I confess, I am surprised to find out just how little money you can raise by slapping a 5.4% surtax on incomes above a million. I also wonder at what point serious political resistance to taxes sets in. I know, it's common to claim that Americans are tax haters. But actually, Americans, even the wealthy, pay their taxes at a rate that would shock an Italian. We grumble, but in the end, we pay.
But at some point, that changes. In the highest paying zip codes, the effective average combined tax rate (not the marginal rate) on many affluent people is already well over forty percent--I shelled out more than 40% of my really non-lavish journalist's salary when I lived in Manhattan. The repeal of the Bush tax cuts will push some taxpayers into the 50+percent total tax bracket. Is America ready?
One thing I think that wonks often overrate is how fiercely the resistance to taxes mounts once you get past a certain point. Our mental arithmetic is all wrong. We think of a 5% tax increase as a relatively small amount. But of course, once you're nearing a 50% average tax rate, a 5% tax increase is something like a 10% cut in the taxpayer's take-home pay. And the higher the starting tax rate, the larger the percentage of tangible income the tax increase consumes. Yet because wonks assess tax increases relative to the size of the base rate, an increase from 55% to 60% actually sounds smaller than an increase from 15% to 20%. Yet from the perspective of the taxpayer, the former represents a much greater encroachment on their disposable income.
Someone with two million a year in adjusted gross income now takes home $650,000 out of the last million, then pays some portion of the remainder to various state and local authorities. In 2011, if all goes as currently planned, they'll lose just more than $100,000 of that income, and more to various tax increases on lower income levels. Rich people are less budget-conscious than you and I, but I bet even they notice a missing $100,000.
Should we feel sorry for them? No. But I expect they'll start felling sorry for themselves. And I'll be interested to see what impact this bill has, if it passes, on Obama's support among the wealthy.
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Rich people are less budget-conscious than you and I, but I bet even they notice a missing $100,000.
I don't think many people object to taxes if they feel they are getting value for money. Taxes in Mexico consume 20% of GDP in Switzerland taxes consume 30% of GDP. If all it took to turn Mexico into Switzerland was increasing taxes from 20% to 30% I think everyone in Mexico, even Carlos Slim, would agree.
If the new programs, including healthcare, increase GDP growth such that the person making $2,000,000 is now making $2,500,000 they aren't going to miss that extra 100k they pay in taxes as there after tax income will be higher.
Now, will all this programs increase GDP growth.... I don't know.
If the new programs, including healthcare, increase GDP growth...
And if they don't? What if they shrink it, either directly or at least when you consider the tax cost.
Without an argument for the idea that the new programs will significantly effect GDP (enough to increase income by 25% in the example you gave), why should anyone think that its even a realistic possibility that they will do so?
"I also wonder at what point serious political resistance to taxes sets in."
My guess: right around the 50% you're describing, based in part on this bit from Paul Graham:
Eh, I don't particularly buy that argument. One, rich people (people with over a million in gross income) I think get most of their money from investments, and finagle them in such a way to take the long-term capital gains rate (15%). So when you have a million in short term incomes (this is short trades, payroll etc right?) there's money coming from other places being taxed considerably lower. Look through any company's executive compensation disclosure, and you'll see the mix. Joe CEO makes 500k a year in salary, but he really makes around 3M when you add in options and stock grants.
I think your example supports her. The marginal income tax rate is high enough to trigger avoidance by the various dodges you mention.
mcpeterson, the CBO strongly disagrees with you. The total effective tax rate (including all federal taxes, not just income taxes) remains progressive up to about the top 0.01% of taxpayers.
Additional support for this point can be taken by looking at the statistics of who gets hit by the AMT. It's much more common to have to pay the AMT at the $200k-$500k range than in the $500k+ income range. This is despite the AMT taxing all income similarly and disallowing deductions. It turns out that since the number of children is capped, and the housing deduction is capped and on only one primary residence, that there are more families in the $200k-$500k range with rather low effective tax rates thanks to a few popular deductions than the truly wealthy.
Remember, the AMT catches stock options.
There is a corporate tax driver for this. Corporations can only deduct executive compensation as an expense up to a certain cap unless such compensation is somehow performance-based. So, smaller salary with stock options is tax-preferred for the employer over just straight salary.
Also, employer stock options are generally not taxed as capital gains but rather as ordinary gains.
Except that in places like Manhattan, law firm partners, accountancy partners and bankers are in those brackets (obviously I am not one of them, but work with them on a daily basis). Most of them don't think of themselves as "rich" - they do have a lot of disposable income and certainly live a lot better than the vast majority of other Americans, but we are not talking Thurston Howell III here. I am sure that most are smart enough to have a lot of investments, but they make most of their money from their take-home pay.
Most of these people voted for, and even fundraised for, Obama - and from that perspective I say, stick it to them. My concern is the trickle down effect (trickle down economics may not be the panacea the Reaganites claimed, but it is real enough in certain circumstances) - when these folks have $100k less at the end of the year, what won't they be buying and who won't they be hiring? Things like boats, nice cars, ski cabins, fancy summer camps - certainly luxuries, but luxuries which employ real non-rich people, people who will now make less and be added to the unemployment roles.
I think we're already seeing a quiet rebellion against payroll taxes. $100,000.00 can make or break a small business owner.
The undocumented workers hired out the back door or by various subterfuges evade payroll taxes and the compliance costs that go with them. This hits low income workers hard as jobs move from the formal economy to the informal economy.
"Should we feel sorry for them? No."
Why the heck not? They're rich, not evil. I feel bad for anyone who has worked hard, in whatever profession, with the intent of making alot of money, for whatever end goal, and has progressively more and more of it taken away in the name of a social good.
It's unfair, it's un-american, and I personally think it's unethical.
I understand keeping taxes low on the poor, but we need to understand that the middle class is fairly rich in historical terms. Instead of focusing on punishing the rich for being rich (and not evil), perhaps we should find a more even tax code that simply says "you are not poor, your tax rate is X%"
By the way, I personally want to have a salary of $250-300k which is now commonly defined as entry-level rich.
Why? Because I don't want to require my wife to work instead of raising children, I want to be able to afford a good house in a good school district in a decent sub-urban area, I want to be able to retire at age 60 with 75-80% of my income stable through 85-90 years of life (with leftover for children), I want to be able to pay for my kid's state-school colleges, and I want to generally live comfortably.
I think that's pretty much a middle-class american dream, isn't it?
150k can provide me with a non-working wife and a good house in a good school district, but I won't be able to retire at 60 with a suitable level of income for an 85-90 year lifespan, I may not be able to put my kid's through college either. At least, I won't be able to do all of the above.
250k, to me, is really where all of that comes to fruition and provides a comfortable padding. 200k is probably possible too.
I say this not to sound ignorant, but to say that somehow the wealthy have become maligned as a class of citizen who owes a substantially greater portion of their wealth back to society than someone who is middle-class.
And "rich" has moved steadily lower in the life-style category, because it's been focused on gross annual income.
Joe
P.s. I understand that 150-250k in some areas of the country can provide a rich lifestyle. Where I live, which is a decent suburban area, it provides the lifestyle I have described.
I agree. If your making 75k a year as an accountant for the state or you're making 750k a year as a partner at E&Y, I don't see why your tax rate should be different.
I can certainly understand wanting to be home with the kids every night by 5:30 but just because someone chooses to work harder and smarter doesn't change their obligation to society.
So I can see the first 35k of income being tax exempt but after that it should be a flat rate.
That's pretty similar to what I've realized I'd like to see....except maybe the first 20k exempt and the next 15k taxed at like 5%....I simply don't like to see a large portion of the population having no incentive to monitor government spending.
The basis for a progressive rate seems so classist. A flat rate ensures the rich are paying their fair share.
Politically though, it removes the ability to reward segments. No matter how ridiculous our tax code becomes.
I wonder though....since Obama talks about how much money electronic records and efficiencies would save in healthcare, how much would a vastly simplified tax code save our nation?
I think you're right on target about too many people having no incentive to monitor government spending. I think that even if you set an absurdly low rate, every dollar past $1000 needs to be taxed and anyone who makes over $1000 needs to have to file a return. It's not that we'd be capturing a lot of revenue at the bottom end, but we need to have people equate having a job with being a taxpayer. More to the point, we need them to equate having a job with having the hassle of figuring out their tax forms, and with seeing what was withheld and for what purpose. I can see allowing a limited amount of progressivity into the tax system, but everybody who works should be in the tax system.
This country got started in part with a call against taxation without representation. Today the waters are murkier because there's too much representation without taxation. Since the bottom end doesn't pay actual money for their stake in government, their incentive to monitor spending is limited. Meanwhile, the top end makes up for their diluted representation through lobbying. That leaves the people between 50K and 250K to pay the taxes, no matter what you read about the latest plan to sock it to the rich.
I'm hardly a bleeding-heart liberal, but I must confess that I feel less sorry for the guy making 500k paying 50% than I would if a guy making 50k was paying 50%. I'd prefer lower taxes in any given bracket, but I'm going to be less concerned about a rich guy getting taxed down to middle class than I will about a poor guy getting taxed down to the bone. Megan's flat-out "No." is too harsh, I'll agree, but I think her broader point makes sense.
What is unfortunate about that thought is it involves someone actually saying, "You have sufficient for your needs, we're going to take more."
That's the part that many feel is un-American to the core.
Yes, it is un-American, isn't it?
TreeJoe for President!
It sickens me that so many people shrug off legislated theft because the ones being stolen from are already relatively wealthy. What a slippery slope this game turns into.
This will lead to more racism, more class warfare, less freedom, and a lot less charitable giving.
I'd be happy if people were just shrugging off this theft as compared to cheering it on. F... the rich is a very scary sentiment when a significant percentage of the population starts believing it.
I've got a seriously hard time with anyone referring to themselves as a libertarian and then implying (the "should we feel sorry for them? No." line) that it's perfectly acceptable to tax "the rich" this disproportionally.
I can get behind a "poverty line" exemption, when we are truly addressing just basic living wages, but this isn't anywhere near that.
This is Socialism. Confiscatory Socialism.
Slippery slope, as stated above? Absolutely. The slipperiest.
How long before 1/3 of the population is considered "rich?" Do we really need a new AMT situation?
"How long before 1/3 of the population is considered "rich?""
Only a kulak would ask such a question.
Da, is true.
Next year, WHITE BREAD during the Winter Solstice Holiday!
http://www.cbc.ca/news/story/2000/11/21/ndp001121.html
A canadian politician defined rich as anyone making over $60k in 2000.
Anyone who thinks these surcharges and taxes for the rich won't apply to them deserves the surprise when it does.
Derek
Yeah, but she was a New Democrat. For those who don't know Canadian politics, they're a party that usually gets around 15% of the vote, and is based on the union, student, environut, and other similar voter blocs. The average NDPer is decidedly to the left of Obama(or at least, my best guess of what Obama stands for). The fact that the then-leader of the NDP said something like that is unsurprising, and it doesn't mean a whole lot more than if Ralph Nader had said the same thing.
And I think she back-tracked once it was pointed out that her definition counted a signficant proportion of her union supporters as "rich".
But the NDP aren't as marginalized as all that. Federally, they are the #4 party, but just came close to taking significant power in a coalition deal. And provincially, at least half of the provinces have had NDP governments at one time or another. The mindset that considers $60K/year to be "rich" is far from a majority, but I don't think it can can be that easily dismissed either.
The wealthy (multi-million net worth and millions in income) are truly different in how they earn a living and how they spend it. As rates increase they will defer/shelter income or find some way to not pay taxes. Just look at Theresa Heinz-Kerry from her disclosure several years ago when her husband was the VP candidate - several million in income, close to a billion in net worth and paid only 12% in taxes. Good luck tacking on a 5% increase on her and actually seeing any of it.
Once congress realizes they can't soak the wealthy (they of course already know this but will never admit it) then they will come after the almost wealthy - $100k to $1M in income. In this range you have a lot of people who have income but are not wealthy with no significant savings outside of retirement and whatever home equity is left. They have car payments, house payments, utilities that are all pretty fixed. Let's say 30% in debt/overhead and an effective tax rate at 40%. So a 5% rate increase hits them squarely in the disposable income category - also know as consumer spending. So less dining out, less trips, less shopping etc.
We've been doing this for years with the AMT.
The AMT (like all income-based taxes) isn't particularly effective in getting tax money from the trust-fund-baby-type that people typically have in mind when they advocate 'taxing the rich.' Instead, it is aimed at the getting money from highly-skilled, white-collar workers.
Well, there are a lot more doctors, lawyers and accountants than there are Tereza Heinz-Kerrys...
You misunderstand. Congress doesn't really want to soak the wealthy for tax revenue. They want to squeeze the wealthy for campaign donations and financial favors.
Without getting into the specific numbers, I find the entire concept outrageous, though I recognize that it may be politically epedient from the perspective of an elected official. It's ironic really - one of the widely-recognized problems with American healthcare at present is that a very sizable percentage of the populace is largely insulated from the actual costs of healthcare (a byproduct, in part, of the managed-care/HMO movement). Thus, we tend to use too much of it in many cases, thereby bloating the costs of the entire system to unsustainable levels. But the House has now taken this concept and applied it as an approach to legislative policy, i.e., offer everyone a large package of plans and new coverage options while insulating 99% of the populace from the associated costs. The surtax won't effect me, but that doesn't make it right, and it strikes me as downright irresponsible.
Megan, I agree; using a surtax on the wealthy is too unstable.
But I still believe the reason for that instability is the concentration of wealth. Drew gave a good example above:
Economic problems are like medical problems in one way: you can treat the symptoms or you can treat the underlying problems.
In other words, simplify the tax code. Right?
That would be a very good start.
And address regulatory capture.
And food supply.
But ultimately, it's very much in those taxpayers interest not to have health care consume 30% of GDP. And if we want to remain competitive, we have to separate health care and employment simply because more and more, our global competitors don't have that responsibility; it's a distraction from a company's core business.
We are fortunate in two things: we've had a lot of other nations experimenting with this problem for a long time (the health care problem, I mean), and we can learn from their mistakes. We also need to work toward a global R&D market; I think that's one of the problems nobody wants to tackle head on. We're thinking locally, and looking at innovation as our turf (and failing to recognize our public support of the research on which that innovation rests).
"we have to separate health care and employment simply because more and more, our global competitors don't have that responsibility"
You've said this before, but I still can't figure out what you mean when you say that global competitors "don't have that responsibility". Do you mean that people don't get healthcare at all in those countries? If they're getting healthcare, someone must be paying for it, even if it's not as explicit as the direct payments that businesses provide here. Either businesses in those countries have to pay their employees more so that the employees can buy it themselves, or they pay more so that their employees can be taxed at higher rates, but somehow, what people are getting is being paid for.
Granted, based on the stories, many middle income people simply aren't allowed to have as much healthcare in many countries, but at the same time they're supposedly providing more basic coverage for the poor than we do, so it's still not clear that they're paying less overall.
Companies don't have to administer the healthcare plans in many other countries, which may be a slight saving, but the actual cost of healthcare is still there somewhere.
"it's very much in those taxpayers interest not to have health care consume 30% of GDP"
I don't understand this argument. Per capita incomes in the U.S. are significantly higher than just about everywhere else, including Europe. If Americans choose to spend much of that extra income on health care, why is that a problem?
If Americans choose to consume more medical care to alleviate end of life suffering ...
If Americans choose to spend more to reduce queueing for surgery and other medical treatment ...
If Americans choose to consume more elective surgery ...
Why is that a problem that needs to be fixed?
How would you suggest to un-concentrate it? The wealthy families like THKs can run circles around any change in tax laws and before they ever pay anywhere approaching 50% they will flee the US. I'd bet a good portion of their money and holdings is already globally dispersed. Just say the words "flat tax" at any NYC high society event and watch them recoil in fear.
First of all, I wouldn't expect Heinz to go from 12% to 50%; that would be theft.
And it would strangle the economy. But surely, there's some middle ground? She would have a lot to gain from finding it. So wouldn't Warren Buffet, T. Bone Pickens, and Roxanne Quimby.
She's only so low because she has a lot of her wealth in Muni (maybe state) bonds which are tax-free but offer a lower return. Taxing THK more would necessarily include eliminating that tax break making those bonds more expense to float.
Skullburg: "She's only so low because she has a lot of her wealth in Muni (maybe state) bonds which are tax-free but offer a lower return. Taxing THK more would necessarily include eliminating that tax break making those bonds more expense to float."
And would be unconstitutional. McCulloch vs. Maryland.
Yeah, but how much of that is due to pocketbook horror, and how much of that is due to the fact that the "high society" types in NYC are massive socialists?
BEFORE I MOVED - I was paying well over 50% combined income taxes (not sales, etc.) in Manhattan. (If you factor disallowance of deductions, AMT, and all the other clever tricks the government uses to deprive some americans of equity under the tax system). If I stuck around New York City my marginal rate would certainly be over 60%.
I am seriously considering ceasing working when my AGI tips over $250k this year. I have a few more weeks to decide. I suppose people like Derek Jeter or Jamie Dimon will just keep on making money regardless of tax rates, but Washington people are delusional if they think that some people won't simply opt out of the rat race. Why should I work my butt of to give away more than 50% of what I earn. I simply say no.
Charlie Rangel said - I paraphrase - "some Americans are being asked" to pay this surcharge. I say no.
Exactly.
Private parties pay me >$200k for my labor. My long-term gf, >$300k. We both put in very long hours, but feel it is worth it for a variety of reasons.
FWIW, we both started life in lower-middle class, blue collar families. We both worked our way through school with little/no help from the 'rents. (BS + MBA for her, BS + JD for me). Both of us worked for years with our BS degrees before making huge personal and financial sacrifices for advanced degrees.
To put it mildly, we feel like we're being punished for working hard. I'm seriously considering working for the government--it is a growth industry, it is secure, and and I can work 8 hours/day...and not just on Saturdays! Sure, I'll take a pay cut, but screw it.
I respond to incentives, what can I say?
We're not married because of the punitive marriage tax penalty, BTW.
I don't understand why we have decided how much people should spend on health care. Maybe people want to spend a bunch of money on it. Maybe they believe they are getting their money's worth. If the government is going to intervene, it should be to eliminate imbalances of power or information to allow people to choose how much they want to spend on health care. If Americans choose to spend 30% of GDP on health care, then so what? As long as they aren't getting ripped off, that's their choice. Health care is already heavily regulated and I expect that is where some of the inefficiencies lie. I'd rather see an effort to fix that before scrapping the system.
Ah, but other Americans are choosing to spend my money on their healthcare.
That's the problem.
First off, forgive me the ridiculous heresy, but what about a flat fee?
Citizenship is akin to club membership. Being a member of the USA gives on certain benefits. Why is one person required to pay more for those benefits than another who earns less?
Mind you I am not advocating a flat fee, what I'm really after is something to point out where my error in thinking is. Taxes have been a percentage of income since there were taxes, because it is much more practical (there are numerous problems with the flat fee). But is a percent tax fundamentally fair?
According to Wikipedia
Per Capita Tax Revenue:$8,528.22 (US Avg.)
Assuming 72.4% (Wikipedia) of the people are adults (and children shouldn't pay): $11,780 per adult
Not sure what % of the population could afford this though.
My husband and I had this conversation yesterday; and we would willingly pay this amount for good, basic health-care coverage. Right now, we pay this amount for a high-deductible family policy, and still have $5k/person $10k/family responsibility, first. And we have no other option, short of a full coverage plan which would be economically stupid for us considering the amount of health-care we consume.
So, you'd be willing to pay about $35k in taxes per year?
Current tax share for adult A: 11780 +
Current tax share for adult B: 11780 +
New medical coverage: 11780.
---
35340
Not many people would be willing (and many wouldn't even be able).
Nelson: I understand that its incredibly impractical. Any given flat fee will be a huge burden on some, while being a very small burden on others. Thus the fee would have to be limited to something affordable by the vast majority, and will probably result in much lower revenue.
My question is about the overall fairness. A guy making $150k annually does not get twice the benefits from his country of a guy making $75k (assuming a flat tax). Since the benefits he receives are damn near identical, why is he paying twice as much?
I don't think a head tax (equal per person per year tax) is unfair. It's impractical given our current level of spending, but it's fair.
But the 150k vs. 75k question can be misleading too. You can't tell from the information given how much public resources are used by each person (or were used in order to get there... such as subsidized public education, roads for a business, etc...).
Or... you could just go back to the original plan, and allocate the taxes to the states based upon population, and let them figure out the best way to raise it.
Need $8k per person. Great. Each state ponies that up. Some states raise it through sales taxes, others through flat income taxes, others through progressive income taxes. Let a thousand (or in this case 50) flowers of innovation bloom.
Of course... this works much better if your state is being represented by a senator...
There's not much that couldn't be fixed about the feds by repealing the 16th and 17th amendments.
Well while the idea of competition in tax systems appeals to me there is this
Mississippi
Population: 2,938,618
Median household income: $35,971
Iowa
population: 3,002,555
median household income: 49,262
OK... now I'm confused. You are opposed to progressivity at the individual level, but it's all cool for states?
No, I don't think progressitity is a good idea. But its also pretty clear to me that regressivity is very unfair.
In the example I sites (which is a rather extreme, but real example) the richer citizens of Iowa will pay a much smaller percentage of their income in taxes than the poorer citizens of Mississippi. That does not seem right.
Taxes often times end up being regressive when it was not the intention, for example the fuel tax. And that is the situation here as well.
Which goes back to my original question. While most (here) agree that asking one segment of the population to pay a higher percentage of their income than another segment is unfair, is is fair to ask one segment of the population to pay a higher nominal amount in taxes than another (even if the percentage is the same) when they both receive similar benefits in exchange?
This is kind of shockingly ahistorical. From 1932 to 1986, the top marginal tax rate was at or above 50%, and it got up past 90% in the 1950s (yet somehow George Will remembers the 1950s as Edenic -- must have been about only boys wearing short pants). And the Reagan Revolution wasn't exactly a bloody uprising. Get some perspective.
http://www.truthandpolitics.org/top-rates.php
Yes, marginal rates were higher in the past. However, the "deal" struck in the 1986 Tax Act was to lower marginal rates in exchange for a broadening of the tax base. You can't compare the max. 50% rate in 1985 with the max. 28% rate in 1987 and say the 1987 rate represented a tax cut. It didn't, because the amount of income that rate was applied to was (in general) higher. Congress isn't talking about shrinking the tax base while raising marginal rates to pre-Reagan levels. Congress has continued to expand the tax base and Obama has announced plans to further increase the tax base. This makes the proposed tax higher than the tax was in the early 1980s; even though the rates are comparable, many of the deductions, credits, and exemptions available then are not available today.
Marginal rates were higher, but so were deductions, and tax shelters abounded. Conssequently, very few people actually paid those higher tax rates.
For example, you used to be able to deduct state sales tax, as well as interest on regular consumer debt. Tax shelters enabled you to have phantom losses to offset real income.
The system didn't work as you think it did, and the proof is the enactment of the AMT in 1969. Despite those higher rates from the years you cited, Congress had to create a second tax system to make sure that wealthy people were paying something. If those higher rates were truly applicable, there'd have been no need for the AMT.
Post WW II tax shelters were ubiquitous. People were buying oil wells, raising chickens in the back yard, etc - perpetually money losing businesses in order to deduct a car or part of the house payments, or to push taxable income into succeeding years.
During the '80s the tax code was tightened up a whole lot as the rates were lowered. It was mostly a good thing, since it meant you were going to pay about the same tax without having to go through all the BS of a mostly-phony chinchilla breeding business. And in fact tax receipts went up as people moved their money out of double-tax-free munis and tax shelters into taxable investments. To compare tax rates instead of tax receipts is to get a false picture of what actually happened in the 1980s.
If you played the same games on your return today that were common at the time you'd probably end up paying large fines or even going to jail. As I understand it the IRS is pretty quick to declare a business to be a hobby after only a year or two of losses. Plus, there are a lot of things that are technically still legal but aren't worth the hassle.
Zic, I think I finally found why you have such an objection to concentration of wealth. I think deep down, you think that economics is a zero sum game. That for someone to be rich, others have to be poor, and if we could just take the rich guys money, give it to all the poor, we could all be moderately wealthy. But that is not true.
Consider the following example. In some nonindustrial land, everyone has to cook all their own meals (meaning hunt, raise vegetables, etc). This is very labor intensive, and costs everyone a big barrel of money. Everyone is poor, but there is no concentration of wealth.
Then one guy decides to do something radical. He makes himself a biscuit in the morning, just like always, and then spends the rest of the day just making biscuits. Since he specializes, his costs go down drastically. He only has to clean dishes once a day, for a thousand biscuits instead of just two, for example. He can get a big biscuit making oven that reduces his cooking time, etc, etc. Now his biscuits cost him less to make than his neighbor (even without the technological advances. Productivity rises by multiple orders of magnitude due to specialization only). Since his biscuits are cheaper, he can trade them for beans, meat, and other stuff that his neighbors got, and pocket some profit. So our biscuit maker grows fantastically wealthy, by the standards of this land. But his neighbors benefit as well, since they get cheaper biscuits, than it would cost them to make their own. If they weren't cheaper, they wouldn't trade for them. So we have one fabulously wealthy biscuit maker, and everyone else gets a tiny bit wealthier, its barely measurable. So, there is a great concentration of wealth, but overall everyone is somewhat better off.
So let’s destroy this concentration of wealth. We'll get some villages with torches, to come over and take his biscuits, and divide them equally. All the villagers became better off, because they got free biscuits, the baker became much worse off, since he now only gets the same number of biscuits as everyone else. Well, he doesn't have a reason to keep making tons of biscuits anymore. Sure you can try to tell him that it is his duty to society, but not everyone will follow that. You can chain him to his oven and make him produce, but aside from being morally wrong, there is also the problem that he is unlikely to build a new better oven, or do any of the other steps he could take to continue to improve his productivity. Why should he? So his productivity drops, or at the very least ceases to rise. You get less concentration of wealth, but in the long run, everyone is worse off, cause biscuits are not getting any cheaper, like they otherwise would.
So, in order to create wealth, one does not have to make someone else poor, it is possible to create wealth just with productivity improvements (actually, there is no other way to create wealth). And concentration of wealth is a byproduct of creating wealth, because relatively few people actually create wealth at any given time. And the reason they do, is because they want to be fabulously wealthy. Not everyone could have come up with the idea of staying home and making biscuits, instead of going to hunt dinner. Not everyone would have taken the risk of going without dinner, in the hope that he can get rich selling pastries (i mean, what if no one bought his biscuits?), and they few who do take steps to improve productivity do it for profit, so that they can be richer than their neighbors. Over time, the biscuits maker wealth will spread to those around him. One of his friends will start raising cattle for sale, while another will start dedicating himself to making ovens (a profession that did not exist prior to this story).
So the moral here is.
Increases in productivity, either by specialization, or by innovation, create wealth. Really create it, not take it from someone else, but make "new" wealth.
Wealth is created in small pockets, thus it is concentrated.
Trade spreads the wealth around, lowering the concentration, and the "non innovators" to become slightly wealthier via lower prices on goods, while also giving them an opportunity to become innovators that they could not become before (the oven maker)
The only way to forcefully reduce the concentration of wealth is to make everyone poorer, leading to a net loss of wealth.
I don't have an objection to a "concentration of wealth," I'm addressing the structural issues of funding health care. In this thread, I've pointed out that the AMT tax has hit many "wealthy" people unfairly, and I've suggested overtaxing the extremely wealthy would strangle the economy.
If you want to address the underlying structural problem I suggested, fine. We can have a conversation. Because there are a lot of problems to talk about. I listed several above; all topics this blog had discussed recently. There are a lot of creative thinkers who read and comment here, I'm interested in what they have to say.
Otherwise, as someone who grew up doing that rustic labor you describe, and as someone who now lives off the formation of wealth through productivity, I'm grateful for the lecture. But I'm still not sure if you understand the problem I'm grappling with.
There you go, making it personal again. Did I even accuse of being a spoiled brat? If not, why do you constantly remind me that you work for a living? We all do. That doesn't mean that a working persons ideas are automatically right, or beyond criticism.
So there is this:
But I still believe the reason for that instability is the concentration of wealth
And this:
Now, perhaps I am wildly wrong, but here is how what you said read to me:
Taxing the very top bracket leads to a very unstable source of revenue, because the top, concentrated, bracket is very unstable. If there was less concentration, there would be a great deal more stability in the stream of revenue.
Which is absolutely true. But assuming you want greater stability in revenue, and you believe it can be accomplished with less concentration of wealth, does that not mean that you against the concentration of wealth?
Please, show me my error. Are you really against stability in revenue?
I don't know how to answer your question, Ken. I've been considering how to look at the demographics of wealth distribution under historical distribution to tax policy, current policy, and proposed. I'm curious what a 1960's distribution curve would look like under current tax law, for instance. But I see a lot of issues with this, so I'm not convinced the insights gained would be worth the effort. And just to make it personal, for me to do it would be a tremendous effort.
excuse me, I meant revenues raised with historical wealth distribution curves. Preview is, a valuable tool.
I'm sorry that should have read
So there is this:
And this:
I promise to his the "preview" button in the future
I offer this from the position of working in finance/accounting/taxes my whole career:
The $500k+ in income crowd has large group who are there only one year-- mostly due to sale of a business (or other large asset). As the tax rate goes up, people will simply revert to legal transaction structures common thirty years ago when avoiding big one-time lumps in earnings was really important. For example, instead of selling your dry cleaning store for $1 mm upfront-- sell if for $200k and sign a four year $220k "consulting" contract with the buyer. Today there is less incentive for perfectly legal stuff like that -- tomorrow there will be.
Business owners under LLC or Sub S are the other big group. Trust me -- for closely held businesses, there are a million ways to take non cash compensation from a business. As rates go up -- people will be more willing to take the IRS audit risk on that stuff.
Trust me -- for closely held businesses, there are a million ways to take non cash compensation from a business.
The Wesley Snipes trial revealed that movie studios could not hire Mr. Snipes to act in their movies. Rather, they paid an LLC, which in turn employed Mr. Snipes to act in movies. Voila! Personal assistants to Mr. Snipes, the chef that provided him with on-set Vegan Curly Endive Lasagna, the luxury hotels on location, the bottles of Evian in the trailer: all business expenses, and perfectly tax deductible to the LLC. And not taxable to Mr. Snipes, who was merely receiving non-taxed fringe benefits or housing and meals "for the convenience of his employer," which of course absolutely insisted that he eat on set and stay in hotels near where the shooting took place.
Naturally, he owned 100% of the LLC.
The curly endive vegan lasagna is soooooo good; and when its tax free, it tastes even better.
the personal services LLC is a pretty common structure in hollywood. Keep that in mind the next time you hear some actor type advocating for higher taxes. Easy to pay higher taxes when you get to deduct as a business expense the cost of the helicopter to the studio.
I'm surprised that such expenses pass the IRS's test for "ordinary and necessary" business expenses, although if Mr. Snipes is "away from home" then meals and hotels should be easily deductible.
The thing that Megan is describing is that the income tax by calculation is a gross receipts tax rather than an excise tax like a sales tax. If one calculated sales tax as a gross receipts tax, and the sales tax was 5%, when one bought a stick of gum for $1, with 5 cents for the tax, the rate would be 0.05/1.05 rather than .05/1.00.
The general formula for converting the gross receipt tax rate into the equivalent excise tax rate is excise rate = 1/(1 - t), where t is the gross receipt rate.
One can do this intuitively. At a 20% income tax rate, for every $4 one gets, the govt get $1, a 25% excise, 25% means the govt gets $1 for every $3, or a 33% excise. At 50% the govt get $1 for every $1 you get, a 100% excise, and from there the tax calculated as an excise zooms, 67%->200%, 75%->300%, 80%->400%, 90%->900%.
If you want to think about the effect of rates on how much revenue the govt will actually get, it is far better to think of the rate in terms of an excise rather than a gross receipts tax. A 900% tariff is a 'protective' tariff, it isn't there to raise any money, it's there to make sure whatever being taxed does not happen, in the tariff case imports of the taxed good.
Once one is over 50% small increases in the income tax rate lead to big increases in the tax calculated correctly. They very well might not get any revenue at all from that surcharge, given that with state income taxes put in, they're over 50%.
What's the big deal? After all, according to Harry Reid taxes are voluntary:
http://www.youtube.com/watch?v=R7mRSI8yWwg
Megs,
Don't you read Yglesias? One of the smarter things he's said recently is that liberals ought to consider raising taxes (by a modest amount) on the rest of us, instead of trying to squeeze the last drop from the rich. He said something to this effect: it's easier to get an extra $500 from everyone else than to get an extra $50,000 from the top .1%. This is pretty intuitive anyway: who makes more money selling cars, Toyota or Ferrari?
Yglesias also noted that the Northern European countries liberals envy for their generous welfare states have more regressive taxes than we do, i.e., liberals should focus more on government spending on the poor and middle class than socking it to the rich with more progressive taxes.
Megan,
You're onto something. Since the election, I've had three clients ask me about the rules related to expatriation (moving out of the US and giving up their citizenship). I don't recall ever having a client ask about that option in the past (other than clients already working overseas). Three is a small sample compared to the total number of clients I serve, but these are among those that I'd have thought would never consider such a thing. One, a Korean War vet, put it: "I never thought I'd feel unwelcome in my own country, but I do." They feel unwelcome and unfairly blamed for problems they didn't cause.
Will any of them move? I doubt it. I also doubt they'll go out of their way to take any new financial risks to earn any more money. When these people, the entrepreneurs with a proven ability to make money, quit taking risks, they quit making jobs for the rest of us.
My wife recently turned down a promotion from $180k/year to $220k/year because it would both keep her away from her children and make us eligible for the household surtax. It just isn't worth it.
Feel sorry for them or not, this tax will bring in far less than is expected necessitating our need to decide whether or not to feel sorry people less and less rich. Add in the fact that the program will turn out, if passed at all (which I doubt anyway), significantly more expensive than advertised, and we can all feel sorry for ourselves.
Just don't cry if you lose your health insurance and then need medical attention.
Megan's got a gigantic hardon for rich whites in nice suits.
I don't know why people focus on just the surtax, when there are so many other problems with the bill's "funding." For one (although I could be wrong), I believe the surtax is designed to automatically increase if the costs are higher than anticipated. So not only will there be no incentive to keep costs down, there will be no direct ballot box pain felt by the people that would impose the increases. That should worry us all; no government should have the power to raise taxes at any time without a vote.
Another problem is that the costs will not be borne only by the "rich." There is also a substantial tax increase on the young in the form of an individual mandate (it could easily amount to 20% on income). People used to argue that young people should buy insurance since it it comparitively cheap for them to do so, but since this bill also enforces community rating, not even that is true.
I feel like I'm living among condemned men, and the Supreme Court has just certified the constitutionality of the death penalty. And, Wow, I'm thinking, not only are they serving chicken strips in the prison cafeteria, but I haven't heard that any element of this plan is the so called 'public option.'
The repeal of the Bush tax cuts will push some taxpayers into the 50+percent total tax bracket. Is America ready?
Is America ready for the tax rates that prevailed between 1994 and 2001??
But of course, once you're nearing a 50% average tax rate, a 5% tax increase is something like a 10% cut in the taxpayer's take-home pay.
Your math is way off here. (Hint: Increasing a bracket by 5% does not result in a net 5% tax increase. In most cases, the actual percentage would not even be close to that amount.)
Your math is way off here. (Hint: Increasing a bracket by 5% does not result in a net 5% tax increase. In most cases, the actual percentage would not even be close to that amount.)
Please explain more fully.
I didn't specify marginal or effective tax . . .
"Should we feel sorry for them? No."
For people paying over 50%? Yes.
I feel sorry for anybody who works hard only to have the government take in more money for their labor than they do. No one should make less money on their own work than the government does.
Isn't this always the argument against corporate fatcats leeching off the working man and getting paid for someone else's labor? Yet it's not wrong if Uncle Sam is doing it...
I will be hit hard by the surtax. No one feels sorry for me - nor should they. My own thoughts: I want to help pay for disease prevention, and I want to help pay for catastrophic illnesses like cancer.
But I have a big problem with paying for treatment of diseases that result from people's own bad choices, like obesity and smoking. There are people who value their fast food and cigarettes more than they value their own health, at least until their health predictably crumbles. And if the surtax means that I am paying for their heart attacks, strokes, respiratory failure, diabetes, lung cancer, joint replacements of hips that are worn out from their increased body mass index, and on and on...I do have a problem with that. Same thing for diseases that result from alcohol and drug abuse: infections, liver damage, pancreas damage, gastro-intestinal damage, and on and on.
At least with Medicare and Medicaid, those costs are shared though our taxes. But if the surtax means that I, because of my high income, am going to foot the bill for the results of other people's bad, bad, very bad health choices...while the majority of taxpayers will not see an increase....I do have a problem with that.
You're happy to spend your (and other people's) money buying healthcare, and you think this gives you a right to dictate other people's lifestyle choices.
Wow. You ARE a piece of work.
Carolyn,
I assume you oppose nearly all welfare except for those cases of the disabled? I mean there are plenty personal life choices (drugs, drink, laziness, gambling) that your taxes are supporting.
I didn't specify marginal or effective tax
In either case, you're still wrong on the math.
This is matter of simple arithmetic, which given your business background should be familiar to you: Apply a given percentage tax increase to only a **portion** of income, while leaving the tax rate unchanged on the remaining income, and the end result will naturally be an increase that totals to something less than the percentage amount.
Even those who are affected by this won't pay that much, particularly if the amount is imposed on AGI, which I would imagine that it would be. You'd still end up with a tax bracket below what we had under Reagan, the supposed hero of the revolution.
No, a 5% increase in the average tax is a 5% increase in the tax on all the income.
California's current budget problems are mostly due to the volatility of the state's highly progressive income tax system. Both Democrats and Republicans agree on this.
High earnings (salaries, bonuses, stock options, S-corp profits, etc.) meant high state revenues. Not so high earnings means much, much lower state revenues.
Again, the wisdom of Texas comes through. We have no State income tax, but porperty taxes are high (often 3%-4% of the home's value). We also have a ~8% Sales tax. Thus, tax receipts are less volatile, and are tied to consumption(you choose your spending and the size of your house), not earnings/value created. A side benefit is that even illegal aliens pay - the landlord gets charged rent, and everyone pays the sales tax.
No, a 5% increase in the average tax is a 5% increase in the tax on all the income.
Again, this is wrong.
Example: If a 5.4% surcharge was applied to gross revenue (the highest amount/ worst case scenario and not how we do it now), here's the math for someone making $1.2 million:
$1,200,000 - $1,000,000: $200,000 (amount of income subject to surcharge)
$200,000 X .054 = $10,800 additional tax liability
$10,800 / 1,100,000 = 0.98% effective increase
So in that scenario, the increase is less than 1%, which is just a fraction of what you're claiming it is.
And again, I presume that this would actually be assessed on AGI, which means that the income subject to tax will be the amount net of 401k payments, deductions, etc. which means that it doesn't really kick in at $1 million of gross salary.
But, but, but...
She didn't say "a 5% surcharge", nor "a 5% increase to the top bracket" nor anything of the kind. Your math is entirely correct, but your assumptions don't match.
You are saying that with a 5% surcharge on the higher bracket the effective increase is 0.9%.
She is saying that with a 5% effective increase someones take home pay drops by 10%.
The two statements do not conflict in anyway.
Perhaps a better way of saying it was
"With an effective tax rate of of 50% any effective tax increase decreases take home pay by double the percentage of the effective tax increase"
Better?
Sorry, a typo above: That last formula should be $10,800 / $1,200,000 = 0.90% effective increase. In either case, nothing close to the face rate of 5.4%.
The biggest problem is what happens when you actually redistribute the wealth. What happens when the wicked rich man is no longer rich and just wicked? He can't pay for your social democracy anymore...
RW, you're talking specifically about the surtax. I was making a broad point using arithmetic. If I had been talking specifically about the surtax, I would have used 5.4%
Your math is entirely correct, but your assumptions don't match.
They're **supposed** to match. We're not talking about hypotheticals here, but an actual news story.
If we are going to discuss news stories, then let's try to be at least a little accurate about the facts.
What you're basically saying is that Ms. McArdle is creating a huge strawman, and you believe that to be a worthy cause.
Well, I would agree with you that it is a huge strawman -- her argument is based upon rather inaccurate math, and is designed to be misleading.
But I would dispute the idea that distorting the facts is a good means to stimulate sound discourse. That only leads to hysteria and gross overstatement, as we have seen on this thread.
The surcharge appears to be a slight variation on the progressive bracket system that we have now, and they're proposing what is effectively an increase in some of the top tax rates. The net result is nothing close to what she is talking about.
It's not a strawman, RW; it's just a hypothetical. For, like, illustration purposes. I believe I was quite clear about the actual math in the next section.
RW,
You need to get that Asperger's treated. Reread what she wrote- she was making a general point about how tax increases are perceived by people that are already at high total tax rates. This is perfectly clear to me, and should have been perfectly clear to everyone that wasn't trying to deliberately misread what she wrote. Here is the relevant section:
I grew up in NYC and eventually moved to NJ because there was no way I could afford a home in the city. I don't remember what the tax rates marginal or other were In the 70s and 80s but I do remember that about 52% of my pay was taken for taxes and the such, a small piece of that was pension but not much. So how much was I making about 65K. I paid more in taxes than many of the girls I dated made in salary. And yes I did everything I could to lower that amount, which is one of the reasons I ended up in NJ :) Supposedly I was in the top 5% of wage earners at that time, what a laugh.
And I have friends that are actively ensuring they are making less than 250k. They are not goiung to bust A__ just to give it to the government. The ones that are going to get hit will be the upper middle lower rich, the trulty wealthy have always had ways to mitigate the effect of taxes.
it's just a hypothetical
Using a exaggerated hypothetical to make a point in the context of a discussion of an actual legislative proposal suggests that you either (a) don't have a good rebuttal/ analysis of the proposal itself or (b) you have such disrespect for the readership that you think that you have to exaggerate and otherwise make stuff up in order to have something to talk about.
Here's a hypothetical that isn't so hypothetical: What's the net effect of a tax increase that doesn't impact 99% of the population, and that results in perhaps a 1-2% net increase on the tiny proportion of those who do have to pay for it?
I realize that my hypothetical -- the one that more closely resembles reality here -- doesn't sound nearly as apocalyptic, so it isn't nearly as much fun.
Which may be the point: the proposal being made isn't all that draconian, after all, and this is much ado about nothing. Since the facts aren't sexy, let's just create a bunch of hype and whip emotions with fiction. Makes me glad that we have an internet.
What, exactly, was exaggerated about it? All she was doing was illustrating, with proper math (and easily understood), how tax increases are perceived differently by people in different total-tax brackets. You simply misunderstood the point she was making, and now are simply refusing to admit that you made a mistake. An honest person would have simply have conceded the point graciously with an "oops, I thought you were describing the surtax in that section, but I now see that I was wrong." Why is that so hard to do?
Jeebuz man.
Fake article: "The new super hybrid gets 75mpg, a great improvement over last years model that only got 65mpg"
Fake Megan: "While these increases sound spectacular, a great deal of more money can be saved by switching a vehicle that gets 10mpg to 15, than by going from from 90mpg to 100"
Fake RW: "This is ridiculous. No hybrid gets 90mpg! You are using exaggerated hypothetical straw man because you do not have a good rebuttal or analysis. Also, you are the devil!"
Oh crap, I just exaggerated reality to make a point. Guess that makes me the devil too.
All she was doing was illustrating, with proper math (and easily understood), how tax increases are perceived differently by people in different total-tax brackets.
It sounds as if she's insinuating that high income earners have lousy math skills.
You simply misunderstood the point she was making
No, I understand it perfectly. It's quite simple -- she's creating a strawman, because the facts aren't nearly as interesting.
She closes the piece with this comment: I'll be interested to see what impact this bill has, if it passes, on Obama's support among the wealthy.
That should make it fairly clear that this discussion is meant to be a proxy for the legislation itself. After all, what bill is she talking about here? Is this the hypothetical, fictional bill that doesn't exist, or is the real bill that just so happens to have a surcharge that, when rounded, equals the 5% that she is tossing around this thread?
It's pretty clear that she's trying to dupe those of you with poor math skills. Which only leaves me to conclude that libertarians just suck badly at math.
That's just racist.
RW:
If your marginal tax rate is 50% and your salary is high enough, your take-home pay is just a bit over 50% of your gross pay.
If the marginal tax rate then goes to 55%, your take-home pay goes down by 10%.
Where's the strawman?
You can't spend your gross pay. You spend your paycheck, which is your gross pay minus your taxes. If the money you have available to spend goes down 10% I guarantee you'll notice.
RW,
You clearly didn't understand her point. If you had, you wouldn't have gone to such lengths with your own mathematical proofs to show that the surtax wasn't a 5% increase in total tax. At most, you would have pointed out to other readers that her example was just a hypothetical to explain the perception of tax increases, not that those level of increases are the ones coming with this particular surtax. Instead, you attempted to show that she had made an actual mistake, then are now falling back on the argument that she was being intentionally misleading and trying to fool her readers, but then you seem to be about the only one that was fooled, except that you now claim you weren't. Which is it?
If the marginal tax rate then goes to 55%, your take-home pay goes down by 10%.
Where's the strawman?
The strawman is that the marginal tax rate is **not** increasing by 5%! I illustrated this above fairly clearly.
A 5% surcharge on a portion of income does not equate to a 5% increase in the overall marginal tax rate, because much of the income is not subject to the surcharge.
But she did not make the argument that the surtax raises total tax by 5%, so the strawman is entirely in your head.
You're right. It's not a marginal tax rate. It's a surcharge. It applies to 100% of gross income.
It would be 5.5% of gross pay. If take-home pay is 50% of gross pay, then take-home pay goes down 11%.
I spent far too much time with a spreadsheet on this.
You clearly didn't understand her point
I clearly did -- she'd trying to dupe you (or maybe she duped herself, too, and pulled you along for the ride), and it worked.
Let's deconstruct this. The piece has five paragraphs.
- The first paragraph is devoted to a specific piece of legislation that proposes a 5% surcharge, as linked in the WSJ article.
- The third paragraph goes on at length (and quite inaccurately) about the impacts of a 5% surcharge, which just so happens to be the amount in Paragraph 1.
- The final paragraph closes with her observation that "I'll be interested to see what impact this bill has, if it passes, on Obama's support among the wealthy," a specific reference to the bill that opens Paragraph 1 and the surcharge in Paragraph 3.
Three specific references to a specific piece of legislation. And you wish to argue that this was merely a theoretical exercise.
Come on, now, this is a classic bait and switch, using a semblance of fact (a 5% surcharge on a small proportion of income) to create a huge distortion (a hypothetical that borrows loosely from the factoid, used in such a way that it results in a much higher number).
Don't kid a kidder, I can see what's up with this. This is how used cars get sold. Not that I'm discouraged: I've got a fantastic Chrysler LeBaron that I'd love to sell you, and I have enough numbers at my disposal to confuse the hell out of anyone who can afford some easy payments.
You are deliberately misinterpreting what she wrote in an attempt to create some sort of "gotcha" debating point. This is the point I and others have been making. The key paragraph was only outlining the perceived effect of increased taxes, not outlining the exact effects of the surtax itself. You are now accusing her of deliberately misleading people, but you have absolutely no evidence of this other than your own guess about her intent.
And, even if one were to grant that the hypothetical should have been directly linked to the surtax itself, using its actual numbers, the provisions of the bills allow the tax to actually increase if the revenues are not sufficient for the intended purpose. In addition to that, there are proposals on the table and/or already passed by one house of Congress or the other, that will have the effect of raising gross tax burden by greater than 5% on those already facing the highest total tax percentage. If she had narrowly focused on just the surtax rather than making the generalized point, one could just have easily accused her of minimizing the impacts of Obama's claims. At some point, a writer has to simply assume the intelligence and/or the integrity of their readers to interpret them correctly without having the belabor every asinine and/or stupid objection one might raise.
RW, seriously. There's no 55% tax bracket. There's no 5% tax. There is no plan to increase taxes on the 15% bracket by 5%. No one except you thought that this was anything other than a hypothetical. No one was mislead. People misread things all the time; there's no reason to dig in and insist that the error must have been mine. You're a valued commenter here, and I'd hate to see this stupid argument come between us.
It's a surcharge. It applies to 100% of gross income.
No, it doesn't apply to 100% of gross income. That's my point -- most of you don't even know what has been proposed, because you're relying upon Ms McArdle's misleading "hypothetical" instead of the actual proposal.
It applies to the AGI (a lesser amount of gross income), and comes on in brackets:
________________
Starting in 2011, the rates would be 1, 1.5 and 5.4 percent. The 1 percent bracket would apply to AGI above $350,000 for married couples ($280,000 for singles). The 1.5 percent bracket would apply to AGI above $500,000 ($400,000 for singles). The 5.4 percent rate would apply to AGI above $1 million ($800,000 for singles).
http://www.ctj.org/payingforhealthcare/surchargeproposalwaysandmeans.pdf
________________
As I noted above, you've been duped, arguing about something that hasn't been suggested. Yancey Ward must think you're a maroon, because he's apparently the only person who understands it.
I've done my taxes before. I hate it. I know what AGI is. All income taxes apply to AGI.
Unless you do the curly shuffle and finagle your W-4 by your estimate of your deductions and any investment income (better not be too far wrong, or there will be penalties!) your take home pay will go down. Then, if you have enough deductions, (joy of joys!) you'll get a refund. (Oh happy day, I'm so grateful to get some of my own money back!)
If the "surtax" only applies to income above a threshhold then it's really an increase in marginal tax rates, no?
God I hate doublespeak.
I hate doublespeak.
After all this, I think that you're all missing the real story here, namely: why is this being labeled as a "surcharge"? Why not simply increase the tax brackets?
I suspect that a couple of things may be going on here:
-The long-run goal is to make this a separate source of funding, similar to FICA payments, that can be segregated and changed (increased) accordingly
-There are other intentions to increase income taxes by 2011, with this being used to preserve the option to layer this surcharge on top of other increases in the brackets themselves. By avoiding a change in the brackets now, they won't be accused of changing the brackets twice.
I'm not going to debate the merits of that. But from the standpoint of political gamesmanship, I find this approach interesting.
As a Canadian who is used to watching jobs and businesses flow to the USA because of its better tax structure and standard of living, I'm amazed at how quickly the tables are turning.
By the end of the first Obama administration, Canada will have lower taxes overall, a smaller government measured as a percentage of GDP, a 15% corporate tax rate, no inheritance tax, and dividend and capital gains taxes roughly half of those in the United States. And if cap and trade passes, we'll have lower energy costs as well.
From experience we Canadians have learned that being next door to another first world country with lower and less progressive taxes will be a magnet for businesses and wealthy individuals.
People advocating higher taxes in the U.S. should be paying careful attention to what their neighbor to the north is doing. We learned our lesson in the 1970's and 1980's.
Only our much smaller size (economically speaking) will prevent a massive brain drain and financial transfer from taking place.
What will certainly happen is that our own brain drain of engineers, doctors, and nurses will come to an end. To the destriment of the US economy.
Canada is more vulnerable to "brain drain" because the barriers to escaping Canada taxation are lower (they are growing, but still lower). A Canadian need only establish enough residency and economic ties abroad and sever them in Canada. That is an automatic brake on the system getting too greedy.
To get the same economic benefit, an American would have to fully emigrate and renounce US Citizenship. Doing so requires marking assets to market and paying an exit tax on accumulated gains, whether real or nominal. It's a substantial hurdle, but one that will begin to appeal to more and more Americans of means, especially if they can get out before the capital gains tax doubles. It is also a hurdle applying to our most productive green-card holders. How many of them will stick around?
Time to revive George Harrison's "Taxman", famously written upon discovering the delightful 95% tax rate in effect (and presumably written before discovering extensive tax shelters):
Let me tell you how it will be
There's one for you, nineteen for me
...
Should five percent appear too small
Be thankful I don't take it all
First they came for those who made more than 350,000 a year, and I didn't speak up because I didn't make more than 350,000 per year.
Then they came for those who made more than 250,000 per year...
Do we really have to feel sorry for someone to object to taking their money because we can?
At least we know now where they plucked the $350,000 figure from. Apparently it is the cut-off for the top 1.4% of AGI. That allows the proponents to: a) with rounding, claim the scheme applies only on the "top 1 percent", while b) picking up 40% more people than the real 1 percent cut-off would.