Comments on: Chart of the day: America’s small tax revenues A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: robb1 Sun, 07 Aug 2011 00:56:31 +0000 In Singapore corporate taxes are 13% +-… in California between Fed and state a poor small business will pay ~ 43% above $100K…so we have compare with them if we want to create jobs and compete. Who cares if in Italy or Japan they pay more taxes… their economy is not growing.

We need growth strategies, no subsidies or QEs.

By: Anonymous Wed, 03 Aug 2011 20:22:38 +0000 In answer to your question “why America’s taxes are so much lower than anybody else’s” the answer lies in our absolutely myopic, ideologically determined, and, ultimately, extremely expensive way of viewing and dealing with ‘collective goods and services’. (A term which does not even exist in the American lexicon but which is in common use in the other countries you cite). Collective goods and services are those which are paid for indirectly with collectively raised funds. They range from health care and higher education to infrastructure development, private prisons and military procurement. They account for nearly half of ‘private sector’ economic activity in this country. Although American economic thinking continues to view these as ‘market activities’, they actually occupy a territory completely separate from the market in a gray area between the market and the state. The incentives at play are the reverse of market incentives, meaning that costs and prices rise instead of being damped by the market discipline that usually accompanies direct, buyer-seller, transactions. Lacking separate institutional recognition they have none of the checks and balances that apply to both the market and the state and thus the reverse incentives make them extremely inflationary. In all other advanced nations the full array of collective goods and services can be provided for roughly 25-30% of GDP, a far lower percentage than here. This is because, although many have been farmed out to private intermediaries, all retain budgetary and other controls that are administered by the state (retained because, following WWII, the state initially provided them). The difference between our inflated prices for these goods and services and the more controlled price in all other advanced nations is a hidden tax; a tax that we fail to recognize because, rather than being paid to the state, it is paid to those who hold some of the most highly paid jobs and operate some of the most lucrative businesses in this country. This actually renders the American burden for collective goods and services (both government and private nonmarket) much higher than elsewhere. In other words, we do have lower public sector taxes than elsewere, but we also have very much higher private sector ‘taxes’ than anywhere else, which may explain our feeling of being overtaxed.

The answer to your second question follows from the first. If you have figured out how to extract higher revenues by privatizing collective goods and services you are going to fight like hell to retain that franchise and oppose any public alternatives. In truth very little of this actually rises to the point of consciousness. It is entrenched belief here that private is always more efficient than public and our hidden tax is simply the long run penalty for this delusion. Economists could have shed some light if they understood and differentiated the incentives that arise from indirect transactions (which in 95% of cases cannot be made direct) and if they had noticed that the inflation syndrome is a function of indirect payment itself, not a function of the costs specific to health care, or to higher education or to military materiel (which is the way they are normally studied).

Frederick P. Jagels, Evergreen Economic Research

By: TFF Tue, 02 Aug 2011 18:02:49 +0000 As for high tax rates “discouraging investment”…

What else are the wealthy going to do with their money? Unlike labor, investing activities do not incur non-deductible costs. My investment income benefits from the low tax rate on capital gains and dividends, however my investment strategy would not change significantly if the preferential treatment were to disappear.

By: TFF Tue, 02 Aug 2011 17:59:23 +0000 “We also favor capital gains over income in the tax code–taxing labor more than investments, to encourage investment. Perhaps this discourages labor?”

Our policies definitely discourage labor! There are segments throughout the first $200k of earnings in which the marginal tax on labor is over 50%. When you consider that employment often comes with non-deductible expenses, such as child care, commuting, and meals away from home, these tax policies strongly discourage people in these situations from working.

The first (and most common?) occurrence comes with the phase-out of the Earned Income Tax Credit. Between roughly $20k and $35k of income, a head-of-household with one child pays an effective marginal federal income tax rate of 25%-30%. Add 15% FICA tax and 5% state tax, and the marginal benefit of taking extra hours or greater responsibilities to improve from $20k earnings to $35k earnings is just $8k. That is a nice raise, but only if it can be accomplished without incurring additional expenses. Child care, or a $100 monthly bus pass, or $5/day spent on lunch all must be subtracted from that residual $8k.

Another common situation with 50% marginal tax rates occurs for a married couple with two children. Assume a solid middle-class professional, with a $90k primary income. The spouse could get a full-time job earning $60k. Is it worth the trouble? The bulk of those earnings will be taxed at a 50% rate (25% bracket, 5% CTC phaseout, 15% FICA, 5% state). Now subtract $10k (after-school care) to $25k (full-time daycare) for child care, $5k commuting expenses, and $5k additional expenses for services that become necessary in a two-earner household — how much is left? Again, for a household in this situation, it only makes sense to take the second job if it can be done in a way that does not incur the additional expenses. 11-10-LaborTaxation.pdf

We’ve become a nation that works only when it is convenient to do so. We can’t afford to do otherwise!

By: Danny_Black Mon, 01 Aug 2011 22:09:04 +0000 LZed, in the UK you can aggressively avoid tax. Of course, you could decide it is not worth the agro and move somewhere else.

By: Danny_Black Mon, 01 Aug 2011 22:05:50 +0000 SteveHamlin, they compare the quality of health care between say UK and US? Also tax credits in the UK have been shown to have clear cut distortions on people’s behaviour – eg single mums not working more than a certain number of hours because their take-home pay would be less. Thats before you factor in the whole intrusiveness of those credits.

By: Publius Mon, 01 Aug 2011 19:54:53 +0000 America’s low tax rates are extremely progressive–the most progressive in the OECD, according to the NBER. That’s why it feels like taxes are high. Marginal rates are above 50% in many states.

But the progressiveness means that those making less pay less. We also favor capital gains over income in the tax code–taxing labor more than investments, to encourage investment. Perhaps this discourages labor?

By: hsvkitty Mon, 01 Aug 2011 19:40:28 +0000 @SWARMtheBANKS, it wasn’t veiled at all.

@LZed, those are the talking points that have been debunked, but i suppose you have your own revenue stream you need to keep coming into your site so they continue to work.

A family making a middle income wage pays higher percentage of total tax than those 10%.

Warren Buffett, who is worth an estimated $52 billion, speaking at a H.Clinton fundraiser said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.

By: CDN_Rebel Mon, 01 Aug 2011 16:03:41 +0000 @DanHess America’s ‘growth’ model is based on ballooning population growth (if 1% is ballooning..?) whereas European nation have 0% growth. So I’d argue that Europe has a sustainability model with each nation having a solid manufacturing base and pretty good trade balance. America? Has almost NO manufacturing left and an enormous trade imbalance. Maybe some nations in Europe got the kool-aid before they were ready (PIiGs except for Italy) but for the most part I would argue their economic model is more effective and better for standard of life and social awareness. Compare median incomes of Germany, France, UK, etc with America and see who has a REAL better average life…

By: TFF Mon, 01 Aug 2011 15:43:27 +0000 “In the face of that crisis, the European model seems to leave no options at all.”

Cut spending?