Rich people and taxes

[jessicasimpson]

http://www.cfo.com/article.cfm/56769...todayinfinance
Former KPMG LLP partner David Rivkin has pleaded guilty to conspiring to defraud the government and to tax evasion, according to Bloomberg.

"I signed opinion letters knowing them to be false, in order to mislead the IRS,'' Rivkin said Monday in a New York federal court, according to the report. From 1999 to 2005, Rivkin reportedly elaborated, he and other managers conspired to help individuals who each had more than $20 million in income or capital gains "keep the money for themselves instead of paying taxes they owed.''

You would think their 2 huge tax cuts would be enough, guess not

[Epee_Pox]

"Their" two huge tax cuts?

I must have missed that. I thought the tax cuts were for all of us, across the board.

[keith]

Originally Posted by Epee_Pox

I must have missed that. I thought the tax cuts were for all of us, across the board.

Indeed. It was for all of us, I find the way they keep carping about it rather distasteful.

[chefencer]

Well, actually it might be a bit gaulling in the light of:
http://www.lse.ac.uk/collections/pre...avidWalker.htm
"David M Walker, comptroller general of the United States, will give a public lecture at the School on Tuesday 14 March. He will speak on America's Uncertain Fiscal Future.

The United States is on a unsustainable and imprudent fiscal path. Comptroller General of the United States David M Walker will discuss past, present and future fiscal trends and the type of actions needed to put the US on a more prudent and sustainable course for both the American and the global economies."

Walker Says Wall Street `Missing in Action' on Deficit Crisis
Since we're ALL supposed to be chipping in our fair share - especially now.

[Epee_Pox]

Well, don't misconstrue Walker's comments as meaning that corporate America isn't paying its fair share.

What Walker (who has spent his tenure ineffectually screaming into the apathetic void about how increasing budget defecits are a bad thing, and calling for increased taxes and less waste) was saying there, was not that corporations need to pay more taxes, but instead that corporations need to get more vocal about the issue of budget defecits.

He longs for the days when Ross Perot was highlighting the issue, when Wall Street and the boardrooms were putting pressure on Congress to do something about defecits. He bemoans the fact that, since Clinton took office, nobody's really cared enough about the defecit to tell Congress to do anything about it.

[chefencer]

I agree, my point was that given the current situation regarding the deficit and it's foreseeable momentum it is easy to understand the indignation of those who feel they have played by the rules against those seen by many as being already privilaged (all validity of said label being set aside) taking advantage of the system. Add into that the perceived righteousness of the current minority, this issue will continue to have "legs".

[lochinvar]

Originally Posted by Epee_Pox

Well, don't misconstrue Walker's comments as meaning that corporate America isn't paying its fair share.

The issue is not whethe "corporate America" is paying its fair share. The issue is whether the owners and officers of corporate America are paying their fair share.

[Epee_Pox]

Originally Posted by lochinvar

The issue is not whethe "corporate America" is paying its fair share. The issue is whether the owners and officers of corporate America are paying their fair share.

Again, that's not what Walker was talking about.

And as to whether certain individuals are paying their fair share, do keep in mind that the small number of high-income taxpayers pay the overwhelming majority of all income taxes collected.

The OP insinuated that across-the-board tax cuts only benefited the rich, which is clearly absurd. The follow-up post implied that the head of the GAO was saying that Wall Street wasn't ponying up to resolve the budget deficit, when in fact he was only saying he wanted Wall Street to lobby Congress for a balanced budget.

[jeff]

Originally Posted by Epee_Pox

"Their" two huge tax cuts?

I must have missed that. I thought the tax cuts were for all of us, across the board.

Ask Dick Cheney about "our" and "their": "Reagan proved that deficits don't matter. We won the midterm elections. Our due is another big tax cut."

[keith]

Originally Posted by Epee_Pox

And as to whether certain individuals are paying their fair share, do keep in mind that the small number of high-income taxpayers pay the overwhelming majority of all income taxes collected.

Indeed, but then again taxation is redistributive (to a degree) - the only arguement is more or less.

Originally Posted by Epee_Pox

The OP insinuated that across-the-board tax cuts only benefited the rich, which is clearly absurd.

Well pardon my dubious logic but (to take an example) savings due to a capital gains cut are not distributed evenly across the population (vs say a change in the 10% rate). So the 'they' and 'our' do deserve quotation mark treatment.

[Philistine]

Originally Posted by Epee_Pox

{snip}
And as to whether certain individuals are paying their fair share, do keep in mind that the small number of high-income taxpayers pay the overwhelming majority of all income taxes collected.

The OP insinuated that across-the-board tax cuts only benefited the rich, which is clearly absurd. {snip}

If it is the small number of high-income taxpayers who pay the overwhelming majority of income taxes, doesn't it stand to reason that it would be that same small number of high-income taxpayers (sometimes called "the rich") who would also receive the overwhelming benefit from across-the-board tax cuts?

Even setting aside Keith's point that certain of the across-the-board tax cuts would really only apply to the rich. (E.g. dividend tax cut, estate tax cut, and (to a lesser extent) capital gains cut).

--Philistine

[lochinvar]

Originally Posted by Philistine

If it is the small number of high-income taxpayers who pay the overwhelming majority of income taxes, doesn't it stand to reason that it would be that same small number of high-income taxpayers (sometimes called "the rich") who would also receive the overwhelming benefit from across-the-board tax cuts?

What this debate suffers from--as apparently do all debates on who pays what tax burden--is the "apples to apples" problem.

The small number of highest-income taxpayers pay the overwhelming majority of income tax. That is because they make the overwhelming majority of the income.

These people will stand to benefit most in raw dollars from any across-the-board income tax cuts because they contribute in raw dollars more than the lowest income taxpayers. However, that is not the issue. The issue is/should be do they benefit unfairly from any such cuts? When studied objectively, the answer would appear to be, No.

[Philistine]

Originally Posted by lochinvar

{snip} The issue is/should be do they benefit unfairly from any such cuts? When studied objectively, the answer would appear to be, No.

How can any determination of "fairness" in relation to taxes be studied objectively?

--Philistine

[jeff]

In case anyone is coming late to this particular scene, this has been argued at tedious length in threads with names like "The US Economy and politics".

Rudely quoting myself again:

- "the top 1% of households pay 24% of all taxes (but they make more than 24% of the income). When the Bush tax cuts of 2001-2003 are fully in place in 2010, they will increase the tax burden of the bottom 95% of tax payers by 3.8%, while the top 5% will have their burden lightened by that amount. Almost all of that savings will go to the to 1% (reduction of 2.7%). The Bureau of Labor Statistics splits out in quintiles and expresses this differently: the top 20% of households paid a 19% of their income for _all_ levels of taxes, while the poorest 20% of households had a total burden of 18% of their incomes. (eg: a person making 1,000,000 paid $190,000). Since the marginal rates are higher than 19%, it means that there must be ways to not pay them."

(The point here is that adjusted for income, the wealthy do just fine and don't pay 'more than their share' . We tax by amount of money, not by counting noses. Their burden has decreased, and the wealthiest have had multiple ways of avoiding taxation. See Perfectly Legal as the authoritative reference)


- "I used to work with Corporate Finance in my banking and brokerage days, and they would say "Oh yeah, GE, IBM, and GM didn't pay _any_ taxes this year". As long as individuals are taxed on income, and corporations taxed on profits that they can manipulate..."

- According to the Citizens for Tax Justice and the Institute of Taxation and Economics, corporate tax has declined substantially. This has direct bearing on the arguments in preceding posts, certainly regarding "double taxation" of dividends, and who bears tax burdens. ... Their report says that effective average tax rate: in 1988: 26.5%, 1996-98: 21.7%, 2001: 21.4%, and 17.2% last year. 275 companies surveyed were nearly all the Fortune 500 companies. Excludes nonprofitable ones who don't have to pay corporate tax anyway - and bearing in mind that a standard way to avoid paying corporate tax is to make US subsidiaries look as if they have lower profits. 82 of the 275 companies paid no corporate tax at all at least one year in 2001 to 2003; yet registered pretax profits of $102 billion. The total pretax earnings of the 275 companies from 2001 to 2003 was $1.1 trillion, but reported to the IRS and paid taxes on one-half of that amount.

(this section above regards corporate tax, since that was raised)

- "A regressive tax, Social Security, has been used to reduce tax burden on the wealthiest" (this shifts tax burden from wealthy to non-wealthy; SS has been used for general expenditures in a bipartisan fashion for years. Remember the so-called "lockbox"?) and "For 3/4 of Americans, the Social Security tax is a bigger levy than income tax"'


It sure is a lot less work when you don't have to type it all from scratch, eh?

[Epee_Pox]

Originally Posted by Philistine

How can any determination of "fairness" in relation to taxes be studied objectively?

--Philistine

By first assessing the perspectives of those making the judgment.

There are those who base their judgment on an underlying belief that it is wrong for a person to acquire a significantly greater-than-average amount of property when there are people with significantly lower-than-average income out there, regardless of whether there is any relationship between the two phenomena. Fairness is something like the way sharing is taught in preschool -- if you have something that someone else wants, you have to let them have it.

There are others who think that fairness is whatever puts property to its most productive use -- be it socially productive (advancing policies) or economically productive (creating more wealth in general). Fairness means taking from Peter to give to Paul, because Paul's going to do something more worthy with it.

There are others who think that fairness is allowing people to acquire property by their work, by creating goods or services or wealth in general and being compensated for it. Fairness is letting you keep what is yours and not giving it to someone else.

Most people have underlying policies that are combinations of these three concepts, weighted in many different ways.


Few people dispute that government should be able to tax, in order to pay for public activities. Few people even dispute (any more) that taxes should be levied according to ability to pay, so that impoverished people pay nothing, most people pay hardly anything, and the most highly productive people pay the most.

The difference lies in to what extent the most highly productive ought to be relied upon. At one extreme are those who say it should be an equal percentage - a rich family making a million pays $170,000 while a middle-class family making $100,00 pays $17,000. At the other extreme are those who say that the more one makes, the amount they should be allowed to keep trends to zero, so that a rich family making a million might have to pay $750,000 to bring their income back in line.

Most people fall somewhere in between these two extremes, recognizing that it's not so bad to tax higher brackets by greater percentages, because there is a greater ability to absorb tax hits the more revenue is coming in. But at the same time, they recognize that once taxation hits a certain level, there is a disincentive to make any more money, which means the people who would otherwise create jobs, opportunities, products, services and general wealth, would not do so, and everyone suffers.

Taking such considerations into... um... consideration... policy makers since the early 1980s have focused on structuring tax brackets in such a way as to maximize revenue to the government, by stepping up tax rates as income gets higher, but not so far that they inhibit investment and growth.


That's just for basic ordinary income tax. Capital gains and corporate income taxes are a whole nother animal. Some people say it is unfair, when someone creates a dollar of value to the economy, to tax that dollar when the company creates it, to tax it again when shareholders receive their share of it, to tax it again when it's used to pay workers. Some people say it is unfair, when someone takes a dollar that's left over after they've been taxed, invest it in something that creates value jobs and wealth, and then tax them again when they sell that investment. Some people say it is unfair not to tax these dollars in this way, and in fact those dollars ought to be taxed more, because the recipient didn't earn that dollar directly, but is profiting without having lifted a finger.

This, again, reflects a difference in underlying policies and perspectives resulting in vastly different definitions of what is fair.



So if you want to have an intelligent useful discussion about such policy matters, you need to know first WHY the other person thinks what they do, and more importantly (and harder) why you yourself think the way YOU do.

[TrainingDummy]

Another issue is the claim that large tax cuts benefit the American people as a whole because the tax returns are spent on goods, putting money back into the economy. A valid argument? From my crude knowledge of economics (and others' more knowledgeable standpoints), no.

[lochinvar]

Originally Posted by TrainingDummy

Another issue is the claim that large tax cuts benefit the American people as a whole because the tax returns are spent on goods, putting money back into the economy. A valid argument? From my crude knowledge of economics (and others' more knowledgeable standpoints), no.

That, of course, depends again on who gets the cut and how much of a cut they get.

If the amount is small and given to the lowest income earners, then it most likely will be spent on goods and services immediately because a) those people need to spend it and b) it isn't enough to induce the recipients to seek out ways to save and/or invest it. That was the idea behind stimulating the economy with a $300 per person "advance against refund."

If, on the other hand, the amount is large and/or given to people who are already doing alright, then it will more likely be saved or invested against future needs. This might help the economy in the long run, but does little to stimulate things right now.

[Inquartata]

Sure it does. Because the money isn't saved/invested by being stashed under the mattress. It's deposited into banks, which loan out a portion of those funds immediately. It's put into mutual funds or stock shares, and the companies thus invested in use those funds for capital improvements and other investments now. It goes into bonds, and municipalities spend the monies on infrastructure projects in the short term...

The money an investor gets back as a return, whether as interest, dividend or capital gain, is not the same money he invested. That has long since been spent by someone.

[PeterGustafsson]

Hi!