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Hyperbole! It’s going to kill us all!! Part 1: Marginal Tax Rates & Soaking the Rich

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posted on Feb, 22 2019 @ 09:41 PM
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It appears daily we must read one politician or another, or worse, one “journalist” or another opine on subjects ranging from immigration to drug legalization, constitutional issues to global warming, even capitalism to socialism (or communism/fascism etc.). Most often these are arguments that lack facts, are subjective, and leave even the most intelligent of us fighting in brief blurbs on twitter or in comments sections over semantics or snippets of quotes. No real conversations are had, and many of us cannot even come to an agreement on basic truths.
Hence this series; here I will attempt to spell out an admittedly biased point of view, using unbiased data and references. I hope it will allow us to move past basic sticking points in arguments and allow for more fulfilling debate as we head into yet another election cycle. I hope to see a healthy conversation, and I look forward to further debate on many of the coming topics.


Marginal Tax Rates


It has been slightly amusing to me to hear some newly anointed politicians talk about marginal tax rates in the same way that a grade school teacher patiently explains primary colors to a 4th grader. I think that many people are aware of what marginal tax rates are, however, I think it important to spell out exactly what they mean in a numerical sense. Some politicians have called for a 70% rate, and some have even called for a 90% rate on people making over $10m annually. It is important to realize that we have had both of these rates in the past, and the 70% rate was in effect as recently as 1981, although the $10m figure seems to be an arbitrary one. As you will see, the numbers do not jump randomly from X% to 70% or higher, they incrementally move up with income, ending at the highest rate and staying there. I also admit that I have not considered donations, tax breaks, and other random tax laws, as this is not the point of the exercise. I do not believe that those who are advocating for these rates are doing so in hopes that the individuals who meet these thresholds will find ways of avoiding the taxes- quite the contrary, I think they believe too many people are not paying their “fair share” as it is.
Let’s look at this, using both rates up to 70%, and 90%, for married filing jointly. I will be using data from 1981, inflation adjusted to 2013. (as a last note, although politicians have called for the highest marginal rate to be at $10m annual, I am using the latest applied 70% marginal rate as the template, setting the cap to jump to $10m, which I know it would not do) There are multiple sources for this data set, I just chose the easiest to read on my phone. To the right will be the final tax bill, with the total wages leftover after, with the final wage being $100m for the sake of math. Lastly, I added in the $30m salary that Manny Machado recently signed for in sunny San Diego.


So what have we come up with? Well, we know that the current marginal tax rates set the top rate at almost 40% at $440,000. However, it is inevitable that there will be a graduated scale similar to the one above, as historically that has been the case when the federal government wants to increase taxes- both the graduation and the amounts. In the above example, we see that at both the 70 and 90% tiers the effective tax rate for the entire sum is almost 70 and 90, respectively. As a matter of fact, the difference is negligible- so the next time someone tells you that you don’t understand marginal tax rates, tell them they don’t understand math. Also note that the tax rates rise for nearly everyone, and especially hit hard the “middle class”, where they and the upper middle class have now moved to the top of the current tax pyramid. Currently, the average taxpayer makes $74,664, and pays $10,489 in state and local taxes- as you will se below, the average taxpayer will now pay $16,900 in combined taxes, an increase of roughly 60%.
But why would the federal government raise tax rates on everyone? And wouldn’t the argument be that this scale is fair, as the effective tax rate (the far right column) is the real tax rate?
I’m so glad you asked, invisible person! First, personal income taxes have been the primary means by which the federal government has raised money since their inception. There are many arguments for why this is, but I will stick to one train of thought. Corporations are not human beings, but they are not machines, either. They are organizations whose sole purpose is to gain and maintain capital for its shareholders. Corporations, in fact, have a fiduciary responsibility to make as much money as possible-something even left leaning democrats and their supporters need to happen. Because of this unavoidable fact, corporations are likely to pass any taxes off to the consumer, seek tax breaks or incentives, move to countries that offer tax shelters, or commit to low risk investments.
Why doesn’t the individual just invest their money- it helps the economy and limits their tax exposure? First, lets point out that as we just acknowledged with corporations, there are limited ways to invest in such a horrible tax environment, as most companies will be limiting their exposure in both losses and profits- the returns would be extremely low, and most likely not be the types of investments that people claim will create jobs. Secondly, why can’t a person choose to spend their money on leisure items? The person building expensive watches, cars and homes tends to be a master at their craft and makes more than the person who is just starting out, so if that person were able to keep more of their money, they would spend it and help more people- this is really a punishment against those we envy. But I digress, so lastly, why would someone choose to invest in anything other than the safest of treasury bonds? If you had, for instance, $100, and you knew that as a profit that money would be taken from you at a 70% rate- would you rather invest in a low yield bond that gave you pennies, or risk losing all $100 on a high risk restaurant (as an example), knowing that even if you were successful, you would have to give up 70-90%, and if you were a failure you lost 100%?




edit on 22/2/1919 by ThouArtGod because: Adding table

edit on 22/2/1919 by ThouArtGod because: Syntax error




posted on Feb, 22 2019 @ 09:43 PM
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originally posted by: ThouArtGod


Yup it's a real soaker alright 😎
edit on Feb-22-2019 by xuenchen because: requested



posted on Feb, 22 2019 @ 10:10 PM
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a reply to: ThouArtGod

One final point on taxes- remember our chart? Well I did not add in our beloved state taxes. Let’s look at those now, can we? We can use the most populace state, California, as the example. Using our same chart from above, let’s add those state taxes, shall we?



Talk about “paying your fair share”. Under the current tax code, those mega wealthy taxed at 70% will see $2m on $10m a year, $5.25m on $30m a year (that’s for you, Manny!), and a person who clears $100m will now only make $324,000- you read that right, making $650k will net you the same money as making $100m. But that’s better than the 90% marginal tax rates- using those and you will now make negative money anywhere near $10m (I didn’t bother with the math here, it just made me sad). If you dare go higher, you will owe money you can never make- I hope you never had dreams of hitting the power ball!

So, what is the other option? I mean, if the country is getting their income from personal income taxes, what should we do? The answer is quite simple- we lower the taxes and stop spending so much.It is a fact that the U.S. government lowering taxes increases revenue. Period.
That said, making money doesn’t help you if you are also spending too much money. Both parties are responsible for spending problems, that is for sure, but taxing the wealthy, the upper middle class, or the corporations will not answer the problem. Lower income taxes and we increase receipts. It’s a fact. Next, we lower corporate taxes to bring companies to the U.S. or keep them here. Lastly, we stop or lower spending at the federal level over time and pay down our national debt. Then we talk about spending money on other things, like healthcare (already 1/3 of government spending) and future infrastructure.
Please feel free to comment of posit an argument below. I will not acknowledge arguments that revolve around feelings.
-Man from Mars

edit on 22/2/1919 by ThouArtGod because: Grammar



posted on Feb, 22 2019 @ 10:11 PM
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a reply to: xuenchen

Could you please delete that for me? It's my first thread, and they (these two posts) are meant to be joined. Thank you!



posted on Feb, 22 2019 @ 11:51 PM
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a reply to: ThouArtGod

Applause for taking the time to flesh out what marginal tax rates mean.

However, I must point out that you have begun a thread that you have also effectively killed by posting it.

It's actual math and facts.

This is something as a business owner I have pointed out for the last 20 years to people.

Nobody listens because most of our citizens have the attention span of a hummingbird on crack and they can't get past a headline.

The Laffer Curve is not understandable to our citizens anymore... you are talking about something magical and incomprehensible to them.

So again I applaud your effort.... hell of an OP.

Let's hope someone else wanders in with a difference of opinion and we can have an actual debate.




edit on 22-2-2019 by Lumenari because: (no reason given)



posted on Feb, 23 2019 @ 12:02 AM
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a reply to: Lumenari

Thank you for the post, and the compliment! Truth be told, it took me quite a while to build that spreadsheet, only because I wanted the math to be spot on. Being my first thread, I also had to learn how all the buttons work, and I wanted to ensure I used as many appropriate and accurate sources as possible.

As for people arguing? I don’t really care- I would just like for it to get enough flags that ATS members see it, bookmark it, and have it available for times when they are debating others on the subject. If it does get enough attention, I will continue the series with the same level of attention to detail and factual data as this one.

-The Man from Mars



posted on Feb, 23 2019 @ 01:46 AM
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The first thing anyone rich is going to do when you impose draconian taxes is to move out of the state or country that imposes then or use creative accounting to avoid most or all of the punitive tax increase. Also, “rich people” operate on net worth not income like regular people. You will never be able to tax their actual wealth effectively nor should we as a society be out to punish people for being successful.
edit on 2019/2/23 by Metallicus because: Sp



posted on Feb, 23 2019 @ 02:01 AM
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a reply to: Metallicus

While I do agree that these type of “progressive” taxes are in fact draconian, it has become the latest drum beat of the far left- tax those whom make “make more than they need”. The issue I find amusing (or scary) is asking the progressive, who gets to make the decision on which person or people make “too much”. As with all crony capitalists it will never be those with whom their politics agree, so Hollywood elites and almost all professional athletes will never be touched as long as they toe the party line and make the right private donations and public overtures.
That said, as you can see in the charts and the links provided in the OP, there are actually plenty of wealthy people who make enough to trigger the cap on this tax. If we took the 90% route, we would see individuals and couples in California pay 98% or more of their earnings in taxes.
Seeing as there is more than enough evidence to prove that lower taxes means more revenue for the treasury, I cannot understand why the urge to tax more. I only agree with the argument against selective tax breaks to bring in individual companies- if you understand that the lower taxes bring in companies and increase revenue, then by golly, lower taxes for all companies!

-The Man from Mars
edit on 23/2/1919 by ThouArtGod because: Grammar



posted on Feb, 23 2019 @ 02:26 AM
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a reply to: ThouArtGod




this is really a punishment against those we envy.


As I said in another thread recently - who decides who is worthy of risking their capital and heaven forbid make a profit.

When is it too much 500K, 1 Mill...how did they get in the position of making 10 mill a year - was it through questionable business practice ( ie no-bid fat Govt contracts or knowing the local Mayor etc ).

Where do you draw the line. It as you have said the culture of envy.

100 mill and your left with 30 mill. No wonder they seek offshore tax shelters or create these fake Foundations.

Talking points by pollies to get in - then they enjoy there privileged position



posted on Feb, 23 2019 @ 02:45 AM
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It's not fact lowering taxes increases government revenue and that article, despite it claims, does not show that.

Look at the chart it uses as evidence. It shows total tax revenue against top marginal rate. It does not account for economic growth or the effect of other taxation over that period.

To be clear I don't support very high marginal rates of income tax for a number of reasons but the claim that reducing taxes will automatically mean more government revenue is not supported.
edit on 23-2-2019 by ScepticScot because: (no reason given)



posted on Feb, 23 2019 @ 02:59 AM
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a reply to: ScepticScot

The top 1% of tax payers account for over 30% of the taxes received, the top 5% for over 50%, the top 10% for 80%- income tax accounts for over 50% of all taxes collected, corporations for 7%... so yes, I’d say the chart does prove exactly that. I’ll not insult you (meaning I’m not trying to be patronizing here), but some reading requires some critical thinking as well. Seeing as the argument was “lowering tax rates equals more government revenue”, and the chart shows lower tax rates (whether it’s the top marginal or not- it’s still taxes, and a relevant portion at that) led to increased revenue, I don’t see how the argument failed.
- The Man from Mars
edit on 23/2/1919 by ThouArtGod because: To complete a sentence



posted on Feb, 23 2019 @ 03:07 AM
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originally posted by: ThouArtGod
a reply to: ScepticScot

The top 1% of tax payers account for over 30% of the taxes received, the top 5% for over 50%, the top 10% for 80%- income tax accounts for over 50% of all taxes collected, corporations for 7%... so yes, I’d say the chart does prove exactly that. I’ll not insult you (meaning I’m not trying to be patronizing here), but some reading requires some critical thinking as well. Seeing as the argument was “lowering tax rates equals more government revenue”, and the chart shows lower tax rates (whether it’s the top marginal or not- it’s still taxes, and a relevant portion at that) led to increased revenue, I don’t see how the argument failed.
- The Man from Mars


Absolutely let's apply some critical thinking to the chart.

First of all it covers 1960 to 2010.

What was the US population growth over that time?



posted on Feb, 23 2019 @ 05:03 AM
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I dont know how anyone else feels about it....but I think every citizen, when all is said and done.... should at least pay $1 in tax a year.
I don't mind giving a lil more to help cover my countrymen that have less than I do... But I would like to see every adult at least giving a dollar...I dont even think saying $20 a year is being unreasonable. .. but I bet I would be told by some that is a completely unreasonable thing to say..... expecting everyone to at least pay a dollar!!! How Dare You!!!!!

Wonder how many people consider themselves taxpayers.... yet get a tax return larger.. than the amount that was withheld from their checks.



posted on Feb, 23 2019 @ 05:49 AM
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Soaking the rich is unconstitutional.

Too bad that 'data' doesn't take in to account the Alternative minimum tax, and the capital gains medicare surtax.

Standard tax rate,alternative minimum tax,mcg tax.

Triple taxation.

RBG exposes just how unconstitutional it is from their latest ruling.


edit on 23-2-2019 by neo96 because: (no reason given)



posted on Feb, 23 2019 @ 07:36 AM
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The people who need to read this post the most are the same people that believe wealth generation is a zero sum game despite 10,000 years of evidence to the contrary.



posted on Feb, 23 2019 @ 11:14 AM
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a reply to: ThouArtGod

If as you say lower taxes means more revenue for the treasury, why not just do away with tax altogether? Everyone would be happy surely?

As you pointed out high tax rates just makes the extremely wealthy avoid paying by using ofshore accounts and dodgy accounting practices, as was revealed in the Panama and Paradise papers. So I think a better plan would be not to tax them at all. Like with amazon and google not paying any tax in the UK despite earning fortunes from that market because their headqaurters were not based in the UK.



posted on Feb, 23 2019 @ 11:19 AM
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a reply to: neo96

I didn’t go into the other tax schemes, merely the “marginal tax rates” as a point of argument. I think our whole tax code sucks in general, and should be completely rewritten as a flat tax, or sales tax.



posted on Feb, 23 2019 @ 11:26 AM
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a reply to: ThouArtGod

The income tax should be abolished.

The medicare capital gains surtax should be abolished.

The Alternative minimum tax should be abolished.

Then tax credits/ and rebates get abolished.

Instead of people being lied to for no other reason than creating class warfare.



posted on Feb, 23 2019 @ 11:33 AM
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a reply to: projectvxn

I couldn’t agree more! I believe that if most people were aware of what benefits came from wealth generation, then families would commit to this concept and refrain from frivolous spending. Unfortunately the government doesn’t think people should be able to pass down wealth, as it is inherently “sit” of some type. I like seeing the wheat separated from the chafe, as some families can blow entire fortunes in a few years time- it’s like Darwinism but with money; whereas for many it provides generations of education and business opportunity.
-TMfM



posted on Feb, 23 2019 @ 11:47 AM
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a reply to: surfer_soul

If you are being serious, then I will answer.

First, I think that all income tax should be abolished- a sales tax would create equality of taxation, even out markets and labor advantages from low rent countries that abuse labor and environmental practices, and be unavoidable. It would also eliminate double and triple taxation. Just eliminating all income tax and not replacing it with anything would not fill coffers- that is stretching the argument and mocking any real point I’ve made. We all know you can’t get something from nothing.
As far as amazon and google- let me ask you a real question; why should we tax a company on profits that have already been taxed? Pick an item- let’s say corn syrup, for the sake of an argument.
The corn farmer was taxed when he bought seed, fuel, tractors, etc. Also paid a property tax. Then after she grew her crop, she paid tax on fuel, supplies, etc. to get them to market. Then they were taxed when it was sold on any profits they made.
The plastics company that made the bottle did the same, but include all steps in the petroleum portion.
Now let’s tax the company that processed and bottled the corn syrup.
Now the company that transports it.
Now we are going to tax amazon, after we already charge a sales tax, and tax their employees and tax all their properties and shipping? This while knowing their profits go to find private and public pensions, when the public pensions will have to be made up (unfunded pension liabilities) if they don’t hit their target? Why? To punish some guy who owns a percent of the company, one that he put all the risk into developing in the first place?
Yeah.... no.
-TMfM



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