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The thrust of this post is wrong; while I'm looking for a good breakdown of tax burden by quintile I'll just observe: "We live in NYC and according to our acco

The thrust of this post is wrong; while I'm looking for a good breakdown of tax burden by quintile I'll just observe: "We live in NYC and according to our accountants, we pay a marginal fully loaded tax rate of 47.62%. That means we keep about half of the ordinary income the Gotham Gal and I generate." The second sentence glides over the key word in the first sentence, "marginal". AVC and GG pay much lower rates on the first income they earn during the year -- it is only the income that exceeds what most people will ever earn during a year that is taxed at the higher income rate. Conversely, the first income -- the income they have in common with ordinary people -- is subject to social security and unemployment tax -- but the extraordinary income that makes them very wealthy is not. They also probably pay much less of their income in sales tax and small fees that most Americans. Finally, according to the IRS in several recent years 10% of the capital gains income in the entire country has gone to the richest 400 tax payers, whose average tax rate is not the 47% rate AVC cites, but 17%: http://krugman.blogs.nytimes.com/2011/04/30/who-benefits-from-bubbles/ http://krugman.blogs.nytimes.com/2011/04/30/who-benefits-fro... Edit: here's total tax distribution by quintile: http://curiouscapitalist.blogs.time.com/2009/01/07/moving-from-judd-greggs-dubious-tax-math-to-robert-reichs-dubious-tax-language/ http://curiouscapitalist.blogs.time.com/2009/01/07/moving-fr... . Note that the 34.5% paid by the richest 20% drops sharply for the very richest.

yummyfajitas 16y ago
Yes, instead of paying taxes directly, the corporations owned by those 400 taxpayers paid taxes on profits (15-35%). Then their owners paid an additional 15-35% tax on those profits (averaging out to 17% for the top 400). I agree - we should make it fairer. We should eliminate taxes on corporations and replace it with taxes on their owners. It's unfair that the owners of corporations are taxed at such high rates, but the taxes they pay are ignored by journalists and propagandists.
- yequalsx 16y ago
  When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their profits. Some even pay zero tax whilst making billions in profit. I believe that the effective tax rate on U.S. corporations is roughly the industrialized nation average. Having no corporate tax would make the U.S. an outlier in terms of tax policy. This doesn't make it unsound but does make me hesitant to agree with you on this point. Are the tax policies of most nations unfair to corporations? I have a hard time believing this to be so. Imagine a business with one owner. The owner employs 5 workers. Shouldn't the business pay tax on the profits? Suppose the business owner makes a profit of $100,000. Should this be tax free because he/she owns a business? If the business owner made $100,000 while working at 3M then the salary (profit) would be taxed. I think the philosophy under girding the tax system is that, roughly speaking, any entity that gets money [edit] should pay tax on it. This seems fair to me. There are notable exceptions of course. If I find $5 million dollars in gold while on a walk I pay tax on the whole amount. If I get the money because someone died I don't.
  - yummyfajitas 16y ago
    Some even pay zero tax whilst making billions in profit. Yes, typically because they lost billions in prior years. Sometimes also due to various tax subsidies (e.g., green energy tax credits in the case of GE). Are the tax policies of most nations unfair to corporations? I didn't say it was unfair to corporations. I don't believe that a claim like "unfair to corporations" even makes logical sense. I said it was unfair to their owners. Consider your hypothetical business owner. Out of the $100k in profits, the business pays perhaps $20k. The business owner then pays another $15k. But then people trying to score political points complain that he is getting away with something, and paying only $15k on $80k (19%). I think that's unfair. Under my proposal, the business pays $0k and the owner pays $35k. This way, he gets to take (moral/political) credit for the taxes he pays just like a salaried employee. (Similarly, I favor eliminating payroll taxes.)
    - yequalsx 16y ago
      In the example provided, the business does not pay tax on the $100,000 given to the owner (as salary or other form of compensation) as that is an expense of the business. The business only pays tax on the profits to the business (as an entity separate from the owner). There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people"? It can be said of a policy that it is unfair to corporations. Suppose the only entities that were taxed were corporate entities. In such a case one would reasonably say that the tax structure was unfair to corporations. Owners of a corporation are stock holders. They make a profit on their holding via dividends and selling the stock at a higher price than what they bought it for. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. I believe it is a sound principle - for the maintenance of consistency, which is what fairness really is about in this issue - that entities that make a profit pay tax on it.
      - yummyfajitas 16y ago
        You are conflating salaries and dividends. The business doesn't pay tax on $100k salary (it's an expense) and the owner pays ordinary income tax on that. The same is true for pass-through corporations, which make up a large fraction of the profitable corporations that pay no taxes. The business does pay tax on profits and spends after tax dollars distributing dividends to shareholders. Similarly, after tax dollars contribute to a corporate valuation which enables owners to sell shares and take capital gains. A corporation is a person in the U.S. The term "person" has been overloaded and you are conflating different uses of the term. A corporation is a legal person, which means they can enter contracts, file lawsuits and be sued. This provides a common interface for counterparties, nothing more. A corporation is a set of assets, liabilities, a web of contracts governing the management of said assets/liabilities and a government guarantee of limited liability. I can't see how it makes sense to discuss whether something is unfair to my company. Similarly, it makes no sense discussing whether something is unfair to my cell phone and service contract. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. Me too. All I said is that it's unfair to tax profits to the tune of $20k, dividends to the tune of $15k, and then pretend the owner of the corporation is only paying $15k in taxes. If you want to discuss the taxes paid by the top 400 taxpayers in the US, include the corporate taxes paid by the companies they own.
- tzs 16y ago
  When one person receives income and pays tax on it, and then spends that income, so that it becomes income for someone else, it is not double taxation that the second person pays tax. Corporations are legally distinct persons, separate from their owners, so the situation is essentially the same. If the owners wish to avoid this, they can structure their business so that it is not a C corporation. Of course, then they give up many of the advantages of having the corporation be a separate person legally.
- spenrose 16y ago
  One thing the richest people are VERY good at is paying themselves. If double taxation of capital were a problem, they could solve it by paying themselves salaries instead. They don't. I'm speaking of the executives here, of course. A bunch of those 400 richest got where they were by having 23 chromosomes donated by a CEO. The record of personal achievement by heirs is decidedly mixed.
roel_v 16y ago
I understood this sentence, and I think it's the most likely explanation, that the total tax pressure is 47.62%. That lower brackets are taxed lower doesn't matter. As one makes more, the total tax pressure will approach the tax rate of the highest bracket; in other words, if the lower brackets are a marginal amount of the total, the lower brackets don't matter very much are more. I'm just waiting for someone to calculate his total gross income last year from that figure. Some journalist from the NYT living in the Netherlands did a long article on the Dutch tax system a while ago, expressing surprise at the total tax percentage he paid. He was quite surprised when I emailed him back with a calculation illustrating the errors in his article, and at the same time deriving his gross income (which was only just within the highest tax bracket, 52%, btw - so his complaint how he was 'paying more than half of his income in taxes! omg!' was totally wrong). That said, I don't think this error was made in this article, and that the 47.62 is the net, effective tax burden.
- dbfclark 16y ago
  "That said, I don't think this error was made in this article, and that the 47.62 is the net, effective tax burden." Nope, he says it's the marginal rate. See my comment above.
  - roel_v 16y ago
    Re-reading and doing some research on the common use of "fully loaded", I think you're right.

yummyfajitas 16y ago

Yes, instead of paying taxes directly, the corporations owned by those 400 taxpayers paid taxes on profits (15-35%). Then their owners paid an additional 15-35% tax on those profits (averaging out to 17% for the top 400). I agree - we should make it fairer. We should eliminate taxes on corporations and replace it with taxes on their owners. It's unfair that the owners of corporations are taxed at such high rates, but the taxes they pay are ignored by journalists and propagandists.

yequalsx 16y ago
When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their profits. Some even pay zero tax whilst making billions in profit. I believe that the effective tax rate on U.S. corporations is roughly the industrialized nation average. Having no corporate tax would make the U.S. an outlier in terms of tax policy. This doesn't make it unsound but does make me hesitant to agree with you on this point. Are the tax policies of most nations unfair to corporations? I have a hard time believing this to be so. Imagine a business with one owner. The owner employs 5 workers. Shouldn't the business pay tax on the profits? Suppose the business owner makes a profit of $100,000. Should this be tax free because he/she owns a business? If the business owner made $100,000 while working at 3M then the salary (profit) would be taxed. I think the philosophy under girding the tax system is that, roughly speaking, any entity that gets money [edit] should pay tax on it. This seems fair to me. There are notable exceptions of course. If I find $5 million dollars in gold while on a walk I pay tax on the whole amount. If I get the money because someone died I don't.
- yummyfajitas 16y ago
  Some even pay zero tax whilst making billions in profit. Yes, typically because they lost billions in prior years. Sometimes also due to various tax subsidies (e.g., green energy tax credits in the case of GE). Are the tax policies of most nations unfair to corporations? I didn't say it was unfair to corporations. I don't believe that a claim like "unfair to corporations" even makes logical sense. I said it was unfair to their owners. Consider your hypothetical business owner. Out of the $100k in profits, the business pays perhaps $20k. The business owner then pays another $15k. But then people trying to score political points complain that he is getting away with something, and paying only $15k on $80k (19%). I think that's unfair. Under my proposal, the business pays $0k and the owner pays $35k. This way, he gets to take (moral/political) credit for the taxes he pays just like a salaried employee. (Similarly, I favor eliminating payroll taxes.)
  - yequalsx 16y ago
    In the example provided, the business does not pay tax on the $100,000 given to the owner (as salary or other form of compensation) as that is an expense of the business. The business only pays tax on the profits to the business (as an entity separate from the owner). There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people"? It can be said of a policy that it is unfair to corporations. Suppose the only entities that were taxed were corporate entities. In such a case one would reasonably say that the tax structure was unfair to corporations. Owners of a corporation are stock holders. They make a profit on their holding via dividends and selling the stock at a higher price than what they bought it for. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. I believe it is a sound principle - for the maintenance of consistency, which is what fairness really is about in this issue - that entities that make a profit pay tax on it.
    - yummyfajitas 16y ago
      You are conflating salaries and dividends. The business doesn't pay tax on $100k salary (it's an expense) and the owner pays ordinary income tax on that. The same is true for pass-through corporations, which make up a large fraction of the profitable corporations that pay no taxes. The business does pay tax on profits and spends after tax dollars distributing dividends to shareholders. Similarly, after tax dollars contribute to a corporate valuation which enables owners to sell shares and take capital gains. A corporation is a person in the U.S. The term "person" has been overloaded and you are conflating different uses of the term. A corporation is a legal person, which means they can enter contracts, file lawsuits and be sued. This provides a common interface for counterparties, nothing more. A corporation is a set of assets, liabilities, a web of contracts governing the management of said assets/liabilities and a government guarantee of limited liability. I can't see how it makes sense to discuss whether something is unfair to my company. Similarly, it makes no sense discussing whether something is unfair to my cell phone and service contract. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. Me too. All I said is that it's unfair to tax profits to the tune of $20k, dividends to the tune of $15k, and then pretend the owner of the corporation is only paying $15k in taxes. If you want to discuss the taxes paid by the top 400 taxpayers in the US, include the corporate taxes paid by the companies they own.
tzs 16y ago
When one person receives income and pays tax on it, and then spends that income, so that it becomes income for someone else, it is not double taxation that the second person pays tax. Corporations are legally distinct persons, separate from their owners, so the situation is essentially the same. If the owners wish to avoid this, they can structure their business so that it is not a C corporation. Of course, then they give up many of the advantages of having the corporation be a separate person legally.
spenrose 16y ago
One thing the richest people are VERY good at is paying themselves. If double taxation of capital were a problem, they could solve it by paying themselves salaries instead. They don't. I'm speaking of the executives here, of course. A bunch of those 400 richest got where they were by having 23 chromosomes donated by a CEO. The record of personal achievement by heirs is decidedly mixed.

roel_v 16y ago

I understood this sentence, and I think it's the most likely explanation, that the total tax pressure is 47.62%. That lower brackets are taxed lower doesn't matter. As one makes more, the total tax pressure will approach the tax rate of the highest bracket; in other words, if the lower brackets are a marginal amount of the total, the lower brackets don't matter very much are more. I'm just waiting for someone to calculate his total gross income last year from that figure. Some journalist from the NYT living in the Netherlands did a long article on the Dutch tax system a while ago, expressing surprise at the total tax percentage he paid. He was quite surprised when I emailed him back with a calculation illustrating the errors in his article, and at the same time deriving his gross income (which was only just within the highest tax bracket, 52%, btw - so his complaint how he was 'paying more than half of his income in taxes! omg!' was totally wrong). That said, I don't think this error was made in this article, and that the 47.62 is the net, effective tax burden.

dbfclark 16y ago
"That said, I don't think this error was made in this article, and that the 47.62 is the net, effective tax burden." Nope, he says it's the marginal rate. See my comment above.
- roel_v 16y ago
  Re-reading and doing some research on the common use of "fully loaded", I think you're right.