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July 15, 2009

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I believe she was referring to the fraction of people who actually pay their taxes and not the actual tax rate.

Reality:AL All-Stars::Megan McArdle:NL All-Stars.

local taxes effectively increase that rate a bit
Well, maybe, in jurisdictions that have meaningful local taxes - many don't. I'm told that the combination of state and local taxes in Manhattan has a bit of a bite to it, but whole states (Texas, Washington, New Hampshire for example) have no state income tax and others have moderate ones. In any case, the federal income tax is not Italy's only tax, and it looks like their other taxes more than match the tax burdens imposed by state and local governments in the US.

According to a random website I googled:

Businesses also need to become familiar with IVA (roughly equating to UK VAT or US sales taxes) and the codice fiscale. IVA (Imposta sul valore aggiunto) rises in stages from 4% to 10% to 20%. Standard rate is 20% for clothes, food is 10%.
I defy you to find me any US locality with a 20% sales tax on anything (other than booze or tobacco), and most don't tax food (at least, as groceries).

That same web page has a section on property taxes or asset taxes that I didn't read carefully but there is also a property tax of some description, and capital-gains are taxed annually on assessed values (which assuming they had a real-estate bubble like ours or Britain's must have been a real treat to pay, and especially to have paid after values plummeted back to earth). And, of course, for all I know Italian cities and regions might also charge their own taxes.

Ironically, the table you post is very misleading in one way: because of the regressive nature of the Payroll Tax in the US, the lower tax brackets should be boosted by an incredible 15% (half paid by the employer) - but because the payroll tax is capped, the upper tax bracket is not affected.

Shorter me: Megan either had not the faintest idea what she was talking about. Unless, that is, she was relying entirely on one other tidbit I picked up at my random website, that seems to greatly reduce the effective tax rate for many Italians: Massive Tax Fraud.

83% of the population declare an income of less than €4000 per annum

McArdle is writing about tax compliance, not tax rates. Slemrod, a very respected tax economist, claims that US tax compliance is on the same order of magnitude as in the UK and Sweden, with Sweden potentially more compliant than the US. There does seem to be a non-compliance problem with VAT in the EU though, but that is due in part to criminal enterprises. There appears to be little solid public data on this issue.

So no, I don't thing McArdle has any evidence that US tax compliance is better than in well run OECD countries.


http://darp.lse.ac.uk/papersdb/Slemrod_%28JEP07%29.pdf

I had got around to checking out Megan's post and thinking about it a bit more, and had read the comment by John Harrold (which came up while I was writing my own very long comment), and I decided that Publius's post was just wrong, as Harrold said - and discovered that the entire post was gone, for a good several minutes. Indeed, I was just about to post a comment in another thread calling out the Ethics Patrol when the post returned in modified form, and I'm very glad that it did return - when it seemed to have just gone down the memory hole, it did not look good.

Warren - that one was clearly outside statute of limitations. I generally give myself about a 5 to 10 minute window to pull a post.

And only then when I see the error myself. And even then, I think I've only done it a handful of times, more b/c I feared something was too nasty as opposed to wrong.

But whatever, this one wasn't even a close call. I just didn't read carefully enough

it's actually hilzoy's fault -- she's retiring and it got me all flustered. quality of the blog is already in a spiral.

Shocker: the country that gave us the Mafia has low rates of tax compliance.

I'm not sure I've really accepted hilzoy's imminent retirement as reality. I suppose I'm in Denial about it, suggesting that the next step of my coming to terms will be Anger (expressed how, I wonder?) - though I'd be happy to skip ahead to Bargaining.

"Plus, the post has probably been up too long to pull. "

This is one of a zillion reasons why it's helpful to time-stamp updates: I have no idea what length of time you're talking about.

The original post is time-stamped 10:28, and it's only 11:43 now.

But I can't argue with you over the specifics here, because you're not bothering to inform us of the relevant specifics. When was your update made?

gary - you're right. i probably should have done that. Anyway, i htink the original post was around 8:20 CT, and then I pulled to revise around 9:15ish (I actually posted and then put my son to sleep -- otherwise, i might have caught it within the "window" so to speak).

reposted about 10 minutes later (which is why it now says 10:28/9;28 CT).

Funny thing: I did NOT misread McCardle the first time, but I still thought the excerpt publius quoted was a bit odd. Is her point that Italians in general are culturally inclined to cheat on their taxes? Or just the rich ones?

I will read Megan's post in a minute, but I will take a guess first: her point is that highly-paid Italians are the ones who cheat, because their top marginal rate is so oppressive. Lower-paid Italians, confronted with more reasonable rates, cheerfully comply. It's not that Italians are dishonest. It's that rich Italians are dishonest. But they have to be, poor dears. And if we raise the top marginal rate here in the US, our own put-upon rich people will, quite justifiably, start cheating too.

I owe myself a beer if my guess is wrong.

--TP

What's really staggering is the comparison to Italy, which in terms of government operation is practically a third-world country; it's corrupt, inefficient, corrupt, backwards, corrupt, bureaucratic and corrupt. My word, the Italian general revenue agency isn't as competent as other OECD nations at collecting revenue? I am shocked by this revelation.

I wonder how rates of cheating or noncompliance are figured. Out here where i live there is a pretty high rate of noncompliance through nonreporting of income by low and moderate income people. I know this because lots of the local contractors for various small jobs run their businesses at least partly off the books. Lots of people employ themselves at second jobs that they don't report at all--care providing, dog walking, housecleaning, carpentry, woodcutting, gathering ferns and salal for florists, that sort of thing. My guess is that wealthy people have a more sophisticated understanding of the tax code and can lower their rates through the use of loopholes and exemptions whereas the more working class folks just don't report chunks of income at all. My tax accountant last year was a Ron Paul supporter and he is quite open in his efforts to keep mhy taxes down by whatever it takes. In fact I switched to a different guy because the Ron Paul guy seems like the type who is going to end up in jail some day and I didn't want him taking me with him.

I'm pretty law abiding when it comes to taxes.

Berlusconi/McArdle in 2012!

Thanks for the info, publius.

People's opinions on these things vary, and there's no firm rule, of course, from the Blogging Supreme Court (of Ethics?), but I can see pulling something within an hour or so, and actually if there's a good enough reason, I can see pulling something after a significant length of time, even up to days, BUT ONLY if a substitute set of text is placed where that post was, explaining why it was pulled. Under any circumstances of more than fiften or so minutes, such an explanation should be posted, really, in my view. (I'd give a bit more leeway for the middle of the night, though, when fewer folks are reading.)

I'm pretty strict, really, about thinking that when people have embarrassed themselves, in most cases, they should let the post stand, with an update and apology if necessary, but I'm not absolutist. If it's really super-duper-unbelievably embarrassing, or maybe there were really extenuating circumstances (you were totally drunk out of your mind, you were on prescription drugs, you were having a psychotic break, someone just put a gun in your mouth and you were that upset, you had a concussion, stuff like that), I can forgive a complete pull even after a few days, so long as an explanation is given. After all, there are no absolute rules about this stuff. Just peer pressure, basically.

I think the only really absolute rule there should be is that stuff shouldn't just vanish like it was never written, with no explanation at all, if it's been up more than ten-to-fifteen minutes or so, give or take, roughly speaking, and can I put a few more weasel words in there?

Myself, I've almost always let my embarrassing posts stand, including some just unbelievably embarrassing ones, but I've pulled at least one or two completely (with an explanation) over the course of nearly eight years of blogging. (Geez, and I wasn't anywhere near an old timer when I started. :-))

Anyway, "oops, I totally misread X, and wrote something really wrongheaded as a result, so I've pulled that post" seems reasonable to me for a period of a few hours, if it didn't contain something that you were otherwise trying to dishonestly conceal.

And, personally, I make minor corrections of typos for hours and hours after posting, and occasionally even days, so long as I'm not altering the meaning of what I wrote in any way. I'm just way better at spotting typos after I've posted, unfortunately. Or I post too impatiently, is another way of putting that. :-)

On the other hand, this is all also why I think it's unfair for people to never let go of something stupid someone said, like, four years ago. For god's sake, bloggers put themselves out there with constant risk of making themselves look like asses, and the risk is an essential part of the form; because that's so, I think readers and other bloggers should be somewhat forgiving that people can say things they regret, and if they apologize for it, folks should generally quit bringing it up after a year or two. Let alone four or more years.

(And, yes, this is why I keep smacking on people who still want to go on about McCardle's "two-by-four"; she effing apologized a long time ago: let it go by now. That, or let's see the record of the last million words you've produced in the past decade, buddy, with no stupid remarks you've regretted and apologized for.)

http://www.taxfoundation.org/publications/show/24863.html

The surtax will take the top marginal tax rate to over 50% - second highest in the OECD.

So, let's see, at maximum, we're talking, according to your own cite:

1 percent surtax on AGI between $350,000 and $500,000 (singles between $280,000 and $400,000)

1.5 percent surtax on AGI between $500,000 and $1,000,000 (singles between $400,000 and $800,000)

5.4 percent surtax on AGI beyond $1,000,000 (singles beyond $800,000)

So if you make over a million dollars a year, you'd have to -- somehow, out of your desperate poverty -- come up with a few thousand more dollars.

Boo f*cking hoo. Back in the United States, it turns out that:

[...] This means that 26.5 million people (approx 1 in 10 Americans) were below the official poverty thresholds in 2006
Which is to say, if you're in a four person family unit, your family had an income (in 48 states) of $22,050 or less. The median household income in America in 2007 was $50,233.

The 47 million Americans without health insurance? Too bad. the 26.5 million people below the poverty line, who struggle to pay rent and have enough to eat? Well, life is struggle. The the wealthiest 1.2 percent of households? We should weep for their fate of having to cough up what they pay annually for lawn care. Woe!

The German high court decided long ago that the limit is 50% (i.e. for those taxes that are related to your income). Interestingly this also applies to the progression, i.e. the last dollar must not be taxed above 50%.
The math resulting from that can be quite devious incuding calculus of implicit functions.

Is that the top rate that payers BEGIN their calculations from? Or is that AFTER the numerous deductions created as loopholes for the wealthy are actually applied?

I should think it important to assess whether that reflects a gross rate or a net result rate. (If the former, then it's pretty misleading.)

If that question was targeted at me, I can give no definitive answer. I'd say it is the highest percentage one can legally be charged with. Loopholes just decrease the amount of money the tax rates are applied to.
As almost everywhere the number of people actually paying at the highest rate is rather small and the 50% is the maximum allowed, not the maximum applied in reality. It just says that the government can't increase taxes beyond that, should it desire so.

All this talk about cheating on taxes makes me consider the wide range of loopholes, dodges and workarounds that were designed into the code to permit the wealthy to shield income from taxes.

Being part of the tax code, these provisions are prima-facie evidence of privilege - private law enacted for the good of the few. In a land that prides itself on the notion that 'no-one is above the law'. Flatly dishonest when we provide special laws for the coddling of "the rich".

Substantial revision of the tax code to provide for a fair system without loopholes, tax-havens, or accountant-driven windfalls might promote more "cheating"...then again, it might impose real penalties for the cheating that is currently going on under color of tax-avoidance.

And if the question is about the rightness of 'depriving the wealthy of the fruits of their labors', we must consider the rightness of keeping the poorer classes so close to the baseline for food and shelter that any unforeseen event can cause the family to either starve-in-place or lose their home AND starve.

The defenders of wealth & the wealthy need to understand that the purpose of society is not to protect and enable the rich at the expense of the poor: even (honest) libertarians can make this case with ease.

This is a great lead-off for an article on breaking our national addiction to wage slavery.

"So if you make over a million dollars a year, you'd have to -- somehow, out of your desperate poverty -- come up with a few thousand more dollars."

If you make $2M a year, you're going to pay an additional $54K, about 2.7% of your total income. You'll work about a week and a half more each year for Uncle.

If you make $100M a year, you're going to pay an additional $5,246,000, no small sum. You're giving Uncle another two and half weeks of your work year.

If that ends up pushing your all-in effective rate to 50%, which is actually not that likely because local taxes are usually not that progressive, you'll have to make do on $100M a year, or about $2M a week.

Here is the line from McArdle's piece that makes no sense to me:

an increase from 55% to 60% actually sounds smaller than an increase from 15% to 20%. Yet from the perspective of the taxpayer, the former represents a much greater encroachment on their disposable income.

US median household income for four-person families is just north of $60K. You're living on $1200.00/week for four people. An increase from 15% --> 20% means your disposable income goes from $1020.00 to $960.00.

If you make $2M a year, you're living on about $40,000.00 a *week*. 55% --> 60% means a change from $18K of weekly disposable income to $16K.

I recognize that a difference of $2,000 more or less dwarfs a difference of $60 in absolute dollars. No question.

In terms of experiencing that change, however, it seems kind of obvious to me that four people living on about a thousand bucks a week are going to feel the loss of sixty bucks a hell of a lot more than four people living on $18K are going to feel the loss of $2K.

If you're making $2M a year, you are rich enough that, frankly, money is just not something you worry about. It's a given, like the air you breathe, or the water that flows from the tap when you turn it on.

You have all the money you need, and then much, much more. A loss of $2K a week, which is a sum that would, for most folks, represent a quite desirable total income, will register as, at most, a couple of luxuries that have to be foregone.

If you are a family of four living on $60K a year in most places in the US, you notice, and feel the loss of, pretty much every dollar.

And half the four-person households in the country make less than that.

I don't mean to pile on McArdle, because she's no worse than any other conservative pundit, and in fact is better than most.

But her inability to recognize the *basic and fundamental reality* of the things she's talking about quite simply astounds me.

Excellent points, Russell!

A sense of real-world proportion is the thing most often missing from all these 'detailed analyses' (along with a dispassionate deconstruction of Adam Smith).

No self-respecting Italian, rich or poor, will pay anything close to the taxes he actually owes -- and I'm allowed to say that.

If Ephraim Kishon was right then the same was/is true in Israel. He reports real-life incidents (he also used in his satires) where people refused to take 'white' money from him, i.e. money that was taxed and therefore on the books. As a result he couldn't get a repair done because he lacked the necessary black money. He also told that it was considered extremly dishonorable to pretend that the white money was black (in order that someone would accept it).

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