The Rich Really Do Pay Lower Taxes Than You (nytimes.com) 392
An anonymous reader shares a column: Almost a decade ago, Warren Buffett made a claim that would become famous. He said that he paid a lower tax rate than his secretary, thanks to the many loopholes and deductions that benefit the wealthy. His claim sparked a debate about the fairness of the tax system. In the end, the expert consensus was that, whatever Buffett's specific situation, most wealthy Americans did not actually pay a lower tax rate than the middle class. "Is it the norm?" the fact-checking outfit Politifact asked. "No." Time for an update: It's the norm now. For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate -- spanning federal, state and local taxes -- than any other income group, according to newly released data. That's a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax rates than the middle class or poor. Since then, taxes that hit the wealthiest the hardest -- like the estate tax and corporate tax -- have plummeted, while tax avoidance has become more common.
IRS (Score:5, Informative)
Re:IRS (Score:5, Informative)
The IRS audits the middle class and poor more often also [nytimes.com].
Actually, that article says that although the IRS has increased its audits of the middle class, people making more still get audited more.
Re:IRS (Score:4, Informative)
Rich (1% of 350M = 3.5M) audit rate (1:16=5.88)% = ~205k Audits
Middle-class (50% of 350M = 175M) audit rate (1:59=1.67)% = ~2.9M Audits
Re:IRS (Score:4, Insightful)
You point that out as if it matters.
If n out of N people in a group are audited, compared to m out of M people in another group, then you need to look at n/N and m/M.
If you're just comparing n and m, you're a moron.
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It makes complete sense to me. I don't know easy or hard it is to cheat on your taxes, but I can believe that the worst nightmare for the IRS is a widespread belief among the middle and blue collar classes that you can pretty easily get away with cheating on your taxes.
It's kind of like speeding enforcement -- it has almost nothing to do with whether or not the person pulled over was an actual speeding hazard, it's that the rest of the traffic whizzing by sees somebody pulled over and thinks they should wa
Re:IRS (Score:4, Interesting)
The poor and the middle class are the one with the "existing heavy audit trail." Wages reported on W-2s. Interest, dividends, and investment income, if any, reported by banks and brokerages on 1099s. Government benefits reported on 1099-Gs and the like.
What does not have a "heavy audit trail"? The very activities that are generating those >$1M incomes. Like real estate empires [ais-cpa.com].
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The middle class (and to some degree even the working classes) have access to cash income streams which can pretty easily evade reporting. Although I'd argue that the income potential of this is pretty limited outside of a few exceptions, like owning a business with a high level of accepted cash payments (bars/restaurants, coin vending, etc). And usually running an "all cash" business is self-limiting anyway, since it makes it hard to scale up to actually take in much cash, plus it begs the question of wh
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The poor and the middle class are the one with the "existing heavy audit trail." Wages reported on W-2s. Interest, dividends, and investment income, if any, reported by banks and brokerages on 1099s. Government benefits reported on 1099-Gs and the like.
Taxpayers largely DON'T face the possibility of any kind of Audit of these specific heavily trailed activities -- The wages reported directly to the IRS on your W-2: there is no audit of the individual taxpayer to be had personally of that: The W2 fi
Re:IRS (Score:4, Interesting)
I used to be careful about my taxes. Then I got audited. It was a total joke. It was NOTHING like the audits shown in the movies or on TV, where the protagonist sits in the auditor's office while they haggle over deductions. In a real audit, there is no "meeting". It is all done through the mail. They request information and ask questions, you provide documents and answers.
During my audit, all of this was done through a tax attorney, so I had no direct communication with the IRS at all.
I was worried that they would dig into my business travel and entertainment expenses. But they didn't touch that. Instead they only fined me for an irregularity in an S-Corp document, what was completely unintentional, and didn't even result in an underpayment of my taxes.
Now that I know how audits work, I am much more aggressive about taking deductions. Perhaps the purpose of audits is to "scare people", but mine had the opposite effect on me. Audits are a hassle, but not much of a threat.
Re:IRS (Score:5, Interesting)
does that mean you cheated the people who paid the $10 admittance fee to enter?
Maybe.... Did the canned food cost $10 ? If the canned food was worth less than $10, then it sounds like a cheat to me.
Also, the analogy might be a little flawwed. Deductions are meant to incentivize certain behaviors, yes, that is true;
However, not all the behaviors incentivized benefit the public in a way equivalent to the donation of 1 canned food product ----
It may be that obtaining the deduction is envisioned to a reasonable degree for most people, but scaling up the amount being spent on something deductible in ways to eliminate almost all tax liability is not so well-envisioned.
For example: The mortgage interest deduction can be beneficial to middle class working people, BUT to people with a large surplus of disposable income it can be presenting an actually perverse incentive.
To those Scaling deductions to massive levels deducted --- My question: Does the supposed benefit of whatever the rich folk are doing with those deductible moneys merit the tax advantages currently being provided to them to that scale
Re: IRS (Score:4, Informative)
True... Interest expenses on a home loan are heavily restricted from being deducted.
On the other hand, when it comes to small businesses -- the deductability of business expenses from revenues is not capped, therefore its really just a limitation to non-wealthy individuals who lack the extra money and means to turn their primary residence into a business venture which includes the costs of attorneys and incorporating, etc.
So the middle class person is likely to buy their home outright and be subject to limitations on the mortgage deduction which will become more and more onerous over time due to inflation, While a wealthy person might incorporate a trust and have this trust build the mansion and take out the loans. The trust corporation the wealthy person created can then rent out the property to themself personally to live in and deduct depreciation and loan costs from the received rents with no dollar figure limits -- there goes the cap on mortgage interest, poof.
They'll probably have the rents they pay to their own trust become deductible as well through the use of more incorporated entities.
The middle-class man would be arrested for tax evasion, but the wealthy man can hire the smartest teams of lawyers and accountants in the land to make sure they do it legally and that their tax avoidance strategy is carefully vetted by multiple experts.
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Re:IRS (Score:5, Informative)
When you go out with friends and your friends order 10 drinks and lobster and you eat a dish of Pasta do you also pay a Fair Bill and split it equally?
Most of the US budget goes on foreign interventions to make the world safe for American Multinationals, military to back that up, subsidies to raise the property values of the rich (conservation and national parks) and law enforcement. All the poor get is Soical Security and thats paid using a separate tax. Income tax is used for the benefit of the rich so they should be paying ALL of it. Income tax was always supposed to be a tax on the super rich. Instead it has become a tax on the middle class.
We need to abolish all income tax upto incomes of 1 million a year and adjust tax rates and loopholes on the rest to meet the costs of govt. Govt is not a charity. Those benefiting the most from it should be paying the costs
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Govt is not a charity. Those benefiting the most from it should be paying the costs
Unfortunately for that excellent intention, those benefitting most from government have taken care to ensure that they own it.
Re: IRS (Score:3)
Lower tax rate lower taxes
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Most of the US budget goes on foreign interventions to make the world safe for American Multinationals, military to back that up, subsidies to raise the property values of the rich (conservation and national parks) and law enforcement.
False [usgovernmentspending.com]. SSI, Medicare/Medicaid are more than all defense spending.
Re:IRS (Score:4, Informative)
SS and Medicare are paid out of their separate funds which are paid directly by FICA taxes not the general budget.
We are discussing Income taxes being replaced with a Wealth tax. Most of Income Tax goes on protection of capital.
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Re:IRS (Score:5, Informative)
One problem is that "income" means several things, and they get taxed at different rates. Ie, wages are typically taxed higher than capital gains, especially long term capital gains (mostly it's intended to be an incentive to invest long term ). Another problem is that sometimes you can reduce taxes by looking at "net income", meaning gross income minus certain expenses, but that rarely applies to standard wages in the US. Basically, the less money you earn the fewer ways there are to reduce that "income" for tax purposes.
The US has had a major backlash against progressive taxes for a long time, and a lot of that comes from citizens thinking that taxes are bad and that even taxes on the very wealthy will affect them. For instance, estate tax has had some strong pushback from middle class taxpayers even though they and their heirs will likely never have to pay inheritance taxes, and there are people who mistakenly think that federal estate taxes apply even on small estates.
Re:IRS (Score:4, Interesting)
They only believe it's unjust because they think it applies to lots of people and that they may fall into that category someday. They don't hear the words "tax on everything over $5,000,000", they just hear a sob story about having to pay taxes when grandma passes away. The tax doesn't even affect the 1%, it's affecting the 0.2%. And when an estate is that large, there are plenty of assets within the estate to help pay those taxes. Plus all the loopholes you can apply as a part of the incredibly wealthy as well - most of that estate can be a part of a corporation or trust.
They need to rephrase things better, such as "the tax on people like Hillary Clinton" and then all the tax haters would be cheering it on.
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Not to mention the reason behind an estate tax: It's meant to avoid the establishment of an idle-rich aristocracy. After a few generations, wealthy families that aren't productive and generating new income won't be wealthy families anymore. It's become so low though, along with all other wealth taxes, that it's not really doing that. Hence, income inequality.
Re: IRS (Score:5, Insightful)
> For one, bases exist in Many communities, spending money and bolstering local economies.
Sounds like we can cut out the middleman: shrink the military, just cut these local communities a check and come out ahead on the deal.
> Secondly, many low-income earners choose to serve in the military ... because for many there is little to no alternative if they want to get a leg up. Military recruiting is criminally predatory, and providing better wages, health care and higher education/training would be a hearty blow to enlistment numbers.
> You're delusional if you think only rich benefit from the military.
Oddly enough, "The Military" is another thing that the rich benefit from yet take pains to avoid participating in...
=Smidge=
Re: IRS (Score:5, Insightful)
Military recruiting is criminally predatory ...
Only if you look at military service as a "bad thing".
I served in the military, and I look at it as a very positive experience. I learned job skills and formed lifelong friendships. I learned to speak a bit of Japanese, Tagalog, and a lot more Chinese. I gained an international perspective that was immensely helpful in my civilian life. The GI Bill paid for my college education, and I got a VA loan on my first house.
You may call this "criminally predatory", but I would say the military is offering opportunities to people that would otherwise be left behind.
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We are talking about Income taxes. The 4T includes SS and Medicare which are funded through their own separater FICA taxes (which incidentally the poor pay more of as the SS wages are capped at130K)
Out of the 2T general fund raised through Income taxes, tariffs and all other sources (renting federal land to farmerss) etc the military is 700B, VA is another 200B, State dept which supports foreign adventures is a 100B and national security black funds are another 100B (CIA, NSA etc).
Another 200B is going on
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Your numbers dont add up.
When quoting spending percentages you are including FICA taxes but when quoting the percentage of taxes paid you are quoting only Income taxes.
You have fallen for the talking points.
Now reqork the percentages separately.
For Income Tax paid the percentage is 30% for Defense, 20% for VA and other National Security spending
Or if you want to look at taxes paid add in the 2.5T of FICA taxes . Than the percentage paid by the top 10% falls to below 30%.
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While I am more in favor of taxing wealth than income as its very easy for the wealthy to hide income even if we are sticking to Income taxes
As per the 2016 figures from the Tax foundation out of the 1.4 Billion in income taxes paid - 400 Billion was paid by those earning 500K and above (The 1%), 500 B by those earning 120K-500K (2%-10%), 500B by those earning less than 120K (The other 90%)
You could simply double the tax rate on the 1% , Bring the Standard Deduction upto 120K , keep the same rate for the 2
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With the fair-tax the results will be similar to what has happened here. The very wealthy will pay dramatically less of their income in taxes than the middle class. The poor will even pay even more of their income towards running the govt. but at least they get a pre-bate.
If I own a mansion and lets say there's a fire. It will take more resources for the fire dept to respond to my mansion than to your house so since i make more i should pay more proportionally than you.
Now with the fair-tax if i make $1
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I think another thing that gets left out, is the difference between income and wealth. One of the ways the very wealthy stay that way is that while their income may be taxed at a (slightly) higher rate, much of their wealth isn't, through deductions, loopholes, etc.
Re:IRS (Score:4, Insightful)
I'm not surprised, my tax guy always said that contractors and home businesses are easy targets for the IRS. Pretty much everyone I know in this category wants to be paid in cash and considers their entire life a business expense.
Also, this doesn't jive with the rich being audited less often:
"For taxpayers with incomes above $100,000 the odds of being audited in 2006 were 1 in 59; above $1 million, the odds increased to 1 in 16. People in lower income brackets — those reporting incomes below $25,000 — faced a 1 in 94 chance of being audited."
Everyone seems to think that rich people somehow scam the IRS into paying less tax. The reality is the rich employ expensive accountants and lawyers to minimize their taxes in an incredibly complex tax code. A flat tax or ultra simple tax code would make things a lot better.
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Heres a simple tax code " No taxes other than a flat 1% wealth tax on networth . No exemptions or deductions" Done. Just eliminated an entire industry - tax lawyers.
Computing net worth is hard (Score:2)
No taxes other than a flat 1% wealth tax on networth
On what day of the year do you do your appraisal? Asset values fluctuate throughout the year, sometimes radically. Do you do it 365 times a year and take an average?
Trust me, where there are taxes, there will be tax lawyers.
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Heres a simple tax code " No taxes other than a flat 1% wealth tax on networth . No exemptions or deductions" Done. Just eliminated an entire industry - tax lawyers.
The wiggle room for the lobbyists will be the definition of "wealth". Just like Trump lost a lot of paper money that was parlayed into multi-year zero-tax payments, the rich will suddenly possess negative wealth. In reality, although liquid wealth may have a readily ascertainable dollar value, how would the worth of non-liquid assets be valued? Of course, this assumes that the overseas and otherwise hidden wealth of really rich people can even be found.
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Here's a simple tax code " No taxes other than a flat 1% wealth tax on net worth .
Which also would tax money people have in cash/savings and equity in their homes, cars, etc ... This would disproportionately hurt lower and middle-class people more. If you want something like that it needs to be at lest a little progressive (meaning lower for lower income/worth and higher for higher income/worth) and/or have a floor amount under which no taxes are paid.
Re:IRS (Score:5, Interesting)
The reality is that the capital gains tax loophole makes it relatively easy for the rich, who statistically tend to own companies, to pay less in taxes. They just ask to be paid in stocks, and use qualified dividends to pay them further. Boom. Now, most of their income, apart from the base price of the stocks themselves, is taxed at the capital gains rate. The more wealthy you are, the higher the percentage of your income, statistically speaking, comes from long-term capital gains, and the less tax you pay. And the higher the percentage of the company you own, the easier it is to give yourself a glorified salary through dividends at that lower tax rate.
Eliminate or cap that one loophole, and you've pretty much fixed the problem. All of the other exemptions and rebates and similar are statistical noise by comparison.
Re:IRS (Score:5, Insightful)
As your link points out, the maximum tax rate for capital gains is 20% and the maximum rate for other income is 37%. That is, by getting your income as capital gains, you almost halve your tax rate.
And it's actually even more of an effect than it looks like because that doesn't include the payroll tax [wikipedia.org] of an additional 6.2% on wage income (up to $132,900) that's not assessed on capital gains. Although the limit of applying to only the first $132,900 means that for someone making millions, this probably isn't a large effect.
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Everyone seems to think that rich people somehow scam the IRS into paying less tax. The reality is the rich employ expensive accountants and lawyers to minimize their taxes in an incredibly complex tax code.
As you imply, the wealthy for the most part follow the law. They leverage their wealth by navigating the complex tax code through paid accountants and lawyers, as you mention, as well as influencing the lawmakers through paid lobbyists, campaign and charitable contributions, favors, and connections. This latter part is a necessary part of the legal not-a-scam.
A flat tax or ultra simple tax code would make things a lot better.
A pure flat tax would be regressive and would be better for the rich, especially if coupled with a reduction or elimination of the capital gains tax
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They don't scam the IRS and evade taxes. It's actually worse. The system is set up so they can do that legally.
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Nice sig!
It made me think of Julian Assange, who clearly deserves that honour.
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The middle class has enough money to pay for an easy win.
If you are rich enough to hire full time accountant(s) chances are if you are audited, the IRS is going to spend a lot of time digging in paperwork, only to find out that every penny is legit, because every tax loophole was used.
If you are too poor, you are going to send middle class salary professionals, spend thousands of dollars to find they didn't pay a few hundred dollars in taxes.
The middle class, is an easy target, chances are a small business
Flat tax (Score:2, Insightful)
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With so many ways to transfer value nowadays, why do you think that a flat tax is a magical solution here?
Re:Flat tax (Score:5, Insightful)
Or... you could graduate the income tax in the traditional way.
Re: (Score:2, Interesting)
Well, as another reply to you said, this just hasn't really worked every long term to date.
I would answer, that everyone needs to have skin in the game.
There is a large % of Americans that pay no net Federal tax, in fact some basically get paid by the US government through taxes.
Make it flat, or a variant of flat, and get rid of loopholes, and being simple, keeps the governmental types from playing games with it.
This would also force the go
Re:Flat tax (Score:5, Insightful)
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Re:Flat tax (Score:5, Informative)
When the top rate was ~80% you could deduct car loans, credit card interest, have "tax shelter" investments, and a lot of other strategies for removing income from that 80% rate. You can look at the studies that show that the effective tax rates paid at the top vary very little, and certainly not in conjunction with statutory rates.
https://www.aier.org/article/r... [aier.org]
Car Loans and CC Interest are mostly the domain (Score:3)
As for Tax Shelters a lot of those tax shelters were investments. A huge part of the 90% tax percentile's reason for being was to create a "use it or lose it" mentality among the rich so they didn't just hoard all their money and use it to broker power / buy off politicians.
Remember, Money is Power. That means if you let somebody have a disproportionate amount of money you've also let them have a disproportionate amount of power. And one way or another you will live with the cons
Not possible. Be realistic. (Score:4, Insightful)
A flat tax is completely unrealistic and would change immediately assuming you could even pass one in the 1st place.
Anybody arguing for it is a waste of time unless you feel like educating a stubborn child.
Please somebody who is in the mood explain just a few of the long list of reasons you can not do a flat tax. I'll get the ball rolling with two:
Rural welfare: they have disproportionate voting power (unequal) and do not want to pay for cities they have nothing to do with; flip side, city folk don't like paying welfare that props up rural areas.
ok 1 more: Old people and severely disabled have an unequal ability to pay if they have no income. Loopholes make it complex and therein hides more loopholes...
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I'll just leave this here:
https://www.heritage.org/europ... [heritage.org]
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Re:Not possible. Be realistic. (Score:5, Insightful)
Ok, I'll bite. *sigh*
Lets assume there was a flat tax. The total wages paid out to people in the US is something around 13 trillion (based off a quick google search) while the total us budget is somewhere around 4 trillion. That means that any flat tax, in the form of an equal tax percentage across all income brackets would have to be about 31%.
Now, lets take 2 people, and see how this effects them.
Person A make 143 million dollars a year. They have a high lifestyle, but at the end of the day, necessary expenses only cost so much (mortgages on multiple homes, sumptuous meals every night for their entire entourage. Considering this, person A can't live the life they have become accustomed to for less than 10 million a year.
Person B has a household income of 45,000 a year. With the cost of food/rent/clothing/health care for their 3 children, the standard of living they maintain costs 38,000 a year.
Now, lets apply our "fair" tax. Person A takes a HUGE hit, but at the end of the year, subtracting his tax and cost of living, ends up with around 90 million dollars to jetset around and fund his bid for the presidency. Person B is on the hook for 13,000 in taxes, plus his 38,000 cost of living, leaving him with -6,000 for all his hard work.
Now, seriously, how does that equate to carrying a equal burden for the upkeep of a nation? This is the whole rationale for a progressive tax system, because history is positively littered with other tax systems that have unfairly impacted the poor.
Every time I see a "flat tax" proposal, it is usually for some incredibly unrealistic amount, like 5%, and it's hard to say that 5% of anyone's income would be much of a burden, but when you run the numbers on something like that, inequities in a flat tax become really noticeable for large portions of the population. Half of the households in the US earn 50,000 or less, they are much closer to person B than person A. Asking them to bear all of the hardship is in no way reasonable.
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Old people and severely disabled have an unequal ability to pay if they have no income.
Er, not following you here. A flat tax on no income is $0. They have an unequal ability to pay that?
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The problem I feel is the lack of outreach showing the effectiveness of the taxes and how everyone benefits from it.
A city isn't self sustaining, it is requiring urban support services hundreds of miles away to help keep the city operational. From food to feed the population, lumber and queries to build and repair buildings, many products and services that need a higher level of pollution will also be done in rural areas...
Rural areas need more support per person. As miles of roads may be needed to handle
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It's a good reason to eliminate loopholes. Not clear it's an argument for a flat tax. Figuring out which tax rate bin you belong in is a trivial process, flat tax doesn't meaningfully simplify the tax code.
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I suppose that would be better than this disaster but you could just stop deliberately creating more loopholes. I'm pretty laissez faire in general, but there's no exuse, economically or morally, for the tax policy as it is right now.
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How about we just get rid of all the loop holes and deductions and keep a graduated tax system
Wealth tax (Score:2)
Totally agree on the flat tax as long as its a tax on wealth and not income. Buffett pays less tax than his secretary because his gains are capital gains and not salary.
As long as we keep taxing income all kinds of games can be played. Instead just tax wealth.
As a positive side effect people will have to start investing the wealth back into the economy to get a return more than the tax instead of tying it up in unproductive stuff like Luxury cars, paintings and unproductive family farms.
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Flat tax has nothing to do with deductions and loopholes. You could have a flat tax with even more deductions if you wanted to.
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also if you look at TFA, you see that the tax rate is pretty much flat (around 25%) in the USA in 2018. It is a little higher for the 99.99% richer, than a little lower for the top 400 rich.
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Flat Tax doesn't get rid of loop holes. A value add tax works much better at removing loopholes as every transaction a percentage of goes to taxes.
A flat tax will just mean everyone pays the same % of their income... However how they explain their income makes it complex. Steve Jobs salary was one $1.00 a year. However he had a lot of stocks that he could sell, and the fact his home, and every meal he had was just a business expense. Apple paid for Jobs to live the billionaire lifestyle. While to the IRS
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> I suggest a tax on bank balances/deposits
I make money and taxed. I deposit that money and I get taxed again? Do I have to pay that tax again every quarter or year based on my bank balance?
Yikes. Good luck saving up for a car or house.
An Immodest Proposal (Score:2, Insightful)
Behead a few billionaires on Wall Street. Put their heads on pikes as an example
Watch how quickly the behavior of the rest of them improves and life gets better for the rest of us.
#ShootThemInTheLegs
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A somewhat less immodest proposal: return marginal tax rates to what they were under Ronald Reagan, adjusted for inflation.
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Behead a few billionaires on Wall Street. Put their heads on pikes as an example
Warren Buffet?
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Re:An Immodest Proposal (Score:4, Insightful)
Why instead? You've just legitimized killing someone just for talking in the abstract about killing someone. At this point, you've done nothing to rebut the original idea.
Oh, sure, you were attempting to be "ironic" and didn't really mean to adopt the position that you literally advocated.
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Or, more effective for ensuring that people pay their "fair" (ie, required by current tax law, flawed though it might be): give the IRS more resources so they can go after tax cheats more effectively. Less messy, too.
We currently have a problem in that everyone hates the IRS, so they're an easy target for budget cuts. However, then they do their job less effectively, fewer cheats get caught, less incentive for potential cheaters to play by the rules, then even more people cheat. Googling around a bit tur
Well yeah but... (Score:5, Funny)
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They are richer and therefore more intelligent, creative, hard-working, and wise than the rest of us. I for one am happy that they are not restrained by oppressive taxation and we lesser citizens can bask in the glow of their unhindered brilliance.
... and snap up the morsels that fall from their feasting tables into the gutter where we, unworthy losers of the greatest meritocracy on Earth, live our unworthy lives.
Re:Well yeah but... (Score:5, Funny)
Is this sarcasm or a quote from Fox News?
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Could you settle a debate we have over here? Are you working for the Daily News or Fox News?
Capital gains (Score:2)
Rich people don't really take paychecks, so they don't usually have W-2 income that gets taxed progressively. Instead, much of their assets are in the markets, and these get taxed at a much lower rate than ordinary income.
Of course, your congress critters (regardless of party) are almost certainly rich too, which is why this will never get changed.
Re:Capital gains (Score:5, Informative)
There's a lot going on that people don't think much about, and it gets missed in these discussions.
Think about a consumer spending money. You spend $1,000. What happens?
$1,000 goes to a business's revenue (to buy a product). $500 of that goes to wages, on which the worker is taxed. The worker is now a consumer and can spend those wages.
What about the other $500?
$400 of that goes to other business inputs. Those go to other businesses, and this whole thing continues down, with workers and whatnot.
What about the last $100?
That's net profit. It's taxed at 35% (Trump's GOP congress cut this down to 21%). That leaves $65 of net profit after taxes.
What about that $65?
It's either spent later into the business or distributed as dividends. Dividends in excess of actual profits are unlawful dividends. These lawful dividends, that $65 distributed to shareholders, is taxed again at 15% Dividend rate (happens to be the same as capital gains). Together with the 35%, that's a 44.75% tax rate from consumer hands to rich-consumer hands.
Okay, so that's mainly a closed system. What about stocks issued to rich people as compensation?
The market value of the stock upon issue is regular income. If the NYSE says that's $1 million of stock that day, then upon year end the rich guy better come up with the taxes on $1 million of regular cash income to pay the IRS. If he doesn't have it, he can sell some stock.
What about gains?
In the first year of stock ownership, gains from sale are regular cash income. After that, they're capital gains, taxed at 15%. So if that $1M is now worth $1.2M, then 15% of $0.2M of tax liability occurs if the stock is sold as such. The money from sale comes from the pockets of other stock traders, of course, and the original power to obtain stock (cash to buy or just straight issuance) is regular income, so somewhere along the line some income got taxed and now we're taxing the passing of a holding back and forth (getting more money out of the market requires new income-taxed money be put in, or that the fantasy of money upon new stock issuance in lieu of cash compensation is taxed as income).
Make sense?
No shit (Score:2)
...
Beatles (Score:2)
That's a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax rates than the middle class or poor.
No kidding. Noted conservative rich guys The Beatles had something to say about that.
That's one for you, nineteen for me .... TAXMAN!
Lower tax rates != lower total taxes (Score:3, Insightful)
The rich by far pay more in the total taxes collected that the middle and lower classes, even if the tax rates are off. This is because they earn more of their income through things like stock (which is taxed differently than regular income). There are many reasons for this, and they are not loopholes: Tax income is treated like investment income because it is subject to risk.
The fight over tax rate fairness is a misguided effort to raise anger at the rich when in fact they already pay disproportionately a large share of the total tax revenue.
Note also that in the US, the middle and lower classes pay lower tax rates and total tax dollars than similar classes in European countries (where the social safety nets in terms of social security, health care, etc, are much higher). If we are talking about Medicare for All, that won't be paid for by increasing taxes on the rich. Instead, we'd most likely be looking at tax rates in France or Scandinavia where they effective tax rates are around 40%. Let's see how popular that messaging is.
Why it happens (Score:5, Interesting)
Four known ways for a government to raise money, and the wealthy in this country make sure we don't use the only one that actually charges them real taxes.
Here are the four known methods:
1) Print it. Causes inflation, but you get to fire the IRS and all tax accountants. Best of all, it is physically IMPOSSIBLE to cheat the system. Anyone who owns US dollars - even foreigner criminals pay. Effect: Those whose money is not inflation adjusted (i.e. set salaries and fixed income - such as the retired) pay, while those who hold appreciating assets (i.e. the rich) pay nothing.
2) Tax income. Effect: Middle Class pays for everything. The poor have so little income and the wealthy can easily reclassify their income as something else. (i.e. buy investments that pays little to no income. Take a loan out on them. You get the cash but no 'profit' so no taxes. Sell all investments that lose money to pay off the loans and REPEAT).
3) Sales Tax. Effect: Poor pay for almost everything, the middle class pay most of the rest. The poor spend 100% of their cash, the ultra wealthy invest almost all they earn, so little sales tax.
4) Yearly property taxes. Does not need to be restricted to Real Estate - can include jewellery, stock, businesses, vehicles, bonds, cash, etc. Effect: Wealthy pay for about 70%, the middle class pays the rest. 10% of the population owns 70% of everything.The poor own little to nothing.
Note, a 5% property tax on every item of value would let the federal government get rid of all federal taxes. A mere 1% tax on property if you own at least 1 million dollars would let us get rid of all capital gains taxes.
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The rich spend more consuming than the poor. And if they didn't spend more than the poor, what would be the injustice? Why bother being rich?
Yeah, the rich spend a lower percentage of their income than the poor, if that's what you mean.
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Yearly property taxes. Does not need to be restricted to Real Estate - can include jewellery, stock, businesses, vehicles, bonds, cash, etc. Effect: Wealthy pay for about 70%, the middle class pays the rest. 10% of the population owns 70% of everything.The poor own little to nothing.
Note, a 5% property tax on every item of value would let the federal government get rid of all federal taxes. A mere 1% tax on property if you own at least 1 million dollars would let us get rid of all capital gains taxes.
The idea of forcing people to enumerate all of their possessions, provide that list to the state and then pay the state for the privilege of continuing to possess items of value strikes me as particularly oppressive, labor intensive and a lightning rid for (un)intentional abuse and liability.
Much easier and much less repressive to restore the deal we had for most of this countries existence where the rich were actually taxed.
Not really. (Score:4, Interesting)
"That's a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax rates than the middle class or poor."
Except they didn't.
In the 50s and 60s, the rich had a higher MARGINAL tax rate - ranging up to 90% or so, but that means nothing when you remember that there were more tax deductions, dropping that "90%" down to about the same amount rich people pay now. When the top rate was 90%, the _effective_ rate was about 20%. Now, when the top rate is about 34%, the effective rate is... 21%.
That's not all, either.
When the CEO of a huge corporation left his company-paid apartment (in the penthouse of his company's office building), climbed into his company-paid limo (driven by his company-paid chauffeur), to the airport where his company-paid private plane waited, to fly him to his company-paid house out in the country (staffed by company employees), to host a company-paid party (where all of his business friends were flown in at company expense)...
Not only was he not taxed for what we consider "income" now, the company got tax deductions for a lot of it.
When you look at other taxes, like capital gains, the rate structure has changed many times... but right now, the effective capital gains rate (the amount actually paid as a portion of income) is almost precisely the same as it was in the 1950s.
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https://mercatus.org/sites/default/files/ADavies-capital-gains-rate-1-JPG.jpg
In 1954, it was about 16%.
In 2010, it was 15%.
If you want to make enough money to "have capital," how about doing something that, you know, generates wealth?
Start a company.
Work for a company, do a good job, get promoted, get paid enough to put some money into the stock market.
Et cetera, et cetera...
FFS top 1% wage earners paid 37% of the fed tax (Score:2, Insightful)
I love how you say "than you" (Score:2)
Look, the investor class of wealthy households pay less taxes than you.
Why aren't you living in a smaller place, not driving, and investing all of the money you would spend on that in low-cost index ETFs (both stocks and bonds) and mutual funds?
They've been ripping you off for decades.
Rich people don't pay taxes, only the middle class and poor people (who have the largest tax burden due to fees and sales taxes they can't buy in bulk to escape)
Differing stats (Score:2)
I see people with opposing views cite different statistics, and do not plan to come together for a compromise. For example, to 1% pays more than 1/3 of all federal income taxes: https://taxfoundation.org/summ... [taxfoundation.org]. However while this might be true, they might also be paying a lower rate then upper middle class (5% ish), or even maybe middle class.
We look at the large elephant, and keep seeing the different parts, reaffirming and strengthening our existing views. This usually does not end well accordin
Pretty poor sources (Score:3)
The author states his source [nytimes.com] for his claims:
The data here come from the most important book on government policy that I’ve read in a long time — called “The Triumph of Injustice,”
So a book that is dedicated to injustice - right in the title. Yeah, that's going to be nice and balanced in its approach to the issue...
Meanwhile, when we look at the actual IRS data [taxfoundation.org], we see the rich pay at least 27% income taxes. And before you go and shout "Capital gains tax!", realize those are 20% for the wealthy [nerdwallet.com] - even long term capital gains.
The rich also pay sales and property taxes as well; I guess if you can keep your sales and property taxes to essentially zero - by spending nothing - we can zero those out. But then you also have State income taxes [taxfoundation.org] that will hit the wealthy hard, typically at the max rate, and well over 5%.
Bottom line - if you are one of the top 400, you spend zero, and you live in Florida, Washington, Texas, Alaska, South Dakota or Wyoming, and you don't own any property, and all your income is from long term capital gains, then you're "only" paying 20% tax.
For other than that theoretical strawman, the data says you're probably paying closer to 35-40% in Federal and State income tax alone. Well above the national average for income taxes. And you're also maxing out your SSI/FICA contribution - and paying an additional 0.9% tax [irs.gov] on everything above $200,000 as well as a supplemental Medicare payment (with no change in benefits received).
Lastly, per the data above, if you're in the bottom 50%, you're averaging 4% income tax, and 7.62% SSI/FICA. Essentially zero State income taxes. So that means around 12% fixed - and the rest (property, sales, etc) would be commensurate with the rich (assuming their house is proportional to their income).
It shows up in the IRS tax stats too (Score:3)
It's a big ingenuous to call these people "the rich" since they constitute only 0.034% of taxpayers (i.e. 3.4% of the top 1%). Lots of rich people pay a healthy tax rate. And the sum total of their adjusted gross income is only $843 billion so even if you taxed them at 100% it wouldn't even cover the deficit. But the trend of the ultra-rich paying less is very real.
Yes, because... (Score:3)
...most of the taxes are INCOME taxes. If you're staggeringly rich, you can pay someone to structure your wealth in a way that the money you use comes as dividends, inheritance, or some other form of wealth that avoids the letter of the law.
We don't have a wealth tax in the US. Neither do most western countries. Not because we don't want to tax them, but because establishing (and proving) what 'wealth' really IS, is hard.
Shall we make a tax on everything that someone spends? Rich people will have other people buy them things.
Shall we make a tax on all the income from every source that someone gets? Rich people will have a non profit trust hold all their wealth, and that trust will buy them dinner, pay for them an apartment to live in, etc.
From a tax attorney: it is absolutely true (Score:5, Informative)
There are three big advantages that come to mind: 1) Holding companies, 2) fluid residency, and 3) Dividends
With the first, they can pay less taxes because they don't have to have their income and assets directly in their hands. Taxes are transaction based and generally only apply when money or something of value changes hands. But using various entities (trusts, holding companies, non-profit foundations, etc) they can park resources in more tax advantageous vehicles yet still get access to the funds. Even wonder why so many politicians, athletes, etc have non-profit foundations? It's because they can dump a bunch of money in there and then direct the foundation to do things that help them. They're on the board, so they get a paid for car to drive. The entity buys a house and then leases it to them cheap. They deduct huge amounts of personal expenses that they normally wouldn't be able to deduct because they are "doing business for the entity". Business expenses for partnerships and the like are universally deductible.
Ever wonder why every two bit politician writes a book? Ever wonder who buys it? The foundation does! And then gives the book out for free (and a tax deduction) at speaking events. Yay!
Fluid Residency. The rich typically have multiple homes. At least one of those homes will be in a state with no income tax. Tennessee is a popular choice. So is Nevada. For Federal taxes, it's a simple matter of proving where their "intent to return" was and claiming that state as their residence. The other states (particularly California) have gotten wise to this and are now more closely scrutinizing where they spend their time. Still, this "one simple trick" can save huge amounts of money on state and local taxes.
Lastly there is choice of income. The truly rich do not earn wages. They earn passive income and dividends. Wages are subject to income taxes, social security tax, medicare tax, local income taxes, etc. Passive income and dividends aren't. They also aren't taxed at the income tax rate but instead are usually taxed at the dividend rate of 15 - 20 percent. This is easy for them to do because, as I mentioned, they don't need the money now.
You know what they call money received today? Wages. Know what they call it one year and one day from now? Qualified dividends. The former gets taxed at the progressive tax rate. The latter gets a low fixed rate. You could this too......if you didn't need money today to live on.
All of the above is 100 percent legal and goes on every day.
Re:Unemployment rate is directly proportional (Score:4, Informative)
To the taxes that poor people pay. The less taxes they pay, the more jobs are available for everybody else.
Fixed that for you. The fewer taxes they pay (and therefore more money poor people have), the more money they spend, meaning more jobs are necessary to provide the goods and services they are purchasing. The fewer taxes the rich pay (and therefore the more money the rich has) the more money gets stuffed into bank accounts, overpriced stocks, or tax dodges like foundations and offshore accounts.
Give poor people more money and they spend it. Give rich people more money and they hoard it.
The rich didn't become rich by hoading (Score:3)
Give poor people more money and they spend it. Give rich people more money and they hoard it.
Rich people don't hoard money.... unless they're keeping billions in cash or gold, their net worth is working in the economy. If it's in a bank account, it's used by the bank to make loans (mortgages, SBA loans, etc). If it's in municipal bonds, it's used to build public works, and if it's in equity, then that's now new ventures are started.
An economy can't grow on purchases of consumption goods alone. Investment comes from saving.
Re:Playing the devil's advocate for a moment (Score:5, Insightful)
Only they cost time and money to investigate and set up which the middle class can't afford
FTFY
The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread. - Anatole France
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Eh it's not so much that, it's that the rich - who by no means have it easy already - can just throw money at people and get them to write tailor-made laws specific to their personal tax needs, or hire armies of legalizers to tear through and find every hole where even the pinkiest finger can be stuck through.
It's not that middle class people don't want to play the game, it's that they literally can not unless they personally have a degree in whatever, economics or something, because the barrier of entry in
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Re:Playing the devil's advocate for a moment (Score:5, Insightful)
But the middle class may spend $1000 in tax expert fees to save say $2000, whereas the rich may spend $20,000 in expert fees to save millions. Loophole chasing is often not cost effective for the middle class. Complex tax rules scale "up" better.
I should note that as a middle-class tax-payer, we sometimes pay an expert, but still don't recover enough to justify the cost of the expert. It's hit and miss.
Offtopic? not as much as in the past (Score:2)
Wealth going to the top due to automation is a problem that is accelerating. As far as Facebook... it is the new AOL 2.0 and sadly this time people are choosing it out of laziness while AOL was a necessity until freedom of choice won out. now laziness and addiction are taking it away.
The connection isn't being made explicitly but it won't be long until they do not have to bring up tech relevance to inequality.
It's not a "left" issue as it becomes extreme. The argument for capitalism is that it benefits the