Comments on: The fortunate 400 Sat, 23 Mar 2013 13:49:31 +0000 hourly 1 By: PotomacOracle Sun, 24 Jun 2012 02:39:31 +0000 In America, which issues its own currency taxes don’t pay for anything. Taxes are tools to stabilize aggregate demand. Taxes should be cut across the board by 90% since they are not revenue used to fund government expenditures.

Inflation is highly unlikely with core inflation at 2% and unemployment at 22%. Deficit spending is the only way to fund demand. Capitalisim survives on sales not austerity.

By: DavidCayJ Mon, 18 Jun 2012 11:32:19 +0000 Columnist here…

@ curleybrothers, you may find it enlightening to look at the annual statements that many corporations distribute to their employees or that they can get if they inquire about some portion of their compensation. From many conversations over the years I know people are often astonished at what the employer counts as compensation above salary. But from an employer’s POV, accurate accounting of course requires all-in costs.

The compensation statements I have received over the years, and many others I have reviewed including my nonprofit CEO wife’s just now, show the full Social Security tax, not just half of it. This is a real cost born by employers, including the corporation owned by me and two of my sons.

But, in any event, the measurement I used is the convention for tax economists and is consistently applied in my column above (and the contours are defined). So, while you think it is not best to apply the convebtion, my column maintains apples-to-apples comparisons, giving you the ability to back out the employer’s added cost if you wish and make a comparison of only part of the compensation on an apples-to-apples basis.

And, again, the news here is that six families making on average in the $200 million range paid NO federal income taxes and another 110 paid less than a single worker earning $61,500 in cash wages.

By: curleybrothers Tue, 12 Jun 2012 13:56:09 +0000 Sorry David, I am not buying the payroll tax arguement. I have been a CPA for 25 years and have never had one employer think that way. We do not tell our employees we are paying you a $66,205 salary when we are only paying them $61,500.

Using your arguement, Derek Jeter who lets assume makes $20 million is paying in $594,000 into social security and medicare per year. But since this is less than 3%, you and Buffet say he is not paying his fair share.

Jeter will get the same monthly social security check as the guy who paid in less than 1/50 of what he paid in. Jeter will pay triple for Medicare B premiums as the guy who made $61,500. The whole line of thinking is nonsense.

By: TaxIncidence Sat, 09 Jun 2012 23:16:15 +0000 “The employer-paid portion of payroll tax is, in economic theory and tax policy convention, wages earned by the worker, but not seen by the worker.”

It is also standard economic theory to apply the corporate income tax to capital owners, but you neglect to do so.

“The news I broke here is that among those reporting an average $202.4m on their tax returns, six paid nothing and the 110 paid at the same or lower rates than a worker earning a bit more than $5k/month and that only a fifth of the 400 paid at the “Buffett rule rate” (all at 30% to 35%). That shows how porous the income tax is.”

If you fail to include the business/corporate income tax as taxes paid by capital owners, then there is no nation on earth where a single wage earners pays a lower effective tax rate than a high earner with substantial capital income/capital gains. As I mentioned earlier, most OECD nations have higher payroll taxes and higher income tax rates on middle-income wage earners (especially singles).

By: DavidCayJ Sat, 09 Jun 2012 18:56:11 +0000 Columnist here,

several posters ask about payroll taxes.

Grossing up the wages of both the single worker and the top 400 does not significantly change the results, which are utterly insignificant at the top.

The employer-paid portion of payroll tax is, in economic theory and tax policy convention, wages earned by the worker, but not seen by the worker.

An employer (and I am one) looks at the $61,500 worker and sees a worker whose cost including payroll tax is really $66,205 because of the 7.65% employer-side of the payroll tax. So all I did here was apply standard practice used by tax economists of all stripes.

Interestingly, at one of the widely read websites that linked to this column posters complain that the chart excludes payroll taxes as being misleading, the opposite of the comments posted here.

The news I broke here is that among those reporting an average $202.4m on their tax returns, six paid nothing and the 110 paid at the same or lower rates than a worker earning a bit more than $5k/month and that only a fifth of the 400 paid at the “Buffett rule rate” (all at 30% to 35%). That shows how porous the income tax is.

@ zotdoc, I encourage you to read my work, and that of others, on marginal utility. A flat rate is a burden on those with modest incomes, a boon to those with larger incomes and violates economic and public finance principles dating back 2.5 millennia — and which every classic worldly philosopher supported. The rate also has nothing to do with deferral and recognition, discussed above in my column.

By: zotdoc Sat, 09 Jun 2012 17:26:35 +0000 No doubt about it, we need tax reform in the form of a low flat tax,one rate for everyone, rich, poor – all.

By: curleybrothers Fri, 08 Jun 2012 17:17:12 +0000 David,

Where do you get this idea that the employer share of social security taxes should be factored into the individual tax rate that someone pays? Are we to assume that every expense incurred would have gone to the employee and is really a hidden 100% tax. Why not add in Workers Comp, unemployment taxes, compliance costs, payroll fees?

By: TaxIncidence Fri, 08 Jun 2012 16:21:08 +0000 @TreyGerrit,

The analysis I have seen for why higher earners can end up with no tax liability are largely due to three of the reasons you’ve mentioned;

1)charitable donations — donating wealth against current income

2)foreign tax credit — designed to avoid double taxation on income earned in foreign jurisdictions (most of the developed world uses a territorial tax system and does not have this problem in the first place)

3)business losses — explains why the number of non-payers rises markedly during recessions

By: TaxIncidence Fri, 08 Jun 2012 15:28:36 +0000 @FredFlintstone,

You claim that “there are many countries in the world that manage to balance the competing economic, social, and political interests in their society.”. It would be nice for you to specify which specific countries do such an admirable job of this and how they go about doing so. Fact of the matter is, most of the international data and figures on taxation provided by the OECD and similar organizations tells us that most other countries apply larger payroll taxes to wage earners paychecks, have higher effective income tax rates for low and middle income earners and subject consumption from whatever income is left over to federal sales taxes and/or value-added taxes. The US also has a larger GDP per capita than these so-called balanced societies, meaning that although the U.S. collects less in taxes as a percentage of GDP, the absolute amount of tax dollars per capita collected is equal to that of a high tax/GDP Western European nation.

By: TaxIncidence Fri, 08 Jun 2012 15:16:53 +0000 I’m not sure why my original comment has yet to show, I thought it posed some interesting questions which were not discussed in your opinion piece.

It has also occurred to me that in calculating the effective tax rate of the individual wage earner that the author declares the employer portion of the payroll tax to be “hidden wages taxed at a 100 percent tax rate”, but fails to include these hidden wages in the wage earners total income. Applying the employer portion of the payroll tax to the wage earners tax bill but failing to include the same figure in the wage earners compensation makes the effective tax rate larger than it really is.

In the same token, failing to include the portion of the corporate income tax that is paid on behalf of capital owners makes their effective tax rate seem smaller than it actually is.

Why does the author of the piece calculate effective tax rates in this manner? It appears to be sleight-of-hand far removed from economic reality, perhaps designed to create the most sensational figures rather than the most sensible ones. (Warren Buffett made the same two oversights in declaring that his secretary pays a higher tax rate than he does).