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July 16, 2010

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Thanks, hsh, I do like to think of me as a part of we, and I do have a list of projects I would like the government to prioritize.

Marty, I didn't think you could still surprise me, but this is pretty strange:

"That is an effective tax increase of 3.45%"
Well sure. On top of an effective tax rate on the first 400k of (rounding) 30% so thats 120k. Plus the other 36% he's paying for the next 600k already, about 220k. So in your example the 34k is coming out of the 660k he has left so it's something around 5%.

You are seriously saying that it's reasonable to describe a marginal rate in terms of a percentage of "what's left"?? You seem to think you've proved or clarified something by adjusting 3.45% to "around 5%", but you're simply answering a different question, one whose only relevance as far as that I can tell is that it makes the answer sound worse. That's just not what anyone other than you is talking about when they talk about marginal tax rates.

The flat-tax crowd plays these number games all the time, relying on the unfortunate fact that most people don't understand the difference between (x/y) and ((y-x)/y).

But nothing I am putting into this thread has anything to do with protecting the rich.

and yet you go to the mat to defend them against a frikkin 3% tax cut ? you insist on blurring the line between small businesses and people who profit from those businesses, to the defense of people who do not need the money and who were doing well before Bush's tax cuts ?

Bush's tax cuts are a huge part of the reason our government is running the deficit it's running. if you care at all about the deficit, letting them expire as planned should be a no-brainer.

for the last 7 years, the rich have had a nice comfy ride on the backs of the working classes. they've prospered while the middle class has stagnated (or worse). well, the ride's over. welcome back to the horrible world of 2000 taxation levels.

If you want to complain about protecting the rich and global corporate entities then complain about those and I will be right beside you.

as soon as Eric makes a post about that topic, i will.

Its interesting how they have had a nice comfy ride for 7 years, yet the amount of money that they will be taxed is insignificant to them.

One of these things can't be true.

Marty: Its interesting how they have had a nice comfy ride for 7 years, yet the amount of money that they will be taxed is insignificant to them. One of these things can't be true.

My employer can give me an ice cream every day. I like ice cream; it would be a nice, comfy ride. However, my employer ending the ice cream benefit will not have any effect on my work effort. It is insignificant.

for the last 7 30 years, the rich have had a nice comfy ride on the backs of the working classes.

Fleshing out Phil's 8:03, from CBO tables http://www.cbo.gov/ftpdocs/98xx/doc9884/spreadsheet.xls>here (Table 3).

In 1979, the after-tax household income of the lowest quintile was $14,400; of the top 1% of 1% it was $4,188,300. The top 1% of 1% were taking home (after taxes) 291 times the bottom quintile.

In 2005, the after-tax household income of the lowest quintile was $15,300; of the top 1% of 1% it was $24,286,300, or 1587 times the bottom quintile.

Some charts follow. The top quintile in the CBO charts is divided into percentiles as follows:

81-90
91-95
96-99
99-99.5
99.5-99.9
99.9-99.99
top 0.01 percentile

The 11 lines in the first graph are the 4 bottom quintiles and the top divided into 7 subsections. The 5 lines in the second graph are the 5 quintiles, with the top one weighted according to # of households.

After-tax by household 1979-2005

After-tax 1979-2005, top quintile wtd average

The lines are all pretty much flat except at the very top, bearing out what Russell has said repeatedly here: the wealth built up in this country for the past few decades has all gone to the top. (Warren Buffett seems to agree, see quote from a few days ago.)

With the proposed tax increases, on a very rough estimate, the 11,000 households that take home two million a month after taxes (on average) would have to struggle along on a mere $1,900,000 or so instead.

Poor bastards.

(Yes, I know it's not 2005 any more. I don't have time to find more recent numbers, if they're even available at this level of detail.)

Its interesting how they have had a nice comfy ride for 7 years, yet the amount of money that they will be taxed is insignificant to them.

yeah, that's the thing: it is insignificant. but it's not insignificant to the health of the country. yet, as should be completely obvious to even the dumbest observer, the rich (and their loyal defenders) bellyache over the slightest increase - even when that increase is merely a return to levels that were themselves historically low. and yet every time, it's the same old litany of BS fear : you'll destroy business! we'll be less competitive! workers will suffer! consumers will pay the price! and their predictions never come to pass. they were doing fine in 2000, they're doing fine now, and they'll do fine in 2011. it's always the fncking end of the world when someone suggests it might be time for the rich to pay their share. and yet it never comes to pass.

bearing out what Russell has said repeatedly here

It's from the CIA Factbook on the US. Dirty hippies!

What I want to point out regarding marginal tax rates and general fiscal health is that we currently have historically very low rates, have had them for a few years, and the economy is in the freaking dumper.

If you look at a historical table of the marginal tax rates and compare it to any historical measure of national health, you will be hard pressed to find a meaningful correlation, let alone proof of a cause and effect relationship.

Try it sometime, it won't take long and it's an interesting exercise.

The country needs the money. The way we raise revenue is primarily income tax. For lots of reasons, including a basic ground-level sense of general fairness, we employ a progressive tax regime.

Raise the freaking top marginal rates by a couple of points. The republic will not fall as a result. And we need the freaking money.

JanieM,

Very convincing graph. I would say it should have been the lead, but then there would be little discussion.

To everyone,

Is there a chance that part of the problem is that the tax brackets have not kept up as well? Clearly, the 30 million dollar guy is able to give more, but the top bracket does not seem as far away as it was in 1979.

Two good salaries from professionals can put you there, where it seems that the top bracket was more elusive before. Does anyone know if the tax brackets are hitting the same percentage of tax payers?

I couldn't find anything that neatly displayed percentages of filers by highest marginal rate paid, but the site at the URL below has, at the very least, data on all the brackets from 1944 to 2010. The brackets generally go up through the years and, recently, at rates appearing to match inflation. (Take a look at some of the older schedules for a laugh, considering all the hullabaloo about the percentages now under discussion.) I'd guess that fewer filers are hitting the top rate (on a percentage basis), but that a larger percentage of their taxable incomes are subject to the top rate, given JanieM's graphs.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=474

"I'd guess that fewer filers are hitting the top rate (on a percentage basis), but that a larger percentage of their taxable incomes are subject to the top rate, given JanieM's graphs."

I found an interesting correlation to the top end of Janie's graph and the growth of hedge fund Assets Under Management in the graph included in this pdf. A phenomenon I have been looking at to see if it accounts for some of the sharp spike in the 90's and 2000's at the top end of earners.

A few other places put the growth extending through 2008.

For lots of reasons, including a basic ground-level sense of general fairness, we employ a progressive tax regime.

Adam Smith was a big proponent of progressive taxation. "The" Adam Smith.

Just for kicks, here are the brackets for 1968, the year I was born:

$0 - $1,000 14.00%
$1,000 - $2,000 15.00%
$2,000 - $3,000 17.20%
$3,000 - $4,000 18.275%
$4,000 - $8,000 20.425%
$8,000 - $12,000 23.650%
$12,000 - $16,000 26.875%
$16,000 - $20,000 30.10%
$20,000 - $24,000 34.40%
$24,000 - $28,000 38.70%
$28,000 - $32,000 41.925%
$32,000 - $36,000 45.15%
$36,000 - $40,000 48.375%
$40,000 - $44,000 51.60%
$44,000 - $52,000 53.75%
$52,000 - $64,000 56.975%
$64,000 - $76,000 59.125%
$76,000 - $88,000 62.35%
$88,000 - $100,000 64.50%
$100,000 - $120,000 66.65%
$120,000 - $140,000 68.80%
$140,000 - $160,000 70.95%
$160,000 - $180,000 73.10%
$180,000 - $200,000 74.175%
$200,000 - and over 75.25%

For married, filing jointly, that is.

Is there a chance that part of the problem is that the tax brackets have not kept up as well?

What happened beginning with Reagan is that the top brackets just went away.

If you made $90K in 81, you paid 59% on your last dollar. If you made $220K (or more) you paid 70% on your last dollar (or dollars).

If you made $90K in 82, you paid 50% on your last dollar, so, you got a 9% break. If you made $220K, you paid 50% on every dollar above $85,500.

That top 50% bracket then began at progressively higher incomes until 86, when it kicked in at $175K.

The following year, the top few brackets were again basically just lopped off, leaving a top bracket of 38.5%, which kicked in at $90K.

That $90K is about $180K in today's money.

It's not that the highest brackets haven't failed to keep up, they've simply been eliminated. The tax regime is significantly less progressive than it was prior to Reagan.

Note that the $3.5 million exemption was not in effect for 2000, thus the actual effects were realized by 138 farms. Should we not use the actual data rather than use the exemption for a year for which we have no data? That seems to understate the case, perhaps resulting in an incorrect understanding by your readers. Appreciation of the estate values may have occurred during the 9 years. We should also agree that we are not really taxing the dead. Penalties for non payment are not effective because of their deteriorating condition, nor can they mount an effective appeal. Heirs are being taxed.

Please indulge me while I envision how this may have transpired in one of the 138 cases that occurred in 2000:

Dear Mr. Brown and Mrs. Green
Our condolences on the passing of your esteemed father. He lived the American dream, rising from relative poverty and, through his industry and initiative, achieved success in building the farm on which he raised his family. The federal government has elected to exercise the authority to remove 47% of the accumulated value of your inheritance exceeding $1.5 million. The calculation of the estate tax is attached for your convenience. You may wish to consult a qualified tax adviser. Please note, this may has some impact on your decision to remain on said property with your respective families. Again our sincere condolences.

This parable represents a nightmare rather than a fairy tale. It demonstrates callous disregard for their property rights. It should never come to pass.

In effect the estate tax is opportunistically constructed, upon the death of an individual, to deprive the heirs of significant value of the estate in favor of the State, whether real property or personal property. It is an exercise of the majority, not possessing wealth, against the wealthy minority. Therefore, the central question arises, is this a just policy with regard to the standard of our law, which is the Constitution and the natural law upon which it is based? What is the reasoning by which we should hold that the estate tax is just or unjust? Is it not better to base the decision on reason rather than what you or I would rather do?

The Constitution concerns the relationship of persons, individuals, with their government. It both establishes the form of that government and the protections from that government. This approach naturally rests upon the common characteristics of persons. We are typically able-bodied and able-minded. We construct shelters, seek sustenance, and otherwise care for our own survival. We typically try to improve our own condition. A consequence of our unequal capabilities and endeavors, not to mention unforeseeable events, is that some will be more successful, prospering to greater degrees than others. That is the pursuit of happiness part. No guarantees of happiness can be realistically effected. The common laws provide protection so that, in pursuing happiness, we do not violate the protected rights of others, becoming the immediate cause of their unhappiness.

Not mentioned directly in the Constitution is nature of our procreation and the subsequent manner in which we protect, teach, guide and provide for our offspring. It is part of the natural law, upon which the Constitution rests. Nothing is more natural to humans than these aspects. No one has to tell us these things. We learn by example however. It's an old tradition, dating back before recorded history.

Fundamental to our provision, is the desire (and necessity) to furnish our children with the fruits of our labor. We desire that our children will enjoy better circumstances, that they need not cross the plains in a Conestoga wagon experiencing the hardships of the pioneers. Provision for children is not expressly mentioned in the Constitution, nor is the concept of inheritance of property, real or personal. They do however, derive from natural law. What is mentioned, which pertains to natural law is that we intend to "secure the blessings of liberty to ourselves and our posterity".

Those persons that are not able-bodied or able-minded are also not mentioned. They need special consideration, often in the form of welfare. Others may also need welfare because of some exceptional circumstance. This is not however, the meaning of the phrase "promote the general welfare" which relates to natural law rather than exceptional cases. The existence of people who genuinely need welfare is not, therefore, justification for invalidation of the provisions and protections of the Constitution.

It is no more just for our common laws to deprive people of inheritance, than it is to deprive them procreation. We are at liberty to procreate and to inherit. Neither of these is specifically mentioned in the Constitution since they are part of the natural law. Since our Constitution does not recognize a category or class such as wealthy or poor, it is well understand that all citizens have equal standing before the law and require equal protection. Rich people are included.

The wealthy generate larger tax revenue as a consequence of larger income (dividends, interest, etc.), larger expenditures (personal property and activities), and greater capacity for industry (investments, venture capital, and businesses) . Our progressive tax code has ample provisions for extracting taxes from those deemed rich or wealthy, without resorting to an unjust confiscation of inheritance. We suffer no harm from the lawful accumulation of wealth by other individuals or its transfer by inheritance. To the contrary we benefit in many ways.

Moreover, the transfer of that wealth from the private sector to government negatively impacts the overall economy. You might note the section in the CBO report discussing effects. It had some interesting statements such as: "A large body of research has, however, found that income taxes may discourage entrepreneurial effort."

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