Comments on: The plight of the 1% A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: KenG_CA Thu, 22 Dec 2011 19:10:34 +0000 I have no problems with the inflation tax or inheritance tax. :-)

By: TFF Thu, 22 Dec 2011 18:32:32 +0000 “I think a wealth tax would cause lots of problems”

Agreed. But inflation is also a form of a wealth tax (especially in conjunction with a capital gains tax) that strongly discourages hoarding, and avoids the problems you cite. Try plotting wealth inequity against the inflation rate some time?

The inheritance tax is also a wealth tax, also mostly avoiding the problems you cite.

By: KenG_CA Thu, 22 Dec 2011 18:02:36 +0000 TFF, yeah, your’e right, I had forgotten that the cap on FICA is above $100K now, and wouldn’t affect the number of employees (if the cap was at a lower #, companies would rather have less employees earning more money). And you’re right about health care, if it was publicly provided as in every other modern country, companies would have less incentive to minimize the number of employees.

I’m with you on FICA, SS should be financed by the general fund, but good luck getting that passed.

I think a wealth tax would cause lots of problems – how do you value non-liquid assets? Why would anyone want to own stocks or bonds that are valued by the market? And who is going to appraise all those non-marketable assets? Sounds like a recipe for corruption.

If we have a corporate tax that penalizes hoarding, and an income tax that doesn’t allow exclusions, we’ll effectively be taxing wealth as it happens in real time.

By: TFF Thu, 22 Dec 2011 12:52:10 +0000 KenG, FICA is proportional to pay, so I don’t see any connection there between that tax and reduction of the work week (in which more people presumably would be each paid less). Health care is the elephant in the room there, since if you hire five people on 40 hour weeks it costs you ~$75k for health insurance while if you hire four people on 50 hour weeks it costs you just $60k. The $15k/employee (assuming the employer pays 75% of a family plan) for health care is perhaps a quarter the cost of hiring a lower-level employee.

I have two principal objections to the FICA tax:
(1) It is heavily regressive, since your median family relies almost exclusively on wages (which are taxed) while your wealthier families rely on investment income (which are not taxed). Moreover, the Social Security portion is capped at a level designed to capture the entire middle class while excluding 20%-30% of the wages in the country belonging to the wealthy.

(2) By lumping it on top of the income tax, we have the majority of our revenue structure resting on a single point in the economy — getting a job and earning money. Taxes create a disincentive for the activity taxed. Marginal tax rates of 40% on earned income (and most of the lower/middle class has marginal tax rates at least this high) are a fiercely strong incentive to avoid working. A VAT or sales tax could scarcely be any more regressive than the FICA tax, and it would broaden the revenue base, tapping the economy at multiple points.

A “wealth tax” could also be useful, though you need to watch out for the “family farm” effect here. Might be better to tax wealth through a steadily increasing money supply? (Perhaps even more than we’ve had over past decades.) That ought to be dilutive of the value of the wealth, even if the nominal figures increase.

By: KenG_CA Thu, 22 Dec 2011 03:56:56 +0000 TFF, yes the upper quintile may represent only 50% of all income, but most of it isn’t even taxed now. Let’s say all income is taxed at 2%, this would surely generate as much revenue as taxing only the first $100K of earned income.

And if we can reduce the employer contribution to FICA, it would be less of an obstacle to getting companies to reduce the work week and expand the payroll.

By: TFF Thu, 22 Dec 2011 02:00:11 +0000 “Just eliminating the ceiling on FICA income and the exclusion that investment income would allow the rate to be dropped by more than 90%, I’m guessing.”

Think you might be overestimating that, KenG. The top quintile begins at roughly $100k of household income, and wages surely represent the vast majority of income for those earning less than $100k. The upper quintile does represent 50% of the total income, but even THAT is dominated by well-compensated two-earner households. My guess is that only 20%-30% of household income is not subject to FICA tax (with the vast majority of that belonging to the top 5%). 012/tables/12s0694.pdf

“I gave you the entire formula and you seem unable to work out the numbers.”

Actually, I roughed them out and they are very different from what you conclude. But I think I now understand why. You originally stated:

“If persons get to keep about 75 cents on each dollar earn, most will attempt to earn the next dollar.”

When what you really meant was:

“If persons get to keep about 60 cents on each dollar earn, most will attempt to earn the next dollar.”

Because it appears that you intend to only replace the *personal income tax*, not the FICA taxes. In 2010, the personal income tax represented $900B of revenue with FICA tax representing another $900B. (Corporate income tax and all other taxes and fees came to just $400B.)

If you replace just the personal income tax, then there is a combined 40% marginal tax rate on wages above the poverty-level exclusion (and a 15% rate below that). If you replace both the personal income tax and the FICA tax, with the exclusions you suggest, then you will need to bump your tax rate to around 50%. (Certainly over 40%.)

By: pudge1954 Thu, 22 Dec 2011 01:08:43 +0000 I gave you the entire formula and you seem unable to work out the numbers. Perhaps if you start by figuring out the legally resident population aged 23 through 62 (that is your divisor, easily available for a close enough approximation from the 2010 census) and use it to divide either 2010 actual income personal income tax receipts (and either do or don’t add in some part of the deficit depending on whether you think it is legitimate to run a deficit during an ebb in the business cycle) for the numerator. Now add in the amount required to subsidize legal residents to the poverty level. Finally you have to add in the subsidy for those who are unable to pay their equal share. It all works out. Billionaires don’t end up paying more than multimillionaires, but they pay the same full equal tax. Most people discover they are actually on the dole, paying less than an equal share of the costs of government. But paying the equivalent of a marginal flat rate of 25% with no deductions beginning with a base of the poverty level is plenty. Run the actual numbers and you will see.

There is no magic in costs that will be eliminated. And if you think people at the median income will pay less actual tax paying an effective rate of 25% of that half I wonder what you think they currently pay. Most of the burden will be borne by people above the median, true, but we will all know how much we need to earn in order to contribute an equal share, and what that share is.

By: KenG_CA Wed, 21 Dec 2011 22:55:36 +0000 TFF, you said “I’m wondering how you got the wrong impression.” after you said

“the real answer is to EXPAND the tax base not SHRINK it. Reduce the exemptions, exclusions, credits, and special treatment under the law. Tax every penny earned and marginal tax rates wouldn’t need to be quite so high.”

If I had read that from somebody else, I would have had the same reaction as Dollared, except I have had enough conversations with you here to know better (I was waiting for your detailed explanation).

I live off accumulated capital (i.e, dividends, interest, and capital gains) and pay no FICA taxes, which is absurd. I guess if you view SS as an annuity, it makes sense that I shouldn’t be paying into it, but it’s not that, it’s a safety net that is absolutely necessary for the economic well being of the nation, and as such everybody should be paying for it. Just eliminating the ceiling on FICA income and the exclusion that investment income would allow the rate to be dropped by more than 90%, I’m guessing.

By: TFF Wed, 21 Dec 2011 22:24:08 +0000 Dollared, I’m wondering how you got the wrong impression. Perhaps you believe that “exclusions on the income tax” are referring to the pittance that lower-income households are able to deduct? That pales in comparison to the mortgage interest exclusion, the health insurance exclusion, and the capital gains/dividend exclusion.

Adding insult to injury, we assess FICA tax on earned income but not unearned income — as if those who earn income have less right to keep their money than those who receive it on investments?

The highest effective marginal tax rates presently apply to those below the median. Really, honestly, truly. If you believe otherwise then you are mistaken.

By: TFF Wed, 21 Dec 2011 22:19:34 +0000 “TFF, you think that making poor people poorer will somehow make the world better.”

No, I do not. I almost certainly believe in greater wealth re-distribution than you do. Moreover, I’m willing to pay higher taxes to make it happen.

I believe in fewer exclusions on the income tax and a national sales tax or VAT tax to increase the tax base.

I also believe we need to nationalize health care. Health insurance for a family of four costs $20k. If you provide that as a welfare benefit to somebody with no income (as humanity demands that we do), then you cannot eliminate that benefit at any normal level of income without seriously skewing the marginal tax rate. (E.g. if that benefit phases out by $40k income, then you have an implied 50% tax rate for that alone!!!)

And yes, that will be expensive. Expensive but necessary. Go ahead and don’t believe me — the decision will be forced within a decade as the present system steadily falls apart.