OK, Ok, Ok already. Lets take him at his word: Obama Claus WILL, give everyone health care, educate everyone, subsidize new energy, bail out the automakers, nationalize the banks, give pay raises to teachers and military, reduce subsidies on farmers, cure cancer, cut the deficit in half, etc, etc… And then not increase taxes on the 98% of taxpayers below 250K. Assume all this as given:
So the question is what do you think the marginal income tax rate would have to be on the other 2% of taxpayers to pay for all of this?
we will calculate one tax rate at a time my friend. first we destroy the upper class, then we will kill businesses after that.
Far out I think a agrarian society would be cool man
My marginal tax rate is already 50% and I would still have voted for Obama if America allowed me to vote. That said simplification and enforcement of the tax code would get almost everything on that list - you don’t need to raise taxes on the 2% but actually force the 0.2% to pay tax.
hell yeah on enforcement!!! Let’t turn that up!!! Oh nevermind, the guy over tax compliance (Secretary Geithner of Treasury) is an admitted tax cheat. Great pick Obama!
Can I ask whether you are self employed and have tried to navigate the 60,000 page tax code single handedly? I am not trying to excuse Geitner but have no difficulty believeing honest mistakes get made:
I arrived in the US 2 and a half years ago to a good job. My firm (who should be pretty adept at such things) failed to take the correct deductions from my paycheck and it took a weekend of google for me to determine this and correct them. I then paid an extremely reputable CFA $500 to prepare my year end taxes and he screwed them up. I got an irate letter from the IRS, apologized profusely and was let off.
My residency status changed again this year and my firm failed to fix my deductions. This was eventually sorted.
I got married this year, am filing jointly and realized that my wife has inadvertantly been claiming an innappropriate % of her home computer as a deduction (again on CFA advice). It’s fixed now but we probably owe the US fifty bucks or so.
My point is that I am virtually certain that most Americans would not pass the kind of scrutiny cabinet appointees go through with a completely clean report. Sometimes it stinks, sometimes it’s innocent but human nature being what it is why not just take the temptation away and simplify the code?
That leaves aside the issue that there are whole areas of tax law that the IRS don’t understand or haven’t got to grips with. Those are the areas exploited by many extraordinarily wealthy people to reduce their tax rate to a pittance. Instead of trying to check whether every American claimed dependent-care tax credit for ineligible summer camps (one of Geitner’s “big sins”) why not free up the IRS to look at ooh I dunno - carry in the private equity industry?
So the question is what do you think the marginal income tax rate would have to be on the other 2% of taxpayers to pay for all of this?
I think you would be surprised at exactly how small of an increase this might be. The top 5% currently pay around 60% of all the income tax. Let’s just say for shits and giggles that obama really means that 95% of Americans won’t see a tax raise.
Every 1% increase in top tax margin for the top 5% means total tax revenues from income tax increases by .6%. A 5% margin move would increase revenue by 3%.
Obama’s “Campaign Promise” included an 11.5% increase on the top .1%, an 8.7% increase on the top 1% to .1% and no increase on the top 1% to 5%.
Let’s Just say do to dire circumstance he drops everything by a bracket causing an 8.7% increase on the top 5% and 11.7% increase on the top 1%. This means the Top 1% would go from a 35% bracket to 39% and the top 5% would go from a 35% to a 38%.
Assuming I dun my mathoarithmitic correctly you’re looking at around 6.36% increase in revenue to the treasury for income tax.
The above also clearly illistrates why a “Flat tax” would never pass in this country. Because in order for the bottom 95% to make up for what the upper 5% gets we’d in essence have to jump up to nearly their rate.
The top .1% pay 35% of all taxes and only earn 16% of the income. Based on the IRS data they are paying taxes and more than their fair share. What does "actually force the .2 to pay tax.
Without knowing your source it’s hard to give a complete answer but I suspect at least one huge hole in your logic is what qualifies as income. Most extremely wealthy people do not treat income as income and luckily for them neither does the IRS - see para 3 of the link below. That 20% differential is only a part of it when you add in state and city taxes.
Warren Buffet’s challenge: I’ll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists.
EDIT AGAIN: - first link seems broken - this is from another article on the same topic and makes the point even more succinctly:
Carried interest is the main way partners in private equity and venture capital–and some hedge funds–are paid. The outside investors in a fund give the inside partners a share of profits (an interest) as compensation for their work. Compensation, whether the weekly pay of wage slaves or risky executive remuneration like stock options, is usually taxed as regular income at rates as high as 35%. But for reasons having mainly to do with the muddled history of partnership law, carried interest is taxed instead at the 15% capital gains rate.
Warren Buffet’s challenge: I’ll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists.
Unless they are paying their receptionist a whole lot of money Buffet would loose that bet. Unless you’re including “Social Security and Medicare” which I think is a specious argument as you get WAY more back than you ever put in, the amount paid by the bottom 50%, those that make around 32K or less is around 3%. In essence those that make less than 32K a year pay no tax.
I don’t see how it’s possible to “deduct” your way to a 3% federal tax rate if you’re making 300K a year, even if that 300K comes via a business, investments or other than a payroll check.
OTOH there would be some discrepancy when including SS because there is a cap on SS. So the worst possible scenario is to be making around the the level of the SS cap which is around 102K IIRC, in a two income household. At that point you’re making around 204K, in the second highest bracket and also paying 7.65% in SS/M.
You are at that point likely in the top 5% wage earners and also likely making most of your money via a paycheck or small business.
I can believe there is a possibility that some extremely high income folks are paying a lower effective rate than say someone making 250K, but you’ll have a hard time convincing me they are paying a lower effect federal rate than someone making 30-40K.
You are assuming income stays the same for said top 2%…plus keep in mind they may pay the bulk of the taxes, but they don’t make the bulk of the income (in relation to the portion of taxes they pay).
Not sure I agree that including Social Security and Medicare is specious (at 28 I’m cynical about these things) and I also suspect many receptionists would earn a lot more than 32K. With those reservations I agree with you but don’t think it detracts from the argument that there’s no good reason why Warren Buffet has a lower effective federal tax rate than I do (with or without Social Security and Medicare) and no good reason why only some people get to have their income treated as capital gains.
I fully recognize the value of incentivizing people to get wealthy but don’t think that and a fair and logical tax code are irreconcilable.
Funny my source is the IRS, yours are newspapers. Why don’t you go to IRS.gov and look it up, its right there for you. I tend to not get my facts from newspapers.
Wow - no need to get testy. This stuff is my job but for obvious reasons I’m going to back up my arguments with publicly available information. Please send me a link to the IRS source which shows that your previously quoted income statistic includes carried interest.
FYI the IRS admitted last month that in 2006 the top 400 earners in the US earned $105B gross and paid $18B in tax. Average Federal rate of 17% being the lowest ever recorded (it was 30% in 1995).
Check that with your IRS deepthroat and see if he disagrees.
My own back of the envelope math:
105B x 0.33 = 34.7B
34.7B-18B = 16.7B of federal tax that the US missed out on from 400 people in 2006 alone.
I am not some foil hat wearing class warrior they are just the facts.
Not sure I agree that including Social Security and Medicare is specious
It is in the sense that A) someone making 30-40K would get more back than they put in, in fact most people do. B) if they removed the cap the supposed lower rate would not exist as everyone would have to pay the same on SS, however someone making 500K would be getting a serious bone put to them as they would get the same amount in “Benefits” as the person making 40K but pay in 12X more.
and I also suspect many receptionists would earn a lot more than 32K.
Depends on where you are, what company and what branch I suppose. We have local companies that are part of the forbes 400 and I doubt their receptionist are making that much.
**With those reservations I agree with you but don’t think it detracts from the argument that there’s no good reason why Warren Buffet has a lower effective federal tax rate than I do (with or without Social Security and Medicare) and no good reason why only some people get to have their income treated as capital gains. **
If a persons income is based solely on “Capital gains” then why should it be taxed as payroll income? You may be making the argument here that that should be the case, but your going to run into a real hard sell there. The money is generated entirely differently and fulfill completely different roles in the economy.
I fully recognize the value of incentivizing people to get wealthy but don’t think that and a fair and logical tax code are irreconcilable.
I don’t either but I also don’t buy the idea that the “Rich” are somehow paying WAY less than they should be. I’m sure there are some mega rich people out there that spend an aweful lot of time figuring out ways to get out of paying taxes and may get their effective tax rate pretty low but even if you throw in SS they’d have to get it below 7%. I think that is REALLY hard to do in any case considering the lowest capital gains rate is 15%.
