They Scream Bloody Murder on the Margin
Suppose you walk into the supermarket and are confronted with a sliding scale of discounts on all your purchases. If your income is below the threshold common to the vast majority of Americans, you get a 15 percent discount. If it is in the higher range enjoyed by the happier few, you get a 35 percent discount. Alternatively, suppose we had individualized currency. When you spend a dollar, you get 15 cents cash back, so your dollar is worth $1.15. But your rich uncle spends a dollar and gets back 35 cents, so his dollars are worth $1.35.
Ladies and gentlemen, I give you the Republican economic policy. That flaming radical Barack Hussein Obama proposes to moderate this class warfare by reducing the higher discount to 28 percent.
I will explain.
Just around the corner is another screamfest about taxes. One point of contention is the Administration's intent to limit itemized deductions to a 28 percent rate, a second whammy on top of the increase in the top rate. One Republican talking point is the purported negative impact of this change on charitable contributions. Let's unpack this picture and frame it, shall we?
We've already alluded to the Right's incomprehension of the difference between an average and a marginal tax rate. The current top marginal rate of 35 percent does not mean you give up 35 percent of your income to the IRS. It means you pay 35 cents on the dollar for every dollar of taxable income in excess of the income threshold where 35 percent kicks in (currently $357,700 of taxable income).
Obama would like to return the top rate to the 39.6 percent that prevailed before 2001 (that was a "statutory" rate of 36 and a 'surtax' of ten percent on top of 36, or 3.6). "Taxable income," by the way, is not income subject to tax. It is income subject to tax after subtracting deductions and exemptions. So you can appreciate that the top marginal rate, whatever it is, applies to dollars that spill over a threshold that applies to income well below gross income. Hence anybody who equates the top marginal rate to the average rate (taxes divided by gross income) does not understand the income tax, not even a tiny bit.
Now I must scream myself for a second:
THE OBAMA ADMINISTRATION DOES NOT PROPOSE TO RAISE TAXES DURING THE RECESSION. Anybody who says the president wants to raise taxes in a recession should be immediately taken out and shot. But I digress.
Now what about those itemized deductions? Roughly a third of taxpayers itemize, but only .4% (point 4, or less than half of one percent) of all taxpayers are in the top two brackets and looking at a marginal rate increase. What is the likely impact of a rate increase?
The grand doctrine of supply-side economics holds that the impact of changes 'at the margin' -- in this case, the marginal rates -- are powerful influences on economic activity. In this context, a higher marginal rate is said to discourage work, savings, and investment. Regarding the Obama proposal, we are talking about a change of 4.6 cents on the dollar -- an increase from 35 to 39.6. This is supposed to cause the wealthiest among us to scale back their brilliant entrepreneurial contribution to the economy, to stop laying the golden eggs.
For lack of that nickel on the dollar, you divert income from savings to consumption. (For example, if you are making a healthy return of ten percent on something -- I know these days this requires imagination -- instead of your after-tax return being 6.50 percent, it becomes 6.04 percent. Oh noes!). You liquidate wealth and buy lots of stuff you didn't already have. You decide you don't want to start a new business after all; you'd rather continue working for someone else. You cut back on hours of work, even though you're making two hundred dollars an hour. In other words, you're an idiot.
Putting aside the obvious question of just what has happened to those golden eggs, let's consider the deductions. With any system of graduated rates, as noted at the outset, the value of a deduction, or the amount of tax savings, rises along with your marginal rate. A higher top marginal rate in and of itself would be relieved somewhat by the higher value of deductions, but Comrade Obama would push those tax savings in the other direction, limiting the value of deductions to a top rate of 28 percent.
Now we should first note a change in the value of deductions has no bearing on the incentive to work, save, and invest. Your top marginal rate is the same, the impact on the marginal dollar of income is the same regardless of the deductibility of anything, excluding the unlikely case where a reduced value of deductions fails to bump you into a lower tax bracket.
Where the 28 percent cap is relevant is in your deductible activities. The biggest deductions for most people are mortgage interest and state and local income and property taxes. But there is also charitable contributions, and that may become the poster child of resistance to Obamatax.
The logic is that the difference between 35 percent off and 28 percent off ($70,000 for every million) will deter charitable donations because of the reduced marginal incentive. Let's see. You can afford to give away a million bucks. How much less do you give away because it raises your taxes $70,000? (In this case the difference between 39.6 and 28 does not apply because the increased price effect pertains to what could become the old rate of 35.)
Economists love to talk about marginal impacts or price effects, and we know how much they have contributed to our present excellent economy.
First off, this difference only affects those in the relevant brackets, which means very few people. It is true that as a group they donate more to charity. In 2005 those with over $200K in annual income account for 30 percent of itemized deductions claimed, or about $53 billion.
Second, what is in question is some reduced incentive to donate -- an increased expense, if you will -- not any wholesale obstacle to donations. Note 2/3rds of taxpayers do not itemize but do donate, so the $53 billion is much less than 30 percent of all contributions. For the wealthier, the price of donating could go up from 65 cents per dollar (1 - .35) to 72 cents, or an 11 percent increase. If we generously assume a percent response to a percent increase in price, they reduce contributions by about 11 percent, or $5-6 billion in 2005.
Third, some piece of the Obama spending will be going to non-profit organizations involved in social services. I can't prove it, but I would bet the spending juice in the Obama budget dwarfs the reduced donations in the tax proposal. We might also note that attenuating job loss by deficit spending will increase incomes and the ability to donate to charity.
Fourth, the same clowns obsessing about marginal impacts on charitable deductions were making contrary arguments in the case of the estate and gift tax. Charitable donations are deductible against the estate tax, so abolishing that tax would eliminate an incentive to donate. It is easy to google "death tax" and "charitable contributions" and find wingnut arguments that in this case prices don't matter -- that eliminating the tax would not reduce charitable donations, nay, it would increase donations.
One of the blind alleys here is the proposal to allow charity deductions to everyone. This would not eliminate the unfairness of different discounts described above. It would provide tax savings to those unable to itemize. More broadly, however, it would take a component of the income tax that is currently impossible to enforce and compound that impossibility. The fact is the IRS has no clue whether your claims of donations are accurate unless they perform a root-canal audit, which they do less and less often. The better solution is just get rid of the deduction altogether. A lot of charity is jive in any case. Even better, if we're going to have deductions, provide the same rate of offset to all taxpayers.
In summary, the organizing principle of supply-side tax doctrine is feed the rich. Take away a subsidy to charitable donations enjoyed by the rich (repeal the estate tax), donations go up. Reduce a subsidy to donations (cap deductions at 28 percent), donations go down. That's the party of ideas for you. Or is it the potty of ideas. We prefer to eat the rich.
Bloomberg reports 2.6 million households in the top two brackets. Urban says 661,000. The years are different, but not enough to account for the discrepancy. It doesn't affect my argument.
Facts and concrete examples? You'll never make it as a Republican.
March 8, 2009 11:19 PM | Reply | Permalink
That's the party of ideas for you.
And the party of Harvard University and Yale University and MOMA and the Elie Wiesel Foundation and -- well, you get my drift.
March 8, 2009 11:35 PM | Reply | Permalink
Taking hostages?
August 5, 2009 1:04 AM | Reply | Permalink
You have explained in great detail and very clearly mighty Rotwang what many cannot articulate. Thanks very much for doing so! I would put it more succinctly myself. I would just say that the Republicans and the wealthy are liars who act as though they are being impoverished when nothing could be further from the truth.
Frankly, I would support a 90% top marginal rate for this same class of parasitical whiners. When we had a 90% marginal rate in the past our nation was doing much better than it is today.
March 9, 2009 12:19 AM | Reply | Permalink
Truly spoken like a person used to somebody else paying their way.
March 9, 2009 12:39 AM | Reply | Permalink
I think we should strip all the wealth from the wealthy and give a whole new group of people a chance to attain that wealth and be the 'Captains of Industry'...because the current ones have shown they are not up to the task.
But all you really have in your rhetorical arsenal is;
A.) How many poor people have given you a job
B.) Only the people with wealth currently deserve help
Weak and weaker...
The wealthy, the ones you claim we owe so much to for being benevolent enough to employ us, are incompetent, unethical, and in some cases criminal. They are the ones unworthy of the help since they cannot be trusted to oversee the engine that runs our economy any more. Break it apart and let it fall back together again with a new upper 5%...however it plays out it cannot be any worse than what we have now.
March 9, 2009 1:15 AM | Reply | Permalink
They provide capital to build things, jobs for you, taxes for the Government, and heartburn for the ignorant. Like it or not, people are not equal, and some are good at things that benefit the majority. Don't like it? Too bad. Write your Congressman.
March 9, 2009 9:23 AM | Reply | Permalink
you are definitely un-American, as people by and large ARE equal given the same opportunities, which your 1-2% America does NOT provide, despite your protestations of ignorance to that fact. When it comes to ignorance otherwise, though, you're top notch.
you do know, don't you, that the top 1-2% form cartelistic monopolies preventing the rest of us from gaining their status. In fact, your 1-2% have siphoned wealth from the rest of us the last 30 years at rates and levels not seen since your 1-2%'s last debacle in 1929. And this has nothing whatsoever to do with envy or anyone providing me anything I haven't earned and don't deserve.
but congrats on getting some of us to respond to your provocateurial postings to point out their specific and general shortcomings.
March 9, 2009 1:14 PM | Reply | Permalink
March 9, 2009 1:26 PM | Reply | Permalink
shooter,
I see you didn't analyze and then contradict Rotwang's column, you simply chose to attack other posters, why is that?
March 9, 2009 2:20 PM | Reply | Permalink
When in Rome...
Perhaps you missed my reply to Rotwang elsewhere in this thread?
March 9, 2009 3:05 PM | Reply | Permalink
Truly written like someone who doesn't know their ass from a hole in the ground.
I'll wager anything you like that I've paid for myself far more than any rich man and I'll further bet that's more than you can say. I've worked since I was 15. So GFY as our former Vice ReichChancellor would say. And make that a 95% rate for you.
March 9, 2009 2:18 AM | Reply | Permalink
March 9, 2009 9:31 AM | Reply | Permalink
Problem was, that 10th guy always ordered for everyone. 4 guys only ever got crumbs. 2 managed toast. 2 soup & salad. 1 got steak. But the 10th guy always got the 16 course special.
After they threw that asshole over the cliff, the 9 formed a baseball team, pooled their money, and each got to have a cheeseburger and a beer after the game.
And that very season - 2006 - the famous 9 (otherwise known as the St Louis Cardinals).......... won the World Series.
So now... you know.
March 9, 2009 6:26 PM | Reply | Permalink
Perhaps you should consider that quite a few people in the upper tax brackets assume this is only the first step. Who here doesn't think SS wil be extended to the entire salary with no cap? That makes it a ~11% bump at the margin, and add say another 1% for lowered deductions, for ~12% at the margins. Add in California tax for Taplin 9.3%, and you have a marginal rate of 39.6 + 7.6 + 9.3= 56.5%
In short the there is a point where Government makes more of your salary than you do. Then there's carbon tax, sales tax, property tax, auto tax, transfer tax, toll roads, etc. etc. etc.
Maybe you haven't heard this one Rotwang... the person wanting to keep more of his earnings isn't greedy, it's the ones that covet those earnings for themselves. I'm guessing you're in the latter category.
And while I'm at it, let's not forget that the top 10% already pays the bill for the bottom half. That's not enough? Tsk.
But the point of the story is that people with money see the reaper coming and have battened down the hatches, voluntarily or not. Continue to scare them with more hits to the wallet and the economy will shrivel that much more.
I say that, because the onset of trickle up economics doesn't seem to be rallying the troops.
March 9, 2009 12:31 AM | Reply | Permalink
Good! And they should assume this is only the first step! They should be paying a helluva lot more than anything being proposed now.
The top 10% pay for the bottom half? My ass! Even if that malarky were true (and it's not) they still don't pay enough. It is their property and their wealth our armies defend yet the average secretary pays a higher effective rate of tax than the average billionaire. The top 5% or so control about 80% of the wealth and thus should pay that much of all the bills, but they don't. They are parasites and as Libertine mentions above they are incompetent to boot. They are not worthy of the wealth we have allowed them to have. The people are sovereign in this country not the wealthy people. I look forward to the day when they'll have to hold a fundraiser to keep a rich man fed and clothed.
Your sanctimonious statements about people keeping their earnings doesn't apply to the wealthy of course since they don't earn most of the money they receive and haven't earned most of the wealth they control. So you'll have no objection if we level the playing field by no longer allowing them to amass fortunes that create the indolence an incompetence we see in the upper classes. If living hand to mouth is good enough for the poor and the middle class, then surely paying one's fair share in taxes while still remaining idle and rich will be okay with you.
March 9, 2009 2:27 AM | Reply | Permalink
I see this quite a bit. Do you actually have anything that documents this factually? Or is it just convenient myth? What is the criteria for legitimately "earning" one's money?
March 9, 2009 9:57 AM | Reply | Permalink
shooter,
maybe he refers to those who inherited money from the Olin, Rockefeller, Carnegie, Mellon, Walton,
DuPont, Kock, Bradley, Coors and Kennedy, etc. families?
Or maybe check the IRS tables for the latest Estate Tax figures.
March 9, 2009 3:20 PM | Reply | Permalink
That word, earnings, it chafes.
Whether in fact your hypothetical person has in fact "earned" his compensation has not been established. Some argue that he has suppressed the wages of his subordinates, whose sweat permits him to lunch after 9 holes - on the clock, that his own may be greater.
March 10, 2009 1:11 PM | Reply | Permalink
The very idea that "charity" exists points to the economic inequities of the entire system/society. Charity is used to deflect the more profound problems from truly being solved; it is merely a safety valve used by the ruling class to give the illusion that everything is just fine, thank you. It maintains the necessary equation for the master/servant relationship.
In a truly fair, egalitarian system (both in access to opportunity and income distribution), charity would be obsolete. In a society where true meritocracy was encouraged and adequately rewarded, there would not be such a gargantuan income disparity.
The "charitable tax deduction" becomes a moot point; ample tax revenues would could then be redistributed through society at large, through the commons, and to pay for the costs of a true "civilization."
March 9, 2009 3:56 AM | Reply | Permalink
So let's see if I have this straight, you think egalitarianism and meritocracies are not mutually exclusive? Good luck with that. Surely you've read about the "Tragedy of the Commons"?
I'm guessing this is either France, Sweden, or Disneyworld. Heh.
March 9, 2009 9:50 AM | Reply | Permalink
Thank you for this great framing of the issue! From now on the Rotwang Metaphor for this will be my argument of choice! Kudos on a great explanation!
March 9, 2009 9:42 AM | Reply | Permalink
Excellent post, Rotwang! Thank you for spelling it out so explicitly.
My own feeling, for quite some time now, has been that income taxes in general are far too complicated. The IRS estimates that the average taxpayer will spend more than 20 hours filling out their forms. Any law so complex that it requires that kind of investment of time in order to comply should be unconstitutional.
(Imagine if the speed limit on some heavily traveled road were 50 mph, minus 0.01% of the weight of your vehicle, plus two times the number of occupants of the vehicle over 18 years of age, and that this limit will be strictly enforced.)
The best way to simplify income taxes would be to eliminate all deductions for any reason. Stop making policy through taxes!!
If you want a handout for having a mortgage, then let's have a separate mortgage handout program -- pick up a form at the post office, fill it out, and try to get your mortgage handout from the government. If you want a handout for having children in your home, get that separate form, fill it out, and beg the government to send you a check for your children.
But start by having everybody pay the same income tax. (And, no, I don't mean a flat tax. It should still be progressively indexed to your income level.) Bottom line, it shouldn't require any forms to be filled out every April. (Do you fill out any forms in April to reconcile the Social Security taxes you paid the previous year? Most of us do not.)
(/rant)
-- ARG
March 9, 2009 10:46 AM | Reply | Permalink
"Fuzzy math" and "they’re too big to fail". Goldman Sachs is on AIG counterparty’s short list (can we include portfolio graduates Robert Rubin, Henry Paulson, Treasury Sec Geithner, Larry Summers). Some are clamouring for Geithner to step aside (if things get worse) and be replaced by Paul Volker, or FDIC Sheila Bair, or the more dynamic Elizabeth Warren.
The report (231pgs), "Sold Out: How Wall Street highlighted below:
http://www.wallstreetwatch.org/soldoutreport.htm
According to "the report 'Sold Out: How Wall Street and Washington Betrayed America' shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation. Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. The report documents a dozen distinct deregulatory moves that, together, led to the financial meltdown. These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.
"The report details, step-by-step, how Washington systematically sold out to Wall Street," says Harvey Rosenfield, president of the Consumer Education Foundation, a California-based non-profit organization. "Depression-era programs that would have prevented the financial meltdown that began last year were dismantled, and the warnings of those who foresaw disaster were drowned in an ocean of political money. Americans were betrayed, and we are paying a high price -- trillions of dollars -- for that betrayal."
"Congress and the Executive Branch," says Robert Weissman of Essential Information and the lead author of the report, "responded to the legal bribes from the financial sector, rolling back common-sense standards, barring honest regulators from issuing rules to address emerging problems and trashing enforcement efforts. The progressive erosion of regulatory restraining walls led to a flood of bad loans, and a tsunami of bad bets based on those bad loans. Now, there is wreckage across the financial landscape."
12 Key Policy Decisions Led to Cataclysm:
Financial deregulation led directly to the current economic meltdown. For the last three decades, government regulators, Congress and the executive branch, on a bipartisan basis, steadily eroded the regulatory system that restrained the financial sector from acting on its own worst tendencies. "Sold Out" details a dozen key steps to financial meltdown, revealing how industry pressure led to these deregulatory moves and their consequences:
1. In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
2. Regulatory rules permitted off-balance sheet accounting -- tricks that enabled banks to hide their liabilities.
3. The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives -- which became the basis for massive speculation.
4. Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
5. The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
6. Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal "risk-assessment models."
7. Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.
8. Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.
9. Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.
10. Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
11. The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
12. Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms."
March 9, 2009 11:16 AM | Reply | Permalink
Thanks Rotwang, this is a great post. I really like the way you framed the value of the dollar according to income.
March 9, 2009 12:24 PM | Reply | Permalink
That had me under the table, laughing until I spied all the dust bunnies who had escaped from AIG and Citi. Ewwww! At which point I clambered back on to my chair to pen this epistle.
Dear Rotwang, I have been waiting for you!!!
What, no conspiracies? Or have you joined them for the duration of this post? Well, at any rate, I am grateful that today you are not dissing one of my fave blogger-loves (other than the long defunct MWO - The Horse and Bilmon) as a milquetoast. Appreciate it ;)
I like it when you scream. We all feel the heat of your econo-passions and are quite charmed. Really.
Since I'm only a mere mortal and not an economist, this post clarifies much in a very accessible way.
My fav --
Yes! And what's up with these whiners and their gripes on obvious jive charitable giving? It's time they gave in true coin instead of all that self-loving, bank-padding and social capital accruing, spittle flecked monomania imbued fakery.I'm all for eating the rich, umm... only you never defined what or where "rich" begins. ;)
March 9, 2009 1:43 PM | Reply | Permalink
Got the dog barking, I see.
A relief to bathe in logic, with refreshing attitude.
March 9, 2009 1:57 PM | Reply | Permalink
BTW, can we point out that the GOP also claims ownership of moral virtue, so why does charitable giving need monetary incentive?
March 9, 2009 1:59 PM | Reply | Permalink
Herr Doctor Doctor Rotwang,
You are a great scientist. Everyone knows this. By accident I came to read some of your research on Margins and of course it was brilliant. I say by accident because I found it in an unmarked folder in our wonderful public reading room. Apparently you left it there by accident. I must caution you, Doctor, to be more careful with information about your discoveries. There is a political storm over us and your science could worsen the situation.
The masses are oppressed, abused and kept mostly ignorant. Should they read something like this research they will probably not understand it but they may start to think about it. And if they start to think they may begin to imagine that they have some kind of autonomy and that could be dangerous. They might start to want to participate in decisions about their conditions which could be disastrous for the order we now enjoy. Who knows what they might decide. If they abandon our current leadership then all the things we enjoy, including those expensive instruments in your laboratory, may be lost in favor of who know what the masses may desire.
No sir it is better that you keep your research to yourself and let continue the public discussion that supports the need for strong leadership wielded by the few for the sake of the many. This is how things are and must continue to be.
A fellow free citizen and admirer
March 9, 2009 2:00 PM | Reply | Permalink
Orlando -- Nor as a Democrat. (Whoa!)
Ellen -- Elie Wiesel?
oleeb -- 90% in the 50s when we had among our fastest rates of growth. 50% was good enough for Reagan, by the way, before he became president. Get rid of enough tax offsets and 40% is really all we need right now.
shooter242 -- I will pass on your hymnals to the rich and point out that in your factesque discussion of taxes you slide back and forth incoherently between marginal and average dimensions. You can add up all the marginal rates you like, it does not contradict the fact that Obama's proposal hardly alters the overall state of affairs regarding the incentives that obsess you. And a number of the taxes you cite, state taxes and taxes on other than income, have no bearing on Federal marginal income tax rates. And finally, the average total tax burden on the highest income class is not more than half -- for Federal taxes alone it's about 33 percent.
But thank you for inspiring my next post.
pavrovian dog -- the institution of charity is a tax on the virtuous.
ARG -- I would limit capped deductions to S&L income/property taxes, college expenses, children, & mortgage interest for the sake of practicality and not dropping a hammer on a lot of heads at the same time.
Yva -- No, I've been waiting for you. What is rich deserves a separate post.
LarryH, if that is your real name -- If you have my documents please burn them.
March 9, 2009 2:40 PM | Reply | Permalink
Now then let's get back to the point where you think raising taxes via diminishing deductions is meaningless. How many "small" tax increases do you think it will take before they become sizable enough as a group to do serious damage? In isolation reducing a deduction to 28% is pretty small, but that is just the beginning of the new tax regime. People aren't going to cut spending or earning a certain type of income over the deduction changes.... they are going to alter behavior over the recognition that this is just the beginning. More and larger taxes are on the way.
And while I'm at it, in 2005 latest stats available from the IRS the top two brackets hold 2.3% of households. Not .4%, and it's surely more like 3% three years later. That 2.4 million households. Urban is wrong, as usual. Be very careful to read the fine print when using their tables.
March 9, 2009 4:20 PM | Reply | Permalink
Sitting on a cornflake, waiting for the van to come.
Corporation t-shirts, stupid bloody Tuesday.
Man, you've been a naughty boy, you let your face grow long.
I am the eggman, they are the eggmen, you are the walrus,
goo goo goo joob
March 9, 2009 4:33 PM | Reply | Permalink
I'm crying...
-- ARG
March 9, 2009 5:30 PM | Reply | Permalink
Shooter: You say: "Perhaps you could point out where I refer to average tax rates anywhere in my comment."
After writing in a previous comment: "Add in California tax for Taplin 9.3%, and you have a marginal rate of 39.6 + 7.6 + 9.3= 56.5%"
"In short the there is a point where Government makes more of your salary than you do. Then there's carbon tax, sales tax, property tax, auto tax, transfer tax, toll roads, etc. etc. etc."
In the first sentence you are adding up marginal rates that exceed 50%, then saying whoa it's more of your salary than you can keep. That's an allusion to average rates, moreover, it's incorrect. The top marginal rate in the income tax is likely to apply to salaries over the payroll tax cap, so it is incorrect to add 7.6 (7.65, actually). It would be correct to add 2.9 (employer & employee combined) for the Medicare component of the payroll tax, if we were talking strictly about big salaries. On the other hand, as you know the really rich get capital gains taxed well below the top marginal rate. From the bogus summation of marginal rates you segue immediately into stuff that does not bite at the margin, which is why I say you conflate average and marginal, whether you know it or not.
Regarding the number of tax units in the top marginal rates, I provided a cite myself that contradicted the UI numbers, so you shouldn't pretend you've surprised me.
I never used the word "small" in regard to prospective changes in tax burdens. I did allude to the implied difference in rates of return on investment resulting from the higher marginal rate as, pardon the technical terminology, diddly-squat.
In short, Shooter is often in error but never in doubt.
March 9, 2009 6:55 PM | Reply | Permalink
Look bud, you can play games, or be a serious person.
The truth is that my points are valid, and you don't like the sacrificial lamb to squirm.
You can pretend I'm not clear when I hypothesize "Who here doesn't think SS wil be extended to the entire salary".
Or just change the subject when overwhelmed..." if we were talking strictly about big salaries."
Or be cute, "so you shouldn't pretend you've surprised me."
What to do?
Alright, let's try a different tack. How about the colloquial approach.
Spooking the herd is usually a bad idea. You get a large number of large "tax units" (could there be a colder way to label families?) stampeding around uncontrolled, causing destruction and loss. Is this something you really want to ignore in favor of pursuing political points? Perhaps you should read Marshall's comment that no one is really in control of the situation. Libor is rising along with anxiety.
It doesn't matter to me, I'm well hedged. But those jobs can just disappear, and so can tax revenue. How's it working for you so far?
March 9, 2009 10:03 PM | Reply | Permalink
Since you see so knowledgeable on this subject and general economic matters. I have a question for you if you don't mind. What are your feelings about the economic equality gap? How do you think our tax laws affect this gap?
March 9, 2009 11:59 PM | Reply | Permalink
WARNING: Be prepared for the dizziness which will come with the spin.
March 10, 2009 12:04 AM | Reply | Permalink
It's easier to demonize a group than accept responsibility for one's methods of dealing with unfairness. The world is unfair to everyone, even rich people. The difference is how one approaches existence and all the questions that come with it.
Some people are good at making money, most aren't.
Another reality that gets ignored is that there is no system anywhere that doesn't have economic inequality. There is always a group with access to wealth, power, and priviledge. It's true of every pseudo-egalitarian system around, the difference being that resources aren't moved around by finance, but by political influence. That's the case in every Socialist and Communist country in the world, Monarchies of course.
As in "does the tax law shrink the gap?" Not really. Once money hits Washington it turns into a bargining chip for politicians. How much of the stimulus was for individual families? Not much that I could see.Meanwhile, semantics around these issues is always a problem, if I haven't answered your question, try a different wording and I'll give it another shot.
March 10, 2009 7:00 AM | Reply | Permalink
Herr Doctor Doctor,
Too late. Others have seen them. I was speaking with the chairman of the Science Committee the other day. You know that the committee is very conservative and that the Chairman is very, very conservative. I think you need to hear what he had to say.
“I know Dr. Rotwang. I know his work. His research is excellent. Both his facts and his logic are indisputable. But I am a Conservative. I also have beliefs and they tell me something different. So I know Dr. Rotwang is right but I believe he is wrong and I live by my beliefs.”
This is what you are up against my dear friend so be cautious. I would not like to see you loose your laboratory and have your research come to an end.
March 9, 2009 2:50 PM | Reply | Permalink
Your competition is....waiting
http://www.youtube.com/watch?v=_vz1TVpwme0
March 9, 2009 4:41 PM | Reply | Permalink
I love this kid. In 1960 at the age of 15 I won a debate medal. It was held before a large crowd that was decidedly conservative. I have always been convinced that I won the medal because I mimicked Richard Nixon, like during the cross examination using Nixon's Nixon/Kennedy debate line "I have been asked.."
Three years later I was working as a community activist, opposing the Vietnam war and debating politics from the left at the "I And Thou" coffee house oh Haight St.
Hang on mom an dad. There's more where that came from.
March 9, 2009 5:08 PM | Reply | Permalink
Evidently some mad scientist opposite number of mine has implanted WF Buckley's brain in the helpless body of a 12 year old, perpetuating his accursed undead reign among the living.
March 9, 2009 6:57 PM | Reply | Permalink
One of the unintended consequences of higher tax rates for the wealthy is the tendency Congress has to enact various tax preferences, tax shelters, and tax scams to quietly offset the published populism.*
The result is an economy skewed toward unproductive enterprise -- excessive real estate investment as one example; excessive executive pay in the form of stock options as another.
* Whenever Dan Rostenkowski saw his campaign chest (aka his retirement fund) getting a little light, he'd schedule tax committee hearings and the wealthy and their lobbyists could be counted upon to replenish it toot sweet. And then, there's the "Gallo exemption" of 1986c. which IIRC, saved the family $65+ million.
March 9, 2009 10:37 PM | Reply | Permalink
see below....how tedious....why does the "reply" function function so haphazardly?
March 9, 2009 11:22 PM | Reply | Permalink
I see your throwing bombs as usual. Pardon me if I seem slow on the uptake but I could swear this sentence is but one accurate description of the many faces of our economy over the last say 30 years. I remember the real estate bust in the 80's and 90's and now the 2000's
By the way great pick up with the Dan Rostenkowski name drop, here is a golden oldie from way back then as well,
“I realize that, more and more, the private sector is guided by managers whose performance is meas-
-ured by earnings per share — not by their vision for the future. They are sprinters, dashing from annual report to annual report, taking little notice of broader national goals."
March 10, 2009 12:41 AM | Reply | Permalink
skewed toward unproductive enterprise
But a full-employment program for talented tax lawyers.
March 9, 2009 11:21 PM | Reply | Permalink
We are a generous people. It's not a matter of curtailing donations to non-profits, just asking that everyone "donates" all they can afford to revive the biggest non-profit in the world- the U.S. government (they better be non-profit with the kinds of deficits they run). Hey, it’s the American thing to do...
March 10, 2009 12:55 AM | Reply | Permalink
I agree Don.
Before I read your post, I copied your sentiment!
March 12, 2009 1:14 AM | Reply | Permalink
To allow someone a tax deduction because they gave their money to charity allows them to avoid paying taxes on money which they do not have. Giving $100 to charity means you must not pay taxes on that money.
If the tax deduction is restricted, then a taxpayer cannot give the same amount to charity, because some of the money will have to go to paying taxes.
This can be viewed in one of two ways.
1) Obama is taxing charities, including those that have historically been tax-exempt.
2) Obama is making the Federal Government a charity that we must all pay into, thus competing with legitimate charities. He is strong-arming his way to control more wealth
Which leads to the conclusion that he is uncharitable, socialist and fascist, or both. Oh, and money-grubbing.
March 12, 2009 1:12 AM | Reply | Permalink
Business investment is a very important factor of American commerce, which brings together many investment opportunities, and investors. Good business investments are how the greatest of business pioneers such as Carnegie, Vanderbilt, and Rockefeller built their empires. Installment loans, from banks or investors, are often how small business outfits pursue business growth and expand their reach, and therefore, revenue potential. Investors are free to structure the loan, so that cash is dispensed in the best way to aid the business, and also receive payments, and business owners looking for investors can also find people that have compatible visions. All megafirms started out as small shops, looking for cash advances as business investments at one point or another.
May 9, 2009 3:58 AM | Reply | Permalink