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Not All Money Is Created Equal - taxes of the poor, middle, and rich (politicalmathblog.com)
29 points by limist on Feb 14, 2010 | hide | past | web | favorite | 45 comments



"If the top 1% of income earners make 27% of all the money, it would be perfectly reasonable for them to pay 27% of all the taxes."

Actually, no. What are they getting in return for that?

Past a certain amount, it doesn't in aggregate cost any more for the government to support the needs of any one person. When you tax people beyond that point, you're explicitly engaging in redistribution and that is a debatable point, not something that is "perfectly reasonable".

To take a real world example, a foreigner can go to a canton in Switzerland and do a private tax treaty with it, where he e.g. pays a fixed amount of tax each year. The cantons that do this are stating that it doesn't cost them any more than that sum to cover his costs to them.


They are paying for national defense and the social spending that allows the state to exist in a stable fashion. The wealth of a society can only exist with the aid of rule of law and relatively social stability. Someone has to pay for that stability. Why not tax people based on how much they benefit from it?


As I said, it's a debatable point; my argument is with those who accept redistribution without question.

Although you're still not entirely arguing the point. Beyond a certain amount, how much does a rich person benefit from a stable state vs. their own efforts?

To recast it, in an unstable state the rich have vastly more options than the less well off. I'd argue that the less well off benefit the most from the rule of law and social stability.


You assume the rich of a stable state to be the same people who are rich in an unstable state. That's unlikely.

Example: In an unstable sociaty, many less well off people are likely to spend more of their income for guns and other means for protection. Therefore, they spend less for other goods, such as software. Consequently, people being rich due to selling software own quite a bit of their wealth to social stabiliy.


Beyond a certain point the rich rely on their employees and workers to be healthy, educated, easily available (ie. have access to public and private transportation) and reliable. It may be true that the rich have greater options in poorer nations, but the rich in poor nations are substantially less wealthy than those of richer nations with more progressive taxation rates.

Let's not even mention the fact that wealthier people can access a range of benefits that facilitates their acquisition of wealth even more, such as paying good salaries to accountants and qualified staff, or that they in fact have much greater influence on the system than the poor through the actions of lobbies and networking.

Let's now talk about the fact that for a poor person a significant percentage of income is for subsistence; a minimum-wage or low-income person will devote most of his/her income to rent and food, with little to spare by months's end, and with fewer opportunities and savings to recover from an economic or health crisis. A wealthy person has his basic needs covered, and can afford to spend his money to make more and can take greater risks which give him/her access to overall greater returns on investment.

So no, it doesn't seem debatable to me at all. Redistribution is necessary if you want upwards social mobility in society.


> Let's now talk about the fact that for a poor person a significant percentage of income is for subsistence; a minimum-wage or low-income person will devote most of his/her income to rent and food, with little to spare by months's end, and with fewer opportunities and savings to recover from an economic or health crisis.

The other side of that coin is that the wealthy consume less of a percentage of their income and invest a greater percentage. Redistribution takes money from people who use that money to invest in startups, buy land, build buildings, renovate old buildings, invest in new technologies, sponsor artists and give it to people whose additional spending will be personal/family consumption - some on things like education and medicine, but also a larger apartment, more entertainment, and consumer goods. Poor people invest very little, the vast majority of investment, new technologies, new industries, new innovation that are invested in is by wealthy people.

> So no, it doesn't seem debatable to me at all.

This kind of thinking is no good. You honestly don't see that there's very real theoretical and real world downsides to involuntary redistribution? None? Not enough that it's worth debating?


> The other side of that coin is that the wealthy consume less of a percentage of their income and invest a greater percentage. Yes, which is why I'm not advocating an oppressive level of taxation. There is a huge range of tax levels which qualify as progressive. Your argument sounds like advocacy for trickle-down economics, which have not been very successful historically, especially in the 2000s, where income disparity has continued to increase. And yes, poorer people invest much less, which is why it's in the interest of society to increase the possibility of the least wealthy to be in a situation where they have at least a low level of disposable income. That has historically meant a bare minimum of income redistribution, some forms which have worked, others which have failed spectacularly. I have yet to see that a difference of, say, 10% of the wealth of a multimillionaire drastically affects their investment habits, but such a difference for a lower-class consumer has immediate, measurable effects on consumption habits. I make the case only for those with seven figures of income and above; I believe there is an important case for those with $1-10 million/year to heave access to good investment options.

> You honestly don't see that there's very real theoretical and real world downsides to involuntary redistribution?

Yes, but the arguments that advocate against wealth redistribution are, in practice, extremely poor and have little, if any, empirical support, while the effects of public education, public transportation, and social safety nets are evident and are the cornerstone necessary to support modern first-world economies. They are responsible for the knowledge economy by lowering the bar for higher education, greater availability of workers by increasing mobility and lowering the cost of living, and having more productive hours by maintaining the general health of the populace which, even in the absence of mass universal health care like in the US, still has public interests in the form of various regulatory agencies that control pollution emissions, drug testing, and general public health policy. The nitpickings of the particular failures of such agencies are interesting but contribute little to the debate, as the fundamental point is that by and far they serve and achieve their purpose, and when compared to countries that have little legal and enforcement options on those issues their success is evident.

The question is not IF there should be redistribution, but how much. My personal stance based on empirical evidence is less than Scandinavian countries, more than the US. The ethical dilemmas of involuntary redistribution are the same as those for taxation, conscription, and other more mainstream issues regarding personal liberties and positive and negative rights and obligations. I don't consider this one to be very debatable in comparison to more relevant topics of this day and age.


One's own efforts are a necessary, but not sufficient, condition for creating wealth. In an unstable state people who are already rich benefit; people who might become rich are likely to have a different experience.

So yes, I suppose that paying taxes doesn't really benefit people who inherited a fortune. Governmental systems designed to benefit inherited wealth do have a long tradition, but aren't as fashionable today.


> The wealth of a society can only exist with the aid of rule of law and relatively social stability.

Do you really think that rich people benefit more than the poor from rule of law and social stability? If so, you're wrong.


The majority of taxes don't actually go to anything a top 1% of income earners need. Take a look at the budget, the majority of the spending is SS, Medicare & Medicaid.


...which spare the rich the expense of having to hire a private army to prevent the rabble from taking their riches from them.


I'm pretty libertarian, but...all economic systems are at their core ethical statements about how limited resources should be distributed. free markets don't escpae from this.


Actually, no. What are they getting in return for that?

Actually, yes, I think it is reasonable. The top 1% earners typically are CEOs of large corporations, celebrities, or professional athletes. In any event, their brands put more strain on the overall infrastructure than a little janitor who is in the bottom one percent of income earners.

The CEO of Wal-Mart has, at any given time, thousands of delivery trucks on the roads, trucks that contribute to traffic congestion, increase the risk of accidents, cause potholes, and spit out harmful emissions into the atmosphere. The negative externalities born by society can be assigned a cost, and (even though it's by far from a perfect system), it does make sense for those who use/abuse the system for personal profit to be taxed more.


I'm sorry, but your concrete argument doesn't work unless you're suggesting that the CEO of Wal-Mart gains the entire benefit of its actions, with none benefiting its shareholders, customers, or low rank employees.

To take your even more specific example of delivery trucks, someone has got to deliver the food that everyone eats. You can't arbitrarily assign the total resultant negative externalities to whichever companies own and operate them.


3. Michael T. Duke, President, CEO, and Director, Wal-Mart $12,238,209 total compensation

6. Eduardo Castro-Wright, Vice Chairman; President and CEO, Wal-Mart Stores U.S. Division $9,987,493 total compensation

8. Thomas M. Schoewe, EVP and CFO, Wal-Mart $9,477,584 total compensation

16. C. Douglas McMillon, EVP; President and CEO, Wal-Mart International Division $8,191,857 total compensation

Four out of the 20 "Highest Paid Retail Executives" are Wal-Mart executives.

Source: http://www.risnews.com/ME2/dirmod.asp?sid=&nm=&type=...


And your point is?


To take your even more specific example of delivery trucks, someone has got to deliver the food that everyone eats. You can't arbitrarily assign the total resultant negative externalities to whichever companies own and operate them.

Why not? There's a big difference between retail and food, especially in the US. Food can be grown and delivered locally, and agriculture can be optimized for certain climates. Retail products, however, almost always require far more distance had between the producer and the consumer.

Roads are a great example, because even after that cargo hold of plastic GI Joes "Made in China" lands on the coast, Wal-Mart trucks still have to drive hundreds or thousands of miles get the product delivered to its target consumers in rural "agriculture" lands on the interior of the US.

Wal-Mart is the extreme example, but if I remember from my MBA classes, it's fairly simple to point out where the company has exploited almost everything it could legally exploit. It undercuts competitors in almost every one of its new locations; predatory pricing puts mom-and-pop shops out of business. How is this a good thing?


Lower prices to the consumer is the most obvious answer to your last question.

Either you take as a given that people will buy that GIJoe from China or they won't. If they will, some company is going to provide it; in your case it just happens to be Walmart. If the consumer won't buy it, no retailer will provide it.

If your argument is that we should attempt to assign economic penalties (taxes, if you will) on the externalities such that the true cost of those is reflected in the fuel that Walmart (and everyone else) buys, I'm all for it. If you're suggesting that the most appropriate way to correct for those externalities is to raise the income taxes on the Walmart execs who appear on the "top 20 retailer execs" list, I don't see even a tenuous connection with which I can agree.


I don't see your point tbh. Emission is dealt with by using congestion taxes. Accidents risk by insurance and we can expect it to be ~ to the number of cars. Not sure how the car owner -> pothole connection is solved in US, but some other countries add the "road tax" to fuel prices.

Those are all (cause -> problem -> money for solution) dependencies. I don't see why you want to get money from a company owner to solve any of them....


Those are all (cause -> problem -> money for solution) dependencies. I don't see why you want to get money from a company owner to solve any of them....

Not exactly. They're

(Problem -> Root Cause -> Solution) "dependencies". The very nature of negative externalities is that they're problems that societies have to deal with when one entity decides to profit at the detriment of his neighbors.

Here's an example of "negative externalities" that is actually true, and took place near a town where I used to live.

Assume: You're a property owner, and you don't want Pig Farm, INC to buy the parcel next to you and put up a pig farm because of the smell, potential health problems due to the (literally) toxic waste, etc. Yeah, there are regulations, but Pig Farm, INC has figured out that if it has a facility with 99 instead of 100 pigs that it can skirt the laws.

Problem: Pig waste is toxic, and causes health problems that you're beginning to notice is affecting your children. Root Cause: There's a pig farm next door to your house. Solution: Move. Or get the pig farm move.

Problem: You were there first. Why should you move? Besides, you can't afford to move because you're behind on doctor bills resultant from the toxic pig farm emissions. Root Cause: Doctor bills coupled with the fact that nobody will buy your house because it's next to a pig farm. Solution: Take the loss on your house and move anyway; health benefits outweigh the desire to hold on to your property in a place that is making you and your family sick.

Problem: Pig Farm, INC bulldozes the house you used to live on and builds another facility, which conveniently holds 99 pigs. What used to be just your problem is now your former neighbor's problem.

In summary, it's not about "money for the solution" it's about an "equitable solution". If one farm in town is causing 95 percent of the town's health problems, and causing loss of equity to 98 percent of its residents, that's a good thing only for the CEO of Pig Farm, INC who's raking in the money with the increased salary due to demand for bacon and pork and sausage.


1. How does taxing CEO more solve the problem of you having to move?

2. "that's a good thing only for the CEO of Pig Farm, INC who's raking in the money with the increased salary due to demand for bacon and pork and sausage" - and for local community which gains work places, and for local shops that may offer lower prices due to lower transportation costs, and to the local services since Pig Farm INC needs a new road so the trucks don't break, and ...


"spider pig, spider pig, doin' whatever a spider pig does"...:)


The top 1% of all earners and the top 1% of people putting a strain on the national infrastructure aren't the same thing. (Nor is 1% of the American population, which is more than 3MM people, all 'CEOs of large corporations, celebrities, or professional athletes'.)

If you're arguing for taxing people at differential rates based on something besides income, fine. But don't confuse 'income' with 'strain on the national infrastructure' or anything else.


> The CEO of Wal-Mart has, at any given time, thousands of delivery trucks on the roads, trucks that contribute to traffic congestion, increase the risk of accidents, cause potholes, and spit out harmful emissions into the atmosphere.

Doesn't the USA have corporate tax? Shouldn't corporate tax (and things such as fuel levies and business levies) pay for the cost of roads?


For the purposes of the CBO report, corporate taxes are counted towards the total tax burden on households, proportionate to their capital holdings, based on interest, dividend, capital gains and rent income.


Interesting, but rather silly, since a lot of it flows right through to the prices of their products.


Corporate taxes (which are levied on profits) are most naturally passed through to the owners of that corporation. (Basically, they are taxing undeclared dividends.)

Taxes that a corporation pays in the course of doing business (fuel, payroll, etc) are presumably NOT allocated in this fashion.


mostly they have more stuff that needs protecting.

I have a modest house, the fire department only protects a modest amount of value.

I've got a nice computer, and some art on the wall, but nothing worth millions.

Does the owner of an NFL team derive more benefit from a tax subsidized stadium than the people who go to watch the game? If you take all the fans together, no. If you compare the owner to any single fan, probably yes (the fan could be the opposing team owner ;)

Cheap gas benifits everyone because food gets cheaper, and the distance you can drive to work farther. Expensive gas is tough on me, but it's 100x tougher on someone that employs a hundred people, the cost to employ those same people either goes up, or the pool of talent you choose from goes down.

So, does 10 trillion for wars benefit me? ... sure. Does it benefit someone wealth more? sure.


"they have more stuff that needs protecting"

Yes, but only up to a certain point, especially in a nation where 70% or so of the assets are financial instruments (ones tied to quasi-tangible stuff, plus government bonds which are tied to their power to tax). Beyond that point you're redistributing wealth, not protecting the taxpayer who's so generously providing it.


Contract enforcement it probably the only thing everybody agrees government does well. I think a percentage of the value of the contract is a reasonable way to pay. If i disagree with a contractor over a $1000 fence, we can go to small claims court and sort it out. If Gigantic Manufacturer X disagrees with Retailer Y over a billion dollar contract, it's a lot more work to sort out. A five dollar lock on billion dollar asset is silly.

If you choose to rely on government to protect property rights, it is ridiculous to assert that people with very little property derive the same benefit as people with lots of property. For information on non-government enforcement, watch the wire. it's a fantastic show.

I don't think I can accept that those advanced financial instruments can exist without government contract enforcement. However, if you have evidence to the contrary, or even a good story I'll think about it.


I agree with your last point, but my point is that financial assets ("instruments"), starting with basic stocks and bonds, do not behave and scale in the same way that physical assets do.

E.g. a company with 10x the factories of another requires on the order of 10x more governmental resources (lets assume they are of the same size, perimeter, etc.). But a company with 10x the shares of stock or 10x the outstanding bonds (in dollars) does not require 10x the courts, regulators, etc.

The more companies issuing stocks and bonds the more of these resources are required, but that can in part pay for itself, as the state of Delaware has shown by providing a high quality court system for businesses. In case of malfeasance, though, the responsible company doesn't always pay for the policing it requires (e.g. Enron (dead) vs. AT&T and its breakup (all RBOCs still alive)).

Someone holding assets also requires different levels of expense from the government, with the physical scaling much worse than the financial (e.g. 1 house vs. 1 million dollars vs. 15 houses vs. 15 million dollars).


“you're explicitly engaging in redistribution”

Even a flat tax is redistribution of wealth as it would need to take into account that most people don’t start to earn money before they reach a certain age (and will likely stop earning money several years before they die).


I could find one good reason for the top 1% making 18% of money to pay 27% of taxes - military and government contracts.

Many of the top earning CEOs and top companies will get a lot of their money from contracts paid via taxes (selling articles to the army, military training, other government projects with debatable gain for the community). Those taxes are paid by everyone. If the top companies' owners get money for those services, they basically get paid using the tax from all other groups. Since more money from taxes == more contracts possible, we might want them to get taxed more - otherwise it's like they're getting a natural tax return via a closed loop in money flow.


That's not a good reason for taxing the top 1% more, that's a good reason for taxing those benefiting from military and government contracts more. The two groups don't perfectly overlap.


However, unless you get the tax rate(s) correct so that the return is negative, the more they get in this loop the more they retain.

The traditional response to this problem is to limit the scope of government. The fewer government contracts, the less this is a problem.

A lot of people noted the incongruity of Ross Perot's populism, given that so much of his income was from IT contracts with various governments.


when have "taxes" become a dirty word. Hell we had 90% taxes in the 50s and supposedly that was the most glorious time in United States history.

In fact if you compare the tax rate for the top earners with the overall American economy, you can see that the lower the taxes for the top brackets, the crappier the economy tends to be. And sure correlation does not mean causation but still.

Honestly I don't think most people would mind getting taxed at a higher rate, as long as the money actually went somewhere positive. To lower the national debt, to fix this country's infrastructure, to do the whole single payer health care(not the abortion that they are currently trying to implement). The shittier the economy, the more necessary it is to have a social net that'll help people get back on their feet.

I mean, seriously, the country is 11 trillion in debt, and because of this taxes = political suicide meme, that number just keeps getting bigger and bigger.

And I'm not proposing raising taxes on everyone...but if you make more than 1 million a year, anything above that can be taxed at 60-70%(with the exception of funding startups...which gets you a tax write off)

Edit: if you are going to downvote, at least have the balls to make a reply.


I think you are mistaken, income taxes are horrid and make you a serf to the state.

The income tax was started in 1913 (not counting the civil war) and was high till the late 80s. Now during that time most of the industrialized world was destroyed by wars and America was able to prosper significantly -- as global competition picked up we were no longer competitive. It has nothing to do with high income taxes.

The country is in 11 trillion dollars in debt because it spends money it doesn't have on things it shouldn't be spending money on. 90% of what people need from government is handled at the local level -- @ the federal level we have national defense, immigration, and the federal judicial system. After that there really shouldn't be too much (SS, Medicare, and Medicaid should be at the state level if at all).


"Honestly I don't think most people would mind getting taxed at a higher rate, as long as the money actually went somewhere positive."

I think I would feel better about it if there was a way to address the corruption and wastefulness that comes with how our tax dollars are spent.

I used to work civil service (part-time job while in college) and we had a lady named Peggy (sweet lady, great person) who spent every day on the phone resetting passwords for people who called in. Finally, I spoke with the supervisor and offered to add a forgot password link to the application and his response was: "what would Peggy do then?"

Furthermore, I have little faith in the government's ability to hire the smart people who can actually address some of this stuff. What bright kid out of college wants to work at a job that blocks youtube, gmail, blogs, and any other popular-but-useful service that arises.


A deceptive and disingenuous presentation of tax burden on Americans.

Doesn't take into account state and local taxes (sales taxes, auto registration, etc.) that are regressive in nature.

Also, it can be argued that those well endowed should incur greater tax fees — after all, it is they that have more stuff to protect and defend. What about costs that all pay (subsidies for stadiums, roads, public works, etc.) that overwhelmingly benefit the affluent.


How do subsidies for stadiums, roads and public works 'overwhelmingly' benefit the affluent. A poor person with no car benefits from roads, unless they never leave the house and somehow grow all their food and produce all their goods.


Because they are less likely to use them. They tend to be more likely clustered in urban areas, less likely to own vehicles (and less vehicles on average) and served by public transportation (trains & subways supported by fares and charged with being self-sufficient) that receives far less in subsidies than roads which are built on the federal dime.

On food delivery and utilities, more externalities imposed by exurban users (more affluent) than urban users. New York City residents are much "greener" and use far less energy than country/exurban dwellers, despite paying for the same Kw at a much more exorbitant price.

Stadiums and public recreation areas are frequented by the affluent, not those living paycheck to paycheck (on average).

Also, I did not even get into all the upside down craziness that tilts tax favoredness to the affluent, but you can check out writings of David Cay Johnston (http://en.wikipedia.org/wiki/David_Cay_Johnston) who details extensively how the wealthiest Americans enrich themselves at government expense (http://www.democracynow.org/2008/1/18/free_lunch_how_the_wea...).

I will cite one that he begins one of his books with — the burglar alarm subsidy — each time police respond to an alarm (95% being false alarms), it costs the public $50 or more ($2-3B per year), in essence a subsidy, and a diverting of police resources away from other areas (that either go unmet or result in additional costs and increased crime).

Note: edited because for some reason, keep thinking this forum supports Markup…


Important to consider here is the earned income and child tax credits. While it's a slippery slope to start subtracting "benefits" in some fashion, these seem appropriate as they are a direct cash transfer. With that in mind, the highest 60% of wage earners pay more than 100% of the tax burden of the federal government.


Some obvious and high-impact taxes that this chart misses:

- Property taxes - Sales tax - Tax-free executive perks

And of course, the discussion about fairness isn't taking into account the large percentage of industries that trade in or are based on commercialization of natural resources, nor a whole lot of other things like the large amount of current wealth, as well as industrial and military power still held that was originally bootstrapped or massively grown by colonization, slavery, and wars of aggression.

Fairness discussions like these are worse than useless, they purport and perhaps even intend to be amoral, but fall quite short and instead mislead.

[Edit:] Actually it isn't that they purport to be amoral, they can't be. Fairness is intrinsically moral, and thus if you're gonna talk about it you have to try a lot harder to bring in the real meat of the fairness discussion, like for instance, where is all that wealth coming from. People are quite worried about the lazy dude playing video games but getting a free ride from "socialism" (an abused word if there ever was one), reminds me of the mote and the beam.


I just wanted to point out, two sentences in your edit actually cut directly to the heart of this issue.

Is the base starting point for society moral fairness or at least its amoral approximation of stability? The question of who benefits most (previously discussed at length in the comments) obviously.. by definition.. is more or less everyone.

Where does the wealth come from? the chicken or the egg? the farmer or the chickens? I think it fair to say with the experience of the past few years that wealth flows from the poor to the rich in boom times and from the poor to the rich in bust times.

Who benefits from stability more taking this into account? Do I even need to answer this question?


The thing is, of course, that most of the income of the wealthy is never taxes. How much income tax has Bill Gates ever paid? I'd be surprised if it's anywhere near 10% of his wealth.




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