by Eric Martin
Matt Yglesias does a good job beating back a recent example of the now familiar marginal tax rate mendacity (the disingenuous argument that a family earning slightly more than $250,000 is facing a sharp tax increase if and when Obama raises the marginal rates on dollars earned above $250,000 and begins phasing out deductions). In the process, Matt brings up an argument that I'm surprised doesn't get more play:
That said, I wouldn’t have a problem with launching a new, slightly higher rate, starting at $500,000 and a higher one starting at $1 million and another at $2 million another at $4 million another at $8 million and another at $16 million. I don’t see any reason to think that the progressivity of the scale should max out at $250,000 when obviously there’s a huge difference between someone earning that much money and someone earning ten times that amount.
Absolutely. Especially with respect to phasing out deductions and other breaks: it would make a lot more sense to start that at a higher bracket. But as of now, there is only one higher bracket ($372,950 and above for 2009).
On a side note, the chart below shows a comparison of recent marginal rates for various brackets. Clearly, the socialist Barack Obama plans on soaking the rich as never before. I mean, you'd have to go all the way back to the Clinton administration to find marginal rates on the upper brackets that high! I know this point has been made before, but then, we just had a series of demonstrations across the nation sparked, in large part, by the perception that Obama is hiking taxes to unbearable levels.
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I think this is a point most of us can agree on, actually.
Would that that were so.
'Give' is not quite what happens in startups, though. The people who get equity usually receive it in exchange for lower pay than they could command without it and more work hours than they would commit without the hope that their piece of equity will payoff exceptionally.
Fine. Make that available more broadly, and folks can make their choice about what kind of arrangement they want to work under.
Check out the employee owned corporation link I posted upthread and see how many of those companies are tech startups.
If the government is going to give employees equity in companies, it's going to have to take that equity from the people who have it now.
I don't see anybody here talking about the government giving equity to anybody. I'd rather not have the government involved at all.
The only role for government I see here is not skewing public policy in favor of capital investors, who quite often don't even know what freaking companies they own shares in.
Posted by: russell | April 19, 2009 at 09:23 PM
The last paragraph of the post suggests that the tea parties are a reaction to the marginal tax rate increase topic. The publicity I have seen makes me think they are directed more at the potential future taxes that will be required to cover the record outlays being budgeted for the next few years and being labeled as necessary to pull us out of the hole we are in because of the credit market collapse. These protesters are angry at the politicians and their financial sector buddies who have taken over the Treasury Department and the Federal Reserve and seem determined to make sure they rise back to the top in the end, taxpayers be damned.
Posted by: GoodOleBoy | April 20, 2009 at 09:02 AM
These protesters are angry at the politicians and their financial sector buddies who have taken over the Treasury Department and the Federal Reserve and seem determined to make sure they rise back to the top in the end, taxpayers be damned.
Then why weren't they protesting when Bush was President, if they were so angry about the politicians being best buddies with the financial sector?
The first massive bailout was carried out under George W. Bush, and any teabaggers around then had their mouths wide open and were saying in a muffled kind of voice "Drop them here, George!"
*shrug* These protesters are angry with Obama. They don't appear to be very rational about it. One might think they are mad at Obama for presidenting while black, or presidenting while Democratic. But any claim that they're mad at the administration because of the bailouts won't stand unless they can show they were just as mad when Bush did it.
Somehow, I doubt it. (A blog title I saw within a fortnight of Obama taking office to the effect that Obama was getting "too big for his britches": somehow I doubt that blogger would ever have thought that a white President could be "too big for his britches".)
Posted by: Jesurgislac | April 20, 2009 at 10:15 AM
Cite, please. This is just bare assertion.
This may be unrelated, but the cost of elementary, middle and high school education in my part of the country is something like $10k a student. The cost of that education is paid for out of local property taxes, for the most part. THat part of a (future) employee's education is paid for by the local population, some of which are the parents of the students,some are not parents, and some of which are busiess owners. Education through high school is already bought and paid for, by the local government.
College education? Feel free to dig up some stats on who pays their own education. I'll grant you that the government bears some interest cost of a great many student loans, one of which was mine. They can bill me for the extra assistance, if they want, r they can call it even. After all, with a college education I am right now in the top quintile (freshly, admittedly) and paying a fair amount more taxes than I otherwise would.
End of scattered, slightly-related thoughts.
I phrased that poorly, I admit. What I indented to convey was that the employee is bearing the cost of education, and that the employee is then going to, market permitting, pass that expense on to the employer in the form of higher wages paid.
No, there's no formula for cos recovery. It varies, and not all degrees and careers permit a decent rate of cost recovery.
Posted by: Slartibartfast | April 20, 2009 at 10:27 AM
Blink. How old are you, cleek? I get the impression you've never shopped for a house or have kids given that you say things like this as if they are relevant. Property taxes go to fund local schools. Paula Poor will be going to a different school than Richie Rich, generally speaking, because wealthy neighborhoods have their own schools while poorer neighborhoods have theirs. In fact, that's one of the major factors that determines the price of a house.
So no, 'rich' people paying property taxes aren't doing much for any school but the one their children go to.
Uh-huh. To echo your tone - mmmm k. Just where did you see anyone saying that this was not the case?
And finally, speaking of the rich supporting all of us worthless parasites, I ask again: what do I get for my federal taxes? What do the rich fund out of their federal taxes that benefits me in particular?
This shouldn't be a hard question.
Posted by: ScentOfViolets | April 20, 2009 at 10:30 AM
...and at that school, is more spent per student, in general, or less, or the same?
In my somewhat limited experience with these matters, the thing that really matters, quality-of-education-wise, is having parents that care. My youngest is in a school where there is a LOT of variation in income and ethnicity, but the thing that makes it a great school (besides the principal, who is just the best) is that in general, the parents have instilled tne notions of responsibility and respect for teachers in their children.
You can't have good schools unless the parents are on board, IMO. The schools are not going to be able to do your children for you.
Posted by: Slartibartfast | April 20, 2009 at 11:16 AM
Blink. How old are you, cleek? I get the impression you've never shopped for a house or have kids given that you say things like this as if they are relevant.
assume away! run with it.
So no, 'rich' people paying property taxes aren't doing much for any school but the one their children go to.
in NC, 65% of school funding is provided by the state based on enrollment. local districts fund the rest. so yes, richer neighborhoods get better schools because they can easily make up the shortfall and then some, from county taxes. but again, that 65% comes from the state - which includes everyone, rich and poor. everybody pays something for those tiny schools districts out on the Outer Banks. and, obviously, the rich pay more of that. other states equalize the funding even more.
but, kids in my county (the largest school district in NC) are bused all over the district, in order to increase socioeconomic and academic diversity. it doesn't much matter where you live or what you pay in property taxes because your kids could very well end up going to school on the other side of town, in the next town over, or two towns over, according to whatever the district's computers come up with. many parents hate this, of course.
speaking of the rich supporting all of us worthless parasites
beat that strawman. beat it good.
what do I get for my federal taxes? What do the rich fund out of their federal taxes that benefits me in particular?
specifically ? how could i possibly answer that? i don't know anything about you.
i can tell you that, when i was young, me and the rest of my family received meals for many years thanks to the taxes of people who will likely never have to take advantage of things like WIC or Food Stamps. now i make more money than my mother could've ever imagined making, and i happily pay the taxes because i know that there's an 8 year old out there today whose family needs all the help it can get, and maybe someday he'll grow up and make something of himself. so, thank you, wealthy people of the mid 70's for feeding my family.
what do i get today from taxes? i get the same things everybody else (who isn't on govt assistance) gets.
Posted by: cleek | April 20, 2009 at 11:44 AM
Who pays for schools?
I don't know the details of where all the money goes. But here is what I pay. I am working on a project now which is still in the approval phase. I expect to be required to pay fees to the City of about $13 million in order to be allowed to build. About $1.5 million the total $13 million goes to the local school district. (In addition to paying the fees, I also pay the cost of building the roads, sewers, parks, etc., but that's beside the point.) When the project is complete, it will generate annual property taxes of about $1 million. I intend to keep the project forever as a rental. My income from the project may be about $1.5 million annually.
Where does that leave me? Assuming a 7% interest rate, the effective cost to me and value to the City of the $13 million initial payment is about $900,000 annually forever. Then I will pay another $1 million in property taxes before I get to take $1.5 million home. Then I will pay state, federal, and SS taxes on my income which will cost at least 40% of the $1.5 million. In the end I will get to keep about $900k ($1.5m * 60%) annually.
Total taxes: $900k + $1,000k + $600k = $2,500k
Money left over after taxes: $900k
Effective tax rate: 73% (2500 / (2500+900))
A number of people earlier in this thread advocated raising the marginal rate every $250k beyond the current $370ish top bracket because the rich don't pay their fair share. Whatever.
Good for me. I'm happy. I've got enough to live on. I don't expect any sympathy. I'm not asking for any sympathy. I'm just trying to point out that the rich do indeed pay a very substantial share of everything.
Posted by: d'd'd'dave | April 20, 2009 at 12:00 PM
" Paula Poor will be going to a different school than Richie Rich, generally speaking, because wealthy neighborhoods have their own schools while poorer neighborhoods have theirs. In fact, that's one of the major factors that determines the price of a house.
So no, 'rich' people paying property taxes aren't doing much for any school but the one their children go to."
My city has unified schools. What I mean is, there is only one school for each grade up through high school. All children in the city go to the same school. (There are some private schools too)
Posted by: d'd'd'dave | April 20, 2009 at 12:05 PM
I intend to keep the project forever as a rental.
I'm glad you mentioned this part, since you left out the fact that you will own what must be a very valuable piece of property, if you're paying $1M in property taxes and bringing in $1.5M in annual income from it. Maybe that should come into the equation for what you're paying as an effective tax rate. I don't know what your initial investment aside from the $13M was or how long it will take to recoupe it, or what you will be able to sell this property for in the future for potential long-term capital gains.
And you say this property will "generate" $1M in property taxes - payed by you? If you have to pay these before taking $1.5M home, aren't the property taxes something your renters are paying that reduces your net? If you're paying 40% on your $1.5M net, isn't your tax rate, um, 40%, rather than 73%?
Posted by: hairshirthedonist | April 20, 2009 at 12:34 PM
And, btw, "recoupe" means buying a second sports car.
Posted by: hairshirthedonist | April 20, 2009 at 02:12 PM
"If you're paying 40% on your $1.5M net, isn't your tax rate, um, 40%, rather than 73%?"
Someone(s) up thread argued that one has to consider all taxes and not just federal income taxes to evaluate properly. That line of argument usually goes hand in hand with the assertion that overall taxes are actually regressive.
"aren't the property taxes something your renters are paying that reduces your net?"
No, the tenants don't pay property taxes. I do. I write the check. If I don't, the lien will be placed on my property. I still have to pay the taxes if I have no tenants.
" I don't know what your initial investment aside from the $13M was or how long it will take to recoupe it, or what you will be able to sell this property for in the future for potential long-term capital gains."
These are not relevant.
Posted by: d'd'd'dave | April 20, 2009 at 05:10 PM
Someone(s) up thread argued that one has to consider all taxes and not just federal income taxes to evaluate properly.
Effective federal tax rate is normally considered to be income tax + payroll tax (FICA) + corporate income tax levied on investments + excise taxes.
By "normally", I mean, frex, by the CBO.
Some folks might expand that beyond federal to include state and local income taxes.
Lost interest income on building fees paid would, I think, normally be considered to be the cost of doing business.
Property taxes are property taxes.
For the purpose of considering the topic of this thread -- marginal income tax rates -- your rate is 40%.
And I gotta say, including the property taxes on your downside without including the value of the property on the upside is a creative bit of accounting magic.
Posted by: russell | April 20, 2009 at 06:29 PM
Given your behaviour thus far, this is the most benign assumption I can come up with. It's not necessarily the most likely.
In fact, this isn't true:
And if you consider taxes other than property taxes, it gets worse. New York, you say:
Note that the average income for the bottom twenty percent is $8,700, and state taxes bite them for an overall rate of 12.6%; note also that the average income of the top one percent is $1,663,000. But their overall rate for state taxes is just 6.5%, about half the rate. Note also that 'the rich' just aren't contributing that much either as a percentage or in total.
But I'm sure you have stats that say otherwise, right?
Riiiiiight. Mmmmmmm'kay. And other bach-at-ya's. It strikes me that you have something of an attitude problem. Not to mention being factually incorrect.
And yet more rudeness. I've already said that you can assume for purposes of discussion that my household income is $50K/yr. But ducking the question by being rude is a very poor substitute for actually answering it.
And it's already been pointed out that AFDC and the like either (a) form a miniscule part of the budget, or (b) if this was through some program like Social Security or Medicaid, this was paid for by payroll taxes, and not those progressive federal taxes.
Posted by: ScentOfViolets | April 20, 2009 at 07:21 PM
Russell
You said this up thread: "Taxation is the way government raises revenue. If income tax bugs you, we can do something else. Some countries use a VAT, long ago we used to run the country on tariffs and luxury taxes.
Any form of taxation you can come up with is going to hit some folks harder than others. Period.
If it's going to hit some folks harder than others, pick on the wealthier folks, because they can afford it. Unfair? Probably so. If you can think of a better idea, that is, net/net, less unfair overall, I'm all ears.
Fee for service, however, is the most unfair approach I can think of, because poorer folks will get nothing."
You were willing to talk about VAT, tariffs, luxury taxes, income taxes, fees for service, and "any form of taxation you can come up with". Now at 4/20/09 6:29p all you want to talk about is income taxes. Property taxes don't count.
You say "For the purpose of considering the topic of this thread -- marginal income tax rates -- your rate is 40%."
Why are you narrowing the focus of this thread now? Between SOV's comment yesterday at 12:51p and cleek's today at 11:44a there were a number of comments about who bears the cost of public education. That was my reason for talking about property taxes.
If one is too look comprehensively at how the burden of supporting all levels of government is carried then one must certainly include property taxes.
And if one is to compare annual tax burden to annual income, one must aggregate all taxes paid and compare them to taxes plus after tax income.
You say, "Lost interest income on building fees paid would, I think, normally be considered to be the cost of doing business."
Sure. All taxes are a cost of living. But that doesn't mean they shouldn't be counted. Rather than count the full $13m against one year's income, the interest factor was used to reflect what would be an annual cost if they were paid annually instead of in a single lump. How is that a problem?
You said, "And I gotta say, including the property taxes on your downside without including the value of the property on the upside is a creative bit of accounting magic."
I'm not sure what you're getting at here. Are you talking about some kind of deferred gain that I'm not taking into consideration? Because when I sell the property, if there is a gain, a tax will be paid on it. But you're assuming there is a gain - which in this market is not a certainty. I'll be lucky if it is worth what I pay for it when it is finished.
Posted by: d'd'd'dave | April 20, 2009 at 07:32 PM
4dave claims to be building roads, schools, etc. on a project that is estimated to generate $1m in property taxes annually.
Only someone who is developing raw land needs to pay those infrastructure costs. Raw land development, obviously, has the highest infrastructure costs as government services (roads, police, fire, trash, water, sewer, schools, parks, electricity, natural gas, cable and probably a few more I'm missing) need to be extended to land that previously has never received these services.
There are a lot of complex mechanisms for funding these costs. Most developers have the local land use agency levy bond debt on the property to finance the physical improvements, like water and sewer lines and increased capacity at the treatment plants. Some fees, like school fees, are set by state statute, not by the local agency. Certain kinds of fees can be paid in cash or in kind, ie, land.
If 4dave is keeping the property as a rental, it is likely either a commercial/industrial site, high-density apartments or a mobile home park. Everything else, people want to own.
Now, if Dave is paying all the fees out-of-pocket, that should mean that the land isn't carrying any bond debt. Which in turn means that it should be subject to the 1% of valuation rule. Which means that the land is worth $100 million. Generating $1.5 million per year on that valuation means he's a terrible businessman, or I have the numbers all screwed up.
But something here doesn't make a lot of sense, even in today's market.
Posted by: (The Original) Francis | April 20, 2009 at 07:55 PM
T.O. Francis
-Redevelopment of in-fill site.
-Already has many services to site but # of units is increasing dramatically. Fees are charged per unit or per square foot not based on whether it was raw or not.
-Increasing density dramatically means roads and intersections offsite must be improved - I get to for pay it.
-School fees, whether set by state or city, still need to be paid.
-your numbers are accurate but the value is land plus finished improvements.
-I can request that the local agency levy bond debt but as far as I know I can't force them to do it. So far, they don't want to do it. In any case, I only counted it as $900k per year which is what it would be if bonds were levied.
-Your numbers are accurate: $100 million when finished. With leverage, operating expenses, and such the debt coverage ratio yields about $1.5m net cash flow. That's not so odd. I don't pay the whole $100m out of pocket. Figure a reasonable cash-on-cash return on equity and the light might go on.
Posted by: d'd'd'dave | April 20, 2009 at 08:20 PM
Between SOV's comment yesterday at 12:51p and cleek's today at 11:44a there were a number of comments about who bears the cost of public education. That was my reason for talking about property taxes.
Fair enough.
I'm not sure what you're getting at here.
What I was talking about is the fact that you include the forgone interest income on the $13M as part of your downside, but you fail to include the fact that you end up owning valuable property on your upside.
You're getting something for that $13M that you did not include in your math.
To your basic point: yes, wealthy people pay a larger share of the taxes than poor people do. One very big reason for that is they have more -- lots more -- of the things that is taxed, including income and property.
Is the proportion of their tax liability commensurate with the proportion of the overall income and wealth that they own?
No, it is larger. The federal tax regime, all factors considered, nets out to be moderately progressive.
This strikes some people as blatantly unfair, some as perfectly fine, and some as going not nearly far enough.
I'm in the "perfectly fine" camp. For the record, and not that it's anyone's business, but my wife and I have a large enough household income that it costs me money to say that. Not as much as you, but more than many.
The reason I'm in the "perfectly fine" category is that I assume, for reasons that are probably not worth unpacking in this venue, that people who share a political and social community are obliged to each other, and it is incumbent on them to make sure that everyone in their community has enough of what they need to get by.
Other folks draw that circle quite a bit tighter, perhaps as tightly as a population of one, but that's my point of view.
I will confess that it annoys me somewhat to listen to wealthy people bitch about how their hard-earned money is going into someone else's pocket. This isn't directed at you, specifically, it's just a general comment.
Many, if not most, people's version of "hard-earned" would make many wealthy people crap their pants. Conversely, many poor folks would consider many wealthy folks' bad day at the office a day at the beach.
I'm not saying good, bad, or indifferent, I'm just pointing out the facts.
From your comments here, it appears that you have built, over a lifetime of effort and a non-trivial amount of personal risk-taking, a tidy personal fortune.
I sincerely applaud you, because that's actually not that easy to do. Not everyone could do it.
I also have the general sense that you are, personally, a generous person, and your comments here reflect more a desire to make a point, and less a desire to deny anyone what they need in life.
All of that said, it's my personal opinion that there are no truly self-made people, all fortunes are built on the effort of many, and if you have the good luck to be, personally, wealthy, the most reasonable thing you can do is get down on your knees every day and thank god for your incredible good luck.
To begin with, you could easily -- easily -- have been born in circumstances that would have made the situation you find yourself in utterly beyond your reach.
To be quite specific, when wealthy people complain -- not just complain, but shriek, as if their toenails were being removed with tweezers -- about a rise in the top marginal tax rate from 36% to about 40%, it makes me want to grab them by the collar, with both hands, and ask them WTF they are thinking.
Four percent on their income over, what, $250K? Or is it $370K? And one or two points for FICA?
You're rich, for christ's sake. You're going to complain about that sh*t?
I understand you're making a point. So am I.
Thanks -
Posted by: russell | April 21, 2009 at 01:58 AM
@Slarti:
Freely conceded. That was part of what I was driving at. I, too, should have phrased things better.
Here's where it gets dicier. However, the logic of the last line above undercuts the former point. If you're talking strictly private universities, the former is a stronger argument. But state schools? Sure, the students may be paying their own way, or getting grants and loans (and no, I don't have figures, nor am I overmuch compelled to go scare some up). But the amount of tuition they're being billed in the first place is reduced by the fact that state-funded universities, um, receive funds from the state. This is currently on full display where we see states tightening their education budgets and tuition rising in response.
This is mostly quibbling, and we've both been sloppier with our language than we should have. We agree that taxpayers (by means of various governments) overwhelming underwrite primary and secondary education. I think you sell short the amount of government subsidies, direct and indirect, underwriting post-secondary education. To the degree that you do so (and, conceded, only to that degree), inflated wages are not directed at recovering the invested cost to the party that invested it.
(Yes, the gov't(s) is (are) getting more income tax revenue. That's as close as it's coming.)
Posted by: Nombrilisme Vide | April 21, 2009 at 03:50 PM