5 Votes
Warren Buffet Promotes Taxing Rich
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Generally speaking, large swaths of Americans believe the rich should be taxed more to make up for the government’s budget deficit. This is the general sentiment despite America’s rich already being in the highest income tax bracket owing 35% of their earnings to Uncle Sam. Interestingly, the rich tend not to actually pay nearly that much and often pay less [percentage] than the middle class. Warren Buffet recently weighed in on the matter wrote an Op-Ed for the New York Times lambasting Congress for letting the rich get away with so much. He wrote that despite paying a seemingly astronomical $6,938,744 in taxes himself, that only equates to 17% – nearly 20% less than his bracket requires. Buffet goes on to out the true tax rates the super wealthy pay thanks to creative accounting and the ability to afford protective financial services.
“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks … My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”
Similarly tagged OmniNerd content:
- Proposed 2011 Budget, by VnutZ about 2 years ago
- National Debt Tops $14 Trillion, by VnutZ over 2 years ago
- Tax Cut Wrangling, by VnutZ over 2 years ago
- Potential to Freeze DoD Pay, by VnutZ over 2 years ago
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Culture of Legal Loopholes by markmcb
I think this is just one symptom of the the legal loophole/shortcut culture we have in America. Patents, law suits, taxes, etc., they all boil down to being able to win if you have the means to exploit loopholes and shortcuts. I like the idea of changing this, but it’s a fairly massive problem to tackle.
RE: Culture of Legal Loopholes by Occams
This is absolutely true, and it has been that way for a long time. It stands to reason that money is power and the power is used to get around tax obligations.
Only someone like Warren can say that because if anyone else did there would be a cacophony of bleating about how high income owners are creating jobs and wealth for the nation. The implications is that this entitles them to pay lower taxes. To that I cry “bullshit”. They are not taking those low-taxed high incomes from any sense of altruism: just pure old fashioned greed.
When I did my public policy course they explained how it is possible to track government revenues from the tax system through govt spending to see where the money is coming from, and where it is going. For many years less has been coming in from the top and bottom income scales. That means that the middle income group is paying more and more of the running costs of this country. Add to that the exemptions and benefits that apply to business owners and the means tested entitlements for the poor, and you have a massive flow of wealth from the middle to the top and bottom income groups.
In order to remedy this, it should not be necessary to change the brackets and marginal tax rates, but merely to eliminate the avoidance schemes, particularly the sacred cows, like family trusts which are more abused than used for their intended purpose.
Personally, I believe that large inheritances should be more heavily taxed. They are going to people who did not earn them and the person who did is dead, and therefore does not need to be considered. There should be an incentive in the tax system for inheritances to be passed on as taxable income before the death of the donor.
RE: Culture of Legal Loopholes by Travis
Personally, I believe that large inheritances should be more heavily taxed. They are going to people who did not earn them and the person who did is dead, and therefore does not need to be considered. There should be an incentive in the tax system for inheritances to be passed on as taxable income before the death of the donor.
I don’t understand this sentiment… The government didn’t earn it either… it never does in terms of personal income.
I think the problem in all this is understanding the purposes in taxes. Taxes are to be collected by our government to cover the cost of things that are consumed by all, such as defense, roads, etc… In that light taxes ought be be collected by all fairly (rich or poor).
I’m not sure I’ve ever heard the argument that because rich are creating more jobs therefore they should pay less than the rest in taxes… that doesn’t make any sense. I have heard plenty of people arguing against taxing the rich any further; which make me wonder about the
large swaths of Americans believe the rich should be taxed more
statement.
I also am not quite following in terms of your public policy statement. It was my understanding that the rich (top 25%) pay over 60% of taxes collected by the government as reported by tax foundation . Clearly the top 25% are paying way more and the bottom 50% pay nothing. Now what I haven’t paid too much attention to is the spending end of that revenue… that would be interesting to see.
RE: Culture of Legal Loopholes by wyldeling
In that light taxes ought be be collected by all fairly (rich or poor).
define fair.
RE: Culture of Legal Loopholes by scottb
I’m not sure I’ve ever heard the argument that because rich are creating more jobs therefore they should pay less than the rest in taxes… that doesn’t make any sense.
It’s nevertheless the basic argument the Republicans make about taxes.
The argument goes something like this — cutting taxes on the wealthiest taxpayers frees up money which they then spend. This spending creates jobs for the lower and middle income earners.
You’re right that it doesn’t make sense — something like a century of data shows the opposite effect. In reality, when you cut taxes on the rich, they re-invest it — which creates jobs in China and India, not here.
I have heard plenty of people arguing against taxing the rich any further; which make me wonder about the “large swaths of Americans believe the rich should be taxed more” statement.
I, too, hear a lot of people saying the rich should be taxed more. I’m one of them.
I think you subtly mis-characterized the purpose of taxes. The role of government is not merely a disbursement office for common expenses — we come together as a society to enact laws and other sorts of policy with the intent that it has positive effects on society. If we think it might reduce crime to create policies like minimum wage or entitlement programs like welfare payments, or, if we decide we want to improve the safety of our water supply by imposing expensive cleanup regulations on businesses that create pollutants, or, if we choose to create incentives to innovation by offering patents to inventors, these, too are legitimate uses of government power, and should be paid for by tax revenues.
You also suggested that “taxes ought to be collected by all fairly (rich or poor)”, and wyldeling rightly challenged you to define “fair”. One consideration that often seems left out is that the wealthy benefit from government action in larger proportion than the poor. The judicial system guarantees the enforceability of the contracts on which their business deals rely. They own the bulk of the property protected by police and fire services. Hell, even the military protects the rich disproportionately — if the commies had ever taken over, it would have had a far more profound impact on Bill Gates than on a typical middle-class American.
Given that they benefit more, shouldn’t the rich pay proportionally more?
RE: Culture of Legal Loopholes by Brandon
These are not the same argument:
I’ve heard the former, but never the latter.
I think you subtly mis-characterized the purpose of taxes.
It’s not a mis-characterization; it’s a disagreement.
we come together as a society to enact laws and other sorts of policy with the intent that it has positive effects on society. If we think it might reduce crime to create policies like minimum wage or entitlement programs like welfare payments, or, if we decide we want to improve the safety of our water supply by imposing expensive cleanup regulations on businesses that create pollutants, or, if we choose to create incentives to innovation by offering patents to inventors…
All good things – at least in intent. The question at hand is whether the government should force everyone to participate in all of these – or if they should leave it to the private world and personal choice.
And speaking of that, I think they should create a way to donate taxes. Super rich people like Buffet, movie stars, etc. could dump in whatever money they want.
And lastly, what if they abolished the income tax and concentrated solely on sales taxes? Surely there isn’t a way to get around that (other than not spending money … and I don’t think the super rich do that).
RE: Culture of Legal Loopholes by ldsudduth
The rich should pay less taxes than everyone else because they create jobs.
Obviously you don’t listen to El Rushbo, Hannity, nutball Beck, or any other mouthpiece for conservatives. They have all said that…perhaps not as succinctly, but the intent of what they say is the same.
Rush has even said that the wealthiest 2% should pay no taxes and neither should corporations—because they will just pass it down to consumers (partially true—some of tax is reflected in cost), they create jobs for middle class Americans who pay taxes; and because there are other taxes they pay that can’t be escaped, like the employer portion of payroll taxes. Ergo, they’re taxed too heavily.
Rubbish..If anyone is taxed too heavily, it’s the middle class an below—we’re the ones suffering out here without raises for 4 years, but watching things like local property taxes, local income taxes, food costs, fuel costs, etc. go up.
The problem with the economy isn’t that “we’re not spending for big ticket items”—-it’s that we have no money to spend—it’s being eaten up by other items that have risen.
RE: Culture of Legal Loopholes by Brandon
Don’t listen to Rush or Hannity, but I’ve read Beck before. I’ve never seen that argument.
Rush has even said that the wealthiest 2% should pay no taxes and neither should corporations—because they will just pass it down to consumers (partially true—some of tax is reflected in cost), they create jobs for middle class Americans who pay taxes; and because there are other taxes they pay that can’t be escaped, like the employer portion of payroll taxes. Ergo, they’re taxed too heavily.
I don’t understand. You can’t pay no tax and still have taxes to pay.
And I don’t see the comparison to what other people pay.
RE: Culture of Legal Loopholes by ldsudduth
Don’t listen to Rush or Hannity, but I’ve read Beck before.
I’ve heard Beck lament on his show before that the ‘rich’ pay too much in taxes.
I don’t understand. You can’t pay no tax and still have taxes to pay.
Rush was speaking specifically about income taxes..they still have to pay other taxes (state, federal, local, property,school, taxes on goods that are not for resale, taxes on utilities, cell phones, land lines, etc..etc.. If they’re an employer—then they have the employers portion of taxes to pay) that they are required to pay. Granted, they do pass at least part of those taxes on to consumers in the prices of goods/services they sell that directly affecti their business—but they can’t pass it all on to us (as Rush argues constantly).
RE: Culture of Legal Loopholes by Occams
You can actually buy time on those guys mouths. They will say whatever they are paid to say, no matter how factually incorrect it is, or how stupid it sounds.
I hate the proposition that: because the rich can easily avoid paying their share of income tax we should all pay more for everything. That is what they are really saying?
RE: Culture of Legal Loopholes by Brandon
their share of income tax
The problem is people have different ideas of what their share is.
RE: Culture of Legal Loopholes by Occams
It should not matter what they think is their share.
RE: Culture of Legal Loopholes by Brandon
My point is: Who’s opinion does matter?
RE: Culture of Legal Loopholes by Occams
The people, acting through their representatives, should decide the tax policy, and the income tax rates must be applied to all income of all individuals in the same manner, regardless of their wealth, except of course for concessions to the poor.
RE: Culture of Legal Loopholes by scottb
The people, acting through their representatives, should decide the tax policy
Agreed.
and the income tax rates must be applied to all income of all individuals in the same manner, regardless of their wealth, except of course for concessions to the poor.
That’s just one possible tax policy, and not necessarily the best. The goal is to pick a tax policy (along with other policies and laws) that results in the best (again, with “best” decided by the people) society. It may be that such a policy doesn’t apply to all income in the same way.
RE: Culture of Legal Loopholes by Occams
That’s just one possible tax policy, and not necessarily the best.
Quite true in the sense of raising the most tax revenue, and it could even be more fair if done properly. However, I believe that when we start treating people differently because of their particular wealth or financial circumstances we will inevitably introduce the loopholes, and then inefficiency, reduced revenues, and unfairness creeps in.
A free country is difficult to govern, and sometimes it is better to introduce some all embracing rules rather than have a debate about who should get what concession. The tax system must be transparent and immune from appeals or legal challenges. I think this requires it to be very simple and apply to all in the same way.
So I think it actually is the best way in a holistic public policy sense.
RE: Culture of Legal Loopholes by scottb
Quite true in the sense of raising the most tax revenue, and it could even be more fair if done properly.
My real point is that neither maximizing revenue nor “fairness” are the sole criteria by which a tax policy is judged.
The purpose of taxes is to give us the best society. That’s a complicated thing to measure, but that’s the real goal. If, as a whole, we’re better off with a less than “fair” tax policy, that policy is still a better one.
It’s effectively impossible to build a tax system that’s “fair” and also gets the job done. First, it’s impossible to settle on a definition of “fair”. One (overly simplistic) notion of “fair” would have every citizen pay the same dollar amount. Or the same percentage of income. You yourself have pointed out that those are not “really” fair policies because of their disproportionate burden on the poor.
Our current compromise is use a graduated tax — it’s “fair” in some more sophisticated sense, because it’s putting most of the tax burden on discretionary income, rather than on the income used for basic necessities. As I’ve argued, too, it’s also “fair” in the sense that the wealthy reap the benefits of good government in larger proportion than the poor.
The key point, though, is that we’ve abandoned a strict notion of fairness because that’s not the real goal. We need the tax revenue to properly govern, but we want the collection of it to have the least negative impact on society, so we’ve structured it so those able to bear the burden are the ones who shoulder it.
Sam Harris recently blogged about Buffett’s op-ed. In a followup post, he made the following observation:
Well said, Sam.
RE: Culture of Legal Loopholes by Occams
The purpose of taxes is to give us the best society.
That is what I was trying to say in my last message. There are many ways to achieve a good tax policy but most will be very complicated and full of qualifying conditions. The purpose of all public policy is to give us the best society. Tax policy should be integrated with other measures. My main point is that the Government mus be pragmatic and appreciate that if there are ways of avoiding it they will be exploited by those who were not intended to benefit.
I think a pragmatic approach is required that admits that, with the intense brain power of the legal profession mining for loopholes, the policy needs to be very simple so that anyone can understand it and none can avoid it. A couple of sentences is enough to state the intention of the new bill.
Suggested Rates for income tax while the deficit is being reduced:
This is so simple it could be taught to everyone in a junior high civics class.
It is not perfect, but it is much better than what we have now, and drastic measures are required to claw back the deficit. It is not highly unfair either. Those who benefited most from running up the deficit will help most in paying it off.
The most powerful people in our society will hate a policy like this. Too bad. They will feel the impact mostly on luxuries that others will never have, but they will hardly notice the impact on their essentials. Why should we care? We don’t buy the argument that taxing the rich causes unemployment for reasons discussed earlier in this thread.
RE: Culture of Legal Loopholes by wyldeling
All income from all sources must be declared; Wealth is not taxed. Equities and bonds increases in value do not count until they are sold.
This needs a little rephrasing, and there is an issue with the “Wealth is not taxed” part. First, I’d use the phrase “existing wealth” not wealth, so that income can not be deemed wealth. But, what about property taxes? This would violate the “wealth is not taxed” mandate, and if they were eliminated, a new system for generating school revenue would have to be put in place. Second, equities and bonds should qualify as “existing wealth,” and there change in value is immaterial until they’re sale. But, then the money received less the money invested would be income. So, without addressing the property tax issue, at the federal level:
Thoughts?
For your second income bracket, I think you meant: only applying to income above $20k. Otherwise, a person making $20,000.01 would be taxed $6000, a significant loss for getting a $0.01 raise. Also, 35% is also somewhat steep for the middle class. I’d consider starting it at 5% at $20k, and increasing it by 5% for every additional $10k earned up to $100k, and 5% per $25k earned up to a max rate of 75%. This would max out at $275k. And, I wouldn’t consider it a fiscal emergency plan; I’d keep it permanently. I’d also consider the brackets adjustable by $5k per household member: you, spouse, and dependents, to a max of 6 people. So, if you and your spouse (no gender defined in any way) had four kids, you’d start being taxed at $50k.
RE: Culture of Legal Loopholes by Occams
Yes, I like that. Much better, and not too complicated, but it would raise less for the deficit than my way.
I think that there should be some real pain in the tax system right now to drive home how badly the country has been managed, and send the message that this must not be allowed to happen again.
I agree about the need for property tax but I saw that as a state tax recovering state expenses, and not related to federal income tax.
Of course there should also be a high company tax (I suggest 40% during the crisis) applying at least to foreign companies. A case can be made that the profits of domestic companies would be taxed enough through the income tax paid by shareholders. This would open many loopholes for multi-national corporations and investors, so I would need expert advice on that. I think that it is important that corporate profits are fully taxed, but only once. It may be appropriate to tax them at the corporate level on declared profits after normal adjustments, and then make dividends tax free.
Yes, there would be some impact on inflation and employment from taxing companies more, but if there is no escape they will maintain production because there is nowhere else to invest their money any better. Prices are mostly determined in the market competition and are seldom strongly correlated with the cost of production.
The Tea-baggers who wanted to damage the country by allowing it to default should now embrace a tough tax policy. Fat Chance!
RE: Culture of Legal Loopholes by wyldeling
Thinking about both your plan, and mine, I noticed that their is a marriage penalty in mine (and probably in yours). For instance, two people earning $20k a year would pay no taxes until they got married and filed jointly. Under my plan, this would cause them to pay $1500 in taxes, half that if they had one child. So, maybe $20k tax free per spouse plus the $5k adjustment per dependent (6 max). Of course, this brings up the question of dependent income, i.e. the interest on your kids’ bank account. So, all in all, there a numerous intricacies that we missed.
RE: Culture of Legal Loopholes by scottb
I think a pragmatic approach is required that admits that, with the intense brain power of the legal profession mining for loopholes, the policy needs to be very simple so that anyone can understand it and none can avoid it.
I think the better approach is to stop trying to evaluate the system on how “fair” it seems. Ultimately, no matter what you do, it ain’t going to be “fair” in everybody’s estimation, so that’s a fool’s game.
I don’t think what you’re proposing really works that well, anyway:
All income from all sources must be declared; Wealth is not taxed. Equities and bonds increases in value do not count until they are sold.
The implication being that tax rates aren’t affected by the source of the income. So, under your system, once you earn $60k, every single investment you make has to return at least triple the inflation rate in order to break even. The inflation rate’s been fairly stable over the last 30 years — around 3%, but it’s been as high as around 8%. Your tax system says every investment has to make at least 10% and maybe as high as 25% return or you’d be better off just stuffing it under your mattress.
That’s going to leave a mark on the capital investment market.
The problem isn’t that the top marginal tax rate is so high — it’s that it fails to leave enough incentive to keep people investing.
RE: Culture of Legal Loopholes by Occams
I did not get hung up on fair. That came in the comments of others, including you, Scott. I proposed a very simple system and Wyelding improved on it. All Along I have been stressing: keep it simple in spite of the impact on perceptions of fairness.
Investment earnings should not be made tax free in order to provide a reasonable return for investors. People who work for a living have to suffer tax on their income so why should not those who don’t work for it. Where else can they put their money without paying tax on what it earns.
Tax represents the cost of operating in a safe stable country. Therefore it is part of the cost of production and should be counted before profits are calculated.
RE: Culture of Legal Loopholes by scottb
People who work for a living have to suffer tax on their income so why should not those who don’t work for it.
This gives the lie to your first paragraph.
Why should “those who don’t work for it” have to pay tax on that money? Because you think it’s unfair.
But the important question is, which way are we better off? Taxing that investment income at the same rate you tax ordinary income causes the entire economy to suffer.
The argument works both ways. If “maximum benefit to society” justifies taxing the rich at a higher rate, it also justifies taxing them at a lower rate — which one we should choose depends on which one we think will give the best outcome.
All I’m really saying is that simplistic solutions aren’t likely to be optimal. It’s easy to describe various kinds of “fair” systems, but it’s much harder to describe a system that juggles all the many factors involved in a good government. We can choose to collect less tax in exchange for reducing benefits, we can impose trade tariffs, we can choose among a huge range of progressive tax schedules, we can tax different kinds of income at different rates, we can tax spending (sales) instead of income, we can tax assets (property tax) instead of exchanges. All of these affect society — most often the economy — in complicated ways.
I think the system you’ve outlined will significantly depress the economy because it taxes investments too much. I think it’s necessary to recognize that money invested is beneficial to all of us in ways that money merely spent on luxuries is not, and so we should encourage those who have lots of money to invest it rather than spend. That justifies taxing investment at a lower rate than ordinary income — fairness be damned.
RE: Culture of Legal Loopholes by Occams
Why should “those who don’t work for it” have to pay tax on that money? Because you think it’s unfair.
No, because we are discussing income tax and exemptions are unnecessary and irrelevant unless proven to be not so. Taxing all income to get the country out of a financial hole, is the aim of the legislation and I see no reason to exempt certain types of income, and not for reasons of fairness but for the essential reason for the tax: revenue collection.
I don’t believe that maximum benefit to society would come from giving the wealthy a lower tax rate. That’s just intuitive, but I would need some convincing, The wealthy tend to horde money an take it out of circulation and that is not good for the economy.
Investment is spending money, or wagering it on a future outcome. My proposal does not tax investment at all, only the profits that come from it when they are realized.
You seem to believe that the economy will be hurt because the prospect of paying tax on profits will reduce investment in production. That money will have to go somewhere else. Wherever they put it they will pay the same tax on any income it earns, so they will put it where they think they will make the most: just as they do now.
They will only be trying to beat bank interest after tax – and that does not require them to make three times bank interest before tax.
RE: Culture of Legal Loopholes by scottb
No, because we are discussing income tax and exemptions are unnecessary and irrelevant unless proven to be not so.
I guess you missed that part where I showed that the alternate tax rate for investment income is necessary, then. A healthy economy is part of what we’re looking for when we choose the tax strategy. Taxing investment income at 75% will kill it.
RE: Culture of Legal Loopholes by wyldeling
Normally, I trust your number implicitly, but here they’re off. Note the distinction between wealth and income. Income is new revenue; wealth is amounts to that already possessed. Ignoring inflation, for the moment, the effective interest rate on an investment is (interest rate)*(1 – tax rate), so an investment earning 10% would have an effective rate of 5.5% in the 45% tax bracket. To incorporate inflation, you subtract it directly from the effective rate, and using the example above, you’d have a rate of return of 2.5%. So, still a profit.
In general, the break even rate is determined by (inflation rate)/(1 – tax rate). The 2010 estimated inflation rate was 1.4% which puts the break even rate for the 45% bracket at 2.5%. And, 5.6% for 75% tax bracket. Considering that between 1988 and 2010, the S&P 500 has done better than 6% for 15 of those years, I’d say that it won’t hurt investment nearly as much as you think it will.
I think the better approach is to stop trying to evaluate the system on how “fair” it seems.
My adjustments to Occam’s plan had less to do with “fairness” (although there was an element of that) and more to do with practicality. If the tax rate on the lower income brackets is so high that they cannot make ends-meet, there will be riots, period, and the system will fail. So, since the lower incomes have less discretionary income, they should be taxed less simply so that they can live. This is simply being pragmatic. That said, once those needs are met the amount of wiggle room left to them by taxes is a discussion in fairness, and would affect where and what brackets were put into place. Personally, I’m in favor of a continuously variable tax rate with a high maximum, and I think it would be workable. But, that’s just me.
RE: Culture of Legal Loopholes by scottb
Normally, I trust your number implicitly
Ooh… you probably shouldn’t. I usually hope I get the theory right, but I expect to mess up the arithmetic. :)
As a potential investor, I can spend my principal right now, or I can invest and spend the principal plus its earnings later — in dollars that have less buying power due to inflation. So, I won’t invest unless I expect the after-tax rate of return to beat the inflation rate. If the investment returns 10% and 75% of that goes to Uncle Sam (as with the proposed high-end tax bracket), I’m left with 2.5% actual return. If that actual rate isn’t more than the inflation rate, I buy the gold-plated toilet now, instead of later.
So, as you say, the break-even point is (inflation rate)/(1 – tax rate). With the tax rate at 75%, the investment has to return four times (I did the arithmetic wrong and got three times, before) the inflation rate. According to Wolfram Alpha’s data, the July 2011 rate was 3.63%, so you need to make over 14% return to break even. Our current economic outlook makes it likely that it’s going to go up some more.
The problem is that the inflation rate can be pretty volatile. It was in the range you quoted last winter and it was even negative for much of 2009. But it was almost six percent the summer of 2008. It’s averaged just under 3% for the last 10 years, so you’d want a 12% ROI, which is hard to find.
That said, once those needs are met the amount of wiggle room left to them by taxes is a discussion in fairness, and would affect where and what brackets were put into place.
I think that’s too simple a view. Fairness is only a relatively small part of the discussion. Given a desired level of revenue, we’ve got to apportion it out. We need to apportion it in the way that gives the best outcome. The main affect of different tax strategies is on the economy, which means we’re looking for the strategy that has the most positive effect on the economy.
On the other hand, we can choose to adjust the amount of revenue we collect — that has primarily social effects, rather than economic, and it’s in the discussion of social effects that fairness becomes relevant. That sets up a feedback loop. A social agenda establishes a revenue requirement, which implies an optimal tax strategy, which gets evaluated for its “fairness”, which is, itself, a factor in choosing the social agenda.
Ultimately, it’s probably not even theoretically possible to find the true optimum in that system, and even if it’s theoretically possible, it’s almost certainly impractical. I think we’ll get closer to it by focusing on the main loop driver itself — the overall value of the social goals, not just one relatively minor factor that’s never going to satisfy everyone, anyway.
RE: Culture of Legal Loopholes by wyldeling
It’s averaged just under 3% for the last 10 years, so you’d want a 12% ROI, which is hard to find.
No, its not. That was what I was pointing out with my comment about the S&P 500, of the 22 years tracked in the chart, 15 exceed 6% return, 12 exceed 12%. There were some pretty bad years there, but 12% can be found in equities.
Fairness is only a relatively small part of the discussion.
Essentially what I was saying. There are a couple of factors that have to be accounted for out of practical necessity: people need to eat and get to work. But, once those are dealt with then you can talk about societal goals for the money. If fairness plays a role, good. If not, not as good, but it isn’t the end of things.
RE: Culture of Legal Loopholes by scottb
That was what I was pointing out with my comment about the S&P 500, of the 22 years tracked in the chart, 15 exceed 6% return, 12 exceed 12%. There were some pretty bad years there, but 12% can be found in equities.
You’re comparing the peaks of the S&P with the average of the inflation rate — two numbers that are likely correlated in some way, in any case. I can’t seem to get Wolfram Alpha to either directly compare them or to give me numbers I can use to compare them myself.
Looking at the longer-term numbers, they give the CAGR for the 22 year period as only 8.8% — inflation’s averaged about 4% over that same time period.
Remember, the return on an investment needs to reflect the risk involved, too. Those S&P numbers are risky — sure, there are years where you’re over 12%, but in about a quarter of the years you’d be losing money, and sometimes a lot. The money you make in the good years has to cover the losses in the bad. So, yes — you can find years where you beat inflation, even at a 75% tax, but it’ll still kill investing.
There are a couple of factors that have to be accounted for out of practical necessity: people need to eat and get to work. But, once those are dealt with then you can talk about societal goals for the money.
I’d say that you’re already talking about societal goals when you talk about those “practical necessities”. There’s nothing intrinsic about food and getting to work. Those are goals — and goals we don’t even completely meet today. We want people to be healthy — sanitation is an important part of that, as are various kinds of preventative measures, like vaccination programs. Of course, our efforts to make sure everybody eats can interfere with our health goals, since cheap food is also unhealthy.
It’s a big complicated juggling act, and I just think “fairness” isn’t a very important one. I think it’s one that’s easy to use to trigger an emotional response in voters, so it gets abused in the bigger picture.
Good government is difficult. I think you and Occams and I are largely in agreement on it. I’m even in agreement that heavy taxes on the wealthy are probably among the most optimal tax strategies. The only real difference is I think that simplistic solutions are likely to be far from optimal.
RE: Culture of Legal Loopholes by wyldeling
I’d say that you’re already talking about societal goals when you talk about those “practical necessities”. There’s nothing intrinsic about food and getting to work. Those are goals — and goals we don’t even completely meet today.
Here’s the problem, if those “practical necessities” aren’t met for enough people, the system tears itself apart. Is this a goal, sure, but it isn’t about being fair.
Good government is difficult. … The only real difference is I think that simplistic solutions are likely to be far from optimal.
On this, we are in agreement. Look at what happened just suggesting such a system; almost immediately, flaws were apparent. And more flaws appear whenever I look at it. I agree, heavier taxation of the rich would be more optimal for most goals, but finding a balance is difficult. One thing is certain, long term we can’t spend like we have been. I don’t know much about it, but the Swedes put together an economic blueprint in the 90s that have allowed them to weather the recession better than any other developed nation while maintaining a surplus. I think we need to look closer at how and why it works.
So, yes — you can find years where you beat inflation, even at a 75% tax, but it’ll still kill investing.
If the long term rate is 8.8% with a 4% avg inflation, then investment income should cap at 50%. However, I don’t think 75% would kill investments. I think, it would cause a shift from short term to longer term investments, as they would be effective tax havens as long as they weren’t sold. As a goal, an increase in long term investments is a good one, I think, as they tend to stabilize the economy. So, from a broader perspective of decreasing market volatility, this makes as good sense as providing a sizable revenue stream for the gov’t.
You’re comparing the peaks of the S&P with the average of the inflation rate — two numbers that are likely correlated in some way, in any case.
You’re right, the analysis was flawed. To fix it I did a year by year comparison for 1971 – 2010. (I used Mathematica’s financial data systems directly, and it took a bit of bubble gum and bailing wire to make it work.) Of the 40 years between 1971 and 2010, 23 years have had ROI’s twice inflation, 20 have had 3 times, and 14 have had ROIs at least 4 times, inclusive. And, no, there is no discernible correlation. I am a bit surprise that it was only a little more than half the 40 years exceeded 4 times the inflation rate, though.
However, the 80’s and 00’s each had four good years (>4 times the inflation rate), while the 90’s had 6. That said, only two years were close to 4 times: 1983 with 4.37 times and 2006 with 4.23 times, and the others were at least 6.56 times with most being 10 and above. So, there’s at least a 40% of beating inflation, and doing it spectacularly. An investment strategy that would work with that is not out of the realm of possibility.
That said, there were 4 years this past decade which were abysmal: 2000, -10.1% ROI; 2001, -13.0% ROI; 2002, -23.4% ROI; and 2008, -38.5% ROI. But, how much investing was actually going on during those years?
P.S. I calculated the S&Ps ROI by subtracting the years final closing price from the initial opening price and dividing by the opening price.
RE: Culture of Legal Loopholes by scottb
Well, now I think we’re pretty close to violent agreement.
Here’s the problem, if those “practical necessities” aren’t met for enough people, the system tears itself apart. Is this a goal, sure, but it isn’t about being fair.
I agree. And I think that almost any social plan that didn’t try to meet that goal would never get support. That makes those into important factors, but they differ from other factors, like perceived fairness, health, happiness, and so on, in scale, not in kind.
An investment strategy that would work with that is not out of the realm of possibility.
No, but it’s difficult enough to achieve that I think it’ll seriously discourage investing.
By the way, so far as I can tell, our current policy is to tax short-term (less than one year) investments as if they were ordinary income. We encourage long-term investing with a reduced-rate (the capital gains tax, which I think is 15%) on investments held longer than one year.
RE: Culture of Legal Loopholes by wyldeling
Well, now I think we’re pretty close to violent agreement.
I never said we were in disagreement. I just thought some things needed to be expressed.
but they differ from other factors, like perceived fairness, health, happiness, and so on, in scale, not in kind.
exactly. fairness is over rated because it differs depending on perspective.
We encourage long-term investing with a reduced-rate (the capital gains tax, which I think is 15%) on investments held longer than one year.
except, Warren Buffet was pointing out, that there are loop-holes that allow him to apply the long term rates to what amounts to short term investments.
No, but it’s difficult enough to achieve that I think it’ll seriously discourage investing.
I still doubt it, mostly because I think capital investments would win out over equities in that case. But, unless the changes are done, it is difficult to know either way.
RE: Culture of Legal Loopholes by scottb
except, Warren Buffet was pointing out, that there are loop-holes that allow him to apply the long term rates to what amounts to short term investments.
Yeah — that’s the problem with complex systems. It’s hard to figure out where the gaps are, and the rich have the resources to find them faster than the legislature can close them — even when it wants to. There have to be easily thousands of people looking for loopholes to exploit for every person who’s looking to eliminate them.
I think the other area we’ve left out in this discussion is corporate taxes. Right now, the bigger a corporation is, the less tax it has to pay — until the very biggest among them end up paying literally nothing. We’ve got one of the lowest effective tax rates on corporations in the world, so there’s some room to raise taxes there before we start hurting the economy.
RE: Culture of Legal Loopholes by wyldeling
Hence, the appeal of a simpler system. The loop holes are easier to find, and plug.
RE: Culture of Legal Loopholes by scottb
I never suggested otherwise — only that simpler systems aren’t likely to be close enough to optimal. And the disutility of loopholes can be questionable, anyway.
Take the ones Buffett’s talking about. In reality, a lot of them are put there intentionally, as a result of past bad decisions by the government. What’s bad about them is that they’re quite pervasive and they’re intended to let the wealthy pay lower taxes – they’re not so much “loopholes” as they are “back doors”.
If we were really talking about “loopholes” — some kind of ambiguity or inadequacy in the law, where people are skirting the real intent of the policy while technically obeying it — we could legitimately ask, “so what?” Without including talk about the goals we’re failing to achieve, it’s just whining about fairness.
That’s what’s been frustrating me in a lot of this discussion. I keep hearing variations on, “it’s not fair that they have these loopholes available to them”, rather than on, “the existence of these loopholes prevents us from achieving our societal goals”.
Part of that seems to be we seem to resist seriously defending those goals as being valuable. Improved health and life expectancy, low crime rates, higher levels of inter-personal trust, high standards of living, good education, high employment rates — these are the things we’re looking for. If we can achieve that across the board, why would we care what tax policy achieved it?
RE: Culture of Legal Loopholes by wyldeling
That’s what’s been frustrating me in a lot of this discussion. I keep hearing variations on, “it’s not fair that they have these loopholes available to them”, rather than on, “the existence of these loopholes prevents us from achieving our societal goals”.
Good point.
Fairness of Legal Loopholes by Occams
Fairness is an illusion. The world is not a fair place. Even God is not fair. Many people are born or with horrible medical conditions. Some have accidents or acquire debilitating diseases. Many die young. Some are born smart and talented into wealth and power and live a life of luxury. We have to accept that and deal with it.
So, while I agree with you that bleating about fairness is futile and that fairness is not an absolute goal, or even a possible outcome, I think it is still very important to strive politically and socially for it as an objective.
All citizens should be equal before the law. One should not be able to get away with murder or theft because one is wealthy. Justice is blind, and I think that is a well accepted principle of our form of Government.
Tax is also law. If you don’t pay your taxes the government will use its armed force to punish you.
The wealthy tend to be disproportionately represented in the professions and in politics. That is a natural outcome of our education system. Over time, they have acquired and exercised the power to tilt the taxation system in their favour. That is a natural outcome of our system of government which should be anticipated and resisted by the legislature.
You are making the case that getting the best outcome for the economy should take precedence over treating wealthy people equally before the law. Worse than that, you are suggesting that the law should be adjusted so that the wealthy are guilty of nothing when they strive to avoid paying the share of their income that is deemed to be appropriate by the people.
I have not pressed you for proof that there could be better outcomes for the economy if the rich are given favourable tax treatment. It may be true, but it would be a dull debate and I would rather not go there. I don’t think we could find the optimum point anyway. If we did it openly the optics would be dreadful and the American image would be tarnished.
We need not fear what would happen to the economy boosting properties of certain rich people. If they are ruined, their money and investments will move to someone else and the economy will not be adversely affected in the longer term.
I don’t want to live in a country where there are special laws for the rich and powerful. I have had to visit places like that and it is not pleasant. This notion could be taken further so that when the wealthy commit crimes have special laws and courts that take into account their contributions to employment and the economy.
Should we care about them? I think not. If they are ruined their money and investments will move to someone else and the economy will not be adversely affected in the longer term. The entrepreneurs who are actively contributing significantly to the economy will find high tax rates a challenge and will be smart enough to rise to that challenge. Their descendants who merely inherit may not have the smarts to stay ahead, and that would introduce a nice Darwinian pressure that would tend to keep money in the hands of those who know how to use it.
RE: Fairness of Legal Loopholes by scottb
So, while I agree with you that bleating about fairness is futile and that fairness is not an absolute goal, or even a possible outcome, I think it is still very important to strive politically and socially for it as an objective.
To which I answer, “So?”
We have lots of political and social objectives. Fairness is just one among many — some of which are more important. Personally, as examples, I think fairness deserves a back seat to health and freedom.
You are making the case that getting the best outcome for the economy should take precedence over treating wealthy people equally before the law. Worse than that, you are suggesting that the law should be adjusted so that the wealthy are guilty of nothing when they strive to avoid paying the share of their income that is deemed to be appropriate by the people.
Completely false. In fact, quite to the contrary, it’s you who are making that case every time you bring up “fairness”.
The argument against taxing the rich is “it’s unfair”.
The arguments about “fairness” in taxation always favor the wealthy. A graduated income tax is already “unfair”, as it requires the wealthy to pay a higher percentage. To make further increases to the highest marginal tax rates is more “unfair”. To tax real estate investments or speculative windfalls at higher rates than other incomes is also “unfair” — but in every case, it’s “unfair to the wealthy”.
I think “fairness” is a red herring. It’s the excuse offered for the wealthy to avoid paying. It’s because I want to make the wealthy responsible for paying more that I want “fairness” to take a back seat to other social goals.
I have not pressed you for proof that there could be better outcomes for the economy if the rich are given favourable tax treatment.
And I wouldn’t give you any. I think the evidence favors heavily taxing the rich, “fairness” be damned.
I argued against your simplistic system, not because it hurts the rich, but because it hurts everybody. Killing the economy hurts the poor at least as much as the rich.
RE: Fairness of Legal Loopholes by Occams
To which I answer, “So?”
So, that entire post was a reaction to your silly claim that fairness is irrelevant.
Of course it is not irrelevant, and it never can be so in a political system where representatives are elected by the masses. That would be to ignore human nature, and that is a path to political oblivion.
The arguments about “fairness” in taxation always favor the wealthy.
No, they don’t. More often, as in this case, they are about sharing pain equally and that means not favoring the wealthy.
I think we are in disagreement because we have different notions about what fairness means.
Expecting the wealthy to give an equal amount of tax , or even an equal percentage of income is a naive view of fairness. It is more about making a tax contribution that correlates with the benefits that have been received. The wealthy get more benefits from government actions than do the poor.
If there are no economic advantages deriving from favoring the wealthy, then why do it?
RE: Fairness of Legal Loopholes by GreatWhiteDork
If there are no economic advantages deriving from favoring the wealthy, then why do it?
Because they own congress, and therefore, tax law.
FDA, EPA are former and future Monsanto employees.
DoD <=revolving-door=> Lockheed and Boeing employees.
Name your institution or regulatory comittee and search to see where they came from. It will shock, depress, and then hopefully enrage you.
RE: Fairness of Legal Loopholes by wyldeling
Name your institution or regulatory comittee and search to see where they came from. It will shock, depress, and then hopefully enrage you.
It already does. My personal favorite, the SEC; you know the people who are supposed to regulate the morons who f-ed up the world economy. No, not angry at all, nor am I ever sarcastic.
RE: Fairness of Legal Loopholes by Occams
This is a phenomenon that is common to many democratic nations. It is called “capture”. Industry regulators and whole departments become captured by the industry that they are supposed to control. Possibly it happens mostly because administrations think it wise to appoint directors from eminent persons within the industry.
Thus doctors come to control health; teachers, education; broadcasters the media; ex military and contractors, defense, etc. Lawyers are deemed to be capable in every area of policy, whether they have any experience or not. Naturally these people are still loyal to their profession and former colleagues, and will probably return there some day, so they feather their nests
A funny UK TV show called “Yes Minister” satirized this very effectively.
RE: Fairness of Legal Loopholes by wyldeling
Now that you point that out, I remember a conversation I had with my wife, an accountant, a while back. She was rather angry at Congress, most of whom do not understand accountancy issues, attempting to “fix” either the tax code or the SEC — at this point, I cannot remember which — by mucking with the accountancy rules. She was of the opinion that the accountants had a better handle on the ways to fix the system, then anyone else. Truthfully, I think she’s right. So, then there are two questions: 1. is the revolving door a legitimate problem? 2. if it is, then what can be done about it if those same experts are necessary for correctly setting policy?
RE: Fairness of Legal Loopholes by Occams
Industry advisory groups are important, but people with a strong conflict of interest they should be kept (unpaid) on temporary advisory panels and not be allowed to run the regulators. Consumer interest groups should be used to counter recommendations from industry advisory panels. There is noting wrong with academic criticism either.
RE: Fairness of Legal Loopholes by scottb
No, they don’t. More often, as in this case, they are about sharing pain equally and that means not favoring the wealthy.
Bullshit. Nobody says “it’s unfair that the poor pay so much tax”.
Expecting the wealthy to give an equal amount of tax , or even an equal percentage of income is a naive view of fairness.
No, that’s what “fairness” means — free from self-interested, favoritism, bias, or deception. That is neither practical, nor desirable in a tax policy, though.
If there are no economic advantages deriving from favoring the wealthy, then why do it?
I don’t understand the question — I’m certainly not proposing that the tax system should favor the wealthy… that’s a “fairness” argument.
RE: Fairness of Legal Loopholes by Occams
Bullshit. Nobody says “it’s unfair that the poor pay so much tax”.
Yes they do, that is how the those on very low incomes have escaped paying income tax.. My point was that if you are inclined to talk about fairness it is best considered in terms of sharing the pain
No, that’s what “fairness” means — free from self-interested, favoritism, bias, or deception. That is neither practical, nor desirable in a tax policy, though.
In your mind perhaps. I think that there is immense self interest in the flat tax proposal, and from those who want the wealthy to pay the same percentages as middle income earners. I agree that it is not desirable.
I don’t understand the question — I’m certainly not proposing that the tax system should favor the wealthy… that’s a “fairness” argument.
You were making the point that fairness should not be a consideration in tax policy. That implies that it is reasonable to treat different income groups with different tax rates. I agree. Therefore I said
If there are no economic advantages deriving from favoring the wealthy, then why do it?
In other words, tax the wealthy more if it makes sense for the economy.
RE: Fairness of Legal Loopholes by scottb
In other words, tax the wealthy more if it makes sense for the economy.
Then you seem to have missed my entire point about fairness.
Yes — tax the wealthy more if it makes sense for the economy, regardless of whether it’s fair, because fairness is irrelevant.
RE: Fairness of Legal Loopholes by Occams
Missed it! For heck sake, I have been saying that all along to the point where I was concerned about being pedantic.
I believe that fairness is an important illusion which the politicians must try to maintain while setting about improving the economy. However there seem to be no economic benefits to be obtained from being unfair, so their conflict is mostly with their own greed and loyalty to their class.
RE: Culture of Legal Loopholes by Occams
If the long term rate is 8.8% with a 4% avg inflation, then investment income should cap at 50%.
I don’t get that. I am only an engineer, but …
With inflation at 4% you need to make 4% on an investment to break even.
If you make 8% then you are ahead by 4% in real terms. You are taxed on the whole amount. If the rate is 50% then you are back to being 4% ahead which I guess is about what you could get from a fixed deposit with a bank. However, on that fixed deposit you would be taxed the same 50% so you would make only 2%.
Therefore you make 6% more with the investment than you would have made with a bank, and that is at a high tax rate of 50%
There is often a chance that you could make more than the 8% in the long term, and inflation fluctuates, so there will usually be an incentive to invest. Intuitively, short term investment is not as valuable to the economy as long term investment. I think that the higher tax rate would encourage long term investment.
Those who choose the fixed bank deposit are also investing in the economy because they are giving the banks money to use for loans.
RE: Culture of Legal Loopholes by scottb
You are taxed on the whole amount.
The tax doesn’t see the inflation. You’re taxed 50% of the 8%, not the 4%, so you’re dead even.
RE: Culture of Legal Loopholes by scottb
but they can’t pass it all on to us (as Rush argues constantly).
Of course they can. Market prices represent what people are willing to pay. If the businesses paid less in tax, it wouldn’t lower the market price, it would just increase their profit.
Now, in a scenario where there’s very little margin for profit, you might see a little bit of adjustment, as some of the sellers try to turn that profit into a bigger market share. but ultimately, every single bit of what businesses are taxed goes into the price of goods sold to consumers.
You keep jumping to the mistaken conclusion that there’s something wrong with that. It’s just how markets work. Taxes are part of the business’ costs — they have to be recovered by sales, or the business fails to be a “going concern”.
RE: Culture of Legal Loopholes by ldsudduth
You’re correct Scott—what I should have said is ‘they can’t pass it on to us immediately.’ If taxes for the wealthy and business went back to, say 1960’s levels (somewhere between 60-90% of income from what I’ve read); they could not suddenly increase prices by the same percentage.
RE: Culture of Legal Loopholes by Occams
I think that the main effect would be to make American products more expensive. The new taxes would be on the income of shareholders. Business may put up prices in order to make a return for investors after taxes. Prices are set primarily by the market and higher prices attract fewer sales.
What are the investors going to do with their money instead? If they leave it in the bank they will have to pay additional income tax on interest earnings. So we are really talking about marginal effects there. The marginal impact on investors would be the difference between current and future earnings after tax. Not so much as to warrant selling shares, in most cases.
RE: Culture of Legal Loopholes by wyldeling
And lastly, what if they abolished the income tax and concentrated solely on sales taxes?
For the most part, the cost of necessities are fixed; there is some wiggle room with regards to the more luxurious purchases, but the cost of the basics are relatively inflexible. So, a sales tax would then disproportionately effect the poor: e.g. 10% of $500/month = $50/month, or 6% of $10,000/year income v. 0.6% of $100,000/year income. And most proposals I’ve seen for a flat sales tax are near or above 20%, doubling the above percentages. At those levels, the person earning $10,000 would have a tax rate above their current effective tax rate (11%), and that is without accounting for the $5700 std deduction! With the std deduction, the tax is $430, or an effective rate of 4.3%. A second point, is that the rich, while spending extravagantly, do not spend a large percentage of their income which enables them to reinvest the money. Unlike the poor who spend most, and sometimes all or more, of their income.
RE: Culture of Legal Loopholes by Brandon
I didn’t say flat sales tax.
Necessities = food, rent, a couple pairs of clothes, and basic toiletries. I’m sure they can work out a system where those things aren’t taxed.
A second point, is that the rich, while spending extravagantly, do not spend a large percentage of their income which enables them to reinvest the money. Unlike the poor who spend most, and sometimes all or more, of their income.
I’m not sure I see your point. I mean, I understand that rich people invest more because they have more to invest … but I don’t know where you’re going with that.
RE: Culture of Legal Loopholes by wyldeling
I didn’t say flat sales tax.
I live in a (very) low income tax state, and the state + local municipality have a minimum 3% tax on everything. And every proposal I’ve seen sets it up as a flat tax.
A second point, is that the rich, while spending extravagantly, do not spend a large percentage of their income which enables them to reinvest the money. Unlike the poor who spend most, and sometimes all or more, of their income.
I’m not sure I see your point. I mean, I understand that rich people invest more because they have more to invest … but I don’t know where you’re going with that.
I was trying to point out, to survive the poor spend a very large percentage of their income to survive. The rich don’t have that problem. So, taxes cut into the limited resources of the poor worse than that of the rich. At least, I think that’s the point I was trying to make.
RE: Culture of Legal Loopholes by scottb
I’m not sure I see your point. I mean, I understand that rich people invest more because they have more to invest … but I don’t know where you’re going with that.
That’s the really critical point, though. Up to a certain level, one’s income goes to servicing one’s needs — food, shelter, clothing, health care, and so on — after that, the money moves into a different category.
For the poor, the overwhelming majority of their income goes to those basic needs, with little or no discretionary money left. These days, the poor often don’t get those basic needs met, and even the middle class struggles to meet them.
The rich, on the other hand, have lots of discretionary income. Relatively speaking, little of it goes to extravagances. After he’s bought the $100M mansion, and spent another few million on toys, the billionaire still has hundreds of millions of dollars doing basically nothing. So he invests.
But investment doesn’t involve buying anything — it’s loaning somebody money — so there’s no sale involved, and thus no sales tax. And you wouldn’t want there to be tax on those transactions, anyway — nobody would invest in anything if they had to earn at least, say, 10% ROI just to break even after taxes.
So, the “sales tax” approach ends up with the rich paying a fairly small percentage of their income as tax, while the poor pay a much larger percentage — for much the same reasons as Buffett described in his op-ed piece: the rich get their money from very different sources than the rest of us.
RE: Culture of Legal Loopholes by Brandon
I understand the mechanism. I’m just waiting for someone to tell me why rich people having more money is a bad thing.
The central issue for me is choice. Once you stop taxing necessities, all taxes collected are voluntarily spent. If you think you pay too much taxes, then stop paying them. End of story. No one is forcing you to buy those guitar strings or to download that album.
RE: Culture of Legal Loopholes by scottb
I understand the mechanism. I’m just waiting for someone to tell me why rich people having more money is a bad thing.
It’s not that it’s a bad thing, it’s that taxing them results in a better situation all around.
Right now, our big problem is that the economy is stagnant. The neo-classical argument says you fix this by cutting taxes on the rich so they’ll spend it, which stimulates the economy. This is self-evidently false, because the prime interest rate today is lower than the rate of inflation: borrowing money is essentially free. If neo-classical reasoning were sound, the economy would be picking up rapidly as businesses would be borrowing this free money like mad to expand their operations.
The problem is not that high tax rates are eating up investment capital — the money is there to be borrowed for essentially nothing. It’s not that government borrowing has pushed up interest to “crowd out” private borrowing — banks and corporations are sitting on mountains of cash. The problem is that people — both ordinary, middle class taxpayers and the rich and corporate money are afraid to invest because “the market is unsteady”. But, of course, that makes the market stagnate, which does nothing to help their fears.
Instead, what needs to happen is we need to raise revenue we can spend on infrastructure — not piss it away, but spend it on sensible future investments like roads, green energy, and that sort of thing. That will create jobs, which lets the middle class feel safe enough to start spending, which jump-starts the economy enough that the big money starts spending again.
We don’t get any of that by cutting “entitlement” programs — we get it by raising taxes. The people most able to handle that increase in taxes — and the ones who will most benefit by the economic stimulus it triggers — are the rich.
So, it’s not a bad thing for the rich to have money — it’s a better thing to force that money to be put to good use. This is exactly the scenario in which the private can’t act on its own. Individually, it would be irrational to act — the economy sucks. But it won’t get better unless they do invest. So the government acts for the benefit of all by effectively forcing them to invest.
It’s the same logic that recognizes that it’s individually against the interests of businesses to actively reduce pollution, but it’s beneficial to our society as a whole if they do, so we impose regulations that force them to spend money they wouldn’t otherwise spend.
Unfortunately, the needed action isn’t likely to happen because the Republicans are married to the demonstrably false neo-classical economic thinking, and they’re held hostage by a bunch of functional retards in the Teabagger Party. Add to that a Democratic opposition that hasn’t shown a trace of spine in two years, and we’re looking at a long, slow economic future.
RE: Culture of Legal Loopholes by Brandon
Individually, it would be irrational to act … [s]o the government acts for the benefit of all by effectively forcing them to [act].
This is the problem I have. I’m not saying it’s never a good idea, I’m but I don’t like it generally.
There’s nothing saying people can’t re-start the economy, protect the environment, keep corporate corruption in check, etc. privately (at least to a much larger extent than you’re admitting). People can boycott companies that don’t meet industry standards. Consumers can choose to buy organic and/or free trade certified goods. People can choose to buy green energy. People can invest in whatever makes sense to them – wherever they think they can get the best return and at whatever risk level they feel best.
Well … until the government decides to take their money and do something else with it. (Oh, dude … You didn’t think ethanol fuels, GM, Freddie Mae, etc. were good uses of your tax dollars? Oh, man. Sorry about that.)
I’d take a sub-optimal economy and maintained individual liberties over a pristine economy and compromised freedoms. (Although I’m not conceding you can’t have the best of both worlds.)
RE: Culture of Legal Loopholes by scottb
There’s nothing saying people can’t re-start the economy, protect the environment, keep corporate corruption in check, etc. privately (at least to a much larger extent than you’re admitting). People can boycott companies that don’t meet industry standards. Consumers can choose to buy organic and/or free trade certified goods. People can choose to buy green energy. People can invest in whatever makes sense to them – wherever they think they can get the best return and at whatever risk level they feel best.
Sure. And people can love one another and never fight. But they don’t.
In practice, there is something saying people can’t (reliably) do those things. It’s economics. Let me illustrate with a simpler, but similar example. My brother used to sell cars. Like most everyone, my family and I all complained about how “dishonest” car dealers are. For example — no car dealer will give you a legitimate price quote over the phone, they’ll always simply flat out lie and give you a price far lower than you can possibly get. Why? Because if they don’t, you’ll call someone else who will, and they’ll get your business instead. By lowballing, you’re forced to come into the dealership, where you’re far less likely to “shop around”, and they can apply other pressure tactics.
It’s not fair to consumers, and it’s not really fair to the dealers — they don’t like having to be dishonest, nor do they like the reputation they’ve acquired. But there’s no way they can change. An individual dealer who takes it upon themselves to change their behavior can’t survive the loss of business to the ones who don’t change. They’d have to all change simultaneously, and then you’d have to have a way to force the individuals not to “defect” from the new strategy.
Economically, this is a Nash equilibrium. Nobody benefits from changing their policy — even if everybody might benefit if everybody changed. The same is true in today’s bigger economical picture. We’d all be better off if the wealthy invested less of their income and spent it on common goods, but there’s no real incentive for just one of them to do it — their individual loss is greater than their individual benefit.
Well … until the government decides to take their money and do something else with it. (Oh, dude … You didn’t think ethanol fuels, GM, Freddie Mae, etc. were good uses of your tax dollars? Oh, man. Sorry about that.)
When a poor man complains about the actions of the government, he’s asked, “why don’t you just leave, if you don’t like it?” When a rich man complains, the same logic should apply.
The government isn’t a foreign oppressor — no matter how much conservative talking heads like to paint it as such. It’s our elected officials doing what they were elected to do. If we don’t like it, we’ll elect different ones, but they’re still our elected representatives. Most of them seem to be honestly trying to do what they think is right — it’s unfortunate that so many are deluded into seeking bad goals, but then, that, too reflects their constituency. A lot of Americans are just as deluded.
I’d take a sub-optimal economy and maintained individual liberties over a pristine economy and compromised freedoms. (Although I’m not conceding you can’t have the best of both worlds.)
“Sub-optimal” makes it sound like you’re trading just a little efficiency for that “liberty”. That’s a crock. The “sub-optimal” economy we’re talking about here is further worsened from where we are, and staying there for a decade or two.
That might not be so bad if the “liberty” for which we were trading it were anything meaningful, but it’s not. It just trades “oppression” by a government that’s actually seeking to improve things for everybody for real oppression by big businesses that are only looking out for themselves.
RE: Culture of Legal Loopholes by scottb
These are not the same argument:
Yes they are. In both cases, they argue for an action (cutting taxes on the rich) on a specific ground (the false claim that it stimulates employment).
It’s not a mis-characterization; it’s a disagreement.
It’s a mis-characterization. The disagreement is over which policies the government should carry out.
It’s a stupid disagreement, from where I sit. The question isn’t whether it’s “fair” — it’s pretty much impossible for taxes to be fair, anyway. The real question should be whether we’re better off with them than we would be otherwise.
Societies in which wealth is concentrated in the few (measured by, say, the Gini coefficient, or something similar) are universally in worse shape than those that have it distributed more equally. Homicide rates are lower, measures of social trust are higher, people are more involved in their communities, the population is healthier, and so on. These things benefit everyone, and progressive income tax schedules are the main way societies improve income equality.
The question at hand is whether the government should force everyone to participate in all of these – or if they should leave it to the private world and personal choice.
We could carry your argument to its logical conclusion and say that the government shouldn’t raise any taxes. Defense and justice and such could also be “left to the private world and personal choice”.
I used to be sympathetic to this sort of libertarian nonsense, but I’ve come to realize that it’s just an anarchist’s pipe dream (and a robber baron’s wet dream).
And lastly, what if they abolished the income tax and concentrated solely on sales taxes? Surely there isn’t a way to get around that (other than not spending money … and I don’t think the super rich do that).
It’s worth considering, but I suspect it still puts the tax burden in the wrong place, and I’m not sure it quite simplifies things as much as it seems.
You’d still have “loopholes” in the sense that there would have to be things that aren’t taxed — if you taxed basic necessities, like food, then you end up with the poor spending far too much of their income on tax.
It’s also very difficult to figure how to tax “sales” associated with many kinds of investments. Depending on the size of the tax, it could grind Wall Street to a halt — if you’ve got to earn 10% on every investment just to pay the taxes, nobody would buy. But, then, if you don’t tax that, then we’re back to the situation where the wealthy, who make substantial income from investments, pay less tax.
RE: Culture of Legal Loopholes by ldsudduth
You’d still have “loopholes” in the sense that there would have to be things that aren’t taxed — if you taxed basic necessities, like food, then you end up with the poor spending far too much of their income on tax.
Depending upon the state law, many basic necessities are already taxed. Prepared foods, for example, here in PA—but not ‘unprepared’ foods. However, clothing is not, which is why we get an influx of shoppers from border states to locations close to them for clothing purchases. So..Milk is untaxed, but bread is. Frozen foods are taxed, while fresh and canned ones are not…it’s very wierd what the consider ‘prepared’. I could see a microwave meal, but a bag of frozen peas?
However, there are taxes everyone pays (regardless of income)on certain necessities already— homes, energy, water, sewage treatment, etc. Obviously, a person with a 1,000 sq. ft. home uses less energy than a person with a 10,000 sq. ft. home; they pass less property tax (even apartment dwellers pay property tax—-it’s hidden in their rent; and will go up when property is reassessed), use less water, etc. Cell phones have fees and taxes paid to both levels of government based on your contract costs. I pay a ‘right to work’ tax to the township ( in some places that has been supplanted by an EMS fee) where I work; which is then transferred at the end of the year when I file taxes to the township where I live. They’re one and the same now, but when I worked in an office in a different township that’s how it was done. The right to work tax is the same whether you make minimum wage or millions of dollars per year. Not all townships have it (or the EMS Tax)either, so it’s an ‘unfair’ tax. The same can be said for ‘school taxes’ to those who do have (and never have had) children.
to sum..scottb is right..taxes are never fair. but without them, civilization would crumble to dust.
RE: Culture of Legal Loopholes by Brandon
The real question should be whether we’re better off with them than we would be otherwise.
More importantly, the question is who decides what constitutes better off.
We could carry your argument to its logical conclusion and say that the government shouldn’t raise any taxes.
That’s only the logical conclusion if you assume taxes are only raised by compulsion.
It’s also very difficult to figure how to tax “sales” associated with many kinds of investments.
I’m sure the government will find a way to do it.
But, then, if you don’t tax that, then we’re back to the situation where the wealthy, who make substantial income from investments, pay less tax.
But if all tax is voluntary (i.e., only paid when an individual chooses to buy something unnecessary), there’s no one to blame. I guess people will just have to take responsibility for their own actions, for once. What a shame.
RE: Culture of Legal Loopholes by wyldeling
Simultaneous followup to the same point you made here.
if all tax is voluntary (i.e., only paid when an individual chooses to buy something unnecessary)
There’s a conceptual problem here: what is necessary? This varies from location to location below the state level. Also, it has many gray areas. Take a car, for instance. I live in a city with public transportation, yet I refuse to take the bus. It’s slow and to get from place to place would require some interesting juggling. It also does not run at night. There have been occasions where we’ve gone to after hours care with my kid, and without the car, it would have been either not go, or go to the emergency room via ambulance. But, with the ambulance option, the car is not strictly necessary, and yet it is because the ambulance plus emergency room visit would cost much more than the after hours care. It is precisely these arguments that make necessity a gray area.
RE: Culture of Legal Loopholes by Brandon
Yeah, you could define necessity a number of ways. I suggest doing so in a very strict sense, but that’s just me.
In any case, it’s not beyond the powers that be to draw the line somewhere. Much simpler (and less gray) than the current tax laws, I’m sure.
RE: double taxed? by brho
where does the corporate tax fit into this? i’m under the impression that dividends get taxed heavily (35%) before we even see it, and then it gets taxed again. while that doesn’t cover the buy/sale of a capital asset, doesn’t the value of a stock derive from its present value of future dividend payments (which would take in account of the corporate tax?) Part 3 of this WP opinion has some interesting points that may or may not be wrong.
Hypocrisy by Travis
Isn’t this all hypocrisy on all sides? I mean here is Warren Buffet self promoting his image by pointing out the advantage that the rich have the money to find the loop holes, yet takes advantage of it non the less. I don’t understand his self-righteousness. Is he really saying that I am only able to pay my fair share if someone makes me? Really? Why not ignore the tax advantages and pay the full 35%?
Anyway, now on to the other side of the equation. Is it not hypocrisy on those that consider themselves “not rich” to think that they should not have to pay the same equatable share in taxes? In other words if my neighbor happens to work harder than me by working overtime; then he should have to pay more into the system to take care of me when I decided I wasn’t up to working that hard. I know the example is simplified but the point is the same… we should not be putting negative consequence on performance where income is a reflection of performance.
It seems to me that really only fair way to tax is a flat tax which would benefit the government much more anyway by broadening it’s base. However, that still leaves the problem or debate that government is bloated and needs to reign in spending and entitlements.
I have no problem with this..I used to..but after careful research by ldsudduth
At one point, the wealthiest 2% were taxed upwards of 90% of their income— and we still had economic growth.
In fact, this period was one of the longest periods of expansion—and it occurred post WWII. BUT….there were also fewer loopholes. The conservative Icon, Ronald Reagan, lowered taxes to 28% for the top tier wealthy—_while closing loopholes_. He knew government of the appropriate size needed to be funded.
Warren Buffet is on the money—Raise the tax rate for the wealthy AND close the loopholes for them (and for big business). Cut Tax Incentives and other Government subsidies for companies (like the Oil Industry) who actually post massive profits.
All of this would go a very long way to achieving a number of goals, including fixing the budget, fixing the deficit, raising our credit rating back up and actually paying for services without borrowing more money.