The fair share

This weekend I had a rather pleasant surprise.  A friend of mine dropped by to have a couple of beers and BS.  My friend is a very sharp guy.  He’s one of the best broad base computer techs I know.  And, he’s congenial, so it’s always a pleasure to chew the fat with him.  Now, my friend is pretty much apolitical and doesn’t have emotional investment is many of the issues I discuss.  (I think he likes to chat with me so I can get him current on the issues.)  He stays focused with raising his kids, work, etc.  Usually when we sip a few malt beverages, our conversations will go across a broad spectrum of issues.  This time being no exception.  In a part of our conversation the topic drifted to government spending, waste, debt, and taxes.  Now, as I stated, he’s mostly apolitical, but, because he’s a sharp guy he couldn’t help but hear the recent cacophony about the U.S. debt and the tax discussion.  And so he tells me something that just made my jaw drop.  He believes the rich should pay at least the same percentage of their income as the rest of the country!

It’s a good thing we brought it up.  My friend is no longer mired in ignorance.  But, then it occurs to me that other people, because of the noise about the rich paying their fair share, may be under the same impression that they don’t pay a higher percentage as the rest of the country.  Sigh.  In order to do my part in trying to put a bit of reality into the discussion I thought I’d do a little post about the rich, taxes, and some other issues so people can get a handle on the proper issues to make an intelligent decision at the voting booth.  Here are the U.S. federal tax brackets.

Marginal Tax Rate Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household
10% $0 – $8,500 $0 – $17,000 $0 – $8,500 $0 – $12,150
15% $8,501 – $34,500 $17,001 – $69,000 $8,501 – $34,500 $12,150 – $46,250
25% $34,501 – $83,600 $69,001 – $139,350 $34,501 – $69,675 $46,250 – $119,400
28% $83,601 – $174,400 $139,351 – $212,300 $69,675 – $106,150 $119,401 – $193,350
33% $174,401 – $379,150 $212,301 – $379,150 $106,151 – $189,575 $193,350 – $379,150
35% $379,151+ $379,651+ $189,576+ $379,151+

Note, the above chart is taxable income.  (Income after deductions.)  Source, (http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Year_2011_income_brackets_and_tax_rates )

Ok, so now we can dispense with the idea that the rich is somehow in a lower tax rate than the rest of the country, in fact, they pay the most percentage wise.  Now, I would be remiss if I didn’t mention some of the obscene tax breaks the rich get.  And I’ll just mention, or repeat, what I stated in a prior post.  A recent example of tax breaks for the rich is the clean energy tax credit.  In this post I’m not singling out Dr. Hansen for anything else other than illustrative purposes.  We saw he had $72,000 in cash just laying around to invest in some solar panels.  (Oddly, he knows they aren’t the answer to our energy needs, but he bought it anyway.)  So, he plops down the cash and suddenly the state and federal government showers him with largess!  He received almost $40,000 in rebates and tax breaks!  These are the tax breaks for the rich I oppose.  I don’t wish poverty on anyone, and I applaud all that have accomplished financial security (or something akin to it).  But, realizing I helped pay for his solar array is a bit maddening for me.  Especially given that he doesn’t believe this is the way forward for this country!

Now, because I’ve been in several discussions regarding the rich and whether or not they pay their fair share, I know the next issue some rich envied individual will raise is that they have tax shelters that allow them to escape paying their taxes.  In a small part, this is true, but not to where the rich as a class generally escapes paying taxes.  They don’t escape the tax man.

Here is an illustration of who pays for what in federal taxes.

image

(Source: http://www.kiplinger.com/features/archives/how-your-income-stacks-up.html )

The way to read this table is the top 1% of income earners earn 20% of all income, but they pay 38% of all income taxes paid.  The lower half of income earners earn 13% of all income paid, but only 3% of the taxes.  Now, the word fair is subjective, but I’m not sure anyone can legitimately state the rich aren’t paying their fair share.

Of course, then there is the capital gains tax, the estate taxes, luxury taxes and a myriad of other taxes that would automatically prompt people to seek shelter from such taxes.

There are many things to discuss about the fairness and equity of our tax laws, but putting out misinformation about other classes of society isn’t something I believe we should engage in.

For those that believe we should still increase the tax rates in order to balance the budget, please look up Hauser’s law and the corresponding Laffer curve.  I’ll close with this thought, we can’t spend our way out of debt, and we can’t tax ourselves to prosperity.

Hope this has help put some clarity in some people’s mind.

James

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41 Responses to The fair share

  1. Mark Reau says:

    Hey James,
    Wow man, I wish you hadn’t put that ref. to Hauser’s law. The diversity of views on this subject of taxation is mind boggling, truly. I’d rather chew off my leg than talk tax law. I agree that tax rate increases won’t do spit regarding the budget. I googled fair taxes and got this:
    Our tax system rewards wealth over work. Income from Wall Street —capital gains
    (selling stocks, real estate, and other investments)and dividends (earnings from stocks) is
    taxed at just 15%, while income from work is taxed at a top rate of 35%. That means a
    secretary pays a higher tax rate than her CEO boss does on most of his income. More here:
    http://faireconomy.org/enews/rebuilding_the_dream_with_fair_taxes

    Next stop was here, some discussion regarding Bush era tax cuts:

    Click to access bushtaxcuts2013to2022.pdf

    Next stop, for some recent data on taxes from a variety of angles:
    http://www.offthechartsblog.org/top-ten-tax-charts

    Then, this document presents details on the wealth and income distributions in the United States:
    http://sociology.ucsc.edu/whorulesamerica/power/wealth.htm

    The last stop was here, left of center economic commentary:
    http://www.angrybearblog.com/

    Thanks for something I would not otherwise consider and such a contentious issue as well.
    Regarding, “Hope this has help put some clarity in some people’s mind.” NOPE. I’m more confused than ever and now I’ve got a headache. Its going to take at least a six pack to fix, maybe twelve. The barometer is 30.02 and steady, southwest winds at 6 mph, its 81 degrees and I hear some bass in the pond calling my name.

    Cheers:)

    • suyts says:

      Damn, and I haven’t got my pole wet this year!! Damned drought. Now that it has ended, I’m hurting for time. Sigh….. well, I’ve still got September.

      Mark, I sometimes am awestruck by my assumption that people can view my thoughts without me actually typing them! Sorry.

      I know others may disagree, and reasonable people can, but my view on some of the information Google gave back to you. ——– First, technically, they are correct. But, how many secretaries do you know make enough to be in the 35% bracket? Most, I would assume, are in the 15% or 25% bracket. Also, the 15% for capital gains is only for Long Term capital gain. And that too, is tiered. In other words, if you were in the 10% or 15% income bracket your taxes on the Long Term gain would be 0%. Also, it should be noted, short term capital gains are taxed back at the same rate as regular income. Yes, that’s another 6 pack! (I believe that much of the laws pertaining to taxes in the early 2000s were to discourage day-trading.) If you feel like consuming an additional 6 pack or so, go here, http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States and be sure to read the history section! 🙂

      As far as the CTJ and offthecharts, the problem is they make the assumption that increasing the taxes won’t have a negative effect on the income earned and capital available. They would. How much? Its probably anyone’s guess, but my estimation is that they’d find somewhere else to put their money.

      As to your angrybear link, and the Who rules America links…… there’s much in both I completely agree with.

      So, I find myself guilty of not being very clear on this subject and other related subjects. I’m hopeful, throughout the course of this blog, that I’ll be able to lay out my thoughts in a coherent, logical, and encompassing manner.

      But for now, quickly I’ll run down what I was saying………..

      In the recent discussion on taxes in relation to the debt ceiling, I understood most of the conversation being to raise the income taxes.

      The market and tax incentives for investment———-

      The problem with capital gains taxes, and the market base part of our economy, is that we’ve played right into their hands and don’t have a graceful way out now. Mark, if you get a paycheck, I would assume also you have a 401K or some other market based retirement plan. Most American workers do. We can’t just flick back to moving the long term gains back up unless we’re all willing to take a huge hit in the market. I also believe we need to distinguish between the different types of capital gains.

      At any rate, Mark, I agree in general that something needs to be done. But simply increasing the rate, because of our nation’s past decisions, would be more harmful to the working class than the wealthy. We played right into their hands. And the way out of that one is trick.

      Mark, I hope to later distinguish the difference between rich Americans and wealthy globalists. But, yes, we need to find a way that discourages corporations for exporting jobs and importing workers. I think if any company wishes to enjoy the protection offered by the U.S. in form of intellectual property, tax shelters, (See GE), and the stability of a first world nation, they should then be beholding to that nation and the people who make that nation.

      I know that was clear as mud, but I’ll try to clear it up soon.

      James

  2. Mark Reau says:

    Awesome response, thanks. More food for thought. No more 6 pks. tonight as the fish were on. I hope you realize I’m not attacking your views, I agree with you for the most part. Anytime numbers are involved, interpretation becomes an issue. There are too many ways to skew data. Not being called names in an argument is quite refreshing by the way!
    Thanks again, See ya tomorrow
    – Mark

    • suyts says:

      Thanks Mark, I do realize you’re not attacking. I hope you realize I welcome divergent views so they can be discussed without provoking people’s ire. I want to provoke, but thought, not anger. Hopefully we can all learn something along the way.

      Personally, I enjoy a good intellectual joust! And I’m fervent in some of my beliefs. But, that’s not the direction I want this place to go. I believe we can discuss (and all who come here) relevant issues without the vitriol. While I’m firm in many of my beliefs, I think I can learn, still. And, I’m certain others have some to learn, too!

      • Mark Reau says:

        Re: “Damn, and I haven’t got my pole wet this year!!”
        LOL- beer induced typo or just too much info. I think the phrase you’re looking for was
        I haven’t gotten my line wet yet, Maybe a road trip to Nevada is in order!! LOL It made my day though- Thanks, Mark

  3. Scott says:

    Hi James,

    Just read this and am processing it. I’m essentially apolitical myself (though that has slowly been eroding the last few years…dang academia), but I’m probably best labeled as right-of-center. However, I have little issue with people with higher income paying higher taxes because I sort of see it as a “luxury tax”. However, I don’t think it should be on income. I’m thinking a federal tax that’s proportional to the amount of “luxury” would be the way to go. In other words, a sports car is taxed higher than a minivan. Hard drinks are taxed higher than cola are taxed higher than fruit juices are taxed higher than water (no tax on water). Mansions are taxed higher than condos, etc. Maybe that’d cause a lot of problems (and who decides the level of luxury-ness?), but just a thought.

    Oh, and I’m a complete novice in this area…as you know, I’m a scientist.

    And like I said, essentially apolitical, which is why you never see me commenting on all the political threads at Steve’s site.

    -Scott

    • Latitude says:

      Scott, I think that would just open up and entire ‘nother can of worms…
      ….it’s still punishing people for getting ahead….putting a cap on success

      I’m for a flat tax though………..even across the board

      …but then what would we do with all the IRS employees?

      • Scott says:

        I could do a flat tax across the board, but would it be sales tax or income tax? Income tax wouldn’t inhibit sales like sales tax might, possibly helping spending. But having the sales tax might encourage people to save more, reducing the “need” for social security…

        If a sales tax, would food be taxed? Homes?

        -Scott

  4. suyts says:

    A reason a sales tax holds an appeal is that it gets everyone’s money. For example, gains made from illegal activity, where our income tax only taxes our honest workers. But, a sales tax will never be used as a replacement for the income tax. Why? Because the bottom 1/3 (approx) in income earned don’t pay income taxes today. Even though according to the chart above it is all taxed, in reality it is not. Throw in the EIC and we can see the last chart reflected.

  5. Latitude says:

    I’m 100% against any increase in sales tax…
    That only hurts small people and small businesses.

  6. Latitude says:

    Hey Goofy, guess what?
    I won my bet with Joe Bastardi……………….

  7. Mark Reau says:

    Hey James,
    Gains that do not even keep pace with inflation are still treated as gains when they are in fact losses, IE 401K. Too poor ROI.
    If an individual or corporation realizes both capital gains and capital losses in the same year, the losses (except losses from the sale of personal property including a residence) cancel out the gains in the calculation of taxable gains. For this reason, toward the end of each calendar year, there is a tendency for many investors to sell their investments that have lost value.( In this way negative cash flow is actually beneficial.)
    1031 exchange – Defer tax by exchanging for “like kind” property. Capital gains can be deferred forever by buying a replacement real estate by a business, but not for personal real estate.(Just keep rolling profits into more property.)
    Say for example you file for a Nevada based corp. ( no state tax- more shelter ). Roll your properties, sell one negative cash flow per year. Its the poor mans off shore acct.. Plus its a deductable expense for the req. annual meeting. Showing lower corp. gains also deters lawsuits.

    Distinguishing types of gains is indeed key, Re- (See GE), and the stability of a first world nation, they should then be beholding to that nation and the people who make that nation. I agree 100%, but they’re not are they. One other thing, do you think Mr.Buffet has put his chips on Obama with the 5B bailout. That is one smart mofo when it comes to money, He’ll make his regardless of whom is in office, but Obama will be beholden to him now. Also, it will be spun to make Obama look good. Just like the credit Obama will take for jobs creation when constr. workers begin re-habing properties after this little storm.(hopefully)
    Mark

    • suyts says:

      Warren Buffet would be an example of a “wealthy globalist” that I mentioned earlier. And, you’re right. He’ll make his money regardless of who’s in.

      As to rebuilding after the squall, I think Latitude has it nailed. It’ll probably be more hype than anything else. Which will disappoint Obama. He’s been dying to spend that debt ceiling cushion since they voted it in.

    • suyts says:

      Mark, I would also say, these “loop holes” that you’ve mentioned, they were deliberately written into our tax code. And both sides of the aisle is guilty of pandering to the people that would benefit from dodging our taxes. That said, one man’s tax dodge is another man’s sensible economic policy. And you’re correct, the ROI for the stock market isn’t so great considering the market passed the 10,000 mark in the 90s. Our 401ks are a scam to keep the market inflated while the big players, (Warren Buffet being king) take the profits. Its a built-in safety net for the extremely wealthy.

      I find it entirely ironic that much our society would begrudge people their wealth, when in fact, they are responsible for making people like Buffet extremely wealthy. I’ll do an in-depth post on that sometime soon, and I’ll even distinguish our current wealthy group from past extremely wealthy people. Such as the differences between Buffet, Gates, the late Sam Walton, Hunts, Hughes….ect. But, that’s for another time.

  8. Mark Reau says:

    Agreed, looks like no major troubles- Except for a few dwarfs maybe.(sorry)

  9. suyts says:

    You know, there’s an option to load music media to these pages…….maybe I can …….

    Naw, I don’t want to torture people with that song. But now that Lat has mentioned it……dang it!!

  10. suyts says:

    This is a riot! I had earlier made a “lol” comment to Mark. It never showed up…… so I re-commented. my lol to Mark and Lat.

    The reason why my comment didn’t show? It went to my spam folder!!!! HAHAHAAHAHA My own blog thinks my comments are spam!

  11. Mark Reau says:

    You guys are killing me. Short people song replaced with Monty Python’s spam episode, great.

  12. suyts says:

    There’s something else really strange with my blog, today…………
    For my blog, the numbers are through the roof today. With the conversation here, you’d think that this would be the reason for the numbers. It isn’t. The views are mostly going to the next thread. No comments, just views. I find it strange. There’s interest, but no discussion for today.

    • Latitude says:

      gaggle must have picked you up……

      short people

    • Latitude says:

      of course, I had to go look…..forgot which thread it was

      That was Julienne, she tipped every one off, so all of her associates are looking at it now….

      …won’t matter, they are all humming Short People now, and effectively neutered

      • suyts says:

        That’s a riot!! …….no reason…..itty bitty….. arrgghhh!!!

        But, yeh, I was thinking along those lines as one of two possibilities. The other being someone else has picked up on the thought and has told people to check it out. It doesn’t occur to many that much would be going on up there. And, many won’t believe it until they see it. I’m pretty sure, with my comments at WUWT and Steve’s, that I’ve brought the ship tracking site down. I couldn’t get on there today. I got on only a couple of times and then when I went to change my view, their server would be busy.

        Here at the house, I think a tree has grown in the way of my wireless internets. It’s killing me……sooooooo sloooooooow.

      • Latitude says:

        …two great minds…..I was thinking the exact same thing

        One more week of “short people” and their heads will explode….
        ….then the site can handle the traffic again

        • suyts says:

          I know mine would, but fortunately I’ve got music left over from Napster days err, I mean some other music I can fill my head with.

          Of course, it is only now that I see the flaw in our beautiful plan. It is that they are looking at that thread and not this one! The only people mentally attacked by our subliminal messaging is you, me, and Mark!

      • Latitude says:

        I can fix that…………..

      • Latitude says:

        color it done…………………

        • suyts says:

          Your going to put the lyrics of “Short People” on my “Count the Boats” thread?

          Don’t do that!!! They’ mark my blog as toxic!!!

      • Latitude says:

        LOL……………………… 😀

  13. Mark Reau says:

    This is some funny stuff, I needed that.

  14. GregO says:

    How do we measure up internationally?

    http://wmbriggs.com/blog/?p=3652

  15. The blog offered to us has some exciting functions. It realy boost my knowledge about the topic.

  16. Pingback: Why won’t Obama’s plan work? | suyts space

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