The nominal rates were much higher once, but the effective rates were never that high. Before the '86 tax reform, there were many "investments" available to wealthy people that entailed zero risk but yielded guaranteed tax benefits — we now rightly call these "tax shelters".
We should shed no tears that they are gone today, but we should also remember that the economic effects we saw previously were based on the effective tax rates (factoring in the sheltering activity), not the nominal rates. Now that these passive tax shelters are not available, the effective rates would be much closer to the nominal rates.
Also, as a tax-lawyer-turned-startup-founder, I can guarantee that if we saw rates like this again, the biggest beneficiaries would be the lawyers and accountants who would restructure contracts to avoid these taxes.
The solution is to raise rates and fix loopholes, difficult a political lift as that may be.
Their people are rioting week after week, because their system of high taxes has failed them, their middle class is being crushed anyway. What are they going to do, raise taxes further? The only thing left is to begin confiscation of wealth directly and then they're just the next Venezuela in waiting, accelerating their collapse.
I've seen zero evidence the US Government can be responsible with spending and allocate it to proper use as things are now. They've been wildly irresponsible for 40-50 years running, including in stealing trillions of dollars from Social Security over decades (and then lying about it) and on wasting trillions on unnecessary military spending. Why would I give them more money until they prove they can be good stewards with the $4.x trillion they get to spend now? Let's see them take the $750 billion in military spending down to $450 billion where it should be and redirect those resources to infrastructure et al.
It's hard to argue one can get the same performance - on the same scale - as US government in projects it does.
How, for example, you measure overall lack of wars and general growth in prosperity, health etc.? What's the US part in that? Even if, say, Sweden manages lots of projects more efficiently per capita, how would you argue scaling that won't be worse than what US is doing?
It's a rather common opinion that governments are less efficient than private organizations. Still for some things we keep governments and keep trying to make them efficient, having headwinds which aren't typical in private world. Not sure if starting with "first reach efficiency..." won't get us to the same situation as US government is in right now - i.e. a prolonged shutdown.
This is when the era of travel on corporate expenses became lavish, because it was a tax-free way to offer an extra gift to top employees. If a company can not pay its top executives more than $100,000, then the company might as well put together a lavish bash in Las Vegas -- this can function both as a sales opportunity, but also a way to reward top employees, since the company can not really offer them more cash.
If you like, you can refer to the growth of benefits as a tax shelter, but that distorts the original meaning of the word.
The big era of tax shelters, in the regular sense, does not get going till the end of 1960s, and then goes wild in the 1970s, then comes to an end in the 1980s (with obvious exceptions such as "horse farms" which allow the rich to avoid paying real estate taxes, while also enjoying their horses).
But during the first 30 years of those high taxes, from the 1930s to the 1960s, those high nominal rates lead to high real tax rates. This is the main reason that income inequality shrank dramatically during this time. Read the vicious attacks that the wealthy expressed towards these high taxes and you realize that these high taxes were very real.
Just to be clear, I wasn't talking about employee benefits at all.
But if rates go up, then it turns into saving $100k, but with the same costs of implementation and upkeep. Basically, as rates go up, it makes sense to do more tax planning.
Yes, but the rich nonetheless pay the lion's share of income taxes:
The share of income earned by the top 1 percent of taxpayers rose to 20.6 percent in 2014. Their share of federal individual income taxes also rose, to 39.5 percent.
That makes sense, but I have to ask, how is that different than what we have now?
And, if that is true wouldn't it be a short term benefit for attorneys that would settle back to what's the current norm now after a few years?
Finally, doesn't that assume the changes in the tax code would provide a means to accomplish that?
The goal is to move more of the profits of and gains in productivity back to the working class and there no reason to change anything if that's not wired into the new laws.
It would lead to a higher steady-state amount of work because taxpayers would get more bang-for-buck from their tax planning dollar. See my other comment for an example of how an increase in the nominal rate leads to more tax planning activity.
I’m certainly not the first to propose this, and I seem to recall that Intuit and others (H&R Block likely) lobbied hard against any attempt to simplify the tax code, as their services wouldn’t be needed any more.
The defense I always see brought up for a flat tax against this, and I see in this thread already, is to implement a floor. If you've done that you've already got tax brackets with different names.
I am for getting rid of all exceptions and just making brackets based on income coming in which would include wages, capital gains, inheritance, etc.
There’s nothing wrong with implementing a floor, either. We effectively have one today. If everyone above the floor, extending all the way to infinity, pays the same % it’s a stretch to call that a bracket.
Ultimately, I think that the tax structure that AOC is proposing is punitive. If you’re successful, we will punish you for that success. I am not anywhere near a tax bracket that would be impacted by her proposal. I don’t really expect to be in my lifetime. But I don’t think it’s fair to punish someone for achieving success in life. Everyone should pay their fair share, but a flat percent-based tax already does that.
One other idea that I like (although haven’t studied enough to determine its feasibility), is to do away with the income tax altogether (or make it very low) and tax consumption. Exempt the necessities of life, like food, but everything else has a national sales tax applied to it. This has the nice benefit of rewarding people for saving rather than spending.
>I’m not comfortable with the idea that you should just take more of someone’s money just because someone thinks they don’t need it.
I understand that view and believe I share it. The modifier is that I don't think you can ascend to the uber rich tier of society without having had siphoned off value from society. At that point I don't think you should be taxed more just because you don't need it but because you are obligated to pay back into society and you are the one who can shoulder the burden.
That's cart before the horse.
Siphoning implies stealing. Then you're justifying your theft from those individuals. Value is created, and of course theft is possible, but you'ren't talking about theft, you're claiming that people just should pay more because of the virtue of having more.
First off, is having more really a virtue? Secondly, is it a bad thing that we expect people that have more to pay more? They'll still end up with more in the end - someone who makes $10m a year and pays 80% of it still ends up with quite a bit more money than someone who only makes $15k a year.
It's an expression in English. It means "as a result of".
> Secondly, is it a bad thing that we expect people that have more to pay more?
Yes, very bad thing. You mess this up and millions of people die, you get this right and millions of people will emerge out of poverty. Please at least acknowledge that.
> They'll still end up with more in the end.
Here's the problem though. At a higher tax bracket, I now have an incentive to find ways to avoid it. At 10% income tax on a $100K income I might not care, but at $10 million and an applicable 70% tax rate, I am willing to spend upto $5 or even $6 million to keep more of my money with me. (Personally I would even spend $7.5 million to avoid paying the taxes as a moral issue).
Yeah, I realized that upon re-reading, but wasn't in a place to edit my comment. I wonder if it's more common in Britain, though, as it didn't sound completely natural in that sense to my American ears.
> Yes, very bad thing. You mess this up and millions of people die, you get this right and millions of people will emerge out of poverty. Please at least acknowledge that.
This doesn't follow. So because people who have more pay more (as a proportion of their money, yet still have more in the long run), millions are going to die? And by making these people who have more pay less (as a proportion of their money), millions are going to emerge out of poverty? Seems to me that it'll basically end up with the increasing wealth inequality we're already seeing, except 10-fold.
> (Personally I would even spend $7.5 million to avoid paying the taxes as a moral issue)
Ah, there's the truth. Heaven forbid somebody else pay less (as a proportion of their money) than you, even though it affects them far, far more. Flat taxes hurt the poor and will do nothing but increase inequality.
Please explain how increasing the percentage of income tax paid as income grows causes millions to die?
The expression is “by virtue of” not “becauase of the virtue of”.
I don't know that most English speakers would recognize the latter as a mangled attempt at the former rather than having the normal meaning of the individual words.
I agree that if you start the flat tax on the first dollar of income, then it doesn't have to be so high.
It’s hard to imagine how a single person making $85k would be struggling if they weren’t mismanaging their money, but I’m willing to be convinced otherwise.
According to the GP's scheme, it would be over $70K after taxes.
Not the best example :-)
Anyone earning $85K who has $40K after taxes really needs to get someone else to do their taxes.
I think that whole line of argument is what gets us into the world that Intuit and H&R Block love, where we say, taxing charitable donations is "unfair," but who counts as charitable, but what about donations to your own foundation; taxing medical expenses is "unfair," but only in certain ways; taxing married couples is "unfair," but what about couples whose marriage isn't federally recognized but is state recognized, taxing the value of a research grant paying for a grad student's tuition is "unfair" if they're not even making as much money as the tax, but taxing in-kind donations generally is fair, etc. etc. etc. (It also carries with it the assumption that whatever wage you make in the first place is "fair" - that if you make $10/hour making food or $1000/hour laying people off, some process has already called that "fair" and you trust its results. There are, of course, arguments that this is right, but personally I think that's a little questionable.)
The purpose of tax policy IMO is to engineer the society we want to see. We want to see a society where government is funded decently. Not too little, presumably not too much either. We also want to see a society where people who do productive things do not say "Forget this, I'm out" and move elsewhere, so (for instance) a 100% wealth tax on assets over $1M is out. This clause starts to resemble a fair tax, because the most effective emotional argument is "You can't tax me like that, it's unfair." But that's not actually the practical argument. The practical argument is "If you tax me like that, I would prefer to uproot my life and move to another country" or "If you tax me like that, I will instead choose not to be productive in ways I would have otherwise been productive, and the cost to society is a net negative."
Once you think about it like that, it turns out you can tax the person who makes $1M/year significantly more than 15% before they threaten to move out, and certainly before they threaten to be less productive in meaningful ways (underemploying themselves, hiring fewer people, etc. - they're still going to have an inherent drive to do well for a while). So you have relatively little downside up to some percentage, and you have steadily increasing revenue for society. (Plus, as a bonus, you mess with the income inequality curve.) So you may as well increase that tax rate.
And there's an argument that this is, indeed, the most "fair" - otherwise you are letting money go underused, because the person making $1M/year doesn't strongly care, and an effective government program is underfunded.
Suppose a 20% flat income tax. One fifth of everyone's working hours ostensibly goes to the public good.
Now consider progressive schemes: Why should some folks send one tenth of their time to the government while others send (incrementally) four tenths?
Time is what matters. We're all dying here.
It's not a perfect solution, but it would tamp down considerably on loopholes. It's hard to bypass a tax paid upon consumption/service.
If you don't have that, a flat tax is going to lessen the desire to increase the flat tax rate, but it isn't going to do a thing to the desire to re-implement a progressive tax.
1) That the French backed out of a similar tax recently. Not discussing another major economy's recent experiment with this (well, 75% not 70%) seems strange.
2) The lack of discussion about how those subject to this tax might restructure their assets to avoid it. If you earn more than $10 million/yr you can hire a team of accountants to restructure things for you, has anyone speculated as to how the tax code will stand up to that if only this single variable is changed?
China, Russia, Saudi Arabia, India, France, United Kingdom, and Japan, combined, spend less on their military than we do.
I get that she's a politician and all politicians have to play to their base, but can we not all agree, in any political arena, that the 674 Billion dollars spent on the military (over half of federal discretionary spending) is perhaps too high?
I mean, what the actual fuck? How can anyone justify this? We're not even fighting any real wars, our Navy is in fucking shambles, our brand new fighter planes are a joke, and we're soon going to hire more contractors than actual soldiers. Just replace heating oil with $100 bills from the military industrial complex's pockets, it'll do more good for us.
And the Navy needs more ships, but it's not "in shambles", and the JSF is the best aircraft that's ever been built, even if it did cost too much and take too long to get to IOC.
Then there are those who are bailing water out of the boat. Most of them have small cups, some have nothing but spoons, but some have enormous buckets, and all are bailing as much as they can.
Then the Leak Fixers turn around and see that their efforts are not yielding the results they expected. Rather than stop the hole drillers, or improve their hole fixing, they turn to the Large Bucket Bailers, and demand that they double the hours they spend bailing water.
If I was holding a large bucket when that happened, I would be very very angry.
The other problem with this sort of argument is that it works at literally every tax level. If federal income tax rates were 1% then your argument would work just as well at discouraging any tax hike. There is clearly an inflection point but it is worth examining where that point is.
I respectfully disagree. Dogmatic clinging to political and economic ideals is rampant in society. People do this all the time. That doesn't apply to EVERYONE who holds the opposed opinion, though. Nor was it my intention to imply that.
> Yes, there is a tremendous amount of inefficiency in the entire process.
It's not just a matter of inefficiency. Inefficiency is intrinsic to any economic system as large and complex as that of the US, and that's to be expected. What isn't to be expected, or at least condoned, is the ACTIVE measures taken by those in office/places of power to squander money that is not naturally misappropriated by that complexity. Our current political/economic client is rife with this.
> The other problem with this sort of argument is that it works at literally every tax level.
The fact that an argument is right at every level isn't a problem, nor does it make it invalid. I'm of the opinion that no tax is going to be truly utilized correctly until the underlying problem of corruption is fixed.
And please don't take my tone as accusatory. I do appreciate people taking a critical look at an issue and still coming up with the opposite of my stance.
As for "entirely too much money is squandered", what did you have in mind? The combination of defense, Medicare/Medicaid, Social Security/SSI, and debt interest make up around 85% of the budget.
What does the concept of the government having more taxpayer money have to do with thinking it's good to have high taxes? I made no such connection, you did. My concern is with the lack of accountability to actually use the funds gathered to put into effect the types of programs you mention.
> 85% of the budget
Sure, yeah. They do. A tremendous amount of money gets wasted/misappropriated in these sectors, much of which is manipulated back into the pockets of those in office, and those whose backs the people in office must scratch to keep the gravy train moving along. I'm not sure I see the argument you are trying to make, unless you were agreeing with me.
He also cautions that his suggestion is likely never feasible. You'd have to get most of 180+ countries on board, else capital will flow through the markets without the tax.
Want to increase worker pay? Cut taxes.
Sure, because worker pay has been increasing so much (adjusted for inflation) since the 80s.
It's always struck me that only the very-very rich count on investment income.
Buy-and-hold (and eventually sell) is one of the few paths to financial independence that are available to the common wage-earner. Many people have adapted the strategies suggested by Buffet, Bogle, etc. Many have succeeded.
Don't kill one of the few publicly availble golden geese, please.
I saw recently on Paul Graham's twitter feed a paper that made the case for a 29% tax rate.
From the paper: "the rate that incorporates innovation and maximizes a utilitarian social welfare function is just 29%." 
I'm not saying I agree with the paper, but at least it provided a mathematical framework for studying taxation and considered important things such as incentives, innovation and economic growth, which in my view is a good starting point.
Japan has a much higher debt to GDP ratio than the US, and inflation of <1%.
the defense budget?
But there's a catch: I'd also like decreased spending, at least until the Golden Fleece Awards stop finding easy targets. It would be nonsense to raise taxes on anyone unless the money is put to good use.
Maybe it would be a good idea to provide the ability to have an option to suggest where/how the funds will be used based on some of the nation/state level priority needs.
"On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups"
I'm a hacker, and I find tax implementation to be a complex, interesting problem worthy of discussion.
Ignore the time value of money for a moment and imagine you work for minimum wage for thirty years, building a business, then sell it and get ten million dollars for a single year, hoping to fund your retirement and pay for college etc. Compare that to getting $333K/year for thirty years - the taxes paid would be considerably different.
Personally, I think that we need to look at taxes and earnings over a whole lifetime rather than on an arbitrary yearly basis.
There's no way there's enough money in the top 1% to fund the programs and plans she wants. The only way will be through the upper middle class. YOU.
On the other hand, the model appears to fit pretty poorly for gay marriage, where they posit if you move from traditionalism, before you know it, people will be marrying dogs.
Before (IIRC) Reagan, the point at which different marginal tax rates apply wasn't adjusted for inflation for decades, perhaps ever. The result was exactly that middle class families (including mine) paid tax rates that were originally intended only for the rich.
If you already believe that "taxes are theft", then nothing I or anyone else can say will change your mind.
However, the fact is that you made your money in one of the most money-making-amenable contexts in the history of this planet, and that's not an accident, and it's not a coincidence. This nation has been investing in itself--and investing in you--since long before either of us were born, in order to provide the societal context that allowed you to exercise the full extent of your god-given abilities in order to make your fortune. That's why you didn't die of cholera when you were 3, it's why you didn't join the job market as a barefoot and illiterate 12-year-old, it's why you can commute to work each day secure in the knowledge that some dude isn't going to pull up in a Toyota Hilux, jack your Beemer and sell you into slavery.
To be a rich person in the United States and think "I made all this money, all by myself, because I'm some kind of genius Randian super-guy" is the pinnacle of deluded, parasitical vanity.
> That's kind of a weirdly confrontational tone to take.
> To be a rich person in the United States and think "I made all this money, all by myself, because I'm some kind of genius Randian super-guy" is the pinnacle of deluded, parasitical vanity.
You see that as non confrontational?
Could you parse this sentence for me please? "That always sparks the idea of true laziness in the person saying this."
In particular the primary reason I support this is that the primary reason I want more than $100K income is competing in housing markets like SFBA and NYC. If everyone making over $100K is taxed heavily past that point, then the people competing for the same housing are on the same playing field as I am - if anything, I'm more competitive with people who make more than I do - and it also makes income equality better in general. (I don't actually care if the money goes to the government; you may as well burn it. The effect I'm interested in is changing post-tax incomes, not getting more revenue for the government)
100k just isn't that much in a city nowadays.
I'd support it for 250k, but really we are just arguing about the cutoff not about the idea of raising taxes on high earners.
But, I am happy to concede that not everyone expects this and I am being optimistic :)
You can't possibly believe that 70% marginal on > 100k is anywhere near reasonable. Here in CA, that means, you're income taxes would be 83% plus medicare and social sec urity which is +8%, and let's not forget the company pays another 7% of your salary on top of that (you don't ever see that 7% - that's the part they pay), and that's not even counting all the other taxes you pay after that. at that point, everyone would have to quit their jobs. to say that it would ruin the economy is the biggest understatement of a lifetime.
Well, that's the rub: it depends on who you ask. If you ask someone making $30K per year, $100K is a fantastic sum worthy of a high tax rate. That's the problem with the "soak the rich" rhetoric: it's all a matter of perspective. Just pray that someone without any insight into your financial situation doesn't deem you "rich"!
I do not understand your argument that everyone would have to quit their jobs. They just wouldn't fight for raises once they made it to $100K. I started my career making $95K out of college. I can't say I'm more than $5K/year happier now. I just spend more to keep up with everyone else, mostly on housing.
do you have savings? any retirement funds set up? any family? if you have family, your spending will skyrocket and you won't make it with 95K, even in new york. jsut so you know, child care runs about 22K per year per child (not tax decutible) and that's just the tip of iceberg. so don't have any children, if you wanna keep your spending low.
edit: serious question, is that equality worth it, if it means you're homeless and hungry on the street?
also, in SF 117K is considered low income for a family of 4: https://www.nbcbayarea.com/news/local/Annual-Income-of-11740...
I suspect that in such an alternate NYC, very few renters (let's ignore buyers, because it makes it more complicated, but I think my argument applies there too) would be motivated to make significantly more than $100K. Therefore most people are going to be paying at most $100K/40 = $2500/month for housing according to the standard NYC rental guidelines. The market for 1BR apartments that cost $3000, $4000, $10,000/month no longer exists. (Double that for 2BRs.) In that housing market, not in the current NYC housing market, would I still end up homeless and hungry on the street if I had to pay rent from savings? I think there's a lot less chance that if I got laid off I'd be unable to make rent in this alternate universe, even if I had the savings of making $95K/year, than that if I got laid off from my current job making >>$100K/year and with my current savings I'd be unable to make rent in this universe.
Obviously in the NYC of current reality, I am not going to donate 70% of everything I make over $100K. The very fact that taxes are a collective activity is what makes them different from voluntary charity.
Flexible Savings Accounts can make some childcare tax deductable.
Medicare + Social security is 6.2%, and you don't pay it for income above $118.5K.
The 70% is marginal, not on the whole income.
The employer share (what you call 7%) is mostly irrelevant to the employee. It doesn't show up in my tax forms.
The whole point was that the exorbitant cost of living in CA would become unsustainable with such a tax, and the system will shift to account for it.
>are you just trolling for responses? well you got me.
Violating HN guidelines.
Medicare + Social security is 6.2%, and you don't pay it for income above $118.5K.
I personally support a 70% marginal tax on all income over $100,000, and I make well over that
The amount of revenue this will raise is rather low, compared to increasing the tax on, say, the middle class. You'll gain a lot, lot more if you revert the recent tax reduction on the middle class. I just looked at my numbers, and I thought my taxes wouldn't be impacted (high state income tax and real estate tax that can no longer be deducted). But even I saved quite a bit with the recent tax cuts.
I obviously don't have a problem taxing people who make over $10M. But if I had to choose, I would instead revert the current tax cuts, even thought that would raise my tax burden.
The marginal tax rate is the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income above a pre-defined income threshold.
The marginal tax rate includes federal, state and local income taxes, as well as federal payroll and self-employment taxes. This differs from the average tax rate, which is the total tax paid as a percentage of total income earned.
"All things considered, the personal income tax structure that seems to me best is a flat-rate tax on income above an exemption... I would combine this program with the abolition of the corporate income tax, and with the requirement that corporations be required to attribute their income to stockholders, and that stockholders be required to include such sums on their tax returns. The most important other desirable changes are the elimination of percentage depletion on oil and other raw materials, the elimination of tax exemption of interest on state and local securities, the elimination of special treatment of capital gains, the coordination of income, estate, and gift taxes, and the elimination of numerous deductions now allowed."
However, this won't happen because those on the left and the right (i.e. "politicians") use the tax code as a means for punishing and rewarding to garner favor with contributors to their political campaigns.
Here's Friedman speaking on that: https://youtu.be/TruCIPy79w8?t=13
AOC has a degree from Boston University in economics. Friedman was a professional economist, of course, but as in any field there are lots of professional researchers with strong opinions in lots of directions, and we still listen to the folks with bachelor's degrees. You can find many computer scientists with many opinions on programming languages, but you wouldn't ignore people who got a bachelor's in CS simply because the professional researchers exist. (Otherwise we'd just shut down this site and read journals all day.)
We're not talking about "opinions on programming languages", we're talking about science. And if we're going to argue over CS, I'll take Knuth over any 30 year old with a BSCS.
AOC has a degree from Boston University in economics.
But it’s hard to explain to the public or the ones who are against this because they listen to certain opinions. They need to have a simple message. Like three bullet points that anyone can read and get a message. No percentage comparisons between social classes, no comparison between old and new tax rates. None of that. Public tunes right out.
E.g. (1) If you make over x in a year, you’ll be taxed at the new 70% rate, (2) if you make less than x, your taxes won’t change, (3) that’s it!!
a) point 1 is inaccurate, if you make over x in a year the portion over x is taxed at the new 70% rate, and this is already a point of confusion (perhaps intentional confusion)
b) people who understand that worry they personally will be over x, so they don't care about 2
c) people who understand both a and c worry that the systemic effects of raising taxes on the rich is to lower job creation or to make America not-great again or something, so they're less interested in bullet points about the actual change than understanding how it affects the economy.
It's hard to imagine a simpler message than "people who make more than $10 million a year should pay more taxes."