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Tax Facts Hardly Anyone Knows
April 18, 2011 1:41 PM Subscribe

9 Things The Rich Don't Want You To Know About Taxes - "4. Many of the very richest pay no current income taxes at all: Paulson made himself $9 billion in fees in just two years. His current tax bill on that $9 billion? Zero... 9. Other countries do it better: no one in Germany or the rest of the modern world goes broke because of accident or illness" (via)

BONUS

The Real GE Scandal - "We should lower the tax on corporations. That would make the United States more attractive to U.S. and foreign multinationals. We should then raise taxes on the people who receive the benefits of corporate profits. The economists suggest cutting the corporate rate to 26 percent and increasing the capital-gains rate to 28 percent; dividends would be taxed as ordinary income. If done properly, this switch would create jobs, lower tax avoidance, and cut budget deficits. Eliminating unwarranted business tax breaks could raise extra revenues. The scandal is not that GE is paying no U.S. taxes in 2010; that will be temporary. The scandal is that we're not facing the realities of globalized business."
Corporate Tax Rates, Then and Now - "the change in corporate taxes — not merely rates, but what they actually paid — over the past half century is astounding"
How to Pay No Taxes - "For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30 percent in 1995 to just under 17 percent in 2007, according to the IRS. And for the approximately 1.4 million people who make up the top 1 percent of taxpayers, the effective federal income tax rate dropped from 29 percent to 23 percent in 2008. It may seem too fantastic to be true, but the top 400 end up paying a lower rate than the next 1,399,600 or so."
Tax Brackets 101 - "Please, please, please can you help raise awareness of this very important feature of our tax code: We all are subjected to the same tax rates for the first increments of taxable income. We have to pay higher tax rates only on the increment. Bill Gates pays the same taxes on the first $10K that he makes as does the Safeway clerk on the first $10K that she makes."

posted by kliuless (191 comments total) 78 users marked this as a favorite

The rich don't get rich by paying taxes. They get rich by shifting the tax burden onto the poor and then using their savings to lobby Congress so that the tax money is funneled into their pockets. And then, one day, all the lights go out and guillotine comes out, and they're all like, fuh? I was just taking care of me and mine! And then there is a thudding noise, and their lips continue to move in protest, and their eyes roll, but nobody pays attention, so it's into the basket they go, or part of them, anyway, as the crowd cheers and another millionaire's neck is put on the block.
posted by Astro Zombie at 1:51 PM on April 18, 2011 [75 favorites]

kliuless: "The economists suggest cutting the corporate rate to 26 percent"

Well that would really help out GE. They'd save $0 over the $0 they pay now!

How about we just start by making corporations and people fucking pay what they owe, and cut out the endless bullshit loopholes that pass the burden onto those who can least afford it?
posted by caution live frogs at 1:52 PM on April 18, 2011 [15 favorites]

The entire Willamette Week website is down. That's why the top link won't work.
posted by Lord_Pall at 1:53 PM on April 18, 2011

Here's a related fun one - a friend of mine has rich parents who, through connections, had a good investment opportunity to partake in. The investment required that the funders be accredited investors (a net worth over $1M or > $200k income), which his parents are, but he is not. However, if a legal entity is wholly owned by accredited investors, that entity can act as one. To let their son get in on the investment, they started an LLC, "Johnson Enterprises" (not the real name), made the investment, then sold him an equity stake in that entity.

Naturally, at this point, "Johnson Enterprises" cannot engage in any new investments which require the investor to be accredited, since one of its owners is not accredited. When a new opportunity came up, they simply founded "Johnson Enterprises II" and pulled the same maneuver. So, if you see legal entities with weird sequel-sounding names, you might know why.
posted by 0xFCAF at 1:55 PM on April 18, 2011 [5 favorites]

Can we have fair tax? Please? Destroy the IRS? Destroy payroll taxes? Let GE not pay any taxes sure but those fucks at the top absolutely cannot get out of paying 23% on all their caviar and helicopters. Fuck I hate filling out forms. Please?
posted by seanmpuckett at 1:56 PM on April 18, 2011

Bill Gates pays the same taxes on the first $10K that he makes as does the Safeway clerk on the first $10K that she makes.

This is not a bad thing. In fact, if all the taxes rate on every dollar you make were calculated based only on your total income, we'd end up in the having a tax situation where a person can earn $1,000 more, and because of that end up owing more than $1,000 more in taxes. This would be bad.
posted by milestogo at 1:57 PM on April 18, 2011 [8 favorites]

Paulson made himself $9 billion in fees in just two years. His current tax bill on that $9 billion? Zero.

That's WHY he's rich. Doy!
posted by Kandarp Von Bontee at 2:04 PM on April 18, 2011 [1 favorite]

Man, fair tax got me 10% less spendable income. I can maybe be sold, but that certainly wasn't particularly great in terms of calculating.
posted by Carillon at 2:05 PM on April 18, 2011 [2 favorites]

You know how they say that if we tax the rich they'll leave the country taking their money and spending with them?

I say we call this bluff.
posted by quin at 2:06 PM on April 18, 2011 [37 favorites]

Hate to inject facts into the whole situation but, unless this study is a complete fabrication, it is estimated that in 2010:

The top 20% of income earners will pay 65.8% of all federal income taxes.

The top 1% will pay roughly 1/4 of federal income taxes.

The top 0.1% will pay 13% of federal income taxes.

So yeah, sorry they make so much money. It sucks. I want a yacht too. But, this new myth that the rich pay no taxes is bullshit. Unless of course they're committing tax fraud; and some of them are and in which case they should be punished.

Also, the reason that tax rates are much lower on capital gains tax is based on well reasoned tax theory, which you may disagree with. But the rationale isn't just simply, "give rich people more money RAWR."
posted by gagglezoomer at 2:06 PM on April 18, 2011 [9 favorites]

Uhh fuck no on that fair tax bullshit, Sales Taxes are regressive as hell (rich people don't actually purchase goods with everything they make- and can easily fly to a tax free location to buy stuff).

Same thing with any of that flat tax nonsense. Progressive taxation is good because it's useful for redistributing wealth. Equitable distribution of wealth being a thing with free markets aren't particularly good at.

The problem is that instead of having solid tax brackets that everyone is placed into based upon wealth/income we have a complex tax code that incentivizes certain behavior and disadvantages other socioeconomic brackets. While tax incentives can be used to create good policy outcomes they've largely become a method for the wealthy (individuals and corporations) to offset their tax burden and as a spoil for the supporters of elected officials.

Unfortunately the media landscape has been framed in such a way that concepts like wealth redistribution are seen as borderline communist.
posted by vuron at 2:07 PM on April 18, 2011 [14 favorites]

The reason why Paulson doesn't pay taxes on the 9 billion is because its carried interest on money invested in his fund. He hasn't taken the gain on it yet. To tax him on it would be like taxing people on their homes going up in value. I'm not saying its fair, I'm saying its not some crazy obscure loophole he uses.
posted by JPD at 2:07 PM on April 18, 2011 [9 favorites]

gagglezoomer those number are garbage - and here's why - they might only pay 65.8% of taxes, but they also represent about 60% of total taxable income. If that seems fair to you then I've got a bridge to sell you at a very fair price.
posted by JPD at 2:09 PM on April 18, 2011 [8 favorites]

How about this: the five richest Americans do not have to pay tax. Everyone else does. All the richest have to do is enter the Treasury Cave and sign the Forbearance Document for that year by midnight on April 15th. They must enter the cave alone and naked.

The Rich List will be released on January 15th of every year. That gives the sixth richest American 3 months to plan.
posted by robocop is bleeding at 2:13 PM on April 18, 2011 [25 favorites]

Even Jane Q. Wealthy could be forced to pay higher taxes, that wouldn't guarantee that you or I would have to pay less. The government would simply adjust its spending upward. So what difference does it make? I would rather that Ms. Wealthy keep her money and enjoy it, than that it be poured along with the blood of innocents into the sands of Afghanistan, Iraq and Libya. I don't begrudge the rich their good fortune. They're usuallly pretty nice, and the rarely shoot rockets into villages from Predator drones, torture random Araby looking pickups, or hold people for years without charging them with crimes, unlike your tax-funded Presidents Bush and Obama, and their friends in Congress.
posted by Faze at 2:13 PM on April 18, 2011 [5 favorites]

Here's a working link to the article.
posted by subtle-t at 2:15 PM on April 18, 2011 [1 favorite]

If you have 90% of the wealth then you should bear 90% of the tax burden.Duh
posted by yesster at 2:15 PM on April 18, 2011 [7 favorites]

Yeah, sales tax = bad, flat tax = bad, for the reasons vuron outlines.

What I'd like to see is a simple system of progressive tax brackets with few if any deductions / credits / etc. Our system has gotten too complicated, which makes it very easy to slip in all sorts of things that benefit very small segments of society that don't need it.

Progressive taxation is fair for many reasons, but the one that convinces me the most is diminishing marginal utility. If I make $1M a year, I already have everything I need and more, unless I have some extremely rare and bizarre medical condition. The second $1M is unimportant. I don't think the second $1M should be taxed at 100%, because then there really would be no incentive to make more money. But if you taxed that second $1M at 50% or 75%, you still get more money and the hardship of that is almost nothing. Whereas even a 5% tax on someone making $10k a year is going to be a hardship.

Progressive taxation makes the _burden_ of taxes more equitable, rather than just the mathematical percentage. Flat tax / tea party types get all worked up about how "unfair" it is that they pay a higher % tax, while ignoring that the actual burden/hardship of that rapidly goes to 0 as income goes up.
posted by wildcrdj at 2:15 PM on April 18, 2011 [26 favorites]

Or, we could tax the wealth a fair amount and not do those other things Faze mentions.

Then we could spend the money on something really nice.
posted by TheWhiteSkull at 2:16 PM on April 18, 2011 [1 favorite]

...by "wealth," of course, I mean "wealthy."
posted by TheWhiteSkull at 2:17 PM on April 18, 2011

gagglezoomer:

Those are right-wing horseshit propaganda factoids. As in, "there are lies, damned lies, and statistics..."

If you control 80% of the wealth, but pay 60% of the taxes, then the system is not equitable, it is heavily tilted in your favor. And the tilt is getting worse.
posted by Benny Andajetz at 2:18 PM on April 18, 2011 [18 favorites]

That chart that says the top 20% etc. just says those are the tax rates, not what they actually paid. They went to their accountants and tax lawyers and spent a lot of money figuring out how to avoid paying at those rates.
posted by mareli at 2:19 PM on April 18, 2011 [4 favorites]

I venture to suggest that if our adventures overseas weren't benefiting some of the rich and powerful we wouldn't be engaged in them Faze. Further buying all those cool missiles and jets and tanks has a very significant impact on the bottom line of some very big corporations and hence wealthy investors.

Much of our foreign policy in the United States often seems focused more on stabilizing markets or opening new markets for exploitation. I fail to see how enabling the rich to consolidate more and more wealth is liable to lead to a less "adventurous" foreign policy
posted by vuron at 2:20 PM on April 18, 2011 [6 favorites]

Also, the reason that tax rates are much lower on capital gains tax is based on well reasoned tax theory, which you may disagree with. But the rationale isn't just simply, "give rich people more money RAWR."

Can I ask what that reasoning is? Here in Australia your capital gains is just added to your income and tax is paid on the total amount at the at the income tax rates. Seems to work.
posted by markr at 2:20 PM on April 18, 2011 [4 favorites]

I'm sure everyone here who believes that the rich should pay more taxes because they can afford it sends whatever extra money they they can afford at the end of the year as a donation to the US government, even if it's only a trivial sum like $100. Remember, every penny counts.
posted by gagglezoomer at 2:20 PM on April 18, 2011 [3 favorites]

My favorite tax day quote comes from economist Dean Baker:

The top 1 percent's share of national income has increased by close to 10 percentage points in the last 30 years. This is enough to double the income of the bottom 50 percent.

posted by Esteemed Offendi at 2:21 PM on April 18, 2011 [21 favorites]

The top 20% of income earners will pay 65.8% of all federal income taxes.

Spend a moment asking yourself why these papers are always very careful to talk about income taxes, not taxes. Then ask yourself how much of the top 5% or so of the wealth in our nation comes from a weekly paycheck.

Progressive taxation makes the _burden_ of taxes more equitable, rather than just the mathematical percentage. Flat tax / tea party types get all worked up about how "unfair" it is that they pay a higher % tax, while ignoring that the actual burden/hardship of that rapidly goes to 0 as income goes up.

In addition, they're never really willing to clarify the definition of the word 'fairness.' "Everyone pays $20,000 a year, period" is fair. "Everyone pays 100% of their income and the government gives you a house" is fair. "Zero income taxes, but 100% estate taxes" is fair. A progressive income tax that scales up percentage-wise as income increases is "fair." None of those things are what they mean, though -- what they are saying is that they think they should pay less taxes.
posted by verb at 2:21 PM on April 18, 2011 [14 favorites]

If you actually read the article, part of it's (not very shocking) point is that looking at income tax in a vacuum is ridiculous. We live in a web of taxation, most of which is rather regressive and sits disproportionately on those with lower income. The income tax, as part of this system, helps balance that as art of a system. That is, indeed, one of the things the wealthy (and their political allies) do not want you to think about.
posted by GenjiandProust at 2:21 PM on April 18, 2011 [2 favorites]

I didn't pay any taxes, and I sure as hell ain't rich.
Thanks for the juicy refund, suckers.
posted by battleshipkropotkin at 2:22 PM on April 18, 2011

Full disclosure: I believe the top marginal rates should be raised slightly. But, I don't think taxes burdens should have a linear connection wealth distribution.
posted by gagglezoomer at 2:22 PM on April 18, 2011

vuron, I'd really recommend not using this phrase around... well, really anyone who doesn't believe that fiscal/social justice theories have validity:
Progressive taxation is good because it's useful for redistributing wealth.

Mostly because the phrase "redistribution of wealth" is what causes a lot of people to think:

COMMIES COMMIES RED SCARE THEY'RE TAKING OUR MONEY FASCISTS
posted by mikeh at 2:22 PM on April 18, 2011 [3 favorites]

Can you think of any way of amassing wealth that does not rely on the exploitation of people and/or natural resources?
posted by mareli at 2:22 PM on April 18, 2011 [8 favorites]

This post would be improved it the main link actually worked.
posted by Justinian at 2:23 PM on April 18, 2011 [1 favorite]

If you control 80% of the wealth, but pay 60% of the taxes, then the system is not equitable, it is heavily tilted in your favor. And the tilt is getting worse.

Now hold on. The current system we have doesn't (generally) tax wealth - it taxes income. Unless you want to move to a system that taxes wealth (which we have with property tax, but not much else, I think) then your numbers really have nothing to do with one another and don't prove that the system is fair or unfair.

The issue that, IMHO, is important is that the rich have, over the last 30 years, acquired a greater and greater percentage of the nation's wealth. Despite the claims that the rich are being bled dry (which you sometimes hear, although not usually on Metafilter), they are actually doing better than ever. That's the problem.
posted by It's Never Lurgi at 2:23 PM on April 18, 2011

The reason why Paulson doesn't pay taxes on the 9 billion is because its carried interest on money invested in his fund. He hasn't taken the gain on it yet.

Yeah, but the fact that carried interest is taxed as a long term capital gain in the private equity context is stark, raving insane. This isn't the place to discuss it, but we're essentially giving some extremely wealthy people a massive break on what amounts to their salaries for no discernible reason -- I can't even figure out who is lobbying for it. And it costs, evidently, tens of billions of dollars in tax revenue a year.
posted by The Bellman at 2:23 PM on April 18, 2011 [5 favorites]

mareli, possibly the usage of resources and people more intelligently than others?

I mean, unless you think any usage of resources or any employment of others is by definition exploitation.
posted by mikeh at 2:24 PM on April 18, 2011

I didn't pay any taxes, and I sure as hell ain't rich.
Thanks for the juicy refund, suckers.

You actually did pay taxes. You paid too much over the course of the year, in fact. The refund you got was your own money given back to you after the government collected interest on it for a while.
posted by headnsouth at 2:24 PM on April 18, 2011 [12 favorites]

Oh I utterly totally agree wrt: carried interest, but he hasn't even taken the gain on it yet.

You would be amazed at how divorced from reality some other wise left leaning wall street folks are when it comes to the carried interest exemption. It disgusts me. I've actually eliminated people from my circle of friends over the issue.
posted by JPD at 2:26 PM on April 18, 2011 [2 favorites]

I'm sure everyone here who believes that the rich should pay more taxes because they can afford it sends whatever extra money they they can afford at the end of the year as a donation to the US government, even if it's only a trivial sum like $100

A) I believe my own tax rates should be higher
B) I don't believe it is fair for only those who "choose" to pay more to pay more. Everyone should be made to pay their share. I'm not going to hobble myself on principle if everyone else is going to race past me.

In the meantime I give money to political sources that will help result in raising taxes, and to charities.
posted by wildcrdj at 2:31 PM on April 18, 2011 [21 favorites]

I don't "donate" extra income to the coffers of the United States but I would be willing to pay a higher tax rate if I saw improved social services, a better social security safety net, better education and access to education, etc.

I'm not sure I'd want to be taxed more so that we could buy newer toys for the generals and give more money to the wealthy in the form of tax breaks though.

But I also understand that we live in a democracy where people want those things and are willing to exert financial and political pressure to achieve those goals.

I also understand that it's in the economic interest of the rich to support policies that reduce their tax liability as it's always nice to have more money, I just wonder when people will understand that "Screw You I Got Mine" policies just lead to increased resentment on the part of the underclass. Wealth redistribution is really nice for mollifying the resentments of the working class and providing a upward path for the best and brightest.
posted by vuron at 2:31 PM on April 18, 2011 [9 favorites]

According to Politifact, the top 1% pay 28.1% of taxes.
posted by crunchland at 2:32 PM on April 18, 2011 [1 favorite]

Gagglezoomer:

"I'm sure everyone here who believes that the rich should pay more taxes because they can afford it sends whatever extra money they they can afford at the end of the year as a donation to the US government, even if it's only a trivial sum like $100."

I tend to think of statements like these as markers for obnoxious mendacity regarding taxes. If I'm rich, it's not enough that I pay additional taxes; everyone else in my fortunate position needs to do it too for it to have any effect. People trotting out the "you should just pay more voluntarily, herp derp" card either haven't actually thought about the issue at hand, or they're intentionally attempting to derail the discussion of reasonable taxation into a litmus test for personal virtue. It's not about personal virtue, however.
posted by jscalzi at 2:33 PM on April 18, 2011 [65 favorites]

Benny Andajetz: Those are right-wing horseshit propaganda factoids. As in, "there are lies, damned lies, and statistics..."

The Urban Institute and the Brookings Institution are not known to be rightwing nut colonies.

gagglezoomer: Hate to inject facts into the whole situation but, unless this study is a complete fabrication, it is estimated that in 2010:

The study you link is from 2008 and assumed that the Bush tax cuts would expire at the end of 2010, which, of course, they did not. According to the report:

The tax cuts passed since 2001 have reduced the overall progressivity of the federal tax system with the notable exception of the stimulus package passed in early 2008. The tax rebates in the stimulus legislation are in effect for 2008 only, however, and so the progressivity of the tax system will decline markedly in 2009 and 2010 as effective tax rates rise substantially for lower and moderate-income households. At the same time, effective rates will fall for high-income households as the repeal of the limitations on itemized deductions and personal exemptions and the complete repeal of the estate tax become fully phased in. Finally, almost all provisions of the 2001–06 tax cuts are set to expire at the end of 2010. Barring legislative action, effective tax rates will therefore rise across the income spectrum in 2011. The largest increases will be in the upper income classes and so the tax system will become more progressive in 2011 unless the tax cuts are made permanent. (Emphasis mine.)
posted by blucevalo at 2:34 PM on April 18, 2011 [5 favorites]

The second $1M is unimportant. I don't think the second $1M should be taxed at 100%, because then there really would be no incentive to make more money.

Is this necessarily a bad thing? Linus Torvalds created Linux not to make millions of dollars, but because it was a project that interested him, and that led to the creation of a technology that many, many people depend on to get their work done. Likewise, I don't think the scientists and engineers who improve are lives tend to be richly rewarded, or are particularly motivated by the "second $1M".

I think that in general, the people who are motivated to make money beyond that first million tend to focus on finding ways to control the political system to help themselves make even more money. There is the odd exception now and then but, by and large, I don't think there's much behavior among the top income earners that we, as a society, would want to incentivize.
posted by heathkit at 2:35 PM on April 18, 2011 [8 favorites]

I'm sure everyone here who believes that the rich should pay more taxes because they can afford it sends whatever extra money they they can afford at the end of the year as a donation to the US government, even if it's only a trivial sum like $100. Remember, every penny counts.

Is there an address that I can send my check to? Where it would actually be cashed and applied to non-defense programs (which are basically automatically funded)? Or are you just being a troll?
posted by muddgirl at 2:37 PM on April 18, 2011 [6 favorites]

jscalzi: The point I was making was in responding to the assertions along the lines of rich should pay a much larger portion of the taxes because they can afford it. Why I agree that that should be one of the underlying rationales of a tax system, I don't think it is a super persuasive or primary rationale. Taxing set up that way is a slippery slope to a system where individuals are taxes until they are only left with "enough" is as quick as a way to a revolution as enforcing a system where people can't pull themselves out of poverty. What I was getting at is that taxes will always be resisting and you're not going to appeal to anyone, including the rich, by saying they should pay more of them cause they can.
posted by gagglezoomer at 2:39 PM on April 18, 2011

likewise, I don't think the scientists and engineers who improve are lives tend to be richly rewarded, or are particularly motivated by the "second $1M".

Well, I'm an engineer who will freely admit to being motivated by money. Whether I "improve lives" I won't say. I do make kitten videos load faster and am making it possible to watch cute cats without Flash. Up to you whether that improves life or not :)
posted by wildcrdj at 2:40 PM on April 18, 2011 [7 favorites]

(well, I don't make over $1M either, but I work with many, many millionaire engineers)
posted by wildcrdj at 2:42 PM on April 18, 2011

Even Jane Q. Wealthy could be forced to pay higher taxes, that wouldn't guarantee that you or I would have to pay less. The government would simply adjust its spending upward. So what difference does it make?

I dunno, maybe with increased spending they could stop cutting programs and repair infrastructure and fund education and health care and so on and so forth...maybe we're *gasp* not looking to pay less in tax ourselves but feel that more money should be coming from society's wealthiest.

Then I read the rest of the comment. Faze, that is more obviously a joke than your usual comments, you need to take the act back to the lab.
posted by Hoopo at 2:43 PM on April 18, 2011 [2 favorites]

What I was getting at is that taxes will always be resisting...

If taxes will always be resisted, then clearly we can not simply trust people to pay what they owe, as we do now. I feel like you're starting to argue against your own propositions.
posted by muddgirl at 2:43 PM on April 18, 2011 [2 favorites]

I do make kitten videos load faster and am making it possible to watch cute cats without Flash

YOU, SIR, ARE A HERO.
posted by BitterOldPunk at 2:44 PM on April 18, 2011 [13 favorites]

In 12 Years, Income For Richest 400 Americans Quadruples, Tax Rate Nearly Halved
posted by nickyskye at 2:48 PM on April 18, 2011 [3 favorites]

I agree, the rich need to pay more taxes. The military needs more bombs.
posted by Philipschall at 2:50 PM on April 18, 2011

What I was getting at is that taxes will always be resisting and you're not going to appeal to anyone, including the rich, by saying they should pay more of them cause they can.

LOL, the rich weren't too happy with FDR, either.

There is an interesting element here that is always ignored, though.

Not all capitalism is equivalently "productive" of new wealth, much of it is is simply parasitical in nature. The people referring to resources above were getting closer to being on this track of analysis.

Incomes derived from mere ownership of land and its resources are, IMO a major part of this parasitical economic activity (another word for it is rentierism).

Nobody created land, yet people profit from its ownership. That's akin to reaping what you did not sow, and is a massive structural fault in the system.

So much of our social structure is compromised by trying to patch around this central damage.

We give out tens of billions of dollars worth of Section 8 vouchers, yet we subsidize slumlordism with generous tax breaks. The mortgage interest deduction just makes home prices higher (you can't actually subsidize something sold on the bid like real estate) yet we spend tens of billions intervening to support the GSEs.

Even the Bush tax cuts on the lower 4 quintiles served to enrichen the rentiers --the lower taxes resulted in higher takehome pay, but that inevitably gets sucked out by the rent, since the LL will always charge what the market will bear.

I'm OK with wealth, but I think we should tax the shit out of land and resource ownership. This is not a new idea, it became popular over 100 years ago, and was known as Georgism & the Single Tax. These days it can be seen as left-libertarianism, geolibertarianism, etc.
posted by mokuba at 2:51 PM on April 18, 2011 [8 favorites]

I believe my own tax rates should be higher

I am not sure I feel the same way, but I am happy to pay my taxes. Hell, I even calculate the out-of-state purchases and pay the sales tax on that, even though I am pretty sure that most people in my state don't bother. I do this, because I like what our collective financial power can do. I like roads. I like that I can live without a car because there are buses that will get me to work. I like that the fire department comes when the smoke alarms in my building go off. I like that there are local, state, and national parks, even though I don't go to them that much. I like that there are people to check the quality of my water and food, so I don't die. I will probably never have children, but I like that kids get an education. All of these things make my life possible, and they were paid for by taxes.

Do taxes pay of other things, like wars and bigoted procedures, and brutality of all sorts of striped? Yes, and I wish we could spend our time arguing about that rather than should we actually pay for some of what we use on a daily basis.
posted by GenjiandProust at 2:53 PM on April 18, 2011 [10 favorites]

but I am happy to pay my taxes

I'm actually not happy to pay my taxes. I completely understand infrastructure needs, law enforcement needs and even some military defense needs. So for those things, and other essential services, I am happy to pay my taxes. But our federal government is so fucking wasteful with the revenues that WE THE PEOPLE provide it, that I can't help but steam everytime I look at my paycheck. So many government programs are wasteful bullshit, not the least of which are Defense and Entitlements. Either fully fund social security or let me opt the fuck out, thank you very much! I couldn't disagree more with the Tea Party on just about everything else, but in my opinion, our government spending is completely out of control.
posted by gagglezoomer at 3:03 PM on April 18, 2011 [1 favorite]

Is there an address that I can send my check to? Where it would actually be cashed and applied to non-defense programs (which are basically automatically funded)? Or are you just being a troll?

Right here.
posted by esprit de l'escalier at 3:05 PM on April 18, 2011

In the interset of fairness, just about everyone is paying historically low income taxes right now. Even at the median income, taxes are at their lowest since 1955.

But the upper levels have benefitted way more than the middle and bottom. Top rates have gone from 70% in the 70s to 50% in the 80s to 35% now. Couple that with all the favorable changes in income from investment and the rich have made out like bandits.

Also, keep in mind that infrastructure services primarily intended to help those at the bottom of the income pile have been gutted, and those services are being painted as the barrier that stands between us and a balanced budget. In effect, the support services for society are being sold off to facilitate faster income growth for the rich.
posted by verb at 3:07 PM on April 18, 2011 [5 favorites]

Thanks esprit - I note by that page that in 2010 $2,840,466.75 was donated, contrary to gagglezoomer's assertion that no one would do so.
posted by muddgirl at 3:07 PM on April 18, 2011

I'm actually not happy to pay my taxes. I completely understand infrastructure needs, law enforcement needs and even some military defense needs.

Law enforcement is nothing but entitlement spending on people who can't afford their own bodyguards.
posted by verb at 3:08 PM on April 18, 2011 [12 favorites]

Infrastructure is nothing more than entitelment spending on people who can't afford helicopters.
posted by muddgirl at 3:10 PM on April 18, 2011 [7 favorites]

Can I ask what that reasoning is? Here in Australia your capital gains is just added to your income and tax is paid on the total amount at the at the income tax rates. Seems to work.

Maybe I'm wrong, but if you buy a house for $X, and over the course of five years it appreciates to $2X, and then you make the mistake of getting it appraised, you should be liable for taxes on the difference?
posted by esprit de l'escalier at 3:11 PM on April 18, 2011

If I make $1M a year, I already have everything I need and more

There speaks a man who doesn't make a million dollar a year, I dare say.

I don't actually disagree with the statement, but I know people who do make or who have made a million dollars a year and even the progressive ones find their attitudes about what constitutes "need" altered considerably after the fact.

Not that my own history is an example, alas.

If taxes will always be resisted, then clearly we can not simply trust people to pay what they owe, as we do now

What the-? We absolutely do not trust people to pay what they owe. The government invented payroll deduction to make sure that they pay what they owe. They require banks and brokerage firms to keep a sharp eye on dividends and interest. They red flag the returns of the self employed and those who work in largely cash enterprises. They impose seriously punitive measures against (certain kinds of ) cheats. No no, governments have never trusted people to simply pay, never. Quite an interesting history behind it, in fact.

Interesting also is how little a genuine tax simplification reform is ever a campaign issue. The only presidential candidate I can think of who made it a major part of the platform was Steve Forbes. As a rich guy himself, he is of course not to be trusted, but then again, no one on the left seems inclined to touch the issue.

the rich weren't too happy with FDR

Indeed not.

Here's the thing, though. The rich then and now stay rich by tax avoidance. Which is easier to do if you park your money in assets that do not generate taxable income. Which is exactly what they did. Not much good for the economy, but what did FDR etc expect?

Of course, you could always just appropriate asset wealth, but that's a slippery slope that I guarantee you would see capital and talent flight out of this country that would make your head spin.

In the interset of fairness, just about everyone is paying historically low income taxes right now. Even at the median income, taxes are at their lowest since 1955..

Current rates are nowhere near 1955 levels. Unless I misunderstand your meaning, in which case, please do. I am always open to persuasion.
posted by IndigoJones at 3:15 PM on April 18, 2011

Also from Politifact : 400 Americans have more wealth than half of all Americans, combined.
posted by crunchland at 3:16 PM on April 18, 2011 [6 favorites]

Verb, couldn't I just as easily flip your tendentious statement around and say that law enforcement is simply an entitlement for people too lazy go to work so they can afford body guards?
posted by gagglezoomer at 3:16 PM on April 18, 2011

According to Politifact, the top 1% pay 28.1% of taxes.
posted by crunchland at 9:32 PM on April 18

Er, no.

Federal income taxes: 39.5 percent share
Federal payroll taxes: 4.1 percent share
Federal corporate taxes: 57.0 percent share
Federal excise taxes: 4.7 percent share

Total federal tax share for the top 1 percent: 28.1 percent

Total federal tax share for the top 1 percent: 28.1 percent

How the proportion of sales tax [VAT in Europe] is calculated I dont know. I guess there is no federal VAT in the USA. But the statement "the top 1% pay 28.1% of taxes" only makes sense if sales tax is excluded. And sales tax is a notoriously regressive tax. The poor & middle class are hit more by any sales tax than the rich, proportionately. No?
posted by dash_slot- at 3:18 PM on April 18, 2011 [2 favorites]

I work at a pretty decent job and even if I weren't taxed, I couldn't afford a body guard and a helicopter. How many jobs should an above-average American work?

But the statement "the top 1% pay 28.1% of taxes" only makes sense if sales tax is excluded.

There is no federal sales tax. So since we're talking about federal (and not state) taxes, then yes, this is the case.

States can charge their own income, sales, and property taxes. Those figures can't be included because every state (and county, and city, and sometimes even neighborhood will charge a different rate.
posted by muddgirl at 3:21 PM on April 18, 2011

Well, sales tax is mostly administered by the states and the local municipalities, and it's not a federal issue.
posted by crunchland at 3:22 PM on April 18, 2011

Crunchland - I know that, I am glad we agree.

You're statement was: "the top 1% pay 28.1% of taxes."

It's me that makes the breakdown: "taxes"[in your statement] does not equal "income taxes".

You say "the top 1% pay 28.1% of taxes."

I say they don't, because "taxes" should include "sales taxes", which are significant but ignored by the citation.
posted by dash_slot- at 3:36 PM on April 18, 2011

Of course, you could always just appropriate asset wealth, but that's a slippery slope that I guarantee you would see capital and talent flight out of this country that would make your head spin.

Not if you tax land (ie site value) Good luck taking that with you.
posted by mokuba at 3:38 PM on April 18, 2011 [1 favorite]

Verb, couldn't I just as easily flip your tendentious statement around and say that law enforcement is simply an entitlement for people too lazy go to work so they can afford body guards?

Absolutely! That's not in fact 'flipping' my statement, in fact it's precisely what I'm suggesting: law enforcement is an entitlement program for those too lazy to hire their own bodyguards.

According to the quick research that I did, it looks like the going rate for an entry-level bodyguard starts around $20/hr and can go as high as $60-80/hr. That works out to about $50,000 a year for one dedicated bodyguard. Keep in mind, though, that if he's overpowered -- say, by two muggers, or a group of people who want to kick you out of your house -- you're SOL. In addition, that $50,000 only covers business hours. If you want him on call, you'll probably need to jack that up quite a bit.

If you're willing to cut some corners, though, maybe you'll find a really competent bodyguard who'll take $75,000 a year for round-the-clock protection services. Can you afford that?

No?

Get off your ass, lazy-bones. Why won't you work for a living?
posted by verb at 3:45 PM on April 18, 2011 [9 favorites]

I tend to think of statements like these as markers for obnoxious mendacity regarding taxes.

I think of them more as mental short circuits. "It may look like X needs to change and we should all be for it—hey look, a monkey! Therefore I am okay with the status quo."
posted by fleacircus at 3:45 PM on April 18, 2011 [7 favorites]

Yeah, you're right, dash-slot. I cut-and-pasted from Politifact. I did mean Federal taxes.

ReasonTV: Why Aren't The Rich Paying 50% in Taxes?
posted by crunchland at 3:45 PM on April 18, 2011

"We should lower the tax on corporations. That would make the United States more attractive to U.S. and foreign multinationals. We should then raise taxes on the people who receive the benefits of corporate profits."

My ass. Kiss it.
posted by spoobnooble at 2:48 PM on April 18 [5 favorites +] [!]

I'm disappointed that there's a knee-jerk reaction against this idea. I think there's a good liberal case for zero corporate tax. Tax revenue from corporations would be replaced by eliminating most deductions on personal income, making the tax brackets more progressive, removing that cap on social security contributions, means testing social security benefits and maybe implementing an asset-based tax on high net-worth individuals. Ultimately it would be more progressive than the current system.
posted by mullacc at 3:48 PM on April 18, 2011 [2 favorites]

Current rates are nowhere near 1955 levels. Unless I misunderstand your meaning, in which case, please do. I am always open to persuasion.

For the past two years, a family of four earning the median income has paid less in federal income taxes than at any time since at least 1955, according to the Tax Policy Center. All federal, state and local taxes combined are a lower percentage of per-capita income than at any time since the 1960s, according to the Tax Foundation.
posted by Benny Andajetz at 3:51 PM on April 18, 2011

The reason why Paulson doesn't pay taxes on the 9 billion is because its carried interest on money invested in his fund. He hasn't taken the gain on it yet.

As soon as your wealth is more than 1000 times the accumulated lifetime income of your average fellow citizen, large robots should come out and tear you into pieces.
posted by bonobothegreat at 3:53 PM on April 18, 2011 [8 favorites]

Well, thanks Crunchland.

So - to make it fairer, we either find a way of eliminating all sales taxes, or we include capital gains, or getting a maths genius to work out an algorithm for us.

Calling Mr Zuckerburg!
posted by dash_slot- at 3:53 PM on April 18, 2011

If you're willing to cut some corners, though, maybe you'll find a really competent bodyguard who'll take $75,000 a year for round-the-clock protection services. Can you afford that?

But you're forgetting that you have to pay the body guard enough so that he can hire his own body guards, so the minimum salary would need to be at least $150,000. I guess that then leaves you with the fact that the second-tier body guard also would also need his own body guard, so you could either pay the first 225k, or pay for your bodyguard's bodyguard directly, like medical insurance.
posted by gagglezoomer at 3:54 PM on April 18, 2011

As soon as your wealth is more than 1000 times the accumulated lifetime income of your average fellow citizen, large robots should come out and tear you into pieces.

Sure, that sounds good now. But who's going to pay for those robots, huh? Damn liberals.
posted by The Bellman at 3:55 PM on April 18, 2011 [3 favorites]

I don't actually disagree with the statement, but I know people who do make or who have made a million dollars a year and even the progressive ones find their attitudes about what constitutes "need" altered considerably after the fact.

Hah, this is quite true. I mean, I know much of what I think I "need" is considered ridiculous luxury by many people.

However, I think a lot of millionaires do realize this at some level. At least the ones I know do. I don't mean that they don't want things, or think they "need" another house or whatever, but if you press them on it they recognize the difference between these things and having shelter/food/clothing.

Thats another reason why taxes should be progressive. Even people who intellectually know they don't "need" all that money are likely to rationalize it and spend it if they're not "forced" to pay their share as tax. Some of these people can be convinced to vote for higher taxes (many of the millionaires I know support repealing the Bush tax cats), even if their self-control otherwise isn't great.
posted by wildcrdj at 3:59 PM on April 18, 2011

I think there's a good liberal case for zero corporate tax.

Not if it results in dollars leaving the US economy more than they are now.

removing that cap on social security contributions, means testing social security benefits

plz don't monkey with ssi benefits. increase the FICA cap for actuarial reasons is fine, but not to just make it more redistributive.

Ultimately it would be more progressive than the current system.

As I mentioned above, I think "progressivity" for the sake of it is actually a great mistake.

There are a lot of windfall profit sectors in the economy -- big pharma, commercial real estate, fossil fuels and other natural resources.

If we want less rent-seeking, we should uptax it. Then we could untax stuff we want more of, like actual wealth-creating capitalism.

Just undertaxing the lower quintiles does not address the rent-seeking going on, it actually feeds it.
posted by mokuba at 3:59 PM on April 18, 2011

If you're giving tax breaks to the uber-wealthy because it "creates jobs" then these people should be LEGALLY OBLIGATED to create jobs - no? So where are the fucking jobs?
posted by weezy at 4:01 PM on April 18, 2011 [8 favorites]

But you're forgetting that you have to pay the body guard enough so that he can hire his own body guards, so the minimum salary would need to be at least $150,000. I guess that then leaves you with the fact that the second-tier body guard also would also need his own body guard, so you could either pay the first 225k, or pay for your bodyguard's bodyguard directly, like medical insurance.

You're right, but the more I think about it, the less I think everybody needs a dedicated bodyguard. Maybe we could organize by neighborhood, and each chip in, maybe in proportion to how much we have to lose to theft (since that's sort of the most common risk). That strikes me as more efficient. Plus, we'd have greater purchasing power as a collective!

Can we have fair tax? Please? Destroy the IRS? Destroy payroll taxes? Let GE not pay any taxes sure but those fucks at the top absolutely cannot get out of paying 23% on all their caviar and helicopters. Fuck I hate filling out forms. Please?

If you're on of those people that thinks that equal taxation is a great idea, that wealth goes to those who are smartest and work hardest, and then trickles down to us lazy dim-wits, that sounds like a great idea. I hope you're not seriously buying the assertion that the proposed "fair" tax is progressive? I'm happy to explain, although I sincerely hope I it's not necessary.
posted by nathan v at 4:03 PM on April 18, 2011 [7 favorites]

I'd always figured the wealthy should be taxed more because taxes are sort of a protection fee, since they have a greater stake in the system. Like, sure, you pay, say, 60% in the top bracket, but that is the fee levied for preventing the French Revolution from happening to you.
posted by DoctorFedora at 4:04 PM on April 18, 2011 [14 favorites]

You're right, but the more I think about it, the less I think everybody needs a dedicated bodyguard. Maybe we could organize by neighborhood, and each chip in, maybe in proportion to how much we have to lose to theft (since that's sort of the most common risk). That strikes me as more efficient. Plus, we'd have greater purchasing power as a collective!

We should really take this show on the road.
posted by verb at 4:06 PM on April 18, 2011 [2 favorites]

As soon as your wealth is more than 1000 times the accumulated lifetime income of your average fellow citizen, large robots should come out and tear you into pieces.

Given that the mean world yearly income per person (napkin math based on World Bank data) is around $8800 USD, I suspect that these robots would be on a murderous rampage throughout most of North America and elsewhere...
posted by homotopy at 4:07 PM on April 18, 2011 [3 favorites]

Plus, we'd have greater purchasing power as a collective!

But then that collective might form a union and try to command >$50,000 salaries!
posted by gagglezoomer at 4:08 PM on April 18, 2011 [2 favorites]

Can we have fair tax?

Protip: the FairTax is anything but fair.
posted by one more dead town's last parade at 4:26 PM on April 18, 2011 [2 favorites]

I'm disappointed that there's a knee-jerk reaction against this idea. I think there's a good liberal case for zero corporate tax.

It's almost by definition a good progressive case: taxes on corporate income as it's received by the corporation end up acting as a flat tax on the multimillionaire CEO's stock options and poor grandma's retirement fund, whereas taxes on corporate income as it's dispersed to individuals can be applied progressively.

On the other hand, corporate taxes could in theory be applied "progressively" too, with rates that increase with the size of the corporation. This wouldn't end up redistributing any wealth directly, but it would penalize consolidation and potentially make for a more competitive market, which tends to be pretty beneficial for the poor indirectly.
posted by roystgnr at 4:35 PM on April 18, 2011 [4 favorites]

If you control 80% of the wealth, but pay 60% of the taxes, then the system is not equitable, it is heavily tilted in your favor.

I'd say 'now throw risk into the equation', but bailouts and torpedoed 401Ks make that kinda redundant.
posted by obiwanwasabi at 4:38 PM on April 18, 2011

the main link seems to be working now fwiw (thanks mods for the patience/forbearance ;) it looks like WW was doing a website refresh/revamp or something; it's worth checking out for the charts, which the alt link didn't include.

Thats another reason why taxes should be progressive.

Are progressive income taxes fair?

also btw here's louis ck on bill gates and being broke... oh and for no particular reason (except that he's at his misanthropic best!)
posted by kliuless at 4:56 PM on April 18, 2011 [1 favorite]

To tax him on it would be like taxing people on their homes going up in value.

Oh hey, that's EXACTLY what happens with property tax, at least around here. We get a nice little card every fall from the county with the current estimated value of our home and the tax thereupon.

By the way, the drop in home valuation is wreaking havoc with local gov't budgets.
posted by epersonae at 5:00 PM on April 18, 2011 [3 favorites]

By the way, the drop in home valuation is wreaking havoc with local gov't budgets.

Ha, here in Chicago even though home values have gone down property taxes still rise, funny that.
posted by Max Power at 5:04 PM on April 18, 2011 [1 favorite]

Regarding the recurring theme that if we tax rich people more, we'll create fewer jobs/have a worse economy/whatever, no. I ran the numbers earlier and since 1945, there is no correlation between the top marginal income tax rate and job creation. There may be one bit of correlation in that in one case a lower tax rate led to the highest monthly job creation on record, but that seems to be an outlier since it happened exactly once and was not sustained.

So it's possible that a lower top marginal rate could increase the maximum job creation rate over the very short term, but it has no apparent impact over the course of even a whole year.

The BLS statistics are easily available, as is the data on income tax rates.
posted by wierdo at 5:11 PM on April 18, 2011 [6 favorites]

Oh, and just for another good laugh, since Eisenhower, Republican Presidents have averaged 79,740 jobs created a month. Including Obama's current average of -100,000 a month, Democratic Presidents have averaged 129,000 jobs a month.
posted by wierdo at 5:20 PM on April 18, 2011 [4 favorites]

The main link is finally back up. The arguments would resonate more if the author knew the difference between "less" and "fewer".
posted by Justinian at 5:21 PM on April 18, 2011 [1 favorite]

There is no federal sales tax.

The hell you say. The feds directly tax oil, tobacco, alcohol and guns.
posted by IndigoJones at 5:32 PM on April 18, 2011

The hell you say. The feds directly tax oil, tobacco, alcohol and guns.

It's hard to survive when life's most basic staples are taxed like that.
posted by maxwelton at 5:42 PM on April 18, 2011 [9 favorites]

property value simply determines the proportion of your city's budget that you pay. Whether your home value goes up or down is immaterial. What matters is what the budget itself does, and that the town adjusts its tax rate per unit of value. Just because your home is worth less doesn't mean the services that get supported through property taxes have declined in cost & value.

If your town funded itself through real estate transfer taxes then you've got to adjust to a new world.

And no, there is no form of asset appreciation in the US that gets taxed before the gain is actually realized. He will get taxed on the 9 billion, but it'll be at the 15% long-term cap gains rate - which is incredibly unfair - but its that tax rate that is unfair, not the fact that he didn't pay taxes on it today.
posted by JPD at 5:43 PM on April 18, 2011 [2 favorites]

Well, I paid just wrote the government a huge fucking check today, on top of what was already deducted. I would feel like it was my fair share if I didn't know that a lot of people who made much more than I did paid much less.
posted by stargell at 5:45 PM on April 18, 2011 [2 favorites]

Oh hey, that's EXACTLY what happens with property tax, at least around here. We get a nice little card every fall from the county with the current estimated value of our home and the tax thereupon.

no that's not what happens. Your town says it'll cost us $1000 dollars this year to pay for schools etc. It then says "we've got 10,000,000 in property value, your house is worth 100,000 dollars, so you owe us $10" The next year if its 1200, and the property in town is now worth 8,000,000 and your house is worth 80,000, then you pay $12.
posted by JPD at 5:47 PM on April 18, 2011 [1 favorite]

Maybe I'm wrong, but if you buy a house for $X, and over the course of five years it appreciates to $2X, and then you make the mistake of getting it appraised, you should be liable for taxes on the difference?

Kinda. There are a bunch of exemptions to capital gains in Aus, most notably on the family home and you pay tax on your capital gain when you dispose of the asset, not when it's appraised. Which seems sensible.
There's also a couple of discounting mechanisms the most common of which is to apply a 50% discount to your capital gain prior to including in your income for that year. There's a discussion to be had about the role negative gearing plays in encouraging speculative investments and the ridiculous highs of the Aussi housing market...
posted by jcm at 5:47 PM on April 18, 2011

I know people who make a million dollars a year and even the progressive ones find their attitudes about what constitutes "need" altered considerably after the fact.

You don't even have to look at millionaires. The average income earner making say $50,000 a year spends money on plenty of non-essentials.

Point being it's easy to point at millionaires and say they've got extravagant needs, but let's talk about us. Do we really need iphones, ten dollar lattes, bottled water and crap like that?
posted by storybored at 5:53 PM on April 18, 2011

yeah but what isn't fair about it is the fact that he'll eventually only pay 15% on it not 39%, not the fact that he didn't pay it today. Its actually not really money. He doesn't actually have the 9 billion to spend - that's why it isn't taxed.

A reason why you don't mark to market assets and force people to pay tax on them is liquidity - it doesn't represent anything tangible. Could most of you homeowners have afforded to pay 3% of your homes value during those crazy real estate bubble years when prices were up 20%/pa? What would you have done? Added more leverage to you home? And then once asset prices crashed what do you do? Ask for your money back? That's just one reason why cap gains are not taxed like income.

An unrealized cap gain is just an entry on a register - it isn't real money. Now there are loopholes that get used that should be closed - things like borrowing against appreciated shares and what not - but that's not the same argument as taxing unrealized cap gains.
posted by JPD at 5:55 PM on April 18, 2011 [3 favorites]

Can I ask what that reasoning is? Here in Australia your capital gains is just added to your income and tax is paid on the total amount at the at the income tax rates. Seems to work.

Not true - Australia has a preferential tax rate for cap gains as well. - 50% of marginal tax rate if held for more than a year.
posted by JPD at 6:03 PM on April 18, 2011

I have to say, thanks for clarifying some of this JPD.
posted by Max Power at 6:17 PM on April 18, 2011

If one can afford to employ tax lawyers and lobbyists, then they're surely going to use those tools to get as many tax breaks as possible. Most probably never give it a second thought.

That's just standard business practice, the same way mass reduction in force is standard and outsourcing is standard.

(What bugs me is that companies/corporations and their CEOs etc. reduce force while making record profits while paying less taxes needed for social programs for those who were laid off.)

Really? From both ends you fuck the middle class and everyone else?
posted by snsranch at 6:48 PM on April 18, 2011

I really think that supply-side economics works and works really well. The tax breaks given to the rich and the corporations have created tons of jobs. The problem is that capital is now very mobile and always seeks higher returns. Huge returns can be had if money is invested in places with no place to go but up. Much of the development in India and China can be attributed to foreign investment. Wealthy people got their tax breaks and invested the money and the companies they invested in used that capital to create loads of jobs, they just created the jobs in other countries.
posted by VTX at 7:01 PM on April 18, 2011

I really think that supply-side economics works and works really well. The tax breaks given to the rich and the corporations have created tons of jobs.

Yeah, it's nice to believe stuff.

Supposing this particular belief were demonstrably true, instead of just the unsupported conjecture it probably is, it would also be really nice if US tax revenue wasn't in effect being used to subsidize job growth in other countries while jobs are disappearing here.
posted by saulgoodman at 7:15 PM on April 18, 2011 [3 favorites]

He doesn't actually have the 9 billion to spend

The linked article addresses that:
How do these hedge-fund managers get money in the meantime? By borrowing against the carried interest, often at absurdly low rates—currently about 2 percent.

So he has money to spend, and he's paying a ridiculously low interest rate on it.

It still seems like there's something wrong with this setup other than the 15% vs 39% issue...
posted by hambone at 7:17 PM on April 18, 2011

VTX: "I really think that supply-side economics works and works really well. The tax breaks given to the rich and the corporations have created tons of jobs."

"Santa Claus has been doing a great job! We should definitely see if he can help America out more than just once a year."
posted by DoctorFedora at 7:19 PM on April 18, 2011

Sorry VTX, that comment came out harsher than I intended. It's just that I suspect there are enlightened types among the left-leaning economic elite who actually rationalize their own tax attitudes that way, and I don't buy it. On the right, the whole argument for supply-side economics in the US has historically been that lower taxes will bring investment here, but then, when that argument fails, there seems to be a countervailing tendency among the left-leaning economic elite to resort to the rising global prosperity argument.
posted by saulgoodman at 7:34 PM on April 18, 2011

no that's not what happens. Your town says it'll cost us $1000 dollars this year to pay for schools etc. It then says "we've got 10,000,000 in property value, your house is worth 100,000 dollars, so you owe us $10" The next year if its 1200, and the property in town is now worth 8,000,000 and your house is worth 80,000, then you pay $12.

You're being obtuse. I'm guessing your point is that property tax is based on the total value of the real property not the gain/loss.

The bottom line is that if your real property appreciates in value, you pay taxes on that increased value. If most of your assets are in real property i.e. you are a senior citizen living on social security, then hooray: you get to pay a wealth tax! If you are Mr. Paulson, your wealth is tax free (except for your real property which is a small fraction of your total wealth) and you only pay on the gains.

The second bottom line is that the largest budget item for most local municipalities is public education. The cost of this item is largely out of the control of the local municipality due to federal and state mandates and the inexorable rise of health insurance rates. The federal and state governments may pick up about half the cost of public edcuation. Thus, the single most important infrastructure investment in a liberal democracy, *education*, gets about half it's funding from a wealth tax on the single type of asset most likely to be owned by someone of moderate income.
posted by ennui.bz at 7:52 PM on April 18, 2011 [1 favorite]

The bottom line is that if your real property appreciates in value, you pay taxes on that increased value.

That's the way it works in some places, but other places operate like your quoted.

To meet the budget, the sum of all property value is determined, and each property owner gets levied proportional to his share of the total property value.

So with this system, if all property values go up equally, nobody's taxes changes.
posted by mokuba at 8:04 PM on April 18, 2011

The second bottom line is that the largest budget item for most local municipalities is public education. The cost of this item is largely out of the control of the local municipality due to federal and state mandates and the inexorable rise of health insurance rates. The federal and state governments may pick up about half the cost of public edcuation. Thus, the single most important infrastructure investment in a liberal democracy, *education*, gets about half it's funding from a wealth tax on the single type of asset most likely to be owned by someone of moderate income.

In NY State, the rise in costs is mostly attributable to the State constitution's defined benefit pension plan that is using an 8% rate of return for actuarial purposes. The property tax payer is guaranteeing the shortfall. For example, in my school district, the budget went up by about $2.2 million while the pension costs rose by $3.2 million. So, $1 million in expenses had to be cut to get to a $2.2 million budget increase. The cuts came in the form of personnel. Right now, compensation in the district in which I live and in every district in Westchester county is 75-80% of the budget. Oh, the State of NY picks up approximately 7% of my district's total budget. Local sales taxes and other revenue is about 3% and property tax makes up the remaining 90%.
posted by JohnnyGunn at 8:06 PM on April 18, 2011

Yeah property tax is a weird subject, municipalities can change the millage rate which is the percentage of property value taxed or they can raise the appraisal value of the property.

It seems many municipalities avoid changing the millage rate that much because "Oh Noes higher taxes" but they tend to game the appraisal value as a way of increasing their property tax revenue base.

Of course in theory most municipalities have ways of challenging the appraised value and more and more communities are freezing property values for a percentage of the population (typically elderly and disabled residents) or limiting the rate of increase.

Personally I'd like for the states and municipalities to get away from property tax as a primary source of funding for schools but unless you come up with something better than sales tax which is a wildly variable funding source you are kind stuck with it.
posted by vuron at 8:13 PM on April 18, 2011

removing that cap on social security contributions, means testing social security benefits

I'll agree with 1/2 of that: Remove the FICA cap entirely. It makes absolutely no sense whatsoever that, suddenly, above some arbitrary amount of income, FICA isn't deducted. Moreover, most very-high income individuals receive a far larger share of their taxable income not through W-2 wage income, but through other sources (dividends, capital gains, etc...). By removing the the W-2 FICA cap AND imposing FICA tax on all income, not just W-2 income, surely the overall rate (what is it now, about 7.5% or so?) could come down drastically, while at the same time increasing the actual amount paid into the fund.
posted by webhund at 8:21 PM on April 18, 2011

Point being it's easy to point at millionaires and say they've got extravagant needs, but let's talk about us. Do we really need iphones, ten dollar lattes, bottled water and crap like that?

Work expense, nope, nope, nope.
posted by OverlappingElvis at 8:28 PM on April 18, 2011

It makes absolutely no sense whatsoever that, suddenly, above some arbitrary amount of income, FICA isn't deducted

This allows payouts to be capped. Like I said above, social security is fine as designed, a mildly redistributive social insurance/pension plan.

If we want bigger payouts from social security, we should all contribute more into it.
posted by mokuba at 8:36 PM on April 18, 2011

a system where individuals are taxes until they are only left with "enough" is as quick as a way to a revolution as enforcing a system where people can't pull themselves out of poverty.

Well, the system where people can't pull themselves out of poverty is taking forever to get to the point of revolution so I'd be fine trying it the other way for a while.
posted by The Hamms Bear at 8:52 PM on April 18, 2011

This allows payouts to be capped.
...
If we want bigger payouts from social security, we should all contribute more into it.

I think it's less about getting "more out of it" than it is about staving off that inevitable insolvency we're always hearing is just around the corner and that keeps leading the Republicans to push for privatization. And means testing would be better. Social Security barely pays most recipients enough to live on.

Well, the system where people can't pull themselves out of poverty is taking forever to get to the point of revolution so I'd be fine trying it the other way for a while.

This is a false dichotomy. We're basically just talking about resetting our tax system to something resembling America's historical norms here, not radical wealth-strangling socialism. Isn't that kind of a main point of the fpp?

let's talk about us. Do we really need iphones, ten dollar lattes, bottled water and crap like that?

Don't have an iPhone (though we did splurge on a last gen iPod touch a while back since I'm a developer and figured I should own a mobile device other than my motorala go-phone), don't regularly drink anything but black coffee, bottled water is a convenience for outings but not a necessity (although the local water where we live isn't especially appetizing, that's what water filtration is for). On the other hand, haven't been able to afford to replace our broken oven for the better part of a year now, my brake mechanic told me I needed to get my rear brakes fixed by the end of the month about five months ago, the light fixture in our bathroom has been broken for nearly two years, our sub-floors are collapsing because the developer nickeled and dimed our neighborhood and constructed all the homes with floor joists spaced too far apart, and we can't put our house back on the market and get out of our financially declining home state because our back deck is rotting and has a big hole in it from when a large broken tree limb punctured it during one of Florida's famous summer squalls. And we're nominally middle class.

But you're right. I don't need any of those things. And I bet that 400 people who command more than half the US's wealth mentioned up-thread have a few things they don't need, too.
posted by saulgoodman at 9:00 PM on April 18, 2011 [1 favorite]

Equity of collection is one thing, but I think the real problems lie in how we power balance decision making and in how we allocate existing resources.

The US is not cash poor as a country. It just allows the wrong kind of actors to influence and create its legislative body and then they kiss their friends and piss on their enemies. Wash, rinse, repeat.
posted by Reasonably Everything Happens at 9:07 PM on April 18, 2011 [1 favorite]

I think it's less about getting "more out of it" than it is about staving off that inevitable insolvency we're always hearing is just around the corner and that keeps leading the Republicans to push for privatization.

Have we really become that stupid? At least the Democrats seem to be all on the same page now that there's no immediate problem with social security. On the internet I'll argue for what's right before just what's politically possible . . .

Social Security barely pays most recipients enough to live on.

People generally take out what they've paid in, no? I like SS because it is a mandated savings plan, and think if FICA taxes were higher this would eventually come out of rents and land values ~ a basic free lunch.

Just loading taxes on the upper 10% doesn't have this attribute, and not all of the top 10% are social parasites.
posted by mokuba at 9:18 PM on April 18, 2011

In NY State, the rise in costs is mostly attributable to the State constitution's defined benefit pension plan that is using an 8% rate of return for actuarial purposes.

no. no it isn't. The pension shortfall in NYS is driven by failures by the state to make contributions much much much more so then by failing to return the actuarially assumed rate. Not to say 8% isn't too high, but if its too high it is something like 2% too high - that alone doesn't begin to explain the shortfall. Why hasn't the state funded the pension? Because politicians would rather kick the can down the road instead of increasing taxes or decreasing pension benefits through the collective bargaining process.

The bottom line is that if your real property appreciates in value, you pay taxes on that increased value. If most of your assets are in real property i.e. you are a senior citizen living on social security, then hooray: you get to pay a wealth tax! If you are Mr. Paulson, your wealth is tax free (except for your real property which is a small fraction of your total wealth) and you only pay on the gains.

No again, it isn't. Property Taxes go up because the cost and/or scope of services has gone up. Individual Property values only serve as a numerator in the equation. And he guess what - in equilibrium costs and property values should both increase at about inflation, so as long as scope remains constant (which granted it never does) property taxes and property values are flat in real terms. Where it effects retirees and what not is when their fixed incomes don't inflate with the costs of goods and services. If scope has increased you are getting more in services so you are paying more.
posted by JPD at 5:57 AM on April 19, 2011

Yeah, it's nice to believe stuff.

Is it really that big a leap to think that economic globalization has been fueled in part by a combination of U.S. based investors directly investing in foreign companies or by U.S. based companies outsourcing production with money gained from U.S. investors?

All I'm saying is that tax cuts for wealthy American's haven't had the desired outcome. The cuts haven't created jobs here in the U.S. and the eventual increase in tax revenues we were promised haven't materialized.

One possible explanation is that the tax cuts left wealthy Americans with more money to invest. They either directly invested the money in other countries or invested it in companies who, seeking greater returns, invested that money in other countries to lower production costs and/or sell their products in new markets.
posted by VTX at 6:17 AM on April 19, 2011

Destroy the IRS?

The IRS is a social control method. It will not be destroyed.

"What do you expect when you sue the president?" senior IRS official Paul Breslan to Judicial Watch Chairman Larry Klayman. The legal group became the target of an IRS audit in 1998, just four days after it filed an independent impeachment report against Clinton.
posted by rough ashlar at 6:59 AM on April 19, 2011

It might not be a stretch, but what appears to have happened instead is that investors churned all their money into Wall Street and its the mortgage-backed securities market--and then that went boom.

But either way, the purpose of the US tax code is not to stimulate job development in the rest of the world at the expense of US citizens.
posted by saulgoodman at 7:09 AM on April 19, 2011

I'm disappointed that there's a knee-jerk reaction against this idea. I think there's a good liberal case for zero corporate tax. Tax revenue from corporations would be replaced by eliminating most deductions on personal income, making the tax brackets more progressive, removing that cap on social security contributions, means testing social security benefits and maybe implementing an asset-based tax on high net-worth individuals. Ultimately it would be more progressive than the current system.

Because liberals see corporations as a monolithic globs of evil. The same way the right sees the government. Being the boogeyman, they want to starve/punish the beast. And they both see taxes as punishment.

But corporations are just groups of people. Tax the money when the people benefit from it, not when it hits some line in a ledger. Eliminating the corporate tax doesn't make anyone richer, it just shifts the point in the circle where the tax is collected.
posted by gjc at 7:30 AM on April 19, 2011 [1 favorite]

gjc: "Eliminating the corporate tax doesn't make anyone richer, it just shifts the point in the circle where the tax is collected."

Only if other taxes are increased to compensate.
posted by wierdo at 7:35 AM on April 19, 2011

One possible explanation is that the tax cuts left wealthy Americans with more money to invest. They either directly invested the money in other countries or invested it in companies who, seeking greater returns, invested that money in other countries to lower production costs and/or sell their products in new markets.

Which increases revenue/income, which gets taxed. What nobody seems to get is that no matter what the tax rate, (corporate) investment isn't taxed anyway. If I have $1m in net profits, I can either keep the $650k after taxes, or I can invest that $1m in something that will generate money down the road, where I then will pay taxes on the profit I hopefully make off of it. If the investment pays off, I get more income and the gov't gets more tax revenue. If it doesn't, we both get less.

But, that investment money doesn't just disappear. It goes into some other enterprise that uses that $1m to pay salaries (taxed) or to buy other raw materials (taxed).

Even if I spend that $1m overseas, that $1m doesn't just disappear. Currencies can't just be converted- the overseas company needs to exchange those dollars for something they need. With someone in the US who has their currency, for example. That closes the circle.
posted by gjc at 7:39 AM on April 19, 2011

But corporations are just groups of people.

No they aren't. They're systems of legal protections that people use to do stuff.

Corporations are not necessarily evil, but corporate law is seriously screwed up in ways that lets corrupt or merely non-public minded people exploit the law to gain at the public's expense.

Corporations, because they provide special protections against financial liability, cost the public more. And corporate profits are basically capital extracted from the economy for the benefit of rent-seeking investors. All those things cost us in real social and economic terms when we don't off-set the costs properly and minimize the risks that limitations on personal liability create.
posted by saulgoodman at 7:39 AM on April 19, 2011 [1 favorite]

Even James Madison (PDF) warned that corporations could potentially lead to corruption and needed to be carefully checked in law.
posted by saulgoodman at 7:42 AM on April 19, 2011

Extract from the PDF:

Madison began by stressing that corporations, unlike natural persons, had only the exact measure of rights that was conferred upon them by the state in express terms--in other words, they did not have "inalienable rights" which arose under natural law, like the "people of the United States" invoked at the outset of the Constitution. Moreover, Madison soon made clear that he thought corporations were "powerful machines" that might well do a great deal of mischief if left unguarded. He is plainly suspicious of Hamilton’s motives and talks repeatedly about "monopolies," the risk to the economy on the whole of a run on the bank, and the risk of a nation which is credit-dependent upon this bank (here he cites the East India and South Seas Companies).

posted by saulgoodman at 7:44 AM on April 19, 2011 [2 favorites]

gjc - most corporates pay tax on investment in excess of depreciation. Or are supposed to pay tax on that number. The exceptions are REITs - but there income in excess of funds reinvested gets taxed at the shareholders marginal tax rate.
posted by JPD at 7:47 AM on April 19, 2011

gjc: "Eliminating the corporate tax doesn't make anyone richer, it just shifts the point in the circle where the tax is collected."

Only if other taxes are increased to compensate.

Not necessarily. That money will go to someone who will pay tax on it.

If a corp has $1m and the corp tax is 35%, the gov't gets $350k. If instead that $1m is spread to their executives who pay tax at the 38% rate, the gov't gets $380k. That's a best-case scenario, of course.

I'm not saying it would be break-even, but it would be close.
posted by gjc at 7:47 AM on April 19, 2011

And corporate profits are basically capital extracted from the economy for the benefit of rent-seeking investors.

Corporate profits are the difference between revenue and costs. Rent-seeking can be a part of that, but not necessarily.
posted by gjc at 7:53 AM on April 19, 2011

two different concepts being conflated - economic profits vs accounting profits. From a taxation perspective only accounting profits matter, so corporations can be profitable w/o rent-seeking.
posted by JPD at 7:55 AM on April 19, 2011

yeah but if I'm the CEO of a company that doesn't pay taxes on undistributed earnings I'm not gonna pay them out, but rather reinvest them and compound them at some rate of return. That's the rational thing to do. Then the value of my shares increases, and I only pay 15% on that.

Paying those earnings out to investors or to employees is the same thing as investing them, from a macro level. You are sending them back into the economy where they are taxed as someone's income. Look at how fractional reserve banking works; the chain of investment works the same way. The economy is better off with people investing in useful endeavors and getting taxed on the income from than, than shutting it down at the source.
posted by gjc at 7:58 AM on April 19, 2011

Even if I spend that $1m overseas, that $1m doesn't just disappear. Currencies can't just be converted- the overseas company needs to exchange those dollars for something they need. With someone in the US who has their currency, for example. That closes the circle.

It isn't so much the U.S. company doing things like building a factory in Asia. That part of it may well be a closed loop but the real "trickle down" effect gets lost overseas.

I read a story about this factory that Qualcomm built in Taiwan (I think) and it brought lots of jobs to the area. Pretty soon the workers (who were mostly women) went from walking to work to walking to work wearing shoes, then bikes, then small cars. A bunch of locally owned businesses sprung up by the factory to sell stuff to the workers. A real globalization success story, yay! (Not that globalization doesn't have its own issues but that isn't relevant to this thread) The problem is that workers aren't paying U.S. income tax on their income. The local businesses that were created weren't paying taxes to the U.S. on their profits, the workers they hired didn't pay taxes in the U.S. etc.

Stories like that are one of the reasons why globalization can (stress CAN) be awesome but it needs to be taken into account when making tax policy.
posted by VTX at 7:58 AM on April 19, 2011

You're right. It's not necessarily rent seeking if the capital gets put to productive use.
posted by saulgoodman at 7:58 AM on April 19, 2011

When you charge someone a fee merely for the privilege of putting property to productive use, it's called rent-seeking.

When you charge someone a fee merely for the privilege of putting your money to productive use for you, it's called capitalism.
posted by saulgoodman at 8:00 AM on April 19, 2011

Paying those earnings out to investors or to employees is the same thing as investing them, from a macro level. You are sending them back into the economy where they are taxed as someone's income. Look at how fractional reserve banking works; the chain of investment works the same way. The economy is better off with people investing in useful endeavors and getting taxed on the income from than, than shutting it down at the source.

this is just twisted around supply side economics - empirical data has show time and time again that this isn't the case. The incremental tax revenues associated with the capital spending is less than the foregone tax revenues.
posted by JPD at 8:00 AM on April 19, 2011 [1 favorite]

Using non-economist speak, I think what you're saying is that if an enterprise only breaks even, then it's losing ground (because it's not reinvesting enough to keep up with depreciation in the value of its assets or something? Is that in the ballpark?).

Sole proprietorships run sustainably without excess profits all the time. Owners give themselves salaries (which are normal operating costs, not profit) and reinvest any extra revenue back into their enterprise to keep it running. That's efficient.

What I'm talking about are the excess profits that might theoretically be returned to shareholders, for example. So maybe "extracted profits" is a better way to put it.
posted by saulgoodman at 8:14 AM on April 19, 2011

Yes, exactly, they are operational inefficiency. An efficient enterprise wouldn't have any money left over after all the salaries were paid and all the production costs were recovered. You've got to short change some part of the economy to end up with profits.

Why should someone invest their money in something if they shouldn't expect to make a profit off of it? Profits aren't evil, they are just the reward for adding value to something.

Look at it from a micro-perspective. It costs me what, $3 to feed myself enough to work 8 hours? That's all it *costs* for my labor, so that's all I should be paid, right? Of course not. We profit by trading the low cost of our labor for the higher price of the value we add.

You're right. It's not necessarily rent seeking if the capital gets put to productive use.

It's not rent-seeking no matter what is done with the capital, as long as it isn't used to manipulate the market to restrict competition somehow. Economic rant isn't just "profit".
posted by gjc at 8:16 AM on April 19, 2011

Why should someone invest their money in something if they shouldn't expect to make a profit off of it? Profits aren't evil, they are just the reward for adding value to something.

So why does anyone ever start a sole-proprietorship?
posted by saulgoodman at 8:20 AM on April 19, 2011

JPD: "In NY State, the rise in costs is mostly attributable to the State constitution's defined benefit pension plan that is using an 8% rate of return for actuarial purposes.

no. no it isn't. The pension shortfall in NYS is driven by failures by the state to make contributions much much much more so then by failing to return the actuarially assumed rate. Not to say 8% isn't too high, but if its too high it is something like 2% too high - that alone doesn't begin to explain the shortfall. Why hasn't the state funded the pension? Because politicians would rather kick the can down the road instead of increasing taxes or decreasing pension benefits through the collective bargaining process."

Yes, yes it is. In NY, the TRS (the pension for teachers) is funded by local property taxes via school budgets. In order to "smooth" the swings, it is done on a rolling 5 year average, but it is funded yearly. And a 2% change in the assumed return would have have a monumental swing in the funding requirement.
posted by JohnnyGunn at 8:20 AM on April 19, 2011

In the case of corporate investment, the only value being added is access to capital, which is property. So how does that differ from squatting on a piece of land and demanding producers pay you to let them use it?
posted by saulgoodman at 8:21 AM on April 19, 2011

JohnnyGunn - look at page 11 here. It was the municipalities rather than the state. Apologies.

http://www.nystrs.org/main/library/2010NYSTRS_Numbers.pdf

The municipalities have been under contributing for years. You see that decline around the turn of the last decade - thats for exactly the opposite reason why you are complaining today - the funds overearned their actuarial returns, but rather then keeping up contributions are historic levels the municipalities reduced contributions to either limit tax increases, or probably in some cases reduce taxes.
posted by JPD at 8:28 AM on April 19, 2011

Sole proprietorships run sustainably without excess profits all the time. Owners give themselves salaries (which are normal operating costs, not profit) and reinvest any extra revenue back into their enterprise to keep it running. That's efficient.

no the salaries represent the return on equity capital that the sole proprietors have invested in the business. Because this equity capital isn't fungible the way it is in a corporation the opportunity costs of it are lower so profits can be lower, but they are still greater than the treasury rate.
posted by JPD at 8:31 AM on April 19, 2011

JPD: Well, what I'm trying to get at is that it seems to me there's a fundamental difference between a sole proprietor/operator running a business efficiently and "profiting" for it by collecting a salary, and capital investors expecting returns above and beyond equity capital (the worth of the business) in return for the use of their otherwise unproductive investment capital.

Investor owned corporations are expected to be able to generate additional revenues over and above what's required to operate efficiently just to service their investor debt. To do that, they either have to short change their workforce, continually trim production costs (whether that's physically possible or not), or fleece their customers to generate the additional revenue needed to meet their investors' demands.

In an efficient system, any additional revenue generated through actual innovation or real efficiency gains should go back into the economy in the form of wage growth for the workers or lower prices for consumers. But those efficiency gains in practice are bled out of the economy to satisfy investors. I don't know how it's supposed to work in theory, but this is how it appears to work in practice.
posted by saulgoodman at 10:01 AM on April 19, 2011 [1 favorite]

but they aren't - in aggregate corporate american earns its CoC not more.
posted by JPD at 10:06 AM on April 19, 2011

Then why do they invest? People only invest to get back more than they put in.
posted by saulgoodman at 10:08 AM on April 19, 2011

MeFi mail.
posted by JPD at 10:09 AM on April 19, 2011

From Politifact:

Total federal tax share for the top 1 percent: 28.1 percent

I'm still chewing on this. IIRC, being in the top 1% requires income of about $400,000 and up. In this 1% are working people who make that kind of scratch (a lot of whom pay "normal" amounts of taxes due), the "capital class" (for want of a better term) who make money on money and pay much of their taxes at the lower capital-gains level, and most corporations.

Bernie Sanders listed 10 (profitable) corporations that in 2009 recieved about 7 billion dollars in tax refunds.

So the two problems that I see with the factoid, I think, are these:

1. The top 1% are on the hook for 28.1%, not paying 28.1%.

2. Conflating percentages and gross amounts without comparisons to amount of wealth controlled is deliberately misleading.

Am I wrong here?
posted by Benny Andajetz at 10:20 AM on April 19, 2011

So the two problems that I see with the factoid, I think, are these:

1. The top 1% are on the hook for 28.1%, not paying 28.1%.

2. Conflating percentages and gross amounts without comparisons to amount of wealth controlled is deliberately misleading.

Am I wrong here?

2. is correct. 1 is not. these guys aren't cheating they are just abusing the loopholes (I know same thing, but in the context of this discussion it is not) - so they aren't on the hook for anything.
posted by JPD at 10:31 AM on April 19, 2011

2. Conflating percentages and gross amounts without comparisons to amount of wealth controlled is deliberately misleading.

Ding!

Lesson of the widow's mite, and all.
posted by verb at 10:31 AM on April 19, 2011 [1 favorite]

It's not rent-seeking no matter what is done with the capital, as long as it isn't used to manipulate the market to restrict competition somehow. Economic rent isn't just "profit".

I would add to rent-seeking the acquisition of capital of fixed supply, like land, and perhaps board certifications.

In the case of corporate investment, the only value being added is access to capital, which is property. So how does that differ from squatting on a piece of land and demanding producers pay you to let them use it?

This is the confusion the neo-classical school has created by eliminating the difference between land and capital. They're one and the same to the neo-classical school, and one Georgist economist asserts that this conflation was intentional, to de-fang the Georgist argument.

Winston Churchill, in his Georgist days, attempted to answer your question:

"Land differs from all other forms of property. It is quite true that the land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies -- is a perpetual monopoly, and it is the mother of all other forms of monopoly. It is quite true that unearned increments in land are not the only form of unearned or undeserved profit which individuals are able to secure; but it is the principal form of unearned increment which is derived from processes which are not merely not beneficial, but which are positively detrimental to the general public. Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position -- land, I say, differs from all other forms of property in these primary and fundamental conditions."

To answer your question then, by Georgist definition capital comes into existence through human labor, and this labor bestows ownership.

Land and its resources, not being a product of labor, is not properly "capital" in the sense of being ownable.

I only discovered this argument ~10 years ago, and it was quite the moral clarification.
posted by mokuba at 11:16 AM on April 19, 2011

But what's the practical difference mokuba? If I need 100 acres of land to engage in some economically productive activity, and the only person with 100 acres of land in town wants to charge me an exorbitant rent to use it, how is that in practice different than the only guy in town with 100 dollars wanting to charge me an exorbitant rent to use it? If there were some way to guarantee that the guy with 100 dollars had earned it through some economically productive activity, then I suppose I can see how it would all come out even in the big picture.

But if it's some guy who just inherited it, what's the real difference? Granted, I guess I can see a distinction in the fact that no one created that piece of land (it was not a product of labor--but then neither is income earned on a mortgage backed security for a piece of land), and presumably, someone did makes such an investment in earning that 100 dollars, even if they did ultimately pass it along to someone who did nothing to earn it. But these just seem like academic distinctions to me.
posted by saulgoodman at 11:48 AM on April 19, 2011 [1 favorite]

Here's the White House (PDF!) budget's list of tax loopholes which are being proposed to be closed and their effect on the deficit
posted by JackarypQQ at 11:52 AM on April 19, 2011

If I need 100 acres of land to engage in some economically productive activity, and the only person with 100 acres of land in town wants to charge me an exorbitant rent to use it, how is that in practice different than the only guy in town with 100 dollars wanting to charge me an exorbitant rent to use it?

Two things, one the moral right to one's own justly-gained property. "Just" is the weasel-word here, of course, but the argument goes that people manage financial wealth they "own" better than some other agency just redistributing this wealth.

Locke's Theory of Property included the Lockean Proviso that implicitly eliminated land rental as being a just form of capitalism.

Plus the location monopoly the land owner enjoys. Financial capital markets are more fluid than land markets, obviously, so there is more competition among financiers compared to landlords.

but these just seem like academic distinctions to me.

yes, all morality is an abstraction. I'm a pragmatist, I'd like to go with the morality of what works best, and I think the moral philosophy of wealth works best if wealth is not just confiscated for the greater good, as this introduces its own societal problems.

Over time I would also like to see a system that does not result in concentration of wealth among fewer and fewer people, something we have now here. I'd like to think the georgist stuff would be enough to fix this, but dunno really.
posted by mokuba at 12:07 PM on April 19, 2011

Again, it would perhaps be interesting for US citizens to look abroad. For instance, it seems that countries with more distribution of wealth have happier populations: Gallup's annual wellbeing survey
Also, it seems the current budget controversy does not come across as reasonable all over, indeed it looks like someone out there thinks your government is irresponsible: S&P Rating on USA

Maybe, just maybe, instead of trying to figure out how a sound system can work from the ground, you could find inspiration in other systems that are already working, and perfect them.

For the record, this is something I say at home all the time. Politicians here are as populist and irresponsible as anywhere.

Your (USA) economy is important for all of us. This is why we all want a say.
posted by mumimor at 12:14 PM on April 19, 2011

Well, what I'm trying to get at is that it seems to me there's a fundamental difference between a sole proprietor/operator running a business efficiently and "profiting" for it by collecting a salary, and capital investors expecting returns above and beyond equity capital (the worth of the business) in return for the use of their otherwise unproductive investment capital.

Investor owned corporations are expected to be able to generate additional revenues over and above what's required to operate efficiently just to service their investor debt. To do that, they either have to short change their workforce, continually trim production costs (whether that's physically possible or not), or fleece their customers to generate the additional revenue needed to meet their investors' demands.

In an efficient system, any additional revenue generated through actual innovation or real efficiency gains should go back into the economy in the form of wage growth for the workers or lower prices for consumers. But those efficiency gains in practice are bled out of the economy to satisfy investors. I don't know how it's supposed to work in theory, but this is how it appears to work in practice.

There is no difference between the sole proprietor/operator and the corporation. Both try to pay their workforce as little as possible while their workforce tries to fight for as much as possible. Both try to charge as much as possible while their customers try to pay as little as possible, and both invested capital at the outset in a risky enterprise in the hopes of making as much money as possible.

The system is already efficient as long as there is competition.

Efficiency gains are not "bled out of the economy to satisfy investors" — they are the fair rewards for investment.

But what's the practical difference mokuba? If I need 100 acres of land to engage in some economically productive activity, and the only person with 100 acres of land in town wants to charge me an exorbitant rent to use it, how is that in practice different than the only guy in town with 100 dollars wanting to charge me an exorbitant rent to use it? If there were some way to guarantee that the guy with 100 dollars had earned it through some economically productive activity, then I suppose I can see how it would all come out even in the big picture.

The price of capital (what investors demand) is determined by a fair auction called the stock market. Interest rates (the risk-free price of capital) right now are very low because companies can't make a lot of money, or else there is a lot of risk. During a boom, when it's easy to make money, interest rates go up because there is limited capital, and investors can find better and better investments. Also, to keep inflation down, the money supply is usually reduced by the fed, which further increases interest rates.
posted by esprit de l'escalier at 12:19 PM on April 19, 2011 [1 favorite]

it seems the current budget controversy does not come across as reasonable all over, indeed it looks like someone out there thinks your government is irresponsible

you realize that the S&P downgrade is a highly politicized thing right? That the S&P people want exactly the opposite of the sort of redistributionist/higher tax regime sort of thing you are suggesting in your prior statement yes?
posted by JPD at 12:29 PM on April 19, 2011

The S&P people want a budget that works. Period. Probably, they are more conservative leaning than liberal, but that is not what the rating is about. Here is a tabloid version: When Bill Clinton Was President The S&P Tripled Gaining $9Trillion. Under George W. Bush The S&P500 Lost More Than $4.6 Trillion. Is This How Conservative Economics Is Supposed To Work?
Even in Brazil, the rich have discovered that "socialism" works. The rich are getting richer as quality of life is improved for the poorest.
Only in America people believe that Scandinavia, The Netherlands or Brazil are socialist. They are not at all. But that is an other discussion. Fact is that tax-financed government expenditures on health, education and infrastructure for everyone pay off for everyone, and not least for the rich. In the countries where the rich contribute more to this (and this includes the US), more people are happier and richer than in countries with Milton Friedman inspired economics (most of the former east block). If the US elects to resemble Russia or Poland, huge problems will arise, and influence global economy. I cannot read the minds of the analysts of S&P, but my sense is that they understand this.
posted by mumimor at 12:46 PM on April 19, 2011

they are the fair rewards for investment

Well, then why do they also often get the "fair rewards" for productivity gains among the labor force? If you pay someone the same wage to produce three times as much output, but only pass the returns along to investors in the form of equity growth or dividends, why is it more properly the investors' "fair reward" than it is the workers'? Or on the other hand, why shouldn't the savings be passed along to consumers so that the price of the good or service is closer to optimal?

NY Times Economix Blog: Rich People Still Don't Realize They're Rich
posted by saulgoodman at 1:02 PM on April 19, 2011

The S&P people want a budget that works. Period. Probably, they are more conservative leaning than liberal, but that is not what the rating is about.

More importantly, why should we trust the same credit rating agencies that, according to congress, basically triggered the financial crisis?

Moody's, S&P Triggered Financial Crisis, Congressional Report Finds

Why haven't we made credit reporting a public function yet, dammit?
posted by saulgoodman at 1:07 PM on April 19, 2011

uhm you are aware that the S&P the bond rating agency and the S&P 500 have only the most tenuous of relationships?
posted by JPD at 1:14 PM on April 19, 2011

saulgoodman: You're right that productivity gains should theoretically lead to wage increases, but that doesn't necessarily happen because, e.g., there may not be another competing company to hire these super-productive workers and pay them a fairer wage. I guess the workers are always at a disadvantage when there are few employers, but many of them.

The consumer has the same problem when there are few producers: an oligopoly.

I think that the solution is policies that increase competition: then the workers are paid more and the consumer gets the better price.
posted by esprit de l'escalier at 1:16 PM on April 19, 2011

I lay the blame of our sorry state solely on the propagation and ridiculous capitulation to the outright lie that "we need to compete in the global marketplace." It is solely a dogwhistle that American workers are somehow unnecessarily overpaid.

Where, exactly, do we need to compete? We are blessed with vast natural resources. We have the best agricultural land, overall. We have an educated workforce. We are a net importer, and the most affluent market. Countries want our business, and a lot need our business.
posted by Benny Andajetz at 1:21 PM on April 19, 2011

Yes, the credit-rating companies were irresponsible and thus *evil*. They should have told the truth from the outset. As should all central banks and most other credit institutions. The biggest lie here is that the crisis came as a surprise. I certainly knew it was coming, and almost to the date when, 18 months before it happened, and I am not an expert on credit or banking. I knew it from conversations with experts, from experience and from simple calculus. The thing is, there was a very broad consensus not to tell, to hush it down, and this consensus spanned across the involved sectors.
This consensus was not a gentlemanly agreement - if someone started stating the facts, they would most likely be fired within days. I wasn't fired from what I was doing because someone was planning to take over my business and hoped my "blatant idiocy" would help them in the process.

@JPD. Yes, that is why I called it a tabloid version.
posted by mumimor at 1:26 PM on April 19, 2011 [1 favorite]

uhm you are aware that the S&P the bond rating agency and the S&P 500 have only the most tenuous of relationships?

Oops. I assumed we were talking about the ratings agency, not the S&P 500.
posted by saulgoodman at 1:30 PM on April 19, 2011

mumimor used a cite about the returns to the S&P 500 as an argument that S&P the rating agency favored a more reasonable clintonian approach to fiscal policy. The reality is that S&P has no credibility - they screwed up so much during the last cycle that they are now attempting to save themselves by being the exact opposite - and as a result they are being utterly irrational about some things.

Go read the S&P downgrade mumimor, then tell me how that places itself in the narrative you are trying to put together. That's not even the tabloid version - it literally has no relationship with one another.
posted by JPD at 1:52 PM on April 19, 2011

Fair enough, JPD. What I was trying to say was that S&P does not favor any particular set of politics, and my quote was from another realm (but snappy).
However, if you look at the actual downgrade, they are saying We believe there is a material risk that U.S. policymakers might not
reach an agreement on how to address medium- and long-term budgetary
challenges by 2013; if an agreement is not reached and meaningful
implementation is not begun by then, this would in our view render the
U.S. fiscal profile meaningfully weaker than that of peer 'AAA'
sovereigns.
and: Standard & Poor's takes no position on the mix of spending and revenue
measures the Congress and the Administration might conclude are appropriate.
But for any plan to be credible, we believe that it would need to secure
support from a cross-section of leaders in both political parties.
They are not saying one way or the other is preferable, but that consensus must be found, in order to ensure a long term strategy, which will not be changed by eventual new governmental constellations.
As it is, the presidency and the senate is held by democrats, and the popular majority is in favor of the broad outlines of the democratic proposal (preserving entitlements, improving healthcare, creating jobs) - which includes increased revenue. Any stable consensus should acknowledge this reality, unless one is confident that the US system is totally corrupt and that the Koch brothers will eventually prevail.
posted by mumimor at 2:05 PM on April 19, 2011

mumimor - read the whole thing - they want a reduction in the current deficeit - any move in that direction is inherently embracing the republican narrative.
posted by JPD at 2:18 PM on April 19, 2011

No, the reduction in deficit can partially be found through increased revenues.
Count me among those who believe that the US spends way too much on healthcare and defense, even counting in the productivity, growth and stable capital gains of these industries. But again - moving these resources towards fields that are healthier in the long run needs consensus decisions.

The thing is, even among several democrats, increased revenue (taxes) is a tabu, and changing the direction of the largest government investments is equally tabu.
posted by mumimor at 2:27 PM on April 19, 2011

Except that's not how its going to happen given the political mileu at the moment, and S&P knows that. Statements like S&P's give added creedence to the Paul Ryan's of the world as they seek to defund the few entitlement programs we do have. The timing of this is highly highly suspect.

Not to mention the correct thing for the US to do is to keep printing money and running large deficits in order to soak up excess capacity and devalue the dollar.

And lets not get into all of the other totally silly things S&P is doing with other credits.
posted by JPD at 2:32 PM on April 19, 2011

Actually, I think we mostly agree on this. I'm not at all a defender of S&P. But I do think they are somewhat less biased than you imagine.
The problem is more what I wrote about above: that the political-financial consensus is not rational and trends towards judgements that protect management rather than the actual welfare of businesses or nations. I see this as a huge problem of our times.
posted by mumimor at 2:45 PM on April 19, 2011

The hell you say. The feds directly tax oil, tobacco, alcohol and guns.

<>It's hard to survive when life's most basic staples are taxed like that.

Is that supposed to be funny or insightful? Me, I was responding to a blank statement which was demonstrably untrue. Assuming your comment to be sarcastic, I'll suggest that oil at least is definitely a staple.

Then too, there's a school of thought that holds that no corporation pays taxes, they merely collect them from consumers, occasionally holding back as the law permits for the benefit of shareholders, some of whom are probably members of the blue. Not here to argue that issue, but it is a perspective.
posted by IndigoJones at 6:00 PM on April 19, 2011

You'd think from these comments that people feel something is wrong about our current tax system. Wow.
posted by bengalsfan1 at 7:38 PM on April 19, 2011

Last night, I was stopping to buy some beer on the way home. To get to the store, I had to navigate road construction -- the city was finally getting around to fixing a pretty messed up section of the much-traveled street. While I was paying, a guy comes in and is like "How long has this been goin' on?" And the owner says "Since the beginning of the week." "Bet it's bad for business." The owner shrugs noncommittally. "Man, and they want us to pay taxes!" the guy mutters.

Um, yes. That is how we get the roads fixed.
posted by GenjiandProust at 6:07 AM on April 20, 2011 [1 favorite]

For the record, I don't believe the idea of corporations is inherently evil--it's the way corporations are currently understood and implemented in law that I consider a problem.

The conflicts of interest that inevitably arise between the public good and shareholder interests should be resolved in ways that are more decidedly balanced toward the public good, and the law should enthusiastically provide lawmakers with any powers necessary to limit or otherwise shape corporate behavior through law or regulation, and then lawmakers must be willing and able to use those powers in ways that actually serve the public interest, without undue deference to what economic theory predicts.

Social needs should take precedence over economic needs. We don't refuse to do everything in our power to prevent the destruction of life in a catastrophe just because it might be economically costly to do so (I'd argue, in the Keynesian way, that it probably isn't costly on net anyway); therefore, the actual social needs of human beings are already implicitly understood to come before our economic calculations.

So what if it costs us economically to take care of our own? Economics tells us the simple passage of time costs us. Everything constantly loses value over time anyway, so the best we could ever hope to do is break-even, from a theoretical standpoint, and even that would require constant growth--just to break even. So forget the economics. There's no way to come out better off year after year in real terms if we believe what theory says.

But in practice, we can make things better. History shows that. We just can't let ourselves be limited politically by economic theory. Economic theory doesn't even have a track record of accurately predicting events, so why should we trust economic theory to unduly influence how we govern ourselves and our business practices?
posted by saulgoodman at 8:10 AM on April 20, 2011

re: saulgoodman's comment, I heard this today:

I am convinced that if we are to get on the right side of the world revolution, we as a nation must undergo a radical revolution of values. We must rapidly begin to shift from a thing-oriented society to a person-oriented society. When machines and computers, profit motives and property rights are considered more important than people, the giant triplets of racism, militarism and economic exploitation are incapable of being conquered. A true revolution of values will soon cause us to question the fairness and justice of many of our present policies.

True compassion is more than flinging a coin to a beggar. A true revolution of values will soon look uneasily on the glaring contrast of poverty and wealth with righteous indignation.

posted by esprit de l'escalier at 10:52 PM on April 21, 2011 [1 favorite]

What esprit de l'escalier wrote is exactly on point.

Some facts about poverty in the US, to go with all the think-tank talk about tax burdens falling disproportionately on the rich:

Poverty in the United States is cyclical in nature with roughly 13 to 17% of Americans living below the federal poverty line at any given point in time, and roughly 40% falling below the poverty line at some point within a 10-year time span. Poverty is defined as the state of one who lacks a usual or socially acceptable amount of money or material possessions.[1] Approximately 43.6 (14.3%) million Americans were living in poverty in 2009, up from 39.8 million (13.2%) in 2008.

. . . .

Most Americans (58.5%) will spend at least one year below the poverty line at some point between ages 25 and 75.[4] There remains some controversy over whether the official poverty threshold over- or understates poverty.

posted by saulgoodman at 7:02 AM on April 22, 2011

You actually did pay taxes. You paid too much over the course of the year, in fact. The refund you got was your own money given back to you after the government collected interest on it for a while.

But my refund was 485% of what they originally withheld. I actually am poor.
posted by battleshipkropotkin at 8:00 PM on April 25, 2011

fwiw, Taxes, syndication, and web traffic

also btw, re: MLK, FDR Said It All in 1936...

oh and i was just thinking too on how, "we as a nation must undergo a radical revolution of values," that krishnamurti was on to something when he sed, "to understand is to transform what is..."

which has led peter joseph, for one, to try and understand (if not spark) the zeitgeist; echoes from the 60s and the 40s*...

---
*1945 Labour Party Election Manifesto
posted by kliuless at 9:17 PM on April 25, 2011

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