective tax rate of 3.3% minus whatever they paid on foreign profits.
      - harryh 7y ago
        You've misinterpreted the data in that link. That isn't showing per quarter profits, but instead the annualized rate sampled by quarter.
        Retric 7y ago
        Thanks that’s much more reasonable 13% then. That’s what I get for posting before going to sleep, I kept thinking that’s to low and posted it anyway,
      - deleted 7y ago
        [deleted]

rayiner 7y ago

Three reasons. 1) Economists generally believe that it is inefficient to tax capital gains. (Dividend income is already mostly treated as ordinary income.) That is to say, raising the same amount of money through capital gains reduces economic activity more than doing so via say consumption taxes. 2) We are already on the high side of the OECD when you combine capital gains rates + corporate tax rates. (Corporate profits are taxed at both steps.) Here in Maryland, the combined state and federal capital gains rate is 28.25%, a hair below Sweden’s 30%. Sweden’s corporate tax rate is also about the same as the current post-Trump tax law. Personally, I’m uncomfortable being to the left of Sweden on anything. 3) As to adding more tax brackets, it just doesn’t raise enough money. Our tax brackets already go well into the top 1%. So you’re talking about targeting the top 0.1%. The total income of that group is about $1 trillion, or 10% of all income: https://inequality.org/facts/income-inequality https://inequality.org/facts/income-inequality. Even confiscatory taxes in that group aren’t going to raise very much money. According to 2014 data, those people paid an average of 27% in federal income taxes alone. (Excluding state income or other taxes). Doubling that, which would take their total taxes to levels far beyond what is typical in Western Europe, would raise maybe $250-300 billion. That’s assuming those people don’t head to Sweden to lower their taxes. At all levels, the United States spends $7 trillion+ annually. Another $250 billion is a drop in the bucket. It’s a fraction of the $3 trillion per year or so that Medicare for All will cost, for example.

MuffinFlavored 7y ago
Quality post + discussion, thank you. Unbiased question: What’s your advice for the 50% of Americans who make less than $30k/yr? How are they supposed to afford health care + housing + transportation (let alone preparing for retirement)?
- rayiner 7y ago
  Get married, have kids, and move to a low cost state. The median married couple with children in Iowa makes $79,000 a year, and in Minnesota it’s $91,000. As to health care, the large majority of Americans who aren’t eligible for Medicare get their health care through their employer. Median out of pocket costs for a family with employer provided insurance are around $7,700, which is affordable on those salaries, especially since it’s pre-tax. Also, on average, Americans’ social security and 401ks cover 70% of pre-retirement income, one of the higher figures in the OECD. The real issue are the 15% or so of Americans who make much less than the median, don’t have employer provided health insurance, etc. I think there should be a strong safety net for those people, particularly subsidized or free health insurance. But we should pay for that safety net the same way every other OECD country does: through consumption taxes and income taxes where the top rates kick in around $70,000. The whole “tax the rich” thing is a distraction. The rich don’t actually make enough money to pay for all the things people want to pay for. If you want European style welfare, you have to tax the 80% of income earned by the bottom 99% more heavily. Note that even under Warren’s Medicare for All Plan, the vast majority of the cost will be paid for with middle class taxes. The wealth tax will pay for less than 10% of the extra spending. But the amount of time spent talking about wealth taxes and 70% rates on super millionaires is much more than the time spent in talking about the new payroll taxes that will actually pay for the bulk of Medicare for All.
  - MuffinFlavored 7y ago
    the 1% only earns 20% of the US taxable income yearly? I didn’t know that. When you say consumption tax, do you mean a VAT? What else? What percentage VAT do you see working in America? 10%? 15%? Somebody making $200k/yr pays ~$41k/yr in federal income taxes. To be more in line with European rates, how much more should they pay? Another $20k/yr? Double?
    - deleted 7y ago
      [deleted]
Retric 7y ago
Nominal tax rates are meaningless, total federal corporate taxes where $205 billion in fiscal year 2018. That’s a long way from the nominal 21% federal tax rate.
- MuffinFlavored 7y ago
  $205b on how much income?
  - Retric 7y ago
    Several ways to calculate that, but ignoring international profits you’re talking something like: https://fred.stlouisfed.org/release/tables?rid=53&eid=18673&od=2018-10-01# https://fred.stlouisfed.org/release/tables?rid=53&eid=18673&... Corporate profits with inventory valuation and capital consumption adjustments: 2018 Q1: 1544b + Q2: 1561b + Q3: 1592b + Q4: 1593b 6290B giving an effective tax rate of 3.3% minus whatever they paid on foreign profits.
    - harryh 7y ago
      You've misinterpreted the data in that link. That isn't showing per quarter profits, but instead the annualized rate sampled by quarter.
      - Retric 7y ago
        Thanks that’s much more reasonable 13% then. That’s what I get for posting before going to sleep, I kept thinking that’s to low and posted it anyway,
    - deleted 7y ago
      [deleted]