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High earners in France consider moving in response to 75% tax
August 8, 2012 11:36 AM   Subscribe

“We’re getting a lot of calls from high earners who are asking whether they should get out of France,” said Mr. Grandil... “Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing.” French president François Hollande's plan to tax income above a million euros ($1.24 million) a year at 75% is alarming some.
posted by shivohum (259 comments total) 10 users marked this as a favorite

 
Planet Money - Do The Rich Flee High Taxes?
posted by The Whelk at 11:40 AM on August 8, 2012 [11 favorites]


Maybe they can move to Greece.
posted by R. Schlock at 11:41 AM on August 8, 2012 [7 favorites]


That's not how you boil a frog.

Pun intended.
posted by ChurchHatesTucker at 11:41 AM on August 8, 2012 [9 favorites]


I think 50% should be the ceiling (and indeed, for certain earners in the US this is the marginal top rate when you include state and city taxes). Government taking more than half of what you earn just seems unjust.

Rich people can get absolutely nuts about taxes, though. I mentioned in another thread that I know a guy who recently revoked (?) his US citizenship and is moving to another country in order to pay lower taxes in the future (but not to evade current taxes due). I mean, for Christ's sake, he moved his family out of the US because of taxes, so he can be even more rich.
posted by gagglezoomer at 11:45 AM on August 8, 2012 [3 favorites]


Man Who Threatened To Move To Canada Before Election Still Here
posted by enn at 11:45 AM on August 8, 2012 [5 favorites]


fuck 'em
posted by 2bucksplus at 11:46 AM on August 8, 2012 [9 favorites]


More chateaux on the Loire for the rest of us.
posted by Capt. Renault at 11:49 AM on August 8, 2012 [6 favorites]


Didn't people make noises like this in the seventies when d'Estaing was elected? And few of them fled. The people who are actually willing to up stakes and leave France, its culture, the amenities available to the wealthy, its education system and its medical care are actually kind of few. Mere sabre-rattling, I think.
posted by Frowner at 11:50 AM on August 8, 2012 [13 favorites]


Government taking more than half of what you earn just seems unjust.
President François Hollande is vowing to impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year.
France, like the US, has a marginal tax rate system. For example, here are the US brackets for a single taxpayer:
10% on taxable income from $0 to $8,700, plus
15% on taxable income over $8,700 to $35,350, plus
25% on taxable income over $35,350 to $85,650, plus
28% on taxable income over $85,650 to $178,650, plus
33% on taxable income over $178,650 to $388,350, plus
35% on taxable income over $388,350.
No one is going to be taxed at "more than half of what they earn"!
posted by muddgirl at 11:51 AM on August 8, 2012 [47 favorites]


Don't let la porte hit your derriere on the way out.
posted by Zonker at 11:53 AM on August 8, 2012 [11 favorites]


God, it's like they'd be living in America before the Carter administration! Barbarous!
posted by cthuljew at 11:53 AM on August 8, 2012 [20 favorites]


Gagglezoomer, you understand marginal tax rates yes? Someone who's in the top tax bracket will only approach paying 75% of income asymptotically; since his first million is broken down into chunks each of which are taxed less and less (like us poor schmucks).
posted by notsnot at 11:54 AM on August 8, 2012


Taking over half of each additional dollar you earn is still unjust.
posted by gyc at 11:54 AM on August 8, 2012 [4 favorites]


Taking over half of each additional dollar you earn is still unjust.

Why?
posted by muddgirl at 11:54 AM on August 8, 2012 [45 favorites]


No one is going to be taxed at "more than half of what they earn"!

You would be if you made, say, 10 million Euro a year. That said, I can only assume that in France they have ways of making loads of money that isn't taxable income.
posted by snofoam at 11:55 AM on August 8, 2012 [5 favorites]


If the marginal tax rate is 75%, then there will be a point at which the average tax rate is >50%. The point at which that happens depends on the brackets suggested, but it will eventually happen. As income increases, your average tax rate asymptotically approaches the marginal tax rate. So, there is no way to avoid the "half of every dollar earned is taxed" condition for at least some people.

Whether or not that is a good thing is an open question, upon which I will not comment.
posted by saeculorum at 11:55 AM on August 8, 2012 [4 favorites]


Yes, to echo muddgirl: why is it unjust?
posted by Doleful Creature at 11:55 AM on August 8, 2012 [2 favorites]


Why?
posted by notsnot at 11:56 AM on August 8, 2012 [1 favorite]


I find the side bar showing the income tax rates for the highest tax bracket in various countries interesting. I've always been under the impression that Canadians had higher taxes than Americans, but our highest bracket is taxed at a lower rate than is the United States' highest bracket.

Also, I'm assuming that France's tax system is marginal and that they're not literally taking 75% of millionaire's incomes. That would, frankly, be absurd.
posted by asnider at 11:56 AM on August 8, 2012


No one is going to be taxed at "more than half of what they earn"!

Muddgirl, I think you need to rethink your math on that for very high incomes.
posted by gagglezoomer at 11:56 AM on August 8, 2012 [4 favorites]


During the go-go post World War II miracle years, top tax rates in Europe and the US were higher than that. During the Eisenhower administration, the top tax rate in the US was 92%.

Nobody seems to be able to connect the huge strides in social policy, infrastructure, space exploration, you name it with the highly granular tax structures of that era.
posted by Sidhedevil at 11:56 AM on August 8, 2012 [66 favorites]


No one is going to be taxed at "more than half of what they earn"!

Huh? If someone makes 9 million Euros/year, and 8 million is taxed at 75%, that's 6 million Euro/year. 6 of 9 million is well over half. Of course, not everyone in that tax bracket makes that much - just, if you make that much, you'll be taxed at more than half. Strange derail.
posted by (Arsenio) Hall and (Warren) Oates at 11:56 AM on August 8, 2012


Taking over half of each additional dollar you earn is still unjust.

That's why they do it in Euro.
posted by snofoam at 11:57 AM on August 8, 2012 [26 favorites]


Do The Rich Flee High Taxes?

Exile on Main St. wasn't recorded in France because Bill Wyman loved frog legs.
posted by Egg Shen at 11:57 AM on August 8, 2012 [4 favorites]


When you are that rich and move to another country, you're probably moving to an expatriate enclave of similar rich folks. Within reason, you can make it your own tiny country of similar minded rich people, surrounded by people you have nothing in common with.

Or, you can stay in your home country (or a country with similar policies) where your taxes go to create a place where you don't have to live your life behind enclave walls.

So basically, if they get what they want by leaving, bon voyage. That's not what I would want. Living as a true part of my country of residence could easily be worth 75% of a dollar, above a certain income threshold.
posted by BeeDo at 11:57 AM on August 8, 2012 [3 favorites]


“Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing.”

So, people who would have to see a 400% increase in their income before they would even begin to be affected by the change are worried. Apparently "dynamic" is a synonym for "stupid" in French.

I think 50% should be the ceiling (and indeed, for certain earners in the US this is the marginal top rate when you include state and city taxes)

In a sufficiently progressive system the top marginal rate is almost meaningless because by the time someone reaches that point they've already taken home a very large amount of money. In the US, for example, the top 1% have an effective federal tax rate of about 31%. That includes all federal taxation: income, Social Security, Medicare, excise taxes, etc. It's possible there are states and cities that take another 19% in effective (not marginal) tax, but I doubt it. The highest marginal state tax rate in the country is California with 10.3%, and I'd be shocked if there were a city anywhere in the country that took 8.7% in income. NYC has one of the highest, and it's only ~3.6%.

Taking over half of each additional dollar you earn is still unjust.

Why? What's magical about half? What if more than half of the person's earning potential could be ascribed to the benefits of government activity (e.g. education, infrastructure, policing, healthcare)? What if the person had already made, say, a billion dollars that year? Why is it unjust to take 51 cents of the billion-and-oneth dollar?
posted by jedicus at 11:58 AM on August 8, 2012 [21 favorites]


Gagglezoomer, you understand marginal tax rates yes?

Yes. But apparently you dont, yes?
posted by gagglezoomer at 11:59 AM on August 8, 2012


No one is going to be taxed at that rate, because as they approach whatever percentage they consider unacceptable, they'll hire an accountant to defer those funds in ways that lower their taxes. How do we think Mitt Romney only pays 15% on his millions of dollars of income?
posted by muddgirl at 11:59 AM on August 8, 2012 [6 favorites]


The top marginal tax rate in the US was well over 50% every year from 1932 to 1981. From 1950 to 1963, what we fondly remember as the "post-war boom," it was over 90%. 75% is small potatoes. (Source.)

Knowing this, of course, will drive you even more mad if you're an American who constantly hears rich people bitching about how their incredibly low tax rates (35% top rate!) are still too high.
posted by Pater Aletheias at 11:59 AM on August 8, 2012 [31 favorites]


During the Eisenhower administration, the top tax rate in the US was 92%.

It's a commonly-trotted-out but misleading statistic. With all the various exemptions, net effective tax rates were higher than they are now, but not by very much.
posted by shivohum at 11:59 AM on August 8, 2012 [3 favorites]


How do we think Mitt Romney only pays 15% on his millions of dollars of income?

It's not classified as income, but as capital gains? This is silly now.
posted by (Arsenio) Hall and (Warren) Oates at 12:00 PM on August 8, 2012 [3 favorites]


This is silly now.

And has been for a very long time.
posted by cthuljew at 12:01 PM on August 8, 2012 [4 favorites]


And by the way, I agree with everyone who is stating that very high marginal tax rates on very high incomes is not necessarily punitive, nor is it unprecedented. But let's at least get our maths right.
posted by (Arsenio) Hall and (Warren) Oates at 12:01 PM on August 8, 2012 [1 favorite]


Besides marginal tax rates, the other thing to consider is that rich people can afford tax accountants who are tasked with finding every tax relief option possible... , so the question should be what is the EFFECTIVE tax rate, not the nominal
posted by Bwithh at 12:01 PM on August 8, 2012 [4 favorites]


Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.
posted by gagglezoomer at 12:02 PM on August 8, 2012 [1 favorite]


It's a commonly-trotted-out but misleading statistic.

I disagree. Every economist I have read on this topic says that rich people paid far more in taxes during the Eisenhower Administration than they do today. I'd be interested in seeing some analyses that suggest otherwise, because obviously it's a complex issue, but I haven't encountered them.
posted by Sidhedevil at 12:03 PM on August 8, 2012 [2 favorites]


No one is going to be taxed at that rate, because as they approach whatever percentage they consider unacceptable, they'll hire an accountant to defer those funds in ways that lower their taxes. How do we think Mitt Romney only pays 15% on his millions of dollars of income?

There's nothing magical about accountants that allow them to reduce your taxable income, the United States just happens to have an incredibly complex system of determining what and what type of income you make, from a tax standpoint, that they rich are able to exploit. If France has a simpler, less loophole-filled way of determining taxable income (I have no idea) there might not be legal ways around it.
posted by ghharr at 12:04 PM on August 8, 2012


It's not classified as income, but as capital gains? This is silly now.

Exactly. It wasn't classed as capital gains by happenstance - his corporations were structured such that his rather regular and not-at-all-risky income was "capital gains" and not wages.

Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.

No, I suppose this is true only for CEOs of venture capital firms.
posted by muddgirl at 12:04 PM on August 8, 2012


For context: As near as I can tell, this adds a new bracket above the current top bracket, which is at 41 percent and starts somewhere between €69,783 and €279,132. (depending on the number of adults and children in the household, apparently).
posted by jcreigh at 12:04 PM on August 8, 2012


I've almost convinced myself that taxpayers fleeing countries for having too high taxes is a good thing.

There is an odd notion in the world that tax is a punishment. This is a bizarre notion that supposes that governments needs zero money to operate and that the only reason they'd need to raise money is for social engineering purposes - a self-evident falsehood. In addition, this notion has recently lead to conservatives across the world reducing taxes to the point of massive deficits to ensure that the wealthy are not "punished" and correspondingly leave or stop being "job creators" (whatever that means).

It is not sustainable for governments to have a raise to the bottom in tax rates while also not having a raise to the bottom in benefits. As a practical matter, eventually there will be no money to borrow to sustain this trend! I'd much rather have competition between countries in tax rates vs government expenditures/benefits so that governments do not end up in continual debt.

I don't know what this optimal point is, although I do know that I have my preferences. That's what matters, isn't it? There are some number of people that claim they'd rather live in a country that has low tax rates in exchange for minimal intrusion on their lives. Go let them! If that country thrives, then maybe they're doing something right. If the country doesn't, then they're doing something wrong.
posted by saeculorum at 12:04 PM on August 8, 2012 [11 favorites]


"Huh? If someone makes 9 million Euros/year, and 8 million is taxed at 75%, that's 6 million Euro/year. 6 of 9 million is well over half. Of course, not everyone in that tax bracket makes that much - just, if you make that much, you'll be taxed at more than half. Strange derail."

Only people don't really make 9 million Euro a year in income, I'm sure examples could be found but they'd be exceedingly rare. People do however make vast amounts more in capital gains.
posted by Blasdelb at 12:04 PM on August 8, 2012 [4 favorites]


Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.

That is correct. The simple act of hiring an accountant does not, in and of itself, drop your effective tax rate. Has anyone argued this is the case? Are you arguing that people like Warren Buffett are lying when they describe their own tax situations?
posted by verb at 12:05 PM on August 8, 2012 [5 favorites]


Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.

It's true. What the CEO actually does is get most of his or her compensation in the form of stock, which turns the income from the sale of that stock into capital gains, which dramatically lowers their overall effective tax rate.
posted by jedicus at 12:06 PM on August 8, 2012 [2 favorites]


Tax-math problems aside, can anybody answer the question of why it would be unjust to tax high earners at much higher rates?
posted by Doleful Creature at 12:07 PM on August 8, 2012 [1 favorite]


Tax-math problems aside, can anybody answer the question of why it would be unjust to tax high earners at much higher rates?

Because MONEY. *dollar signs in my eyes*
posted by muddgirl at 12:08 PM on August 8, 2012 [7 favorites]


It's a commonly-trotted-out but misleading statistic. With all the various exemptions, net effective tax rates were higher than they are now, but not by very much.


The point at which the maximum rate kicked in was much higher, that's true. One of the tradeoffs that conservatives made when gutting those high rates was was dropping the maximum marginal rate in exchange for dramatically lowering the ceiling at which that maximum rate kicks in. This had the effect of giving the "super-wealthy" a much, much, much better deal tax-wise.

Which is, you know. Basically what everyone's beens saying here.
posted by verb at 12:08 PM on August 8, 2012 [5 favorites]


If France has a simpler, less loophole-filled way of determining taxable income (I have no idea) there might not be legal ways around it.

It doesn't - and it has one massive mockable loop hole in that income earned outside of France and not repatriated is not taxed. So really a law like this only impacts the working rich. Otherwise any reasonably intelligent bit of dynastic wealth in the country is already conducting much of their affairs in a more tax friendly jurisdiction.

Really this isn't about taxing the wealthy its about taxing the employers as part of Hollande's efforts to reduce executive compensation and "encourage" enterprise to ramp up hiring.

If you choice as a CEO is to give your self 1000 EUR a month of which 750 goes immediately to the state, or hire a laborer for the same amount, then it might make sense to hire the laborer
posted by JPD at 12:09 PM on August 8, 2012 [7 favorites]


Exile on Main St. wasn't recorded in France because Bill Wyman loved frog legs.

The Rolling Stones didn't go into exile because of marginal tax rates. They went into exile because they really hadn't been paying any tax*. Considering their pattern of influence on public order and history of contacts with the judicial system, it may have actually been a net gain for the UK.

*and they didn't have a Dutch tax shelter to put the money in *cough*Bono*cough*
posted by TheWhiteSkull at 12:10 PM on August 8, 2012 [2 favorites]


Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.

Now would be a good time to produce some examples of former millinoaire CEOs in jail for tax evasion.
posted by Dr Dracator at 12:10 PM on August 8, 2012 [7 favorites]


Ok, you guys are right. The fact that it's unlikely that someone will pay 50% in taxes means it's not possible. :/ Look, if your argument is that people dodge taxes, make that argument. But don't get all twisty with math and state that it's not possible for people to pay over half their income in taxes. Sometimes it seems like every tax discussion revolves around mangled statistics or presumed hypotheticals. Could we not do that? Actually, that's probably a feature of the complexity of the tax system. Why nobody wants to fix it. To easy to manipulate it to say what you want it to say.
posted by (Arsenio) Hall and (Warren) Oates at 12:10 PM on August 8, 2012 [1 favorite]


Here's a paper (admittedly in one favor of Eisenhower-style tax structure) that has numbers about how revenue was higher. This analysis talks about the effective tax rates on higher income brackets year-by-year.
posted by Sidhedevil at 12:11 PM on August 8, 2012


Hell yeah! That's why America went from a populous and prosperous superpower to a desolate and uninhabited wasteland during the 40 year period that its tax rates were at least as high as what France is proposing.

Hmm? What's that you say? It was the opposite, and that period of time is considered America's golden age? Well, uh, Obamahitlersecretmuslim, that kind of tax will drive everyone out!
posted by Mayor West at 12:12 PM on August 8, 2012 [19 favorites]


I think I understand the impetus behind the 50% unjust cut off. The feeling at that point is that you are working more for the government than yourself. That seems reasonable to me. I'm undecided... the rich should obviously pay their share, but "fuck the rich" is not a very considered strategy.

This probably depends on whether, at the level of income we're talking about, the high marginal tax rate will cause people to either hide their cash or not bother earning it past a certain point. Which, of course, decreases tax revenue.

I really have no idea how that kind of math works out... I'm sure someone has done it. Maybe we could go up to 99% at certain thresholds, who knows...
posted by smidgen at 12:12 PM on August 8, 2012 [3 favorites]


Isn't this article just an op-ed that is pushing the "taxes on the rich will make them flee" myth that is used in the US so often as an argument against higher taxes?

Is it too much to ask the NY Times to have a more balanced article?
posted by vacapinta at 12:12 PM on August 8, 2012


With all the various exemptions, net effective tax rates were higher than they are now, but not by very much.

Also, it's not a question of "net" effective tax rates. It's a question of effective tax rate distribution by income. The current effective tax rate on the highest earners is the lowest it's been since World War II.
posted by Sidhedevil at 12:13 PM on August 8, 2012


It's a commonly-trotted-out but misleading statistic. With all the various exemptions, net effective tax rates were higher than they are now, but not by very much.

Wrong. Not only were effective tax rates for the wealthy significantly higher in the past, but the disparity grew the richer the person in question.
A 2007 study by economists Thomas Piketty and Emmanuel Saez calculated effective tax rates for various income groups.

For people whose income ranked between the top 1 percent and top 0.5 percent, the effective tax rate for individual, corporate, payroll and estate was 34.0 percent in 1960, 36.1 percent in 1970, 37.6 percent in 1980, 31.5 percent in 1990, 35.7 percent in 2000 and 31.3 percent in 2004.

For those earning between the top 0.1 percent and 0.5 percent of the income curve, the numbers were 41.4 percent in 1960, 44.6 percent in 1970, 43.0 percent in 1980, 33.0 percent in 1990, 38.4 percent in 2000 and 33.0 percent in 2004.

For those earning between 0.01 percent and 0.1 percent, the rates were 55.3 percent in 1960, 59.1 percent in 1970, 51.0 percent in 1980, 34.3 percent in 1990, 40.2 percent in 2000 and 34.1 percent in 2004.

Finally, for those in the top 0.01 percent of the income distribution, the effective tax rate was 71.4 percent in 1960, 74.6 percent in 1970, 59.3 percent in 1980, 35.4 percent in 1990, 40.8 percent in 2000 and 34.7 percent in 2004.
Let me condense that into the bottom line:

1%-.5%: 8% decrease in effective taxes from 1960-2004
.5%-.1%: 21% decrease
.1%-.01%: 39% decrease
top .01%: 52% decrease

That's a significant difference among the rich (8% is basically the size of the Bush tax cut) and an enormous difference among the very rich.
posted by jedicus at 12:13 PM on August 8, 2012 [39 favorites]


Is it too much to ask the NY Times to have a more balanced article?

They're serving their core constituency of rich corporatist types. Remember, they're not "truth vigilantes" anymore! Their public editor said so!
posted by Sidhedevil at 12:14 PM on August 8, 2012 [8 favorites]


Now would be a good time to produce some examples of former millinoaire CEOs in jail for tax evasion.

There are lots of private CEO's in jail for Tax Fraud - if that's the point you are trying to make. Very very few CEO's of public companies are guilty because their compensation is in the public record - which makes it a bit difficult to manipulate income into cap gains and/or create fictitious losses.
posted by JPD at 12:14 PM on August 8, 2012 [1 favorite]


Thank you, jedicus! It drives me mad that people are all "Oh, it's not like that when you look at the numbers" and then when you look at the numbers it absolutely is exactly like that.
posted by Sidhedevil at 12:14 PM on August 8, 2012 [4 favorites]


I don't know why gyc is getting so much flack over saying he thinks a 75% bracket is unjust. I'm pretty sure we can all agree that a 100% bracket would be both unjust and ineffective. I'm pretty sure everyone but fanatics agree that a 39% bracket (as would be the case if the top end Bush tax cuts expire in the USA) would be just and not ineffective. Which means there is a rate between 39% and 100% where things become unjust.

Is it 75%? I don't really know. But acting like gyc is speaking gibberish because he thinks 75% is unjust seems weird.
posted by Justinian at 12:15 PM on August 8, 2012 [10 favorites]


The fact that it's unlikely that someone will pay 50% in taxes means it's not possible.

James Stewart agrees
.
posted by BWA at 12:15 PM on August 8, 2012


What the CEO actually does is get most of his or her compensation in the form of stock, which turns the income from the sale of that stock into capital gains, which dramatically lowers their overall effective tax rate.

Or, if the company tanks, you options become worthless and you are stuck solely with your salary.

The simple act of hiring an accountant does not, in and of itself, drop your effective tax rate. Has anyone argued this is the case?

That's the impression I've gotten. Not all high earners derive their income from capital gains. Lawyers, doctors and small business owners come to mind. There are good reasons we tax capital gains at a lower rate. You can't just convert income into capital gains. It's a bit more difficult than that.
posted by gagglezoomer at 12:16 PM on August 8, 2012 [1 favorite]


For my own part I'll be happy if we can just let the freaking crazy destructive Bush tax cuts expire. Forget 75%, lets just get back to 39% before the economy explodes again.
posted by Justinian at 12:16 PM on August 8, 2012 [3 favorites]


Look, if your argument is that people dodge taxes, make that argument. But don't get all twisty with math and state that it's not possible for people to pay over half their income in taxes.

I didn't say it's not possible! I said no one is going to, which is close enough to true to be a generalization. Find me a significant portion of French citizens who earn 9 million dollars in income, and I'll concede my point.

I think I understand the impetus behind the 50% unjust cut off. The feeling at that point is that you are working more for the government than yourself.

By the logic of "proportional dollars equalling work" isn't someone who's earning 9 million dollars in income (again, find me that person) actually working 110x harder than I am, since I only make 80k?
posted by muddgirl at 12:20 PM on August 8, 2012 [2 favorites]


Tax-math problems aside, can anybody answer the question of why it would be unjust to tax high earners at much higher rates?

The justice of such a situation is obviously based on personal values that are not universally shared; can everyone stop demanding to know "why" now?
posted by spaltavian at 12:22 PM on August 8, 2012


Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.

The idea of tax mitigation gets confused with tax evasion a lot. Tax mitigation is legal ( and as often as not, not in a dysfunctional way - its a policy tool for govt to encourage certain types of economic behaviors amongst individuals as well as organizations; of course often this tool is misused or twisted ) whereas tax evasion or avoidance means breaking the law. Legit tax accountants help clients take full advantage of tax mitigation options , which can be very complex , to reduce their taxes ( and yes, sometimes twisting the intentions of tax mitigation opportunities in the process) whilst remaining staying on the right side of the law . The Hollywood movie business , for instance) absolutely depends on tax mitigation to support its unusual ( but legal and apparently mostly functional ) business model
posted by Bwithh at 12:22 PM on August 8, 2012 [1 favorite]


I would bet the only person with 9 M a year in taxable income in the US is a lottery winner or professional athlete. Any other profession that can pay people like that has more tax efficient ways to pay people.
posted by JPD at 12:22 PM on August 8, 2012


Ladies and gentlemen, The Beatles

( written in response to a 95% marginal tax rate on the highest earners in 1960s Britain )
posted by Bwithh at 12:25 PM on August 8, 2012 [3 favorites]


That's the impression I've gotten.

It isn't what people here in this thread or in any discussions I have witnessed have argued. Hiring an accountant does not magically lower your taxes. However, if you are wealthy enough to benefit from rejiggering your finances, there is absolutely no question that hiring an accountant and having them do that for you can save someone who makes a few million a year the equivalent of several median family salaries each year.


Not all high earners derive their income from capital gains. Lawyers, doctors and small business owners come to mind. There are good reasons we tax capital gains at a lower rate. You can't just convert income into capital gains. It's a bit more difficult than that.

No one has argued that it is not difficult, or that it is automatic. They have simply pointed out that if someone stands to gain quite a bit of money from the shift (and there are lots of people who do, based on our current tax regime) it's worth the investment.

You're offering up what seems to be a deliberately deceptive caricature of the statements others have made in this thread and similar discussions. It's certainly easier to dismiss the argument if you summarize it as "hiring accountants magically saves money," but no one has said that. Pretending they have is dishonest.
posted by verb at 12:25 PM on August 8, 2012 [1 favorite]


Every economist I have read on this topic says that rich people paid far more in taxes during the Eisenhower Administration than they do today.

That's a significant difference among the rich (8% is basically the size of the Bush tax cut) and an enormous difference among the very rich.

Fair points.

According to this Whitehouse report (p 154), the average (not marginal) federal tax rate, including all exemptions and so on, for the top 0.1% (earning over $2 million/year) in 1960 was just a touch over 50%. The equivalent figure for the same bracket today is around 25%.

For the middle 20% income bracket, the equivalent figures are around 17% and 15%.

When you look at the overall tax rates, people earning millions a year did get a significant break over the years, but even at their height and for the very richest, total taxes paid were still a very far cry from what the 92% marginal figure implies: they were just slightly over half.
posted by shivohum at 12:26 PM on August 8, 2012


I think I understand the impetus behind the 50% unjust cut off. The feeling at that point is that you are working more for the government than yourself. That seems reasonable to me. I'm undecided... the rich should obviously pay their share, but "fuck the rich" is not a very considered strategy.
No, you're working for society, not the government. If you are so wealthy, society has obviously worked for you.
Ladies and gentlemen, The Beatles.

( written in response to a 95% marginal tax rate on the highest earners in 1960s Britain )
Written by people who had benefitted from the NHS, state schools, council housing, police, and so on and so forth...
posted by Jehan at 12:28 PM on August 8, 2012 [11 favorites]


You're offering up what seems to be a deliberately deceptive caricature of the statements others have made in this thread and similar discussions.

What I was trying to articulate (poorly, perhaps) is that the perception seems to be that all rich people pay less taxes than their secretary's. This is only true for rich who derive their wealth primarily from capital gains. But not all wealthy individuals have this benefit. I would be interested to see a breakdown of people earning $1 million or more a year and the percentage of those who earned it through capital gains and those who earned it through regular income. Also, there are plenty of economic reasons for why, for those who do derive their wealth from capital gains, such income is taxed at a lower rate.

I'm actually a big proponent of the Buffet rule, which is essentially an AMT for very high income earners (including capital gains earners).
posted by gagglezoomer at 12:32 PM on August 8, 2012 [1 favorite]


The Manhattanite 1%er with a 102% effective (non-marginal, excludes non-income taxes) tax rate
posted by Bwithh at 12:34 PM on August 8, 2012 [1 favorite]


gagglezoomer: “Some people seem to think that a CEO who has a million dollar/year salary can just up and hire an accountant and pay 15% in taxes. This is not true, you will go to jail for this.”

jedicus: “It's true. What the CEO actually does is get most of his or her compensation in the form of stock, which turns the income from the sale of that stock into capital gains, which dramatically lowers their overall effective tax rate.”

That's not true at all. Salary and compensation via stock are two completely different things. If you're paid a million dollars in salary, you can't turn around and have an accountant pretend you were given stock. As gagglezoomer said, you will go to jail. This conversation gets sillier and sillier.
posted by koeselitz at 12:35 PM on August 8, 2012


Written by people who had benefitted from the NHS, state schools, council housing, police, and so on and so forth...

Who created Apple Corps. as a tax shelter. Also I would imagine the non-UK revenue was never repatriated so never taxed.


You can't pretend like people don't rationally react to high tax rates by finding ways to shelter income. Its just a matter of degrees. At 50% I'm probably a lot less interested than I am at 95%.
posted by JPD at 12:36 PM on August 8, 2012


You can't pretend like people don't rationally react to high tax rates by finding ways to shelter income. Its just a matter of degrees. At 50% I'm probably a lot less interested than I am at 95%.
The answer is not to give in, but to work to get rid of tax havens and shelters. It is unfair that the wealthy benefit disproportionately from the taxes of everybody else.
posted by Jehan at 12:39 PM on August 8, 2012 [3 favorites]


The justice of such a situation is obviously based on personal values that are not universally shared; can everyone stop demanding to know "why" now?

I don't necessarily expect anyone to be convinced by the why, but I think it's fair to demand some kind of argument or reasoning and not just a bare claim that a tax rate above 50% is unjust, especially when people claiming that it isn't unjust have made arguments of their own (e.g. the fraction of the taxpayer's earning potential that is derived from government services, the diminishing marginal utility of wealth).

When you look at the overall tax rates, people earning millions a year did get a significant break over the years, but even at their height and for the very richest, total taxes paid were still a very far cry from what the 92% marginal figure implies: they were just slightly over half.

The 92% marginal figure does not in any way imply that their effective tax rate was anywhere near 92%. The old system was more progressive than the current one (with its grossly compressed tax brackets), and so one would expect the effective tax rate to be very different from the top marginal rate. So, no, this is not a surprising revelation nor does it counter the actual point, which is that the effective tax rate for the rich has gone down while the effective tax rate for everyone else has stayed basically the same, while at the same time real, after-tax income for the rich has gone way up while real, after-tax income for everyone else has stayed the same or shrunk slightly.
posted by jedicus at 12:40 PM on August 8, 2012 [1 favorite]


are wondering whether to remain in a country where making money is not considered a good thing.

I will go—how you say it?—le Galt.
posted by octobersurprise at 12:40 PM on August 8, 2012 [1 favorite]


Justinian: can you explain how a 100% rate would work? Please be as precise and thorough as you can.
posted by hoople at 12:41 PM on August 8, 2012


The Manhattanite 1%er with a 102% effective (non-marginal, excludes non-income taxes) tax rate
His total tax as a percentage of his adjusted gross income was 20 percent, which is much lower than mine.
posted by muddgirl at 12:42 PM on August 8, 2012 [9 favorites]


What I was trying to articulate (poorly, perhaps) is that the perception seems to be that all rich people pay less taxes than their secretary's.

My apologies if I came across as combative in my response. This is not the impression that I've gotten from discussions with anyone I know, either here on MetaFilter or elsewhere. The basic ideas -- that there are many mechanisms by which wealthy individuals can dramatically legally reduce their tax liability, and that those whose wealth comes from finance and investments can wind up paying less than middle class taxpayers -- is not really disputable.



This is only true for rich who derive their wealth primarily from capital gains. But not all wealthy individuals have this benefit. I would be interested to see a breakdown of people earning $1 million or more a year and the percentage of those who earned it through capital gains and those who earned it through regular income. Also, there are plenty of economic reasons for why, for those who do derive their wealth from capital gains, such income is taxed at a lower rate.

One of the reasons this is getting more attention is that over the past generation or two, the finance industry has grown from about 2% of the economy to 8% of the economy. That means that the amount of wealth being created in ways that are "privileged" tax-wise is growing rapidly.
posted by verb at 12:42 PM on August 8, 2012 [3 favorites]


1) That loophole isn't a shelter or a haven. There is no taxable income as long as you don't have global taxation (BTW - this is why American's who get all up in arms about offshore financial centers don't really understand what's going on. Any European can use the Caymans or Jersey to avoid taxes, but its legal. Any American doing that is guilty of tax fraud)

2) Sure, but then you can have lower marginal tax rates in general. That's really what the havens and the dodging ends up doing any way - but just for the most sophisticated tax payers. That's really why its unfair.
posted by JPD at 12:43 PM on August 8, 2012


Government taking more than half of what you earn just seems unjust.

But is it unjust if the government takes more than half of what you earn over and above 1 million Euros in one year? I'm pretty sure that first million isn't taxed at a 75% rate. That's very different than half of what you earn.

I'm not saying the rate is justified, but it's an important point that you don't hand over 75% of every dollar you earned, just those over 1 million Euros.

So it's not a question of turning rich people into paupers, but a question of whether people in a society should be allowed to be filthy stinking rich, or just stinking rich.
posted by mcstayinskool at 12:44 PM on August 8, 2012


The 92% marginal figure does not in any way imply that their effective tax rate was anywhere near 92%.

Yes, I realize that it does not imply that mathematically speaking. However, rhetorically speaking it does. Plenty of people use it, either out of ignorance or out of cunning, as evidence that you can take most of a rich person's paycheck and hey, historically society worked great like that, when, in fact, history showed no such thing.
posted by shivohum at 12:44 PM on August 8, 2012


“I had no idea I was paying such a high rate,” he told me when we spoke this week. “I had trouble believing this was possible. I called my accountant, and I said, ‘Do you realize I’m paying every penny I have in taxable income? I’m dipping into savings to pay my income tax.’ He said, ‘It’s unfortunate, but at your income level’ ” — with high earned income and large itemized deductions that Mr. Ross can’t take advantage of — “ ‘that’s just the way it is.’ ”

That happened to me, too. I spent all of my money and when my taxes were due, I had to dip into savings to pay them.
posted by verb at 12:46 PM on August 8, 2012 [3 favorites]


You can't pretend like people don't rationally react to high tax rates by finding ways to shelter income. Its just a matter of degrees. At 50% I'm probably a lot less interested than I am at 95%.

It's also a matter of having the discretionary income to spend on accountants and investing in tax shelters. Someone who makes a billion dollars is more likely to spend money avoiding even 1% of 'extra' tax than someone who makes $15,000 and can't even afford a copy of TurboTax, much less an accountant or a bank account in the Caymans. This is true even though the billionaire's $10 million is probably of less marginal utility than the poor person's $150.

The solution is not to throw up our hands and say "well, some people will probably not end up paying the whole amount, so why bother trying to increase taxes?"
posted by jedicus at 12:46 PM on August 8, 2012 [2 favorites]


Justinian: actually never mind, a 100% bracket isn't the same as a 100% rate. Confused your point with the general principle people were raising earlier.
posted by hoople at 12:46 PM on August 8, 2012


One of the reasons this is getting more attention is that over the past generation or two, the finance industry has grown from about 2% of the economy to 8% of the economy. That means that the amount of wealth being created in ways that are "privileged" tax-wise is growing rapidly.

No - the vast vast vast majority of Wall Street Comp comes in W-2 form. The only people who benefit from the carried interest tax loophole are relatively senior people at firms who structure their products using an LP/GP/Management Company.

In other words - the average tax rate is lower than it ought to be, but the median is actually going to be pretty reflective of marginal rates. Virtually everyone at a major investment bank is getting their comp on a w-2.
posted by JPD at 12:47 PM on August 8, 2012 [1 favorite]


Justinian: can you explain how a 100% rate would work?

It wouldn't? Which was part of my point?
posted by Justinian at 12:47 PM on August 8, 2012


I find it pretty hilarious that a group of people who boldly announce, "People pay a third of their income in taxes!" based on the top marginal rate suddenly backpedal and start talking about the importance of looking at overall tax burden and effective tax rates when examining the past.

Stop comparing those apples! Look over here, at my orange!
posted by verb at 12:47 PM on August 8, 2012


What the CEO actually does is get most of his or her compensation in the form of stock, which turns the income from the sale of that stock into capital gains, which dramatically lowers their overall effective tax rate.

I don't believe this is exactly true. When I get stock as part of my compensation, the value of the stock is treated as regular income. It's not until I sell the stock that the capital gains tax kicks in, and then it's on the difference between the value of the stock at the time I got it and the value of the stock at the time it was sold.
posted by Slothrup at 12:48 PM on August 8, 2012


actually never mind

Oh, sorry hoople, I didn't see your comment.
posted by Justinian at 12:48 PM on August 8, 2012


It's also a matter of having the discretionary income to spend on accountants and investing in tax shelters. Someone who makes a billion dollars is more likely to spend money avoiding even 1% of 'extra' tax than someone who makes $15,000 and can't even afford a copy of TurboTax, much less an accountant or a bank account in the Caymans. This is true even though the billionaire's $10 million is probably of less marginal utility than the poor person's $150.

Yes - I agree with you on this point - which is what I was trying to say above.
posted by JPD at 12:48 PM on August 8, 2012


So the Beatles wrote Taxman.

The context was that George was genuinely working class and had no education to speak of. Up till the end of 1963 the Beatles were still being looked down on even by the guys in white lab coats who did the sound engineering at Abbey Road Studios.

Suddenly they were earning money for the government at such an enormous rate that they were awarded the MBE for it. It was actually a countercultural statement of theirs to not want to pay taxes to the shitty British establishment - and in fact shortly after the Taxman song, they set up a company called Apple designed to give money away to anyone who wanted to be creative.

Beatles = not Mitt Romney.
posted by colie at 12:51 PM on August 8, 2012 [5 favorites]


As people can see from reading this thread, the tax implications of receiving stock vs receiving stock options are large and sometimes non-obvious to people who don't receive such compensation. That's why accountants are important to rich people. They know when you have to pay income tax, when you have to pay capital gains tax, and when you can mitigate your taxes completely.
posted by Justinian at 12:52 PM on August 8, 2012


No - the vast vast vast majority of Wall Street Comp comes in W-2 form. The only people who benefit from the carried interest tax loophole are relatively senior people at firms who structure their products using an LP/GP/Management Company.

This gets generalized into "Wall Street people pay no taxes" though! I think if people understood this point these conversations would be a lot less boring.

This make sense though when you consider who writes the rules (through their congressperson, of course). It's the Mitt Romneys of the world, not Joe floor trader. It's the CEO, not the SVP.
posted by gagglezoomer at 12:53 PM on August 8, 2012


It is unfair that the wealthy benefit disproportionately from the taxes of everybody else.

Amen brother. This is the point. If you are rich and you sell things to people or employ people (and you likely, directly or indirectly, do both) you are benefiting from the government spending that allowed each of those people to become a valuable consumer and/or worker. Rich people get massively more out of taxation and spending than poor people, and should pay back proportionately.
posted by howfar at 12:53 PM on August 8, 2012 [4 favorites]


2) Sure, but then you can have lower marginal tax rates in general. That's really what the havens and the dodging ends up doing any way - but just for the most sophisticated tax payers. That's really why its unfair.
You're suggesting that tax havens are unfair because only the wealthy can use them but the poor cannot? The truth is that they starve society of needed resources for things that benefit the wealthy and poor alike. There is simply no setup where everybody gets to pay less, unless you're willing to see society disintegrate.
posted by Jehan at 12:54 PM on August 8, 2012


We can certainly handle a higher tax rate on the richest than we have now, but I'm one of the crowd that thinks 75% is ridiculous. A 50/50 split for the wealthiest people in the society seems fair to me. If talking HALF of everything they're making isn't enough, by god, spend less money. Fight fewer wars, and run fewer social programs.

There's a limit to how much you can spend on unproductive things, and government is rarely terribly productive. The first, basic spending, like roads and justice and fire protection, pays off big, but the more that's spent, the less wealth is generated by each additional dollar. Eventually, wealth produced becomes negative; a currency unit spent by the government results in less than one unit's worth of actual wealth being generated. (be that energy, goods, or knowledge.)

All governments, of course, MEASURE themselves as being productive, but one of the biggest reasons that large economies grow so much slower than smaller ones is because the government takes a very large fraction of the total wealth, and spends it on things that don't generate more wealth. Growth slows dramatically, and can outright decline if the government is stupid enough. (for recent examples, see Greece and Zimbabwe.)

It seems to me that half of what your wealthiest citizens are making is the largest a government should get, short of an existential threat. If that means you can't afford everything you want, then too damn bad. We all have to get along on less than what we'd like to have, and governments aren't fundamentally any different.
posted by Malor at 12:56 PM on August 8, 2012 [6 favorites]


Justinian: it]s just a pet peeve. A 100% tax rate is either an absurdity (think Heath Ledger) or a divide-by-zero style not-even-wrong proposition. But, somewhat predictably, those who raise the topic in a discussion tend to be the least likely to have considered the mechanics of the idea.
posted by hoople at 12:56 PM on August 8, 2012


I've said it before and I'll say it again: if you are very wealthy, such that the tax rate on your next million dollars makes it not worth your trouble to earn that million dollars, you can hire me to earn it for you. I'll give you 10% for doing absolutely nothing.
posted by gauche at 12:57 PM on August 8, 2012 [3 favorites]


Its not obvious that less deductions, less loopholes allows a lower but still progressive marginal tax rate that generates enough revenue for the government to do what it needs to do? And that its the wealthy who disproportionately benefit from the loophole laden systems we have today? Which means the middle class and below end up caring a larger burden then the tax system intends for them to carry?
posted by JPD at 12:57 PM on August 8, 2012


You're suggesting that tax havens are unfair because only the wealthy can use them but the poor cannot?

The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, beg in the streets or steal bread.
posted by Slothrup at 12:59 PM on August 8, 2012 [5 favorites]


This gets generalized into "Wall Street people pay no taxes" though! I think if people understood this point these conversations would be a lot less boring.

I keep hearing a dramatic record scratch every time you say stuff like this. What you are saying is patently untrue. It is a straw man caricature of the genuine objections that people have been raising about our current tax system.

First it was "people think you can pay less taxes just by hiring an accountant." Now it's "people think folks on Wall Street pay NO TAXES." Why do you insist on ignoring what people are actually saying, dwelling instead on imaginary non-present people who hypothetically believe untrue things?
posted by verb at 1:01 PM on August 8, 2012 [2 favorites]


That happened to me, too. I spent all of my money and when my taxes were due, I had to dip into savings to pay them.

Hey, I actually payed -1% taxes... um... because I had too much withheld and then the government payed me back. That's how we calculate effective tax rate, right?
posted by muddgirl at 1:02 PM on August 8, 2012 [3 favorites]


I'm pretty sure we can all agree that a 100% bracket would be both unjust and ineffective.

I dunno. Maybe I'm just a pinko commie, but if you set the threshold high enough ($50M? $100M?), I wouldn't find a 100% marginal tax rate unjust. I think you could make the argument that a society could agree that income above a certain level for any individual is unnecessary and is money better put to other uses.

It would obviously be political suicide, and most people would probably disagree with me, but I don't think it's fundamentally unjust.
posted by no regrets, coyote at 1:02 PM on August 8, 2012 [6 favorites]


>Nobody seems to be able to connect the huge strides [...] with the highly granular tax structures of that era.

Conservatives are finally starting to figure this out, but not in a positive fashion. Recently congressman Daniel Issa said that the "Greatest Generation" was to blame for our current financial woes by creating ponzi schemes like Social Security and Medicare. After years of harkening back to the 1950s as the golden age of American society, they finally got around to figuring out that the decade owed everything to the New Deal.
posted by gngstrMNKY at 1:02 PM on August 8, 2012 [1 favorite]


verb, but Buffett's on record saying that he, one of the wealthiest men in the country, has a lower tax rate than his secretary. That's not ZERO taxes, but it's also pretty messed up.
posted by Malor at 1:03 PM on August 8, 2012


Its not obvious that less deductions, less loopholes allows a lower but still progressive marginal tax rate that generates enough revenue for the government to do what it needs to do? And that its the wealthy who disproportionately benefit from the loophole laden systems we have today?

This is easy to argue in the abstract, but as we can see from the TPC's analysis -- the article that kicked this whole debate off -- there are lots of ways for "eliminating the loopholes" to result in a giant bonus for the rich and a higher tax bill for the middle and lower classes.

If you believe you have a plan that doesn't work out that way, you might tell Mitt Romney. I'm sure he'd love it, because he certainly doesn't have one at the moment.
posted by verb at 1:03 PM on August 8, 2012


verb, but Buffett's on record saying that he, one of the wealthiest men in the country, has a lower tax rate than his secretary. That's not ZERO taxes, but it's also pretty messed up.

Yes. It is. I'm not sure what you mean, though -- are you saying that it is "messed up" because Buffett is lying, or "messed up" because he shouldn't have a lower tax rate?
posted by verb at 1:05 PM on August 8, 2012


verb: Lying? Why would I accuse Buffett of lying? He's standing on his tippy toes, hollering that he's not having enough money taken from him by the government, and I don't really see that anyone would lie about that. :-)

It's messed up that he pays a lower tax rate than his secretary, that's all.
posted by Malor at 1:06 PM on August 8, 2012


Uhm I'm not using "eliminate loopholes" as some dog whistle for conservative voters or a call for flat taxation or something like that.

If a greater % of gross income is taxable income then marginal tax rates can be lower. Its really really simple. Most of the differences between gross and taxable are difference the wealthy benefit from, not the poor and middle class.
posted by JPD at 1:07 PM on August 8, 2012


Know what I find baffling? The idea that people are entitled to earn some obscenely large sum of money, none of which they should have to give to anybody or anything they don't feel like giving to. This weird concept that there's an "appropriate" limit to how high a tax rate ought to be on money past a million fucking dollars a year.

I am a fan of people's right to make money. Yay capitalism! Yay marketplaces! But just because you make it doesn't mean you get to keep it, just like how winning kickball in summer camp didn't mean you got to keep the kickball and tell other kids when they could play with it. You know how to make money? That's awesome! But it's fucking stupid that you think you should get to keep your absurdly large pile of cash and spend it on stupid goddamn things just because you earned it.

Well, some stupid goddamn things are all right. I bought a foam sword at K-Mart once for four dollars and it's a year and a half old and I still hit my roommates with it. Power corrupts! But there's a difference between four dollars of stupid purchase and forty million, especially because with forty million dollars you can disrupt a whole lot of things that it probably should not be any one person's right to disrupt. Like elections. And really ugly mansions. Since making money doesn't mean you have the intelligence or taste to do anything goddamn useful with it, we should stop acting like people with money have a God-given right to spend it all on things. Some it it, sure, but definitely not all of it.

Come to think of it, there are a lot of rules in summer camps that should probably be applied to society at large. It's not like we suddenly turned responsible just because we started working June through August.

My point is, it's really fucking stupid that we act like money is a real thing and not something we came up with to help people be fed and sheltered and happy and safe. And right now, there are a whole lot of people without much money at all who are suffering for it, and a whole lot of people who have so much money that the temptation to spend it on really stupid shit must be unbearable, and it makes sense to charge the latter camp a whole ton in taxes that might help the former because the whole point is helping people. The rich get fancy foam swords and the poor get food. Since the rich make most of their money by creating cooler and cooler foam swords anyway, they'll end up with the foam swords of their dreams and we'll give them enough money for them that they can afford two foam swords instead of one and the smug assholes can keep being smug about their vast resources. This isn't hard, people, they teach you this in summer camp in like two six-hour sessions.
posted by Rory Marinich at 1:13 PM on August 8, 2012 [14 favorites]


If a greater % of gross income is taxable income then marginal tax rates can be lower. Its really really simple. Most of the differences between gross and taxable are difference the wealthy benefit from, not the poor and middle class.
I don't think anybody is arguing that we should have fair levels of income tax but somehow leave all the loopholes open. It's like the stupid 50% rate in the UK, but still letting people pretend they're "non-dom". We need to work on both fronts.
posted by Jehan at 1:13 PM on August 8, 2012


I generally agree with the proposition that the state shouldn't ever take more than 50% of each new dollar you get. No, it's not a rational, economically-calculated value of 50.3324%. It's just a kind of feeling, and we're all Keynesianists here, right? Animal spirits and all that.

Here's a better example to illustrate what I'm talking about: if you're on unemployment in the UK you get the state handout, your rent paid, and don't have to pay local taxes. If you move from there to a minimum-wage job you're likely to pay effective taxes of about 80% on each new dollar you get. This is wrong.

Same thing at both ends. Poor people shouldn't be penalised more than 50%. Rich people shouldn't pay more than 50%.
posted by alasdair at 1:15 PM on August 8, 2012 [1 favorite]


Why do you insist on ignoring what people are actually saying, dwelling instead on imaginary non-present people who hypothetically believe untrue things?

Here are some quotes from this thread:

What the CEO actually does is get most of his or her compensation in the form of stock, which turns the income from the sale of that stock into capital gains, which dramatically lowers their overall effective tax rate.

No one is going to be taxed at that rate, because as they approach whatever percentage they consider unacceptable, they'll hire an accountant to defer those funds in ways that lower their taxes.
posted by gagglezoomer at 1:16 PM on August 8, 2012


Well, some stupid goddamn things are all right. I bought a foam sword at K-Mart once for four dollars and it's a year and a half old and I still hit my roommates with it. Power corrupts! But there's a difference between four dollars of stupid purchase and forty million

I don't know. You could get a whole lot of foam swords for $40 million. Like 10 million of them at $4 a pop (seems like you could finagle a volume discount, though, and get em cheaper). Then you could arm an invincible 10-million-man-strong foam attack force to cast down the roommate menace once and for all!
posted by Celsius1414 at 1:16 PM on August 8, 2012 [1 favorite]


My point is, it's really fucking stupid that we act like money is a real thing and not something we came up with to help people be fed and sheltered and happy and safe.

I want to 100x favorite this point.

Also, foam swords.
posted by mcstayinskool at 1:18 PM on August 8, 2012


Its weird the tangent this thread went on, because as I said above Hollande's motivations in this particular instance are quite specific. Its about the French labor market and reducing executive compensation than it is about punitive taxation on the rich and eliminating tax loopholes. I don't think he really cares if a few rich musicians and athletes move across the border into Monaco or Geneva.
posted by JPD at 1:19 PM on August 8, 2012 [2 favorites]


If a greater % of gross income is taxable income then marginal tax rates can be lower.

My issue with this logic (and this is nothing new - the TPC analysis of Romney's tax plan indirectly pointed this out) is that, last time we did this trade off, marginal tax rates were much higher. If the loopholes have increased since the last time we redid taxes, but the marginal rate is the same or even lower, then there's no way to actually make that trade-off in a way that ends up revenue-neutral.
posted by muddgirl at 1:19 PM on August 8, 2012


Its weird the tangent this thread went on

Sorry, it's quite America-centric, because we're quite self-obsessed and also money-obsessed. The linked article also seems to have a strangely American perspective - "All the rich people shall move away!" seems to have been the anti-tax cry since Hamilton.
posted by muddgirl at 1:20 PM on August 8, 2012


Probably lead to more of this, as the rich and young flee socialist France for free-market London:

More French people live in London than in Bordeaux, Nantes or Strasbourg and some now regard it as France's sixth biggest city in terms of population.
posted by alasdair at 1:20 PM on August 8, 2012 [1 favorite]


I want it to be revenue positive - not revenue-neutral. That's the cross the right tries to crucify people on. Revenue neutral Revenue neutral. Horseshit. Our fiscal problems are because we have one of the lowest rates of taxation in the developed world.
posted by JPD at 1:21 PM on August 8, 2012


I want it to be revenue positive - not revenue-neutral.

It won't be revenue-positive, either! Lowering marginal tax rates is going to be revenue-negative.
posted by muddgirl at 1:23 PM on August 8, 2012


If a greater % of gross income is taxable income then marginal tax rates can be lower. Its really really simple. Most of the differences between gross and taxable are difference the wealthy benefit from, not the poor and middle class.

Except then the loophole that people like to talk about closing (in the US) is the mortgage interest deduction... funny that. If that seems politically impossible, the easiest loophole to close is the EIC or maybe fiddle with health care.

The path of least resistance will always be something big from the lower classes with a fig leaf from the 1% (and probably a bonus for the .1%) The politics of loopholes and marginal rates *is* complex. I don't think it's, in the end, separable from larger questions of how to re/regulate finance.
posted by ennui.bz at 1:26 PM on August 8, 2012


There is a grave misunderstanding of how equity compensation paid to employees, even CEOs, is taxed. The short answer is that it does not receive all, and often receives none, of the benefit of the capital gains rate differential. Once you have your equity position on a post-tax basis, any future appreciation is taxable under capital gains rules because that's an investment asset, not pay for services.

What people get worked up about is the way that founders stock appears to have a loophole, because it is almost worthless when a founder or very early employee gets it, and it thus appears that the return on the equity is all taxable at capital gains rates, with some of that return being arguably attributable to the founders' work. This is the case for the owners of hedge funds and private equity shops, as well as for Warren Buffet, or any founder or early employee of a successful tech firm.

The problem is that there's really no principled way to change this, unless you were to adopt a principal that effectively penalizes investors for contributing services to the company in which they invest, which would be pretty darn perverse.
posted by MattD at 1:27 PM on August 8, 2012 [3 favorites]


Will Smith supports higher taxes on the wealthy, but he does have a gasp-inducing threshold: 75 percent.

Speaking on French television this week to promote Men in Black 3, which Columbia Pictures will open May 25, an interviewer broached the hot-button issue with the actor.
“I’m a black man who didn’t go to college, yet I get to travel around the world and sell my movies, and I believe very firmly that America is the only place on Earth that I could exist,” Smith begins. “So I will pay anything that I need to pay to keep my country growing.”

But when the interviewer informs Smith that the new president of France, Francois Hollande, has proposed a 75 percent income tax on earnings above 1 million Euros, the actor balks.

“Seventy-five?” asks Smith. “Yeah, that’s different. That’s different. Yeah, 75. Well, you know, God bless America!”


http://www.hollywoodreporter.com/news/will-smith-men-in-black-3-french-tax-rate-326252
posted by otto42 at 1:28 PM on August 8, 2012


Probably lead to more of this, as the rich and young flee socialist France for free-market London

Data shows most of them go back to France once they value the welfare state. Most of those who stay are in finance where the French are over represented because their education system churns out mathematicians.

The Mortgage Interest Deduction overwhelmingly favors the upper-middle class and above.
posted by JPD at 1:30 PM on August 8, 2012 [1 favorite]


at the level of income we're talking about, the high marginal tax rate will cause people to either hide their cash or not bother earning it past a certain point

I facepalmed so hard I touched my brain.
posted by adamdschneider at 1:31 PM on August 8, 2012 [3 favorites]


I do think that American tax policy would be greatly aided by creating at least one, ideally two or three, more top tax brackets. The lack of inflation adjustment and rise of two-income families means that for a fair number of folks (who are inarguably pretty lucky), the 250k point being taxed the same as the $1 million point seems a bit absurd and or an inaccurate reflection of the desired public policy.
posted by klangklangston at 1:31 PM on August 8, 2012 [1 favorite]


Also, why do we use brackets instead of a smooth curve do decide your tax rate? Your tax rate should asymptotically approach 100% as your income approaches infinity.
posted by no regrets, coyote at 1:34 PM on August 8, 2012 [3 favorites]


My point is, it's really fucking stupid that we act like money is a real thing and not something we came up with to help people be fed and sheltered and happy and safe.

Money is just the most marketable commodity -- it's a natural outgrowth of barter. If Joe the Cobbler has shoes, and you have chickens, he might take chickens in payment for shoes because he knows that Hank the Blacksmith wants chickens, and he'll be needing nails to make more shoes.

Some commodities are more popular than others, and a few commodities (primarily copper, silver, and gold) ended up being desired by enough people that everyone else started accepting them. Voila, money, and a much more modern economy. (barter is terribly inefficient.)

Then banking got invented, and the idea of issuing notes, especially more notes than they could actually cover, which caused all kinds of grief. Then government got involved, and seriously fucked it up, over and over and over again, all through history.

Money, at its core, is supposed to be a store of value, a representation of something real. The fact that our modern money system is extraordinarily dysfunctional, and slowly bleeding all the wealth into the world into the pockets of the banks, doesn't mean that the original idea is imaginary or a game. Real money is a commodity, one that's agreed on by the people using it, not imposed by an authority.

And it has all kinds of really cool features, one of the major ones being a check and balance on bad ideas by politicians. But nowhere in the original evolution of money is the idea of keeping people 'fed and sheltered and happy and safe' -- rather, it was purely a market optimization for people trading value amongst themselves. The food and shelter part came from creating and trading value. Money was a lubricant to make that (much, much) more efficient.
posted by Malor at 1:36 PM on August 8, 2012 [2 favorites]


Meanwhile, Haley Barbour invites poor, suffering French billionaires to move to Mississippi.

Potential downside: Biloxi is not St.-Tropez.
posted by gimonca at 1:46 PM on August 8, 2012


Money, at its core, is supposed to be a store of value, a representation of something real

Says who?
posted by empath at 1:46 PM on August 8, 2012


Money is just the most marketable commodity -- it's a natural outgrowth of barter. If Joe the Cobbler has shoes, and you have chickens, he might take chickens in payment for shoes because he knows that Hank the Blacksmith wants chickens, and he'll be needing nails to make more shoes.

Some commodities are more popular than others, and a few commodities (primarily copper, silver, and gold) ended up being desired by enough people that everyone else started accepting them. Voila, money, and a much more modern economy. (barter is terribly inefficient.)
You have to be careful with Just-So stories like this. Huge proportions of ancient economies before the invention of money simply weren't market or barter based. It's hard to say that money replaced barter, because barter in many cases wasn't there. Temple economies, communalism, gift economies, psuedo-fuedalism, and all kinds of things were widely-practised. I seem to recall that the earliest coins in Celtic Britain were utilized in gift exchanges, and not meant for purchasing goods.
posted by Jehan at 1:50 PM on August 8, 2012 [7 favorites]


But not all wealthy individuals have this benefit. I would be interested to see a breakdown of people earning $1 million or more a year and the percentage of those who earned it through capital gains and those who earned it through regular income.

The Congressional Budget Office actually has a ton of data on this. I've pulled out a few figures from one of their extensive spreadsheets for reference:

Income defined by the CBO is:

- Labor income (wages & associated)
- Business income (income from business/farm/partnerships and S-corps operated solely by their owner)
- Capital gains
- Capital income (interest and dividends)
- Other income (income rcv'd in retirement for past services and all other income)

Below is a comparison of income breakdown for the top 1% and the middle quintile for the years 2007 (before the market crash) and 2009 (most recent available). Before tax income is defined as all of the above categories plus government transfers.

2007 - top 1%, average before tax income in that year was $1,917,200:

Labor income - 28.6%
Capital gains - 31.8%
Capital income - 20.5%
Business income - 16.7%
Other income - 2.4%

2007- middle quintile, average 2007 before tax income $67,600:

Labor income - 81.5%
Capital gains - 0.7%
Capital income - 4.5%
Business income - 2.8%
Other income - 10.5%

2009- top 1%, average before tax income $1,219,700:

Labor income - 39.5%
Capital gains - 13.6%
Capital income - 18.7%
Business income - 25.0%
Other income - 3.1%

2009 - middle quintile, average before tax income $64,300:

Labor income - 82.7%
Capital gains - (0.1)%
Capital income - 3.6%
Business income - 2.6%
Other income - 11.3%

Here is the relevant page from the CBO that has all the info. I pulled the above info from the "Sources of Income for All Households, by Before-Tax Income Group, 1979 to 2009" spreadsheet which is a huge data dump for all income groups.
posted by triggerfinger at 1:50 PM on August 8, 2012 [5 favorites]


Nobody seems to be able to connect the huge strides in social policy, infrastructure, space exploration, you name it with the highly granular tax structures of that era.

Why is there any particular reason to connect them?
posted by downing street memo at 1:52 PM on August 8, 2012


You have to be careful with Just-So stories like this. Huge proportions of ancient economies before the invention of money simply weren't market or barter based.

I read a really interesting article about this, once, but of course I didn't save it.
posted by muddgirl at 1:53 PM on August 8, 2012


Why is there any particular reason to connect them?

Because the claim on the table by a major political party in the US, and I'm sure other countries is that a zero or close-to-zero tax rate would further the progress of our country. If there's no connection between tax policy and cultural progress, that would also defeat their argument.
posted by muddgirl at 1:55 PM on August 8, 2012


triggerfiner,

Thank you so much!
posted by gagglezoomer at 1:57 PM on August 8, 2012


Because the claim on the table by a major political party in the US, and I'm sure other countries is that a zero or close-to-zero tax rate would further the progress of our country. If there's no connection between tax policy and cultural progress, that would also defeat their argument.

I think there's far more evidence that the rapid growth that the US exhibited in the 1950's has less to do with taxes and more to do with being the only country with a functioning industrial sector. There are plenty of examples of high-tax, low-growth countries.
posted by downing street memo at 2:03 PM on August 8, 2012 [3 favorites]


"That's not true at all. Salary and compensation via stock are two completely different things. If you're paid a million dollars in salary, you can't turn around and have an accountant pretend you were given stock. As gagglezoomer said, you will go to jail. This conversation gets sillier and sillier."

You're right that an accountant can't magically change salary income to something else. But the Board of Directors can, and they do. Executives typically negotiate for compensation packages which are loaded in low-taxable ways. And they renegotiate the contracts when they have the leverage to do so — an accountant for a CEO who is being paid a $10M salary that's taxed as work income will advise the CEO to do exactly that.

"I don't believe this is exactly true. When I get stock as part of my compensation, the value of the stock is treated as regular income. It's not until I sell the stock that the capital gains tax kicks in, and then it's on the difference between the value of the stock at the time I got it and the value of the stock at the time it was sold."

There are different classes of these things. My experience is primarily with option grants and mine were treated exactly as you describe (the difference between the exercise price and the valuation at exercise is taxed as regular work income, that valuation becomes the benchmark for any capital gains or losses when the stock is subsequently sold) but the executives got a different kind of option that was, in fact, taxed as capgains. It's also worth pointing out that the SEC and IRS cracked down hard on companies against abuse of option grants for regular employees after the dotcom era.

But, the main thing to keep in mind is that compensation for regular employees, even if it works out to be (as in my case, a successful IPO during the dotcom era) worth millions of dollars, is going to be pretty vanilla and not at all tailored toward protecting income from taxation. In contrast, such careful design to lower tax liability is a chief concern for executives and boards cater to this concern. Back before the 80s it was normal for executives to be mostly or exclusively paid in salary, like anyone else, except at a high rate. These days, it's very rare for a CEO or President to have the larger portion of their compensation in the form of a salary. Usually it's in stuff that can be sheltered or is naturally taxed at a lower rate.

That said, European executives are more likely to paid in salary and, on average, aren't paid nearly as much as American executives.
posted by Ivan Fyodorovich at 2:13 PM on August 8, 2012 [1 favorite]


This may not really be relevant, but in theory shouldn't even a 100% marginal tax still leave some of that money for you -- if you're allowed to keep hold of that money, earning interest on it, until the tax bill is due? I mean, it's not huge, but if it's millions you're earning interest on, it's not exactly nothing.
posted by Drexen at 2:16 PM on August 8, 2012


Perhaps high earners should also be allowed to contribute their skills as Pillars of Industry to oversee the efficient spending of the money, keeping a larger proportion of it if they succeed.
posted by Drexen at 2:18 PM on August 8, 2012


Because the claim on the table by a major political party in the US, and I'm sure other countries is that a zero or close-to-zero tax rate would further the progress of our country.

The claim is that this will lead to economic growth, which is different than progress. Progress is a loaded term with a lot of non-economic connotations, none of which the GOP touch with a ten-foot pole.

In fact, by most people's definition of progress, the GOP actually wants the opposite of progress on most social issues, looking to return to a closer interpretation of the Constitution and the Bible. If you look at Mitt Romney's platform, there isn't a hint of social progress, space exploration or whatever else was listed.
posted by Rodrigo Lamaitre at 2:18 PM on August 8, 2012


Not to mention, surely when you're spending huge money on luxuries like yachts etc, the possibilities for savings through collective bargaining are pretty huge. So, couldn't high tax-payers be afforded better deals by fed-backed buying consortiums?

I'm no economist. It just seems that there are various options for compensating the rich for high-taxes besides simply letting them keep all of it.
posted by Drexen at 2:21 PM on August 8, 2012


Also, the rationale for progressive taxation isn't to punish high earners. It's partly redistributionist but mostly it's because the marginal value of money as income decreases as the income rises. A dollar means something much different to someone with a million dollar income than it does to someone with a thousand dollar income. A flat tax structure is at least as convincingly argued as being unfair as a progressive structure can be argued to be unfair — taking $4,000 out of a yearly total of $20,000 is a much different thing in how it impacts someone's life than does taking $400,000 out of $2,000,000.

Every person who justifies lower tax rates on the basis of some economic rationale has implicitly recognized the validity of the concept of marginal value, as marginal value is as fundamental a concept in economics as is supply-and-demand. In recognizing the validity of marginal value, they've recognized the validity of progressive taxation.
posted by Ivan Fyodorovich at 2:28 PM on August 8, 2012 [4 favorites]


The GOP may not explicitely link economic growth and progress towards their own particular social goals, but they certainly do so implicitely. I also think that the idea that the GOP wants to 'return' to some golden era is a myth that they perpetrate - we've never lived in that golden era.

So I guess I agree that lowering taxes won't cause progress, but I don't agree that the GOP doesn't present that as an argument for lowering taxes. It's just that their idea of progress is radically different from my own.
posted by muddgirl at 2:28 PM on August 8, 2012


"I think 50% should be the ceiling. . . Government taking more than half of what you earn just seems unjust. "

Depends what you get for it.

How much extra would you pay for:
- Three extra years of life, at a generally higher quality-of-life. That's what the French public health system helps to provide, as compared to the US.
- Far more lucrative pensions.
- A more generous unemployment / salary protection safety net.
- A 35 hour work week. At least five weeks paid vacation, per year -- two months is pretty sandard. Another dozen public holidays.
- Huge benefits for upbringing, education and higher education of children. Extremely generous maternity leave benefits for parents.
- Daycare centers, vacation centers, etc.

Really, you get what you pay for.
posted by markkraft at 2:30 PM on August 8, 2012 [9 favorites]


Marginal tax rate levels really don't matter, unless the motivation to increase or decrease rates is to punish or reward.

In the end, its only possible to squeeze 20% out of the economy in the form of taxes at any one time.

This of course leads many to the conclusion that liberals are not calling for higher taxes to meet some underfunded need, but rather to penalize or punish.

In short, the liberal says "we need higher revenue so lets raise tax rates."

The conservative says, "you can raise rates all you want, but you will still get the same amount of revenue."

The liberal says, "lets raise rates anyway."

Everybody else says, "what's the point."




http://mercatus.org/publication/tax-rates-vs-tax-revenues
posted by otto42 at 2:33 PM on August 8, 2012


In short, the liberal says "we need higher revenue so lets raise tax rates."

That's quite short, otto42, but I bet you can go even shorter! Just come out and say "Liberals are stupid and hate rich people!"

(The modern US Democratic party does not want to raise taxes to increase revenue. Hollande does not want to raise taxes to increase revenue.")
posted by muddgirl at 2:36 PM on August 8, 2012


The premise of this article is kind of ridiculous anyway.

The fact that tax evaders are willing to go to significant lengths in order to evade taxes isn't a proof that the taxes are bad. It's more of a proof that the evaders are unscrupulous, and that loopholes need to be closed.

You shouldn't expect the benefits of profiting in any society without participating in funding its operation.
posted by markkraft at 2:37 PM on August 8, 2012 [1 favorite]


This may not really be relevant, but in theory shouldn't even a 100% marginal tax still leave some of that money for you -- if you're allowed to keep hold of that money, earning interest on it, until the tax bill is due?

And the interest you earn is taxed at...?
posted by alasdair at 2:37 PM on August 8, 2012


"In the end, its only possible to squeeze 20% out of the economy in the form of taxes at any one time."

Yeahhh... that's BS. Libertarian BS, to be precise.

If you want to talk economics, it helps not to embrace psuedo-science.

The conservative says, "you can raise rates all you want, but you will still get the same amount of revenue."... and the conservative has been invariably proven wrong. Even when they do it themselves.
posted by markkraft at 2:48 PM on August 8, 2012 [12 favorites]


And the interest you earn is taxed at...?

8.36827% precisely, of course.
posted by Drexen at 2:49 PM on August 8, 2012


I would love otto42 to explain how many European nations have tax revues around 40% of GDP if it is impossible to push it above 20% of GDP.
posted by Justinian at 2:51 PM on August 8, 2012 [2 favorites]


tax revenues! Tax revues sound pretty boring.
posted by Justinian at 2:52 PM on August 8, 2012


"Because the claim on the table by a major political party in the US, and I'm sure other countries is that a zero or close-to-zero tax rate would further the progress of our country."

The notorious Laffer Curve is really just a statement of economic orthodoxy — that at some high rate of marginal taxation, revenue begins to fall rather than rise. This is not some profound insight, it's obvious when you consider that at the 100% rate, many/most/all people wouldn't work.

As it happens, there's a great deal of comparative research on this topic and the evidence indicates that the effective marginal tax rates on income need to be higher than something around 70% before you start seeing this drop in revenue. That means that the rates would need to already be above 70% for it to be the case that lowering them would result in increased revenues. The US is not even remotely close to this and the incessant claims that lowering taxes will result in increased revenue is a flat-out lie, never born by evidence.

But note that the inverse of all this is true, too. These are curves. Ultra-low tax rates don't magically generate huge increases in economic activity for exactly the reason that a zero tax rate doesn't generate an immediate infinite production. Below some rate, the difference in incentives is lost in the noise. It's swamped by all the other competing incentives that people have. And that's before you even try to account for what very low tax rates mean for all the public services upon which a productive industrial, consumer, and market base rely.

As Ed Kilgore says, and mentioned again today, if ultra-low tax rates create booming economic utopias, then Alabama and Mississippi would be driving the US's economy. The usual suspects claimed that Ireland was a case-study in how low corporate rates could jump-start an economy. But what actually happened was the same as what happened throughout the European periphery — the Euro made people believe that the economic risks of massive capital investment in Ireland was the same as it was in, say, Germany. But labor was, originally, cheaper in Ireland and so with the same presumed risk but lower costs, money flowed in. Not because of a favorable tax structure, not mostly, anyway. But because this simply seemed like a safe investment with a high yield. That made a lot of money available cheaply for capital investment, which then people used to build housing and industry. The tax structure was frosting on the cake, it absolutely didn't drive the investment.

The same is true with auto manufacturers and parts suppliers in the South. They're not locating there because the tax rates are low. They've located there because labor is cheap, primarily because of the weakness or total absence of organized labor. True, cities and states have made it attractive for them to locate there via tax breaks and bond issues and such; but again that's mostly frosting. The main incentive was labor cost.

Taxation is not the chief concern of wealthy individuals and businesses — many other things affect their productivity and accumulation of wealth more than does taxation. The single thing that is important about taxation is that it has a single point of control, legislative bodies, and those bodies are highly vulnerable to the kinds of pressure that wealth can bring to bear on them.
posted by Ivan Fyodorovich at 2:55 PM on August 8, 2012 [11 favorites]


Marginal tax rate levels really don't matter, unless the motivation to increase or decrease rates is to punish or reward.

In the end, its only possible to squeeze 20% out of the economy in the form of taxes at any one time.


Yes, let's trust the Koch-funded Mercatus Center and their article which shows a bunch of Excel graphs and no actual data to conclusively prove this point, which by the way isn't about possibility but is about looking at what's historically happened.

It's no wonder me and my fellow economists drink more bourbon than we probably should, because out there people think what has happened is what is possible. Oy vey.
posted by Rodrigo Lamaitre at 2:59 PM on August 8, 2012 [1 favorite]


"The modern US Democratic party does not want to raise taxes to increase revenue."

You must be intending to say something different than what you said, because this isn't true.

It's specifically false with regard to those Democrats who are worried about deficits and debt. I think this is a vastly overblown problem, but I do agree that some amount of increase in revenue is necessary. Certainly I think this is true with regard to Social Security — I don't support any sort of a fix that involves a benefit cut of any kind.

And if we accept "raise taxes" as being equivalent to "let Bush's temporary tax cuts expire" (which I don't, but for the sake of argument) then I think that I and most Democrats and the Democratic Party itself all support letting the Bush cuts expire and the rates going back up to what they were precisely for the purposes of raising revenue. Because what's happened is that the loss of revenue that the cuts produced created three-quarters of the current debt, with the remaining quarter being due simply to the recession. We need that revenue back.
posted by Ivan Fyodorovich at 3:05 PM on August 8, 2012 [1 favorite]


Why not have progressive capital gains rates? I never hear this suggested, but it would seem to close the Romney loophole while not affecting small-time investors and the like.
posted by jewzilla at 3:13 PM on August 8, 2012


Why not have progressive capital gains rates?

We sort of do, if you squint. Capital gains tax rates in the US vary according to the taxpayer's ordinary income. But for long term capital gains there are only two brackets right now (0% and 15%) and the jump occurs very low, at the 25% ordinary income rate (i.e. at right about the median income).

But yes, to the extent that ordinary income should be taxed more progressively, long term capital gains needs it even worse. It's virtually a (low) flat tax of 15% at this point, since there aren't really any significant amounts of long term capital gains being realized by people making less than $33,950 per year in ordinary income.
posted by jedicus at 3:26 PM on August 8, 2012 [1 favorite]


What is the reasoning behind taxing capital gains less than labour? I would have thought it makes more sense the other way around. Is there an economic reason, or is it corruption?
posted by -harlequin- at 3:27 PM on August 8, 2012 [1 favorite]


The putative reason is that taxing capital gains lower encourages people to invest their idle money in businesses and other capital projects rather than letting it sit around or piling it into hookers and blow or whatever. More capital investment is good. Whether that's what actually happens or the real reason people want lower capital gains tax rates (as opposed to GIMME MONEY) is an exercise for the reader.
posted by Justinian at 3:36 PM on August 8, 2012


As long as the tax is in Euros, right?

It's not like it's real money.

posted by mmrtnt at 3:55 PM on August 8, 2012


You can't have a progressive capital gains tax and expect the wished for increase in tax revenue. It's easy enough just to defer the gain, or wait for an offset to arise, or wait till the law is changed. If the tax rate is high enough, why not defer it till death.

If someone is wealthy enough to defer a gain till death, then the only people paying the tax are those that absolutely need the asset liquidated at a penalty to fund a current need. The wealthy never pay the tax because they avoid the taxable event. Everybody else pays because they have no choice. Maybe the cap gains tax should be regressive instead of progressive.
posted by otto42 at 4:00 PM on August 8, 2012


If the tax rate is high enough, why not defer it till death.

That is a reason estate taxes are important on large estates. Unless you enjoy performing fellatio on your betters, which apparently many do.

At some point the wealthy have to shit or get off the pot...if you avoid a taxable event forever, you don't really have the money anyway.
posted by maxwelton at 4:05 PM on August 8, 2012


@otto42 I'm sure some people would defer the gain until a more favorable tax environment exists, but there are plenty of people who need the money for one reason or another and would pay the tax. I live in Silicon Valley and I can't swing a dead cat without hitting someone who has significant capital gains.
posted by jewzilla at 4:11 PM on August 8, 2012


Seems like a good plan to open up some million-euro job opportunities for people who aren't assholes.
posted by Flunkie at 4:13 PM on August 8, 2012


I think I understand the impetus behind the 50% unjust cut off. The feeling at that point is that you are working more for the government than yourself. That seems reasonable to me. I'm undecided... the rich should obviously pay their share, but "fuck the rich" is not a very considered strategy
I'm coming up to my 5th decade on this earth and a lot of that time has been spent considering the disparities of income, privilege and opportunity that surrounds me. So, I can honestly say "fuck the rich" is a very considered strategy.

Does anyone honestly think there's an abundance of talented and capable people chomping at the bit to become Widget PLCs CEO? Look around you, are we to believe the proportion of talented to fuckwitted people miraculously changes when you get to the boardroom? Tax them till they squeal. For every MBA'd Galtist who fucks off to Sudan there'll be a black-hearted little worm tongue who is willing to swallow a 90% rate tax as long as their salary is the biggest. The overwhelming odds are they'll be just as useless as whoever they replaced.

So yeah, fuck the rich, they're just as exploitable as the poor.
posted by fullerine at 4:17 PM on August 8, 2012 [9 favorites]


@otto42 I'm sure some people would defer the gain until a more favorable tax environment exists, but there are plenty of people who need the money for one reason or another and would pay the tax. I live in Silicon Valley and I can't swing a dead cat without hitting someone who has significant capital gains.
posted by jewzilla at 4:11 PM on 8/8
[+] [!]

Exactly. People who are so wealthy that they dont need the money, never pay the tax. People who need to fund something, the less than very wealthy, pay the tax.

But who cares. Just tax the last $50 million of gains at a lower rate. Instead of deferring forever to avoid the 15% tax and generating 0 tax revenue, a 10% rate brings in $5 million.
posted by otto42 at 4:24 PM on August 8, 2012


If the tax rate is high enough, why not defer it till death.

If people are wealthy enough that they'll choose to forgo income to avoid giving a slice to the government, that's a pretty damn good motivation for punitive tax rates in my opinion.
posted by no regrets, coyote at 4:26 PM on August 8, 2012 [3 favorites]


What is the reasoning behind taxing capital gains less than labour? I would have thought it makes more sense the other way around. Is there an economic reason, or is it corruption?

It's not corruption, it's a pretty standard result in the optimal taxation literature in economics, though obviously not one without its critics. There are several intuitive reasons, such as that you don't generally want to tax intermediate inputs to production (which capital is), and that it's effectively distortionary because it's a tax on future but not current consumption. Lesson 7 from Mankiw and Weinzierl (PDF) I think shows the intuition, and the difference in practice. The contrary view, for example from Diamond and Saez, is that the tax on capital should be nonzero, but even they do not (I don't think) go so far as to say the optimal tax equals the tax on labor. I can't find their paper now, but I believe one of their rationales was what's being discussed above, that the line between capital gains and labor income can be fuzzy and manipulable.
posted by dsfan at 4:30 PM on August 8, 2012 [1 favorite]


They are not forgoing income. They already have it and they are forgoing the use of it to avoid the tax. It's not a question of having less money come in, it is one of having less go out. (cap gains not income tax).
posted by otto42 at 4:32 PM on August 8, 2012


Fuck 'em. Tax is the price you pay for civilization, and anyone unhappy with that is welcome to get the fuck out.

Probably lead to more of this, as the rich and young flee socialist France for free-market London:

Last I saw -- which was admittedly 2007ish? but, still -- the French ex-pats were coming to London for jobs, not to avoid paying taxes. Plus, also, "socialist France," and "free-market London"? Look, you can sneer at the French all you want, but I'm getting Liberté, égalité, fraternité inked somewhere as soon as I cut this thesis-chub and get back into clobbering shape. Though I haven't lived there for a long time, I was born in London, and I love it dearly. And I suspect that I love England for quite the same reasons as so many others do, and a great portion of that affection depends upon those apparatui of the state that I'm certain would seem quite socialist to a laissez-faire capitalist.

I live in the US now, and I naturalized last year. And every 15 April, whenever anyone groans about paying taxes, I get right the fuck up in their face and tell them I'm a patriot, and I'm cutting a check to the country that put a man on the goddamn moon.
posted by samofidelis at 4:49 PM on August 8, 2012 [4 favorites]


They are not forgoing income. They already have it and they are forgoing the use of it to avoid the tax. It's not a question of having less money come in, it is one of having less go out. (cap gains not income tax).

If there's a functional difference between "not earning income" and "earning it but not spending it for the rest of your life" it's a difference that's entirely lost on me.
posted by no regrets, coyote at 5:01 PM on August 8, 2012


An income tax is a tax on current income.
You do not get to choose when you pay the tax.
Receipt of the income is the taxable event.

A capital gains tax is on accumulated income.
You choose when you get to pay it.
The disposal of all of the accumulated income is the taxable event.

Deferring payings gains until death is an extreme example. Deferring till the law changes in the Payers favor is more realistic and likely. How many times has the cap gains rate changed in your lifetime? I would guess the rate has changed with at least every new president or more. 8 years is a pretty short to time to wait for a better rate.
posted by otto42 at 5:26 PM on August 8, 2012


Tax rates really don't matter. It's truly tragicomic that people waste so much time and energy arguing over something that is, at the end of the day, of very little real importance. And there's such a deep misunderstanding about what taxes are -- the whole thing is just silly.

First, taxes don't go to "the government." This is perhaps the most uniquely strange idea that Americans have about taxes, this notion that the government seizes wealth and then uses it for various nefarious purposes as if there's Scrooge McDuck-style vaults filled with cash where government officials bathe and swim in money. No. Your tax dollars, like all your other spending, simply goes to other people. It is not a seizure of wealth rather it is just like any other commerce. And unless you're a slave then no, you are never working for the government -- you decide how much you're going to spend on taxes just like you decide how much you're going to spend on food.

Second, money is not wealth. Ultimately, handing back pieces of paper to the sovereign that printed them in the first place does not make you any poorer. As long as everybody is taxed similarly then you're not going to be any worse off in the bidding war for real resources and other people's time. This is why when the governments actually go ahead and cut taxes most people just save the money and you never see any kind of lasting economic boom due to tax cuts. Think about that: taxes don't detract from real demand and if you lower them people just save the money. Lower taxes don't create jobs and higher taxes certainly don't slow growth. A quick survey of the various US states should disabuse anybody of the notion that taxes are a significant driver behind growth trends.

(Some people might think that the increased savings could then result in lower interest rates, more loans but this is based on the very flawed idea that savings drive loans. They don't.)

(This isn't to say that there aren't secondary consequences of high or low tax rates. What we usually see is that high tax rates create an opportunity for individuals and firms to gain a big competitive advantage by evading taxes. High taxes thus probably do high tax evasion which can detract from growth as the wealth becomes "invisible." Low taxes are also no panacea and often invite extreme inequality because, inevitably, private interests will find a way to take whatever wealth the government forfeits and so you end up with most of the surplus going to the few rather than the many.)

Third, growth is what matters. Growth is all that matters. Any country could in fact sustain fantastically high taxes (99.9%) and extraordinarily high debt (200% of GDP) as long as it's growing fast enough. And this is really what people should be talking about instead of wasting years upon years about something that is of no real consequence. But what's truly sad is that Americans can't have this conversation. Even the most educated among them become truly uncomfortable if you ask them how the government can be used to truly grow the economy. Indeed there almost seems to be a more fundamental disbelief that economies can be grown at all. Rather the common belief is that the market is a mysterious, benevolent creature that nobody can ever understand or control. Ultimately this is why things will have to get a lot worse before they get better. Until people have no choice but to grow up and take responsibility for growth we'll continue to see enormous malinvestment (read: bank bailouts) and anything but fake (read: bubble-based) growth.
posted by nixerman at 6:21 PM on August 8, 2012


It's no wonder economies are failing when $21 trillion is being hoarded. That's not how "trickle down" was advertised to us and that's not how it's supposed to work.

So hell yes, increase taxes on the mega-rich. They didn't keep their end of the bargain. If HALF of that $21 trillion was invested in industrial growth, R&D etc, our Euro and U.S. economies would be BOOMING.

46% Exempt from Federal Taxes. That's a horror, but they would being paying taxes if they had decent employment.

(Yes, I know, U.S.-centric, but I think we're all suffering from similar political ideology.)
posted by snsranch at 6:50 PM on August 8, 2012


Instead of deferring forever to avoid the 15% tax and generating 0 tax revenue, a 10% rate brings in $5 million.

I would ask what evidence you have that 15% is "too high" and lowering it will result in taxes materializing that wouldn't have before, but I am pretty sure the answer is "none".
posted by adamdschneider at 7:07 PM on August 8, 2012


I would ask what evidence you have that 15% is "too high" and lowering it will result in taxes materializing that wouldn't have before, but I am pretty sure the answer is "none".

I have a couple of friends who make these arguments, and it's important to remember that there is only one rule:

Taxes are too high.

The current rate of n% is only just barely bearable, and it keeps us on the teetering edge of job collapse. If we were to raise it to n+1%? Good God! Everyone would just stop earning money and we wouldn't collect any more in revenue anyways. What we should do is reduce taxes to n-5%, and everyone will suddenly rediscover the desire to make money again.

Every time they win the argument, n is decremented, they cheer, and a year later the conversation starts again.

The current rate of n% is only just barely bearable, and it keeps us on the teetering edge of job collapse. If we were to raise it to n+1%? Good God! Everyone would just stop earning money and we wouldn't collect any more in revenue anyways. What we should do is reduce taxes to n-5%, and everyone will suddenly rediscover the desire to make money again.

Every time they win the argument, n is decremented, they cheer, and a year later the conversation starts again.

The current rate of n% is only just barely bearable, and it keeps us on the teetering edge of job collapse. If we were to raise it to n+1%? Good God! Everyone would just stop earning money and we wouldn't collect any more in revenue anyways. What we should do is reduce taxes to n-5%, and everyone will suddenly rediscover the desire to make money again.

Every time they win the argument, n is decremented, they cheer, and a year later the conversation starts again...

The current rate of n% is only just barely bearable, and it keeps us on the teetering edge of job collapse. If we were to raise it to n+1%? Good God! Everyone would just stop earning money and we wouldn't collect any more in revenue anyways. What we should do is reduce taxes to n-5%, and everyone will suddenly rediscover the desire to make money again.

Every time they win the argument, n is decremented, they cheer, and a year later the conversation starts again...

posted by verb at 7:18 PM on August 8, 2012 [4 favorites]


Let's see; $21 trillion is in accounts that the tax man can't reach.

The French and the democrats want to increase tax revenue by changing marginal rates.

Nobody sees the disconnect?

Is raising rates suddenly going to bring in more tax revenue?

How about tougher penalties?

Or maybe we can invade the Cayman islands, making it our 51st state and subject to US tax law. That could work for about a month, before the money moves to the Seychelles, or Panama.

Lowering rates here, or at least making them predictable, is probably a stupid idea. $21 trillion is a pittance, and is by no means indicative that at a certain rate, people will act to reduce that rate, statutory mandates and bleeding heart wishes be damned.
posted by otto42 at 7:29 PM on August 8, 2012


I would ask what evidence you have that 15% is "too high" and lowering it will result in taxes materializing that wouldn't have before, but I am pretty sure the answer is "none".

The evidence is me, and likely you.
I practice capital gain deferrals all of the time. A large chunk of my capital gains are deferred until 2045 when I turn 65, give or take a few years. As it stands now, I pay no taxes on most of my gains because my money is in a 401k. The 401k plan is otherwise An inconvenient place to keep my money. However, it does allow me to avoid paying 15% of my gains every time I change my allocations. Perhaps if the tax on gains were only 2%, I would not be willing to tie up my money for so long in the 401k. The revenue to the IRS would then be 2% of something instead of 15% of nothing.
posted by otto42 at 7:45 PM on August 8, 2012


Lowering rates here, or at least making them predictable, is probably a stupid idea. $21 trillion is a pittance, and is by no means indicative that at a certain rate, people will act to reduce that rate, statutory mandates and bleeding heart wishes be damned.

I'm not certain that came out right? US public national debt is a biscuit over $11 trill. /pittances
posted by samofidelis at 7:52 PM on August 8, 2012


I practice capital gain deferrals all of the time. A large chunk of my capital gains are deferred until 2045 when I turn 65, give or take a few years. As it stands now, I pay no taxes on most of my gains because my money is in a 401k. The 401k plan is otherwise An inconvenient place to keep my money. However, it does allow me to avoid paying 15% of my gains every time I change my allocations. Perhaps if the tax on gains were only 2%, I would not be willing to tie up my money for so long in the 401k. The revenue to the IRS would then be 2% of something instead of 15% of nothing.


In aggregate, people are retiring all the time, and that the date of your particular retirement is not what government revenues rely on, like a nephew waiting for a rich uncle to die. What you're proposing is that the government drop rates to 2% instead of 15% because it might cause a one-time tax revenue shift, at the expense of ongoing revenues.

If people are so averse to paying taxes that they will simply hold onto money until they die, thus avoiding capital gains, that's what estate taxes are for -- pretty much by definition.

Tax systems are complicated, yes, but they're not so complicated that stepping back for a moment and thinking about what you're proposing doesn't reveal the problems.
posted by verb at 8:02 PM on August 8, 2012 [1 favorite]


$21 trillion is a pittance,

With one tenth of one percent of that, I could start an entire industry employing hundreds of people ...with benefits...from the ground up.

I'm not even supposing that the $21 trillion hasn't been taxed already. It doesn't matter. The point is that when that amount of wealth isn't circulating, being used, being invested in ways that stimulate or even create economies, that hoarding of wealth is killing economies.
posted by snsranch at 8:14 PM on August 8, 2012 [1 favorite]


"But what's truly sad is that Americans can't have this conversation. Even the most educated among them become truly uncomfortable if you ask them how the government can be used to truly grow the economy."

Well, no. A lot of educated Americans instead fear that we've hit the limits of growth.

Or don't think that perpetual growth is sustainable.

Or don't think sustainable growth is possible in a just way.

I'm not sure I know enough to have a hard and fast opinion on growth, but there are plenty of educated Americans having that conversation all the time, often even on MetaFilter.
posted by klangklangston at 9:30 PM on August 8, 2012 [1 favorite]


I wonder if the WTO could implement international income/investment/corporate tax laws at some point in the future. With a growing international ultra-rich "1%" class, growing sovereign debt problems, and the possibility for "the 1%" to hide money in the Caymans or Panama or wherever ah la Romney or maybe even create their own 'pirate' state someday it seems a significant enough problem that international cooperation would make sense. Imagine if rich people in Japan just got up and left the country after the earthquake because they didn't want to be on the hook to fund a recovery.

It seems to me the fundamental economic problem is not really growth but how "wealth" or resources are distributed between people, countries, and economies. Technological advancement leading to ever greater "wealth creation" certainly helps solve these problems, but if it is leading to a massive increase in population and rapid depletion of fossil fuels and other natural resources is also counter productive.
posted by Golden Eternity at 10:36 PM on August 8, 2012


Government taking more than half of what you earn just seems unjust.

Well, no (and I this as one who once lived in a country where I had to pay more than half of what I earned, earning a damned sight less than €1M).

You see, we tend to take "government services" for granted, but they are fundamental in being able to make a large income (and keep it). Without public education, justice, police, defence, roads and, yes, regulations, it would be very, very difficult to earn that kind of money. And it would usually involve killing other people. With your bare hands.

This is what really irks me in Randian types: "Oh, Big Bad Government is holding me back, I could be so much more productive without it." NO, YOU WOULDN'T. Life without government isn't a Libertarian utopia, it's the Thunderdome (cf. Somalia).

So, you make €1M/annum? Congratulations! Now, please do contribute to maintain all which ensures that you could earn that kind of money rather than forage maggots for your survival or, worse, be maggot fodder yourself. Even if you have earned that by your work, that work would never have been nearly as fruitful without all those government services and institutions to back you up.
posted by Skeptic at 2:04 AM on August 9, 2012 [2 favorites]


Me calling $21 trillion a pittance was sarcasm. That is a lot of money and suggests that efforts to turn some of it into tax revenue using the standard liberal logic of just passing a new statutory rate or closing a loophole are futile.

Re: deferred capital gains for the very wealthy.
Estate taxes do allow for the collection of accumulAted cap gain deferrals. However the estate taxes are easily deferred or avoided altogether. Foundations and endowments generally are initially funded by the deferred accumulated capital gains of the very wealthy. Does anyone want to discuss what type of foundation is worthy enough to receive a lifetime's worth of some moguls untaxed gains?

Re: one world tax via WTO. Consider a tiny country surrounded entirely by water and built only on sand. The citizens want to raise their living standards, as is the case for the entire human race. They have no natural resources of value to sell. They have only one way to attract capital, and that is by making it cheap for capital to move there. Liberalism demands those people give up their only competitive advantage over better resourced nations. In short, a one world tax is iimpractical and immoral.
posted by otto42 at 3:12 AM on August 9, 2012


The Manhattanite 1%er with a 102% effective (non-marginal, excludes non-income taxes) tax rate

His total tax as a percentage of his adjusted gross income was 20 percent, which is much lower than mine.


Swedish author Astrid Lindgren had a 102% marginal tax rate in 1976: "The marginal tax rate above 100% which was dubbed the 'Pomperipossa effect' was due to tax legislation which required self employed individuals to pay both regular income tax and employer's fees."
posted by iviken at 4:01 AM on August 9, 2012


Following up on gimonca's comment, here is Barbour himself laying out the case for moving to Mississippi (in English).
posted by dhens at 5:42 AM on August 9, 2012


Re: one world tax via WTO. Consider a tiny country surrounded entirely by water and built only on sand. The citizens want to raise their living standards, as is the case for the entire human race. They have no natural resources of value to sell. They have only one way to attract capital, and that is by making it cheap for capital to move there. Liberalism demands those people give up their only competitive advantage over better resourced nations. In short, a one world tax is iimpractical and immoral.
Many tax havens don't fit this description well, if at all. For the few which do, it would be much cheaper for big countries to shut them down and provide every citizen or household there with a check for $25,000 each year.
posted by Jehan at 5:58 AM on August 9, 2012 [1 favorite]


it would be much cheaper for big countries to shut them down and provide every citizen or household there with a check for $25,000 each year

And much better for their citizens than the tax cuts which you argue would put them out of business.
posted by howfar at 6:02 AM on August 9, 2012


Many tax havens don't fit this description well, if at all. For the few which do, it would be much cheaper for big countries to shut them down and provide every citizen or household there with a check for $25,000 each year.
posted by Jehan at 5:58 AM on August 9 [1 favorite +] [!]


How does one sovereign state shut down a business in another sovereign state, without bullets?
posted by otto42 at 6:11 AM on August 9, 2012


Diplomacy, incentives, economic sanctions. In this case Jehan is presumably suggesting bribing the citizenry of these tiny nations. This argument is getting a bit silly, otto42. You're not really meeting an arguments raised against you, just moving on to another point. Hitler and Napoleon might have carried on the argument with you at this point, but I'm not personally sure how worthwhile it is.
posted by howfar at 6:17 AM on August 9, 2012


How does one sovereign state shut down a business in another sovereign state, without bullets?
Many tax havens aren't sovereign. But even so, you can tax all money going to and from them, a capital cordon.
posted by Jehan at 6:22 AM on August 9, 2012


Many tax havens aren't sovereign. But even so, you can tax all money going to and from them, a capital cordon.
tax havens don't work like that.
posted by JPD at 6:25 AM on August 9, 2012


tax havens don't work like that.
How do they work then?
posted by Jehan at 6:28 AM on August 9, 2012


I like the idea of bribing the citizenry. It has a "Mouse that Roared" quality.

I can't imagine it would require much to convince the 16 million people of Burkina Faso that they will see a huge payday if only they set themselves up as a tax haven.

Would they get a one time check of $25k, or would that be every year?
posted by otto42 at 6:41 AM on August 9, 2012


There are some reasons why Burkina Faso might not be an ideal place to keep your billions.
posted by howfar at 6:43 AM on August 9, 2012


Tax havens can used legally and illegally. For Americans they are almost always illegal for individuals (and as a result are not often used in the US by individuals), for the rest of the world they are legal because those countries have as a bedrock belief in their taxation system that income earned outside of that country and not repatriated is not taxable. 99% of tax haven use is legal as long as you do not live in a global taxation country.

Tax havens don't work by round tripping money and turning taxable income into non-taxable income. Most tax havens function by preventing income and capital gains from ever being taxable. I live in Country A, own Asset B in Country B, The entity I own Asset B with exists in Country C that doesn't charge me tax on the money I repatriate into Country C. I've already paid the taxes due in Country A on the money I used to buy Asset B. As long as I never take the money from Country C to Country A or B I do not have a taxable liability. Here's the thing - this is legal

TL;DR - Don't blame the tax havens, blame countries that don't have global taxation. That's how you solve the issue.
posted by JPD at 6:44 AM on August 9, 2012 [1 favorite]


Tax havens don't work by round tripping money and turning taxable income into non-taxable income. Most tax havens function by preventing income and capital gains from ever being taxable. I live in Country A, own Asset B in Country B, The entity I own Asset B with exists in Country C that doesn't charge me tax on the money I repatriate into Country C. I've already paid the taxes due in Country A on the money I used to buy Asset B. As long as I never take the money from Country C to Country A or B I do not have a taxable liability. Here's the thing - this is legal
Firstly, that's nothing like some of the most recent tax scams revealed to be use, such as K2 in Jersey, which actually does involve the transfer of money. So some tax havens really do work like that.

Secondly, at some point you had to purchase Asset B. I know you've said that you've already paid taxes on the money used to buy Asset B, but there is no reason why a government cannot tax again money used to purchase Asset B, or its value when transferred to a business in Country C. If an asset or money is moved out of its jurisdiction and into a tax haven, at that point it can be taxed. That's going to be a tough thing to do, but we should try to ensure that everything going into and out of a tax haven's jurisdiction is taxed. Companies registered in the Cayman Islands don't just acquire assets from thin air, they have to be transferred at some point.

Thirdly, I agree with you that global taxation is a great idea.
posted by Jehan at 6:55 AM on August 9, 2012


I can't imagine it would require much to convince the 16 million people of Burkina Faso that they will see a huge payday if only they set themselves up as a tax haven.
But then your "poor ickle little island with no resources" strawman wouldn't apply, and you'ld be left defending any jurisdiction that wanted to become a tax haven. At which point, all notions of morality go out the window.
posted by Jehan at 6:57 AM on August 9, 2012


The problem with K2 isn't the tax haven, its the UK tax code tho. The UK Tax Code is an absolute joke.
posted by JPD at 7:10 AM on August 9, 2012


The problem with K2 isn't the tax haven, its the UK tax code tho. The UK Tax Code is an absolute joke.
But it did work by transferring capital to and from Jersey, that's my point.
posted by Jehan at 7:18 AM on August 9, 2012


0) Increase Cap Gains (progressively, or not, I don't care)
1) Tobin Tax
2) Estate Tax the hell out of the rich, even more so than a Cap Gains so that deferment is even MORE punished than Cap Gains, AND do it fucking progressively up the ass.
3) Close the loopholes

Fuck the goddamned rentiers, the lot of them.
posted by symbioid at 7:23 AM on August 9, 2012


But it did work by transferring capital to and from Jersey, that's my point.

well but it didn't really. It worked because of how UK tax law failed to have a rule on how to treat the loan. That's the point -UK tax law did not treat that as a transfer of capital. He could have put the same structure in any country without an income tax and still benefited from it.

If the UK had an affirmative approach to tax shelters like the US or Australia it would have been laughed out of the room.

K2 is a flavor of the same tax scheme the UK has been trying to closedown for 30 years.
posted by JPD at 7:57 AM on August 9, 2012


The point I'm trying to make is that the problem isn't the tax havens, its the tax codes that allow people to profit from them.
posted by JPD at 8:02 AM on August 9, 2012


0) Increase Cap Gains (progressively, or not, I don't care)

>As discussed, a progressive Cap Gains tax discourages the sale of the the asset that triggers the next higher marginal rate. A regressive Cap Gains tax will generate more revenue. This is common sense.

1) Tobin Tax

>See Wikipedia


2) Estate Tax the hell out of the rich, even more so than a Cap Gains so that deferment is even MORE punished than Cap Gains, AND do it fucking progressively up the ass.

>Everybody who likes foundations, endowments and charitable trusts raise their hands.

Everybody who doesn't vote for symbiod's idea.


3) Close the loopholes

>Hazaah! A flat tax for everyone.

Fuck the goddamned rentiers, the lot of them.
posted by symbioid at 7:23 AM on August 9 [+] [!]


Lighten up Francis
posted by otto42 at 8:43 AM on August 9, 2012


3) Close the loopholes

>Hazaah! A flat tax for everyone.


Tax progressiveness = loopholes?

No, not really.
posted by Skeptic at 8:47 AM on August 9, 2012 [2 favorites]


The point I'm trying to make is that the problem isn't the tax havens, its the tax codes that allow people to profit from them.
Okay, you've convinced me, seriously, I've listened to your comments, JPD, and I know you're not on the side of the tax thieves, but are trying to take a more rational and level-headed view of the matter. We need countries to set up global taxation as they do in the US, and like you suggest. The only way you can escape your obligations to society should be if you renounce membership of that society.
posted by Jehan at 9:14 AM on August 9, 2012 [1 favorite]


">Everybody who likes foundations, endowments and charitable trusts raise their hands.

Everybody who doesn't vote for symbiod's idea.
"

Well, that's an idiotic objection. Foundations, endowments and charitable trusts can be funded prior to death, and arguing that the public gets more out of death bequests than it would out of the increased tax revenue (which we could use to fund a lot of the work 501(c)3s do now) is pretty specious.
posted by klangklangston at 10:31 AM on August 9, 2012 [2 favorites]


A regressive Cap Gains tax will generate more revenue. This is common sense.

For fucks sake. No, it isn't common sense; it's an unfounded assertion.

It doesn't matter if people hold on to their capital gains until they die, it then gets taxed at a much higher rate than if they had sold it in the first place. Assuming the estate tax repeal expires at the end of the year which appears likely.

Yes, it time shifts the taxes for some time. But that doesn't matter when talking about the population as a whole.
posted by Justinian at 11:16 AM on August 9, 2012 [3 favorites]


>As discussed, a progressive Cap Gains tax discourages the sale of the the asset that triggers the next higher marginal rate. A regressive Cap Gains tax will generate more revenue. This is common sense.

Ha ha, no, it wasn't "discussed," you simply asserted it and took it for gospel, like you always do. You have demonstrated time and again in this thread and others that you don't care about good faith argumentation or evidence, but only about dashed-off randroid thought experiments that you certify as Gold Genius immediately upon typing.
posted by adamdschneider at 11:25 AM on August 9, 2012 [2 favorites]


Well, that's an idiotic objection. Foundations, endowments and charitable trusts can be funded prior to death, and arguing that the public gets more out of death bequests than it would out of the increased tax revenue (which we could use to fund a lot of the work 501(c)3s do now) is pretty specious.
posted by klangklangston at 10:31 AM on August 9 [1 favorite +] [!]


If funded prior to death, the accumulated capital gains are deferred indefinitely. That is, a wealthy person, Bill Gates for example, transfers a portion of his estate to a trust (foundation). The wealth transferred, in this case his MSFT stock, has a huge embedded capital gain. The transfer avoids having to pay the capital gains tax.

Foundations, endowments and trusts are vehicles for the wealthy to defer paying capital gains taxes. That is a good thing.

Alternatively, ex the key feature of the trust, which is the the ability for the grantor to defer the payment of taxes, they would not exist. That is a bad thing.

So, is it really an idiotic objection?
posted by otto42 at 12:35 PM on August 9, 2012


Foundations, endowments and trusts are vehicles for the wealthy to defer paying capital gains taxes. That is a good thing.

They aren't deferring paying capital gains. They're giving their money away rather than investing it for personal gain.

By your criteria, getting mugged is a mechanism for deferring capital gains taxes, too.
posted by verb at 12:56 PM on August 9, 2012 [1 favorite]


For fucks sake. No, it isn't common sense; it's an unfounded assertion.

It doesn't matter if people hold on to their capital gains until they die, it then gets taxed at a much higher rate than if they had sold it in the first place. Assuming the estate tax repeal expires at the end of the year which appears likely.

Yes, it time shifts the taxes for some time. But that doesn't matter when talking about the population as a whole.
posted by Justinian at 11:16 AM on August 9 [3 favorites +] [!]


See the chapter on "Foundations, Endowments and Trusts" for ways to avoid paying capital gains taxes after and/or before you are dead.

This takes us almost full circle to the question asked yesterday "How come capital gains are not taxed progressively like ordinary income?"

The answer is of course that people who are not wealthy enough to set up a trust will pay the tax. That is not progressive.

or,

If a person has enough capital gains so that the sale of the asset triggers a tax at the next highest rate, they will only sell an amount up to where the next highest rate will not be triggered.

The wealthier you are, the easier this is too accomplish (this means that the wealthier you are, the less likely you will run into a circumstance where you desperately have to sell at a penalizing rate.)
posted by otto42 at 12:57 PM on August 9, 2012


Re: Trusts and the wealthy
They aren't deferring paying capital gains. They're giving their money away rather than investing it for personal gain.

By your criteria, getting mugged is a mechanism for deferring capital gains taxes, too.
posted by verb at 12:56 PM on August 9 [+] [!]


Think about what you just said and think about what you are trying to accomplish.

Liberal Goal #2: Raise Tax Revenue for an Underfunded Need.


They aren't deferring paying capital gains. Amount of tax money raised = Zero.


They're giving their money away rather than investing it for personal gain. Amount of tax money raised = Zero.


In each case, whether deferring or giving the money away, the amount of tax revenue raised is zero.
posted by otto42 at 1:09 PM on August 9, 2012


Ha ha, no, it wasn't "discussed," you simply asserted it and took it for gospel, like you always do. You have demonstrated time and again in this thread and others that you don't care about good faith argumentation or evidence, but only about dashed-off randroid thought experiments that you certify as Gold Genius immediately upon typing.
posted by adamdschneider at 11:25 AM on August 9 [2 favorites +] [!]


And your contribution to this topic has been (1) a "facepalm" and (2) asking me for evidence of one of my assertions at 7:08PM last night, which I answered for you at 7:45PM, (3) complaining that I don't argue in good faith.


Would you like to tell me how a progressive capital gains tax system will work? I am willing to learn.
posted by otto42 at 1:19 PM on August 9, 2012


Otto, I apologize if I'm simply not as familiar with the world of finance as you are, but there seem to be some real missing pieces in what you're saying.

"If a person has enough capital gains so that the sale of the asset triggers a tax at the next highest rate, they will only sell an amount up to where the next highest rate will not be triggered."

Are you suggesting that someone would, say, sell off stock in small chunks each year to avoid triggering that year's capital gains threshold? I can see that being a potential loophole in the idea of a progressive capital gains tax. I'm a fan of the flat capital gains tax. I suppose a case might be made for treating capital gains as income if it makes up more than a certain percentage of their AGI, but that's neither here nor there. The thing that has me scratching my head is that your counter proposal -- that a regressive capital gains tax would be even better -- seems absurd.

As many others have noted, the government has no particular incentive to convince everyone to realize their capital gains RIGHT NOW, versus a year or two years or a decade down the road. Because the aggregate pool of investors is large and broad, capital gains are being taxed every day, not just when a single ultra-wealthy investor cashes in all of his stocks. Cutting the rates in an attempt to get someone to pay some small tax RIGHT NOW, rather than taxing them at higher levels in the future, would just be a recipe for deeper long-term deficits.



Think about what you just said and think about what you are trying to accomplish.

Please don't make any assumptions about what my motivations are. You've essentially defined 'deferring capital gains' as 'anything that reduces the amount of taxes paid.' Burning your money in a garbage can is, by that definition, a means of deferring capital gains. Putting your cash into a mattress is, too.

Arguing that people will simply sit on their investments and never sell them simply to avoid taxes is no different than the classic argument that people will refuse promotions and raises to avoid paying higher income taxes. The behavior you predict does not occur, and you're drawing some extremely tortured analogies in an attempt to make it seem that it does.

Certainly, someone may decide not to invest, and thus forgo capital gains. They could leave the money in a zero-interest checking account and watch it drop in value relative to inflation, for example -- just to avoid capital gains taxes. Or, as you describe, they could create a charitable trust.

The important thing to keep in mind is that charitable trusts and similar mechanisms are not taxed because they are doing things that we have, collectively, determined are a net positive to society and would probably have to be paid for by society via taxes anyways. This is why things like "charitable donations" are tax-deductible. It's also why abusing a 501(c)3s for personal gain is, shall we say, frowned upon.

Starting an endowment isn't an extra-super-double-secret way of investing without paying taxes; it's a way of giving away your money to other people instead of profiting from it personally.
posted by verb at 1:31 PM on August 9, 2012 [1 favorite]


posted by verb at 1:31 PM on August 9 [+] [!]

The thing that has me scratching my head is that your counter proposal -- that a regressive capital gains tax would be even better -- seems absurd.

Re: How a regressive capital gains tax will generate more money than a progressive one.

Progressive

10% rate x 100 gain = $10 in taxes
15% rate x 100 gain = $15 in taxes

Regressive

15% rate x 100 gain = $15 in taxes
10% rate x 100 gain = $10 in taxes

The first $100 gain is spent on a need. You need a house so you pay the tax whatever it is. $10 under a progressive regime, $15 under a regressive.

The second $100 is spent on a want. You want a yacht but do not need it. Under a progressive regime, you look at the total cost (Yacht Price + Cap gain Tax from liquidating stocks held) and decide $115 is too much. You do not liquidate asset and you do not pay cap gains.

Total Taxes Paid to Progressive Regime = $10 = (Need only)

Under a regressive regime, you look at the total cost (Yacht Price + Cap gain Tax from liquidating stocks held) and decide $110 is just right. You liquidate and pay $10

Total Taxes Paid to Regressive Regime = $25 = (Need ($15) + want ($10))

Remember, needs are a mandatory payment and wants are a voluntary payment. If the voluntary payment is too high, it will not occur.
posted by otto42 at 3:16 PM on August 9, 2012


Otto, once again you're making some pretty bold assertions based on nothing more than... well, based on nothing other than the word 'Yacht,' as best as I can tell.

10000 + 2000 - (1000 x 15%)
10000 + 2000 - (1000 x 10%)

You have 10000 dollars, and you invest it in stocks. It gains a reasonable 20%, and you consider cashing it in for a midrange sedan. Under the 'high' 15% rate, you have $11700 to spend on your yacht. Under the 'low' 10% rate, you have $11800 to spend on your yacht.

You look at the total price and say, "Eh, that's little more than a rounding error. I'll just bargain 'em down on the rustproofing."

By your standards, I've just proven that high capital gains taxes have no effect on investor behavior.
posted by verb at 4:05 PM on August 9, 2012


If the voluntary payment is too high, it will not occur.

I still don't get it. You're saying that hypothetical rich person would rather just not buy anything above a certain cost rather than take the tax hit and get the yacht? Because then those assets above a certain amount are essentially worthless to our hypothetical rich person.

Or are you saying he'd put off buying the yacht for a few years until he had less "needs" and could grab a "want" while still staying under the next bracket? In which case, power to him I guess? He successfully delayed gratification to save a few bucks! If people want to do that to spite society, I'd live with that in return for a more progressive tax system in general.
posted by no regrets, coyote at 4:12 PM on August 9, 2012


I'm not talking about investor behavior. I am talking about capital gains taxes and whether a progressive regime or a regressive one will be generate more tax revenue.

Where is the fallacy in my example?

There are only a few core contentions that that you have to agree with in order to accept my premise.

1. A person will spend on a need before a want.
2. Given the choice of spending more or less on a good or service, all else being equal, a person will spend less.

What is there to disagree with?
posted by otto42 at 4:41 PM on August 9, 2012


Where is the fallacy in my example?

That people will choose to sit on their money indefinitely instead of buying stuff with it.
posted by no regrets, coyote at 4:54 PM on August 9, 2012


Or are you saying he'd put off buying the yacht for a few years until he had less "needs" and could grab a "want" while still staying under the next bracket? In which case, power to him I guess? He successfully delayed gratification to save a few bucks! If people want to do that to spite society, I'd live with that in return for a more progressive tax system in general.
posted by no regrets, coyote at 4:12 PM on 8/9
[+] [!]


If a liberal wants to tax gains at 50% but collects no taxes because people choose to defer, but a 10% rate collects ssome taxes, who is the spiteful one?
posted by otto42 at 5:13 PM on August 9, 2012


Where is the fallacy in my example?

That people will choose to sit on their money indefinitely instead of buying stuff with it.
posted by no regrets, coyote at 4:54 PM on 8/9
[+] [!]

Is bill gates going to spend all of his money before he dies?
No
Is the foundation he transferred a lot of his wealth too?
Likely not
Even if the foundation did spend it all, would they have to pay cap gains taxes?
No
Out of the $100s of millions of cap gains transferred to the foundation, will it ever generate any tax revenue?
No

The tax is deferred forever. No tax revenue for you.
posted by otto42 at 5:24 PM on August 9, 2012


If a liberal wants to tax gains at 50% but collects no taxes because people choose to defer, but a 10% rate collects ssome taxes, who is the spiteful one?

That's three chained "ifs" right there, all of which have been disputed quite clearly by others in the thread. You're demanding that people accept your specious premises simply on the force of your rhetoric, and honestly it's not up to the task so far. As such, your argument collapses to, "If I am correct, and you are wrong, which of us is correct?"

In which case, you know, okay. Congratulations. If you are correct, then you are correct. Kudos.


Is bill gates going to spend all of his money before he dies? No.

Otto, you're arguing against yourself.

If Bill Gates is simply incapable of spending all of his money before he dies, how would lowering the capital gains tax rate change that?


Out of the $100s of millions of cap gains transferred to the foundation, will it ever generate any tax revenue?
No

The tax is deferred forever. No tax revenue for you.


No, but the foundation is working on curing malaria, which is a net positive. Which is why nonprofits, charitable foundations, and so on are not treated as profit-making investments. Are you being deliberately obtuse, or just not listening to anything that's been said?
posted by verb at 5:31 PM on August 9, 2012 [3 favorites]


I just keep boggling as I read this, Otto. You're arguing for some wacky caricature of the Laffer curve, in which lowering tax rates axiomatically generates higher revenues, because people will start engaging in taxable behaviors the lower taxes go.

To support it, you've offered mathematical variations of the Chewbacca defense, thrown around multiple contradictory arguments that undercut each other, deliberately ignored the distinctions between charitable giving and investment for personal profit, completely brushed aside the concept of elasticity in pricing and taxation-driven behavior, and then declared yourself the winner by fiat.

I just... I don't even.

I'm not even arguing that lowering capital gains won't increase revenues at this point. I'm just trying to point out that you are talking crazy-words.
posted by verb at 5:46 PM on August 9, 2012 [2 favorites]


No, but the foundation is working on curing malaria, which is a net positive. Which is why nonprofits, charitable foundations, and so on are not treated as profit-making investments. Are you being deliberately obtuse, or just not listening to anything that's been said?</em
You dont know what a foundation is. That's ok, you've already said you don't know much about finance. One would think that a discussion regarding these types of matters would provoke a response with a little more deference to the ideas of some who does know something about finance.

That would be the natural response, but this is the Internet, so it's not like what you are saying is as cringe inducing as it would be if you were having a discussion with a real person who knows more than you about a particular subject.

Nonetheless, at least consider that some economic principals are immutable. That's as simple as I can make it.

posted by otto42 at 7:04 PM on August 9, 2012


Appeal to authority and an unclosed tag? You're spoiling us!
posted by klangklangston at 8:06 PM on August 9, 2012 [1 favorite]


Bad or good, you are certainly arguing in faith.
posted by adamdschneider at 8:21 PM on August 9, 2012 [1 favorite]


You dont know what a foundation is. That's ok, you've already said you don't know much about finance. One would think that a discussion regarding these types of matters would provoke a response with a little more deference to the ideas of some who does know something about finance.


According to the Minnesota Council of Foundations, "A foundation is a nonprofit organization that supports charitable activities in order to serve the common good. Foundations are often created with endowments—money given by individuals, families or corporations. They generally make grants or operate programs with the income earned from investing the endowments."

Can you perhaps explain what I've misunderstood? Based on all of the definitions I'm reading as I google, I believe that I do understand what a "foundation" is. It seems that you're ignoring the 'nonprofit,' 'charitable,' 'common good' part of the definition -- treating Foundations as simply another investment vehicle used to avoid taxation.

As I said earlier, by the broad definition that you're using, "getting hit by a bus" is a tax deferral strategy.
posted by verb at 7:38 AM on August 10, 2012 [1 favorite]


A foundation is what the IRS says it is, which is "Every organization that qualifies for tax exemption as an organization described in section 501(c)(3) is a private foundation" ... with exceptions as described.

In short, if it is not tax exempt under 501 (c)(3) rules, it is not a foundation, or, all foundations are tax exempt.

The definition you provided is essentially the definition used by the IRS. It does not use the word "tax exempt" and instead uses "nonprofit" which is commonly assumed to mean tax exempt.

The other qualifier is that a foundation supports charitable activities for the common good. Lots of corporations and individuals support charities, but since they are not tax exempt, they are not foundations.

It's easy to see that the quality that defines a foundation from any other organization or person that supports charities, is its tax exempt status.

If we can agree that all foundations are tax exempt, then we can agree on lots of other things.
posted by otto42 at 10:43 AM on August 10, 2012


quality that defines a foundation from any other organization or person that supports charities, is its tax exempt status.

And the limitations that go along with that status. Lots of people support charities, tax exempt bodies exist to support them. This is getting ridiculous.
posted by howfar at 10:52 AM on August 10, 2012


otto, you seem to be arguing that if a rich person thinks his cap gains tax hit is going to be too high, he'll instead use that money to endow a charitable foundation instead of spending the money on something he wants. You say this as if it's a bad thing.

Pay the taxes, or do something charitable. It's how the system is designed. Nobody complains about Bill Gates not paying capital gains tax, because he's doing something charitable with the money! That's the whole point of the charitable tax exemption. It's a feature, not a loophole so that you can magically avoid paying taxes forever.

Nonetheless, at least consider that some economic principals are immutable. That's as simple as I can make it.

LOL. You win all the arguments.
posted by no regrets, coyote at 11:53 AM on August 10, 2012



9:04 PM: You dont know what a foundation is. That's ok, you've already said you don't know much about finance.

12:43 PM:The definition you provided is essentially the definition used by the IRS.



So, just to clarify: I was not mistaken about the nature of foundations. That brings us back to the original point: nonprofits are tax exempt because they are not in the business of making a profit. They are created to support a further a particular charitable cause, and thus we give them the benefit of living outside of our normal tax system.

You're seizing on one phrase -- capital gains deferral -- and using it to cover anything that results in less taxes being collected at a particular moment in time. Words have meaning, and so far you've been big on telling people they're wrong, but short on being correct yourself.

This all comes back to your axiomatic claim that dropping the capital gains tax rate produces more revenue. You've failed to answer the questions others have posed (elasticity issues, time-shifting versus revenue increases, and so on). Instead you've just doubled down, post after post, on assertions that your claim is true. Telling a story about a man who wants a yacht but doesn't buy it due to high taxes isn't proof -- it's not even anecdotal, because you made it up.
posted by verb at 12:21 PM on August 10, 2012


posted by no regrets, coyote at 11:53 AM on August 10 [+] [!]


I agree, its a feature, not a loophole. I would add that endowing a charitable foundation might be exactly what he wants. Donating to a charitable cause might be a more satisfying use of wealth than buying any conceivable material possession.

otto, you seem to be arguing that if a rich person thinks his cap gains tax hit is going to be too high, he'll instead use that money to endow a charitable foundation instead of spending the money on something he wants. You say this as if it's a bad thing.

Like I said, its a good thing.

Maybe you missed the start of this tangent of the discussion.

I'll review.

Somebody said, (paraphrase) "why don't we use a progressive capital gains tax to increase tax revenue?"

I said, "because a progressive capital gains tax will not result in an increase in tax revenue, if you want to increase tax revenue a regressive capital gains tax would be more effective."

I then explained a progressive structure encourages deferrals and that one common way to defer paying capital gains taxes is to contribute those gains to a foundation. (Again, this is good. Bill Gates gets to decide how to spend his money. Not you or I. I may not even agree with the cause Bill Gates is supporting, but it is certainly a better funding mechanism than other alternatives.)

I am not saying I am for or against a regressive system. I am just saying that a regressive system will generate more revenue.

If the goal is to generate more tax revenue a regressive scheme's will work better. That is all; nothing about what is good for foundations, or wealthy people, or poor people, etc. Just that one thing. Finally, there is nothing disagreeable or political about my statement, it just is.
posted by otto42 at 12:35 PM on August 10, 2012


9:04 PM: You dont know what a foundation is. That's ok, you've already said you don't know much about finance.

12:43 PM:The definition you provided is essentially the definition used by the IRS.


posted by verb at 12:21 PM on August 10 [+] [!]


You posted a correct definition but I don't think you appreciated that the exemption status is the qualifier, not the acts of charity.


You're seizing on one phrase -- capital gains deferral -- and using it to cover anything that results in less taxes being collected at a particular moment in time.

The bold part is the definition of a tax deferral (whether capital gains, income, estate or other). Legal or illegal, right or wrong, hours or years. You said it perfectly.

Not selling a stock at a profit is a deferral, even if the reason you are not selling it has nothing to do with taxes. Contributing to a foundation is a deferral, even if you are making the donation out of the kindness of your heart and could care less about tax effects. Buying life insurance is actually a tax deferral, believe it or not. When you don't have enough taken out of your paycheck every week, and your accountant says you owe $300 on April 15th, that is because you deferred paying taxes last year.

A deferral has nothing to do with intentions, it is the act of pushing a current or potential tax payment into the future, whether you know you are doing it or not.
posted by otto42 at 1:07 PM on August 10, 2012


I guess I just still dispute your claim that, given a top cap gains tax bracket of fifty percent, a rich person would always or even mostly choose to give that $1M to charity instead of taking $500k for himself to spend on a boat or their kids' private school or whatever.

Bill Gates isn't giving to charity to avoid the tax hit, he's doing it because he has more money than he can spend so he set up a foundation to try to make good use of it.

If our real goal is to get the most tax revenue, why don't we make a progressive cap gains tax and remove the charitable foundation exemption? That seems more effective than a regressive tax to me. But personally I think there's multiple goals when deciding on a tax structure: increasing revenues, not burdening the poor more than the rich, and encouraging charitable giving.
posted by no regrets, coyote at 2:33 PM on August 10, 2012


Also, if you could give some actual numerical evidence of a regressive cap gains tax making more revenue than a progressive tax, I'd be very interested in that. I just don't buy your thought experiment.
posted by no regrets, coyote at 2:59 PM on August 10, 2012 [1 favorite]


given a top cap gains tax bracket of fifty percent, a rich person would always or even mostly choose to give that $1M to charity instead of taking $500k for himself

This is, of course, absolutely ludicrous. If people's motivations actually worked like this, no rich person would have any luxuries, because they'd always choose to give away money rather than satisfy "wants". The characters in otto42's thought experiment change their motivation based on the point he wants them to prove.
posted by howfar at 3:46 PM on August 10, 2012


This is, of course, absolutely ludicrous. If people's motivations actually worked like this, no rich person would have any luxuries, because they'd always choose to give away money rather than satisfy "wants". The characters in otto42's thought experiment change their motivation based on the point he wants them to prove.

Regresive rates 100% on 1st dollar 0% on 2nd dollar.
Progressive rates 0% on 1st dollar 100% on 2nd dollar.

If the first dollar has to be spent, and the second dollar can be spent or not, under each scenario, how much
Tax revenue is derived.

Regressive
The first dollar is spent on taxes. Tax rev = 1
The second dollar is spent on essentials.

Progressive
The first dollar is spent on essentials. Tax rev = 0
The second dollar is not spent. Tax rev = 0

Scale it up or down. Use any rates you want. Use probabilities of spending based on the rate if you would like. Regressive structures will always produce higher revenue. It's just simple math.
posted by otto42 at 4:12 PM on August 10, 2012


That's just crazypants. By that logic we could increase our tax revenue by taxing incomes over $250,000 at 0%.
posted by Justinian at 4:49 PM on August 10, 2012


That's just crazypants. By that logic we could increase our tax revenue by taxing incomes over $250,000 at 0%.
posted by Justinian at 4:49 PM on 8/10
[+] [!]


Obviously I used a 0% rate to illustrate an extremely simple concept. I guess it was not simple enough. Use .000001% if that is easier to grasp.
posted by otto42 at 5:40 PM on August 10, 2012


The second dollar is not spent.

This is an assumption that you have yet to back up with anything.
posted by no regrets, coyote at 5:54 PM on August 10, 2012


The tax rate is 100% on the second bracket. You get nothing for it, so you stay put, defer, avoid, do nothing. To do anything would be meaningless.
posted by otto42 at 6:16 PM on August 10, 2012


This is an assumption that you have yet to back up with anything.

I mean isn't that obvious? Do nothing and keep a dollar. Do something and lose a dollar. It's the decision behind every arms length transaction that has ever occurred in the entire history of the human race.
posted by otto42 at 6:23 PM on August 10, 2012


Oh, sorry coyote, I just saw your occupation on your profile. I didn't know. I won't bother you. Please accept my apologies.
posted by otto42 at 6:34 PM on August 10, 2012


otto42: I can understand what you're saying while still thinking you're being kooky. The idea that making taxes more regressive automagically leads to higher revenue is just that; kooky.
posted by Justinian at 7:14 PM on August 10, 2012


Oh, sorry coyote, I just saw your occupation on your profile. I didn't know. I won't bother you. Please accept my apologies.

[ checks the 'ad hominem' box ]

WOO! BINGO!
posted by verb at 7:42 PM on August 10, 2012


I mean isn't that obvious? Do nothing and keep a dollar.

Right, ok, I was still thinking in the scenario where the upper bracket tax rate was less than 100%. I think when you move the upper bracket to something in the realm of possibility, like ~50 or even ~60%, people are still going to cash out as often as not. There's plenty of psychology experiments showing that children will take one lollipop right now over the promise of 2 lollipops in an hour. I have no doubt that lots of people would rather have $500k to spend as they wish rather than $1M sitting in an investment.

There's also the flaw in your argument where you assume that the 1st dollar is guaranteed to be spend. This is also not true in practice -- our rich person could presumably live off his regular income and avoid taking any cap gains tax hit at all, and then in a regressive system he could cash it all out at the same time to avoid that yearly bottom bracket tax that you've been presuming would be paid.

It's the decision behind every arms length transaction that has ever occurred in the entire history of the human race.

I assume by arms length transactions you mean people using their friends to buy stuff for them to avoid the tax hit or shuffling money between shell corporations and such? I think that's going well beyond the scope of our thought experiment and into an area where I'd need to see actual evidence and research to be able to have any opinion on it whatsoever.

I should probably note that I don't actually care too much whether a regressive cap gains tax scheme actually would make the government more money than a progressive one or the current system. If you showed me actual evidence like a non-partisan study or two I would be inclined to believe you -- I just don't find your argument terribly compelling because it doesn't fit with what I know of human nature. If it is true that the regressive scheme would generate more revenue, I'd still be against it on the grounds that it punishes low earners more than high earners which as I mentioned previously is something I'd rather see avoided in a taxation system. But I know that's not what this discussion has been about. Do you actually think a regressive cap gains tax scheme is a better system, or is this just an academic argument for you?

I just saw your occupation on your profile. I didn't know. I won't bother you. Please accept my apologies.

I'm not sure what you mean, but your apology is accepted.
posted by no regrets, coyote at 7:55 PM on August 10, 2012


[ checks the 'ad hominem' box ]

At first I thought he liked me because I'm a scientist :(
posted by no regrets, coyote at 7:56 PM on August 10, 2012


Otto, perhaps anchoring our discussion in something a little more concrete would help.

Would you say that a consumer, given the chance to purchase product a at $10 vs $9, would always choose to purchase it at $9?

For a retailer (say, a grocery store) choosing how to price their products in a competitive environment, pricing the product at $9 is therefore a no-brainer. Either they can price it at $10 and get nothing, or price it at $9 and get something.
posted by verb at 8:07 PM on August 10, 2012


Use probabilities of spending based on the rate if you would like.

We'd need empirical data here. One cannot simply assume that a 10% increase in price causes a 10% reduction in voluntary activity. Even if it does, it will tend to take the form of reduced scale of spending, not choosing to spend nothing. Assume a person whose needs are £10, but wants a £1000 yacht. Taxed progressively at 10% up to £10 and 20% over it, he will buy a £800 yacht and pay £161 in total. Taxed regressively at 20%/10% he will buy a £900 yacht and pay £92 total. That's just a thought experiment, of course, it proves nothing. It is slightly more realistic than yours, however, in that it acknowledges that the majority of people actually want things apart from the maximisation of their wealth.

Your thought experiment also assumes that the brackets are set at the levels of need and want. You do not deal with the example of a regressive tax set above the level of need, which stifles want based economic activity occurring in the majority of the population. Such a tax might capture a greater proportion of rich people's capital gains and still reduce CGT revenue.

After much waffling and bluster, you still haven't dealt with the question of estate taxes. Many people wish to leave money to their children, indeed many see it as a moral duty. This being a motivation, donation to a charitable trust or foundation is a worse option than paying IHT. One really is giving away at least equitable title to the money in this circumstance, and equity is all that matters here from the perspective of economic self interest. Even if legal title is retained as a trustee, that title is onerous, rather than beneficial. You cannot handwave estate taxes, they're an integral part of the tax system, and designed to prevent the kind of behaviour you describe.
posted by howfar at 4:40 AM on August 11, 2012


I am not ignorIng the overnight posts FYI. I will get to them later but I thought of a real world analogy that might be helpful.

Casinos operate on a regressive model.

In order to encourage wealthy gamblers to gamble more, they lower the odds, or effectively lower the odds, as the gambler plays more games.

On the blackjack table for high rollers, the casino will adjust the rules in the players favor. For instance, dealer must stAnd on a certain card (I'm not a player so don't know exact rules). An effective lowering of the odds would be providing comps. Free rooms, flights, etc

The casino knows the high roller will spend a million. They have to encourage him to spend 2 million, so they lower the rate of their take, 3 million they lower more.
At each 1 million increment of spending, the casino brings in less. As shown though, even though the tAke is less per each additional million spent, the revenue to the casino is still more than if the gambler cashed in the chips on the first million and looked for better odds down the street.
posted by otto42 at 5:14 AM on August 11, 2012


I can't believe this needs to be said, but we should not be modeling the government on casinos.
posted by empath at 5:21 AM on August 11, 2012 [2 favorites]


The reasons casinos behave in that manner is because money has diminishing marginal utility. It hurts more to lose the second million than the first, because at that point you are a person with a million, not a person with two million. Therefore the value of the product purchased (the thrill of the gambling + its trappings) is reduced. The discount counters this.

This doesn't really apply in purchase situations, for three main reasons. Firstly, people don't actually spend all their necessity money first and their luxury money if they've got some left over. If they did, the world would look very different indeed, consumerism as we know it wouldn't exist, and their would have been no subprime mortgage crisis. What actually happens is that people experience the "want" money (the equivalent of the second million in the casino) as having less worth than the "need" money, and it is not necessary to engage in the casino's behaviour to counter them experiencing it as being worth more.

Secondly, people don't deal particularly rationally with money. We tend to compare additional costs to the cost of the item purchased, not the total amount of money I have. The extra cost of £10 on a £100 purchase is less painful than a £2 charge for something that worth £1.

Thirdly, as long as you have effective tax collection powers and anti-avoidance rules, there is no casino down the street to gamble your money at. Either you bet here, or you sit on your stake and die with it, when the casino collects a significant portion of it and hands the rest back to the beneficiaries of your will. Alternately, you give it away (to certain legally defined donees) or video yourself burning it on a Scottish island.
posted by howfar at 5:55 AM on August 11, 2012 [3 favorites]


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