6 ms·

The Missing $1,000,000 Tax Bracket

25 points by soundsop 18y ago

helveticaman 18y ago
The problem I have with the phrase "Taxes for the rich" is not so much the "taxes" part as the "the". Who are these rich people? How do you draw the line? What does it mean for a society to push more and more people into this category in order to tax them punitively?
- ewanmcteagle 18y ago
  It's also a problem when people keep voting for expenditures by majority rule and deciding that a different minority group should pay. That doesn't seem right.
  - redcap 18y ago
    Except of course they don't. All tax goes into a pool that the government (as the representatives of the people, the majority if you will) decides what to do with it. I think a better question is why shouldn't 'the rich' be paying a bigger portion of tax? You mention, 'minority group', but if you change that to 'the rich' (for a good definition of the word), the answer becomes imo that the rich can afford to pay more tax if they stop spending so much money. Many more people can live very with surprisingly less than what 'rich' people have. The answer should be to suck it up and deal with it.
    - dkokelley 18y ago
      This is something that's always bothered me about progressive tax rates: You mention that 'the rich' should be paying a bigger portion of tax. They are, by a number of definitions. At even a simple flat tax the rich are paying more than others, because they earn more. Now we add progressive rates so 'the rich' pay a higher percentage of what they make. Do they receive more of the benefit from their tax dollars? Probably not. National defense protects just about all citizens equally, public schools are hit and miss with tax dollars per student (which may be irrelevant because of private schooling for those who can afford it), and public services like libraries, roads, and protection are not distributed according to who pays more (except when you have higher income communities). If anything the rich receive less benefit per dollar taxed from them than any other group. Now I'm all for helping out those in need, and giving those who don't earn as much a tax break, but in terms of justice and equality I think our tax system unfairly burdens the rich. But hey, they can handle it, right?
      - gjm11 18y ago
        The extra benefit you get from a given increase in income decreases as your income increases. (If someone's on $20k/year then a raise of $5k/year is probably quite a big deal. If they're on $500k/year, not so much.) Therefore, the cost of a given amount of taxation is typically less to someone rich than to someone poor. On the other hand, the benefit of the taxation -- whatever hopefully-useful things the government does with the money -- is independent of whether it came from rich people or poor people. Therefore: whatever amount of taxation revenue you want to raise, and ignoring second-order effects (e.g., that higher tax rates reduce the incentive to work and increase the incentive to find ways to avoid/evade taxes) you will reduce the amount of harm done by collecting the taxes if you take more from the better-off and less from the worse-off. Of course, once the differences between rates become very large, those "second-order" effects may no longer be small. If you ignore them entirely, I think the conclusion is that for maximum total utility you should tax + redistribute until everyone is equally well off, but long before you get there the "second-order" effects will be much more important.
        dkokelley 18y ago
        I understand your point about the diminishing marginal utility of extra dollars for the rich, but it seems dangerous to make that judgment for them. Who is to say how much the extra $5,000 is worth to me? What if I make $500k/yr, but I've budgeted most of it to regular expenses, some savings, and the rest in investments, and my daughter is now engaged and will have a wedding in 3 months? Now I receive a $20k bonus from my company to help pay for my daughter's wedding. Unfortunately for me I can only spend about $12k of it for wedding expenses, because someone else (society, taxpayers, politicians) has decided that those extra dollars aren't as useful to me than someone else (the government decides who). My point is not that it's possible for someone who makes a lot of money to not have it readily available, but rather that the road we head down when we say "The socially responsible thing to do is tax people who earn more because they can deal with it" is a scary one. Also, tax + redistribute until everyone is equal will never happen, even if there are no second-order effects, simply because people are different. Some are content to work x amount for $y, while others want to innovate, work harder, and do more. The government should make the game equal, not the players.
- Tangurena 18y ago
  If you're making over $380k, then you're in the top 1% of households in the US by income. If you're making over $150k, then you're in the top 5% of households in the US by income. If you're making over 100k, then you're in the top 10% of households in the US by income. http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pdf http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pd... There are some lines. I'd draw it at "top 5% by income."
  - deleted 18y ago
    [deleted]
  - comatose_kid 18y ago
    I wouldn't define 'rich' by income alone, because 150k ain't rich in the Bay Area.
    - ojbyrne 18y ago
      While I do understand what you're saying, it ain't poor.
    - gjm11 18y ago
      That's like saying "150k ain't rich if you have a 100k/year gambling habit" or "150k ain't rich if you have an enormous house purchased with a big mortgage". Living in the Bay Area is a luxury that only the well-off can afford without great hardship; it has benefits which mean that many people do it even though after paying to live in the Bay Area they don't have much disposable income. Just as many people choose to take out large mortgages, or buy fast cars, or gamble, or whatever, even though they may not then have much disposable income left.
      - diego 18y ago
        The same can be said of living in the US. You could move to a cheaper part of the world, perhaps even telecommute. You could argue that you grew up in the US, so staying home is not a luxury. Those who grew up in the Bay Area don't see living there as a luxury any more than you see living in the US as a luxury.
- redcap 18y ago
  If you read the article, the author suggests a fairly marginal increase in tax for those with already much more than those in the middle-class. I wouldn't call this being 'punitive'.
  - wlievens 18y ago
    Exactly. I just don't get why the conversation about tax raising by one or two percent on a high bracket evokes images of "communism" on some people. Going from 39% to 40% (or whatever) is NOT a paradigm shift people.
    - dkokelley 18y ago
      I think it has to do with people feeling as if they are being taxed enough already. If 39% seemed like too much (but tolerable because it's already there), 40% is just insulting. If it weren't a big deal to go from 39% to 40%, then the government shouldn't mind not having that extra 1%, right?
      - wlievens 18y ago
        Well then, you can oppose the measure and present arguments against it, but calling it OMG COMMUNISM OMG is intellectually dishonest.
nazgulnarsil 18y ago
People that don't understand economics always want to talk about this big nebulous pool of money that apparently sits in vaults somewhere actively making the rich richer and the poor poorer. This is simple hogwash. the vast majority of the wealth is tied up in the working capital of the corporations that these ultra-wealthy run. The people we should be focusing on helping aren't the 'poor'. Give them money and it disappears. On the other hand, if you give small business owners (who represent the vast majority of millionaires, and employ about 75% of the people in the US) you get new jobs and new products. remember the old adage about giving a man a fish vs teaching a man to fish? If you HAVE to subsidize something subsidize free fishing polls, not free fish.
- dkokelley 18y ago
  If you HAVE to subsidize something subsidize free fishing polls, not free fish. What a great quote. Did you hear that from somewhere, or did you just come up with it? I think you hit on a pretty good point about our economy - there is a very long tail of employers and producers in our country. When people think of the 'corporations' or the 'rich', they think of Exxon Mobile and Bill Gates, and fail to realize that the vast majority of our employers, 'rich', and GDP producers are not these companies or people but the small business owners. It's easy to sell higher taxes on Exxon Mobile and Bill Gates, but it's the local pet store owner, or community bank is who is ultimately affected the most by taxes.
  - nazgulnarsil 18y ago
    well ideally we would have no subsidies at all. if investors were taxed less there would be more investment money for small businesses and we wouldn't need the government stepping in. It bothers me the extent to which government creates problems and then justifies its existence by stepping in to 'solve' them. Hacker News is a natural environment for free market ideology because anyone that has ever tried to start a small business has immediately realized how inimical the state is to commerce. It's been so bad for so long that we all have Stockholm syndrome. but yes, I just came up with that fish bit, and will be using it again in the future :)
  - 18y ago
dkokelley 18y ago
My ideal income tax structure would look like this: If you make under $25,000, you pay no income tax. Everyone else pays 20%. You receive tax breaks for disabilities, children, educational spending, and charitable donations. Corporations would be taxed at 30%, but owners could take profits without being double taxed. Corporations could also receive up to 50% tax breaks through charitable works and/or donations (provides tax incentive for community projects, being 'green', or donating to a cause). It all seems reasonable to me. Maybe I'm missing something. This would also simplify the complicated and bloated tax code we currently have. It could also encourage more businesses and workers to move here, which would stimulate growth. Note: I chose 20% because I saw somewhere else a chart that showed that the ultimate tax revenue the government took in regardless of tax rate over the past 50 years or so was 20% of GDP.
- divia 18y ago
  Here's the chart I'm pretty sure you're thinking of: http://s.wsj.net/public/resources/images/ED-AH556B_ranso_20080519194014.gif http://s.wsj.net/public/resources/images/ED-AH556B_ranso_200... from the 2008 Wall Street Journal article titled "You Can't Soak the Rich": http://online.wsj.com/article/SB121124460502305693.html http://online.wsj.com/article/SB121124460502305693.html The phenomenon is called Hauser's Law: http://en.wikipedia.org/wiki/Hauser's_Law http://en.wikipedia.org/wiki/Hauser's_Law and intelligent criticism of the chart can be found here: http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/lying-with-charts-wsj-edition?rss=true http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/...
  - dkokelley 18y ago
    You sir, are a gentleman and a scholar. Thanks for bringing those articles up. I checked the last link you mentioned, and I wasn't really satisfied with the criticism. Maybe I just didn't understand the article, but it seemed to me that all the author said was "A lot of other tax rates balanced out the highest marginal tax rate shown in the curve." I would have liked to see an alternate conclusion instead of a simple refutation. But again, thank you very much for the links.
david927 18y ago
This is an idea whose time has come. Look at what happened during the last depression: the top marginal tax rate jumped from around 25% to over 90%. I think a broadly-graduated marginal property tax on non-agricultural properties is also a good idea. A lot of people made off like bandits during this bubble. A 70% tax rate at income over a million is probably unavoidable. We can't just fleece the average tax payer for generations and leave the top 1%, many of whom profited during this time, undisturbed on their St.Barts vacations.
- dkokelley 18y ago
  I have a hard time understanding your logic behind this. The people who make more money (including those who 'made off like bandits' like you say) were already taxed for their earnings. Are you saying that these people (who profited during the bubble) will keep earning money? Or maybe you're saying that we need higher taxes now so that the next bubble the government will get in on more of the action? Also, how is the government fleecing the average taxpayer anymore than it is fleecing the rich? Aren't the rich not only taxed more (because they earn more), but taxed at a higher rate?
  - david927 18y ago
    That's the reason for the heavily-graduated property tax -- to target specifically those who might have profited under the bubble, yet who are not profiting as much now. I never intimated that "the government is fleecing the average taxpayer more than it is fleecing the rich." (Although Warren Buffet has said just that.) And since we own the government, I find "fleece" to be a strange word. Yes, the rich pay a higher rate on some of their income. And what we're saying here is that there should be even higher rate for income over a million.
    - robotrout 18y ago
      This "bugger your neighbor" attitude that prevails in this country is removing every freedom that we teach our children make this country great. Hell yes. Take more money at the point of a gun, why not? They have more money than you do, the greedy bastards. They don't deserve it. You deserve that money, or you know somebody that does. Go for it!
wlievens 18y ago
In Belgium, the 50% tax bracket starts at some 30,000 EUR/year. And that's exclusive of the 13% social security tax. There must be some kind of sensible middle road...
dantheman 18y ago
The problem is that the notion of an income tax is considered a legitimate way of funding the government. In reality the government should be funded by property, sales, and tarrif taxes (not protective tarrifs, just a fee to offset the cost of government). The current income tax we have now is worse than the serfs had, @least they only had to work 1 or 2 days on the fields for no pay. We have to do that on our income, let alone all the other taxes and fees we need to pay.
- ivankirigin 18y ago
  If I were to start a country, I would cap spending, and pay for things with a fiat currency. Inflation would be an unavoidable, flat, and implicit tax. The trick would be to control spending.
deleted 18y ago
[deleted]
ars 18y ago
I would like to see the charts compared with GDP per capita. Just curious if there is any correlation.
- colins_pride 18y ago
  Just make sure you get the direction of causation right ..
gfunk911 18y ago
I was bored, so I made this table of effective tax rates for various incomes/years, indexed to 2007 dollars. http://mharrisdev.com/income_tax.html http://mharrisdev.com/income_tax.html

25 points by soundsop 18y ago

The problem I have with the phrase "Taxes for the rich" is not so much the "taxes" part as the "the". Who are these rich people? How do you draw the line? What does it mean for a society to push more and more people into this category in order to tax them punitively?

ewanmcteagle 18y ago
It's also a problem when people keep voting for expenditures by majority rule and deciding that a different minority group should pay. That doesn't seem right.
- redcap 18y ago
  Except of course they don't. All tax goes into a pool that the government (as the representatives of the people, the majority if you will) decides what to do with it. I think a better question is why shouldn't 'the rich' be paying a bigger portion of tax? You mention, 'minority group', but if you change that to 'the rich' (for a good definition of the word), the answer becomes imo that the rich can afford to pay more tax if they stop spending so much money. Many more people can live very with surprisingly less than what 'rich' people have. The answer should be to suck it up and deal with it.
  - dkokelley 18y ago
    This is something that's always bothered me about progressive tax rates: You mention that 'the rich' should be paying a bigger portion of tax. They are, by a number of definitions. At even a simple flat tax the rich are paying more than others, because they earn more. Now we add progressive rates so 'the rich' pay a higher percentage of what they make. Do they receive more of the benefit from their tax dollars? Probably not. National defense protects just about all citizens equally, public schools are hit and miss with tax dollars per student (which may be irrelevant because of private schooling for those who can afford it), and public services like libraries, roads, and protection are not distributed according to who pays more (except when you have higher income communities). If anything the rich receive less benefit per dollar taxed from them than any other group. Now I'm all for helping out those in need, and giving those who don't earn as much a tax break, but in terms of justice and equality I think our tax system unfairly burdens the rich. But hey, they can handle it, right?
    - gjm11 18y ago
      The extra benefit you get from a given increase in income decreases as your income increases. (If someone's on $20k/year then a raise of $5k/year is probably quite a big deal. If they're on $500k/year, not so much.) Therefore, the cost of a given amount of taxation is typically less to someone rich than to someone poor. On the other hand, the benefit of the taxation -- whatever hopefully-useful things the government does with the money -- is independent of whether it came from rich people or poor people. Therefore: whatever amount of taxation revenue you want to raise, and ignoring second-order effects (e.g., that higher tax rates reduce the incentive to work and increase the incentive to find ways to avoid/evade taxes) you will reduce the amount of harm done by collecting the taxes if you take more from the better-off and less from the worse-off. Of course, once the differences between rates become very large, those "second-order" effects may no longer be small. If you ignore them entirely, I think the conclusion is that for maximum total utility you should tax + redistribute until everyone is equally well off, but long before you get there the "second-order" effects will be much more important.
      - dkokelley 18y ago
        I understand your point about the diminishing marginal utility of extra dollars for the rich, but it seems dangerous to make that judgment for them. Who is to say how much the extra $5,000 is worth to me? What if I make $500k/yr, but I've budgeted most of it to regular expenses, some savings, and the rest in investments, and my daughter is now engaged and will have a wedding in 3 months? Now I receive a $20k bonus from my company to help pay for my daughter's wedding. Unfortunately for me I can only spend about $12k of it for wedding expenses, because someone else (society, taxpayers, politicians) has decided that those extra dollars aren't as useful to me than someone else (the government decides who). My point is not that it's possible for someone who makes a lot of money to not have it readily available, but rather that the road we head down when we say "The socially responsible thing to do is tax people who earn more because they can deal with it" is a scary one. Also, tax + redistribute until everyone is equal will never happen, even if there are no second-order effects, simply because people are different. Some are content to work x amount for $y, while others want to innovate, work harder, and do more. The government should make the game equal, not the players.
Tangurena 18y ago
If you're making over $380k, then you're in the top 1% of households in the US by income. If you're making over $150k, then you're in the top 5% of households in the US by income. If you're making over 100k, then you're in the top 10% of households in the US by income. http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pdf http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pd... There are some lines. I'd draw it at "top 5% by income."
- deleted 18y ago
  [deleted]
- comatose_kid 18y ago
  I wouldn't define 'rich' by income alone, because 150k ain't rich in the Bay Area.
  - ojbyrne 18y ago
    While I do understand what you're saying, it ain't poor.
  - gjm11 18y ago
    That's like saying "150k ain't rich if you have a 100k/year gambling habit" or "150k ain't rich if you have an enormous house purchased with a big mortgage". Living in the Bay Area is a luxury that only the well-off can afford without great hardship; it has benefits which mean that many people do it even though after paying to live in the Bay Area they don't have much disposable income. Just as many people choose to take out large mortgages, or buy fast cars, or gamble, or whatever, even though they may not then have much disposable income left.
    - diego 18y ago
      The same can be said of living in the US. You could move to a cheaper part of the world, perhaps even telecommute. You could argue that you grew up in the US, so staying home is not a luxury. Those who grew up in the Bay Area don't see living there as a luxury any more than you see living in the US as a luxury.
redcap 18y ago
If you read the article, the author suggests a fairly marginal increase in tax for those with already much more than those in the middle-class. I wouldn't call this being 'punitive'.
- wlievens 18y ago
  Exactly. I just don't get why the conversation about tax raising by one or two percent on a high bracket evokes images of "communism" on some people. Going from 39% to 40% (or whatever) is NOT a paradigm shift people.
  - dkokelley 18y ago
    I think it has to do with people feeling as if they are being taxed enough already. If 39% seemed like too much (but tolerable because it's already there), 40% is just insulting. If it weren't a big deal to go from 39% to 40%, then the government shouldn't mind not having that extra 1%, right?
    - wlievens 18y ago
      Well then, you can oppose the measure and present arguments against it, but calling it OMG COMMUNISM OMG is intellectually dishonest.

nazgulnarsil 18y ago

People that don't understand economics always want to talk about this big nebulous pool of money that apparently sits in vaults somewhere actively making the rich richer and the poor poorer. This is simple hogwash. the vast majority of the wealth is tied up in the working capital of the corporations that these ultra-wealthy run. The people we should be focusing on helping aren't the 'poor'. Give them money and it disappears. On the other hand, if you give small business owners (who represent the vast majority of millionaires, and employ about 75% of the people in the US) you get new jobs and new products. remember the old adage about giving a man a fish vs teaching a man to fish? If you HAVE to subsidize something subsidize free fishing polls, not free fish.

dkokelley 18y ago
If you HAVE to subsidize something subsidize free fishing polls, not free fish. What a great quote. Did you hear that from somewhere, or did you just come up with it? I think you hit on a pretty good point about our economy - there is a very long tail of employers and producers in our country. When people think of the 'corporations' or the 'rich', they think of Exxon Mobile and Bill Gates, and fail to realize that the vast majority of our employers, 'rich', and GDP producers are not these companies or people but the small business owners. It's easy to sell higher taxes on Exxon Mobile and Bill Gates, but it's the local pet store owner, or community bank is who is ultimately affected the most by taxes.
- nazgulnarsil 18y ago
  well ideally we would have no subsidies at all. if investors were taxed less there would be more investment money for small businesses and we wouldn't need the government stepping in. It bothers me the extent to which government creates problems and then justifies its existence by stepping in to 'solve' them. Hacker News is a natural environment for free market ideology because anyone that has ever tried to start a small business has immediately realized how inimical the state is to commerce. It's been so bad for so long that we all have Stockholm syndrome. but yes, I just came up with that fish bit, and will be using it again in the future :)
- 18y ago

dkokelley 18y ago

My ideal income tax structure would look like this: If you make under $25,000, you pay no income tax. Everyone else pays 20%. You receive tax breaks for disabilities, children, educational spending, and charitable donations. Corporations would be taxed at 30%, but owners could take profits without being double taxed. Corporations could also receive up to 50% tax breaks through charitable works and/or donations (provides tax incentive for community projects, being 'green', or donating to a cause). It all seems reasonable to me. Maybe I'm missing something. This would also simplify the complicated and bloated tax code we currently have. It could also encourage more businesses and workers to move here, which would stimulate growth. Note: I chose 20% because I saw somewhere else a chart that showed that the ultimate tax revenue the government took in regardless of tax rate over the past 50 years or so was 20% of GDP.

divia 18y ago
Here's the chart I'm pretty sure you're thinking of: http://s.wsj.net/public/resources/images/ED-AH556B_ranso_20080519194014.gif http://s.wsj.net/public/resources/images/ED-AH556B_ranso_200... from the 2008 Wall Street Journal article titled "You Can't Soak the Rich": http://online.wsj.com/article/SB121124460502305693.html http://online.wsj.com/article/SB121124460502305693.html The phenomenon is called Hauser's Law: http://en.wikipedia.org/wiki/Hauser's_Law http://en.wikipedia.org/wiki/Hauser's_Law and intelligent criticism of the chart can be found here: http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/lying-with-charts-wsj-edition?rss=true http://www.portfolio.com/views/blogs/odd-numbers/2008/05/20/...
- dkokelley 18y ago
  You sir, are a gentleman and a scholar. Thanks for bringing those articles up. I checked the last link you mentioned, and I wasn't really satisfied with the criticism. Maybe I just didn't understand the article, but it seemed to me that all the author said was "A lot of other tax rates balanced out the highest marginal tax rate shown in the curve." I would have liked to see an alternate conclusion instead of a simple refutation. But again, thank you very much for the links.

david927 18y ago

This is an idea whose time has come. Look at what happened during the last depression: the top marginal tax rate jumped from around 25% to over 90%. I think a broadly-graduated marginal property tax on non-agricultural properties is also a good idea. A lot of people made off like bandits during this bubble. A 70% tax rate at income over a million is probably unavoidable. We can't just fleece the average tax payer for generations and leave the top 1%, many of whom profited during this time, undisturbed on their St.Barts vacations.

dkokelley 18y ago
I have a hard time understanding your logic behind this. The people who make more money (including those who 'made off like bandits' like you say) were already taxed for their earnings. Are you saying that these people (who profited during the bubble) will keep earning money? Or maybe you're saying that we need higher taxes now so that the next bubble the government will get in on more of the action? Also, how is the government fleecing the average taxpayer anymore than it is fleecing the rich? Aren't the rich not only taxed more (because they earn more), but taxed at a higher rate?
- david927 18y ago
  That's the reason for the heavily-graduated property tax -- to target specifically those who might have profited under the bubble, yet who are not profiting as much now. I never intimated that "the government is fleecing the average taxpayer more than it is fleecing the rich." (Although Warren Buffet has said just that.) And since we own the government, I find "fleece" to be a strange word. Yes, the rich pay a higher rate on some of their income. And what we're saying here is that there should be even higher rate for income over a million.
  - robotrout 18y ago
    This "bugger your neighbor" attitude that prevails in this country is removing every freedom that we teach our children make this country great. Hell yes. Take more money at the point of a gun, why not? They have more money than you do, the greedy bastards. They don't deserve it. You deserve that money, or you know somebody that does. Go for it!

wlievens 18y ago

In Belgium, the 50% tax bracket starts at some 30,000 EUR/year. And that's exclusive of the 13% social security tax. There must be some kind of sensible middle road...

dantheman 18y ago

The problem is that the notion of an income tax is considered a legitimate way of funding the government. In reality the government should be funded by property, sales, and tarrif taxes (not protective tarrifs, just a fee to offset the cost of government). The current income tax we have now is worse than the serfs had, @least they only had to work 1 or 2 days on the fields for no pay. We have to do that on our income, let alone all the other taxes and fees we need to pay.

ivankirigin 18y ago
If I were to start a country, I would cap spending, and pay for things with a fiat currency. Inflation would be an unavoidable, flat, and implicit tax. The trick would be to control spending.

deleted 18y ago

[deleted]

ars 18y ago

I would like to see the charts compared with GDP per capita. Just curious if there is any correlation.

colins_pride 18y ago
Just make sure you get the direction of causation right ..

gfunk911 18y ago

I was bored, so I made this table of effective tax rates for various incomes/years, indexed to 2007 dollars. http://mharrisdev.com/income_tax.html http://mharrisdev.com/income_tax.html