Proferred without comment:

>

click for ginormous graphic

>

Source:
Coming Soon: ‘Taxmageddon’
DAVID LEONHARDT
NYT, April 13, 2012

http://www.nytimes.com/2012/04/15/sunday-review/coming-soon-taxmageddon.html?pagewanted=all

Category: Digital Media

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “Tax (Break) Day”

  1. cognos says:

    There are a bunch of simple problems with usual “tax stats” and most tax discussions:

    1) Its makes no sense to separate “federal income tax” from FICA. We might as well just consider “all federal tax”. On this basis the current system is VERY regressive over a few 100k.

    2) It makes no sense to talk about “tax filers”. The classic “bottom half of tax filers” points… these cover every $5,000 earner (I think the avg for the bottom half is like 7,000). This is every student, every retiree, every part-time worker. This is a 14-year old who starts umpiring baseball games. Every unemployed person, etc. Typical head-of-household full-time income earners… these ONLY reside in the “top half” of all filers.

    3) Why is “cap gain” any different from income? It makes no sense. It opens up all kinds of loopholes for executives (and high tech workers) to income shift. Its silly… all income should be taxed the same.

    4) The worst of tax loopholes is that very wealthy people have MANY ways to report ZERO income. You cannot get to this by manipulating rates or deductions. One must consider other ways… like property taxes, wealth taxes, luxury taxes on jets and condos, off-shore taxes, etc. One must consider that MANY small businesses pay for the partners — Jets, meals, wine, travel, etc. All in the name of “business”. Its grotesque and its weird that the citizenry allows it in the name of “small business”.

    I work for those “small businesses”. Except we call them “hedge funds” and the boss makes $100mln+, pays Mitt Romney style taxes (15% ish).

    As Leona Helmsley said, “only the little people pay taxes”.

  2. gman says:

    Well put cognos!

  3. gman says:

    When going over my entertainment expenses for the year w/ my timid accountant, I reminded him of the 200k credit card recepeipt that surfaced after the Alternate Investment conference in Vegas..FROM A STRIP CLUB! I am sure that made it somewhere as “legitimate entertainment expense for small business” on some entities tax return.

  4. RW says:

    What Cognos said: It’s certainly fine to focus on how the income tax breaks out — the complex ways in which advantage is given and taken away is a worthy subject — but it’s too easy to forget the income tax is not always, in fact frequently is not, the greatest tax burden a family faces.

    For example, the greatest overall marginal tax burden remains solidly on the poor, the working poor in particular, who typically pay far more tax than anyone else as a percentage of income.

    Failure to explicitly acknowledge (or at least give a clear nod) to this in tax-focused articles can lead the inattentive or gullible to eventually believe there is actually something to the “we are the 53%” and “us taxpayers are supporting all those freeloaders” nonsense.

    Do the Poor Really Pay No Taxes? (http://tinyurl.com/y535yww)

    The 53% Myth: Working Poor Pay More Of Their Income In State And Local Taxes Than The Rich In 49 States (http://tinyurl.com/6swqyuh)

    The Poor Pay The Highest Marginal Rates In The Country (http://tinyurl.com/6qgfjj5)

  5. gordo365 says:

    I love the chart. It puts the “But half the people don’t pay any income tax” into perspective.

    When I run into that gripe – I usually counter with – “If we change system so that everyone pays SOME income tax – even if it is just $1 – would you be willing to give up mortgage interest deduction, tax deferred retirement benefits etc.?” Usually – answer is “No”…

  6. Iamthe50percent says:

    @cognos “Why is cap gain different” The answer is inflation. The ordinary income brackets are indexed for inflation, but cap gain really is different. Consider buying a property or stock in 1950 for $50,000. Now it is sold in 2011 for $60,000. Is there really a gain of $10,000? Or a loss of about $440,000 (2011 dollars).

    With modern tax programs it is trivial to implement inflation-adjustment of basis. THEN ordinary income rates should be applied to the true gain or loss. That would eliminate the incentive to play games with restricted stock and options, along with the artificial distinction between long term and short term gains since December 2011 inflation factors are known well before April 2012. Workers have to wait until February to get their W-2′s to file, why shouldn’t investors have to wait until February for the December inflation figures as well?

    There never was a reason to treat dividends different from interest.

  7. theexpertisin says:

    I know of no tax system in the world that is fair. Tax avoidance in the world is practiced more successfully than tax collection.

    Expecing the US to buck this reality is foolish. Believing politicians who utilize class warfare with taxation as a center piece of election strategy is downright naive, for it is never tax fairness. It is tax power.

  8. Equityval says:

    This graphic does a good job showing you where the money is and why Obama is running around braying about the Buffett Rule. The Buffett Rule is about the 80% of the $78B of capital gains and dividend tax breaks claimed by the 1%, or in round numbers $60B. There are almost $1T of tax breaks in the chart, so the Buffett Rule is chump change in the bigger picture. The real money in tax breaks is in the group between $100K and 500K of income. If you going to raise revenue, those are the people that are going to carry the water. Obama doesn’t want to talk about that inconvenient truth, which is why he wants to distract everyone with the incessant blather about “millionaires and billionaires”. Still peddling gimmicks rather than leadership on the deficit.

    One last thing, Obama paid a lower tax rate than his secretary.

  9. cognos says:

    The idea that there is “no money at the top”. Must also be wrong.

    If the top 1% of people earn 50% of income (and pay 30-40% of tax)… there is plenty of money at the top.

    Furthermore, there is ALOT of income that is unreported. So again, its difficult to estimate how much tax could be collected from the top 0.1 or 0.2%. Many of whom are not even shown.

    What is the value of ALL US real estate? (Lets say its $40T… I’d say, its more.) Than what if we did a 1% tax on all real estate… and cut the income tax… in half? It would certainly balance tax rates more toward the wealthy — golf courses, vineyards, beachfront estates, large city office buildings. Currently, this type of real estate wealth is given “tax shelter” status through depreciation silliness.

  10. cognos says:

    All that said on “how to collect taxes, especially from the wealthy”.

    The basic principles of:

    1) Low, flat, simple tax rates!

    2) Less govt waste! (its enormous)

    Should be non-partisan and universal. Stop all the govt waste. Its a damn shame we lost Nader to silly issues and politicking. Its a damn shame Ron Paul is such a kook. Both are most effect at crusading against WASTE!

  11. mhjhnsn says:

    The other reason to favor cap gains is risk–when you buy an asset there is no assurance it will appreciate. Even in a zero inflation environment, there should be allowance for risk.

    One could argue that the risk premium should be embedded in the asset price–fair enough, but the equivalent could be said about almost any tax preference–absent the intervention the market would establish a fair price–mortgage deduction, medical expense deduction, education deductions and credits, on and on. And that would all be fine, and honest and consistent. Make it all one marginal rate with a generous standard deduction and it’s the Flat Tax.

    But once you start down the path of tax preferences, and we as a society decided long ago that we’re going to do that, you wind up with tax subsidies for everything you want to encourage–and inestment is no different.

    I pretty much agree with Iamthe50percent re dividends–very little reason to give them a preference except to boost the stock market and I would argue that is NOT a legitimate governmental purpose.

    Anyway, the chart is almost meaningless because it doesn’t tell me the shares of total income, reported income, taxable income, and taxes paid that go with each group–so how am I to parse the data shown? I can read anything I want into it, depending on my prejudices. Is 6.3% of exclusions going to the top 0.1% of filers an outrage or no big deal or not enough? The chart doesn’t give me enough info to make a judgment except if I believe that the top 0.1% should just be expropriated, or go untaxed altogether. Anywhere in between, I need more information.

  12. AmericanObserver says:

    What sticks out most in this chart is that the largest “tax code expenditure” in the chart’ seems to be on Exclusions on income earners between $106,552 and $545,727, the 95% of the top 20% income earners (without any breakdown within).

    HOWEVER, I am almost certain this chart is ignoring some significant “exclusions” which go to the lower earners, which most Americans are not even aware of.

    For example: while most Americans buy their food and pay for their housing from their net income, for which FICA, Federal, State and local income taxes were deducted, Food Stamp benefits are totally tax free, as is housing assistance, either in the form of public housing, section 8 or other types of assistance. Other welfare benefits are also tax free, in addition to lower utility rates for recipients of such benefits. Medicaid and other government subsidized health benefits, are so rich (they cover many OTC medications too, and have no co-pays or very low co-pays), that a comparable private insurance policy would be in excess of $2,000 per month for family coverage!

    I know a large family which fell on hard times and is now earning only about $20,000 a year. The total social/welfare benefits received would cost over $70,000 per year if they were to pay for it out of pocket. The problem is that if they were to earn another $30,000 they would probably be disqualified from most of the welfare benefits they receive, and if they wanted to pay for their own benefits out of pocket, they would have to earn almost $100,000 more than they currently earn just to break even with the benefits they get!

    Something is very wrong with this. I have no answer to the welfare problem, but our tax system is messed up. It needs to be totally scrapped and written in a simple and fair way. The FairTax proposal seems to make a lot of sense, taxing consumption only, and giving a prebate, so that poor families end up with no tax burden. There is no discrimination based on type of income.

    I would possibly augment that with an expatriation flat tax, which would impose a flat tax on any funds moved out of the US.

  13. Greg0658 says:

    1st I’ll say something nice – I like the chart – seems correct and informative

    2nd I’ll say something insightfull (imo):
    - low & flat taxes lets winners build up steam and stiffles competition – this highly engineered world is tough to break into .. if you let them – capitalist are an invasive species (they must – its in their dna)
    - keeping a family alive thru subsidies (as in AmObserv post) is somepersons (corporation) income stream to an extent … I like to remind us all – every alive Livestock is a sale of something tomorrow (people are Livestock too) .. the point of contention is who pays to keep them alive … Most Importantly HOW … to not keep Livestock alive is either; war, food production, or plain old desist care (which in people is war)