Soak The Very, Very Rich

[hedgehog]

Between 2002 and 2007, for instance, the bottom ninety-nine per cent of incomes grew 1.3 per cent a year in real terms—while the incomes of the top one per cent grew ten per cent a year. That one per cent accounted for two-thirds of all income growth in those years. People in the ninety-fifth to the ninety-ninth percentiles of income have represented a fairly constant share of the national income for twenty-five years now. But in that period the top one per cent has seen its share of national income double; in 2007, it captured twenty-three per cent of the nation’s total income. Even within the top one per cent, income is getting more concentrated: the top 0.1 per cent of earners have seen their share of national income triple over the same period. All by themselves, they now earn as much as the bottom hundred and twenty million people. So at the same time that the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich.

The current debate over taxes takes none of this into account. At the moment, we have a system of tax brackets well suited to nineteenth-century New Zealand. Our system sets the top bracket at three hundred and seventy-five thousand dollars, with a tax rate of thirty-five per cent. (People in the second-highest bracket, starting at a hundred and seventy-two thousand dollars for individuals, pay thirty-three per cent.) This means that someone making two hundred thousand dollars a year and someone making two hundred million dollars a year pay at similar tax rates. LeBron James and LeBron James’s dentist: same difference.

This makes no sense—there’s a yawning chasm between the professional and the plutocratic classes, and the tax system should reflect that. A better tax system would have more brackets, so that the super-rich pay higher rates. (The most obvious bracket to add would be a higher rate at a million dollars a year, but there’s no reason to stop there.) This would make the system fairer, since it would reflect the real stratification among high-income earners. A few extra brackets at the top could also bring in tens of billions of dollars in additional revenue.

There would be political advantages, too: the reform could actually make tax hikes on top earners more popular. Critics like to describe tax hikes as hurting small business, because small-business owners make up a sizable percentage of people in the top two brackets and because small-business owners, unlike Wall Street traders, are popular on Main Street. It would be harder to mount a defense of millionaires, which may be why this year a Quinnipiac poll found overwhelming support, even among Republicans, for a millionaire tax.

Read more http://www.newyorker.com/talk/financial/2010/08/16/100816ta_talk_surowiecki#ixzz0wmDzG600


Now why didn't I think of this!

[daylan b]

1. Capital Gains

Why do people obsess so much over the top marginal tax rates and ignore the capital gains rate (where the truly wealthy make their money) of 15%?

[prairierose]

2. Mostly because the ignorant or complicit media,

I am not sure which they are in this case, spend all of their time yammering about income taxes. And the cons spend all their time yammering about income taxes because they do not want anyone to look at capital gains taxes. I think that it is partly misdirection on the part of the cons and in the case of much of the media, absolute ignorance. They often know so very little about the subject they are reporting about that they do not know the right questions to ask.

[Selatius]

3. It's an easier battle to win.

Anybody going out to raise capital gains taxes would face monumental opposition, both from outside as well as from inside the Democratic Party. There are too many right wingers in Congress to make such a gambit feasible at the current time, so most would rather choose to talk about marginal rates because it's a far easier battle to win.

[daylan b]

6. Agreed but it aint the slightest bit right.

It's insane to focus on taxing earned income that is already taxed on a progressive structure while ignoring our regressive tax structure for unearned income.

[Coyote_Bandit]

5. What makes somebody rich?

Is being rich a measure of net worth or a measure of income? Or some combination of the two?

It is, after all, entirely possible to have millions of dollars in assets and be completely unable to earn an income and provide for oneself. For example, folks who recieve large tort settlements/verdicts after disabling injuries. Why should these folks be taxed on their assets? Why should someone who sacrifices and saves throughout their lifetime have the product of their efforts (their savings and investments) taxed? Why should an estate be taxed and then the proceeds of that be estate taxed when traded?

It is a fallacy to think that capital gains tax is only a tax on the increase in value of an asset or investment. How so? Because the computation of capital gains tax does not consider or in any way index the value of the initial holding to its sale price. The dollars initially invested likely do not have the same purchasing power at the disposition of the asset as they did when it was acquired. That is especially true if the asset has been held for an extended period of time.

In terms of relative value a 1985 dollar is now worth about two dollars. But if you invested $10,000 dollars in 1985 and sold the asset today for $15,000 you'd be recouping 25% less in relative value and paying capital gains taxes on $5,000 for the privilege. What a fucking deal.

Capital gains tax fails to consider both relative value of an investment and the earning capacity of the owner. It is a badly flawed tax as it presently exists. Far better IMHO to have and enforce a progressive tax on earnings. Tax the income, allow very few deductions and exclusions and then permit folks to either consume their earnings or invest it without further tax consequences.

Just my opinion.

[daylan b]

8. So you think people who work for their money...

...somehow have less of a right to their money than those who make it via passive investment?

Your second paragraph applies to earned income just as much as it does to unearned income.

[Coyote_Bandit]

16. Capital gains taxes

should be indexed to the purchaing power of the dollars originally invested and the capital gains rate should be tied to the earnings ability of the individual being taxed.

If an investment/asset doesn't yield dollars with the same purchasing power as the dollars originally invested then it ought not be taxed. A long-term investment should not produce diminished purchasing power and also carry a fucking tax. That is a policy that encourages consumption rather than savings and investment.

Someone with taxable annual income in excess of a million dollars a year (or whatever threshold you want to set) ought to have capital gains taxed at a higher rate. A progressive tax rate on capital gains that is based upon cash flow whether for a sigle tax year or averaged over several years of earnings. This recognized that a dollar of gain has more value to a low income wage earner than to someone who has high annual wages.

My opinion is based on several years of work in the financial industry. Among other things, I managed monies and assets held by some of those disabled folks who completely lacked the ability to earn an income. Often their disability benefits are insufficient to provide basic needs. So they face the challenge of making what they have yield enough to provide for them for the remainder of their lifetime. That is a challenge that is almost impossible with a capital gains tax that is not indexed to the purchasing power of the dollars originally invested. It is a problem that tends to cause managers to favor short term holdings rather than long term investments in order to reduce capital gains build up within the account - and that is a strategy that often lmiits returns.

It is wrong to assume that the only folks paying capital gains taxes are the wealthy. They also include disabled folks trying to survive. Average folks who somehow managed to save a few bucks and now find it necessary to liquidate that investment to pay medical bills. Average everday homeowners. Folks who find their property being taken by eminent domain.

[daylan b]

17. One thing I'll agree with you...

"the capital gains rate should be tied to the earnings ability of the individual being taxed."

That's where I'll agree with you. The capital gains rate should be the same as the income tax rate.

If you feel there should be exemptions for people who receive judgements, that's a different issue.

I'm saying that it is bass ackwards to tax anybody who makes more than $34,000 at a higher rate for ACTUAL WORK than somebody earning a passive income.

[TheKentuckian]

24. Then exempt a certain portion, say the first 36k or so?

[daylan b]

9. To answer your questions.

Is being rich a measure of net worth or a measure of income? Or some combination of the two?

A combination of the two and both should be taxed but taxing net worth is not constitutional at the federal level.

Why should these folks be taxed on their assets?

The same reason everyone one of us pays our fair share. As mentioned, taxing assets at the federal level is unconstitutional. Capital gains doesn't kick in until you sell the asset and even then it's only the net.

Why should someone who sacrifices and saves throughout their lifetime have the product of their efforts (their savings and investments) taxed?

The same reason somebody who busts their ass going to work every day and makes a penny more than $34,000 is taxed at a higher rate than the billionaire who inherited his fortune and only checks in with his investment banker from his yacht.

Why should an estate be taxed and then the proceeds of that be estate taxed when traded?

Because the person who earned the income is no longer alive and when it is transferred it is income for the person who receives it.

[pnwmom]

4. Excellent piece. Thanks, Hedgehog! n/t

[Cal33]

7. I think the super-rich should be made to give back the profits

that Bush made them a present of. Bush robbed the middle-class to make
the super-rich still richer. Legally it might not have been a crime, but
morally, it sure is!

[glitch]

10. Marinade?

What's recommended for the other other white meat? KIDDING!

[blindpig]

11. Popularity appartently doesn't count for much any more...

Exiting the Middle East would be popular

Single Payer health care would be popular

Putting the hammer to BP would be extremely popular

Putting the hammer to the Finance Sector would be wildly popular

But no, the unwashed masses will not sway this administration. What could those fools have to say that is more relevant than what Goldman Sachs has to say?

[ProgressiveProfessor]

12. Should we tax income, capital gains, or current value?

All of which have pluses and minuses. Bear in mind that capital and earning are very mobile and can move readily in a global economy.


Its a wide open discussion regardless of your leanings.

[daylan b]

15. Re:Taxing current value

Take a minute to read up on direct taxes and the reason the 16th ammendment was necessary. A tax on current value would have be given back to the states based solely on population.

[ProgressiveProfessor]

18. True, but that would free up other Federal funds (per those who support that approach)

[closeupready]

13. This will never happen with the self-dealing Congress people of both parties which we have now.

The only direction the tax system will go is to become flatter, like a pancake, since the vast majority of Congress members are themselves millionaires.

[deaniac21]

14. They would just move their money somewhere else.

[ProgressiveProfessor]

20. Income and captial flight is a serious issue. NJ is trying to get some investment

firms to leave NYC on that basis alone.

[Oceansaway]

19. K&R...n/t

[Octafish]

21. Soak them very, very much.

No offense to the rich, but they've gotten the lion's share since Pruneface was a pup.

[hedgehog]

22. I thought I was up on this issue, but this line really shocked me:

"the top 0.1 per cent of earners have seen their share of national income triple over the same period. All by themselves, they now earn as much as the bottom hundred and twenty million people. "

Unless I misplaced a decimal point, 309,000 people earn as much as another 120,000,000 people. I say earn, because this number doesn't address the question of how much these people already have and hold. Put another way, the top 0.1% earns as much as the bottom 38%. The effect on the economy is not a simple matter of taking the money and dividing it among more people. The very rich can't spend all the money they earn, so in effect it goes out of circulation. The people on the bottom spend their money, so a given dollar passes though multiple hands. The rich guy buys McDonald's, thereby becoming even richer on the profits. The poor guy eats at McDonald's, so the guy who works at McDonald's has the money to buy his kid a pair of shoes, so the guy at the shoe store can afford a car, so the auto worker can buy groceries, etc, etc. (I offer this as a broad example with no intention about getting into whether anyone in the example is paid a living wage and/or whther the shoes are imported from China.)

[Greyhound]

23. K&R for laughs!

Like the rest of America, we don't pay much attention to this issue. We'd much rather argue over cartoons and which republik is crazier than the other.

Perhaps it's because we all know that none of the people we elected to change this cluster-fuck have no intention of changing anything at all.
:kick: & R