Capital Gains Idiocy

by hilzoy

Maria Bartiromo, quoted in the NY Post:

"WE'RE in for taxing times if Barack Obama wins the White House, says CNBC's Maria Bartiromo. "He's going to take the capital gains tax at 15 percent right now all the way up to 25 to 28 percent," the "Money Honey" tells Avenue. "Sell anything, like a home or stocks, and make a profit . . . [almost] 30 percent of the profit will go to the government instead of 15." The income tax is also in for a bump. Bartiromo says, "Right now [it] is 35 percent, Obama wants to take that to 39 percent . . . We're talking about people who make over $200,000. That's not rich. So it's actually going to impact more people than you may think.""

Time, bless its heart, chose to quote this claim without question or criticism, as did John McCain's 'McCain Report' blog.

Where to begin? Let's start with the claim that people who make over $200,000 a year are not rich, which is absurd. As ThinkProgress points out:

"– The 2006 census showed that an income of $174,012 put an American household within the top 5 percent of income earners.

– A report by the Citizens for Tax Justice estimates that in 2008, “only 3.2 percent of taxpayers will have adjusted gross income (AGI) greater than $200,000 and only 2.1 percent will have AGI over $250,000.”

– A 2007 Wall Street Journal article placed earners who make $277,000 in the top 1 percent of all income earners."

But why not pile on a bit? According to the Census Bureau, median household income was $48,200 in 2006. And that's for households; median per capita income (pdf) was $25,857. Apparently, even if you make around eight times the median per capita income in this country, you don't count as "rich".

Fascinating.

But why stop there? Ms. Bartiromo says this: "Sell anything, like a home or stocks, and make a profit . . . [almost] 30 percent of the profit will go to the government instead of 15."

Let's start by getting the capital gains tax rates right. It is now 15%, and is scheduled to go to 20% in 2011, as a result of laws passed under Republican leadership. Obama proposes to let it go higher, and if he acts fast, he could manage to get capital gains tax rates to increase a whole year earlier than they would if he did nothing. Of course, he will increase the capital gains rate above the 20% that's already going to kick in. His tax plan (pdf) says he'll "increase" it; last September, he said "between 20 and 28%"; the Tax Policy Center says he'll increase it to 25%.

More importantly, you can exclude capital gains of $250,000, or $500,000 for a couple, on the sale of a first home. If your capital gains are less than that, as they are for most people, you don't have to pay any capital gains tax at all. Even those who make more will have to pay capital gains only on the part that exceeds the amount you can exclude. You'd have to sell your house at a pretty steep profit before the government would get anywhere close to 28% of it at a 28% capital gains rate.

But what about stocks, and all those millions of people who own them? Here's an excellent CBPP paper on the capital gains tax cuts:

"In a January 6th speech to the Economic Club of Chicago, the President stated: “American families all across this country have benefited from the tax cuts on dividends and capital gains. Half of American households — that’s more than 50 million households — now have some investment in the stock market.” (...) What this statistic ignores, however, is that nearly two-fifths of this stock is held in retirement accounts, such as 401(k)s and IRAs. This distinction is crucial, because capital gains and dividend income accruing inside these retirement accounts is not subject to taxation, and thus would not receive a tax benefit from the reduction in the tax rates on capital gains and dividend income."

Keeping the capital gains rate at 15%, rather than letting it go back to 20%, would cost save (oops) the average household with income between $50,000 and $100,000 all of $77 per year. Households with incomes between $100,000 and $200,000 a year would lose all of $228 per year. You might think: well, but that's still a lot of money to a family that's having trouble making ends meet. And if there were some alternative whereby we just never had to raise taxes at all without sacrificing anything, you might be right. In the real world, however, the alternative to increasing taxes is adding to the deficit, which will mean even more of a burden on taxpayers. Once you take that into account, taxpayers making under $200,000 a year are getting a whole lot of deficit reduction, and thus a whole lot of higher income and lower taxes in the long run, for their money.

Comments

[bc]

In the real world, however, the alternative to increasing taxes is adding to the deficit,

But Obama is the vehicle for hope. Why not a different direction? Cutting spending anyone?

Once you take that into account, taxpayers making under $200,000 a year are getting a whole lot of deficit reduction, and thus a whole lot of higher income and lower taxes in the long run, for their money.

I have a problem with the "and thus a whole lot of higher income and lower taxes in the long run." Do you really believe this? That raising capital gains taxes will truly lower the deficit? I mean, that Congress will really, truly use the money for that purpose vs. spending it? And that the deficit won't continue to go up?

There is typically no way that "paying more taxes" and "getting more for your money" belong in the same post, let alone the same sentence, IMHO. This does not seem to be an exception.

[hilzoy]

bc: I'm all for cutting some spending. I'd start with the war in Iraq and most agricultural subsidies. But McCain is not actually proposing either of those, and the tax cuts he is proposing would blow a hole in the deficit that is much bigger than what Obama or Clinton proposed, even with health care etc. His proposals for spending cuts turn out to mean something like: earmarks. And those just don't begin to cut it.

[mikeyes]

Just how can a president of the United States change the tax rate?

If I remember correctly, that is the job of the Congress and it appears that no matter who is in the White House, tax rates will be changed according to what The House and the Senate decide.

Granted the president has veto power and the president can jawbone the issue, but people act as if a fiat will change everything as soon as the new leader puts his hand on the Bible and is sworn in.

In fact many of the other issues (health care for example), are in the same boat.

The president can affect the conduct of the war, can lead the country out of the doldrums by inspiring and twisting arms as long as he has the approval of the people, and can, by mandate, effect changes in the executive branch of the government.

But he can't make the tax rate go up or down any more than he can make it rain.

[Sebastian]

"I'm all for cutting some spending. I'd start with the war in Iraq and most agricultural subsidies."

Me too.

I hate tax policy in the US. It is stupidly complex.

Tax all personal income for people at 80% of the median income and above at whatever single rate is necessary to come within 1 or 2% of balancing the budget. Have a progessive curve up to that tax rate starting at zero at about 50% of median income and going on a nice smooth curve up from there. Most of the society is paying for whatever we vote for at the same rate with a break for the lowest earners. But middle class and rich rates should definitely be the same whatever you choose for them to be. No voting for more stuff and voting for other people to pay for it.

And no hiding subsidies in tax exemptions. If you are going to pay people off for something, do it above board.

Get rid of any corporate or investment taxes and replace it with a wholly transparent sales tax. If rich people don't ever buy anything and are just reinvesting capital gains that is great for our economy anyway.

/rant

[glasater]

Why not tax everyone two per cent of the gross income?

[J. Michael Neal]

The first problem is thinking that anyone should take Maria Bartiromo's predictions of anything seriously. The folks at CNBC are, if anything, worse than the average political reporter.

[Sebastian]

BTW, why would we think the capital gains taxes are going up anyway? It isn't as if hedge fund managers had to worry about having their income treated as income under the current Democratic Congress.

[bedtimeforbonzo]

Ah, Maria Bartiromo, a.k.a. "The Money Honey."

Back about 10 years ago, before I was married and somehow managed to have about $50,000 in my 401K, I was a regular CNBC viewer.

Maria struck me as a Honey, all right. But she never struck me as the economic-reporting guru that the MSM paints her to be.

Watching her then -- and watching her now (although nowhere nearly as much now, now that my 401K is a mere pittance, about $2,000, thanks to the 2000ish stock-market plunge, and my need to take out thousands and thousands of dollars to bring my son and wife over from Russia, among other things) -- I can confidently conclude Maria is not part of the fabled Left Wing Media.

Oh, no, Maria, married to a Wall Street big-wig, puts a very Republican bent on her "reporting."

Ironically, if you watch the new FOX business channel -- and I've tuned in a couple dozen times -- it is skewed more heavily to the Average Joe than CNBC, which is Wall Street and Corporate America's No. 1 broadcast cheerleader.

And Maria uses her pom-poms well.

It's not very gentlemanly, but I say f--- Maria Bartiromo.

Unfortunately, the reality is, as hilzoy's post shows, what she "reports" carries weight in the MSM, such as the New York Post. And if the Post is quoting her you can be sure other news outlets -- such as Time -- and those on the left -- are quoting her, too. Heck, I've even seen Bartiromo quoted in bland-as-oatmeal Parade Magazine.

Therefore, it is important that -- now the GE campaign has started in earnest -- Obama and his surrogates fight back, and fight back quickly, and provide truth and substance to what his proposals will and will not do.

Forget about calling McCain old. That is self-evident.

Forget about calling McCain economically inept.

Because, in America, perception trumps reality -- and if enough people, both Republicans and so-called Reagan Democrats (let's start calling them Clinton Democrats in this election cycle) believe what the pro-McCain, pro-business Maria Bartiromo's of the MSM are putting out, they will begin to believe it as gospel.

Let's not see the one issue that Obama and the Democrats seemed to have all over McCain and the Republicans become up for grabs.

As I said last night elsewhere on these pages, Obama must maintain his message of hope and change. But he must pick up on Clinton's eagerness to Fight Back. (Sometimes she overdid -- OK, many times -- but I trust he will know when to say when. I just would hate to see him go all John Kerry on us.)

Often -- at least in the eyes of this Clinton supporter, and others, I imagine -- Obama's responses to Clinton's attacks seemed either subdued (earlier in the campaign) and arrogant (later in the campaign).

I'd like to see him fight back such Money Honey falsehoods w/ the same fervor and fire he displays when giving one of his famous speeches.

Campaigns can't be won on those memorable, once-every-other-week Big speeches. They are won on the day-to-day narrative that develops.

They are won by the Party that takes charge of that day-to-day narrative. Excepting the 2006 midterm elections, that Party has been Karl Rove -- ugh! -- and the do-whatever-it-takes-to-win Republicans.

Obama's campaign must be smart enough to know that.

They must be wise enough to adopt Hillary's more visible fighting spirt while maintaing his trademark class.

And one final note since I mentioned my 401K earlier:

I think my story is like many Americans. At middle-age, this 45-year father and husband has no old-style pension from his job, just that $2,000 or so in my 401K.

Sure, that $50,000 I once had -- even after the stock-market plunge -- could be about half that size now if I hadn't taken so much out to get my son and wife here from Russia, and for our nice three-days-in-Vegas wedding.

But that's life. I used my 401 money as a fallback for what I needed and wanted to do. Other Americans use it for a downpayment on a house or for an unexpected illness in the family, or who knows what.

So, again, picking up on a topic from these pages last night, that's why I feel Social Security is a vital issue for the Democrats to whip -- I mean, whup-ass -- on the Republicans.

Whether you're 45 like me, 65 like my Mom, or 75 like someone else's grandmother or grandfather, Social Security is a key, key issue to many of us.

It should be a staple, and key feature, in the Democratic Party.

[OCSteve]

Apparently, even if you make around eight times the median per capita income in this country, you don't count as "rich".

Well, no. If we’re talking about two working parents with four kids in a high cost of living area, not even close to rich. Certainly not poor; possibly comfortable; more likely overextended like almost everyone else.

More importantly, you can exclude capital gains of $250,000, or $500,000 for a couple, on the sale of a first home. If your capital gains are less than that, as they are for most people, you don't have to pay any capital gains tax at all. Even those who make more will have to pay capital gains only on the part that exceeds the amount you can exclude.

If you meet certain criteria: primary residence for (aggregate) 2 out of the 5 previous years, no other sale within 2 years, etc. Normally I wouldn’t pick this nit, but given the housing crisis I think it’s worth mentioning. A lot of people bought too much house that they may want to sell having lived there less than 2 years. A lot of people bought vacation homes they may now need to sell that don’t qualify for any exclusion. A lot of these folks are probably “under water” anyway, but not all of them.

What this statistic ignores, however, is that nearly two-fifths of this stock is held in retirement accounts, such as 401(k)s and IRAs.

What that statement ignores, however, is that more than three-fifths is not. ;)

This distinction is crucial, because capital gains and dividend income accruing inside these retirement accounts is not subject to taxation

This is correct only in the case of a Roth IRA. 401(k)/IRA distributions are taxed as normal income. As things currently stand, you lose a lot more on any capital gains accumulating inside your 401(k)/IRA than you do normal capital gains outside a 401(k)/IRA. Outside the 401(k)/IRA you’d only pay 15% on the capital gains right now. As part of a 401(k)/IRA distribution today it’s taxed as normal income – so like 28%. At least Obama has a plan to resolve that disparity! ;) So the real question is, after 8 or 12 years with Democrats in control, what will my federal tax rate be when I begin taking distributions. For some reason I suspect that it will be substantially higher than it is now. If Obama wins, my smartest move is to go right out and convert my 401(k) and IRA to a Roth IRA and take the tax hit now, at current rates.

Democrats’ claims that tax increases will only impact the rich will likely be swallowed by much of the country. But they’ll figure it out eventually. ;)

Take today’s windfall profits tax theatre. Sock it to those evil oil executives right? Wrong. (PDF)

Across the oil and natural gas industry, 1.5 percent of the total outstanding shares of its public companies are owned by the officers and board members of those companies (“insiders”), compared to 29 percent owned by individual investors who manage their own holdings and who are not insiders, 42.7 percent owned or held by mutual funds and other asset management companies that have mutual funds, 18.1 percent owned or held by asset management companies that do not have mutual funds, and the remaining 8.7 percent owned or held and directly managed by pension funds, insurance companies, endowments and foundations, banks and other financial institutions.
…
These data, along with previous analyses that we conducted,5 further suggest that ownership of oil and natural gas company shares is broadly middle-class.
o 42.7 percent are owned or held by mutual funds and other asset management companies that have mutual funds. Mutual funds manage accounts for 55 million U.S. households with a median income of $68,7006, and the owners of mutual funds include 16 percent of households with incomes of $25,000 or less, as well as 83 percent of households with incomes of $100,000 or more
o Earlier analysis found that an estimated 27 percent of oil and natural gas company shares are held in private and public pension funds, and these funds manage assets, directly or indirectly, on behalf of 129 million pension-fund participants whose accounts have an average value of $62,280. For example, some 28 million public pension accounts in over 2,650 public employee pension funds represent the major retirement security for current and already-retired soldiers, teachers, police and fire personnel, social workers and office workers employed at every level of government. In 2004, these funds held approximately $64 billion in shares of U.S. oil and natural gas companies.

Emphasis mine. Forgot where I saw that linked today, I’ve had the PDF open all day waiting to read it through.

Raise taxes if you have to (I’d rather cut expenses) but don’t try to convince me it will only be those evil rich taking the hit. (Not you as in hilzoy, you as in Democrats in general).

[John Thullen]

Well. let's all make a deal.

The word "evil" shall never be used to describe businessmen and women, shareholders, or pleasantly plump cats.

In exchange, pleasantly plump cats, businessmen and women, and shareholders shall refrain from considering taxes a punishment or a penalty.

Politicians who violate the first rule shall have their wages, capital gains, and dividends, and tax shelters garnished.

[Turbulence]

What that statement ignores, however, is that more than three-fifths is not. ;)

Do you believe the income distribution on the non-retirement-savings assets is perfectly uniform? In other words, do you really think that someone making $12,000 per year is equally likely to own any given stock as someone making $120,000?

As part of a 401(k)/IRA distribution today it’s taxed as normal income – so like 28%.

It depends; theoretically, by the time you're pulling money out of those accounts, you have no employment income so you should be in a lower tax bracket than you were when you were putting money into those accounts.

So the real question is, after 8 or 12 years with Democrats in control, what will my federal tax rate be when I begin taking distributions. For some reason I suspect that it will be substantially higher than it is now. If Obama wins, my smartest move is to go right out and convert my 401(k) and IRA to a Roth IRA and take the tax hit now, at current rates.

I've been putting cash in Roth IRAs for some time under the theory that future tax rates must increase dramatically. That calculation has nothing to do with Obama or Democrats versus Republicans. It has to do with the fact that the US government has accumulated massive liabilities. George Bush has imposed a massive tax hike: we don't call it that, but as Milton Friedman said, "to spend is to tax". You can blame this on Obama if you want, but no matter who is in office, taxes need to rise. Unless you have a politically tractable plan to cut significant spending, in which case, do tell!

Also, as a side note, regardless of windfall profits taxes, it seems at this point that oil prices are only going to continue increasing. I'm unaware of any major new oil fields expected to come online soon that would come even close to compensating for declining production at existing fields.

[OCSteve]

It depends; theoretically, by the time you're pulling money out of those accounts, you have no employment income so you should be in a lower tax bracket than you were when you were putting money into those accounts.

Well, I don’t think I’ll ever be in the position to have “no employment income”. My master retirement plan looks something like this:

1) Work until I keel over dead, hopefully leaving my wife enough 401(k) income to make it until she can draw social security.

2) Pray social security doesn’t go insolvent for the rest of her life.

The beauty of the plan is in its masterful simplicity.

That calculation has nothing to do with Obama or Democrats versus Republicans

I’m fine with saying that Republicans made the mess and Democrats will (likely) be tasked with cleaning it up. But given that we will already have a $400 billion budget deficit next year ($9 trillion total?) and Obama has promised over $200 billion in new spending, that doesn’t sound much like cleaning it up. Anyway yes, Republicans get plenty of the blame for needed tax hikes.

[trilobite]

OCSteve -- hey! That's MY master plan for retirement! You stole my plan!

If I ask nicely, will you keep it?

[now_what]

Well, no. If we’re talking about two working parents with four kids in a high cost of living area, not even close to rich.

So if you live in a neighborhood with a lot of other rich people, you need more money. I'm not sure how you think this means those people aren't rich.

Tell you what, near any "high cost of living area", you can find working couples with children who make between minimum wage and $10 an hour living within about 20 miles (they're the ones doing the actual work). Even less than minimum wage if you live in Southern California, since many of the people are illegal aliens working illegally and being paid less than is legal. Don't tell us about your opinion, you go find those people and tell them how hard those poor souls making 5 or 6 or 7 times as much money have it, what with being forced to live in more expensive neighborhoods and all. Tell them how an increase in the capital gains tax would make it hard for people making $200,000 a year to hold on to their vacation homes that they bought to try and flip in a couple years.

Report back on how much sympathy you get.

A lot of people bought vacation homes they may now need to sell that don’t qualify for any exclusion. A lot of these folks are probably “under water” anyway, but not all of them

That's what bankruptcy law is for. Oh wait, the Republicans ruined that, right?

401(k)/IRA distributions are taxed as normal income.

Which means raising the capital gains tax has no effect on them. What exactly was your argument here? It appears to have gone missing.

Mutual funds manage accounts for 55 million U.S. households with a median income of $68,7006, and the owners of mutual funds include 16 percent of households with incomes of $25,000 or less

That is a misleading statistic on several levels. First, the vast, vast, vast majority of all equities are owned by the richest 10% of the people, and they would pay the vast, vast, vast majority of any capital gains tax. Second, most people in the lower 90% of greediness have most of their mutual funds in retirement plans, which, as you pointed out, are exempt from the capital gains tax.

I'd actually be opposed to raising the capital gains taxes if a Democrat wins - just spend the money on whatever programs are needed, and let the Republicans figure out how to pay for it when they get back in power - but your arguments here don't amount to, well anything.

[david kilmer]

"Well, no. If we’re talking about two working parents with four kids in a high cost of living area, not even close to rich."

Why should the government favor people who make poor choices?

"A lot of people bought too much house that they may want to sell having lived there less than 2 years. A lot of people bought vacation homes they may now need to sell that don’t qualify for any exclusion."

Again - poor choices. It's an issue of character.

[gwangung]

Well, no. If we’re talking about two working parents with four kids in a high cost of living area, not even close to rich.

So if you live in a neighborhood with a lot of other rich people, you need more money. I'm not sure how you think this means those people aren't rich.

Uh, that's a circular argument.

Generally, we're talking places like the Bay Area, New York, etc. $200K household income doesn't make you poor, but it doesn't make you rich. That kind of household income won't qualify you for a mortgage for any house within a hundred miles. It's more upper middle class than anything else (which was his whole point). Conversely, that kind of income in places like Arkansas, South Carolina, much of Texas and Utah WILL put you into the rich class...

(You're other arguments, though, are pretty valid).

[gwangung]

"Well, no. If we’re talking about two working parents with four kids in a high cost of living area, not even close to rich."

Why should the government favor people who make poor choices?

This isn't a matter of choice. The options are highly constrained by a number of factors, starting with where the jobs are to fit your skill sets (and DON'T say choosing a skill set of biological sciences or engineering skills is a poor choice).

[Bernard Yomtov]

Keeping the capital gains rate at 15%, rather than letting it go back to 20%, would cost the average household with income between $50,000 and $100,000 all of $77 per year. Households with incomes between $100,000 and $200,000 a year would lose all of $228 per year.

I think you meant to write "would save the average household...Households with incomes between $100,000 and $200,000 a year would save all of $228 per year.

[hilzoy]

Bernard: yes, I did. Thanks. ;)

[cleek]

Households with incomes between $100,000 and $200,000 a year would save all of $228 per year.

or, in terms people can really relate to: 4 trips to the gas pump.

[now_what]

Generally, we're talking places like the Bay Area, New York, etc. $200K household income doesn't make you poor, but it doesn't make you rich. That kind of household income won't qualify you for a mortgage for any house within a hundred miles.

First of all, that's simply a false statement. You will have no problem qualifying for a mortgage for a house within 100 miles of the Bay Area with a $200k income. You're just making false statements. We don't need to specify a fallacy, you're just saying things that aren't true.

Second of all, there are hundreds of thousands of people who live in the Bay Area without owning houses. They live in apartments. Claiming that because it is expensive to buy a house, so people that have a lot of money, and choose to use their money to buy a single family home in an area where single family homes are expensive is absurd. Their money buys them the choice that the rest of the people simply do not have. I will offer you the same avenue of discussion as I gave OCSteve, why don't you go to San Francisco and tell the people cleaning hotel rooms how hard the people who own the Victorians on Alamo Square have it. Again, report back the degree of sympathy displayed.

How can people not understand this? If I buy an acre of land in Manhattan and construct a single family home with a nice lawn and a pool, and then howl annoyingly about how expensive it is, presumably OCSteve and gwangun will help console me about the extent of my poverty.

Good grief. It always amazes me on this site, the complete lack of knowledge about the way the vast majority of people in this country live, and the enormous level of entitlement some people feel.

[gwangung]

First of all, that's simply a false statement.

No, it's an exaggeration. Do you want me to define that for you? Or is it possibly not in your writer's toolbox?

Second, you totally missed my point about geographic locations and cost of living. $200K is not rich in the Bay Area. That's a fact.

And I have personal experience with THAT--something you seem to have complete lack of knowledge about.

Try not to collapse everything into rich and poor---the middle class still exists, no thanks to the current administration. However, your sloppy rhetoric isn't helping any.

[Matt McIrvin]

But middle class and rich rates should definitely be the same whatever you choose for them to be. No voting for more stuff and voting for other people to pay for it.

All right, but only if we also tax inheritance over, say, five times the median income at 100%. No more having stuff just because somebody else earned it.

[gwangung]

But why not pile on a bit? According to the Census Bureau, median household income was $48,200 in 2006. And that's for households; median per capita income (pdf) was $25,857. Apparently, even if you make around eight times the median per capita income in this country, you don't count as "rich".

By the way, hilzoy, but this type of argument irritates me to no end. It dumps areas of high cost of living with low cost of living together and tries to treat it as meaningful.

I first came across it when some conservatives were trying to "prove" Asian Americans had made it, by showing the higher per capita and per household income of Asians Americans even exceeded that of whites. Except....Asian Americans were concentrated in urban high expense areas and Hawaii, and comparing that to the middle of the country was comparing apples and oranges. When you compared income within each SMSA, incomes for Asian Americans dropped below whites and were much closer to that of blacks, Hispanics and Native Americans.

[hilzoy]

Personally, I'm in favor of a graduated income tax. I see no problem with people who have more money to spare paying higher taxes. Nor do I have any problem arguing for the hike in the capital gains tax on the grounds that it will be paid almost entirely by the rich.

There are limits beyond which I would not take this, but since capital gains income is still taxed below normal income, and since we've spent the last seven years watching taxes on the rich be slashed, I am not moved by those arguments at present.

[KCinDC]

Keeping the capital gains rate at 15%, rather than letting it go back to 20%, would [save] the average household with income between $50,000 and $100,000 all of $77 per year.

I doubt that capital gains are anywhere close to evenly distributed across those households, so the phrase "the average household" is misleading. It's probably closer to something like 10% of the households saving $770 per year and the rest saving $0, or even more skewed.

[now_what]

No, it's an exaggeration.

It's a 100% false statement. Every part of it is false. Here's a tool to add to your writer's toolbox- try writing things that are true.

Second, you totally missed my point about geographic locations and cost of living. $200K is not rich in the Bay Area. That's a fact.

The median income of the area if $65k. $200k is rich. That's a fact. Living on more than 3 times the income of the median household gives you a wealth of choices that the vast majority of people don't have.

Again...I'm not the one that needs to hear your litany of complaints. The dishwasher, the hotel maid, the manual laborer working there....go to them and convince them of the desperate situation of the $200k a year household in the Bay Area. And again, report back to me on the sympathy you get.

And I have personal experience with THAT--something you seem to have complete lack of knowledge about.

Been there, seen that. For bonus points, keep track of the number and type of your fallacious arguments.

Try not to collapse everything into rich and poor---the middle class still exists

They do. And in the Bay Area, they make $65k a year, per household. Which works out to a couple of people with $15 an hour jobs. The only sloppy rhetoric is your own. The middle class people don't want to hear the whining of the rich. They've been hearing it too damn long - people like you trying to collapse everything into very rich, rich, and those who must not be named or noticed.

[Tom]

Try not to collapse everything into rich and poor---the middle class still exists

Yes, a middle class exists. It does not, however, include people in the top 5% of wage earners.

[Turbulence]

I doubt that capital gains are anywhere close to evenly distributed across those households, so the phrase "the average household" is misleading. It's probably closer to something like 10% of the households saving $770 per year and the rest saving $0, or even more skewed.

Data on capital gains distribution here suggests that you are indeed correct.

[bobbyp]

Give me an annual income of $200k, and I'm sure I could find a way to live quite nicely even in Manhattan or San Francisco.

Where's the beef?

[bobbyp]

Sebastian rants: "But middle class and rich rates should definitely be the same whatever you choose for them to be. No voting for more stuff and voting for other people to pay for it."

Yes. By all means, the middle class should subsidize the rich. Sorta' like the social security surplus was hijacked to give tax breaks to the wealthy. Right?

"And no hiding subsidies in tax exemptions. If you are going to pay people off for something, do it above board."

Agree. Most of these shinnanigans are the result of special pleading or the granting of economic rents by the government to the rich and powerful.

Get rid of any corporate or investment taxes and replace it with a wholly transparent sales tax.

It always comes back to this...we must free unearned income from tax and tax the poor somehow.

If rich people don't ever buy anything and are just reinvesting capital gains that is great for our economy anyway.

A remarkably insane economic proposition. Even uncle Miltie would groan at this.

[Ara]

Bartiromo is shilling for CNBC and I suspect their top-line reporters will be sour on anything that makes casual investment less appealing.

I've never really understood the reasons -- economic, religious, pragmatic, or otherwise -- for capital gains being taxed at a rate that much lower than income, given that the tax system ought to be progressive.

I sort of wish someone would explain them to me.

Given that I've never understood why these rates are lower to begin with, I can hardly see why people should be complaining about the tax code being brought in line with our progressive presumption.

[Nombrilisme Vide]

@bobbyp
Sebastian rants: [...]

Honestly, this adds nothing positive to the conversation.

[Tony P.]

Tongue only half in cheek, I have been suggesting for years that Democrats ought to propose that we PRIVATIZE THE NATIONAL DEBT.

Republicans keep framing tax debates as a question of whether "people make better decisions with their own money". Well, sure they do -- but only if they're looking at both sides of the ledger. So, let's take the Republicans at their word, and divvy up the national debt into 300 million individual debt balances. We would have a lovely brawl over who should owe how much to start with, but the "average" American would need to take on $30K of debt.

Today, the "average" American services that much debt, through taxes. About 8% of the federal budget is interest on the debt, so 8% of YOUR tax bill is debt service. In my modest proposal, we would cut federal taxes by 8% across the board. If you're the "average" American, your tax cut would exactly equal the interest you owe on your "privatized" share of the no-longer-national debt. If you chose to keep on merely servicing your debt (the only "choice" you have now) your cash flow would not change. But you would suddenly have the option to send the IRS a bit more money to PAY DOWN YOUR OWN BALANCE. Note: YOUR balance; not mine. That's how we do it with Visa and Mastercard, isn't it? Naturally, if you kick the bucket with an outstanding balance, then YOUR kids (and not mine) inherit your debt. That's a feature, not a bug: it is entirely in the Republican spirit of "privatization".

I have no clue how you, the "average" American, would change your voting patterns if my modest proposal were enacted yesterday. You might vote to cut federal spending drastically, since future deficits would just increase your privatized debt balance. You might vote to raise taxes so as to balance future budgets without cutting spending. You might even vote to let Paris Hilton inherit her daddy's money tax-free and never mind that your own daughter will inherit a bigger debt thereby. I don't know how you would vote, and, as a (d)emocrat, I don't care -- for I trust you to make the right decisions about your own money.

-- TP

[jack lecou]

Give me an annual income of $200k, and I'm sure I could find a way to live quite nicely even in Manhattan or San Francisco.

Sign me up too, please. I won't even complain about a higher marginal tax rate...

(Of course, high housing costs in dense urban areas is a serious policy concern. Not only are these places nice places to live, the social benefits to encouraging more people to live there are high, what with congestion and global warming and so on. However, the way to address this is with more transit investment, reduced/rationalized zoning regulations, and less NIMBY-enablement. Not income tax rates.)

[Tony P.]

jack lecou and bobbyp:

Please note that getting a raise to $200K means INCREASING YOUR TAX BILL!! Maybe even an increase in your marginal tax rate! The horror.

Conversely, if you are now making $500K a year, you can give YOURSELF a tax cut: just take that $200K job instead.

One wonders why Republicans (those little bastions of self-reliance) have never latched on to this do-it-yourself-tax-cut idea.

-- TP

[now_what]

(Of course, high housing costs in dense urban areas is a serious policy concern.

No it isn't.

What exactly is the problem? People want to live in cities again? So what. Don't like high urban housing costs, move to Detroit. Problem solved.

I guess I should see it as a sign of improvement that people are complaining about the high cost of living in the inner city, but still, what exactly is the problem? Would you like a time machine to take you back to the 1980s where you could enjoy lower urban housing costs?

I lived in the inner city in the 80s, it was fun, I'll grant you that, but is that really what people are nostalgic for? Sitting on the deck, and waiting for the nightly gunfire to start up on schedule?

[bedtimeforbonzo]

"Bartiromo is shilling for CNBC and I suspect their top-line reporters sour on anything that makes casual investing less appealing."
--- Ara from 12:59 am, june 11 ---

Bartiromo isn't the only pretty face shilling for CNBC: Erin Burnett is the new, young Money Honey. The two are said to not like each other, now that Erin is getting as much face time as Maria.

Watch Burnett during the final half hour of "Morning Joe" on MSNBC, and you will find a pretty face right out of the Young Republican Yearbook.

The big reason Bartiromo and Burnett are so rah-rah for Corporate America and Wall Street: ratings.

The better the profit earnings for America's corporations -- the better the market does -- the better CNBC's ratings become, and more face time for their pretty young faces.

And, oh, well, if it takes laying off thousands of American workers to make those earning reports better, and, in turn, make the stock market go up, that's just the nature of the beast, right, Maria?

Too often Wall Street couldn't give a damn about Main Street.

A sidenote: CNBC does have some very good, fair-minded reporters/anchors. The two best, in my opinion, are midday mainstays Sue Hererra and Bill Griffith -- nothing flashy here, just good solid reporting.

It's probably no coincidence that CNBC "hides" them in the middle of the day -- rather than putting them on in the morning, when the network's ratings are highest, or after the closing bell, when they are the next highest.

[bedtimeforbonzo]

"Yes, a middle class does exist. It does not, however, include people in the top 5 percent of wage earners."
---Tom from 11:59 am, june 10---

Yes, indeed a middle class exists, and without it, there would be no country.

Forget Maria's talk of those poor folks making $200,000 a year having a tough time getting buy. She should try living on the annual income of a middle-class working family, one with two wage-earners.

No one really seems to know what dollar figure to put on this country's "middle class," especially when we have a "lower" middle class --- the middle class itself --- and an "upper" middle class.

My guess is a family that grosses between $45,000 and $95,000 could be safely called "middle class" --- and I would also bet that the vast majority of voters in this country, both Democrat and Republican, have household incomes in that spectrum.

Which, as someone noted earlier, makes Ms. Bartiromo's implication that Obama's policies are a rich versus poor battleground absurd.

It's about the middle class, stupid --- that's you, Maria.

It's the middle class --- not the Wall Street crowd that you wine and dine with -- that needs a break in this country, after eight long years of being raped and pillaged by George Bush, Dick Cheney, Big Oil, and Halliburton's economic policies.

[MouseJunior]

I really wish people would bury the notion that income has anything to do with is the sine qua non of being rich.

Being rich is about having access to wealth. It's about knowing that even if you stopped working tomorrow, and never worked again, your standard of living would continue to be acceptable.

Having an income of 200k dramatically increases your ability to become rich, but it in and of itself isn't a marker of being rich. A first year lawyer right out of an Ivy might be earning 200k, but have 150k+ in non-dischargeable student loan debt, and is completely screwed if they get run over by a bus.

[jack lecou]

now_what:

Off topic, but you asked for it:

The problem is that cities are good places to live. Environmentally, culturally, economically, we want as many people as care to live in them to do so. We do not just want to swap one group of people in and another out.

Do nothing and we may see an influx of middle and high income earners driving up prices, while lower income people (including a lot of minorities and immigrants) get pushed out into new suburban ghettos. Where they'll have to use cars and gas, if they can afford it. It's not good for anybody.

And it's unnecessary. Housing supply is artificially constrained in most cities by things like fairly poorly thought out zoning regulations.

On top of that, while high gas prices and recovering city services are bringing some people back in, it's still kind of a trickle. To the extent that we continue to provide a lot of de facto subsidies for an auto-centric, exurban lifestyle, re-urbanization rates are sub-optimal.

Thus:

Stop unnecessarily restricting housing supply. Price carbon. Price congestion. Invest in transit. Encourage walkability and transit oriented development. Improve city services like policing and schools. Etc. Etc.

[Lurker]

Tony R,

Privatizing assets is not a problem. You own it, you can do anything you want to it. On the other hand, privatizing debt is simply not possible. You need the permission of the creditors. A private citizen is not as trustworthy debtor as a nation state. Thus, the creditors would be likely not to agree.

[bedtimeforbonzo]

Mouse:

Point(s) well-taken.

[Gary Farber]

"But Obama is the vehicle for hope. Why not a different direction? Cutting spending anyone?"

Look at the budget, and tell us where you'll come up with the amounts to cut from, please?

"There is typically no way that 'paying more taxes' and 'getting more for your money' belong in the same post, let alone the same sentence, IMHO."

What does this mean? Is this an argument by assertion, or do you have a reason as to why they do not "belong in... the same sentence," and that it's your opinion? Opinions are a dime a dozen: what's the argument for yours that the rest of us should accept?

[bobbyp]

Dear MouseJunior,

Anybody who gets run over by a bus is, well, screwed.

[Bernard Yomtov]

Before the fight over taxes $200K incomes goes further, let's note a couple of things.

First, taxes are paid on taxable income, not gross income. In high-cost areas especially there can be a big difference between the two. In CA, NY, MA, at least, state taxes are high, and so are housing costs. If you have a mortgage you could easily have $50K or more in deductions, so a tax increase on incomes above $200K will be irrelevant.

Second, those in professional jobs earning $200K generally have benefits like health insurance, 401(K)'s, etc. that help to lower the tax on real income further.

Finally, tax rates are marginal. If your taxable income is $210K an increase from 35% to 39% above $200K is going to cost you $400, not exactly a death blow.

So while I think the scorn being heaped on Gwangung is excessive I think it's important that before there's any significant impact you probably need to be in the $300K+ category.

[Mr Punch]

Where I live, a lot of police, some nurses, and a few public high school teachers make over $100,000. A cop married to a nurse -- are they rich? I think this whole discussion is completely wrong -- being rich is about having money, not having income. Rich people don't have to work. In my opinion, those who believe otherwise have no understanding of class; they just don't grasp the concept.

[John Harrold]

In the real world, however, the alternative to increasing taxes is adding to the deficit, which will mean even more of a burden on taxpayers.

This is a bit of a false dichotomy. There is, of course, a third option. We could decrease spending.

[Slartibartfast]

I think all this quibbling over what constitutes "rich" is misplaced. Rich has no quantitative definition. Belonging to a fairly small group of people does not "rich" make, any more than (for instance) being in the top one or two percent of the IQ distribution makes me a genius.

Of course, genius has some amount of consensus as to lower IQ bound that doesn't include me. Still, I think the analogy has some merit.

You can make little and be well off, and you can make a lot and have a lot of debt baggage. I can see my family and I being more defensibly "rich" in, say, a decade or so. More because we've started making better decisions, though, than because of any sharp upswing in income.

As far as capital gains tax goes, I have mixed thoughts. Most 401k or similar plans allow for directed investment in individual stocks, so one can play that game, if one wishes, in a tax-sheltered environment. At least to some limited extent. I do think that it's possible that a higher capital gains tax may tend to discourage continued investment/reinvestment, but I don't know that discouraging behavior that results in short-term stock investment is necessarily a bad thing. If it turns out that higher capital gains tax is, in fact, detrimental to investment (and that said detriment is a negative impact to the economy), there are things like Roth IRAs (IIRC) that allow one to invest post-tax income and keep the returns tax-free until you draw them out of the investment structure. I've got no problem at all holding off on tax until the investment dollars are pulled out as income, although I'm not sure how the details would work.

I don't have any investment outside my 401k, so I think this fight must go on without my dog.

Possibly there's a compromise position, here. More probably, though, I'm just completely wrong.

[cleek]

I think all this quibbling over what constitutes "rich" is misplaced. Rich has no quantitative definition.

"rich" = more money than you would know what to do with, if you had it.

[Andrew]

There seems to be some difficulty agreeing on the definition of 'rich' here.

The middle class is, by definition, the class of citizens in the middle of the income spectrum. Those in the top 2% of the income spectrum are unequivocally not in the middle. They are in the upper class.

Among places with 250,000 or more residents, the affluent Dallas suburb of Plano, Texas, boasts the highest median income: $77,038. San Jose came in second at $73,804 and San Francisco was third with $65,497. (linky) Is $200,000 rich compared to that? Two and one half times bigger than the highest median in the country? In what world is the 98th percentile not rich?

[The Hube]

I make around $300,000 a year, and I certainly don't feel rich. My house is 1800 square feet in the suburbs. Yes, my mortgage is very small, and I have no car loans or other debt, so I have a lot of choices that my brother in law, who makes $50,000 per year does not. Yet his kids are in college on full scholarships, while I paid every dime of my kids education (and guess who is supporting the in laws).

Now to the tax hike. I make $300,000; deductions are around $50,000, so taxable income is $250,000. An increase from 35% to 39% on income over $200,000 is going to cost me $2,000. I think I can handle it. If my taxable income was $500,000, the extra tax would be 4% of $300,000, or $12,000. I doubt that would change the lifestyle of a person making $500,000 much.

The sad fact is that we need to cut spending (get out of Iraq, close bases around the world, scrap stupid weapons contracts, eliminate farm and ethanol subsidies, end earmarks, etc.) and increase taxes (upper income taxpayers have been getting a break for way too long) to get this country on the right track.

[M]

"Let's start with the claim that people who make over $200,000 a year are not rich, which is absurd."

Follow your own numbers -- the problem isn't that people making $200k aren't doing well, it's that their money is a drop in the bucket compared to what the top .5, .2. .1, .01 and so on are making. It's "absurd" that someone making $200,000 a year -- who after taxes and student debt really takes home $80,000 at most -- should be taxed at the same rate as Warren Buffet or even "less rich" people like multimillionaires Bush and Cheney.

Why do we tax working professionals the same as robber barons? Why do we give Republicans the ability to attack us against a portion of the population that votes and contributes regularly? Lower 'professional' taxes and raise robber baron taxes.

[Cyllan]

It is a curious trait of most Americans that we consider the word "rich" to be a generally negative term. I've heard interviews with people making over $500,000/year, and the people interviewed claimed strongly that they were not rich; they were merely upper middle class -- maybe even upper-upper. It seems we'll twist ourselves into linguistic knots to avoid taking on the term "rich."

Speaking as someone who has been dirt-poor and who is now peeking into the levels of upper-middle class (I'm not to Hilzoy's cut-off yet, but our family is quite comfortable), I think one of the reasons for this is that it doesn't really feel that much different unless you take a step back and really think about things. It's perfectly clear when I do so; I am much better off than I was then, and I spend money on things now that I never ever could have when I was flat broke. But the day to day living still calls for making decisions about what to buy and not buy. I still stress about money concerns. I still see things that are way out of reach.

This is, I think, why many people in the upper percentiles can say with a straight face that they aren't rich. In their head, they aren't because rich is Someone Else With More. They sit down and worry about bills; they make decisions about what they can/can't afford. Rich Folks don't do such things. That they're worrying about bills because they have a 3000 sq foot house, a new car, and went clothes shopping at the local mall last month seems normal.

I have a friend who argues that even most of the very poor in our country are rich, and by global standards he's not entirely wrong. It's all a matter of perspective.

Which is all a very long-winded way of saying that I favor the percentile means of showing folks where their wealth-ranking is. Even if you don't feel rich at $200,000/year, knowing that this puts you in the upper tiers of income earners should at least give some pause to think about everyone lower on the scale.

[Francis D]

For those saying that $200k is not rich, cry me a river. My girlfriend and I between us make a bit over $100k and live in the second most expensive city in the world. Both of us live very comfortably, thank you. And both of us would vote to put taxes up on ourselves if there was any major political party proposing that. She's saving more than $1000 per month (I'm saving slightly less, but have a final salary pension scheme). So cry me a river - even in an expensive area (do you actually need to live in Manhattan anyway?) it is more than possible to live extremely comfortably on quite a lot less money than that.

The only way I can understand $200k not being rich is that rich is one of these irregular verbs. Most people seem to have a definition of rich that boils down to "Someone earning or owning significantly more (probably 50% or so IME) than I do".

[John Thullen]

Whatever rich is (money-wise), I'd be happy to give it a try.

I'd like to experience the cut-off point of having more money than I know what to do with instead of having more things to do and buy than I have money --- not that I'm complaining, he whined.

I love the stock market; it's a passion of mine.

I'll note in passing that the NASDAQ was at roughly 5000 eight years ago. Today, it remains below 2500.

The idea that the stock market will be the key to retirement wealth is a confidence game that is dependent on timing, luck, and very long-term patience. Keeping those three things in mind for 50 disciplined years and through life's exigencies is tough to do.

The key to wealth (for the average person who works for other people) is to save money regularly, period, regardless of what you invest in.

Back to Maria Bartiromo: CNBC knows it demographic audience. It is largely and not surprisingly high net-worth individuals who are in the high marginal tax brackets. Nothing wrong with that.

CNBC (which years ago was pretty good journalistically) has become a tout for Wall Street. In fact, it has become captured by Wall Street. I suppose that was inevitable, but you just have to see the elation and relief on the "journalist's" faces when the stock market goes up 300 points from day-to-day, not to mention the furrowed brows of concern when it declines 300 points, to realize that you aren't getting journalistic objectivity.

They also now concentrate on the short-term, valuing trading over long-term investing. Why, because you don't need 24-hour breathless coverage of long-term investing.

That would be boring. Who needs a money-honey (we all do, but for other reasons) to let you know that holding General Electric stock for 50 years will be a good investment?

Speaking of income demographics, I read Barron's weekly, the business newspaper. A month or two ago they had an article on the depressed real-estate market. They said "you" should run out and snap up the bargain deals. Why, formerly $5 million dollar homes were on fire-sale for $3.7 million.

So, I ran out and snapped up three of them, one in California, one in Florida, and one in New Jersey. Or, did I? No, I didn't.

Why not? Because the "you" they were talking to ain't "me". My home will go on fire-sale when one of us loses his or her job, probably hers.

Nothing wrong with wealth. Just remember that CNBC and Barron's and the rest know who subscribe.

They know are their customer base. Their customers don't want to read about the wisdom of clipping coupons or joining Sam's Club. Unless, they are shareholders in Wal Mart or whatever the coupon servicing company's name is.

[Francis D]

Why do we tax working professionals the same as robber barons?

You don't. You tend to tax the robber barons using Capital Gains Tax rather than Income Tax. This results in . And I agree that this is even worse.

[Francis D]

Why do we tax working professionals the same as robber barons?

You don't. You tend to tax the robber barons using Capital Gains Tax rather than Income Tax. This results in . And I agree that this is even worse.

[Francis D]

Why do we tax working professionals the same as robber barons?

You don't. You tend to tax the robber barons using Capital Gains Tax rather than Income Tax. This results in Warren Buffet being taxed at about half the rate of his secretary. And I agree that this is even worse.

I will remember the > next time...

[KCinDC]

"Rich" does cover a large range, and people making $200,000 are in a completely different universe from people making $20 million. That doesn't mean the people making $200,000 are middle class. Perhaps it means that we need to talk about the ultrarich as a separate class.

[OCSteve]

Trilobite: You stole my plan!

No way dude. I paid a financial adviser good money for that plan!

now_what: So if you live in a neighborhood with a lot of other rich people, you need more money. I'm not sure how you think this means those people aren't rich.

Depends on your definition of rich I guess. I’ll go with MouseJunior’s definition:

Being rich is about having access to wealth. It's about knowing that even if you stopped working tomorrow, and never worked again, your standard of living would continue to be acceptable.

Does the $200k couple appear to be rich to the minimum wage earner? Of course they do. But if they live in a high cost of living area with a huge mortgage and are facing putting 4 kids through college I doubt that they consider themselves rich. I doubt that they consider themselves even upper-middle class. Ask them if they are concerned about one breadwinner losing their job, if they feel comfortable that their future is coming up roses. (And report back of course.) But you’ll get the vote of that minimum wage earner by assuring them that your tax increase is only going to impact that couple in the nicer neighborhood.

Let’s assume you’re correct and that $200k in all circumstances makes one rich. Then let’s lower it a bit. Is $150k rich? How about the family with only one person working? Still rich? In all circumstances? So they won’t even miss that $2,976 when the FICA cap gets raised. And it will of course have no impact on their employer to shell out the extra $2,976. How about if they are self employed? Going to miss that $5,952? Just keep telling them that the increase will only impact “the rich” and I’m sure they will be fine with it.

(On preview I see that the “what is rich” topic has been beaten to death so I’ll drop it now.)

Which means raising the capital gains tax has no effect on them. What exactly was your argument here? It appears to have gone missing.

It was clearly (so I thought) in response to this statement:

This distinction is crucial, because capital gains and dividend income accruing inside these retirement accounts is not subject to taxation

Except in the case I noted (Roth IRA) that is false – the gains are taxed as normal income when you take the distributions. But to expand on it a little, the basic premise (higher cap gains tax = more revenue) is flat wrong IMO. Look at the history. The relationship between the capital gains tax and revenue from capital gains is an inverse one (over the last 30 years anyway). Raise the capital gains tax, and investors simply avoid capital gains – revenue drops. It has to be made up, so other taxes rise. So when you take your 401(k) distributions years from now, while you never paid capital gains directly, taxes on normal income have gone up and you end up paying more. This is directly related to the increase in the capital gains tax that you “never paid”.

I’m sure most here won’t like that source, but you can easily verify the history for yourselves. Here is another source (PDF) you won’t like (from 2001), but you can verify it with the Treasury data if you like.

The Treasury Department data also indicates that capital gains revenues have exploded.

In 1996 the last year with the 28 percent rate, the government collected $62 billion in capital gains receipts. Look what has happened since:

Year Tax Rate Capital Gains Taxes
1996 28% $62 billion
1997 20% $79 billion
1998 20% $89 billion
1999 20% $109 billion

The lower tax rates changed people’s economic behavior, stimulated economic growth, and thus created more, not less tax revenues. This was not a temporary one-year effect.

Nor was it an historical aberration. After the 1981 capital gains cut from 28 to 20 percent, the cap gains revenues leapt from $12.5 billion in 1980 to $18.5 billion by 1983—a 48 percent increase. More importantly slashing the income and capital gains tax rates in 1981 helped launch what we now appreciate as the greatest and longest period of wealth creation in world history. In 1981 the stock market was cratered at about 1,000, compared to 10,500 today. [2001]
…
Conversely, the perverse action in 1986 of raising the capital gains tax, caused total asset sales of taxable capital gains to evaporate from $326 billion in 1986, the year before the capital gains rate was raised (from 20 back to 28 percent), to $154 billion in 1989.

How is it that lower capital gains taxes lead to more revenues? The capital gains tax is a voluntary and easily avoided tax. When the tax rate is high, investors simply delay selling their assets—stocks, properties, businesses, etc.—to keep the tax collector away from their door. When the capital gains tax is cut, asset holders are inspired to sell. Moreover, because a lower capital gains tax substantially lowers the cost of capital, it encourages risk taking and causes the economy to grow faster thus raising all government receipts
in the long term. So the torrent of new revenues into the government coffers is really no mystery at all. In fact it was entirely predictable. (Emphasis mine.)

Worth repeating: Capital gains is the one tax that taxpayers have direct control over. They decide when to sell an asset.

[farmgirl]

Question for those who understand economics better than I: I'm wondering what role the lowered capital gains tax might have played in the recent economic bubbles. From OCSteve's cite, "because a lower capital gains tax substantially lowers the cost of capital, it encourages risk taking and causes the economy to grow faster."

Did it encourage unsustainable risk-taking? Was the economic growth real or illusory?

[Jesurgislac]

OCSteve: But if they live in a high cost of living area with a huge mortgage and are facing putting 4 kids through college I doubt that they consider themselves rich. I doubt that they consider themselves even upper-middle class.

I'm familiar with this world-view: I've encountered it many times. Many of the parents of the kids I knew at high school would have immediately defined themselves as "not rich" even though they lived in large houses with large yards, and took for granted two cars in the family, further education for all the children of the family, all the latest gadgets and at least one foreign holiday a year.

Fortunately, shortly after I left school, I came out, got (temporarily) dropped by my family, moved halfway across town, and lived for several years in one room in a shared flat, and realized once and for all that wealth really is defined by being able to take for granted the house ands the cars the holidays and further education for your kids - while "rich" is, as noted upthread, one of those irregular words that is frequently defined as "anyone who has substantially more than I do".

This may sound unacceptably liberal and hippyish and leftish to you, OCSteve, but I achieve peace of mind by accepting that though I have money worries now, and there are things I cannot afford, I am wealthy, and it behooves me not to grumble about paying my share. Which is, in any case, a thoroughly unattractive characteristic.

[Andrew]

Save your Laffer Curve nonsense for the Republitard echo chamber, OCSteve.

You don't suppose less revenues were garnered from capital gains because the largest stock market crash since the Great Depression happened the year after the tax raise? Ever heard of 'Black Monday'?
What a bunch of deliberately misleading tripe.

And guess what the Treasury Department has to say about it: The Bush Administration Treasury Department examined the economic effects of extending the capital gains and dividend tax cuts. Even under the Treasury’s most optimistic scenario about the economic effects of these tax cuts, the tax cuts would not generate anywhere close to enough added economic growth to pay for themselves — and would thus lose money.

[Jesurgislac]

(Oh, and FWIW: I earn just about $50K a year and live in one of the most expensive cities in the UK.)

[Jesurgislac]

(That's dollars: I converted from GBP.)

[crionna]

Anyone who chooses to follow their heart, enjoy their work or just plain slack off to the detriment of their ultimate income is the problem.

The idea that people should have the opportunity to do what they want despite their earning potential is what's killing us. I mean seriously, it's clear from reading here that what everyone values is money and nothing else. So, that smart guy who elects to teach in difficult schools rather than join a big law firm and that braniac gal who elects to provide general care in Appalachia rather than joining a drug company are the problem, as are the high IQ poets, waiters, authors, teachers, nurses, actors who aren't earning up to their potential.

So, I suggest a new tax rate based on a combination of intelligence tests done early in life. The smarter you are, the higher tax rate you pay. Imagine how knowing that you're smart enough to be in the 40% tax bracket for the rest of your life would change your work ethic and career/school choices. Plus, these people won't get social security, they're smart enough to save for retirement (which should certainly be much farther out because they'll be using their brains rather than their brawn or stamina to earn a living) and they wouldn't get the single-payer health care their taxes would provide because they're smart enough to eat right, exercise and avoid dangerous sports and situations.

Because really, shouldn't it be those who are born with good genes in the first place be held to a higher standard than those that aren't?

[hilzoy]

Andrew: "Save your Laffer Curve nonsense for the Republitard echo chamber, OCSteve."

The posting rules require civility. There are many better ways to make your point.

OCSteve: I'm trying to find capital gains tax revenue figures, but in the meantime, here's a contrary view. And the CBPP is a group I've always found to be completely reliable as far as figures go:

cite

My general sense is that dropping the cap. gains tax rate can induce short-term effects, as people sell stuff they might otherwise hold onto, while the going is good. Thus, I'm more likely to realize cap. gains immediately after rates are cut, before they go up again. But over the long run, cutting these rates loses money, since while I might decide to sell stock X as soon as rates are cut, I am less likely to choose to stop incurring capital gains altogether over the long haul.

[wonkie]

One the subject of wether or not a person with an income of 200,000, two cars , four kids, and a big mortgage is rich or middleclass: a person's class status is not determined by their own perceptions. Their status is determined by their positinn relative to others regardless of how they perceive themselves or how they feelabout it.

[KCinDC]

I mean seriously, it's clear from reading here that what everyone values is money and nothing else.

It is?

[hilzoy]

Aha! Figures from the CBO!

Here's what I was particularly looking for: what was going on with cap. gains tax revenues right before the 1996 rate cut? Answer:

1994: 36 billion (12% change from prev. year)

1995: 40 b. (10% change)

1996: 54 (36% change)

1997: 72 (33% change)

1998: 84 (16% change)

1999: 99 (19% change)

The figures for capital gains, not just cap. gains tax revenues, are basically similar: in 1994 we seem to be getting out of the recession, things pick up in 1995, 1996 is way, way better (45%) than '95, and 1997 is in turn way, way better (40%) than '96; then things cool down to a nice level, and year over year increases are more like 20 or so.

And:

"Because taxes are paid on realized rather than accrued capital gains, taxpayers have a great deal of control over when they pay their capital gains taxes. By choosing to hold on to an asset, a taxpayer defers the tax. The incentive to do that--even when it might otherwise be financially desirable to sell an asset--is known as the lock-in effect. As a consequence of that incentive, the level of the tax rate can substantially influence when asset holders realize their gains, as can be seen particularly clearly when tax rates change (see Figure 2). For instance, the Tax Reform Act of 1986 boosted capital gains tax rates effective at the beginning of 1987. Anticipating that increase, investors realized a huge amount of gains in 1986. Then, in 1987, realizations fell by almost as much, returning to a level comparable to that before the tax increase.

The sensitivity of realizations to gains tax rates raises the possibility that a cut in the rate could so increase realizations that revenue from capital gains taxes might rise as a consequence. Rising gains receipts in response to a rate cut are most likely to occur in the short run. Postponing or advancing realizations by a year is relatively easy compared with doing so over much longer periods. In addition, a stock of accumulated gains may be realized shortly after the rate is cut, but once that accumulation is "unlocked," the stock of accrued gains is smaller and realizations cannot continue at as fast a rate as they did initially. Thus, even though the responsiveness of realizations to a tax cut may not be enough to produce additional receipts over a long period, it may do so over a few years. The potentially large difference between the long- and short-term sensitivity of realizations to tax rates can mislead observers into assuming a greater permanent responsiveness than actually exists."

[hairshirthedonist]

To expand on Hilzoy's point @ 11:34, I would suggest that the short term effect has little to do with what the actual percentages are for the Capital Gains Tax, and much to do with the amount of the change in the rates, be they up or down, future or past. It's not that 20% is somehow an inherently better rate of taxation, it's just that it's lower than 28%. Were one to anticipate a move to a 12% percent rate from a 20% rate, one would have incentive to hold assets until the rate went to 12%. Of course, this can only go so far until you begin pushing on a string.

[Ugh]

Conversely, the perverse action in 1986 of raising the capital gains tax, caused total asset sales of taxable capital gains to evaporate from $326 billion in 1986, the year before the capital gains rate was raised (from 20 back to 28 percent), to $154 billion in 1989.

The other things that happened after 1986, besides a crash in the stock market, is that the Internal Revenue Code's "at-risk" rules were applied to real estate by the Tax Reform Act of 1986, deflating prices for commercial real estate that were driven above their FMV by the tax advantages prior tot he 86 Act (stocks aren't the only thing that generate capital gains).

But you're not really falling for this simplistic post hoc ergo propter hoc stuff, are you OCSteve?

Worth repeating: Capital gains is the one tax that taxpayers have direct control over. They decide when to sell an asset.

And why capital losses are only deductible against capital gains.

[John Thullen]

I blame the poets, too.

And the waiters. Who ARE the poets. Because there are no tips gained from the poetry craft.

Because the world's readers withhold their tips for poetry until the poet is dead.

You know what I hate. When a waiter approaches my table at an upscale restaurant and greets me by saying "Good evening, my name is Charles, and I'll be your poet tonight. May I start you off with an opening image? I'll be back in a minute while you think about it and present the metaphors we have on special tonight."

That guy gets this tip:

"That's all very nice but just bring me all of your scribblings and I'll pick out the timeless ones. Then, when you're dead, I'll figure out a way to make money from them."

"If you had any sense," I would offer, "you would sell insurance like Wallace Stevens. In fact, if you had sense, you would buy life insurance on yourself and make me the beneficiary. Then it's a twofer for me when you croak, Shakespeare."

I think poets should get a free pass on capital gains. However, crank up the capital gains tax on Ayn Rand's writings. Every time she had a breast heave or a bodice rip or a skyscraper quiver and pulsate, she pays the government at a 100% rate.

If Ronald Reagan was right that if you want less of something, tax it, would we have less of Ayn Rand?

Somehow I doubt it. Another economic theory down the tubes.

[Slartibartfast]

"rich" = more money than you would know what to do with, if you had it.

I have a good idea what to do with any amount of money, therefore I will never be rich.

Which, by extension, could mean I've never gotten a tax cut during the Bush occupation.

[Brick Oven Bill]

In http://www.constitution.org/fed/federa10.htm ">Federalist 10, the other Publius writes of the dangers of faction:

When a majority is included in a faction, the form of popular government, on the other hand, enables it to sacrifice to its ruling passion or interest both the public good and the rights of other citizens. To secure the public good and private rights against the danger of such a faction, and at the same time to preserve the spirit and the form of popular government, is then the great object to which our inquiries are directed.

Over half of Americans do not work. Around 40 million work for the government, or in government institutions (school, medicine).

There are only 7 million Americans who manufacture things and 20 million in construction.

In Madison’s day, the Dependency Faction was prevented by having a tax requirement for voters. It is estimated that only 12% of Americans were eligible to vote in 1789. The Dependency Faction will bring down our current form of government. “Vote for me, I’ll give everybody who makes under $100,000 a $2,000 economic stimulus check.” “No, vote for me, I’ll give everybody $3,000.”

The Age of Reason will be seen in the end to be far more humane to the underclass than the Nurturing Age that we are currently living through. History is not kind to the dependent. It is a precursor to slavery.

[russell]

So, I suggest a new tax rate based on a combination of intelligence tests done early in life.

Please, no. If there is anything the nation does not need right now, it is the invention of new ways to incentivize stupidity.

A data point:

My wife and I have a combined income that puts us just inside the top quintile. We're both white collar professionals in our 50's, and I also make a modest extra income as a musician.

We live in what is, by modern standards, a modest suburban home -- 1800 sf on 1/8 acre -- but it has more than one bedroom and bathroom per person. We drive old cars, but they are paid for, and they run fine.

We live a pretty low bling lifestyle, but are able to spend money at will for things we like, which in our case are plants for the garden, music, and food. We generally pay people to do things we don't want to, or don't have time to, do, such as clean the house, work on our cars, or for some of the very heavy lifting tasks in the yard. Due primarily to my wife's extreme frugality when she was younger, we are probably all set for retirement.

I'm not sure what our overall tax rate is. My wife is self-employed, and her situation is complex enough that we pay someone to figure that our for us. It costs us $750. One measure of whether you're rich or not might be if it costs you $750 to have someone tell you how much taxes you owe.

By the standards of my town, we're actually pretty far downscale, but by the standard of living I grew up with, and really by any sane measure, we're pretty wealthy. Other than the freedom to travel more, or having a bigger piece of land, I'm not sure what having more money would give us. More to give away, maybe.

I'm with Hubie. If hitting us up for another grand or two a year in taxes is going to make things better, I'm fine with that. We'll wait another couple of years to remodel the bathroom. I'd love to see less money spent on stuff that isn't particularly useful or productive, but I'd also like to see anyone try to get an agreement on what that means.

There's always something else entertaining to buy, but if you're making $200K or up you're probably doing alright. If the word 'rich' bugs you, call it something else, but you're probably not missing any meals, or missing out on anything else that's important to you. Assuming your health is good and your kids are OK, you are likely in pretty good shape.

I'd also like to echo Ara and once again ask what is apparently the stupidest question on earth: why is unearned income taxed differently from earned income?

Thanks -

[Slartibartfast]

realized once and for all that wealth really is defined by being able to take for granted the house ands the cars the holidays and further education for your kids

I think there's a certain amount (quite a lot, actually) of truth to that, but there's another aspect to it. This is a game that our culture has us playing, that we get the most house we can possibly afford, that it makes good sense to be in mortgage debt, and that 90 days really is the same as cash. The way I see it, when you've reached the point where you stop taking that house, that yard, and those new cars for granted; that's the point where an opportunity for wealth opens up. Before you've reached that point, you're simply squandering most of what you earn.

Neither here nor there as far as tax policy is concerned, but there are cultural pulls here that bear examining. Anyone who earns $200k a year really ought to be wealthy, sooner or later, if it weren't for that cultural impetus to live at the edge.

[Anarch]

OCSteve: But if they live in a high cost of living area with a huge mortgage and are facing putting 4 kids through college I doubt that they consider themselves rich.

As someone who made around $16k a year for the last ten years (yay grad school!), I don't give a crap whether they consider themselves rich, they are rich. They're using those riches in order to provide their families with some very nice perks -- and more power to them, I thoroughly approve -- but that doesn't change the essential situation.

[And don't think I don't appreciate the CoL increment, either. I grew up in one of the most expensive cities in the world (Hong Kong), and had to continually explain to my college friends why we were simultaneously both rich and middle class.]

The key is what KCinDC said, and it's worth repeating:

Perhaps it means that we need to talk about the ultrarich as a separate class.

Yes. Absolutely. In fact, we really need a series of words to describe the ultrarich in this country; maybe one for the top 2%, the top 1%, the top .5%, the top .1%, a more palatable term than "f***-off rich", and so forth.

Part of what's confusing the issue is that, as a nation, we keep producing more and more ways to spend disposable income, and those ways become more and more ostentatious. The bar for what cleek said, then:

more money than you would know what to do with, if you had it.

becomes higher and higher and higher, since there's simply more to do with it, even though that doesn't change the nature of our riches.

To put it more concretely: suppose there are two categories of goods, A and B, with A costing $8 and B costing $40. B really is worth five times as much as A here, because it's five times as good. Suppose further that out of 1000 people, 990 have $10 and The Special 10 have $100. Under these circumstances, there's no doubt that the Special 10 are rich, since not only do they have ten times as much money as the rest, they have a good on which to spend that money.

So far so good, but let's change the situation slightly. Two of the Special 10 become richer: Alice now has $200 and Bob now has $1000. [Damn glass ceilings!] With this new income available, the market produces a few more luxury goods: C, priced at $80; D, priced at $120; and E, priced at $300. The question now is, who's rich?

Clearly Bob is rich; he makes more money than everyone else and can afford a good (E) that no-one else can. Alice is also obviously rich, since she's second only to Bob and can afford a good signifying this (D). But what about the No-Longer-So-Special 8? Are they still rich or not? On the one hand, they used to be able to afford anything they wanted (either A or B) and were richer than anyone else; now, they have to make choices about which luxury goods they purchase (B, C) and there are a plethora of goods they can't afford at all (D, E). So maybe they're not rich. On the other, they make more than 99% of the population and, perhaps more importantly, nothing has changed for them: they can still afford everything they used to. So if they were rich before, why aren't they now?

And so forth. My personal opinion is that if you're in the top epsilon-percentile, for sufficiently small epsilon, you're rich, and of story. Whether this survives my transition from grad school into, well, riches... that'll be another story.

Added in preview: very, very nice, crionna. Almost had me fooled (:

[Sebastian]

"Perhaps it means that we need to talk about the ultrarich as a separate class.

Yes. Absolutely. In fact, we really need a series of words to describe the ultrarich in this country; maybe one for the top 2%, the top 1%, the top .5%, the top .1%, a more palatable term than "f***-off rich", and so forth."

I'm not sure we need to deform large portions of the economic system just to get at the ultra rich or whatever you want to call them. I've always been troubled by the idea that we just have to do *something* about the ultra-rich if that something is going to upend how the rest of the country functions. Rules that are good for the middle class and rich but not ultra rich are generally good for the country as a whole. Design the process so you can have good basic rules for the vast majority of people, and just apply those rules to the ultra-rich too. If they do better or worse, so what? So if you think that a general tax rate of X% provides the services we need as a country, apply that rate to everyone (with perhaps an exemption for the very poor).

I strongly believe that it is important that citizens don't get the impression that they can get new services while generally foisting off the cost on other people. There aren't so many of the ultra-rich that you can get away with that as a general strategy, and if we build the poltics up as if that was a real solution, there is going to be a (more) serious fiscal problem.

[(The original) Francis]

fwiw:

I've known both personally and professionally people who did not need to work. Whether it was trust funds or cash in the bank from the previous year's bonus, these individuals had enough assets to live comfortably (very comfortably) for the rest of their lives without generating one penny of earned income.

My dad, by contrast, started life dirt poor and retired in his late 60s after working very hard as a partner in a Wall Street law firm.

I got a first class education without needing to borrow money. I'm (duh -- see previous post) a California water lawyer. But there's no trust fund; my sole source of income is my work.

The first group -- rich. My dad -- he never felt rich; he always felt the breath of the Depression on his neck. Me, somewhere in between.

I guess it's all a matter of looking uphill. To me, the quintessential definition of being rich is not needing to work. The rest of us schmucks are just managing different cash flows.

That said, I know full well that I'm square in the target group of people who can afford more taxes. And that's okay.

[cleek]

The bar for what cleek said, then:

more money than you would know what to do with, if you had it.

becomes higher and higher and higher, since there's simply more to do with it, even though that doesn't change the nature of our riches.

exactly. "rich" is a relative term, and polling data backs this up. "rich", for most people, is what their wealthiest friends make: probably some small multiple of their own income. "rich" is the fantasy of being able to meet all your current expectations comfortably. the thing is, while dreaming of being able to cover your current expectations, you never think that you'll develop new expectations - and you will.

[hairshirthedonist]

I don't think anyone has mentioned this, and it may be of limited relevence, but capital gains are taxed the same a earned income if your tax rate on earned income is lower than the capital gains rate. I'm reminded of that because russell wrote:

One measure of whether you're rich or not might be if it costs you $750 to have someone tell you how much taxes you owe.

My federal income tax for 2007 was about as much as russell paid someone to tell him what his taxes were. That included the taxes on my capital gains, at an effective rate of less than 1%. (Those kids are a gold mine, I tell ya!)

[Wayne]

Would it be too simple to say that some people feel that there are people who make too much money, so we should take some away and give it to those who don't have as much?

[von]

I think that the more difficult aspects of Obama's tax proposals are that these capital gains tax increases -- though admittedly modest -- are accompanied by a proposal to removal of the cap on the payroll tax. This could have a substantial impact on the self-employed,* including a significant numbers of small business owners. A small business owner may see a substantial tax increase under an Obama administration, which could have negative consequences on how he or she expands the business.

*Some who is self-employee generally pays the full payroll tax. Most employees are required to pay only half the payroll tax, with the other half paid by the employer.

[von]

There's always something else entertaining to buy, but if you're making $200K or up you're probably doing alright. If the word 'rich' bugs you, call it something else, but you're probably not missing any meals, or missing out on anything else that's important to you. Assuming your health is good and your kids are OK, you are likely in pretty good shape.

I think that's pretty much right.

[John of the Dead]

Wayne said: Would it be too simple to say that some people feel that there are people who make too much money, so we should take some away and give it to those who don't have as much?

Yes, it would be far too simple. Speaking only for myself, I feel there are some people who are better able to pay for the needs of modern society than others. Those people reap greater rewards from living in said society than those less able to pay. Ergo, they should be expected to contribute a greater amount to the upkeep of society, as they have more to lose from its collape.

[Tony P.]

von:

I thought it was Republican dogma that employees DO effectively pay both halves of the payroll tax. That's one of the few sane things Republicans have to say on economics. So why, all of a sudden, must we pretend that the self-employed are in fact a separate category w.r.t. payroll taxes?

-- TP

[John of the Dead]

von wrote: *Some who is self-employee generally pays the full payroll tax. Most employees are required to pay only half the payroll tax, with the other half paid by the employer.

Just a small nit to pick. Employers consider their "half" of the payroll tax when calculating an employee's total compensation. It works out mostly the same for the employee - he could be given an raise equal to half of the payroll tax and pay the entire amount, breaking even. I say it works out "mostly" the same, as that amount of payroll tax affects the total salary, and therefore the total taxable income, but unless I'm way off the mark (and please, someone, correct me if I am), the difference is almost negligible. Right?

[Wayne]

So John does that mean from each according to his ability; to each according to his need?

[John Thullen]

Sebastian:

I'm going to move in with the ultra-rich.

What's the tax rate that will apply to everyone? I'm not completely turned off by a flat tax, though I favor progressivity. But what's the number?

I agree that negative rhetoric directed toward the super-rich, whatever the level, is dumb. Unless they complain about their taxes. Which is their right, of course. Which then triggers my right to sneering and shut-up alreadys.

A word on marginal tax rates, alluded to earlier in the thread:

I'll bet most folks don't pay as much in Federal Income Tax as they think. Claim: the government is taking 28 cents in income tax of every dollar I earn.

No, it isn't.

Ronald Reagan claims he decided not to make a movie in the early 1950s because it would have netted him so little, given marginal tax rates back then --- 90-something percent for the high tax bracket.

Well, O.K. Besides the fact that we avoided having yet another B movie moldering in the archives, I don't think it took very much for the man to decide not to work.

Let me get this right. A guy gets a call to make a movie in Hollywood for X number of dollars. With a limo to the studio, a winsome co-star, a trailer, and a spread laid out for lunch every day.

He says, sorry, but I've been disincentivized.

Maybe he couldn't handle working with Leo Gorcey one more time.

I think Reagan claimed the movie wasn't made because of his decision. What, Van Johnson or John Payne weren't available? Or maybe one of 50,000 good looking faces just off the truck from Nebraska willing to become so rich that they would enter the high marginal brackets?

[Wayne]

So John does that mean from each according to his ability; to each according to his need?

[Jesurgislac]

So John does that mean from each according to his ability; to each according to his need?

Good Christian principle, that.

[von]

I thought it was Republican dogma that employees DO effectively pay both halves of the payroll tax.

Why do you feel the need to preface this statement with the term "Republican dogma"?

In any event, yes, employers do generally take into account payroll expenses (including taxes and healthcare) in setting employee salaries.

My statement, however, concerned the small business owner who is self-employed. Under Obama's plan, such a person will see (1) a direct and significant increase in his or her taxes to the extent his or her income exceeds the SS cap and (2) additional expenses (and therefore a disincentive) to hire high-wave employees due to the same. This is unlikely to affect generally low-wage industries, but may have a very substantial effect on high-wage small business and startups: technology, pharmaceutical, and biochemical companies.

[Wayne]

Jes Marx was no christian.

[John of the Dead]

Wayne wrote: So John does that mean from each according to his ability; to each according to his need?

Not hardly. "From each according to his ability," partly. A *portion* from each, according to his ability. That's called doing your fair share. What we aren't doing is the "To each according to his need" part. We are, however, trying to provide a safety net. Along with, of course, police, fire departments, roads, food and air quality, national defense, etc, etc, etc. But that differs greatly from the first-century Christian communes you describe. (I know, I know, Karl Marx. But where do you think he got it? Acts 2:44-45)

Let me see if I can expand upon this. The wealthy get more from society than the poor; therefore, they should contribute more to its upkeep. Who is in more need of the police - a man with nothing worth stealing, or a man with a flat-panel TV, DVD player, surround-sound system, two nice cars, and a beer-tossing mini-fridge? Who is more in need of quality roads - the average joe, with trips to and from work, the store, and the occasional leisure trip; or the industrialist who *owns* the manufacturing facility, that must get raw materials to the plant, finished goods to the stores, and then rely on consumers being able to get to the stores to purchase the goods? Does that make sense? It seems sensible in my head, but sometimes I lose things in translating them to written words. :-)

[russell]

Would it be too simple to say that some people feel that there are people who make too much money, so we should take some away and give it to those who don't have as much?

Yes.

So John does that mean from each according to his ability; to each according to his need?

No.

Glad I could be of help.

Thanks -

[John of the Dead]

Wayne wrote: Jes Marx was no christian.

No, but as I mentioned, he ripped that off from the early Christian communes.

Acts 2:44-45
44 All the believers were together and had everything in common.
45 Selling their possessions and goods, they gave to anyone as he had need.

So, Marx may not have been a Christian, but Christians certainly were Marxists.

[Jesurgislac]

Wayne: Jes Marx was no christian.

"Union with Christ is found in a close and living fellowship with Him and in the fact that we always have Him before our eyes and in our hearts. And at the same time that we are possessed by the greatest love of Him, we direct our hearts to our brothers, with whom He bound us closely, and for whom He sacrificed Himself." - Karl Marx, Unity of believers in Christ according to the Gospel of John 15:1-14: Unity's meaning, unconditional necessity, and influence

Karl Marx's father was a Jewish convert to Christianity: Marx himself was a Christian who became an atheist. But the principles of Communism are the principles of early Christianity as expounded in the Acts of the Apostles.

Not that this is quite relevant to the subject at hand, but I am nonetheless frequently amused by the spectacle of wealthy right-wingers who embrace Christian morality about sex, but attack with venom Christian morality about poverty, wealth, and forgiveness of debts.

[Sebastian]

"The wealthy get more from society than the poor; therefore, they should contribute more to its upkeep. Who is in more need of the police - a man with nothing worth stealing, or a man with a flat-panel TV, DVD player, surround-sound system, two nice cars, and a beer-tossing mini-fridge? Who is more in need of quality roads - the average joe, with trips to and from work, the store, and the occasional leisure trip; or the industrialist who *owns* the manufacturing facility, that must get raw materials to the plant, finished goods to the stores, and then rely on consumers being able to get to the stores to purchase the goods?"

Yes, and putting a pretty constant tax *rate* already deals with that and in a very obvious way. If the tax rate is 30% someone who gets from the society in such a way as to earn $1,000,000 will pay $300,000 in taxes. The person who earns $100,000 will pay only $30,000 in taxes. The person who earns $50,000 will pay $15,000 in taxes. Designing it that way, everyone realizes that if they vote for more stuff, they will have to pay more. When you start charging the "ultra-rich" more, you start getting the political pretense that you can vote for more stuff and foist the payments off on to someone else.

Also you seem to be ignoring the idea that industrialists at least may give back more already than you give them credit for. They helped create jobs.