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October 30, 2006

Taxing The Rich

At a New America event today, James Glassman (author of the hilariously wrong Dow 36,000) turned his characteristic insightfulness to inequality. "We've done all the redistributing we can do," he helpfully informed the audience. The poorest 50% only pay 3% in federal income taxes!

I was reminded of Glassman's by Mike's excellent comment on the inequality post from earlier today:

The cost of government should be funded in accord with the percentage of assets owned and earned. Here are increases in national debt for the past few years. Note, increasing national debt shows the full extent of deficit spending.
9/29/2006 $574,264,237,491.73

9/30/2005 $553,656,965,393.18

9/30/2004 $595,821,633,586.70

9/30/2003 $554,995,097,146.46

9/30/2002 $420,772,553,397.10

9/30/2001 $133,285,202,313.20

9/30/2000 $17,907,308,271.43

Here are the taxes paid by quintile.

Here is a pie chart of wealth distribution.

As you can see from this chart, the bottom 50% owns 2.6% of the wealth; they are therefore overtaxed because their tax burden is 3.4%. The top 10% own 69.9% and the remainder, the 40% between the top 10 and the bottom 50% own 27.4%. That totals 99.9% of American wealth. Note, the chart is dated 2001. Since then, the upper groups have gained wealth, the lower have lost.

There is a correlation between wealth owned and income earned, but note; there are families with great wealth and low income because the wealth is considered unearned: from stocks, bonds, and other sources aside from the weekly paypacket.

It is clear that the Federal taxes are too low by 575,000,000 in order to meet federal expenses and that the people owning America are drastically undertaxed because they are in no way paying their fair share, which is under 65% when it should be over 70%.
Therefore, all talk of the rich being overtaxed is bunk.

There's also, of course, payroll taxes, sales taxes, user fees, taxes on goods, and all the other regressive charges laid on by the government and helpfully forgotten whenever wingers want to make the point Glassman is. But as to his direct argument, Mike gets it right: We're not even taxing the rich in proportion to the share of the economy they control. Forget taxing them beyond it.

October 30, 2006 in Inequality, Taxes | Permalink

Comments

Are you suggesting taxing wealth instead of income? I didn't fully understand the point you were trying to make.

Posted by: Adam Herman | Oct 30, 2006 5:16:24 PM

It is clear that the Federal taxes are too low by 575,000,000 in order to meet federal expenses...

It is also clear that the federal expenses are too high in order to be covered by the tax revenue.

Posted by: Fred Jones | Oct 30, 2006 5:42:09 PM

The US tax system isn't philosophically anything-in-particular based. We're largely income-tax based, but we have all sorts of other crazy stuff happening. One thing we are surely not is wealth-tax based, something that seems to be a bit of a problem....

Posted by: NBarnes | Oct 30, 2006 5:42:10 PM

I'll note here as well that this understates tax incidence on the bottom 50% by omitting payroll and consumption taxes.

Posted by: BruceMcF | Oct 30, 2006 6:07:16 PM

A likely problem with any attempt at a wealth tax is that hiding wealth is real easy (onshore and offshore) and finding it is sort of like finding Saddam's WMD's. Bush would be looking under all the chairs, but never finding any.

Unfortunately (the nicest word I could think of), the folks who would have to restructure our tax system in Congress (and many in the Executive branch), are all rich because they have to be rich in order to be able to run for office in an age when multi-million dollar compaigns are par for the course.

It seems so obvious that it shouldn't have to be stated: getting the money out of politics is the ONLY route to fair burden-sharing of government programs. Without pulling out the roots of the noxious money-weed of politics, you can't begin to make progress.

Posted by: JimPortlandOR | Oct 30, 2006 6:20:22 PM

"A likely problem with any attempt at a wealth tax is that hiding wealth is real easy"

If you tax wealth at an extremely low rate, you can bring in a decent amount of revenue while still making it easier for rich folks to pay rather than to evade.

Posted by: Petey | Oct 30, 2006 6:27:30 PM

Petey: Many rich I know would not pay, just out of principle. It's not that their share is too large, but that they're on the hook for ANY share. Look at the lengths Denis Kozlowski went to avoid paying sales tax on artworks.

Leona Helmsley wasn't just being Leona when she said that only the little people pay taxes. It's kind of an article of faith among the well-to-do: You don't get rich by giving it away.

Posted by: Jimmm | Oct 30, 2006 6:43:30 PM

Petey: Many rich I know would not pay, just out of principle. It's not that their share is too large, but that they're on the hook for ANY share. Look at the lengths Denis Kozlowski went to avoid paying sales tax on artworks.

Ah, yes, the "rich people are unpatriotic cheats" argument for tax inequities. I always loved that one.

Posted by: paperwight | Oct 30, 2006 6:48:57 PM

Odd.

You identified this as an argument for a tax despite it's facially being an argument against a tax.

You further assumed (given that in your moon language an argument against is actually an argument in favor) that an asset tax is an inequity.

Lessee.. poor people from their taxes get Social Security. Rich people get a legal system that enriched them further and adjudicates titles, contract law and corporate structures.

Where's the inequity?

Posted by: wcw | Oct 30, 2006 7:06:19 PM

paperwight: Is it really controversial that rich people have far greater resources available to carry out the kind of complicated transactions that enable people to shelter their money from taxes?

Posted by: Christopher M | Oct 30, 2006 7:09:23 PM

"Petey: Many rich I know would not pay, just out of principle. It's not that their share is too large, but that they're on the hook for ANY share. Look at the lengths Denis Kozlowski went to avoid paying sales tax on artworks."

Yup. And look at Kozlowski's current address. There's a serious downside to outright illegal behavior. In Kozlowski's case, dude's in jail, and won't have his fortune when he emerges.

And there's also a financial cost to legal tax avoidance schemes. If the tax rate is low enough, it becomes cheaper to just pay the tax.

Posted by: Petey | Oct 30, 2006 7:11:58 PM

Taxing wealth is a horrible idea. You tax money as it's made, you don't tax it again and again until it's gone.

The real issue isn't tax rates or what we are and aren't taxing, it's all the loopholes. Some wealthy people are paying more than their fair share, some are paying far less. Someone making $500,000/yr could pay 30% in income taxes while another person making the same amount pays 5%.

This is an argument for a flat tax, or at least get rid of all the loopholes. Taxing wealth is the worst idea ever, as it would penalize saving.

Posted by: Adam Herman | Oct 30, 2006 7:41:28 PM

More idiocy from Herman. Free clue: It's not the brackets that make the tax code complicated, it's the definition of what income is to begin with. If you're a W-2 employee, that's not hard to figure out. But if you own your own business, you're going to go broke if you can't deduct business expenses. If your business grosses $100,000 a year but you spend $50,000 on parts and overhead, that has to be taken into account, or you'll be taxed an amount far higher than you should be for what your actual earnings were. That is where the complexity comes from - figuring out what can be deducted under what circumstances and what can't. And in a complex modern society, there is really no way around it.

I know you looneytarians want simple answers. There are no simple answers. Too bad.

Posted by: Firebug | Oct 30, 2006 7:56:51 PM

I'm guessing that Ezra would like the most wealthy to be taxed the most, and the least wealthy to be taxed the least, but that he doesn't necessarily endorse a wealth tax as the means to this end (perhaps due to the ease of hiding wealth). A different system that taxed people in proportion to wealth, even if it wasn't a wealth tax per se, would be optimal.

Posted by: Neil the Ethical Werewolf | Oct 30, 2006 8:10:41 PM

paperwight: Is it really controversial that rich people have far greater resources available to carry out the kind of complicated transactions that enable people to shelter their money from taxes?

Is it really controversial that big people with weapons will beat up small people without weapons? People so often confuse descriptive with normative -- just because it's natural for people with resources to cheat the system doesn't mean that therefore the system should simply cave in to their will.

Posted by: paperwight | Oct 30, 2006 10:25:57 PM

The real issue isn't tax rates or what we are and aren't taxing, it's all the loopholes

To follow up on what firebug said, the question of what is and isn't taxed, and at what rate is the sum total of all of the loopholes. That's what a loophole is: shuttling money into a nontaxed or lower-rate category.

[Whacks forehead with palm.]

Posted by: paperwight | Oct 30, 2006 10:28:26 PM

Posted by: Adam Herman | Oct 30, 2006 4:41:28 PM This is an argument for a flat tax, or at least get rid of all the loopholes. Taxing wealth is the worst idea ever, as it would penalize saving.

Ah, the murky mysteries of the circular flow of expenditure and income.

Expenditure --> Income

so (Expenditure financed out of Income) plus (Expenditure financed by other means) --> (Income that finances expenditure) plus (Income that does not finance expenditure)

so (Expenditure financed by other means) --> (Income that does not finance expenditure)

so Domestic Investment in real assets plus Domestic Government Spending plus Domestic value of Exports --> Saving and Taxes

Or (because we take the gross values and deduct the imports to get the domestic values)

(I + G + EXP) - IMP --> S + T

And as we know, the government just takes the taxes, and the savings will be left over, so

I + (G-T) + (EXP-IMP) --> S

Or the investment in real assets plus the government deficit plus the trade surplus determines gross saving. "Discouraging saving" will shuffle around corporate retained earnings and household savings and the other savings categories, but it won't change the total amount of savings around.

Anyway, the suggestion was not that wealth be taxed, but that the evidence from the total amount of winnings taken from the table is that income taxes paid are by no means out of line with the degree to which different people benefit from the economic system as a whole. Even just on income taxation, the bottom half pay more in than their share of the total loot all up, and that percentage would be higher if we did not play semantic games and exclude from consideration "surpluses" received from payroll taxes.

Posted by: BruceMcF | Oct 30, 2006 10:42:59 PM

Wasn't this covered by the thread that Mike was quoted from?

So, Ezra, since I have a "high" income and low wealth, does this mean that you get my whole paycheck and I need to leave my condo and live in a box?

Posted by: Guy Montag | Oct 30, 2006 10:45:10 PM

Neil,

It sounds more like Ezra is embracing the FDR tax and income idea: 'people with more than me lose it, what i have is enough'

Posted by: Guy Montag | Oct 30, 2006 10:51:34 PM

It is also clear that the federal expenses are too high in order to be covered by the tax revenue.

I agree with Fred. I believe that putting the Dems in control of at least one House of Congress will at least slow down the Bush Eternal War and Incompetence Train, if not stop it completely. That is a good thing.

However, I don't hold out much hope for getting rid of the myriads of stupid, stupid earmarks that just waste our money. Of course, the present earmark system was created by the Republicans after 1994 and has been abused way more by them than by Democrats, but now that the floodgates are open it will be hard for anyone to close them.

Holding the wealthy accountable for the ways in which they disproportionately benefit from the USA while getting rid of pork would be great. But I'd settle for at least a little bit of both.

Posted by: Stephen | Oct 30, 2006 11:31:52 PM

Stephen, earmarks are a rounding error on the budget. They are an annoyance, but the real money is elsewhere. As percentage of the budget, earmarks have ranged from 0.4% (1994) to 0.8% (2004). Big, freaking whoop.

pw, I love how you elided my critique. It makes you look real darn smart. Yeah!

as for the rest of you, god love you (FD: atheist here), but man it's obvious your paychecks never depend on knowing this material. Whew!

peace out,

Posted by: wcw | Oct 31, 2006 12:15:14 AM

wcw,

thanks for pointing that out. I guess I fell victim to the hype. However, I think my point still stands.

Posted by: Stephen | Oct 31, 2006 1:16:30 AM

How about a nice liberal idea? Those on less than median income shouldn't be paying income taxes (nor FICA perhaps?). We'll run the government only on what we can get out of the rich.

Much fairer than the current system, obviously. Thing is, it'll be a rather smaller government we'll be running but that's a feature, not a bug.

Posted by: Tim Worstall | Oct 31, 2006 6:23:46 AM

At a New America event today, James Glassman (author of the hilariously wrong Dow 36,000) turned his characteristic insightfulness to inequality. "We've done all the redistributing we can do," he helpfully informed the audience. The poorest 50% only pay 3% in federal income taxes!

This is silly. It presumes that federal income taxes are the only taxes that the poorest 50% pay. In point of fact, the poorest 50% also pay payroll related taxes, such as SS and Medicare. They also--indirectly--pay exise taxes, inport duties, and other taxes relating to the goods that they buy. At the state level, they pay state income taxes, state sales taxes (which disproportionately fall on the poorest 50%, since the state sales taxes only apply to the sales of goods--not services--and, unlike the rich, the poorest 50% are more likely to buy goods instead of services), property taxes (either directly, or indirectly through rents), and the various fees that government charges.

Regarding a wealth tax vs. an income tax, it is probably very difficult to tax wealth, since it is difficult if not impossible to come up with an exact measure of wealth, and, regardless, it would probably be undesirable to require people to dispose of their property to pay a wealth tax. It is possible to come up with a more exact measure of income, even income derived from their property. Moreover, it is likely that people who own more valuable property also have higher incomes. So it is hardly unreasonable to tax incomes instead of property.

Posted by: raj | Oct 31, 2006 8:42:02 AM

i hate taxes

Posted by: Dirk van de Broek | Nov 23, 2006 5:02:23 PM

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