Saez & Piketty--Why the 1% should pay tax at 80%

[Triana]

The Reagan-Thatcher revolution changed society's beliefs about taxes. If we want economic growth shared fairly, we must rethink

In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pattern is true of other English-speaking countries. Contrary to the widely-held view, however, globalisation and new technologies are not to blame. Other OECD countries, such as those in continental Europe, or Japan have seen far less concentration of income among the mega rich.

At the same time, top income tax rates on upper income earners have declined significantly since the 1970s in many OECD countries – again, particularly in English-speaking ones. For example, top marginal income tax rates in the United States or the United Kingdom were above 70% in the 1970s, before the Reagan and Thatcher revolutions drastically cut them by 40 percentage points within a decade.

At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large.

For example, doubling the average US individual income tax rate on the top 1% income earners from the current 22.5% level to 45% would increase tax revenue by 2.7% of GDP per year – as much as letting all of the Bush tax cuts expire (only a small fraction of them lapsed in January 2013). But of course, this simple calculation is static: such a large increase in taxes may well affect the economic behaviour of the rich and the income they report pre-tax, the broader economy and, ultimately, the tax revenue generated. In recent research, we analyse this issue both conceptually and empirically using international evidence on top incomes and top tax rates since the 1970s.

THE REST:

http://www.theguardian.com/commentisfree/2013/oct/24/1percent-pay-tax-rate-80percent?CMP=share_btn_tw

[daleanime]

1. K&R....

[MaggieD]

2. What a load of crap

Someone needs to explain tax loopholes to these guys. Raising the top marginal rates won't do jack. These billionaires and mega corps don't even pay the current top marginal rates now thanks to all the loopholes.

[ieoeja]

3. Missed the last paragraph in the OP?

But of course, this simple calculation is static: such a large increase in taxes may well affect the economic behaviour of the rich and the income they report pre-tax, the broader economy and, ultimately, the tax revenue generated. In recent research, we analyse this issue both conceptually and empirically using international evidence on top incomes and top tax rates since the 1970s.

The not bolded portion, which you call a load of crap, says the exact same thing you said. The bold text says there is more detailed analysis further in the article at the link, should you choose to go there, which takes that specific issue into consideration.

[MaggieD]

5. Yeah, right

Let's close the loopholes first before we raise marginal rates yet again. Because guess what? Raising marginal rates without or before closing loopholes is killing small businesses that consistently pay much higher effective rates than their mega corp competition. Why? Because small businesses who typically treat their employees better don't have those loopholes available to them.

What's really mind blowing is how "democratic" voters fall for this BS.

[ieoeja]

9. I doubt you would find a single democratic voter who would disagree with you.

But that doesn't change the fact that you called the OP "crap" when the OP said the exact same fucking thing you said in your first post.

Also, you are being a major asshole at the moment for seemingly no reason. Not to mention calling Democratic voters stupid on DU isn't too bright.

[MaggieD]

15. No, it's NOT the same thing

We don't need to "study" and "analyze" closing loopholes while declaring the top marginal rates should be increased again.

We just need to close the loopholes.

[hfojvt]

22. now you are talking about corporations versus individual taxes

"Raising rates is killing small businesses"

Oh good grief. A person does not start paying the TOP rate until their individual NET income is over $400,000 a year.

If your business has a net income of over $400,000 a year, that does not fit my definition of "small".

No, I am quite sure you are wrong. This loophole business is a myth. It's more important to raise rates.

[MaggieD]

31. Tell me all about your small business

Tell me how your small business competes with larger corporations with access to all these loopholes. Really, go ahead and give me all your awesome advice on how I can pay over 41% of my revenues in taxes and still compete with a company that pays less than 10% of their revenue in taxes. And of course, in your imagination, federal taxes are the only taxes I have to pay (which is so far from truth it just reminds me that all the internet experts on business and taxes know absolutely nothing about either).

Anyway, I'll wait while you figure out how a small business that doesn't have access to endless (or even ANY) loopholes competes with the mega corps if the government leaves the loopholes in place and just keeps raising the marginal rate (that has absolutely NO impact whatsoever on the Mitt Romney's of the world - and trust me, there are LOTS of those).

Now, my small business happens to be owned by myself and my spouse. Which means the top rate hits us at $225K each. So a bit different than your imaginary $400K.

I get that you think I should invest my life savings, work 60-70 hours per week, and worry about providing steady employment and benefits for 25 employees I worry about like they were my kids, only to surrender nearly half of it to the department of defense, wall street bankster bonuses, and rebates on taxes to GE and Boeing. Thanks for your opinion

I DO NOT AGREE.

[lancer78]

45. Then just incorporate.

The minute you incorporate your small business, you get the same tax benefits as Wal-Mart, Apple, GE ect.

[MaggieD]

46. No you don't

I'm an LLC treated as an S corp. And no it doesn't work the way you think it does.

[aggiesal]

4. Let's do both, ...

Raise the top marginal tax rates and close the loopholes!

[MaggieD]

6. Let's see Boeing or GE pay a dime of taxes first

Let's see the Romney's of the world pay even close to the effective tax rate I pay before you burden my small business with even more taxes.

[ieoeja]

10. I, me, my and mine! n/t

[MaggieD]

12. You don't even know me

The last conversation I had with my accountant was "how can I give more to my employees and less to the government?"

He suggested a "profit sharing" infusion into their 401k, which I am doing.

So much for your assumptions. You can apologize any time.

[ieoeja]

14. Seriously. You have been a complete total jerk in every single post thus far in this thread. n/t

[MaggieD]

16. Funny, that's how I see....

The mob calling for increases in the marginal rates while it's so frigging obvious that billionaires and mega corps are not even paying close to the current top marginal rates.

It's constant here. And it makes people look extremely uninformed about the actual problem with the tax structure in this country. The system is rigged but not the way you seem to think it is.

[ieoeja]

21. I assume you meant the "royal you" as referencing DU rather than me since I have already agreed ...

... with the point you were making.

Possibly the single worst result of the Reagan administration was shifting the burden of paying for things down to the state and local governments. Aside from the fact that Reagan's policy devastated rural communities, it also created an unlevel playing field harmful to small and medium sized businesses.

Indiana gave United Airlines a tax break to move from Illinois to Indiana. Illinois gave Boejing a tax break to move from Washington state to Illinois. Nobody is going to offer you those tax breaks. The bigger guys have inherent cost savings advantages over their smaller rivals without the governments turning around and giving them tax advantages vs their smaller rivals as well.

Then the governments need to make up for the lost taxes granted to the big guys. So they increase taxes on indviduals and small/medium sized businesses compounding the problem they've already created for us.

Pre-Reagan this was not an issue. State and local taxes were too small to cover the cost of moving to avoid them. By shifting the burden for taxation to the state and local goverments, it created competition between them with the aforementioned results.

[MaggieD]

35. Agreed - thank you

I'm sorry. I am a bit testy about this, but I get pretty tired of all the pitchforks coming after people like me simply because people don't understand that it's not the marginal rates that are a problem -- it's all the damn loopholes.

There seem to be a lot of "liberals" that really, really, hate anyone making a good living. I DO consider myself very lucky, but I also bust my butt for what I have and to get where I got. AND I don't just bust my ass for money, but truly, truly, because I want to help the few people I can have good jobs and benefits, and a place to work where their bosses appreciate them.

I am also NOT complaining about the taxes I do pay (but I wish I could give more of it to my workers rather than to the government to offset the tax breaks given to billionaires and corporations). But I sure am going to start complaining if those in our own party keep acting like there is no point where I have paid enough even while republican assholes are still paying jack shit because the loopholes were written for the filthy rich.

[TBF]

23. That's how I feel as well -

we are self-employed (so we pay at a higher rate than most and don't have the write-offs corporations have) and still paying off student loans. I want to see the taxes on corporations and wealth (including taxes on every.single.trade - Wall Street is making out like a bandit while bankrolling democratic politicians).

[MaggieD]

30. Thanks. Nice to hear that someone else gets it

[aggiesal]

44. WOW, you need a new accountant. ...

When I'm self employed, my tax liability was extremely low.

I have a good CPA that shows me how to benefit legally from everything out there.

[TBF]

47. We finally got a CPA for this past year -

student loans are killers. We need to work harder at getting them paid off. That is why you'll see me advocating so hard for students on here. They they get absolutely buried without really realizing the consequences. You don't have nearly the buying power that the kids with inherited money have. It is one of the things that make it so hard to scratch your way out of the working class.

[hfojvt]

24. GE does not pay individual income taxes

If the top rate was raised, then Romney would pay more. Especially if dividends and capital gains were taxed the same as wages (which they should be).

[MaggieD]

29. Oh please explain that....

If Romney is paying an 11% effective rate on $250 MILLION dollars right now, how will he pay more if we raise the marginal tax rate? He's not paying anywhere near the top rate now thanks to loopholes. And neither is the CEO or ANY executive at GE or any other mega corp.

[hfojvt]

38. Where the heck are you getting $250 million?

Romney is taxed on his income, not on his wealth, just like everybody else.

Here is what I find about his 2011 income

"Republican Presidential nominee Mitt Romney Friday released his 2011 tax returns, following months-long calls to release more detailed information about his personal finances. He paid more than $1.95 million in taxes on nearly $13.7 million in income."

http://www.usnews.com/opinion/articles/2012/09/21/did-mitt-romney-release-enough-of-his-tax-returns

Here's then his 2010 taxes

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=1167192

Romney's not paying the top rate now, perhaps partly because of itemized deductions. But here's the other factor

"And most of Romney's income - $3.3 million in interest, $4.9 million in dividends, and $12.6 million in capital gains - is made without doing one iota of actual work."

Thanks to Bush Sr, Clinton and JR Bush, neither capital gains NOR dividends are taxed at the top rate, they are only taxed at 15%. Raising that tax rate on dividends from 15% to 39.6% would instantly increase Romney's taxes by $1.2 million.

Here's his tax return for 2011 http://www.taxhistory.org/thp/presreturns.nsf/Returns/9F81699BC7D6DE238525798F0051C35F/$file/M_Romney_2011.pdf

Other than itemized deductions of 4.68 million (and I do think we should get rid of itemized deductions except for catastrophic medical expenses) I do not see any loopholes. The reason he pays a low rate is because his dividend and capital gains income is taxed at a top RATE of 15%. Actually in 2010, the first $68,000 in capital gains income was taxed at ZERO percent.

Even THAT loophole saves Romney about $10,200 in taxes. (although in 2009, it even saved ME some $1,900 in taxes on some real estate that I sold).

[MaggieD]

39. Also very invested in defending Mitt, I see

How about the loophole Romney used to shelter nearly $100 Million in IRAs (far above the limit normal working folks/small business owners are allowed to shelter)?

http://www.businessinsider.com/heres-one-of-the-clever-financial-tricks-that-mitt-romney-used-to-become-dynastically-rich-2012-7

Now you are free to believe marginal tax rates are the issue even though they are not. Special loopholes are the problem. But I have work to do, and I don't get to live in fantasy land.

[hfojvt]

42. okay since you have nothing

you just accuse that I am "defending Romney" because I want him to pay a higher tax rate on his dividend income.

And no doubt, Reagan, Bush, and Brownback have always proposed lower rates, because rich people do not care about lower tax rates. They don't benefit at all from lower tax rates.

[MaggieD]

43. Why would he pay a higher rate when all he needs to do....

...is find a gigantic gaping loophole like he did to avoid paying taxes on another $100 million just like he did with the IRA loophole scam?

No, you're apparently fine with that crap. And why wouldn't you be when you have people like me, ACTUALLY WORKING and trying to provide good jobs with good benefits to screw instead?

You know I have voted for Democrats for 30 flipping years without fail. I have lived the liberal agenda all that time, and built my business based on those principles. But reading DU some days makes me think I was sucker to do that. Ugh.

[jtuck004]

7. And do what with it. Send it to banksters? People don't care about taxing these folks because they

don't feel like they are getting value for their taxes anyway. And they aren't. Until they do, the wealthy have the perfect tool to insure their continued success - everyone else's mind.

Which is why the article ends with:

"The job of economists should be to make a top rate tax level of 80% at least "thinkable" again."

They know today it is not, and a large part of the reason why so many people never responded to Occupy - they have no real conception of what could be, just what is.

Which will make the above much, much harder to do.

[MaggieD]

8. Exactly

I pay a shit ton of taxes now. And I'd probably be willing to pay even more if the government wasn't giving most of it to the DoD and corrupt Wall Street types, plus making sure that mega corps with political influence pay nearly nothing, or get "rebates" back instead of paying a dime.

[hfojvt]

25. no, the reason it is not thinkable

is because politicians in both parties are bought by the rich, and so any discussion of raising the top rate - is off the table.

[marble falls]

11. Eisenhower got up to 95%. I like Ike.

[MaggieD]

13. Close the loopholes

Mitt ain't gonna pay one more penny over his 11% effective rate on over 250 million until they close the loopholes.

[JaneyVee]

17. I agree. Close the damn loopholes.

[marble falls]

18. And don't fall for a flat tax as a compromise.

[JaneyVee]

20. NEVER.

[One_Life_To_Give]

19. Trouble with high tax rates is no one ever actually pays them!

Capital gains, perks, trusts and thousands other ways that the best Tax Lawyers money can buy will dream up. Adjusting only the marginal rate on the 1% is Feel Good legislation. Make people think something was done while in reality SSDD.

To be effective it would have to be comprehensive tax reform. Addressing all the various ways that the rich receive value. Such as a Company Limo and Driver/Security Person. Corporate Box Seats, for entertaining clients. Should they be taxed even when used as intended. What about the 5minute business meeting in Cancun at the start of vacation. So many ways to receive value that don't fit the definition of "Income"

[hfojvt]

26. that myth of the loophole is just so pervasive

If nobody ever pays them, then why, oh why, do the rich work so hard to lower those top rates and to keep them low?

And when the top rates were drastically lowered, why did the rich get so much richer?

You want to talk about loopholes, some of the biggest loopholes are - taxing dividends and capital gains at LOWER RATES than wage income.

Right there is a loophole, that Obama and the Democrats made permanent, by the way, that saves Alice Walton about $100,000,000 a year in taxes and saves Mitt Romney about $1,000,000 a year.

But I know, according to these loophole fanatics, raising the RATE on dividends would just be feel-good legislation that would do nothing. So why bother.

[MaggieD]

32. Why? I will tell you exactly why....

They do it because it keeps us focused on that instead of the loopholes they are ACTUALLY using. And by the looks at DU it is working like a charm.

And no, Mitt Romney isn't paying a dime more on his effective tax rate than he did before they raised marginal rates. That's evident because his effective tax rate has not changed at all no matter what they have done to marginal rates. It's simple math. For the life of me I do not understand why people cannot get that.

[hfojvt]

36. bullhoey

that simply does NOT fit the facts. Here are some facts

http://journals.democraticunderground.com/hfojvt/169

See how the effective rate for the top 0.1% went down from 2000 to 2008? Was that because the Bush tax cuts created more loopholes? Or was it because the Bush tax cuts lowered the rates?

What about 1986 to 2008 for the top 1%. Dropped from 33.13% to 23.25% because Reagan lowered rates. Went up by 1995, because Clinton raised rates. Went down again after 1995 because Clinton lowered rates (especially on capital gains). Went down again after 2000, because Bush lowered rates.

Yeah sure, rates don't affect those rich people at all.

How do you know so much about Mitt's tax rates? Did he ever release more than two years worth of returns? Google tells me only two years, so you would seem to have a claim - about Mitt's taxes, that you cannot verify.

[MaggieD]

37. You seem very invested in defending loopholes

Sorry, but I'm not buying the propaganda about marginal tax rates you're selling. All your pretty tables can't obscure the fact that ain't none of these mega millionaires and billionaires going to pay an effective rate anywhere near what you expect me to pay or what is fair unless the loopholes are closed. As for Romney, you are dead wrong about that, too.

http://www.washingtonpost.com/blogs/plum-line/post/expert-romney-may-have-paid-less-in-taxes-over-20-years-than-it-appears/2012/09/21/41b27e00-041e-11e2-91e7-2962c74e7738_blog.html

“Let’s say you have 10 years in which you paid 13 percent in taxes, and 10 years in which you paid 27 percent,” Williams told me. “If you average those rates, you’ll get an overall rate of 20 percent. But if the 13 percent years were high income years, and the 27 percent years were low income years, then his total taxes paid as a share of total income over the 20 years would be less, perhaps significantly less, than 20 percent.”

Instead of hating on people busting their ass and trying to do the right thing, why don't you demand that your representatives close the loopholes? I guess you don't because you have bought into the baloney your politicians have been selling to you. The mega corps and billionaires thank you, I am sure.

[hfojvt]

40. and you seem so invested in lower rates

lower rates that are a huge benefit to those paying the top rates.

And you still have ZERO data about what Romney paid and on what income, just somebody truthfully pointing out that averaging rates is a stupid way to measure effective taxation.

If you, yourself are paying the top rate, then I'd say that you, yourself are pretty well rewarded for whatever a$$-busting you happen to do.

Who said anything about hate? All I said, and I stick with that, is that marginal RATES need to be higher. That, in fact, lower rates have been and will continue to be - a boon to the rich.

And the speculation that Romney would pay a higher tax rate in low income years is just that - speculation, and likely to be wrong.

If we could get the actual data, my speculation is that it would show that Romney had good gains after 2001 when Bush LOWERED RATES.

Sure the billionaires would just love my (and the OPs) idea of higher rates. Right.

[MaggieD]

41. You're flailing at the wrong problem

The problem is not marginal rates -- the problem is the loopholes. As many people in this thread have pointed out. But facts won't convince you. You're invested in your beliefs and facts don't matter, apparently. Whatever.

[One_Life_To_Give]

34. Because Tax Free Muni's pay even less

Dropping Capital Gains Rates made Stocks more advantageous. Which helped to prop up the DJIA which IMO was a reason for it being done at the time. Putting it back would not be a bad idea now IMO. Putting it at 80% might wipe out Pension/Retirement accounts as Capital flight to other investment vehicles take place.

The Rich are in the business of Doing Best Option. When you tweak the tax code you may change what Best Option is and the Rich respond by shuffling how they are invested. Same as we change to a Credit Card with a Lower Rate. If a bank suddenly switched to a 80% interest rate on Credit Card purchases. It wouldn't be long before shredded plastic filled their mail and people found a lower rate or other alternative.

There are a number of worthwhile idea's to consider. None of which involve Confiscatory tax rates.

[DFW]

27. Close the loopholes, Buffett was right

No one who rakes in 10 million dollars pretax has any business paying less than the max rate unless they give 98% of their gross income to charity (a REAL charity, not some Republican PAC pretending to be one).

I disagree with the 90% marginal rate, as it hits those people hardest who can't take advantage of loopholes. You HAVE to give people some incentive to be entrepreneurially creative, and taking 90% of their income if they should become the next Oprah ain't gonna do it. But there is NO reason some guy who had a great year and made his first $300,000, all on his W-2, should be paying the max rate while Willard pays 11% on twenty million (or even a tenth of that).

[MaggieD]

33. Exactly right, IMO

Thank you.

[hfojvt]

28. it's nice how they provide cover for Obama and the Democrats

"letting all of the Bush tax cuts expire (only a small fraction of them lapsed in January 2013)."

What actually happened in January 2013 is that Obama and the Democratic Party made most of them permanent.

With most of the liberals in the media cheering them on, even Krugman.

"only a small fraction of them lapsed"

versuses

Obama and the Democrats in Congress made most of them permanent, at great benefit to the rich. http://www.democraticunderground.com/10022130101

[maced666]

48. 80% is only a good start.

Let them start with nothing, see how far they get.