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March 04, 2009

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Well there is one thing -- Bayh and his buddies can do a bunch of stuff, but they can't force President Obama to accept an extension of the tax cuts. They WILL expire on time if President Obama wants it, because he can veto any legislation that extends those cuts.

Wouldn't it be a shame if the President's first veto were of Democratic legislation? Why must the Democratic party be stuck with these turncoats like Bayh?

My problem is not with this (rather modest) increase in the top tax bracket(s). Rather, it's the combination of:

1. An increase in the marginal rate for folks who make more than 250k;

2. The proposed reduction in the number/type/amount of deductions available to folks who make more than 250k; and

3. The proposed "donut" on payroll taxes, which results in the return of the payroll tax at 250k.

All three combined creates serious disincentives to generate a taxable salaries above 250k, and any assessment of Obama's tax plans depends on whether Obama intends to impose some or all of these 3 items. Note as well that payroll taxes bite the self-employed particularly hard .... including, as Eric probably knows, partners in law firms.

I might post further on this topic in the future. If Obama is proposing just #1, that's one thing; if Obama is starting with #1 and then decides to go for #2 and #3 as well, I have some serious concerns about whether Obama will create disincentives without a proportionate (or, even, any) increase in tax revenues.

Note as well that payroll taxes bite the self-employed particularly hard .... including, as Eric probably knows, partners in law firms.

For clarity, this is because the self employed pay both halves of the payroll taxes for SS and medicare.

Von,

For the record, I think Obama and others need to inject a new concept into the discussion: How about additional brackets at the top?

At present, $250,000 isn't that much money for a family living in an urban area such as NYC. It's not that I'm crying for those people, but it's not like they're raking in $1,000,000 a year. Which would be a nice place to set up an additional bracket, with a slightly higher rate.

This might allow us to forestall implementing options #2 and #3.

All three combined creates serious disincentives to generate a taxable salaries above 250k

Well, they would create disincentives up to a certain point. $250,00-300,000 might only be nominally more money, but $500,000 would be a lot more even then.

Besides, it's not really the case that hours translate to salary in those echelons. Bankers, traders, brokers and lawyers will always want a higher salary, and even if not, very few are able to adjust their hours worked to game their comp level. They work as long as their boss tells them to, so they might as well take home the biggest pay check they can.

As I'm sure you're aware.

Note as well that payroll taxes bite the self-employed particularly hard .... including, as Eric probably knows, partners in law firms.

Not necessarily firms. Most firms are organized as LLPs. Mine certainly is. I was under the impression that such status lessened that bite - but I could be mistaken on this.

Ah partners!

Yes, that changes things. Not payroll tax for them, but self-employment tax?

von: The proposed reduction in the number/type/amount of deductions available to folks who make more than 250k

What are some of these deductions that are proposed to be done away with or reduced, and where might I read the proposal?

Thanks in advance.

1. An increase in the marginal rate for folks who make more than 250k;

2. The proposed reduction in the number/type/amount of deductions available to folks who make more than 250k; and

3. The proposed "donut" on payroll taxes, which results in the return of the payroll tax at 250k.

To be honest, of these only (2) strikes me as being a potential sticking point. The combination of the bump in the marginal rate and the return of FICA/SET above 250k amounts to just over 10% (around 16% for the self-employed). That's still less than the top bracket was taxed as recently as 1986, when the rate was 50%--and that was for income over $175k.

I have a hard time taking seriously any argument that makes claims about how these changes would disincentive earnings above 250k. People didn't seem to have too much disincentive to earn a pile of money when they were forking over half or more of it during the socialist Reagan years.

Changes to the number/type/amount of deductions available to top wage earners, however, does strike me as fraught with potential pitfalls, and worthy of detailed discussion. I'm not saying it's a bad idea, just that there are actual arguments to be made for and against specific proposals that are not completely at odds with history.

Nell:

Under the administration’s proposal, taxpayers earning more than $250,000 will have their ability to deduct contributions to charities reduced to a rate of 28 percent from a rate of 35 percent, according to an analysis by the Union of Orthodox Jewish Congregations.

Weird source there. Why couldn't the Times get the proposal from the budget or the administration itself? In any case, that's the idea I've heard from various places and doesn't seem to be entirely right-wing fantasy.

Presumably there'd be some sort of phase-in to avoid an actual incentive to have an income below $250,000 if you were only slightly above it and made large charitable donations.

Eric -

I agree with you on your first point. 250k is not a lot of money for, say, NYC.

Not necessarily firms. Most firms are organized as LLPs. Mine certainly is. I was under the impression that such status lessened that bite - but I could be mistaken on this.

I'm a partner in an LLP. I stay far away from tax law, so I'd have to check my returns; I'm pretty sure I'm paying both halves of the SS tax, however.

Nell, IIRC, there have been a number of proposals floated regarding deductions. The New York Post reported the following relatively recently based on limiting the number of deductions folks earning over 250k can claim. I suspect it's not complete, and wouldn't put absolute faith in it as the truth, but it's a start.

By limiting itemized deductions to couples who earn $250,000 or more to 28 percent of the total itemized deductions they claim, Obama said his budget is projected to generate $318 billion over 10 years - about half the cost of implementing universal coverage.

(http://www.nypost.com/seven/02262009/news/politics/obama_budget_puts_deficit_at_1_75_trilli_157074.htm)

It's admittedly true that people who make more have more deductions than other folks.

Not payroll tax for them, but self-employment tax?

Yes. Which equates to both halves of SS/Medicare, I believe.

I have a hard time taking seriously any argument that makes claims about how these changes would disincentive earnings above 250k. People didn't seem to have too much disincentive to earn a pile of money when they were forking over half or more of it during the socialist Reagan years.

You're looking at it the wrong way. Say that I have the option of being paid 275k or being paid 249k but getting a lot of neat perks in a form that's not subject to payroll taxes or won't count as income w/r/t the limits on deductions. In order to stay under the magical number of 250k, I might choose to take the perks. Similarly, if you create a magic number with a threefold tax consequence (payroll, income, deductions), you create incentives to hide income that exceeds that number. Cheating increases significantly in the case of a rise in top marginal rates.


I have a hard time taking seriously any argument that makes claims about how these changes would disincentive earnings above 250k. People didn't seem to have too much disincentive to earn a pile of money when they were forking over half or more of it during the socialist Reagan years.

By the standards of today's GOP, Reagan would be a RINO if not an outright pinko socialist. I'm trying to imagine him apologizing to Rush Limbaugh for that.

Cheating increases significantly in the case of a rise in top marginal rates.

That strikes me as an argument for better enforcement, not against raising the top marginal rates.

Thanks, KCinDC.

Even that doesn't seem like a big enough change that it would cause someone to exert a real effort to keep household income below $250,000. And, as you say, though such a proposal is plausible, "an analysis done by the Union of Orthodox Jewish Congregations" is not exactly the same thing as reading it in a WH or Dept. of Treasury document...

That strikes me as an argument for better enforcement, not against raising the top marginal rates.

Better enforcement means more enforcement, which means more audits, which costs money and time on the guilty and innocent alike. Better enforcement also does nothing to dissuade legal diversions of income, such as I describe above.

The point to keep in mind is that tax increases are not dollar-for-dollar, and that changes in taxes changes incentives and thus the way that people behave and where and how they spend their money. Reduce the amount of money folks can deduct for charity and you will, on average, have fewer charitable deductions.

Moreover, Laffer effects occur well before you get to the point on the Laffer curve where tax increases are tax-negative. A dollar increase in tax doesn't actually yield a dollar increase in tax revenue; you have to take this into account when weighing the benefits of a tax increase versus its costs.

My broader point, however, is simpler: Focusing only on the relatively modest marginal tax increase loses sight of the other proposed tax increases -- all of which are presently targeted to the same magic number. Any discussion of the tax effects of Obama's plan has to take into account the tax effects of the entire package -- not just one piece.

I don't like the "donut" idea. More complications in the tax code, we do not need. As for the 28% break on charitable contributions, this is even more complication that we do not need. How it works now is: you deduct charitable contributions. The deductions go directly against your AGI, and thus reduce your tax by the tax rate(s) at which thos reductions are effective. In other words, it works just exactly the same as all other deductions, in all tax brackets. Making an exception makes the tax code more complicated.

Simplification, please. The marginal tax rate is to me less important than screwing with the tax code.

Say that I have the option of being paid 275k or being paid 249k but getting a lot of neat perks in a form that's not subject to payroll taxes or won't count as income w/r/t the limits on deductions. In order to stay under the magical number of 250k, I might choose to take the perks.

Sure you might, but I don't see how this is any different than the calculus workers make nowadays when comparing one job with another. If I'm looking at one job at 60k and another job at 75k (the general salary neighborhood for my skill set), and the 60k job has better medical and fixed hours while the 75k job requires me to be on call, you bet your ass I'm taking the lower-paying job.

That doesn't really have anything to do with an increase in the top marginal rate, which is in most cases a purely numeric concern. While there might be people with both the ability and inclination to game their gross income so that it falls just below the $250 mark, you're talking about an extremely narrow demographic who make just enough to hit that bracket but not enough for the increase in income to overwhelmingly outweigh the increase in taxes paid. I'm of the opinion that people like this (who actually know what they're talking about, unlike our now-famous dentist) are so rare as to be near-apocryphal. I hit the 25% bracket once I started making more than around 30k, but that didn't make me stop and think, "you know, I sure wish I wasn't making double what I made last year, I'm paying so much more in taxes!"

Now, introducing changes to the deductions available to those earning more than $250k is a different subject, and as I said above I have no problem talking about the issues surrounding it--I think there actually is a colorable argument to be made regarding the disincentives that would result. But again, you need to separate that from discussion about an increase in the top marginal rate, and you need to be specific. So far I haven't seen much in the way of specifics, just general FUD about what Obama might do.

It's all well and good to say that if you combine that top bracket increase with changes to deductions you create disincentives to high wage earners, but there's all sorts of potential disparate factors you could lump together like that that wouldn't be any more meaningfully related to each other in effect.

Now, introducing changes to the deductions available to those earning more than $250k is a different subject, and as I said above I have no problem talking about the issues surrounding it--I think there actually is a colorable argument to be made regarding the disincentives that would result. But again, you need to separate that from discussion about an increase in the top marginal rate, and you need to be specific. So far I haven't seen much in the way of specifics, just general FUD about what Obama might do.

I agree that we should identify and discuss each of the separate components of Obama's tax plan. But you also have to look at all the components in context with one another, or you'll miss the bigger picture.

Slart, I'm not sold on the charitable deduction change as described, but if one is to worried about falling donations because people are saving 28% rather than 35% of those donations on their taxes, then presumably one should have been similarly worried when Bush reduced the savings from 39.6% to 35% by lowering the income tax rate.

I agree that we should identify and discuss each of the separate components of Obama's tax plan. But you also have to look at all the components in context with one another, or you'll miss the bigger picture.

We should also probably wait until he actually proposes these. Otherwise we're not getting the bigger picture as much as a distorted picture.

For clarity, this is because the self employed pay both halves of the payroll taxes for SS and medicare.

Von, whatever happened to the idea that wage-earners effectively pay both halves of FICA just like the self-employed do?

I just don't get this sudden solicitousness for the self-employed. If there's something inherently desirable about self-employment, the best way to encourage it is to set up a national health insurance system. Diddling with (or obfuscating aspects of) the tax code is small beer.

And Eric is right: we need a tax structure that's progressive all the way up. The idea that the top marginal rate should kick in at income levels one or two orders of magnitude smaller than the average income of the upper-most thousandth of incomes is obscene. The very-well-off are being played for suckers by the really rich; they're not getting ripped off by the poor.

--TP

"All three combined creates serious disincentives to generate a taxable salaries above 250k"

We need to create the right incentives. That's why I believe that our tax brackets are backward. We should be taxing the poor more than the middle class, and taxing the middle class more than the rich, etc. That way, we create an incentive for people to make more money. Plus it would eliminate poverty.

but if one is to worried about falling donations

I'm not making that argument.

We should also probably wait until he actually proposes these.

Yes. It'll be interesting to see something more exact, because what's been mentioned here, aside from moving bracket limits, is really mystifying.

I'm not making that argument.

Apologies, Slart. That was Von's comment before yours.

Not a problem, KC.

Similarly, if you create a magic number with a threefold tax consequence (payroll, income, deductions), you create incentives to hide income that exceeds that number. Cheating increases significantly in the case of a rise in top marginal rates.

Stop coddling criminals when they leech off society. Penalize the criminals enough to pay for the enforcement of the law, their imprisonment for first time offenses, and their execution for repeat offenses.

I will not stand for this idea that we must do whatever rich people want because if we do not they will just steal from us anyway.

Rich people need to respect law and order the same as welfare cheats need to. Let's see that they both do.

At present, $250,000 isn't that much money for a family living in an urban area such as NYC.

Nonsense, median household income there is still below $50,000. Go complain to the 4 million people living there on less than that about how hard it is to squeak by on $250,000 a year. Tell them the sob stories of the rich but not quite rich enough class.

And let's get back to the point that needs to be made here - there are a lot of rich people being quoted in the mainstream media lately that either can't do math or think we are really f*cking stupid.

Now_what:

Go complain? Sob stories?

What I said was this:

At present, $250,000 isn't that much money for a family living in an urban area such as NYC. It's not that I'm crying for those people...

What I'm saying is that if you have a family in NYC, and you have, say, three kids, your rent is going to be north of 3,000 most likely (although that would most likely be a 2 bedroom, 3 if you gravitate toward outer boroughs). That's 36,000 off the top of your after tax income (and taxes in NYC are pretty onerous). Then factor in food, transportation, and other items that generally cost more because of the NYC markup, and you're really not living that well.

No, it's not a sob story. No, I'm not crying. Yes, scores of people have it much harder. But keep in mind, 250K in NYC is the equivalent of a much lower number in areas where the cost of living is cheapre (everywhere except major metro areas like Boston, SF, etc)

What I am saying is that it would be more realistic to create more tax brackets above the 250K mark to reflect the real differences in income gradation.

There is a hell of a lot of room between 250K a year and 20 million a year (regardless of whether you live in NYC or not), but they're taxed at the same rate*

*(altough JanieM seems to be saying that the current ceiling is higher, closer to 350K, but the point largely remains the same).

fwiw, I am absolutely in favor of, I think, two more tax brackets. One kicking in at, oh, 5-6K, somewhat higher than 39.6%; and one kicking in at some amount that makes you think: sheesh, who could *possibly* need to make that much per year? Maybe, oh, $20,000,000. And the top bracket should be considerably higher. I'd be fine with 60%.

I don't think that people at that level are motivated to work by actual money. They are motivated either by love of their job or by competitiveness, which might make them care about how their salary stacks up against others', but not about what proportion of every dollar over $20million they take home. So I don't think it would matter much, as far as incentives go. And at that level, I'm fine with very high taxes.

I also think that we need to do a much, much better job of capturing perks that are income in disguise.

Eric, you think 36/250 = 14% of your taxable income is a lot to pay for rent? I think most people would consider that a bargain. I'm certainly paying a lot higher percentage than that for my tiny apartment, and I was even when my income was nearly twice what it is now.

Not that I disagree that the people making $20 million a year are in a totally different world from those making $250,000.

Hilzoy, you wrote "5-6K". Did you mean "500-600K"? "5-6 million"?

I'm with KCinDC. If you're making 250K per year, and only spending $36,000 of that on rent, then you're doing pretty damn good as far as I'm concerned. Certainly better than I or anybody in my family has ever done.

What I'm saying is that if you have a family in NYC, and you have, say, three kids, your rent is going to be north of 3,000 most likely (although that would most likely be a 2 bedroom, 3 if you gravitate toward outer boroughs). That's 36,000 off the top of your after tax income (and taxes in NYC are pretty onerous). Then factor in food, transportation, and other items that generally cost more because of the NYC markup, and you're really not living that well.

The median NYC household is not paying $36,000 a year for housing because the median NYC household is not making enough to support that. The media household income in NYC is, again, under $50K. The median income in the poorest income tract in NYC is less than $10,000 a year. These people are not invisible. Someone making $250,000 a year gets a two week paycheck that is about the same as what one of those people makes in a year. Do not tell me, ever again, about the difficulties of living in NYC on $250,000 a year. Just don't do it.

People making $250,000 a year in NYC are making tradeoffs, as are people in NYC making $50,000 a year as are people in NYC not making it at all.

Hilzoy, you wrote "5-6K". Did you mean "500-600K"? "5-6 million"?

From context, I think she meant $5-6 million (with the next jump at $20 million). But I would like to be assured, as well.

Actually, I meant 500-600K. Sorry.

Von, whatever happened to the idea that wage-earners effectively pay both halves of FICA just like the self-employed do?

Yeah, he just took that standard conservative argument out behind the barn and shot it. I'm waiting to see if he comes to grips with the far ranging consequences of that argument, and the way that they torpedo a number of his other positions.

2. The proposed reduction in the number/type/amount of deductions available to folks who make more than 250k

From this analysis, it appears that the change to deductions will be to increase the threshold for PEP and Pease limits to $250K from their present ~$150K.

So for folks between $150K and $250K there will actually be an increase in the itemized deduction benefit.

Perhaps you have something else in mind.

Re: FICA. The assumption here seems to be that Obama will levy FICA on wages above $250K at the 12.4% rate.

Per this source, which is the only thing I've found that lays the proposal out in detail, the real skinny is as follows:

Obama does not support uncapping the full payroll tax of 12.4 percent rate. Instead, he and Joe Biden are considering plans that would ask those making over $250,000 to pay in the range of 2 to 4 percent more in total (combined employer and employee).

So if you are self-employed and make over $250K, you will see about five percent increase in your income tax (35% -> 39.6%), plus somewhere between two to four percent increase in FICA.

If you are salaried, the FICA increase is halved.

Worst case looks like a nine percent increase for folks making more than a quarter million dollars a year. And that is only on the amount of your income in excess of a quarter million dollars a year.

So if you are making a half million bucks a year, your worst case is looking like about a $22,500.00 increase in your tax bill.

Hey, it would piss me off. But it wouldn't make me pass up the extra quarter million dollars (i.e., the difference between a half million and a quarter million in income).

YMMV.

For self-employed folks, folks who employ Americans, folks who provide health insurance for their employees, and perhaps some others, Obama's throwing in some other tax breaks to take some of the sting out.

I'm not seeing Vladimir Lenin here.

Trust me, when Vlad actually shows up, you'll know.

Perhaps you have something else in mind.

Russell, since what you're talking about is not a reduction, I think it's more likely than Von is referring to what we talked about right after his comment.

von:
Better enforcement means more enforcement, which means more audits, which costs money and time on the guilty and innocent alike.

So what? At the end of the day, it's still a math problem -- if the cost of additional enforcement fails to recoup the evaded taxes, then it's not worth doing; if it recoups significantly more than the cost of enforcement, then it's absolutely worth doing.

Besides, it's not as if those responsible for the enforcement would simply have no clue about what types of returns are more or less likely to be "cheat" returns -- the increase in enforcement should be targeted, not blanket in nature.

Better enforcement also does nothing to dissuade legal diversions of income, such as I describe above.

Again, I fail to see the problem here, or how that undermines my point.

The point to keep in mind is that tax increases are not dollar-for-dollar, and that changes in taxes changes incentives and thus the way that people behave and where and how they spend their money.

There's something funny to me about supply-siders making arguments like this. Tax increases raise less than a dollar for every dollar of tax increases, while tax cuts raise more than a dollar for every dollar of tax cuts. I'm sure there's an underpants-gnome style "Step 2" that I'm missing in there...

Reduce the amount of money folks can deduct for charity and you will, on average, have fewer charitable deductions.

Nice as a "just so" statement, but is there actually evidence that this is the case. Specifically, that donors in the high bracket affected would substantially modify their donating behavior as a result of a relatively modest change in tax law? If so, I'd sure like to see it.

Moreover, Laffer effects occur well before you get to the point on the Laffer curve where tax increases are tax-negative. A dollar increase in tax doesn't actually yield a dollar increase in tax revenue; you have to take this into account when weighing the benefits of a tax increase versus its costs.

If there's any evidence that we've been anywhere near the point of inflection on the Laffer curve at any time since the early 1980's, I'd sure love to see it. In fact, I'm not convinced we were anywhere near that point even then.

My broader point, however, is simpler: Focusing only on the relatively modest marginal tax increase loses sight of the other proposed tax increases -- all of which are presently targeted to the same magic number.

And, to E-Mart's point, all of which would still result in substantially lower taxation for those brackets than during Reagan's first term, when things were just peachy, thank you. In trying to debunk his point, you've underscored it, in my estimation.

Any discussion of the tax effects of Obama's plan has to take into account the tax effects of the entire package -- not just one piece.

On this, at least we agree -- sort of. It certainly makes sense to discuss the whole picture, especially when we get a better idea of what that's actually going to look like. But that still doesn't preclude us from discussing the merits of individual aspects, or from pointing out blatant irrationality where we see it.

Simplification, please. The marginal tax rate is to me less important than screwing with the tax code.

Let me suggest that it's perfectly accurate, if utterly unconventional, to describe our income tax structure this way:

1. We have a flat tax on income. Currently it's 35%; when Dubya's cuts expire it will revert to 39.6%, flat rate, on all income.

2. We charge people increasingly discounted rates at levels of income below $357K. The complexity most Americans deal with has to do with documenting and calculating their discount.

For a few fortunate Americans, the flat rate is all that matters. Their marginal million dollars of income doesn't put them in a higher tax bracket. Reducing their income by slacking off doesn't put them in a lower bracket. To them, Dave/Frank's finely honed calculations are 'not even wrong'. These people live in Flatland, tax-wise.

So here's an idea: put them in the same boat with the rest of us. Make tax rates progressive all the way up. Simultaneously, simplify the hell out of the tax code, in particular by eliminating 'targeted' deductions.

Make the whole change revenue-neutral -- which implies lower tax bills for something like 90% of the population. Average people lose their cherished mortgage interest deduction, but also get much lower tax rates. For the "average" American, if such a person exists, "revenue neutral" means her net tax bill comes out the same in the end, but the calculations and record-keeping are easier.

So that's my offer: simplification, paid for by progessivity. Deal?

--TP

Reduce the amount of money folks can deduct for charity and you will, on average, have fewer charitable deductions.

Not really. Not as much as you think.

I work in major gifts at a large non-profits. Donors almost NEVER rely on tax laws as a reason to make a gift. They may use tax law in order to get the biggest gift possible, but that's just details. THey've already decided to give a gift wayyyyy before it gets to consulting the tax code.

Russell, since what you're talking about is not a reduction, I think it's more likely than Von is referring to what we talked about right after his comment.

The article you cite goes on to say:

Roughly half of the high net-worth donors responding to a 2006 survey by the Bank of America reported that they would keep giving the same amount to charity if deductions for that giving fell to zero, while about 38 percent said their giving would decrease somewhat. Only 7 percent said their gifts would fall steeply.

And:

Robert F. Sharpe Jr., a fund-raising expert in Memphis, said many of the wealthiest donors are already limited to deductions of 28 percent for their charitable gifts because they are subject to the alternative minimum tax.

Here is my deal:

The argument being made by conservatives is that Obama's tax proposals will provide such a strong disincentive to make more money that the most productive elements of society will take their bat and ball and go home.

I call bullshit.

I have yet to see anyone present a credible case from the actual proposals on the table that anything like that is reasonably likely to happen.

Yeah, I read the ABC piece about the lawyer who is going to drop clients so she can bring her income down to $249,999.99. God bless her. All she will accomplish is to throw business to her peers.

Obama's talking about bumping the marginal income tax rate from 35% to just under 40%. He *might* also uncap FICA for income above $250K, for an additional 2 to 4 percent for both employee and employer contribution combined. Not 7.2% or 15.4%, because folks making over the FICA cap are already paying the full Medicare load. Not even the 6.2%/12.4% for SS.

Two to four percent, combined employer and employee contribution.

It took me about 10 minutes to go google this stuff up.

Also in the mix are a variety of incentives intended to encourage small business development.

In the context of what US tax policy has been historically, the changes Obama are proposing are freaking noise.

Some people here have written about the big picture. From where I sit, the big picture looks like this:

Your country has run deficits for most of the last thirty years, and your recently departed government more than doubled the total US debt. The current economic turmoil will require you to spend a great deal more, probably trillions of dollars. You have to realign your economy and find a way to balance your books.

Some of that balance may well come with the elimination of waste, but a fair fraction of it will have to come from American taxpayers. If you make your policies on the assumption that people will do all they can to avoid taxes, if your economic assumptions classify shared sacrifice as unacceptable and pulling together for the good of the country as unthinkable, then you will simply keep going into debt, and your seriously risk compromising the promise of your country.

I work in major gifts at a large non-profits. Donors almost NEVER rely on tax laws as a reason to make a gift.

A brief comment, if I may.

It seems to me that many conservative arguments about the economy proceed from the assumption that people are universally motivated to make, and accumulate, as much money as they possibly can. And further, that they will be systematically and consistently rational in doing so.

I'd like to respectfully submit that both of these assumptions -- the assumption about motivation, and the assumption about rationality -- do not hold in the real world.

They are simplifying textbook assumptions that make it easier to build economic theories. They are not, remotely, accurate descriptions of how people actually think or behave.

Perhaps our public policy should be based on what people actually think and do.

Von, whatever happened to the idea that wage-earners effectively pay both halves of FICA just like the self-employed do?

That depends enormously on a number of factors, including elasticity in the labor markets. The general answer is that a tax on employers is passed on in part to employees through salary reductions or by providing nontaxable benefits in lieu of salaries, but the hit is not nearly as much as the amount of the tax. (My personal experience accords.)

By the way, J. Michael: This isn't a "conservative idea" and it doesn't blow anything that I've said out of the water. It's basic economic theory.

Tgrisch, transactional costs are significant and a complete loss to the system. You could make the same points regarding speeding: Everyone speeds, so the answer is to put a cop on every corner .... except that no one in their right mind wants to pay for a police force that large. The costs exceeds the benefits. That's true of any enforcement mechanism, whether taxes, drug laws, etc.

And, to E-Mart's point, all of which would still result in substantially lower taxation for those brackets than during Reagan's first term, when things were just peachy, thank you. In trying to debunk his point, you've underscored it, in my estimation.

That's not necessarily true. And, even if true, you're missing my point: By tying a large number of tax consequences to a single income point, you create incentives for folks to use legal and illegal means to hide income that's marginally above that income point. Assuming you want to go the full Obama, it would be better to phase in these tax increases over a range of income levels, rather than have them all suddenly come into play at 250k.

The argument being made by conservatives is that Obama's tax proposals will provide such a strong disincentive to make more money that the most productive elements of society will take their bat and ball and go home.

Not exactly. The argument that I'm making is that a change in tax policy is not going to result in the projected revenues (even assuming that Obama's "best case" economic recovery is used), while at the same time create inefficiencies that will present a drag on the economy. Increasing taxes by adding complexity increases the costs of compliance, in addition to all the other effects.

Also, I never meant to imply that the top of the donut is going to be 15%; I don't know that it will be 2/4, but I expect it to be less than 15%.

I work in major gifts at a large non-profits. Donors almost NEVER rely on tax laws as a reason to make a gift. They may use tax law in order to get the biggest gift possible, but that's just details. THey've already decided to give a gift wayyyyy before it gets to consulting the tax code.

But that still makes my point. Whether people give less or give small amounts, the amount of money going to charity is going to decrease.

I'm with KCinDC. If you're making 250K per year, and only spending $36,000 of that on rent, then you're doing pretty damn good as far as I'm concerned. Certainly better than I or anybody in my family has ever done.

In reality, rent would be considerably higher for a family of three. More like 4-5,000 if everyone gets a bedroom.

So that's my offer: simplification, paid for by progessivity. Deal?

I'll settle for, in the near term, not throwing additional complexity into the tax code. Your "deal" doesn't have anything to do with anything being proposed as tax law, I think, so it has no bearing on anything.

Not saying there's anything wrong with it, just that it's not anything close to a reality, yet. Personally, I'd take simplification and gladly pay some extra tax, and my tax return isn't all that complicated. But there are people who would object, because they'd wind up paying a lot more tax. These are the tax-sheltered and -loopholed, and they're going to oppose any such changes.

Also, I don't know what "Make tax rates progressive all the way up" means, exactly.

Also, it'd be nice to have a thread where we discuss the nuts and bolts of what removing the SS cap does for SS solvency. Not knowing exactly how payouts happen, I'd guess that outlays would have to go up as well, eventually, because as I understand it outlays are geared to contributions, and contributions are going to go up. The high income-earners are going to wind up pulling a lot more out of SS, unless you means-test distributions, or cap them, or something similar.

So I'd think that SS would wind up getting a bit more money to pay what I think of as non-retirement benefits, but that there wouldn't be a huge plus from removing the cap unless there was something else to the plan.

But that still makes my point. Whether people give less or give small amounts, the amount of money going to charity is going to decrease.

Um, no.

It affects the mechanism, it affects the vehicle. IT DOES NOT AFFECT THE AMOUNT.

Hey, you wanna go ahead and argue differently, go right on. But what do I know? I just work with the donors....

By the way, J. Michael: This isn't a "conservative idea" and it doesn't blow anything that I've said out of the water. It's basic economic theory.

Yes, von, it does wreck arguments you have made, both here and in the past. Apparently, however, I am going to have to keep waiting for you to stop and try to figure them out.

Gwangung, you wrote "Donors almost NEVER rely on tax laws as a reason to make a gift. They may use tax law in order to get the biggest gift possible, but that's just details." I can certainly understand why Von would think that referred to possibly reducing the amount, because it seems that the first sentence is about whether to give and the second about how much. Now that you've said that's not what it means, I have no idea what it does mean.

Gwangung, I'm having difficulty understanding your two comments. First, you write:

Not really. Not as much as you think.

I work in major gifts at a large non-profits. Donors almost NEVER rely on tax laws as a reason to make a gift. They may use tax law in order to get the biggest gift possible, but that's just details. THey've already decided to give a gift wayyyyy before it gets to consulting the tax code.

This suggests that tax consequences have an effect on the ultimate amount given (which, IIRC, is also in line with economic research showing that charitable giving is affected by tax treatment*). But you then write:

Um, no.

It affects the mechanism, it affects the vehicle. IT DOES NOT AFFECT THE AMOUNT.

Hey, you wanna go ahead and argue differently, go right on. But what do I know? I just work with the donors....

I'm having difficulty understanding this comment.

By the way, your individual experience may not be representative. In fact, if your charity could very well be affected by unique or unusual facts, which could skew your perspective.

*For instance, this book: http://www.amazon.com/Charitable-National-Economic-Research-Monograph/dp/0226110486 (Blurb: "While taxes are not the most important determinant of contributions, the results of the analyses presented here suggest that charitable deductions, as well as tax rates and other aspects of the tax system, are significant factors in determining the size and distribution of charitable giving. This work is a model for policy-oriented research efforts, but it also supplies a major (and very timely) addition to the evidence that must inform future proposals for tax reform.")

By the way, J. Michael: This isn't a "conservative idea" and it doesn't blow anything that I've said out of the water. It's basic economic theory.

Yes, von, it does wreck arguments you have made, both here and in the past. Apparently, however, I am going to have to keep waiting for you to stop and try to figure them out.

Wonderful, J. Michael. Let's leave the past aside for the moment and have you explain why elasticity in the labor market "wrecks" the arguments that I've made on this thread. Then, you won't have to "keep waiting for [me] to stop and try to figure them out": You will have spelled it out for me!

By the way, it would be helpful when you spell it out if you could take my actual words and then explain where and why my claim was in error.

The argument being made by conservatives is that Obama's tax proposals will provide such a strong disincentive to make more money that the most productive elements of society will take their bat and ball and go home.

I call bullshit.

totally.

and the whole argument suggests that there's something very very significant about the 39.6% rate - as if it has powers that the 36% rate just doesn't have. in other words: show me the legions of people who have decided to sit out working harder (or altogether) because they feel the current 36% rate should really be 31.4%. unless 39.6% really is more significant than 36%, we should be seeing interviews on every cable news channel about Joe The Lawyer who scaled back his client load because he just couldn't bring himself to pay that 36% rate.

By the way, it would be helpful when you spell it out if you could take my actual words and then explain where and why my claim was in error.

Let's start with the fact that what you claim is a basic economic law is something you said doesn't exist in your first post. You don't even seem to know what your claim is.

Note as well that payroll taxes bite the self-employed particularly hard .... including, as Eric probably knows, partners in law firms.

For clarity, this is because the self employed pay both halves of the payroll taxes for SS and medicare.

If this is your position, then what you are saying in response to me is non-sensical.

This suggests that tax consequences have an effect on the ultimate amount given

Not in the way you think.

Tax code has affects in deciding which vehicle, what timing and what mechanism is chosen to GET TO A SPECIFIC GIFT TOTAL. The classic example is gift of stock. Sell the stock and give the proceeds to the charity and you get hit by capital gains tax. If you gift the stock directly, capital gains doesn't apply.

By the way, your individual experience may not be representative.

But the experience of other development officers across the country IS...representative. The wider economy has a far greater impact on giving than tax rates or tax laws.

Von, I would also spend some time learning what price elasticity is before using it in a post. It refers to the change in demand for a good as the price for that good changes. The effects of having the employer pay half of the FICA tax have to do with information distribution, not elasticity.

Eric,

I tried to find where John McCain called a return to Clinton era tax rates 'socialism', but all I could find where McCain used the 'S' word was was his reference to Obama's plan to raise tax rates on incomes and coupling that with tax credits to be paid to those who do not earn enough to owe taxes themselves. Did he say what you tried to make us think or not?

Thanks for clarifying your point, J. Michael. Your first claim is:

Let's start with the fact that what you claim is a basic economic law is something you said doesn't exist in your first post. You don't even seem to know what your claim is.

By "basic economic law", I am assuming you're refering to my comment that the extent to which an employee (indirectly) shares in her employer's side of the payroll tax "depends enormously on a number of factors, including elasticity in the labor markets."

Here is my first post. Please identify where you believe that I claim that elasticity does not exist in labor markets. (If nothing else, this will improve my ability to be clear in my writing.)

My problem is not with this (rather modest) increase in the top tax bracket(s). Rather, it's the combination of:

1. An increase in the marginal rate for folks who make more than 250k;

2. The proposed reduction in the number/type/amount of deductions available to folks who make more than 250k; and

3. The proposed "donut" on payroll taxes, which results in the return of the payroll tax at 250k.

All three combined creates serious disincentives to generate a taxable salaries above 250k, and any assessment of Obama's tax plans depends on whether Obama intends to impose some or all of these 3 items. Note as well that payroll taxes bite the self-employed particularly hard .... including, as Eric probably knows, partners in law firms.

I might post further on this topic in the future. If Obama is proposing just #1, that's one thing; if Obama is starting with #1 and then decides to go for #2 and #3 as well, I have some serious concerns about whether Obama will create disincentives without a proportionate (or, even, any) increase in tax revenues.

Your second comment, J. Michael, is:

Von, I would also spend some time learning what price elasticity is before using it in a post. It refers to the change in demand for a good as the price for that good changes. The effects of having the employer pay half of the FICA tax have to do with information distribution, not elasticity.

I never referred to "price elasticity." I referred to elasticity. Forms of price elasticity are manifestations of elaticity, but they're not the only manifestations. (Your usage of "price elasticity" is a little nonstandard*; generally we talk about price elasticity of supply or price elasticity of demand.)

Wikipedia has a reasonable definition of elasticity. "In economics, elasticity is the ratio of the percent change in one variable to the percent change in another variable. It is a tool for measuring the responsiveness of a function to changes in parameters in a relative way. Commonly analyzed are elasticity of substitution, price and wealth. Elasticity is a popular tool among empiricists because it is independent of units and thus simplifies data analysis." (http://en.wikipedia.org/wiki/Elasticity_(economics))

When I talk about elasticity in labor markets, I'm talking about the relative impacts of a dollar change in wage on the supply of and demand for labor. This has an effect on who bears what proportion of a tax.

I am not quite sure what you mean by "information distribution". When I think of information distribution, I think of information asymmetries, knowledge problems, and signalling effects. I can imagine how these may have an impact on the issue under discussion, but I don't think they are what you intend. Did you mistype?

*Keep in mind that I haven't kept up in econ, so when I say a usage is "nonstandard" I mean it's nonstandard as of a decade-plus ago.

This might put McCain's socialism bashing in proper context.

I'd like to throw in my two cents on the debate over whether the amount of charitable contributions would decrease if they became less deductible. I'd like to support both sides.

I agree with Gwangung that most giving is done based on principal and not the desire to get a partial tax reduction. In my case, my giving will not change if my deductions decrease. I agree also that the vehicle for giving may change as a result of tax law changes but that shouldn't effect the amount.

On the other hand, I think some will contribute less. This is backed up by numbersthat were referred to in Russells 1:05a comment. In the BofA survey fully 45% (38% + 7%) said that their giving would decrease. No one said it would increase, although perhaps they were not asked that question. If 55% stay the same and 45% decrease then the aggregate effect is a decrease. At the very least It seems to make sense that decreased deductibility is not an incentive to give more. Also, increased federal spending on the poor is one of the reasons given for obama's tax changes. A giver might say to himself that the govt is giving my money now so why should I volunteer it anymore.

Not that my two cents is valued here...

J. Michael, I'm trying to puzzle through your various responses. The best I can understand is that you think there is a contradiction between my stating:

1. Self employed people directly pay both halves of the payroll taxes and thus payroll (employee and employer) tax increases bite them particularly hard.

2. Employees may end up indirectly paying part of their employers' half of the payroll tax under certain market conditions.

I don't know if you think this or why you would think this. Can you explain?

250k is not a lot of money for, say, NYC

Oh, really?

"Overall, the distribution of household income in New York City is characterized by tremendous disparities. This phenomenon is especially true of Manhattan, which in 2005 was home to the wealthiest U.S. census, tract with a household income of $188,697, as well as the poorest, where household income was $9,320.[36] The disparity is driven in part by wage growth in high income brackets. In 2006 the average weekly wage in Manhattan was $1,453, the highest among the largest counties in the United States.[15] Wages in Manhattan were the fastest growing among the nation's 10 largest counties.[15] Among young adults in New York who work full time, women now earn more money than men—in 2005 approximately $5,000 more.[37] Nationally, women's wages still lag behind men.

"New York City's borough of Manhattan is the richest county in the United States. In particular, ZIP code 10021 on Manhattan's Upper East Side, with over 100,000 inhabitants and a per capita income of over $90,000, has one of the largest concentrations of extreme wealth in the United States. The so-called outer boroughs, especially Queens and Staten Island, have large middle class populations.

"New York City's per capita income in 2000 was $22,402; men and women had a median income of $37,435 and $32,949 respectively. 21.2% of the population and 18.5% of families had incomes below the federal poverty line; 30.0% of this group were under the age of 18 and 17.8% were 65 and older."

http://en.wikipedia.org/wiki/Demographics_of_New_York_City

Sounds to me like $250,000 is still an awful lot of money, even in NYC.

1. Self employed people directly pay both halves of the payroll taxes and thus payroll (employee and employer) tax increases bite them particularly hard.

2. Employees may end up indirectly paying part of their employers' half of the payroll tax under certain market conditions.

I don't know if you think this or why you would think this. Can you explain?

Von, if the employee pays both halves of the tax, then they are not, in any way, shape, or form, hit doubly hard by it. If they pay both halves regardless, then the self-employed are hit exactly as hard as those who are employed by others.

As soon as you argue that the self-employed are hit harder by the tax, then the rest of your argument disappears. You can't have it both ways.

Please identify where you believe that I claim that elasticity does not exist in labor markets.

I never said that I believe this. In fact, I argue that you don't really understand what elasticity of a market means, and that the arguments you are making have nothing to do with elasticity one way or the other.

By "basic economic law", I am assuming you're refering to my comment that the extent to which an employee (indirectly) shares in her employer's side of the payroll tax "depends enormously on a number of factors, including elasticity in the labor markets."

This isn't elasticity. It's information distribution. The extent to which an employee shares in paying the employer's portion of the tax depends upon the extent to which the employee believes that he is paying that portion, and thus the extent to which he considers it when making wage demands.

The elasticity of demand for labor is about the increase in demand as the price decreases. The elasticity of supply is about the increase in supply as wage received increases. The only way that who pays the share of the tax affects elasticity stems from the extent to which the perceived cost for the employer deviates from the perceived benefit for the employee. The cause/effect is the opposite of what you are stating.

When I talk about elasticity in labor markets, I'm talking about the relative impacts of a dollar change in wage on the supply of and demand for labor. This has an effect on who bears what proportion of a tax.

If this is what you mean, then you are incorrect when you state that you aren't referring to price elasticity. Apparently, price elasticity is exactly what you are referring to: the price of labor.

I am not quite sure what you mean by "information distribution". When I think of information distribution, I think of information asymmetries, knowledge problems, and signalling effects. I can imagine how these may have an impact on the issue under discussion, but I don't think they are what you intend. Did you mistype?

Those are exactly what I mean. To the extent that employees don't consider the employer portion of the FICA tax when they think of their wages, you have an information asymmetry. Price signaling is damaged, because there is a cost paid by employers that is not considered a benefit by employees. One consequence of this asymmetry is that reducing the employer's share by $1 will not lead to a $1 increase in wages.

In this sense, your original claim is correct: the FICA tax is felt more by the self-employed. This isn't where you go wrong. Where you go wrong is in not realizing the implications of this fact on your theories of the labor market.

Rea, the cliche response is that NYC -- Manhattan in particular -- is only livable for the very rich and the very poor. The former can afford housing and the expenses that go with city life; the latter get subsidies or other benefits that allow them to exist (and little else). Middle class folks lack the means to compete (primarily for housing) with the very rich and lack the desire to live with the very poor -- and thus are selected out of the NYC market. (Self-selected in part, for sure, but selected nonetheless.)

JMN, you seem to have missed the phrase "part of" in Von's point 2.

Dave, there's a difference between decreasing your charitable giving and telling a pollster that you're going to decrease your charitable giving, especially if at the time you're answering you understand how the survey results might be used.


and the whole argument suggests that there's something very very significant about the 39.6% rate - as if it has powers that the 36% rate just doesn't have. in other words: show me the legions of people who have decided to sit out working harder (or altogether) because they feel the current 36% rate should really be 31.4%. unless 39.6% really is more significant than 36%, we should be seeing interviews on every cable news channel about Joe The Lawyer who scaled back his client load because he just couldn't bring himself to pay that 36% rate.

Thank you cleek, I was thinking the same thing.

Arguments about the macro-economic effects of the tax rate based on a mix of personal anecdotes and ahistorical sociology are, well let's say "not very convincing" to put it politely. Look at the historical data. The top marginal rate has varied over almost the entire range of possible values in the last 85 years - if it had much of an effect on the economy we should have seen large swings in output correlated with those moves.

Take that plot of the top marginal rates over time and superimpose it on a chart of GDP and productivity growth over the same period. Where's the correlation? Even throwing in a possible time lag I don’t see it. It sure looks to me like our economy is highly insensitive to changes in the top marginal rate, which has a second order effect on productivity at best and I'm not even convinced of that.

So where does that leave us? We're left with really only two macro-economic issues (i.e. side-barring the charitable contributions discussion) relevant to picking the top marginal rate: how steeply progressive should the tax rate be as a matter of fairness, and how much public sector spending do we want to engage in while balancing the budget (and paying down debt) during non-recessionary periods, which in turn dictates how much revenue we need to raise to pay for it.

Arguments about top marginal tax rates are really arguments about levels of govt. spending in disguise, IMHO.

Rea, the cliche response is that NYC -- Manhattan in particular -- is only livable for the very rich and the very poor.

And the response to that response is that even in zip code 10021, the wealthiest in the country, $250,000 is 2 1/2 times the per capita income.

Why don't all those wealthy people move out to Long Island and commute, if they don't like the housing prices in Manhattan? Housing is a necessity, but an apartment in Manhattan is a luxury good.

J. Michael, I understand that you agree with my conclusion, but you disagree with the manner that I get there.

As for how I get there: you're also wrong to treat this as solely a knowledge problem. (I still don't know what you mean by information distribution. It's not a standard term.)

As I mentioned, asymmetries in knoweldge can have an impact on this issue, but basic supply and demand are going to have a much more significant effect in virtually every case. You write: "The extent to which an employee shares in paying the employer's portion of the tax depends upon the extent to which the employee believes that he is paying that portion, and thus the extent to which he considers it when making wage demands." This is going to have a determinative effect in certain labor markets -- professional sports springs to mind -- but not many. In most circumstances, who bears the employers' portion of a payroll tax will primarily depend on the relative substitutability of one worker for another, or capital for workers, which will be ultimately expressed in the elasticities of labor supply and demand. You can argue for whatever wage you want based on whatever knowledge you have, but that doesn't mean that you'll get it. (I continue to recoil at your usage of price elasticity, here. It's really not price elasticity, but even if it were, you really need to specify "of demand" or "of supply.")

Full disclosure: My econ degree is old. Although I have absorbed a fair amount of econ since then through my father (head of the economics department at a public university) and brother (in MIT's PhD program for econ), I am perfectly capably of making errors in both usage and theory -- as my father and brother would be happy to tell you. But you're making arguments that use nonstandard terminology and which are focused on a (what used to be) a very trendy idea in labor economics regarding wage theory -- although an incomplete idea in the present discussion. Is there some book or treatise that you're primarily relying upon for your arguments?

Some admin might want to look into blocking this bot "Kevin" who's spamming a lot of old threads.

I've spam-reported him a number of times.

Now he's been banned in a more effective way, hopefully.

Thank you to ThatLeftTurninABQ. I repeatedly state and emphasize that my opposition to tax increases is motivated by my opposition to increased government spending and my opposition to increased government spending is motivated by my opposition to increased government POWER. I am always accused of not wanting to pay my taxes or not wanting to pay my fair share or coddling the rich or whatever other negative label can be found.

I'm a fiscal conservative and opposition to tax increases is the only effective way to play that role. You hit the nail on the head and I hope it can stick in the minds of at least some of these progressives so that the arguments regarding motivation can be accurate.

Von, I don't even disagree with the manner in which you get to your conclusion. I will say, again, that I don't think that you've stopped to think through the implications of either your conclusion or your methods. If the self-employed bear a greater burden of the FICA tax, then the labor market doesn't function in the way you elsewhere assume. In fact, it breaks down rather severely relative to the theories you are using.

It means that either, or both, of employers or employees are not rational actors in the way that classical economics needs them be to function. It means that people do not understand, or do not take into consideration, real prices. This is exacerbated, because if people don't perceive these costs rationally, it calls into question whether they rationally perceive all sorts of costs. They overvalue the amount of money that they deposit into their checking accounts relative to the money that they don't deposit. It damages your arguments about the relative utility of perks versus wages. It damages your arguments with regards to the effects of changes in tax rates on behavior. How can the Laffer Curve hold if people do not correctly perceive what their tax rates are? If people do not perceive these costs rationally, they won't behave in the way that an assumption of rationality predicts.

von and J.Michael,

I believe the term you are looking for is tax incidence.

"In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. For example, a tax on apple farmers might actually be paid by owners of agricultural land or consumers of apples.

The theory of tax incidence has a number of practical results. For example, United States Social Security payroll taxes are paid half by the employee and half by the employer. However, economists think that the worker is bearing almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence falls on the employee.
...
Assessing tax incidence is a major subfield within Economics of the field of Public Finance.

Most public finance economists acknowledge that nominal tax incidence (i.e. who cuts the check to pay a tax) is not necessarily identical to actual economic burden of the tax, but disagree greatly among themselves on the extent to which market forces disturb the nominal tax incidence of various types of taxes in various circumstances.

The effects of certain kinds of taxes, for example, the property tax, including their economic incidence, efficiency properties and distributional implications, have been the subject of a long and contentious debate among economists.[3]

The empirical evidence tends support different economic models under different circumstances. For example, empirical evidence on property tax incidents tends to support one economic model, known as the "benefit tax" view in suburban areas, while tending to support another economic model, known as the "capital tax" view in urban and rural areas.[4]

There is an inherent conflict in any model between considering many factors, which complicates the model and makes it hard to apply, and using a simple model, which may limit the circumstances in which its predictions are empirically useful."

Sorry, I probably should have edited that to be a bit shorter.

Andrew -

Thanks. I wasn't familiar with the phrase "tax incidence" -- as noted, I've always discussed these issues as matters of elasticity -- but, since "tax incidence," as defined, is a measure of elasticity, I don't have a problem with it in a general sense.

I have some minor quibbles with the discussion of tax incidence at Answers.com, which appears to have been taken directly from Wikipedia. The more significant quibble is that the following claim does not appear to be supported:

"For example, United States Social Security payroll taxes are paid half by the employee and half by the employer. However, economists think that the worker is bearing almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence falls on the employee."

If you follow the (allegedly) supporting link, you'll see that the paper discusses who bears the burden of corporate income taxes. That's not the same thing as States Social Security payroll taxes. I also continue to recoil at using the term "price elasticity [of demand or supply]" in the context of labor markets. It's not how the concept was taught to me.

von,

I like answers.com because they often provide multiple sources in addition to Wikipedia, like Britannica Online, Investopedia, and others. I quoted it because it was a simple source to look up. I believe you will find that incidence of taxation is a fairly common phrase in economic discussions these days, and is truly a large field of academic study, regardless of the poor sourcing in this Wiki article.

I repeatedly state and emphasize that my opposition to tax increases is motivated by my opposition to increased government spending and my opposition to increased government spending is motivated by my opposition to increased government POWER.

An honorable position, GOB. You prefer a government that spends 10% of GDP to a government that spends 20% of GDP, on the grounds of limiting "government POWER". Fine, no problem.

But here's the thing: that has NOTHING to do with the progressivity of the tax structure. Whether we collect 10% or 20% of GDP in taxes, we still have to apportion the burden across individuals somehow. We could limit government to 10% of GDP and still have a top marginal rate of 95% -- we'd just have to cut taxes for people in the lower brackets.

So if you object to raising the top marginal rate in our current bracket structure, or if you object to adding more brackets with higher rates at the top, you might still be engaged in special pleading for the rich, rather than arguing in good faith for a smaller government budget.

--TP

if your economic assumptions classify shared sacrifice as unacceptable and pulling together for the good of the country as unthinkable, then you will simply keep going into debt, and your seriously risk compromising the promise of your country.

Thank you John Spragge.

Here's the lay of the land as I see it.

The financial sector, unrestrained by effective regulation, gambled long and lost.

The public sector is going to backstop their gamble. They're going to do so because if they don't, the wheels are going to come off, and in a very big way.

So we're going to pay, and pay, and pay. And the economy is going to suck for a few years. If we work really, really hard and are very lucky, it might not suck quite so hard a little further down the road.

This is no game.

With respect, talking about whether Obama's proposed tax changes are going to effect the amount of charitable contributions is well into 'angels dancing on the head of a pin' territory. Marginal differences in the amount of charitable contributions, significant though they may be, are far, far, far down the list of truly critical issues for us at the moment.

I appreciate Good Old Boy's principled objection to expansion of government, and in many ways am sympathetic to it. But government kind of looks like the last man standing at the moment. The private financial sector is belly up.

We're on the brink of economic disaster. To avoid it, we are going to pay, and pay, and then we are going to pay some more. If that pisses you off, I can assure you that you have a lot of company. But whether it pisses you off or not, we are going to pay.

If your biggest problem is that your personal form of payment is something like an additional 10% in taxes on your income above $250K, your proper response is to fall to your knees and thank god, fortune, or blind fate for your very, very good luck.

Everybody is going to pay. Some folks are going to lose their homes, some folks are going to be working five or ten years longer than they expected to. Some folks' kids aren't going to college. Some folks are going to lose everything they have.

I know, personally, folks who are likely to lose everything they have.

Folks who respond to being asked to pony up an extra 10% or so on their income above a quarter million by threatening to take their ball and bat and go home should do us all a great big favor and get the f*ck out, now, by which I mean, like, tonight. Run the numbers, make whatever calls you have to make, and get the hell out. Please.

Cash in your chips and spend the rest of your days fishing, playing golf, or whatever the hell floats your boat. Just get the hell out and stay out, because you're going to get in the way. Get out, stay out, and don't let the door hit you in the @ss on the way out.

There's no room for that kind of attitude.

And don't worry, someone else will pick up the slack. There is not a man, woman, or child in the world who is that indispensable.

We are all going to pay, and pay, and then pay some more. Gird up your loins, because that's the way that it by god is going to be.

Read'em and weep.

If all it's going to cost you is money, consider yourself damned lucky.

Thanks

GoodOleBoy: I don't think so (Big surprise, right? ;) - the theory there seems to be that if you reduce their money, governments will have to cut back expenses to match. However several Administrations now have shown little sign of reducing programs, and no sign at all of reducing spending. You may have to oppose the programs and their costs indivudally, but that brings us to:

"I'm a fiscal conservative and opposition to tax increases is the only effective way to play that role."

Why is that the only effective way? I think it's because opposing the actual programs *does not work*, because most Americans disagree with you. They love their government programs, and are quite happy with how much they cost. (It's everyone else's moneygrubbing that should be cut back. Or else some amorphous 'waste' somewhere).

Also - wouldn't it be a fiscally conservative position to favour raising taxes sufficient to pay off the debt in a reasonable manner? Your answer doesn't seem responsive to TLTiABQ.

I will cop to what you say about attributing motivation though. Sorry.

Shane, your points are sound. I am also personally opposed to the use of addictive and hallucinogenic drugs and I'm not getting good results there either since the demand seems to continue to increase. I think it is simply a question of numbers and as of now the spenders have them. So, just as I won't join the drug addicts, neither will I join those addicted to spending other peoples money.

von:
Everyone speeds, so the answer is to put a cop on every corner .... except that no one in their right mind wants to pay for a police force that large. The costs exceeds the benefits. That's true of any enforcement mechanism, whether taxes, drug laws, etc.

But we don't completely give up on enforcing speed laws, either, now do we? And in the case of your tax argument, it's undermined by the very fact you decry: if your assumptions are correct, then because the hikes are tied to a particular income point, we can assume that the bulk of the fraud will take place at or around that income point, and thus can concentrate our enforcement efforts there. Sounds pretty efficient to me. :)

By the by, I don't suppose you have any evidence to suggest that all the doom-and-gloom you're insisting will happen if Obama raises taxes now -- increased tax fraud, a "drag" on the economy, etc. -- actually happened in 1993 when Clinton put in an even larger tax hike, do you? I'm going to go ahead and guess "no." Maybe there was more "elasticity" back then...

If increased tax rate offers an incentive to cheat, increase tax-code complexity ought to also, hmmm? Or, if not cheat outright, offer a variety of strategies to avoid taxation that may not have been the intended effect. Basically the tax code is extending a thicket of different incentives to change one's behavior.

I think this is one of the many good reasons for simplifying the tax code: doing so also would tend to, I say, reduce the number of unintended tax-avoidance behaviors. It would also have the side benefit of simplifying the audit process: if tax returns get simplified, they also become easier to check and verify.

I think this is one of the many good reasons for simplifying the tax code

I agree with slarti here.

If figuring out your tax liability is anything more than dead simple -- if you work for yourself, have any capital gains or losses, or even just itemize your deductions -- it's quite possible for four different people to come up with eight different results for the same set of inputs. They will all be 'right', in the sense of being defensible, and none of them will be 'right' in the sense of being clearly more accurate than the others.

That is insane.

Andrew -

I'm not faulting your post -- not in the least. I'm grateful that you were able to put a more precise name on the elasticity issues that I was referencing. I was just noting that there seemed to be some evident problems with Wikipedia's entry, but they don't affect the validity of your comment at all.

Sorry if it came across any other way. I'm very happy you found that information.

Thanks.

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Whatnot


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